|SECURITIES
AND EXCHANGE COMMISSIONWashington, DC 20549FORM 10-KSB
|-----------------------------------------------------------------

|[X] |  | Annual
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|--- |  | ------------------------------------------------------------------------------------

|For the fiscal year
ended May 31, 2001, or
|------------------------------------------

|[  ] |  | Transition
report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|---- |  | ----------------------------------------------------------------------------------------

|For the transition
period from_____________ to_____________


Commission File No. 0-15030


WINTER SPORTS, INC.
(Exact name of registrant as specified in its charter)
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Montana(State of Incorporation) | 81-0221770
 (I.R.S. Employer I.D. No.)
|------------------------------- | --------------------------------------

|P. O. Box 1400,
Whitefish, Montana 59937


Registrants telephone number,
including area code (406) 862-1900


Securities registered
pursuant to Section 12(b) of the Act:


None


Securities registered pursuant
to Section 12(g) of the Act:


Common Stock, No Par
Value


Check whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months, and (2)
has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]


Check if there is no
disclosure of delinquent filers pursuant to Item 405 of Regulation S-K contained
herein, and no disclosure will be contained, to the best of registrants
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [  ]


Registrants revenues
in its most recent fiscal year were $12,901,851.


Approximate aggregate
market value of the voting stock held by non-affiliates of the registrant as of
August 15, 2001 was $13,841,352. As of August 15, 2001, the number of shares
outstanding of the registrants common stock, no par value, was 988,668.



DOCUMENTS INCORPORATED
BY REFERENCE
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Location in Form 10-KSBPart III, Item 9, Item 10
Item 11, Item 12 | Incorporated DocumentProxy
 Statement dated September 14, 2001to be filed with the Securities andExchange Commission for the annual meeting
of shareholders to be held on October 9, 2001.
|----------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Total number of pages, including
cover page 28         Exhibit Index - page 25


1
|----------------------------------------------------------------------------------

|WINTER SPORTS, INC.


Form 10-KSB


Table of
Contents
|-----------------------------------------------------

|           |    | Page                                                       
|---------- | -- | -----------------------------------------------------------
|Part I     |    |                                                            
|           |   
|Item   1 - |    | Business                                                   
|           |   
|Item   2 - |    | Properties                                                 
|           |   
|Item   3 - |    | Legal Proceedings                                          
|           |   
|Item   4 - |    | Submission of Matters to a Vote of Security Holders        
|           |   
|Part II    |   
|           |   
|Item   5 - |    | Market for Common Stock and Related Stockholder Matters    
|           |   
|Item   6 - |    | Managements Discussion and Analysis of Financial Condition
|           |    | and Results of Operations                                  
|           |   
|Item   7 - |    | Financial Statements                                       
|           |   
|Item   8 - |    | Changes in and Disagreements with Accountants on Accounting
|           |    | and Financial Disclosure                                   
|           |   
|Part III   |   
|           |   
|Item   9 - |    | Directors and Executive Officers of the Registrant         
|           |   
|Item 10 -  |    | Executive Compensation                                     
|           |   
|Item 11 -  |    | Security Ownership of Certain Beneficial Owners and        
|           |    | Management                                                 
|           |   
|Item 12 -  |    | Certain Relationships and Related Transactions             
|           |   
|Part IV    |   
|           |   
|Item 13 -  |    | Exhibits and Reports on Form 8-K                           
|           |   
|           |    | Exhibit Index                                              
|           |   
|           |    | Exhibits                                                   
|           |   
|Signatures | 26 |                                                            

|2
|-

|Part I



Item 1.  Business


Winter Sports, Inc. d/b/a
Big Mountain Ski and Summer Resort (the Company or Big
Mountain), was organized in 1947 as a Montana corporation, for the purpose
of developing and operating a ski resort at Big Mountain, located eight miles
north of Whitefish, Montana.


Operations are carried out
on nearly 4,000 acres of land at that location, approximately 3,073 acres of
which are utilized under permits from, and the supervision of, the U.S.
Department of Agriculture, U.S. Forest Service (the Forest Service).
The balance of the land is owned by the Company. Revenues are generated from
lift ticket sales, ancillary services, management agreements and fees and
rentals charged concessionaires and other parties leasing space for buildings
and concessions. In fiscal 1993, real estate sales became a significant business
segment with the creation of Big Mountain Development Corporation. The Company
owns approximately 600 acres in and around its base area which is available for
resort activities as well as commercial and residential development.


The ski facilities include
eight chairlifts, two T-bar lifts and a platter lift, which service
approximately 45 miles of ski slopes and trails. In addition to the skiing
facilities, the Company also operates the Hibernation House (hotel facilities),
Big Mountain Sports (ski rental, repair and ski shop) and a Ski School, all
located in the base area, as well as the Summit House (retail) located at the
summit of the mountain and the Outpost (ski shop and skier services operation)
at the lower village near overflow parking lots. The Company has leased to
concessionaires food and beverage operations, a day-care center, a photography
shop, a snowmobile operation and a sleigh ride, wagon ride and summer horse back
riding operation. Revenues derived by the Company from these ancillary
operations, other than the ski facilities and real estate, represented 33.26%,
30.44% and 33.51% of total revenues in 2000/01, 1999/00 and 1998/99,
respectively. The Company has an all beverage liquor license and is designated
as a resort area for the issuance of additional resort retail liquor
licenses.


During the fiscal year
ended May 31, 1999, Big Mountain Development Corporation completed construction
of Kintla Lodge, a mixed use condominium facility located at the entrance to the
base area village. The facility consists of twenty residential condominiums,
five commercial condominiums, lobby and owners lounge. At May 31, 2001,
two residential condominiums remain available for sale. During fiscal year ended
May 31, 2000, Big Mountain Development Corporation purchased and developed a
portion of the Companys fee simple land into the Moose Run subdivision
which consists of one single-family lot and 52 town home lots. At May 31, 2001,
five town home lots remain.


The Company operates its
facilities for skiing and related winter activities from approximately
mid-November until the following mid-April of each year. During the ski season,
the Companys facilities are operated seven days a week. During the past 50
years, Big Mountain has averaged approximately 140 days of skiing operations
annually. A snowmaking system and improved grooming equipment and technology
have lessened the reliance on natural snowfall in recent years; however,
sufficient snowfall to operate the lifts and slopes remains a primary
consideration.


The Company also operates
on a limited basis from early June through early October. This operation
consists of a chairlift/gondola ride to the summit for sightseeing, hiking,
rental and retail, hotel and recreational facilities.

3
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|The Companys business
is primarily seasonal. A significant portion of its gross revenue is derived
during the winter ski season. Real estate sales can occur on a year-round basis.
The Company maintains a year-round staff of approximately 80 employees. During
peak ski season, approximately 460 additional persons are employed. During the
limited summer operations, approximately 140 additional persons are employed.


Located at or near the base
area and on the access road to Big Mountain are privately owned condominium
developments and a number of private homes, many of which are available for
public rental. Other accommodations are available in the Flathead Valley. The
ski area is served by an all weather secondary highway.


The ski resort business is
highly competitive. The success of Big Mountains business is predicated on
skiing, which is affected by weather and other factors, such as the economy,
cost and availability of transportation, energy shortages and the Canadian
exchange rate. The profitability and growth of Big Mountains ski operation
is largely determined by the number of skiers attracted to the area. The Company
believes that its principal competition for skiers comes from other destination
resorts throughout the western United States and western Canada. Some of the ski
resorts continuing to be competitive with Big Mountain are Whistler-Blackcomb in
British Columbia, Sun Valley and Schweitzer Basin in Idaho and Big Sky of
Montana. In addition, Canadian ski resorts such as Lake Louise and Sunshine in
Banff are considered strong competition. The Company also experiences
competition from a number of smaller regional ski areas, but believes it has a
competitive advantage over them because of the greater variety of skiing it
offers, its larger facilities, the length of its season and its extensive
snowmaking and grooming operations.


The land occupied by the
Summit House and the Companys lift sites are subject to a 38-year term,
special-use permit from the Forest Service expiring December 31, 2038, covering
approximately 18 acres. Approximately 3,055 acres are covered by a year-to-year
Forest Service permit. These permits do not create a legal interest in favor of
the Company on the subject lands. The continued use of these Forest Service
lands is subject to certain hazards, common to all ski areas developed on such
lands, including federal business guidelines. The Forest Service at any time may
terminate the permits under which the Company operates, upon payment of an
equitable consideration for the improvements. Both permits require the allowed
use to be actually exercised at least 90 days per year. The Company is obligated
to pay yearly fees to the Forest Service on a graduated rate based on the gross
fixed assets of the Company and on certain income. Such rates are adjustable
every year. The current rate is 1.96% of applicable revenues. Payments for
fiscal year 2001 were $91,596. Payments in 2000 and 1999 were $117,654 and
$95,683, respectively.


In carrying out its
business, the Company must comply with a number of requirements concerning
environmental quality. Advance approval from the Forest Service must be obtained
for all construction, land alteration and significant repair, in addition to
obtaining approval from other state and federal agencies regarding the
protection of the environment and wildlife within the permitted areas. In
1985-86, the Company undertook a major expansion to build a chairlift and ski
slopes on the previously undeveloped northern slope of Big Mountain. As a result
of this expansion, restrictions for north slope lifts and slopes were imposed by
the Forest Service covering the length of the ski season on those slopes, time
periods for construction and restriction of outdoor cooking at the mountain top
restaurant during the summer season. Since 1990, the Company has pursued
additional expansion of ski terrain and additional amenities to offer customers
within its permit area and in 1996 a Record of Decision was issued by the Forest
Service approving most of the expansion items requested.

4
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|The Company had three
wholly-owned subsidiaries. Big Mountain Water Co., a regulated utility, supplies
water to all base area facilities and nearby properties. Big Mountain
Development Corporation was activated in September 1991 to oversee and
coordinate the planning and real estate activities of certain land parcels owned
by the Company. Big Mountain Resort Reservations was created in 1996 to provide
reservation services for on-mountain lodging properties. The Company dissolved
this entity during fiscal year 2001 due to no activity.



Item 2.  Properties


The properties owned or
leased by the Company are located eight miles north of the City of Whitefish, in
the northwest corner of the State of Montana, in the Whitefish Range overlooking
the Flathead Valley. The Flathead Valley lies on the western slope of the
continental divide of the United States and is bordered on the north by the
Canadian provinces of British Columbia and Alberta.


In the winter of 1947, the
Company opened a T-Bar lift, ski slopes, day facilities and parking lots for use
by the public. Since 1947, chairlifts, ski slopes, trails, a cross country
course, dining and lodging accommodations were added periodically. In 1988-89
the one and one-half mile Big Ravine run from the summit to the village area was
constructed and in 1989-90, a major expansion project included the construction
of a high-speed detachable quad chairlift/gondola to replace the first double
chairlift. Also added in that year were a snowmaking system, grooming vehicles,
a warehouse and maintenance building, expansion of the Summit House building,
burial of utility lines and clearing of slopes and trails. Additions in 1990-91
included a barn, a mountaintop maintenance shop and tennis courts. Also added
were building improvements and snowmaking. During 1991-92, 22 condominiums
located in the base area were acquired for the purpose of resale. By the end of
1995 one of the condominiums remained unsold and was taken off the market. Also
in 1992, initial planning costs were incurred prior to Big Mountain Development
Corporation developing a portion of the Companys fee simple land into
single-family home lots and townhouse lots for the purpose of sale to third
parties.


During 1992-93, the Village
Lift, a fixed-grip quad chairlift, was constructed. Other additions included
parking lots, two Alpinglow Inn condominium units, a bus, improvements to
buildings, land, trails and roads, and snowmaking. Real estate lots began to
sell in 1993. During 1993-94, the Company built a new lower village day lodge
facility of approximately 8,900 square feet. The facility contains a cafeteria,
ski rental and retail shop, ski patrol facilities and ticket office. Four
townhomes were constructed for sale. Facility improvement projects in 1994-95
included hotel residing, grading of the road to the Outpost Building,
fabrication of a village stairway, completion of 14 additional single family
lots, and the addition of a real estate sales building. Improvements in 1995-96
included paving of the road to the Outpost Building, remodeling of the rental
and retail facility in the base area, extension of the upper terminal of Chair
#6 to improve access to the village, and an additional pumping station for the
snowmaking reservoir. Improvements in 1996-97 included an 8 mile mountain bike
trail from the summit to the base area, the purchase of two customer shuttle
vans and the acquisition of a vehicle for road sanding. During the year the
Company also completed 14 additional single family lots in Sunrise Ridge.


During 1997-98 the Company
replaced Chair 7, a fixed-grip triple chairlift, with a high-speed quad
chairlift. The former fixed-grip triple chairlift was redeployed into the
Hellroaring Basin which allows guest access to an additional 500 acres of
terrain. During the year a lift was installed which transports guests to the top
of the Companys tubing hill. The Company also purchased two new grooming
vehicles to add to the existing fleet of front-line groomers. A second 4.5
million gallon reservoir was completed near the summit of the mountain. In the
first quarter of the year, Big Mountain Development Corporation began
construction of a 52,000 square foot mixed use condominium project at the
entrance of the Companys core village. The project, known as the Kintla
Lodge, contains 20 residential condominium units, an owners lounge and
lobby, and 5 retail or commercial condominium units.

5
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|During 1998-99 the Company
replaced the liner in its primary upper-mountain snowmaking reservoir, replaced
the haul rope on its Glacier Chaser chairlift, installed new underground fuel
tanks, purchased a new Bombardier groomer for its front-line fleet and replaced
approximately 33% of its rental inventory of skis, snowboards and related items.
The Company also finished construction of Kintla Lodge.


During fiscal year 2000,
the Company remodeled its guest services building, completed a turnaround at the
entrance of the base area village, replaced approximately 33% of its rental
inventory of skis, snowboards and related items. The Company also installed a
fiber optic backbone and T-1 line to enhance communications throughout the
Company.


For the fiscal year ending
May 31, 2001, the Company implemented an integrated resort-wide ticketing
software package. This has allowed the Company to achieve better demographics of
the guest at the resort as well as give the Company the opportunity to provide a
more seamless experience for the guest. The Company also installed a new T-Bar
lift which gives access to approximately 20 acres of new terrain on the eastside
of the mountain. Improvements were made to the Hibernation House, an economy
hotel-like property owned by the company. Three units were purchased in the
Alpinglow condominum building in the village core. These units will be placed in
the rental pool. A new groomer was added to the existing fleet as well as
replacement of some of the computers, rental inventory, and vehicles. The
Company also invested in new activities for the guest to enjoy while visiting
the mountain throughout the year. A mechanical bull was added to one of the
concessionaires facilities; archery, new mountain bike trails as well as
Thrill Sleds.


On March 19, 2001, the
Company announced that Hines Resorts, a division of international real estate
firm, Hines, was selected as the developer for the village at Big Mountain Ski
& Summer Resort. Plans call for a pedestrian-scale village with more than
700 residential/lodging units, at least one hotel, condominiums and town homes,
employee housing, as well as additional commercial space and a conference
center. Pre-sale efforts should begin at the end of the summer, 2001 and
continue into the winter months.


On May 1, 2001, the Company
purchased an existing property management company which managed properties
adjacent to and in the village core. The Company entered into a non-compete
agreement with the former owners. The Company also retained one of the former
owners in the role of a consultant for a period of one year from the date of
sale. The Company plans to continue operating the business as it had been in the
past.


The Company operates on
4,000 acres, approximately 3,073 acres of which are owned by the United States
Forest Service and are subject to their special-use permits. Substantially all
of the Companys assets, excluding lands designated for real estate
development are encumbered to secure the Companys loans. See Note 5 of the
Notes to Consolidated Financial Statements.

6
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|The lengths and capacities
of the Companys ski lifts are as follows:
|---------------------------------------------------------------------

|Lifts             | Type | Number *     | Vertical Rise | Rides/Hour
|----------------- | ---- | ------------ | ------------- | ----------
|Glacier Chaser    |      | Quad Chair   |               | #1        
|Swift Creek       |      | Double Chair |               | #2        
|Tenderfoot        |      | Triple Chair |               | #3        
|Great Northern    |      | Triple Chair |               | #4        
|Glacier View      |      | Triple Chair |               | #5        
|Village Lift      |      | Quad Chair   |               | #6        
|Big Creek Express |      | Quad Chair   |               | #7        
|Hellroaring       |      | Triple Chair |               | #11       
|T-Bar #1          |      | T-bar        |               |           
|T-Bar #2          |      | T-Bar        |               |           
|Platter           |      |              |               |           
|Powder Puff       |      | Rope Tow     |               |           

|* Chair numbers refer to
numbers assigned in The Big Mountains Resort Area Master Plan.


The Companys major buildings
are as follows:
|----------------------------------------------------------------------------------------------------------------------------------------

|                                   | Square Footage
|---------------------------------- | --------------
|
|Ski Lodge                          |               
|Chalet                             |               
|Alpine Lodge                       |               
|Bierstube                          |               
|Big Mountain Ski Shop              |               
|Hibernation House                  |               
|Summit House                       |               
|Ski Hut                            |               
|Maintenance Building               |               
|Warehouse and Maintenance Building |               
|Ticket Sales Building              |               
|Barn                               |               
|Maintenance Shop on mountaintop    |               
|Outpost Building                   |               
|Marketing Building                 |               
|Kintla Lodge Retail Space          |               
|Sherpa Pool                        |               
|GVPM Office building               |               

|Item 3.  Legal
Proceedings


The information appearing
in Note 13 of the Notes to Consolidated Financial Statements is incorporated
herein by reference.


Item 4.  Submission
of Matters to a Vote of Security Holders



No matters were submitted
to a vote of security holders during the fourth quarter of the fiscal year ended
May 31, 2001.



Part II



Item 5.  Market
for Common Stock and Related Stockholder Matters


The Companys common
stock is traded on the NASDAQ Over The Counter Electronic Bulletin Board under
the symbol WSKI.

7
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|The following table sets forth the
range of quarterly high and low bid quotations for the Companys common stock for the
last two fiscal years. High and low bid quotations have been supplied by D. A. Davidson & Co.,
Inc., a registered broker-dealer. Such over-the-counter market quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commissions and may not
necessarily represent actual transactions.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 2001 | 2000
| |  | ---- | ----
|
| |  | 1st  |     
| |  | 2nd  |     
| |  | 3rd  |     
| |  | 4th  |     

|No cash dividends have been
paid on the Companys common stock since 1984. The declaration of dividends
is subject to certain restrictions contained in the loan agreement between Bank
of America National Trust and Savings Association, doing business as Seafirst
Bank and the Company. These restrictions prohibit the payment of cash dividends,
other than for preferred dividends or fractional shares, without prior written
consent of the Bank.


The Companys Board of
Directors authorized a stock repurchase program on May 19, 2000. Under this
program the Company could repurchase up to 40,000 shares of the Companys
outstanding common stock at prevailing market prices from time to time over the
next six to eight months. The Board of Directors renewed this program on
December 20, 2000 for an additional six month time period. The program ended
subsequent to year end. The Company repurchased 19,700 shares under this
program.


The approximate number of
shareholders of record for the Companys common stock as of August 15, 2001
was 719.


Item 6.  Managements
Discussion and Analysis of Financial Condition and Results of Operations



The following relates to
the fiscal years of the Company.


RESULTS OF OPERATIONS


Revenues


In 2001 consolidated
revenues decreased by 15% or $2,271,615. The decrease is primarily due to the
decrease in real estate sales of $1,523,206 or 32% from 2000 to 2001. A decrease
in lift revenue of $420,932 or 7.26% from 2000 to 2001 also contributed to the
decrease in revenues. The reduction in available town home lots as well as no
available single family lots caused the reduction in revenues. The Company
expects this trend to continue. Revenue from lease, management and other fees
increased by $37,220 or 1.65%. The increase is due to increased reservations and
property management fees. The Company expects this trend to continue with the
purchase of the property management company in the fourth quarter of the fiscal
year. Revenue from equipment rental and repair decreased by 8.16% or $63,333 due
to decreased skier visitation.


Skier visits decreased by
34,543 or 12% in 2001 due primarily to poor snow conditions during the first
half of the ski season. During the fiscal years ending May 31, 2001 and 2000,
the Company offered for a limited time a discounted season pass program. The
Company saw improvement in its Canadian markets over last year, but the weakness
of the Canadian dollar still contributes to lower visits than were previously
experienced. The Company does not believe the weakness in the Canadian dollar is
permanent; however, it is unclear as to when an improvement in the Canadian
exchange rate will occur. The Companys four major markets are: the local
drive market, the Pacific Northwest, the Midwest and Canada. The Company plans
to continue and expand its marketing programs in all of its markets.

8
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|In 2000 consolidated
revenues increased by $2,585,139 or 20.5%. The increase is primarily due to the
increase in lift revenues of $1,247,995 or 27.4%. An increase in real estate
sales of $936,882 or 24.5% was also a contributing factor. The increase in real
estate sales was due mainly to sales of town home lots in Moose Run as well as
sales of single family home lots in Sunrise Ridge. Revenue from Lease,
Management and other fees increased by $832,008 or 50.1%. This increase was
primarily due to the reclassification of income from Food, Beverage, &
Retail to Lease, Management, and other fees due to the Company entering into a
management agreement for the food operations. The increase is also due to
increased reservations and property management fees generated by the increased
skier visitation over the previous year. Revenue from equipment rental and
repair increased by 23% or $143,402, due to the Companys guests renting
rather than purchasing ski and snowboard equipment and increased skier
visitations.


Skier visits increased by
63,326 or 28% in 2000 due primarily to the Companys increased marketing
efforts.


Operating Cost
& Expenses


Operating costs and
expenses in 2001 were $12,649,483 compared to $12,296,368 in 2000. The $353,115
or 2.87% increase was primarily attributable to the decrease in costs of real
estate sales coupled with an increase in Direct expenses. The increase in Direct
expenses  Lifts is due to rising energy costs and the incremental costs of
the addition of the new T  Bar lift during this ski season. The increase
in Direct expenses is due to increased maintenance costs of maintaining our
facilities along with rising energy costs.


Interest
Income/Expense and Other Income/Expense


In 2001, interest expense
was $287,388 compared to $388,766 in 2000, a 26.1% decrease. The decrease was
due to a lower level of debt during the first half of the fiscal year as well as
the lower interest rates. There was no capitalized interest in 2001 compared to
$4,516 in 2000.


During 2000, the Company
received $124,908 from the sale of timber that was selectively thinned from the
Companys land holdings, which began in 1999.


During 2000, interest
expense was $388,766 compared to $565,677 in 1999, a 31.3% decrease. The
decrease was the result of a lower level of debt throughout most of fiscal year
2000 on the Companys operating line of credit as well as the repayment of
the loan payable to Whitefish Credit Union for the construction of Kintla Lodge.


Big Mountain Development
Corporation charged against income during 2000, $193,043 of Construction in
Progress costs related to planning that are not expected to be utilized within
the foreseeable future.

9
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|Income Taxes
and Net Income


The pre-tax net loss in
2001 was ($15,028) compared to a pre-tax net income of $2,385,983 in 2000. The
income tax expense generated from the net operating loss in 2001 was ($5,700),
producing an effective tax benefit of (38%) compared to an effective tax rate of
37% in 2000.


Net income (loss) in 2001
declined to ($9,328) or ($.01) per common share from $1,497,980 or $1.49 per
common share in 2000.


The pre-tax income in 2000
was $2,385,983, a $3,027,513 increase from 1999. The income tax expense in 2000
was $888,003 compared to an income tax recovery of $204,221 in 1999.


LIQUIDITY AND
CAPITAL RESOURCES


At the end of fiscal year
2001, working capital was ($1,564,930) an increase of $281,022 from 2000. The
increase in working capital was primarily due to a decrease in Accounts Payable
and an increase in Inventory and Accounts Receivable. The ratio of current
assets to current liabilities at the end of 2001 was .48 to 1, an increase from
 .40 to 1 at the end of the previous year. Cash flows from operating activities
decreased to $1,541,877 from $5,306,220 in 2000 due primarily to a decrease in
net income for the Company.


Working capital at the end
of 2000 was ($1,845,952), a decline of $1,317,975 from 1999. The decrease in
working capital was primarily due to an increase in Accounts Payable and an
increase in unearned income from the increased sales of preseason ski passes.
The ratio of current assets to current liabilities at the end of 2000 was .40 to
1, a decrease from .70 to 1 at the end of the previous year. Cash flows from
operating activities increased to $5,306,220 in 2000. The increase is primarily
due to an increase in net income for the Company and an increase in unearned
revenue.


Long-term debt at the end
of 2001 increased to $4,029,000 from $1,996,319 at the end of 2000. Long-term
debt levels at the end of 2001 and 2000 were 43.3% and 20.9%, respectively, of
stockholders equity.


At the end of 2000,
long-term debt decreased to $1,996,319, from $6,589,369 at the end of 1999.
Long-term debt at the end of 2000 represented 20.9% of stockholders equity
compared to 82% at the end of 1999.


The Company provides for
its cash requirements primarily through cash generated by operating activities,
supplemented by borrowing under a revolving, reducing credit facility. The
Company currently has a loan agreement with Bank of America National Trust and
Savings Association, doing business as Seafirst Bank (Seafirst). The agreement
provides for a $9,750,000 revolving, reducing line of credit which matures on
May 31, 2008. The agreement provides funds for seasonal working capital, capital
projects and restructuring of long-term debt. The agreement calls for reducing
availability of funds in the amount of $750,000 each June 1st beginning June 1,
1999. Principal reductions are required on any outstanding balances above the
available amount. The agreement allows any mandatory principal payment otherwise
due to be skipped should annual gross revenues (excluding real estate related
revenues) drop below $8.5 million due to conditions beyond the control of the
Company. The provision is limited to two such skip payments during the term of
the loan. The interest rate on the new facility is at or below Seafirsts
reference rate. The Company may obtain funds below the reference rate by
utilizing a London Interbank Offered Rate based option. Standby letters of
credit also reduce the amount available under the revolving agreement. There
were $4,221,000 of unused funds on the Seafirst line of credit at May 31, 2001.

10
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|During 1998, the Big
Mountain Development Corporation obtained a $3.9 million construction line of
credit from the Whitefish Credit Union for construction of Kintla Lodge. In
January of 1999 the construction loan was converted to a term loan which matured
on September 1, 2002 and bears interest at New York Prime, or 7.75%. The loan
was paid off during fiscal year May 31, 2000.


Subsequent to year end, the
Company entered into an agreement with Hines Resorts to sell a 24 acre tract of
land, which will be developed by Hines Resorts into single family home sites.
The Company also entered into an agreement to purchase a 100 acre tract of land
to the north of the resort. The Company is continuing to explore the benefits of
this acquisition to develop additional activities for guests of the Resort.


FORWARD-LOOKING
STATEMENTS


This report contains
forward-looking statements regarding matters that are subject to risks and
uncertainties. For such statements, the Company claims the protection of the
safe harbor for forward-looking statements contained in Section 21E of the
Securities Exchange Act of 1934, as amended. The Companys results could
differ materially from those discussed in each forward-looking statement due to
various factors which are outside the Companys control.

11
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Item 7.  Financial Statements



Index to
Consolidated Financial Statements
|---------------------------------------------------------------------------

| |  | Page                                                   
| |  | -------------------------------------------------------
| |  | Independent Auditors Report                           
| | 
| |  | Financial Statements:                                  
| | 
| |  | Consolidated Balance Sheets as of May 31, 2001 and 2000
| | 
| |  | Consolidated Statements of Income and Retained Earnings
| |  | for the Years Ended May 31, 2001, 2000 and 1999        
| | 
| |  | Consolidated Statements of Cash Flow                   
| |  | for the Years Ended May 31, 2001, 2000 and 1999        
| | 
| |  | Notes to Consolidated Financial Statements             

|12
|--

|INDEPENDENT
AUDITORS REPORT


To the Board
of Directors and StockholdersWinter Sports, Inc.Whitefish, Montana


We have audited the
accompanying consolidated balance sheets of Winter Sports, Inc. (a Montana
Corporation) as of May 31, 2001 and 2000, and the related consolidated
statements of income and retained earnings, and cash flows for each of the three
years in the period ended May 31, 2001. These consolidated financial statements
are the responsibility of the Companys management. Our responsibility is
to express an opinion on these consolidated financial statements based on our
audits.


We conducted our audits in
accordance with generally accepted auditing standards. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.


In our opinion, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Winter Sports, Inc. as of May 31,
2001 and 2000 and the results of operations and cash flows for each of the three
years in the period ended May 31, 2001, in conformity with generally accepted
accounting principles.


Jordahl & Sliter PLLCKalispell,
MontanaJuly 13, 2001

13
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|WINTER
SPORTS, INC.



CONSOLIDATED
BALANCE SHEETS
|--------------------------------------------------

|                                           | May 31
|------------------------------------------ | ------
|
|ASSETS                                     |       
|                                           |       
|Current Assets                             |       
|Cash and cash equivalents                  |       
|Receivables (net of reserve for bad debts  |       
|of $24,271 and $17,680, respectively)      |       
|Receivables - related parties              |       
|Income tax refund receivable               |       
|Current deferred tax asset                 |       
|Inventories                                |       
|Prepaid expenses                           |       
|                                           |       
|Total Current Assets                       |       
|                                           |       
|                                           |       
|Property and Equipment, at Cost            |       
|Accumulated depreciation and amortization  |       
|                                           |       
|                                           |       
|Construction in progress                   |       
|Land and development costs                 |       
|                                           |       
|Net Property and Equipment                 |       
|                                           |       
|                                           |       
|Other Assets                               |       
|                                           |       
|                                           |       
|TOTAL ASSETS                               |       
|                                           |       
|                                           |       
|LIABILITIES AND STOCKHOLDERS EQUITY       |       
|                                           |       
|Current Liabilities                        |       
|Accounts payable                           |       
|Accounts payable - related parties         |       
|Employee compensation and related expenses |       
|Taxes other than payroll and income        |       
|Interest Payable                           |       
|Short-term debt                            |       
|Deposits and other unearned income         |       
|Other current liabilities                  |       
|                                           |       
|Total current liabilities                  |       
|Long-term debt                             |       
|Deferred income taxes                      |       
|                                           |       
|Total Liabilities                          |       
|                                           |       
|                                           |       
|Stockholders Equity                       |       
|Common stock (5,000,000 shares authorized; |       
|988,668 and 1,008,368 shares outstanding   |       
|in 2001 and 2000, respectively)            |       
|Additional paid-in capital                 |       
|Retained earnings                          |       
|                                           |       
|Total stockholders equity                 |       
|                                           |       
|                                           |       
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |       
|                                           |       

|The accompanying notes
are an integral part of these financial statements.

14
|------------------------------------------------------------------------------

|WINTER
SPORTS, INC.



CONSOLIDATED
STATEMENTS OF INCOME AND RETAINED EARNINGS
|------------------------------------------------------------------------------

|                                      | Year Ending May 31,
|------------------------------------- | -------------------
|
|Revenue                               |                    
|Lifts                                 |                    
|Food, beverage and retail             |                    
|Equipment rental and repair           |                    
|Lodging                               |                    
|Lease, management and other fees      |                    
|Lease, management and other fees      |                    
|- related parties                     |                    
|Real estate sales                     |                    
|                                      |                    
|Total Revenue                         |                    
|                                      |                    
|                                      |                    
|Operating Costs & Expenses            |                    
|Direct expenses - lifts               |                    
|Depreciation expense - lifts          |                    
|Cost of food, beverage and retail     |                    
|Cost of real estate sales             |                    
|Payroll and related expenses          |                    
|Direct expenses                       |                    
|Direct expenses - related parties     |                    
|Marketing                             |                    
|Marketing - related parties           |                    
|Depreciation and amortization         |                    
|General and administrative            |                    
|General and administrative -          |                    
|related parties                       |                    
|                                      |                    
|Total Operating Costs & Expenses      |                    
|                                      |                    
|                                      |                    
|Operating Income (Loss)               |                    
|                                      |                    
|Other Income (Expense)                |                    
|Interest income                       |                    
|Interest expense                      |                    
|Interest expense - related party      |                    
|Other income (expense)                |                    
|                                      |                    
|                                      |                    
|Total Other Income (Expense)          |                    
|                                      |                    
|                                      |                    
|Income (Loss) before income taxes     |                    
|Provision for (Recovery of)           |                    
|income taxes                          |                    
|                                      |                    
|                                      |                    
|Net Income (Loss)                     |                    
|                                      |                    
|Retained earnings - beginning of year |                    
|                                      |                    
|                                      |                    
|Retained earnings - end of year       |                    
|                                      |                    
|                                      |                    
|Earnings (Loss) per common share      |                    
|                                      |                    
|                                      |                    
|Weighted average shares outstanding   |                    

|The accompanying notes
are an integral part of these financial statements

15
|-----------------------------------------------------------------------------

|WINTER
SPORTS, INC.



CONSOLIDATED
STATEMENTS OF CASH FLOWS
|------------------------------------------------------------

|                                      | Year Ending May 31,
|------------------------------------- | -------------------
|
|Cash flows from operating activities  |                    
|Net income (loss)                     |                    
|                                      |                    
|                                      |                    
|Adjustments to reconcile net income   |                    
|to cash provided by                   |                    
|operating activities:                 |                    
|Depreciation and amortization         |                    
|Increase (decrease) in deferred       |                    
|income taxes                          |                    
|(Gain) loss on disposition of assets  |                    
|Bad debt expense (net of recovery)    |                    
|Changes in operating assets           |                    
|and liabilities:                      |                    
|Receivables                           |                    
|Refundable income taxes               |                    
|Inventories                           |                    
|Prepaid expenses                      |                    
|Construction in progress              |                    
|Land and development costs            |                    
|Other assets                          |                    
|Accounts payable                      |                    
|Employee compensation and             |                    
|related expenses                      |                    
|Interest payable                      |                    
|Taxes other than payroll and          |                    
|income taxes                          |                    
|Income taxes payable                  |                    
|Deposits and other                    |                    
|unearned revenue                      |                    
|Other liabilities                     |                    
|                                      |                    
|Total adjustments                     |                    
|                                      |                    
|Net cash provided by                  |                    
|operating activities                  |                    
|                                      |                    
|                                      |                    
|Cash flows from investing activities: |                    
|Proceeds from sale of assets          |                    
|Proceeds from redemption of           |                    
|certificate of deposit                |                    
|Purchase of certificate of deposit    |                    
|Property and equipment acquisitions   |                    
|                                      |                    
|Net cash used in investing activities |                    
|                                      |                    
|                                      |                    
|Cash flows from financing activities: |                    
|Proceeds from issuance of             |                    
|long-term debt                        |                    
|Payments of long-term debt            |                    
|Stock Repurchase Plan                 |                    
|Loan costs paid on refinance          |                    
|                                      |                    
|Net cash provided by (used in)        |                    
|financing activities                  |                    
|                                      |                    
|Net increase in cash                  |                    
|and cash equivalents                  |                    
|Cash and cash equivalents - beginning |                    
|of year                               |                    
|                                      |                    
|Cash and cash equivalents - end       |                    
|of year                               |                    
|                                      |                    

|The accompanying notes
are an integral part of these financial statements

16
|-----------------------------------------------------------------------------

|NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1.
Summary of Significant Accounting Policies


The consolidated financial
statements include the amounts of Winter Sports, Inc. and its wholly-owned
subsidiaries, Big Mountain Water Company, Big Mountain Development Corporation
and Big Mountain Resort Reservations. The Company dissolved Big Mountain Resort
Reservations during fiscal year 2001, due to no activity. All significant
intercompany accounts and transactions have been eliminated in consolidation.


The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.


Property and equipment is
stated at cost. Additions and betterments are capitalized, while maintenance and
repairs are expensed as incurred. For financial reporting purposes, depreciation
is provided for by the straight-line method over estimated useful lives.
Accelerated depreciation methods are used for tax purposes. Gains and losses
from the sale or retirement of assets are included in other income (expense).


Land development in
progress is stated at the lower of cost or net realizable value. All direct and
indirect costs related to land development (including land acquisition costs,
land improvement and construction costs for clearing and grading, roads, utility
systems, architectural, surveying, engineering and legal fees) are charged to
construction in progress. In addition, the Company capitalizes interest costs
related to qualified expenditures on projects under development. The aggregate
development cost is allocated to lots for sale based upon the relative sales
value and is charged to cost of revenues as the individual lot sales are
recognized as revenue. Costs not related to land development are charged to
operations as incurred.


Interest is capitalized in
connection with the construction of major facilities and development of land.
The capitalized interest is recorded as part of the asset to which it relates
and is amortized over the assets useful life, or is allocated to lots for sale
based upon the relative sales values and is charged to cost of sales as the
individual lot sales are recognized as revenue. There was no interest
capitalized in 2001. In 2000 and 1999, $4,516 and $76,938 of interest was
capitalized, respectively.


Profit from the sale of
real estate is accounted for under the full accrual method whereby, gain is not
recognized until the collectibility of the sales price is reasonably assured and
the earnings process is virtually complete. When a sale does not meet the
requirements for income recognition, gain is deferred until those requirements
are met.


Advertising costs are
expensed as incurred. Advertising expenses were $910,595 $918,372 and $1,022,473
in 2001, 2000 and 1999, respectively.


For purposes of the
Consolidated Statements of Cash Flows, the Company considers all highly liquid
investments purchased with a maturity of three months or less to be cash
equivalents.


Inventories are stated at
the lower of cost or market value on a first-in, first-out method.

17
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Loan costs, included in
Other Assets, are being amortized ratably over the term of the loan. The
Covenant Not to Compete is being amortized on a straight-line basis over a sixty
month period. Goodwill is being amortized on a straight-line basis over fifteen
years.


On September 9, 1995, the
Company received approval from the U.S. Forest Service for the Final
Environmental Impact Statements (EIS) for The Big Mountain Ski and Summer
Resort. The Company has amortized the costs of the EIS over its useful life.



NOTE 2.
Business Segment Information


In 2001, 2000 and 1999, the
Company operated principally in two industries, the operation of a ski area and
the sale of real estate. Operations in the ski area industry involve developing
and providing ski recreation and related services to skiers. Operations in the
sale of real estate involve sales to interested parties of single-family lots,
town homes, town home lots and condominiums.


Financial information by
industry segment for 2001, 2000 and 1999 is summarized as follows:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                              | Ski Area | Real Estate         | Consolidated
|----------------------------- | -------- | ------------------- | ------------
|2001                          |          |                     |             
|Revenue                       |          | $   9,473,285       |             
|Operating profit              |          | $  (1,210,402       | )           
|Depreciation and amortization |          | $   1,492,742       |             
|Interest income               |          | $                 0 |             
|Interest expense              |          | $     (287,388      | )           
|Income tax expense (benefit)  |          | $     (648,471      | )           
|Identifiable assets           |          | $ 14,761,052        |             
|Capital expenditures          |          | $   3,534,396       |             
|                              |         
|2000                          |          |                     |             
|Revenue                       |          | $ 10,146,049        |             
|Operating profit (loss)       |          | $      169,478      |             
|Depreciation and amortization |          | $   1,376,106       |             
|Interest income               |          | $                 0 |             
|Interest expense              |          | $     (362,393      | )           
|Income tax expense (benefit)  |          | $     (119,084      | )           
|Identifiable assets           |          | $ 12,293,819        |             
|Capital expenditures          |          | $      649,853      |             
|                              |         
|1999                          |          |                     |             
|Revenue                       |          | $   8,545,835       |             
|Operating profit (loss)       |          | $  (1,153,134       | )           
|Depreciation and amortization |          | $   1,319,444       |             
|Interest income               |          | $        10,725     |             
|Interest expense              |          | $     (451,862      | )           
|Income tax expense (benefit)  |          | $     (436,851      | )           
|Identifiable assets           |          | $ 13,940,139        |             
|Capital expenditures          |          | $      700,690      |             

|18
|--

|NOTE 3.
Property and Equipment
|------------------------------

|                              | AssetLife Years | 2001  | 2000
|----------------------------- | --------------- | ----- | ----
|Leasehold improvements        |                 | 30    |     
|Buildings and grounds         |                 | 10-30 |     
|Lifts                         |                 | 10-15 |     
|Machinery and equipment       |                 | 3-25  |     
|Furniture and fixtures        |                 | 3-10  |     
|Water system                  |                 | 10-25 |     
|                              |                 |       |     
|Total property and  equipment |                 |       |     
|                              |                 |       |     

|NOTE 4. Other
Assets


Other assets at May 31,
2001 and 2000 are summarized as follows:
|---------------------------------------------------------------------------------------

|                                                    | 2001 | 2000     
|--------------------------------------------------- | ---- | ---------
|Loan costs, net of amortization                     |      | $  21,040
|Planning and development - long-term                |      | 52,758   
|Noncurrent deferred tax asset                       |      | 60,596   
|Environmental Impact Statement, net of amortization |      | 57,306   
|Goodwill, net of amortization                       |      | 169,851  
|Covenant Not to Compete, net of amortization        |      | 23,828   
|Other long-term assets                              |      | 22,828   
|                                                    |      |          
|Total other assets                                  |      | $408,207 
|                                                    |      |          

|NOTE 5. Notes
Payable


Long-term debt at May 31,
2001 and 2000 is summarized as follows:
|-----------------------------------------------------------------------------------------

|                                                   | 2001 | 2000      
|-------------------------------------------------- | ---- | ----------
|Bank of America National Trust and Savings         |      | $4,029,000
|Association, doing business as Seafirst Bank       |     
|(Seafirst) revolving, reducing term loan with      |     
|initial $9,750,000 availability decreasing by      |     
|$750,000 each year beginning June 1, 1999          |     
|Mandatory principal reductions are required on     |     
|outstanding balances above amounts available       |     
|Interest at or below banks reference rate         |     
|Interest rate at May 31, 2001 and 2000 was 6.1727% |     
|and 6.99%, respectively. Secured by all ski area   |     
|operation real and personal property and           |     
|assignment in trust of all U.S. Forest Service     |     
|special use permits. Matures May 31, 2008          |     
|                                                   |     
|Less current maturities                            |      | 0         
|                                                   |     
|                                                  
|Total long-term debt                               |      | $4,029,000
|                                                  

|19
|--

|Mandatory reductions of
long-term debt are as follows:
|------------------------------------------------------

|For the Year Ending May 31, |  | Amount           | 
|--------------------------- |  | ---------------- | 
|2002                        |  | $              0 | 
|2003                        |  | 0                | 
|2004                        |  | 0                | 
|2005                        |  | 0                | 
|2006                        |  | 0                | 
|2007 and beyond             |  | 4,029,000        | 
|                            |  |                 
|                            |  | $4,029,000       | 
|                            |  |                 

|The Seafirst loan agreement
contains covenants that require minimum net worth, a fixed charge coverage ratio
and restrict investment, disposition of assets, capital expenditures, outside
borrowing and payment of dividends. For the years ended May 31, 2001 and 2000,
the Company was in compliance of the debt coverage ratio covenant and the funded
debt covenant required by the loan agreement.


At May 31, 2001 and 2000,
$4,221,000 and $7,003,681 respectively, were unused and available for borrowing
on the Seafirst line of credit.


NOTE 6. Capital Stock
and Additional Paid-In Capital


Changes in capital stock
and additional paid-in capital are summarized as follows:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                   | Common Stock | Additional
|------------------ | ------------ | ----------
|
|                  
|Balance at 5/31/99 |              | 1,008,368 
|                  
|Balance at 5/31/00 |              | 1,008,368 
|                  
|Balance at 5/31/01 |              | 988,668   
|                  

|NOTE 7. Income
Taxes


Income taxes (credits)
consist of the following:
|-----------------------------------------------------------------------

|                                         | 2001 | 2000       | 1999
|---------------------------------------- | ---- | ---------- | ----
|Current                                  |      |            |     
|Federal                                  |      | $   54,040 |     
|Fuel tax credit                          |      | (1,384     | )   
|                                         |      |            |     
|                                         |      | 52,656     |     
|State                                    |      | 10,660     |     
|                                         |      |            |     
|                                         |      | 63,316     |     
|Deferred                                 |     
|Federal                                  |      | (58,275    | )   
|State                                    |      | (10,741    | )   
|                                         |      |            |     
|Provision for (Recovery of) income taxes |      | $  (5,700  | )   
|                                         |      |            |     

|Temporary differences exist
in the computation of income for financial and tax reporting purposes which
gives rise to deferred taxes. The source of these differences for the year ended
May 31 is as follows:

20
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|

|                                            | 2001 | 2000        | 1999
|------------------------------------------- | ---- | ----------- | ----
|Depreciation                                |      | $ 3,619,900 |     
|Uniform capitalization for income tax       |      | (51,401     | )   
|Bad debt reserve                            |      | (39,861     | )   
|Vacation allowance                          |      | (75,257     | )   
|Alternative minimum tax credit carryforward |      | 0           |     
|Federal net operating loss carryforward     |      | 0           |     
|State net operating loss carryforward       |      | 0           |     

|The significant components
of Deferred Taxes in the accompanying Balance Sheet are as follows:
|----------------------------------------------------------------------------------------------

|                                  | 2001 | 2000         | 
|--------------------------------- | ---- | ------------ | 
|Noncurrent deferred tax liability |      | $1,392,033   | 
|                                  |      |              | 
|Total deferred tax liability      |      | $1,392,033   | 
|                                  |      |              | 
|                                  |     
|Current deferred tax assets       |      | $     32,593 | 
|Noncurrent deferred tax asset     |      | 60,596       | 
|                                  |      |              | 
|Net deferred tax assets           |      | $     93,189 | 
|                                  |      |              | 

|The difference between the Companys
effective income tax rate and the statutory Federal income tax rate is as
follows:
|-----------------------------------------------------------------------------------------------------------------------

|                                      | 2001 | 2000     | 1999
|------------------------------------- | ---- | -------- | ----
|Income (loss) before taxes            |      | $(15,028 | )   
|Statutory federal rate                |      | (34      | %)  
|Increased (decreases) resulting from: |     
|State tax at statutory rate           |      | (7       | %)  
|Other (net)                           |      | (3       | %)  
|                                      |      |          |     
|Effective tax rate                    |      | (38      | %)  
|                                      |      |          |     

|At May 31,2001 the Company
has an alternative minimum tax credit carryforward of $17,202 which can be
carried forward indefinitely to reduce future regular taxes. The credit has been
recognized in the current year as a noncurrent deferred tax asset.


At May 31, 2000 the Company
utilized a federal net operating loss carryforward of $328,045 and a state net
operating loss carryforward of $265,659 to offset current taxable income. The
Company also utilized an alternative minimum tax credit carryforward of $29,342
to reduce current income taxes. The credit had been recognized in 1999 as a
noncurrent deferred tax asset.



NOTE 8.
Supplemental Cash Flow Disclosures


Supplemental cash flow
information is as follows:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Cash paid during the year for: | 2001 | 2000     | 1999
|------------------------------ | ---- | -------- | ----
|                               |      |          |     
|Interest (net of capitalized)  |      | $332,451 |     
|Income taxes (net of refunds)  |      | $245,000 |     

|Schedule of non-cash investing and financing  Transactions |  |  |  | 2001        |   | 
|---------------------------------------------------------- |  |  |  | ----------- | - | 
|Acquisition of property and equipment                      |  |  |  | $ 3,735,196 |   | 
|Less notes payable                                         |  |  |  | (200,800    | ) | 
|                                                           |  |  |  |            
|Cash paid                                                  |  |  |  | $ 3,534,396 |   | 
|                                                           |  |  |  |            

|21
|--

|NOTE 9. Special Use
Permits


The operation of ski lifts and
trails involves the use of U.S. Forest Service lands located in the Flathead National
Forest. Winter Sports, Inc. is licensed by special use permits issued by the U.S. Forest
Service which expire December 21, 2038. Charges to income for fees paid, based on the
Graduated Rate Fee System set by the U.S. Forest Service were $91,596, $117,654 and
$95,683 for 2001, 2000 and 1999, respectively.



NOTE 10.
Employee Benefit Plans


The Company maintains a
401(k) Salary Deferred Plan that covers substantially all full-time employees
meeting minimum requirements. Plan benefits are limited to the
participants vested share of plan contributions, earnings and forfeitures.
All enrolled employees contribute a minimum of 2% of their gross compensation.
The Company contributes a matching 2% for those employees who contribute between
2% and 4%. The Company contributes a matching 3% for any employee who
contributes 4% or more. The plan is currently 100% funded. The Companys
contributions to the Plan and charges to income for 2001, 2000 and 1999 amounted
to $46,639, $35,285 and $33,370 respectively.



NOTE 11.
Related Party Transactions


Revenues are derived and
expenses incurred as a result of transactions with executive officers,
stockholders and directors of Winter Sports, Inc. or companies controlled by
them or parties which can significantly influence management or the operating
policies of the transacting parties. For reporting purposes, shareholders
holding 5% or more of the Companys common stock are considered to be
related parties who may, through their ownership, significantly influence
transactions with the Company.


Related party transactions
are summarized as follows:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                        | 2001 | 2000          | 1999
|--------------------------------------- | ---- | ------------- | ----
|Revenue received                        |      |               |     
|Rent and lease revenue                  |      | $  13,932     |     
|Management fee                          |      | $           0 |     
|Other revenue                           |      | $217,885      |     
|Expenses incurred                       |     
|Dues and memberships                    |      | $  40,337     |     
|Legal fees                              |      | $           0 |     
|Contract labor                          |      | $           0 |     
|Marketing                               |      | $    1,600    |     
|General and administrative              |      | $  84,884     |     
|Interest                                |      | $           0 |     
|Amounts due to and from related parties |     
|Accounts receivable                     |      | $  27,128     |     
|Accounts payable                        |      | $    6,233    |     
|Note payable                            |      | $           0 |     

|NOTE 12. Stock
Bonus and Stock Options


Under prior employment
agreements, non-qualified and incentive options to purchase the Companys
common stock had been granted to the President. Incentive options were dependent
upon achievement of certain performance objectives. In each case, the purchase
price was the bid price for the Companys common stock at the date of the
grant. All options granted expire five years from the date of the underlying
employment agreement. The Company has agreed to repurchase all or any portion of
the stock purchased through exercise of options at a price equal to the purchase
price for each stock plus $3.00 per share.


22
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|On August 1, 1992, the
Company entered into an employment agreement with its President with a term
ending July 31, 1996. Upon the successful conclusion of each anniversary of the
agreement, the President is entitled to a non-qualified stock option allowing
him to purchase 6,000 shares of the Companys common stock according to the
following schedule: after 7/31/93, $14.00 per share; after 7/31/94, $15.00 per
share; after 7/31/95, $16.00 per share; and after 7/31/96, $17.00 per share.
Each years allocation of shares may be purchased for a period of five
years beginning on each anniversary date of this agreement. The Company does not
guarantee purchase of the shares of stock pursuant to this option.


Management has made a
determination that the stock option plan does not meet the requirements to
recognize compensation costs under current accounting standards.


Stock option transactions
are summarized as follows:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                          | Option PricePer Share |               | NumberOf Shares
|------------------------- | --------------------- | ------------- | ---------------
|Outstanding, May 31, 1996 |                       | 14.00 - 19.50 |                
|Granted                   |                       | 17.00         |                
|                          |                       |               |                
|Outstanding, May 31, 1997 |                       | 14.00 - 19.50 |                
|                          |                       |               |                
|Outstanding, May 31, 1998 |                       | 14.00 - 19.50 |                
|Expired                   |                       | 14.00         |                
|                          |                       |               |                
|Outstanding, May 31, 1999 |                       | 15.00 - 19.50 |                
|Expired                   |                       | 15.00         |                
|                          |                       |               |                
|Outstanding, May 31, 2000 |                       | 15.00 - 19.50 |                
|Expired                   |                       | 17.00         |                
|                          |                       |               |                
|Outstanding, May 31, 2001 |                       | $15.00-19.50  |                
|                          |                       |               |                

|NOTE 13.
Commitments and Contingencies


From time to time, the
Company has been a defendant in unrelated lawsuits filed by individuals who are
each seeking damages of specified amounts for alleged personal injuries
resulting from accidents occurring on the Companys property or while
skiing. The Companys insurance carrier provides defense and coverage for
these claims and the Companys participation has been limited to its policy
deductible. Such amounts are charged to General and Administrative expense upon
settlement.


The Company is a defendant
in three lawsuits filed on behalf of individuals who are seeking damages of
unspecified amounts for alleged personal injuries resulting from accidents
occurring on the Companys property. The Company intends to vigorously
defend the claims. Outside counsel for the Company has advised that at this
stage in the proceedings they cannot offer an opinion as to the probable outcome
or estimate the amount or range of a potential loss.


Financial instruments that
potentially subject the Company to credit risk consist of cash balances in one
financial institution in excess of the Federal Deposit Insurance
Corporations $100,000 limit.


Other potential credit
risks to the Company consist of trade receivables. The Company grants credit to
customers for group banquets and retail inventory sales, most of whom are
located in the northwest United States.


23
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NOTE 14. Other
Income and Expense


During 1999 the Company
began selectively thinning its lower elevation lands in order to reduce the fuel
available should the lands be subject to a wildfire. This continued into the
2000 fiscal year. The revenue earned from the sale of the harvested timber
amounted to $124,908 in 2000 and $205,568 in 1999.


The Company periodically
reviews its master plan for long-term resort development. During 2000, the
Company charged against income $193,043 of planning costs included in
Construction in Progress that were not expected to be utilized within the
foreseeable future.


Other Income (Expense) included in
the Consolidated Statements of Income consist of the following:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                         | 2001 | 2000    | 1999
|---------------------------------------- | ---- | ------- | ----
|Gain (loss) on sale/retirement of assets |      | $18,860 |     
|Other                                    |      | 1,132   |     
|                                         |      |         |     
|Total other income (expense)             |      | $19,992 |     
|                                         |      |         |     

|Item 8. Changes in and
Disagreements with Accountants on Accounting and Financial Disclosures



The Company has had no
disagreements with its accountants on accounting or financial disclosures.



Part III



Item 9.
Directors and Executive Officers of the Registrant


Incorporated by reference
from the Companys definitive proxy statement dated September 14, 2001 to
be filed with the Securities and Exchange Commission for the annual meeting of
shareholders to be held on October 9, 2001.



Item 10.
Executive Compensation


Incorporated by reference
from the Companys definitive proxy statement dated September 14, 2001 to
be filed with the Securities and Exchange Commission for the annual meeting of
shareholders to be held on October 9, 2001.


Item 11. Security
Ownership of Certain Beneficial Owners and Management


Incorporated by reference
from the Companys definitive proxy statement dated September 14, 2001 to
be filed with the Securities and Exchange Commission for the annual meeting of
shareholders to be held on October 9, 2001.



Item 12.
Certain Relationships and Related Transactions


Incorporated by reference
from the Companys definitive proxy statement dated September 14, 2001 to
be filed with the Securities and Exchange Commission for the annual meeting of
shareholders to be held on October 9, 2001.


24
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Part IV



Item 13.
Exhibits and Reports on Form 8-K
|----------------------------------------------------

|(a) |  | Documents
Filed as Part of this Report:
|--- |  | ---------------------------------------

| |  | Page                                                   
| |  | -------------------------------------------------------
| |  | (1)   Financial Statements:                            
| | 
| |  | Independent Auditors Report                           
| | 
| |  | Consolidated Balance Sheets as of May 31, 2001 and 2000
| | 
| |  | Consolidated Statements of Income and Retained Earnings
| |  | for the Years Ended May 31, 2001, 2000 and 1999        
| | 
| |  | Consolidated Statements of Cash Flows for              
| |  | the Years Ended May 31, 2001, 2000 and 1999            
| | 
| |  | Notes to Consolidated Financial Statements             

|All other schedules are
omitted because they are not applicable for the required information as shown in
the Consolidated Financial Statements or Notes thereto.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | (2) |  | Exhibits
| |  | --- |  | --------

| |  | Page                              
| |  | ----------------------------------
| |  | 21.1   Subsidiaries of the Company
| | 
| |  | Independent Auditors Report      

|(b) |  | Reports
on Form 8-K:
|--- |  | --------------------

| | One
report on Form 8-K was filed by the registrant during the last quarter of the period
covered by this report. On March 19, 2001, the Company filed Form 8-K to announce the
selection of Hines Resorts to develop the village at Big Mountain Ski & Summer Resort and
surrounding land owned by the Company.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|25
|--

|Signatures


In accordance with Section
13 or 15(d) of the Securities Exchange Act of 1934, the registrant has caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | WINTER SPORTS, INC.By /s/ Michael J. CollinsMichael J. Collins,President and Chief Executive Officer
          (Principal Executive Officer)Date: August 29, 2001
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

|Pursuant to the
requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in capacities and
on the dates indicated:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|/s/ Charles R. Abell
          Charles R. Abell       | Director                               | August 29, 2001
|----------------------------------------------------------------- | -------------------------------------- | ---------------
|                                                                 
|/s/ Brian T. Grattan
          Brian T. (Tim) Grattan | Director                               | August 29, 2001
|                                                                 
|/s/ Dennis L. Green
          Dennis L. Green         | Director and Chairmanof the Board      | August 29, 2001
|                                                                 
|/s/ Charles P. Grenier
          Charles P. Grenier   | Director                               | August 29, 2001
|                                                                 
|/s/ Jerry J. James
          Jerry J. James           | Director                               | August 29, 2001
|                                                                 
|/s/ Michael T. Jenson
          Michael T. Jenson     | Director                               | August 29, 2001
|                                                                 
|/s/ Darrel R. Martin
          Darrel R. Martin       | Director and Vice-Chairmanof the Board | August 29, 2001
|                                                                 
|/s/ Michael J. Muldown
          Michael J. Muldown   | Director                               | August 29, 2001
|                                                                 
|/s/ Jerome T. Broussard
          Jerome T. Broussard | Director                               | August 29, 2001
|                                                                 
|/s/ Jami M Phillips
          Jami M Phillips         | Principal Financial Officer            | August 29, 2001

|26
|--

|
|

|(c) |  | Exhibits:
|--- |  | ---------

|3.1  |   | Restated Articles of Incorporation and Articles of Amendment |  |     | 
|---- | - | ------------------------------------------------------------ |  | --- | 
|    
|     |   | to the Articles of Incorporation                             |  | (2) | 
|    
|3.2  |   | By-Laws                                                      |  | (3) | 
|    
|3.3  |   | Fifth Amendment to By-Laws                                   |  | (4) | 
|    
|3.4  |   | Sixth Amendment to By-Laws                                   |  | (4) | 
|    
|3.5  |   | Seventh Amendment to By-Laws                                 |  | (7) | 
|    
|10.1 |   | Employment Agreement between Michael Collins and Winter      |  |     | 
|    
|     |   | Sports, Inc. as of August 1, 1992.                           |  | (5) | 
|    
|10.3 |   | Loan Agreement between Seattle-First National Bank and       |  |     | 
|    
|     |   | Winter Sports, Inc. dated November 14, 1994.                 |  | (6) | 
|    
|10.5 |   | Employment Agreement between Michael Collins and Winter      |  | (8) | 
|    
|     |   | Sports, Inc. as of August 1, 1996                            |  |     | 
|    
|10.6 |   | Employment Agreement between Michele Reese and Winter        |  | (9) | 
|    
|     |   | Sports, Inc. as of December 22, 1997                         |  |     | 
|    
|10.7 |   | Employment Agreement between Adora Maguire and Winter        |  | (7) | 
|    
|     |   | Sports, Inc. as of May 1, 1998                               |  |     | 
|    
|21.1 |   | Subsidiaries of the Company                                  |  | (1) | 
|    
|(1   | ) | Filed herewith.                                              |  |     | 
|    
|(2   | ) | Incorporated by reference from the Companys Form 10-KSB for |  |     | 
|    
|     |   | fiscal year ended May 31, 1995.                              |  |     | 
|    
|(3   | ) | Incorporated by reference from the Companys Form 10-KSB for |  |     | 
|    
|     |   | fiscal year ended May 31, 1987.                              |  |     | 
|    
|(4   | ) | Incorporated by reference from the Companys Form 10-KSB for |  |     | 
|    
|     |   | fiscal year ended May 31, 1991.                              | 
|    
|(5   | ) | Incorporated by reference from the Companys Form 10-QSB for |  |     | 
|    
|     |   | the quarter ended September 6, 1992.                         | 
|    
|(6   | ) | Incorporated by reference from the Companys Form 10-QSB for |  |     | 
|    
|     |   | the quarter ended December 11, 1994.                         | 
|    
|(7   | ) | Incorporated by reference from the Companys Form 10-KSB for |  |     | 
|    
|     |   | the year ended May 31, 1998.                                 | 
|    
|(8   | ) | Incorporated by reference from the Companys Form 10-QSB for |  |     | 
|    
|     |   | the quarter ended September 15, 1996.                        | 
|    
|(9   | ) | Incorporated by reference from the Companys Form 10-QSB for |  |     | 
|     |   | the quarter ended March 1, 1998.                             | 

|27
|--