10-K/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10- K/A

Amendment No. 2

(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2002

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from ___ to

Commission file number 0-21444

AFG Investment Trust C

(Exact name of registrant as specified in its charter)

               Delaware                                                                         04-3157232

(State or other jurisdiction of                                                     (IRS Employer

incorporation or organization)                                                   Identification No.)

1050 Waltham Street, Suite 310, Lexington, MA                            02421

(Address of principal executive offices)                                       (Zip Code)

Registrant's telephone number, including area code (781) 676-0009

Securities registered pursuant to Section 12(b) of the Act    NONE

Title of each class  Name of each exchange on which registered

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

Shares of Class A interests outstanding as of December 31, 2002 : 1,786,753

Shares of Class B interests outstanding as of December 31, 2002 : 3,024,740

(Title of class)

Indicate by check mark 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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  X  No  

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained herein, to the best of registrant's knowledge, in definite proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes____ No X___

State the aggregate market value of the voting stock held by nonaffiliates of the registrant. Not applicable. Securities are nonvoting for this purpose. 

EXPLANATORY NOTE

AFG Investment Trust C (the "Trust") hereby amends Item 15 of its Annual Report on Form 10-K for the year ended December 31, 2002 (the "Original Filing") filed with the Securities and Exchange Commission on March 31, 2003 and Form 10-K/A ("Amended Filing") filed with the Securities and Exchange Commission on December 15, 2003. Item 15 of Part IV is herein amended by amending Item 15(d) (ii) to include a predecessor auditors’ report for EFG Kirkwood LLC and adding Item 15(d) (iii) and Item 15(d) (iv) as set forth herein. Any Item in the Original Filing and Amended Filing not expressly changed her eby shall be as set forth in the Original Filing and Amended Filing. This report speaks as of the original and amended filing dates and, except as indicated, has not been updated to reflect events occurring subsequent to the original and amended filing dates.

This amendment to amend Item 15(d)(ii) is being filed with the Securities and Exchange Commission to refile the audited financial statements of EFG Kirkwood LLC as of and for the year ended December 31, 2002, and include the predecessor auditors’ report, as required by Regulation S - X Rule 309.

This amendment also adds Item 15(d) (iii) and Item 15(d) (iv) and is being filed with the Securities and Exchange Commission to file following audited financial statements, as required by Regulation S - X Rule 309:

- DSC/Purgatory, LLC

(d/b/a Durango Mountain Resort)

Year ended April 30, 2003 and eleven months ended April 30, 2002

- DSC/Purgatory, LLC

(d/b/a Durango Mountain Resort)

As of  May 31, 2001 and 2000

SIGNATURES

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 the capacities and on the dates indicated.

AFG Investment Trust C

By: AFG ASIT Corporation, a Massachusetts corporation and the Managing Trustee of the Registrant.

By: /s/ Gary D. Engle

Gary D. Engle

President and Chief Executive

Officer of the general partner of EFG and

President and a Director

of the Managing Trustee

(Principal Executive Officer)

Date :January 21, 2004

By: /s/ Richard K Brock 

Richard K Brock

Chief Financial Officer and Treasurer of AFG ASIT Corp.,

the Managing Trustee of the Trust

(Principal Financial and Accounting Officer)

Date: January 21, 2004

Certification:

I, Gary D. Engle, certify that:

1. I have reviewed this annual report on Form 10-K/A Amendment No. 2 of AFG Investment Trust C;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officer s and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officer s and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

d) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

e) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officer s and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

/s/ Gary D. Engle   

Gary D. Engle

President of AFG ASIT Corporation,

the Managing Trustee of the Trust

(Principal Executive Officer)

January 21, 2004

Certification:

I, Richard K Brock, certify that:

1. I have reviewed this annual report on Form 10-K/A Amendment No. 2 of AFG Investment Trust C;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officer s and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officer s and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

d) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

e) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officer s and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

/s/ Richard K Brock 

              Richard K Brock

Chief Financial Officer and Treasurer of AFG ASIT Corp.,

the Managing Trustee of the Trust

(Principal Financial and Accounting Officer)

January 21, 2004

PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

Exhibit
Number
99.1	Certificate of the Chief Executive Officer pursuant to Section 906 of Sarbanes - Oxley
99.2	Certificate of the Chief Executive Officer pursuant to Section 906 of Sarbanes - Oxley

(d) Financial Statement Schedules

(ii) Financial Statements for EFG Kirkwood, LLC as of December 31, 2002 and 2001 and for the three years ended December 31, 2002 and Report of Independent Certified Public Accountants and Report of Predecessor Independent Auditors Auditors’ Report .

(iii) Consolidated Financial Statements for DSC/Purgatory, LLC (d/b/a Durango Mountain Resort) as of April 30, 2003 and 2002 and for the year ended April 30, 2003 and the eleven months ended April 30, 2002 with Report of Independent Certified Public Accountants.

(iv) Consolidated Financial Statements for DSC/Purgatory, LLC (d/b/a Durango Mountain Resort) as of May 31, 2001 and 2000 together with Report of Independent Certified Public Accountants.

Item 15(d) (ii)

EFG Kirkwood LLC

Financial Statements

EFG Kirkwood LLC

Index to Financial Statements

.	Page
Report of Independent Certified Public Accountants	3
Independent Auditors' Report	4
Statements of Financial Position at December 31, 2002 and 2001	5
Statements of Operations for the years ended December 31, 2002, 2001 and 2000	6
Statements of Changes in Members’ Capital for the years ended December 31, 2002, 2001 and 2000	7
Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000	8
Notes to the Financial Statements	9

Report of Independent Certified Public Accountants

To EFG Kirkwood LLC

We have audited the accompanying statement of financial position of EFG Kirkwood LLC as of December 31, 2002, and the related statements of operations, changes in members’ capital, and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the 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 audit provides a reasonable basis for our opinion.

In our opinion,  the financial statements referred to above present fairly, in all material respects, the financial position of EFG Kirkwood LLC at December 31, 2002 and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States.

/S/ ERNST & YOUNG LLP

Tampa, Florida

July 25, 2003

INDEPENDENT AUDITORS' REPORT

To the Members

EFG Kirkwood LLC

We have audited the accompanying statements of operations, members’ capital, and cash flows of EFG Kirkwood LLC (a limited liability company) for the year ended of December 31, 2000. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the 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 audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of EFG Kirkwood LLC for the year ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America.

/S/ Moss Adams LLP

Stockton, California

April 12, 2002

EFG Kirkwood LLC

STATEMENTS OF FINANCIAL POSITION

December 31,

.	2002		2001
ASSETS				(unaudited	)
Cash	$	1,690	$	--
Advances to and membership interests in:
Mountain Resort Holdings, LLC		5,828,274		6,647,792
Mountain Springs Resort, LLC		--		777,005
Total assets	$	5,829,964	$	7,424,797
LIABILITIES
Advances to and membership interests in Mountain Springs Resort, LLC		252,062		--
Total liabilities		252,062		--
MEMBERS’ CAPITAL
Members’ capital:
Class A		5,577,902		7,424,797
Class B		--		--
Total members’ capital		5,577,902		7,424,797
Total liabilities and members’ capital	$	5,829,964	$	7,424,797

The accompanying notes are an integral part of the financial statements.

EFG Kirkwood LLC

STATEMENTS OF OPERATIONS

For the years ended December 31,

. . . . .		. . . . 2002			. . . . 2001			. . . . 2000
					(unaudited	)
Income (loss) from advances to and membership interests in: Mountain Resort Holdings, LLC		$ (181,106	)		$ 15,634			$ (390,191	)
Mountain Springs Resort, LLC		(1,029,067	)		(231,472	)		(2,373,950	)
Loss from advances to and membership interests		(1,210,173	)		(215,838	)		(2,764,141	)
General and administrative expense ....		(1,700	)		--			--
Interest income (expense)		3,953			(4,282	)		(8,567	)
Net loss	$	(1,207,920	)	$	(220,120	)	$	(2,772,708	)

The accompanying notes are an integral part of the financial statements.

EFG Kirkwood LLC

STATEMENTS OF CHANGES IN MEMBERS’ CAPITAL

For the years ended December 31, 2002, 2001 and 2000

. .		Class A Membership Interests			Class B Membership Interests			Total
Members’ capital at December 31, 1999 (unaudited)		$ 6,700,000			$ 531,110			$ 7,231,110
Members’ capital contributions		3,186,515			--			3,186,515
Net loss for the year ended December 31, 2000		(2,241,598	)		(531,110	)		(2,772,708	)
Members’ capital at December 31, 2000		7,644,917			--			7,644,917
Net loss for the year ended December 31, 2001 (unaudited)		(220,120	)		--			(220,120	)
Members’ capital at December 31, 2001 (unaudited)		7,424,797			--			7,424,797
Members’ cash distribution		(640,575	)		--			(640,575	)
Members’ capital contribution		1,600			--			1,600
Net loss for the year ended December 31, 2002		(1,207,920	)		--			(1,207,920	)
Members’ capital at December 31, 2002	$	5,577,902		$	--		$	5,577,902

The accompanying notes are an integral part of the financial statements.

EFG Kirkwood LLC

STATEMENTS OF CASH FLOWS

For the years ended December 31,

. .  . .		. . . . 2002			2001			. . . . 2000
				(unaudited		)
Net loss	$	(1,207,920	)	$	(220,120	)	$	(2,772,708	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
(Income) loss from advances to and membership interests in:
Mountain Resort Holdings, LLC		181,106			(15,634	)		390,191
Mountain Springs Resort, LLC		1,029,067			231,472			2,373,950
Distributions from Mountain Resort Holdings, LLC		638,412			210,545			210,545
Changes in assets and liabilities:
Increase (decrease) in interest payable, net		--			(8,567	)		8,567
Net cash provided by (used in) operating activities		640,665			197,696			210,545
Cash flows provided by (used in) investing activities:
Purchase of membership interests in:
Mountain Resort Holdings, LLC		--			--			(894,756	)
Mountain Springs Resort, LLC		--			--			(1,700,000	)
Advances to Mountain Springs Resort, LLC		--			--			(1,000,000	)
Net cash provided by (used in) investing activities		--			--			(3,594,756	)
Cash flows provided by (used in) financing activities:
Proceeds from note payable		--			--			408,241
Principal payments of note payable		--			(197,696	)		(210,545	)
Members’ cash distribution		(640,575	)		--			--
Members’ capital contributions		1,600			--			3,186,515
Net cash (used in) provided by financing activities		(638,975	)		(197,696	)		3,384,211
Net change in cash and cash equivalents		1,690			--			--
Cash and cash equivalents at beginning of year		--			--			--
Cash and cash equivalents at end of year	$	1,690		$	--		$	--
Other non-cash activities :
Interest earned on convertible debentures (Note 3)	$	--		$	--		$	26,278
Principal on convertible debentures (Note 3)	$	--		$	--		$	1,000,000
Conversion of principal and accrued, but unpaid, interest on convertible debentures to equity interests in Mountain Resort Holdings, LLC (Note 3) but	$	--		$	--		$	(1,059,125	)
Interest earned on note receivable (Note 4)	$	--		$	102,001		$	19,259
Recovery of principal on note receivable (Note 4)	$	--		$	1,000,000		$	--
Exchange of principal and accrued, but unpaid, interest on note receivable for equity interests in Mountain Springs Resort, LLC (Note 4)	$	--			$ (1,121,260	)	$	--

The accompanying notes are an integral part of the financial statements.

NOTE 1 – Organization

EFG Kirkwood LLC (the "Company") was formed as Tandem Capital LLC, a Delaware limited liability company, on December 2, 1998. On April 6, 1999, the Company changed its name to EFG Kirkwood LLC. The Company’s operations commenced on June 10, 1999.

The Company has two classes of membership interests identified as Class A and Class B. The Class A members are AFG Investment Trust A Liquidating Trust, AFG Investment Trust B Liquidating Trust, AFG Investment Trust C, and AFG Investment Trust D (collectively, the "AFG Trusts"). The Class B member is Semele Group Inc. The collective voting interests of the Class A members are equal to the voting interests of the Class B member; however, the Class A interest holders are entitled to certain pre ferred returns prior to the payment of Class B cash distributions. The manager of the Company is AFG ASIT Corporation, which also is the Managing Trustee of the AFG Trusts. (See "Note 5 – Related Party Transactions" herein for additional information concerning the relationships of the Company’s members.)

At both December 31, 2002 and 2001, the Company owned approximately 38% of each of the Series A common membership interests and the Series B preferred membership interests of Mountain Resort Holdings, LLC. At December 31, 2002 and 2001, the Company owned approximately 33% and 50%, respectively, of the common member interests of Mountain Springs Resort, LLC. The Company has no business activities other than through its membership interests in Mountain Resort Holdings, LLC and Mountain Springs Resort, LLC (hereinafter, collectively referred to as the "Resorts").

Mountain Resort Holdings, LLC

Mountain Resort Holdings, LLC, through four wholly owned subsidiaries, owns and operates the Kirkwood Mountain Resort, a ski resort located in northern California, a public utility that services the local community, and land that is held for residential and commercial development. (See Note 4.)

Mountain Springs Resort, LLC

Mountain Springs Resort, LLC, through its wholly owned subsidiary, Durango Resort, LLC, owns 80% of the common member interests and 100% of the Class B preferred member interests of DSC/Purgatory, LLC, which owns and operates the Durango Mountain Resort in Durango, Colorado. (See Note 4.)

NOTE 2 – Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the use of estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company classifies amounts on deposit in banks and all highly liquid investments purchased with an original maturity of three months or less as cash and cash equivalents.

Equity Ownership Investments

The Company accounts for its membership interests in the Resorts using the equity method of accounting as the Company’s ownership interest in the Resorts enables the Company to influence the operating financial decisions of the investees. Under the equity method of accounting, the carrying value of the Company's membership interests are (i) increased or decreased to reflect the Company’s share of income or loss from the Resorts and (ii) decreased to reflect any cash distributions paid by the Resorts to the Company.

The equity method of accounting is discontinued when the investment is reduced to zero and does not provide for additional losses unless the Company has guaranteed obligations of the investee or is otherwise committed to provide further financial support to the investment.

The Company defines control as the ability of an entity or person to direct the policies and management that guide the ongoing activities of another entity so as to increase its benefits and limit its losses from that other entity’s activities without the assistance of others.

Impairment Of Long-Lived Assets

During 2001, the Company accounted for the impairment of long-lived assets in accordance with SFAS No. 121. During 2002, the Company accounted for impairment of long-lived assets in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" which the Company adopted on January 1, 2002. In accordance with SFAS No. 144 and 121, the Company evaluates long-lived assets for impairment whenever events or circumstances indicate that the carrying values of such assets may not be recoverable and exceed their fair value. Whenever circumstances indicate that an impairment may exist, the Company evaluates future cash flows of the asset to the carrying value. If projected undiscounted future cash flows are less than the carrying value of the asset, a loss is recorded i n the accompanying consolidated Statements of Operations as impairment of assets. The loss recorded is equal to the difference between the carrying amount and the fair value of the asset. The fair value of the asset requires several considerations, including but not limited to: an independent appraisal or valuation model which includes the present value of expected future cash flows of the asset, current market prices and management’s market knowledge.

No impairments were recorded in 2002, 2001 or 2000.

Amortization

The Company adopted Statement of Financial Accounting Standards No. 142, ("SFAS No. 142"), "Goodwill and Other Intangible Assets" on January 1, 2002. As a result, the discontinuance of goodwill and other intangible asset amortization was effective upon adoption of SFAS No. 142. SFAS No. 142 also includes provisions for the reclassification of certain existing recognized intangibles as goodwill, reassessment of the useful lives of existing recognized intangibles, reclassification of certain intangibles out of previously reported goodwill, and the identification of reporting units for purposes of assessing potential future impairments of goodwill. The amount of the impairment is the difference between the carrying amount and the fair value of the asset. Fair value of the asset should be calcul ated using several valuation models, which utilize the expected future cash flows of the Trust. SFAS No. 142 requires the Company to complete a transitional goodwill impairment analysis during the quarter ended June 30, 2002. There was no material impact on the Company’s financial statements as a result of adopting SFAS No. 142.

Allocation of Profits and Losses

Profits and losses of the Company are allocated consistent with the economic priorities of the Company’s members relative to one another. The Company’s operating agreement provides that cash distributions to the Class B member are subordinate to Class A Payout. (Class A Payout is defined as the first time that the Class A members shall have been paid a cash return equal to all of their original capital contributions plus a yield of 12% per annum compounded annually, subject to certain adjustments.) Accordingly, the Company’s cumulative losses have been allocated first to the Class B member up to the amount of its original capital contribution of $750,000. Cumulative losses in excess of $750,000 have been allocated to the Class A members in proportion to their respective intere sts in aggregate Class A equity.

Future net income or net loss, as the case may be, will be allocated first to the Class A members until they reach Class A Payout. Neither the Class B nor the Class A members are required to make any additional capital contributions to the Company under the terms of the Company’s operating agreement.

Income Taxes

No provision for federal or state income taxes has been provided for the Company, as the liability for such income taxes is the obligation of the Company’s members.

Reclassification

Certain amounts previously reported have been reclassified to conform to the December 31, 2002 presentation.

NOTE 3 – Convertible Debentures

On June 10, 1999, the Company purchased $1,000,000 of convertible debentures from Kirkwood Associates, Inc. The debentures earned interest at the annual rate of 6.5%, compounded quarterly, and permitted the Company to convert both principal and accrued, but unpaid, interest into shares of common stock in Kirkwood Associates, Inc. at a defined conversion rate. On April 30, 2000, the Company elected to convert all of the principal and accrued, but unpaid, interest under the debentures ($1,059,125) into 962,841 shares of common stock in Kirkwood Associates, Inc. (See Note 4.)

NOTE 4 – Advances to and Membership Interests in Mountain Resort Holdings, LLC and Mountain Springs Resort, LLC

Mountain Resort Holdings LLC

The Company’s membership interests in Mountain Resort Holdings, LLC were obtained on April 30, 2000 as a result of the recapitalization of Kirkwood Associates, Inc. Under the recapitalization plan, the net assets of Kirkwood Associates, Inc., excluding certain tax liabilities, were contributed to Mountain Resort Holdings, LLC and the stockholders of Kirkwood Associates, Inc. exchanged their capital stock for membership interests in Mountain Resort Holdings, LLC.

At both December 31, 2002 and 2001, the Company owned approximately 38% of each of the Series A common membership interests and the Series B preferred membership interests of Mountain Resort Holdings, LLC. The Company purchased its initial equity interests in Kirkwood Associates, Inc. on June 10, 1999 at a discount to book value of approximately $3,329,000. On April 30, 2000, the Company completed certain additional equity transactions in connection with the recapitalization of Kirkwood Associates, Inc. These transactions caused the net purchase discount to be reduced to approximately $2,812,000, such amount representing the net amount by which the Company’s share of the net equity reported by Mountain Resort Holdings, LLC exceeded the purchase price paid by the Company for such interes ts. This difference is being treated as a reduction to the depreciable assets recorded by Mountain Resort Holdings, LLC and is being amortized as a reduction of depreciation expense over 13 years. The amortization period represents the weighted average estimated useful life of the long-term assets owned by Mountain Resort Holdings, LLC. The Company’s allocated share of the net income (loss) of Mountain Resort Holdings, LLC detailed below is adjusted for depreciation expense reductions of $213,398 in each of the years ended December 31, 2002 and 2001 and $227,629 for the year ended December 31, 2000.

A summary of the Company’s membership interest in Mountain Resort Holdings, LLC from inception to December 31, 2002 is presented in the table below.

Initial capital contribution and advances	$	6,750,000
Net loss from inception to December 31, 1999 (1)		(201,317	)
Membership interests and advances at December 31, 1999		6,548,683
Capital contributions		486,515
Purchase of additional membership interests		408,241
Net loss for the year ended December 31, 2000 (1)		(390,191	)
Distributions		(210,545	)
Membership interests and advances at December 31, 2000		6,842,703
Net income for the year ended December 31, 2001		15,634
Distributions		(210,545	)
Membership interests and advances at December 31, 2001		6,647,792
Net loss for the year ended December 31, 2002		(181,106	)
Distributions		(638,412	)
Membership interests and advances at December 31, 2002	$	5,828,274

__________

(1) The Company’s allocated share of the net income (loss) of Mountain Resort Holdings, LLC for 2001 and 2000 was determined based upon its common and preferred equity interests in Mountain Resort Holdings, LLC during the respective years/periods. From June 10, 1999 to April 30, 2000, the Company owned approximately 71% of the outstanding preferred equity interests and approximately 16% of the outstanding common equity interests of Mountain Resort Holdings, LLC. After the recapitalization on April 30, 2000, discussed above, the Company held approximately 38% of both the outstanding preferred and common equity interests of Mountain Resort Holdings, LLC. The Company’s allocated share of the net income or loss of the resort is influenced principally by the Company’s percentage sh are of the outstanding common interests of the resort during the respective periods. Consequently, the Company was allocated a larger share of the operating results of Mountain Resort Holdings, LLC during the period May 1, 2000 to December 31, 2000 (approximately 38%) compared to the period January 1, 2000 to April 30, 2000 (approximately 16%). The period from January 1 to April 30 is generally considered peak season for U.S. based ski resorts. During the period January 1, 2000 to April 30, 2000, Mountain Resort Holdings, LLC reported net income of approximately $3.6 million compared to a net loss of approximately $3.3 million during the period May 1, 2000 to December 31, 2000.

The table below provides summarized financial data for Mountain Resort Holdings, LLC as of and for the years ended December 31, 2002, 2001 and 2000.

.		2002			2001			2000
Total assets	$	49,117,000		$	51,420,000		$	49,054,000
Total liabilities	$	28,931,000		$	28,392,000		$	24,624,000
Total equity	$	20,186,000		$	23,028,000		$	24,430,000
Total revenues	$	29,462,000		$	29,597,000		$	27,741,000
Total operating and other income and expenses	$	30,336,000		$	30,117,000		$	27,464,000
Net income (loss)	$	(874,000	)	$	(520,000	)	$	277,000

Mountain Springs Resort, LLC

The Company and a third party established Mountain Springs Resort, LLC as a 50/50 joint venture for the purpose of acquiring certain common and preferred equity interests in DSC/Purgatory, LLC. The Company and its joint venture partner provided cash funds totaling $6,800,000 to Mountain Springs Resort, LLC, each member having contributed $2,400,000 of equity and $1,000,000 in the form of loans. The loans earned interest at the rate of 11.5% annually until their maturity on November 1, 2001 whereupon both the Company and its joint venture partner converted their respective loan principal and accrued, but unpaid, interest ($1,121,260 each) into equity interests in Mountain Springs Resort, LLC.

A wholly owned subsidiary of Mountain Springs Resort, LLC, Durango Resort, LLC, was established to acquire 80% of the common membership interests and 100% of the Class B preferred membership interests of DSC/Purgatory, LLC at a cost of approximately $6,311,000, including transaction costs of approximately $311,000. Subsequently, Mountain Springs Resort, LLC contributed additional equity totaling $302,400 to DSC/Purgatory LLC to pay its share of costs associated with planning for the development of Mountain Springs Resort, LLC’s real estate.

The assets, liabilities and equity of DSC/Purgatory, LLC were contributed at estimated fair value. The acquisition of DSC/Purgatory, LLC was accounted for using the purchase method of accounting. Accordingly, the excess of the purchase price over the net identifiable assets of DSC/Purgatory, LLC, or approximately $311,000, was allocated to goodwill and was amortized over a period of 13 years, through December 31, 2001. The Company’s allocated share of the net loss of Mountain Springs Resort, LLC includes amortization expense for goodwill of $11,970 and $6,983 in 2001 and 2000, respectively. The amount amortized had been included in equity income(loss) as an offset to the Advances to and membership interests in Mountain Springs Resort, LLC. In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets", the discontinuance of goodwill amortization was effective as of January 1, 2002.

The remaining equity interests of DSC/Purgatory, LLC, consisting of 20% of the common membership interests and 100% of the Class A preferred membership interests, are owned by a third party. The Class A preferred membership interests are senior to the other equity interests in DSC/Purgatory, LLC. Consequently, the Company’s economic interests in DSC/Purgatory, LLC are subordinate to the Class A member and have resulted in the Company recognizing a larger share of the net losses reported by DSC/Purgatory, LLC than would be the case if all equity interests were pari passu.

In October 2002, an existing owner and an unrelated third party contributed approximately $2.5 million to Mountain Springs. As a result of the capital contribution, EFG Kirkwood’s membership interest in Mountain Springs decreased from 50% to 33%. Mountain Springs used the proceeds from the additional capital contribution to exercise an option to purchase 51% of Durango Mountain Land Company, LLC, a real estate development company owning land in Durango, Colorado.

A summary of the Company’s advances to and membership interests in Mountain Springs Resort, LLC from inception to December 31, 2002 is presented in the table below.

Initial capital contribution	$ 700,000
Net loss from inception through December 31, 1999 (1)	(17,573 )
Membership interests and advances at December 31, 1999	682,427
Capital contributions	2,700,000
Net loss for the year ended December 31, 2000 (1)	(2,373,950 )
Membership interests and advances at December 31, 2000	1,008,477
Net loss for the year ended December 31, 2001	(231,472 )
Membership interests at December 31, 2001	777,005
Net loss for the year ended December 31, 2002	(1,029,067 )
Membership interests and advances at December 31, 2002	$ (252,062)

________

(1) Mountain Springs Resort, LLC purchased its interest in DSC/Purgatory, LLC effective May 1, 2000. The Company’s allocated share of net loss of Mountain Springs Resort, LLC prior to May 1, 2000 does not include any share of the income or loss from DSC/Purgatory, LLC.

As of December 31, 2002, the Company owns 33% of Mountain Springs Resort, LLC, which through a wholly owned subsidiary, Durango Resorts, LLC, owns 80% of the common membership interests and 100% of the Class B preferred membership interests of DSC/Purgatory, LLC. The operations of Mountain Springs Resort, LLC and Durango Resort, LLC are immaterial except for their investments in the entities as described above.

In accordance with equity method accounting, an equity investment may be reduced below zero if the investor has guaranteed obligations of the investee. During 2002, the Company’s investment in Mountain Springs Resort was reduced below zero as a result of the Company’s guarantee of a revolving line of credit for DSC/Purgatory LLC. (See Note 6).

The table below provides summarized financial data for DSC/Purgatory, LLC as of and for the years ended December 31, 2002, 2001 and 2000.

	2002	2001	2000
Total assets	$ 28,491,000	$ 29,793,000	$ 27,971,000
Total liabilities	$ 22,534,000	$ 20,904,000	$ 19,188,000
Total equity	$ 5,957,000	$ 8,889,000	$ 8,783,000
Total revenues (2)	$ 15,198,000	$ 15,250,000	$ 5,008,000
Total operating and other income and expenses (2)	$ 17,834,000	$ 15,648,000	$ 9,725,000
Net loss (2)	$ (2,636,000)	$ (398,000)	$ (4,717,000)

____________

(2) The Company became a member of DSC/Purgatory, LLC on May 1, 2000. Accordingly,
amounts reflected for 2000 are for the period May 1, 2000 through December 31, 2000 and
therefore excludes what is generally considered peak season for U.S. based ski resorts.

Due to the economic downturn in the tourism industry following September 11, 2001 terrorist attacks, the Company evaluated the fair value of its investments in the Resorts. The Company hired an independent third party appraiser who used a valuation model to determine the fair value of the investments in the Resorts, which included expected future cash flows from each of the Resorts. Based on the Company’s overall industry knowledge and the valuation performed by the appraiser, the Company concluded that no impairment of the Company’s investments in the Resorts was necessary as of December 31, 2002.

NOTE 5 – Related Party Transactions

The Company’s Class A and Class B members and its manager are affiliated. Semele Group Inc., through a wholly owned subsidiary, owns and controls the Company’s manager, AFG ASIT Corporation, as well as a controlling voting interest in each of the AFG Trusts.

The membership interests of the Company are owned as follows:

	Percentage
Class A membership interests
AFG Investment Trust A Liquidating Trust	10%
AFG Investment Trust B Liquidating Trust	20%
AFG Investment Trust C	40%
AFG Investment Trust D	30%
Total Class A membership interests	100%
Class B membership interests
Semele Group Inc.	100%

NOTE 6 – Guarantee

On August 1, 2001, the Company entered into a guarantee agreement whereby EFG Kirkwood guarantees the payment obligations under a revolving line of credit between Mountain Springs and a third party lender. Another investor in the ski resort also separately guarantees the payment obligation under the line of credit. The amount of the guarantee is equal to the outstanding balance of the line of credit which cannot exceed the principal balance of $3,500,000. The Company’s guarantee would require payment only in the event of default on the line of credit by DSC/Purgatory, LLC in an amount equal to amounts advanced less any amounts recovered from the other guarantor on the line. As of December 31, 2002, the outstanding balance on the line of credit was $2,550,000. The revolving line of credi t is scheduled to mature in October 2004. During 2002, the Company’s investment in Mountain Springs Resort, LLC was reduced below zero as a result of the Company’s guarantee of the revolving line of credit. (See Note 4).

NOTE 7 – Members’ Capital Contributions and Distributions

In December 2002, the Company declared and made a $640,575 distribution to the Class A members, allocated in accordance with their respective membership interests. During 2002, the members made a $1,600 capital contribution to the Company in accordance with their respective membership interests.

During the year ended December 31, 2000, the members made capital contributions totaling $3,186,515 in accordance with their respective membership interests. The Company used these capital contributions to purchase additional ownership interests in Mountain Resort Holdings, LLC and Mountain Springs Resort, LLC. (See Note 4).

NOTE 8 – Recent Accounting Pronouncements

In November 2002, the FASB issued Interpretation No. 45, "Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued.  It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee.  The initial recognition and initial measurement provisions of the interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002 and the disclosure requirements in this interpretation are effective for financial statements of interim or annual periods ending after December 15, 2002. The adoption of FIN 45 did not have a material impact on the Company’s financial position or results of operations.

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities ("FIN 46"). This interpretation clarifies existing accounting principles related to the preparation of consolidated financial statements when the equity investors in an entity do not have the characteristics of a controlling financial interest or when the equity at risk is not sufficient for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 requires a company to evaluate all existing arrangements to identify situations where a company has a "variable interest," commonly evidenced by a guarantee arrangement or other commitment to provide financial support, in a "variable interest entity," commonly a thinly capitalized entity, and further determine when such variable interest requires a company to consolidate the variable interest entities financial statement with its own. This interpretation applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date.  In October 2003, the FASB issued a Final FASB Staff Position deferring the effective date of FIN 46 for all public entities until the first interim or annual period ending after December 15, 2003. As such, FIN 46 will be effective for the Company as of December 31, 2003. Based on the recent release of this interpretation, the Company has not completed its assessment as to whether or not the adoption of this interpretation will have a material impact on its financial statements.

The Company is currently evaluating its investments in Mountain Resort Holdings LLC and Mountain Springs Resort LLC to determine if they meet the definition of a variable interest entity as defined in FIN 46. As of September 30, 2003, the Company’s maximum exposure of equity investments which could be effected by FIN 46 is $10.4 million, which represents the carrying value of the Company’s investments plus the outstanding balance on the revolving line of credit discussed in Note 6 above.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity". SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. In addition, SFAS No. 150 requires an issuer to classify certain instruments with specific characteristics described in it as liabilities (or as assets in some circumstances). Specially, SFAS No. 150 requires that financial instruments issued in the form of shares that are mandatorily redeemable; financial instruments that embody an obligation to repurchase the issuer’s equity shares or are indexed to such an obligation; or financial instruments that embody an unconditional obligation or a conditional obligation that can be settled in certain ways be classified as liabilities.

In October 2003, the FASB deferred for an indefinite period the application of the guidance in SFAS No. 150 to noncontrolling interests that are classified as equity in the financial statements of the subsidiary but would be classified as a liability in the parent's financial statements under SFAS No. 150 (e.g., noncontrolling interests in limited-life subsidiaries).  The FASB decided to defer the application of SFAS No. 150 to these noncontrolling interests until it could consider some of the resulting implementation issues associated with the measurement and recognition guidance for these noncontrolling interests.

Item 15(d) (iii)

Consolidated Financial Statements 

DSC/Purgatory, LLC

(d/b/a Durango Mountain Resort)

Year ended April 30, 2003 and eleven months ended April 30, 2002
with Report of Independent Certified Public Accountants

DSC/Purgatory, LLC

(d/b/a Durango Mountain Resort)

Consolidated Financial Statements 

Year ended April 30, 2003 and eleven months ended April 30, 2002

Contents

Report of Independent Certified Public Accountants	1
Consolidated Financial Statements
Consolidated Balance Sheets	2
Consolidated Statements of Operations	4
Consolidated Statements of Members' Capital (Deficit)	5
Consolidated Statements of Cash Flows	6
Notes to Consolidated Financial Statements	8

Report of Independent Certified Public Accountants

The Members

DSC/Purgatory, LLC

We have audited the consolidated balance sheets of DSC/Purgatory, LLC (a Colorado limited liability company d/b/a Durango Mountain Resort) as of April 30, 2003 and 2002 and the related consolidated statements of operations, members’ capital (deficit) and cash flows for the year ended April 30, 2003 and for the eleven months ended April 30, 2002. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the 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 financial statements referred to above present fairly, in all material respects, the consolidated financial position of DSC/Purgatory, LLC at April 30, 2003 and 2002, and the consolidated results of its operations and cash flows for the year ended April 30, 2003 and for the eleven months ended April 30, 2002, in conformity with accounting principles generally accepted in the United States.

/S/ ERNST & YOUNG LLP

July 30, 2003,

except for Note 9, as to which the date is
November 19, 2003

DSC/Purgatory, LLC

(d/b/a Durango Mountain Resort)

Consolidated Balance Sheets

	April 30
		2003			2002
Assets
Current assets:
Cash	$	511,338		$	1,305,516
Accounts receivable, net of allowance for doubtful accounts of $18,225 and $77,358, respectively		312,907			793,095
Accounts receivable – related parties		124,869			296,024
Inventory and supplies		488,764			609,861
Prepaid expenses		359,572			139,991
Entitlement note receivable – related party		1,158,996			–
Current portion of note receivable – related party		39,537			–
Total current assets		2,995,983			3,144,487
Property and equipment:
Land, buildings and improvements		9,609,127			8,818,057
Ski lifts and trails		9,229,376			8,395,729
Machinery and equipment		3,754,984			3,983,921
Construction in progress		–			14,023
Subtotal		22,593,487			21,211,730
Accumulated depreciation		(5,315,659	)		(3,601,905	)
Total property and equipment, net		17,277,828			17,609,825
Note receivable – related party		460,463			500,000
Real estate development costs		1,146,305			1,963,856
Restricted cash and investments		1,958,744			3,575,690
Special use permit, net of accumulated amortization of $90,900 and $60,613, respectively		1,120,440			1,148,204
Other assets, net of accumulated amortization of $66,975 and $24,525, respectively		661,591			823,230
Total assets	$	25,621,354		$	28,765,292

	April 30
		2003		2002
Liabilities and members’ capital
Current liabilities:
Accounts payable	$	1,797,785	$	1,473,747
Accounts payable – related parties		60,943		83,542
Deferred revenue		854,014		690,689
Line of credit		725,000		126,000
Accrued expenses and other current liabilities		1,207,903		1,290,818
Current portion of bonds, notes payable and obligations under capital leases		1,104,797		1,017,451
Total current liabilities		5,750,442		4,682,247
Bonds, notes payable and obligations under capital leases		11,899,753		12,974,874
Total liabilities		17,650,195		17,657,121
Commitments and contingencies
Minority interest		200		200
Members’ capital:
Duncan Interests		6,394,192		7,122,395
Durango Resorts, LLC		1,576,767		3,985,576
Total members’ capital		7,970,959		11,107,971
Total liabilities and members’ capital	$	25,621,354	$	28,765,292

See accompanying notes.

DSC/Purgatory, LLC

(d/b/a Durango Mountain Resort)

Consolidated Statements of Operations

	Year ended April 30 2003			Eleven months ended April 30 2002
Revenues:
Lift operations	$	6,674,589		$	7,330,090
Commercial and other mountain		5,480,298			5,502,462
Other		2,526,603			1,174,716
		14,681,490			14,007,268
Operating expenses:
Lift operations		3,041,494			2,881,157
Commercial and other mountain		4,935,544			4,224,377
General administrative and marketing		4,954,851			4,550,578
Depreciation and amortization		1,892,372			1,730,382
Other		1,593,564			1,099,867
Total operating expenses		16,417,825			14,486,361
Loss from operations		(1,736,335	)		(479,093	)
Interest expense, net		896,677			1,023,310
Net loss	$	(2,633,012	)	$	(1,502,403	)

See accompanying notes.

DSC/Purgatory, LLC

(d/b/a Durango Mountain Resort)

Consolidated Statements of Members’ Capital (Deficit)

	Duncan Interests			Durango Resorts, LLC
	Class A Preferred	Common	Total Duncan	Class B Preferred	Common	Total Durango Resort, LLC	Total
Balances at May 31, 2001	$7,500,000	$ (77,125)	$7,422,875	$6,000,000	$ (812,501)	$5,187,499	$12,610,374
Net loss	–	(300,481)	(300,481)	–	(1,201,922)	(1,201,922)	(1,502,403)
Balances at April 30, 2002	7,500,000	(377,606)	7,122,394	6,000,000	(2,014,423)	3,985,577	11,107,971
Distributions	–	(201,600)	(201,600)	–	(302,400)	(302,400)	(504,000)
Net loss	–	(526,602)	(526,602)	–	(2,106,410)	(2,106,410)	(2,633,012)
Balances at April 30, 2003	$7,500,000	$(1,105,808)	$6,394,192	$6,000,000	$(4,423,233)	$1,576,767	$ 7,970,959

See accompanying notes.

DSC/Purgatory, LLC

(d/b/a Durango Mountain Resort)

Consolidated Statements of Cash Flows

	Year ended April 30 2003			Eleven months ended April 30 2002
Cash flows from operating activities
Net loss	$	(2,633,012	)	$	(1,502,403	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		1,892,372			1,730,382
Bond discount amortization		15,684			279,366
Loss on disposal of assets		164,378			205,430
Changes in assets and liabilities:
Accounts receivable		480,188			(367,858	)
Accounts receivable – related parties		171,155			(134,024	)
Inventory and supplies		121,097			(214,413	)
Prepaid expenses		(219,581	)		112,977
Real estate development costs		(435,354	)		(1,298,280	)
Other assets		119,189			(5,995	)
Accounts payable		324,038			1,195,620
Accounts payable – related parties		(22,599	)		(37,128	)
Deferred revenue		163,325			165,290
Accrued expenses and other current liabilities		(82,915	)		98,877
Net cash (used in) provided by operating activities		(352,126	)		227,841
Cash flows from investing activities
Additions to property and equipment		(1,654,535	)		(950,216	)
Proceeds from sale of property		–			99,500
Net cash used in investing activities		(1,654,535	)		(850,716	)

Continued on next page.

DSC/Purgatory, LLC

(d/b/a Durango Mountain Resort)

Consolidated Statements of Cash Flows (continued)

	Year ended April 30 2003			Eleven months ended April 30 2002
Cash flows from financing activities
Proceeds from line of credit	$	3,224,000		$	2,673,025
Payments on line of credit		(2,625,000	)		(2,547,025	)
Proceeds from Series 2001 bonds		–			11,685,613
Payments on note payable		(265,035	)		(319,881	)
Payments on Series 2001 bonds		(670,000	)		(163,750	)
Payments on Series 1989 bonds		–			(9,256,950	)
Payments on capital leases		(68,428	)		(63,330	)
Decrease (increase) in restricted cash		1,616,946			(2,118,659	)
Net cash provided by (used in) financing activities		1,212,483			(110,957	)
Net decrease in cash and cash equivalents		(794,178	)		(733,832	)
Cash and cash equivalents, beginning of period		1,305,516			2,039,348
Cash and cash equivalents, end of period	$	511,338		$	1,305,516
Supplemental disclosures of cash flow information
Cash paid for interest, net of amounts capitalized	$	982,526		$	1,234,484
Supplemental schedules of non-cash activity
Distributions	$	504,000		$	–
Change in entitlement note receivable	$	(1,662,996	)	$	–
Change in real estate development costs	$	1,252,905		$	–
ElkPoint note receivable for sale of building	$	–		$	500,000
Forgiveness of accounts payable related party	$	–		$	75,043

See accompanying notes.

DSC/Purgatory, LLC

(d/b/a Durango Mountain Resort)

Notes to Consolidated Financial Statements

April 30, 2003

1. Ownership and Operations

DSC/Purgatory, LLC, is a Colorado limited liability company doing business as Durango Mountain Resort (the Company or the Resort). The Company is the owner and operator of a year-round resort community located on 100 acres approximately 25 miles north of Durango, Colorado.

Operations are varied and seasonal and include:

· Alpine and Nordic skiing and related programs

· Rental program and property management

· Rental and retail shops

· Restaurants, catering and conventions

· Adventure programs ranging from equestrian, mountain biking, fly fishing, hiking, climbing, and miniature golf

· Real estate development and sales

The ownership and associated interests of each Company member is as follows:

	Common		Preferred Class A		Preferred Class B
Durango Resorts, LLC (Durango)	80	%	–	%	100	%
Duncan Interests:
T-H Land Company, LLP (T-H)	13		65		–
Hermosa Partners, LLP (Hermosa)	5		25		–
Duncan Mountain, Inc. (DMI)	2		10		–
Totals	100	%	100	%	100	%

1. Ownership and Operations (continued)

T-H, Hermosa, and DMI are related to each other through common ownership and collectively referred to as the Duncan Interests.

The profits and losses of the Company are allocated to the members based upon their respective common ownership interests. If any cash distributions are declared, the Class A preferred interests are entitled to a priority distribution of $7.5 million followed by the Class B preferred interest, which is then entitled to a priority cash distribution of $6 million. After the priority distributions have been made, the Class A and Class B preferred interests will share pari passu distributions until each has received a 6% compounded, cumulative preferred return. After the priority and preferred distributions, any additional distributions shall be based upon the common ownership interests.

ElkPoint Development, LLC

During the year ended May 31, 2001, the Company formed ElkPoint Development, LLC (ElkPoint), as a wholly owned subsidiary of the Company. ElkPoint is primarily engaged in real estate sales and development on a 1.4-acre parcel adjacent to the core village (the ElkPoint Parcel).

ElkPoint was initially capitalized with approximately $750,000 in assets consisting of a clubhouse ($550,000), land ($50,000), and utility taps ($150,000). The ElkPoint Parcel was subdivided into 14 residential townhome lots and one commercial lot upon which the existing building is located. Elkpoint has incurred and capitalized $349,364 and $472,302 as of April 30, 2003 and 2002, respectively, on development, engineering and architectural costs related to the development and construction of the ElkPoint parcel.

During the eleven-month period ended April 30, 2002, ElkPoint sold a clubhouse and one utility tap to the Master Owners Association (MOA) for $500,000 for use as a clubhouse resulting in a loss of approximately $55,000. The MOA is an association of the resort condominium owners. In conjunction with the sale, the MOA issued a $500,000 note payable that accrues interest at 5% annually. The note requires monthly interest-only payments through May 2003 and monthly principal and interest payments thereafter through the May 2013 maturity date. ElkPoint recorded $24,958 and $28,531 in interest income related to the note payable in 2003 and 2002, respectively.

1. Ownership and Operations (continued)

As of April 30, 2002, ElkPoint had entered into an agreement to sell seven phase II townhome lots and utility taps to San Juan Mountain Investments, LLC (SJMI), a developer, for approximately $750,000. As payment, SJMI placed approximately $258,000 in escrow at closing, with the balance to be paid in increments as each constructed townhome is sold to a buyer. Thus, no revenue was recognized as of April 30, 2002, for the sale and the $258,000 deposit was recorded as deferred revenue. The sales agreement also included an option to purchase seven phase I townhome lots.

During 2003, SJMI sold all of the phase II townhome lots to third party buyers, at which time ElkPoint recorded as revenue the $258,000 deposit along with the additional cash proceeds from SJMI of approximately $492,000.

Also during 2003, SJMI exercised its option to purchase the seven phase I townhome lots. As part of this sale, Elkpoint received and recorded as revenue $497,000 for sale of the land and utility taps. Additionally, as part of the sales agreement, ElkPoint was to be reimbursed for all costs incurred related to the improvement of the land of approximately $175,000 plus additional cash proceeds of approximately $280,000 to be received upon SJMI’s sale of the townhome lots to third-party buyers. As of April 30, 2003, none of these lots had been sold to third-party buyers.

Durango Mountain Realty, LLC

During the year ended May 31, 2001, the Company and an unrelated third party formed Durango Mountain Realty, LLC (Realty), an 80% owned subsidiary of the Company. All profits and losses of Realty are allocated 100% to the Company, after deducting employment compensation of the other member. Realty is primarily engaged in the marketing and sale of real estate in the Resort and Durango area. The investment by the related party is recorded as minority interest.

Realty recorded $145,454 and $185,000 as of April 30, 2003 and 2002, respectively, as restricted cash and deferred revenue related to deposits received from third-party buyers of real estate.

1. Ownership and Operations (continued)

Durango Mountain Land Company, LLC

In May 2000, Durango signed an option agreement (Option I) with T-H to purchase a 51% interest in approximately 500 acres of unentitled real estate owned by T-H surrounding the Resort. To proceed with real estate development on the 500 Option I acres and the 100 acres owned by the Resort, the Company initiated certain entitlement and master planning (Entitlement) activities. In conjunction with Option I, Durango and T-H contributed a total of $504,000 toward initial Entitlement costs, which were originally recorded as capital contributions by the Company. The costs were paid 60% by Durango and 40% by T-H or $302,400 and $201,600, respectively ($504,000, in total).

In fiscal year 2003, Durango exercised Option I by paying T-H approximately $2.5 million. In conjunction with the exercise of this option, Durango and T-H formed Durango Mountain Land Company, LLC (Landco). On October 25, 2002, Durango and T-H signed an operating agreement in which it was agreed that Landco would acquire, develop, and otherwise operate this real estate. Additionally as part of this agreement, DSC/Purgatory agreed to reimburse Durango and T-H for their original capital contributions of $302,400 and $201,600, respectively.

Pursuant to the operating agreement, Durango and Landco agreed to allocate 84% of the real estate development costs already incurred in excess of the initial $504,000 to Landco and 16% to the Resort. The total payable of $504,000 due to Durango and T-H was netted against the outstanding receivable from Landco in 2003.

2. Significant Accounts and Policies

Principles of Consolidation

The consolidated financial statements of the Company include the accounts of its two subsidiaries, ElkPoint Development, LLC, and Durango Mountain Realty, LLC. All significant intercompany accounts and transactions have been eliminated in consolidation.

2. Significant Accounts and Policies (continued)

Change in Presentation

Historically, the Resort reported on a fiscal year ending May 31. Effective with the 2002 fiscal year, the Resort changed its year end to April 30; therefore, the financial statements for the period just completed are of and as for the twelve months ended April 30, 2003 and the comparative prior year are as of and for the eleven months ended April 30, 2002.

Reclassification

Certain reclassifications have been made in the prior year’s financial statements to conform to classifications used in the current year.

Cash

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.

Income Taxes

The Company and its subsidiaries are limited liability companies; therefore, the income tax results and activities flow directly to, and are the responsibility of the Members. As a result, the accompanying consolidated financial statements do not reflect a provision for federal or state income taxes.

Restricted Cash and Investment

The Company maintains reserve funds to secure future bond service obligations as required under the bond agreements. Amounts on deposit in the reserve funds will be transferred to the bond trustee, as needed, to cover any qualified resort improvements, operating expenses (under limited conditions), and deficiencies in required bond service payments. Reserve funds held are invested in U.S. governmental securities. The Company has the positive intent and ability to hold all of its investment securities to maturity and does not engage in trading or sales activity relating to these investments. These investments are classified as held to maturity and are recorded at amortized cost, which approximates their fair value.

2. Significant Accounts and Policies (continued)

Other amounts held as current restricted cash include, reserves under various insurance and sales contracts.

Components of restricted cash and investments are as follows:

	April 30
		2003		2002
Bond funds:
Construction (available for future qualifying Resort improvements)	$	683,609	$	1,540,466
Sinking reserve		1,184,500		1,191,360
Operating reserve (available for operations under limited conditions)		90,000		700,000
Property tax		–		80,933
Cost of issuance		635		62,931
Total	$	1,958,744	$	3,575,690

Accounts Receivable and Related Allowances

Accounts receivable consists mostly of trade and vacation wholesaler receivables primarily related to the most recent winter season. The allowance for doubtful accounts is based on an analysis of all receivables for possible impairment issues and historical write-off percentages. Account balances are written off when deemed uncollectible.

Inventory

Inventory consists primarily of retail clothing, ski equipment, and food and beverage inventories. Inventories are valued at the lower of cost or market value, generally using the average cost method, on a first-in, first-out basis.

2. Significant Accounts and Policies (continued)

Property, Equipment and Special Use Permit

The Company owns approximately 100 acres of the base area land including approximately 35,000 square feet of commercial facilities in the village plaza. The Company also has a significant investment in ski trails, lifts and related assets located on land leased from the United States Forest Service (USFS) under a special use permit (including two restaurant facilities on USFS land containing an aggregate of approximately 15,000 square feet of commercial space). The special use permit was renewed in 1999 for a 40-year term, which expires in 2039. The special use permit is included in other assets in the accompanying consolidated financial statements as of April 30, 2003 and 2002, at approximately $1,120,440 and $1,148,000, respectively, net of accumulated amortization.

Property and equipment is recorded at cost and depreciated using the straight-line method over the estimated useful lives of the related assets as follows:

	Useful Lives in Years
Buildings and improvements	5 to 40
Ski lifts and trails	10 to 40
Machinery and equipment	3 to 15

Impairment of Long-Lived Assets and Intangibles

In August 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 144, Accounting For the Impairment or Disposal of Long-Lived Assets (SFAS 144). SFAS 144 supersedes SFAS 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of , and requires that one accounting impairment model be used for long-lived asset s to be disposed of by sales, whether previously held and used or newly acquired, and broadens the presentation of discontinued operations to include more disposal transactions. SFAS 144 is effective for fiscal years beginning after December 15, 2001.

2. Significant Accounts and Policies (continued)

In connection with SFAS 144, the Company reviews its long-lived assets and certain identifiable intangibles for impairment whenever circumstances indicate that the carrying amount of an asset may not be recoverable. If the review reveals an impairment as indicated based on undiscounted cash flows, the carrying amount of the related long-lived assets or identifiable intangibles are adjusted to fair value. There has been no impairment of the Company’s long-lived assets or identifiable intangibles.

Real Estate Development Costs

The Company has been involved in real estate entitlement activity over the last 36 months. This entitlement activity primarily involves the approximate 100 acres owned by the Resort and the approximate 500 acres owned by Landco. The Company pays certain real estate development expenses on behalf of Landco and records these as a related party accounts receivable on the balance sheet, accruing simple interest at 9% (Entitlement Note). The Company capitalizes development costs related to its 100 acres when it clearly relates to the acquisition, development, and construction of the real estate project. Capitalized development costs were $435,354 and $1,298,280 for the year ended April 30, 2003 and the eleven months ended April 30, 2002, respectively. These costs are recorded on the consolidated balanc e sheets as real estate development costs.

Accounts Payable

Accounts payable balances represent trade obligations associated with the most recent winter season and preparation for the summer season. Upon presentation for payment, they will be funded through available cash balances or the Company’s line of credit.

Fair Value of Financial Instruments

The carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, approximate fair value due to the short-term maturities of these assets and liabilities.

The carrying amount of the Company’s short-term and long-term debt and note receivables approximates fair value.

2. Significant Accounts and Policies (continued)

Estimates and Assumptions

The preparation of financial statements, in conformity with accounting principles generally accepted in the United States, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingencies. Estimates have been prepared on the basis of the most current and best available information and actual results could differ from those estimates.

Other Assets

Other assets consist primarily of debt issuance costs and deferred finance charges, which are amortized over the life of the related obligation. These costs total approximately $373,000 and $433,000, net of accumulated amortization, as of April 30, 2003 and 2002, respectively. The remaining balances in the April 2002 account relates to capitalized tap fees held by ElkPoint that were subsequently sold.

Revenue Recognition

The Resort’s revenues are derived from a wide variety of sources, including sales of lift tickets, ski school tuition, dining, retail stores, equipment rentals, hotel management operations, travel reservation commissions, and commercial property rentals, and are recognized as services are performed.

The Resort records deferred revenue related to the sale of season ski passes, deposits relating to the sale of real estate, and proceeds placed in escrow pending future release events. The number of visits by season pass holders is estimated based on historical data, and the deferred revenue is recognized throughout the season based on this estimate. Real estate sales and related costs of sales are recognized when the deferral release events, generally transfer of title, are triggered.

2. Significant Accounts and Policies (continued)

The following table outlines the deferred revenue as of April 30, 2003 and 2002.

	April 30
		2003		2002
Real estate sales:
ElkPoint	$	–	$	258,000
Realty		145,454		185,500
Hotel deposits		65,609		–
Season pass		642,951		247,189
	$	854,014	$	690,689

Advertising Costs

Advertising costs are charged to operations as incurred. Advertising costs were approximately $827,000 and $878,000 for the periods ended April 30, 2003 and 2002, respectively.

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities include the following:

	April 30
		2003		2002
Payroll and vacation obligations	$	409,550	$	387,444
Seasonal trade accruals		231,257		357,000
Airline guarantee		176,000		242,082
Advance deposits		–		143,216
Interest expense		72,137		77,000
Pending litigation		70,486		60,000
Property taxes		98,548		17,788
Special use permit fees		140,626		4,001
Other		9,299		2,287
	$	1,207,903	$	1,290,818

3. Liquidity

The Resort has historically generated net losses and working capital deficits. Such losses and working capital deficits, as well as amounts required to fund its capital expenditures, have been funded through related party borrowings and capital contributions from Members. Management believes that the cash on hand, cash flow from operations, and repayment from related parties will provide adequate working capital to fund its future activities.

4. Debt

Long-term debt consists of the following:

	April 30
	2003	2002
Series 2001A Recreational Facilities Revenue Bonds (RFRB), tax exempt interest at 6.875%, with a maturity date of February 2012, with principal payments deferred until 2007, interest payments submitted to the trustee on a quarterly basis, secured in parity by certain real property and assets of the Company. The outstanding balance is net of a $137,000 unamortized discount at April 30, 2003.	$ 8,707,829	$ 8,692,169
Series 2001B Recreational Facilities Revenue Bonds (RFRB), interest of 9% with a maturity date of February 2006, interest and principal payments are submitted to the trustee on a quarterly basis, secured in parity by certain real property and assets of the Company.	2,166,250	2,836,250
Note payable to a third party, interest at prime plus 1%, (5.25% at April 30, 2003); principal and interest payable in December, January, February, March and April each year with unpaid principal due on maturity, April 1, 2008. Secured by certain assets of the Company.	1,480,107	1,726,823

4. Debt (continued)

Long-term debt consists of the following:

	April 30
		2003		2002
Mortgage payable, interest at 8%, principal and interest payable monthly with unpaid principal due on maturity, October 1, 2016 Secured by the underlying real estate.		$ 462,313		$ 480,632
Capital lease obligations at interest rates ranging from 6.9% to 10.7%.		188,051		256,451
Total debt		13,004,550		13,992,325
Less current portion		1,104,797		1,017,451
Long-term portion of debt	$	11,899,753	$	12,974,874

The RFRB agreements include various covenants and restrictions, the most restrictive of which relates to limits on the payment of dividends, capital expenditures, financial ratios, and the incurrence or guarantee of additional debt. Additionally, the Company must engage an independent consultant to make recommendations with respect to pricing and charges if Net Cash Flow, as defined, of the Company in any fiscal year is less than 115% of the principal and interest on all outstanding bonds, purchase money debt, and additional indebtedness which become due in such fiscal year. The cash flows for the year ended April 30, 2003, totaled less than 115%; therefore, an independent consultant was engaged to evaluate the Company’s pricing structure. The independent consultant’s report was delivere d to the trustee of the bondholders, which concluded that the Company was not in violation of the restrictive covenant.

The Company finances a portion of its machinery and equipment under capital lease obligations at interest rates ranging from 6.9% to 10.7%. Amortization of assets recorded under capital leases is included in depreciation expense.

4. Debt (continued)

Following is a summary of future principal payments on outstanding debt and capital leases as of April 2003:

		Capital Leases		Debt		Total
2004	$	91,808	$	1,012,989	$	1,104,797
2005		91,808		1,080,450		1,172,258
2006		28,450		1,213,830		1,242,280
2007		–		1,505,852		1,505,852
2008		–		1,613,269		1,613,269
Thereafter		–		6,390,109		6,390,109
	$	212,066
Less amounts representing interest		24,015				24,015
PV of future minimum lease payments		188,051	$	12,816,499	$	13,004,550
Less current portion		76,178
Long-term capital lease obligations	$	111,873

Line of Credit

The Company maintains a $3.5 million seasonal line of credit with a local bank. Interest on the line is accrued at prime plus 1% (5.25% at April 30, 2003) and paid monthly. The line must be paid to zero for 30 days each annual period. The line matures each August, at which time it automatically renews unless terminated by either party. Senior collateral for the line consists of the 30,000 square foot commercial space in the Village Center building and certain real property and assets of the Company on parity with the municipal bond indebtedness. As of April 30, 2003 and 2002, the Company’s outstanding balance under its seasonal line of credit totaled approximately $725,000 and $126,000, respectively.

5. Commitments and Contingencies

During the normal course of its operations, the Resort has been named a defendant in several ski-related lawsuits that the Company and its insurance carriers are actively contesting. In management’s opinion, the outcome of these disputes, net of insurance recoveries, will not have a significant effect on the Resort’s financial position or results of operations.

The Resort leases office and other facilities and certain equipment under long-term operating leases. Total rent expense for all operating leases for the periods ended April 30, 2003 and 2002, was approximately $234,000 and $157,000, respectively. Aggregate future minimum rental commitments under noncancellable operating leases are as follows:

2004	$	234,000
2005		85,000
2006		85,000
Total	$	404,000

From year to year, the Resort has executed agreements with airline companies to provide direct flights to Durango. These agreements require the Resort to guarantee specified minimum airline revenue. In 2003, the Resort only executed one guarantee agreement from Houston for which the maximum amount due under the agreement was $200,000. As of April 30, 2003, the Resort has recorded a payable of $176,000 related to this guarantee. The Resort does not plan on executing any future agreements with airline companies.

6. Recently Issued Accounting Pronouncements

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements 4, 44, and 64, Amendment of FASB Statement 13, and Technical Corrections (SFAS 145). This statement rescinds SFAS 4, SFAS 44, and SFAS 64. In addition, it also amends SFAS 13 to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-leaseback transactions. The Company does not expect adoption of SFAS 145 to have a material impact, if any, on its financial position or results of operations.

6. Recently Issued Accounting Pronouncements (continued)

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities (SFAS 146). This statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring) . This statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. The provisions of this statement are effective for exit or disposal activities that are initiated after December 31, 2002, with earlier application encouraged. The Company does not expect adoption of SFAS 146 to have a material impact, if any, on its financial position or results of operations.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation– Transition and Disclosure (SFAS 148), an amendment of SFAS 123. SFAS 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require more prominent and more frequent disclosures in financial statements about the effects of stock-based compensation. This statement is effective for financial statements for fiscal years ending after Decem ber 15, 2002. SFAS 148 will not have any impact on the Company’s financial statements.

7. Related Party Transactions

Following are the related party accounts included in the accompanying consolidated balance sheet:

	Receivable				Payable
		April 30 2003		April 30 2002		April 30 2003			April 30 2002
Duncan	$	–	$	66,164	$	–		$	(1,573	)
Durango		–		36,178		–			(26,471	)
Landco		1,158,996		–		(16,049	)		–
MOA		500,000		500,000		–			–
Other affiliates		124,869		193,682		(44,894	)		(55,498	)
Totals	$	1,783,865	$	796,024	$	(60,943	)	$	(83,542	)

7. Related Party Transactions (continued)

Amounts receivable are from affiliated homeowner’s associations, rental program participants, commercial space lessees and Landco. The notes receivable are from the MOA (an affiliated homeowner’s association) and Landco (the entitlement note receivable – related party). Amounts payable are to affiliated condo owners and Landco.

Insurance coverage is purchased through an insurance agency in which Duncan has a financial interest. Payments under such insurance contracts were approximately $82,000 and $74,000 for the periods ended April 30, 2003 and 2002, respectively.

The Landco receivable is an unsecured promissory note which bears simple interest at nine percent (9%) per annum and is payable in full on April 30, 2008.

The MOA receivable is a promissory note, secured by the building purchased by MOA, which bears simple interest at five percent (5%) per annum and is payable in installments until June 14, 2013.

8. Employee Benefit Plan

The Company sponsors a 401(k) defined contribution plan covering all employees over 21 years of age that meet certain experience requirements. The Company matches employee contributions based upon a set formula. In addition, each year management determines discretionary contributions to be made by the Company. For the periods ended April 30, 2003 and 2002, employer contributions to the plan totaled $32,219 and $24,874, respectively.

9. Subsequent Events

Subsequent to year-end on September 4, 2004, the Company agreed to the sale of all developable parcels within the 100 acres that it owns to Landco for approximately $2.2 million. The Company received a refundable $500,000 deposit (subject to a fairness appraisal) and a non-recourse promissory note bearing interest at 7% per annum. Interest is payable quarterly, with principal payments equal to at least 50% of the net sales proceeds received by Landco on the subsequent sale of the property sold. The deferred portion of the purchase price shall be secured by a first priority deed of trust on the property sold.

On November 19, 2003, Landco paid the outstanding balance on the Entitlement Note plus all accrued and unpaid interest.

10. Quarterly Results of Operations (UNAUDITED)

		Three Months Ended July 31, 2002			Three Months Ended October 31, 2002			Three Months Ended January 31, 2003		Three Months Ended April 30, 2003
Total revenues	$	732,903		$	1,352,447		$	6,815,307	$	5,780,833
Total expenses		` 3,063,984			3,566,440			6,449,190		4,234,888
Net income (loss)	$	(2,331,081	)	$	(2,213,993	)	$	366,117	$	1,545,945

		Two Months Ended July 31, 2001			Three Months Ended October 31, 2001			Three Months Ended January 31, 2002		Three Months Ended April 30, 2002
Total revenues	$	801,989		$	409,866		$	5,842,889	$	6,952,524
Total expenses		2,155,923			2,873,300			5,254,079		5,226,369
Net income (loss)	$	(1,353,934	)	$	(2,463,434	)	$	588,810	$	1,726,155

Item 15(d) (iv)

DSC/PURGATORY, LLC

(DBA DURANGO MOUNTAIN RESORT)

Consolidated Financial Statements

As Of May 31, 2001, 2000 And 1999

Together With Report Of Independent Public Accountants

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

THIS REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS IS A COPY OF A REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN LLP

AND HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP. THE INCLUSION OF THIS PREVIOUSLY ISSUED ANDERSEN REPORT IS PURSUANT

TO THE "TEMPORARY FINAL RULE AND FINAL RULE REQUIREMENTS FOR ARTHUR ANDERSEN LLP AUDITING CLIENTS", ISSUED BY THE U.S.

SECURITIES AND EXCHANGE COMMISSION IN MARCH 2002. NOTE THAT THIS PREVIOUSLY ISSUED ARTHUR ANDERSEN LLP REPORT INCLUDES

REFERENCES TO CERTAIN FISCAL YEARS, WHICH ARE NOT REQUIRED TO BE PRESENTED IN THE ACCOMPANYING CONSOLIDATED FINANICAL

STATEMENTS FOR THE YEAR ENDED MAY 31, 1999.

To the Members of

DSC/Purgatory, LLC:

We have audited the accompanying consolidated balance sheets of DSC/Purgatory,

LLC (a Colorado limited liability company dba Durango Mountain Resort) as of May

31, 2001 and 2000, and the related consolidated statements of operations,

members' capital (deficit) and cash flows for the year ended May 31, 2001, the

one-month period ended May 31, 2000 (post-acquisition - see Note 1), the

eleven-month period ended April 30, 2000 (pre-acquisition - see Note 1) and the

year ended May 31, 1999. These financial statements are the responsibility of

the Company's management. Our responsibility is to express an opinion on these

financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted

in the United States. Those standards require that we plan and perform the

audit to obtain reasonable assurance about whether the financial statements are

free of material misstatement. An audit includes examining, on a test basis,

evidence supporting the amounts and disclosures in the 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.

As discussed in Note 1 to the consolidated financial statements, the Company

sold a majority voting interest effective May 1, 2000. Accordingly, the assets,

liabilities and members' capital have been recorded to reflect the purchase

price. The assets and liabilities were recorded based upon the estimated fair

market values at the date of acquisition. Accordingly, the pre-acquisition and

post-acquisition financial statements are not comparable in all material

respects since these financial statements report the financial position, results

of operations and cash flows on two separate accounting bases.

In our opinion, the balance sheets and related statements of operations,

members' capital (deficit) and cash flows as of and for the year ended May 31,

2001, and for the one-month period ended May 31, 2000, referred to above present

fairly, in all material respects, the financial position of DSC/Purgatory, LLC

as of May 31, 2001 and 2000, and the results of its operations and its cash

flows for the year and one-month period then ended in conformity with accounting

principles generally accepted in the United States.

Also, in our opinion, the statements of operations, members' capital (deficit)

and cash flows for the eleven-month period ended April 30, 2000, and the year

ended May 31, 1999, referred to above present fairly, in all material respects,

the results of operations and cash flows of DSC/Purgatory, LLC for the

eleven-month period ended April 30, 2000, and the year ended May 31, 1999 in

conformity with accounting principles generally accepted in the United States.

/s/ ARTHUR ANDERSEN LLP

Denver, Colorado,

August 31, 2001.

DSC/PURGATORY, LLC
(dba DURANGO MOUNTAIN RESORT)
CONSOLIDATED BALANCE SHEETS
(See Notes 1 and 2)
		May 31,			May 31,
ASSETS		2001			2000
----------------------------------------------------
CURRENT ASSETS:
Cash and cash equivalents	$	2,039,348		$	3,268,448
Restricted cash and investments		493,405			226,708
Accounts receivable, net of allowance for doubtful
accounts of $13,200 and $13,000, respectively		587,237			466,631
Inventory and supplies, at cost		395,448			430,230
Prepaid expenses		252,968			229,117
Total current assets		3,768,406			4,621,134
PROPERTY AND EQUIPMENT, at cost:
Land, buildings and improvements		9,122,056			8,874,174
Ski lifts and trails		8,382,687			4,795,139
Machinery and equipment		3,596,764			2,782,788
Construction-in-progress		14,023			430,079
		21,115,530			16,882,180
Less- accumulated depreciation		(2,031,602	)		(158,035	)
Total property and equipment, net		19,083,928			16,724,145
REAL ESTATE DEVELOPMENT		859,331			-
RESTRICTED CASH AND INVESTMENTS		963,626			991,879
SPECIAL USE PERMIT, net of accumulated amortization
of $32,849 and $1,968, respectively		1,178,491			1,209,372
OTHER ASSETS, net of accumulated amortization
of $25,712 and $5,560, respectively		704,043			467,983
Total assets	$	26,557,825		$	24,014,513

The accompanying notes to consolidated financial statements

-----------------------------------------------------------

are an integral part of these consolidated balance sheets.

----------------------------------------------------------

DSC/PURGATORY, LLC

(dba DURANGO MOUNTAIN RESORT)

CONSOLIDATED BALANCE SHEETS

(See Notes 1 and 2)

		May 31,		May 31,
LIABILITIES AND MEMBERS' CAPITAL		2001		2000
-----------------------------------------------------
CURRENT LIABILITIES:
Accounts payable	$	278,127	$	556,331
Accrued expenses		1,191,941		1,145,223
Related party payable		120,670		115,428
Deferred revenue		525,399		-
Current portion of long-term debt		1,409,289		587,260
Current portion of obligations under capital leases		79,424		-
Notes payable to related party		-		2,500,000
Total current liabilities		3,604,850		4,904,242
LONG-TERM DEBT:
Bonds, including unamortized premium		8,360,310		8,980,524
Notes payable		1,741,734		495,503
Obligation under capital leases		240,357		-
		10,342,401		9,476,027
Total liabilities		13,947,251		14,380,269
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST		200		-
MEMBERS' CAPITAL:
Duncan interests		7,422,875		7,326,849
Durango Resort, LLC		5,187,499		5,307,395
Contribution receivable		-		(3,000,000	)
Total members' capital		12,610,374		9,634,244
Total liabilities and members' capital	$	26,557,825	$	24,014,513

The accompanying notes to consolidated financial statements

-----------------------------------------------------------

are an integral part of these consolidated balance sheets.

----------------------------------------------------------

DSC/PURGATORY, LLC

(dba DURANGO MOUNTAIN RESORT)

CONSOLIDATED STATEMENTS OF OPERATIONS

(See Notes 1 and 2)

					(Post-Acquisition)			(Pre - Acquisition)
		For the			For the One-Month			For the Eleven-Month			For the
		Year Ended			Period Ended			Period Ended			Year Ended
		May 31, 2001			May 31, 2000			April 30, 2000			May 31, 1999
REVENUES:
Lift operations	$	7,994,983		$	-		$	5,629,682		$	7,997,607
Commercial and other mountain operations		6,714,538			61,620			4,832,342			5,712,669
Other		1,045,362			30,412			771,072			1,001,829
Total Revenues		15,754,883			92,032			11,233,096			14,712,105
OPERATING EXPENSES:
Lift operations		3,066,098			133,988			2,642,962			2,801,565
Commercial and other mountain operations		4,839,228			252,568			3,443,490			4,178,591
General, administrative and marketing		4,168,772			241,490			3,683,346			3,919,263
Depreciation and amortization		1,908,077			160,135			1,620,168			1,797,611
Other		1,404,234			86,181			955,106			1,034,802
Total Operating Expenses		15,386,409			874,362			12,345,072			13,731,832
Income (loss) from operations		368,474			(782,330	)		(1,111,976	)		980,273
OTHER (EXPENSE) INCOME:
Interest expense		(1,127,539	)		(104,278	)		(1,703,228	)		(1,843,548	)
Interest income		231,195			20,852			135,776			124,537
Net loss	$	(527,870	)	$	(865,756	)	$	(2,679,428	)	$	(738,738	)

The accompanying notes to consolidated financial statements

are an integral part of these consolidated statements.

DSC/PURGATORY, LLC

(dba DURANGO MOUNTAIN RESORT)

CONSOLIDATED STATEMENTS OF MEMBERS' CAPITAL (DEFICIT)

FOR THE YEAR ENDED MAY 31, 2001,

THE ONE-MONTH PERIOD ENDED MAY 31, 2000,

THE ELEVEN-MONTH PERIOD ENDED APRIL 30, 2000,

AND THE YEAR ENDED MAY 31, 1999

(See Notes 1 and 2)

											Durango Resort, LLC
		Class A			Duncan			Total			Class B
		Preferred			Common			Duncan			Preferred		Common
BALANCES, at May 31, 1998	$	(4,107,760	)	$	-		$	(4,107,760	)	$	-	$	-
Net loss		(738,738	)		-			(738,738	)		-		-
BALANCES, at May 31, 1999		(4,846,498	)		-			(4,846,498	)		-		-
Net loss		(2,679,428	)		-			(2,679,428	)		-		-
BALANCES, at April 30, 2000		(7,525,926	)		-			(7,525,926	)		-		-
Conversion of related party debt		9,030,899			-			9,030,899			-		-
Acquisition of membership interest		-			-			-			6,000,000		-
Contributions of property and
equipment		5,995,027			-			5,995,027			-		-
Contribution receivable		-			-			-			-		-
Net loss		-			(173,151	)		(173,151	)		-		(692,605	)
BALANCES, at May 31, 2000		7,500,000			(173,151	)		7,326,849			6,000,000		(692,605	)
Cash contribution		-			201,600			201,600			-		302,400
Payment of contribution receivable		-			-			-			-		-
Net loss		-			(105,574	)		(105,574	)		-		(422,296	)
BALANCES, at May 31, 2001	$	7,500,000		$	(77,125	)	$	7,422,875		$	6,000,000	$	(812,501	)

		Contribution			Total Durango
		Receivable			Resort, LLC			Total
BALANCES, at May 31, 1998	$	-		$	-		$	(4,107,760	)
Net loss		-						(738,738	)
BALANCES, at May 31, 1999		-			-			(4,846,498	)
Net loss		-			-			(2,679,428	)
BALANCES, at April 30, 2000		-			-			(7,525,926	)
Conversion of related party debt		-			-			9,030,899
Acquisition of membership interest		-			6,000,000			6,000,000
Contributions of property and
equipment		-			-			5,995,027
Contribution receivable		(3,000,000	)		(3,000,000	)		(3,000,000	)
Net loss		-			(692,605	)		(865,756	)
BALANCES, at May 31, 2000		(3,000,000	)		2,307,395			9,634,244
Cash contribution		-			302,400			504,000
Payment of contribution receivable		3,000,000			3,000,000			3,000,000
Net loss		-			(422,296	)		(527,870	)
BALANCES, at May 31, 2001	$	-		$	5,187,499		$	12,610,374

The accompanying notes to consolidated financial statements

are an integral part of these consolidated statements.

DSC/PURGATORY, LLC

(dba DURANGO MOUNTAIN RESORT)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(See Notes 1 and 2)

		(Post - Acquisition)						(Pre - Acquisition)
		For the			For the One-Month			For the Eleven-Month			For the
		Year Ended			Period Ended			Period Ended			Year Ended
		May 31, 2001			May 31, 2000			April 30, 2000			May 31, 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(527,870	)	$	(865,756	)	$	(2,679,428	)	$	(738,738	)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities-
Depreciation and amortization		1,895,379			163,579			1,657,634			1,840,018
(Gain) loss on sale of assets		(5,518	)		14,937			-			10,890
(Increase) decrease in-
Accounts receivable		(120,606	)		(25,489	)		(62,927	)		(136,713	)
Inventory and supplies		34,782			(55,324	)		205,172			(143,216	)
Prepaid expenses		(23,851	)		9,073			(51,142	)		34,543
Other assets		(256,212	)		(14,248	)		54,887			10,206
(Decrease) increase in-
Accounts payable		(278,204	)		(321,833	)		186,386			181,102
Related party payable		5,242			41,193			(339,034	)		(125,028	)
Deferred revenue		525,399			-			-			-
Accrued expenses		46,718			802,065			788,441			(41,488	)
Net cash provided by (used in) operating
activities, excluding real estate
investment activities		1,295,259			(251,803	)		(240,011	)		891,576
Real estate investment activities-
Expenditures on real estate development		(859,331	)		-			-			-
Net cash provided by (used in)
operating activities, including
real estate investment activities		435,928			(251,803	)		(240,011	)		891,576
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment		(3,857,379	)		(510,900	)		(1,018,356	)		(694,851	)
Proceeds from sale of property and equipment		17,159			8,603			-			9,272
Payments received on notes receivable		-			-			12,548			1,963
Net cash used in investing activities	$	(3,840,220	)	$	(502,297	)	$	(1,005,808	)	$	(683,616	)

The accompanying notes to consolidated financial statements

are an integral part of these consolidated statements

DSC/PURGATORY, LLC

(dba DURANGO MOUNTAIN RESORT)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(See Notes 1 and 2)

					(Post - Acquisition)			(Pre - Acquisition)
					For the			For the
		For the			One-Month			Eleven-Month			For the
		Year Ended			Period Ended			Period Ended			Year Ended
		May 31,			May 31,			April 30,			May 31,
		2001			2000			2000			1999
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from related party line of credit	$	-		$	-		$	1,950,000		$	3,275,000
Proceeds from notes payable		2,089,920			-			-			-
Payments on notes payable		(71,655	)		-			-			-
Cash received in purchase transaction		-			1,800,000			1,200,000			-
Payments on related party notes payable		(2,500,000	)		-			-			(2,650,000	)
Payment of bond principal		(539,050	)		-			(496,250	)		(450,950	)
Payments on capital leases		(69,779	)		-			-			-
Cash received from contribution receivable		3,000,000			-			-			-
Capital contributions		504,000			-			-			-
(Increase) decrease in restricted cash and
investments		(238,444	)		(99,279	)		476,575			(119,178	)
Minority interest investment		200			-			-			-
Net cash provided by financing activities		2,175,192			1,700,721			3,130,325			54,872
Net (decrease) increase in cash and
cash equivalents		(1,229,100	)		946,621			1,884,506			262,832
CASH AND CASH EQUIVALENTS,
beginning of period		3,268,448			2,321,827			437,321			174,489
CASH AND CASH EQUIVALENTS,
end of period	$	2,039,348		$	3,268,448		$	2,321,827		$	437,321
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid for interest, net of amounts
capitalized	$	1,088,832		$	56,322		$	818,096		$	1,794,188
Property and equipment acquired under
capital lease	$	389,560		$	-		$	-		$	-

The accompanying notes to consolidated financial statements

are an integral part of these consolidated statements.

DSC/PURGATORY, LLC

------------------

(dba DURANGO MOUNTAIN RESORT)

-----------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

------------------------------------------

AS OF MAY 31, 2001 AND 2000

---------------------------

1. BUSINESS AND ORGANIZATION:

----------------------------

Operations and Ownership

--------------------------

DSC/Purgatory, LLC is a Colorado limited liability company doing business as

("dba") Durango Mountain Resort (the "Company"). The Company is the owner and

operator of a resort formerly known as the Purgatory Resort which is primarily a

ski resort. The Company also has related real estate holdings and is located

near Durango, Colorado. As of May 31, 2001, the Company is owned by

collectively the "Members", as follows:

- Durango Resort, LLC, a Delaware limited liability company ("Durango").

Durango owns 100% of the Class B preferred interest and 80% of the common

interest, and the following entities which are related through common ownership

(referred to hereinafter collectively as "Duncan"); Duncan owns 100% of the

Class A preferred interest and 20% of the common interest, as follows:

-          Hermosa Partners, LLP, a Colorado limited liability partnership

("Hermosa") - 5%,

-         Duncan Mountain, Inc. ("DMI", fka Durango Ski Corporation ("DSC")), a

Colorado "S" corporation - 2%, and

-         T-H Land Company, LLP, a Colorado limited liability partnership

("T-H Land") - 13%.

Purchase Transaction

---------------------

As part of the purchase agreement among the Members, dated November 24, 1999,

(the "Purchase Transaction") effective May 1, 2000, Durango acquired 80% of the

common interest of the Company and committed to acquire $6 million of Class B

preferred interests of the Company, of which $3 million cash was received as of

May 31, 2000 and $3 million was received during the year ended May 31, 2001.

During the year ended May 31, 2001, Durango and Duncan contributed to the

Company an additional $302,400 and $201,600, respectively, to pay for the

respective share of costs associated with planning for the real estate

development. In addition, as part of the Purchase Transaction, Duncan converted

approximately $9 million of debt and related interest and contributed commercial

real estate holdings located at the base of the ski resort valued at

approximately $6 million. The Purchase Transaction was accounted for under the

purchase method of accounting and the financial statements have been adjusted to

reflect the acquisition cost of Durango based upon the estimated fair value of

the assets acquired and liabilities assumed. As a result, the assets and

liabilities were recorded at the estimated fair value as of May 1, 2000.

In conjunction with the Purchase Transaction, the following assets were

contributed and liabilities assumed by the Members:

Fair value of assets acquired                      $ 25,600,607

Contribution receivable                                   3,000,000

Fair value of liabilities assumed                   (15,100,607)

                                                                            ---------------

Net assets acquired                                      $ 13,500,000

                                                                       =============

Durango                                                        $ 6,000,000

Duncan                                                            7,500,000

                                                                         ---------------

Net assets acquired                                     $ 13,500,000

                                                                      =============

As a result of the Purchase Transaction and the related purchase accounting

adjustments, the results of operations and the financial position of the Company

are not comparable between pre- and post-acquisition periods.

Prior to the Purchase Transaction, the Company had no employees and functioned

under a management agreement with DSC, whereby DSC employees provided operating

and management services to the Company in exchange for a management fee (Note

5). In conjunction with the Purchase Transaction, the employees of DSC were

transferred to the Company and the May 1, 1996 management agreement between the

Company and DSC was terminated.

Concurrent with the Purchase Transaction, Durango signed an option agreement

with T-H Land to purchase a 51% interest in approximately 500 acres of

unentitled real estate surrounding Purgatory Village. The option expires on May

1, 2002. Durango and T-H Land have further agreed to share entitlement costs up

to $500,000 incurred prior to the exercise date. These costs will be paid 60%

by Durango and 40% by T-H Land.

The ski resort operations of the Company have historically generated net losses

and working capital deficits. Such losses and working capital deficits, as well

as amounts required to fund its capital expenditures, have historically been

funded through borrowings from related parties or through capital contributions

from Members. Management believes that the cash contributions as well as cash

on hand will provide adequate working capital to fund its fiscal 2002

operations. If the estimated cash flows from operations are not achieved,

additional capital contributions or borrowings may be necessary during fiscal

2002.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

-----------------------------------------------

Basis of Presentation

-----------------------

The consolidated financial statements include the accounts of the Company and

its subsidiaries. All significant intercompany accounts and transactions have

been eliminated in consolidation.

During the year ended May 31, 2001, the Company formed Elk Point Development,

LLC ("Elk Point"), a wholly owned subsidiary of the Company. Elk Point is

primarily engaged in real estate development and maintenance activities.

During the year ended May 31, 2001, the Company and an unrelated third party

formed Durango Mountain Realty, LLC ("Realty"), an 80% owned subsidiary of the

Company. All profits and losses of Realty are allocated 100% to the Company,

after deducting employment compensation of the other member. Realty is

primarily engaged in the purchase, sale and development of real estate in the

Durango area.

Estimates and Assumptions

---------------------------

The preparation of financial statements, in conformity with accounting

principles generally accepted in the United States, requires management to make

estimates and assumptions that affect the reported amounts of assets and

liabilities and the disclosure of contingencies at the date of the financial

statements as well as the reported amounts of revenues and expenses during the

reporting period. Estimates have been prepared on the basis of the most current

and best available information, actual results could differ from those

estimates.

Allocation of Profits, Losses and Cash Distributions

----------------------------------------------------------

For financial reporting purposes, the profits and losses of the Company are

allocated to the Members based upon their respective common ownership interests.

Under the terms of the operating agreement between the Members, if any cash

distributions are declared, the Class A preferred interests are entitled to a

priority cash distribution of $7,500,000, followed by the Class B preferred

interest, which is entitled to a priority cash distribution of $6,000,000.

After the priority distributions have been made, the Class A and Class B

preferred interests will share pari passu distributions until each has received

a 6% compounded, cumulative preferred return. After the priority and preferred

distributions, any additional distributions shall be based upon the common

ownership interests, which is 80% to Durango and 20% to Duncan.

Inventory

---------

Inventory consists primarily of retail clothing, ski equipment and food and

beverage inventories. Inventories are valued at the lower of cost or market

value, generally using the average cost method, on a first-in, first-out basis.

Property, Equipment and Other Assets

----------------------------------------

The Company owns approximately one hundred acres of the base area land including

approximately 35,000 square feet of commercial facilities in Purgatory Village.

The Company also has a significant investment in ski trails, lifts and related

assets located on land leased from the United States Forest Service ("USFS")

under a Special Use Permit (including two restaurant facilities on USFS land

containing an aggregate of approximately 15,000 square feet of commercial

space).

Property and equipment is depreciated by the Company using the straight-line

method over the estimated useful lives of the related assets as follows:

Asset                                                                                     Useful Lives

----------------------------                                                            --------------

Buildings and improvements                                             5 to 40 years

Ski lifts and trails                                                                 10 to 40 years

Machinery and equipment                                                 3 to 15 years

Special Use Permit

--------------------

The Special Use Permit was previously held by DSC, as part of the Purchase

Transaction, a new forty year Special Use Permit was issued to the Company in

January 2000, which expires in 2039. The Special Use Permit is included in

other assets in the accompanying consolidated balance sheet as of May 31, 2001

at $1,178,000, net of accumulated amortization.

Deferred Loan Costs

---------------------

Costs and fees incurred in connection with the financing activities of the

Company have been capitalized and are being amortized to interest expense over

the terms of the related loans. Deferred loan costs of $318,000 and $172,000,

net of accumulated amortization, are included in other assets in the

accompanying consolidated balance sheets as of May 31, 2001 and 2000,

respectively.

Accrued Expenses

-----------------

Obligations of the Company are accrued as incurred. Included in accrued

expenses are:

                                                                         2001                                 2000

--------------------------------                           --------------                         ----------

USFS Special Use Permit fees                   $ 52,000                            $ 93,000

Accrued payroll obligations                       486,000                            400,000

Property taxes                                                 23,000                             146,000

Bond refinance costs                                   120,000                                     -

Pending litigation                                          136,000                              92,000

Accrued interest expense                            166,000                             146,000

Other                                                               209,000                             268,000

                                                                       -------------                          ----------

Total accrued expenses                            $ 1,192,000                         $1,145,000

                                                                ==============               ==========

Revenue Recognition

--------------------

Resort revenues are derived from a wide variety of sources, including sales of

lift tickets, ski school tuition, dining, retail stores, equipment rentals,

hotel management operations, travel reservation commissions, and commercial

property rentals, and are recognized as services are performed.

Deferred Revenue

-----------------

The Company records deferred revenue related to the sale of season ski passes

and certain daily lift ticket products. The number of season pass holder visits

is estimated based on historical data, and the deferred revenue is recognized

throughout the season based on this estimate. During the ski season the

estimated visits are compared to the actual visits and adjustments are made if

necessary.

Income Taxes

-------------

As the Company is a limited liability company, the income tax results and

activities flow directly to, and are the responsibility of the Members. As a

result, the accompanying consolidated financial statements do not reflect a

provision for federal or state income taxes.

Statements of Cash Flows

---------------------------

The Company considers all highly-liquid investments with original maturities of

three months or less to be cash equivalents.

Asset Impairment

-----------------

The Company reviews its long-lived assets for impairment whenever events or

changes in circumstances indicate that the carrying amount of the long-lived

assets may not be recoverable. For long-lived assets which are held and used in

operations, the long-lived asset would be impaired if the undiscounted future

cash flows related to the long-lived asset did not exceed net book value. The

amount of the impairment would then be determined by discounting the cash flows

or by using some other measure of fair value.

Capitalization Policies

------------------------

Capitalized development costs include costs associated with the development of

land, interest expense and property taxes on land under development and general

and administrative expenses to the extent they benefit the development of land.

Interest expense of $37,000 has been capitalized by the Company during fiscal

2001. No interest was capitalized relating to the development of land during

fiscal 2000.

Fair Value of Financial Instruments

---------------------------------------

The recorded amounts for cash and cash equivalents, accounts receivable, other

current assets, and accounts payable, accrued expenses and other current

liabilities approximate fair value due to the short-term nature of these

financial instruments. The fair value of the Company's notes payable

approximates fair value due to the variable nature of the interest rate

associated with that debt. The fair value of the Company's bonds approximate

fair value at May 31, 2000, due to the premium assigned to the bonds on May 1,

2000 associated with the Purchase Transaction. The fair value of the Company's

bonds at May 31, 2001 has been estimated using discounted cash flow analyses

based on current borrowing rates for debt with similar maturities and ratings.

The estimated fair value of the bonds at May 31, 2001 is presented below:

May 31, 2001

 ---------------------

Carrying                                                     Fair

Value                                                          Value

--------------------------------------

Bonds, including unamortized premium   $8,984,000    $9,078,000

Earnings Per Share

--------------------

Due to the Company's capital structure, the presentation of net income or loss

per share is not considered meaningful and has not been presented herein.

New Accounting Pronouncements

-------------------------------

In August 2001, the Financial Accounting Standards Board ("FASB") issued

Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for

the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS

No. 121 "Accounting for the Impairment of Long-Lived Assets and For Long-Lived

Assets to be Disposed of." SFAS No. 121 did not address the accounting for a

segment of a business accounted for as a discontinued operation which resulted

in two accounting models for long-lived assets to be disposed of. SFAS No. 144,

establishes a single accounting model for long-lived assets to be disposed of by

sale and requires that those long-lived assets be measured at the lower of

carrying amount or fair value less cost to sell, whether reported in continuing

operations or in discontinued operations. SFAS No. 144 is effective for fiscal

years beginning after December 15, 2001. The Company does not believe that the

adoption of SFAS No. 144 will have a material impact on its financial position

or results of operations.

In June 2001, the FASB issued SFAS No. 141, "Business Combinations" and SFAS No.

142, "Goodwill and Other Intangible Assets". These statements prohibit

pooling-of-interests accounting for transactions initiated after June 30, 2001,

require the use of the purchase method of accounting for all combinations after

June 30, 2001, and establish new standards for accounting for goodwill and other

intangibles acquired in business combinations. Goodwill will continue to be

recognized as an asset, but will not be amortized as previously required by APB

Opinion No. 17 "Intangible Assets." Certain other intangible assets with

indefinite lives, if present, may also not be amortized. Instead, goodwill and

other intangible assets will be subject to periodic (at least annual) tests for

impairment and recognition of impairment losses in the future could be required

based on a fair value approach as prescribed by these pronouncements. The

revised standards include transition rules and requirements for identification,

valuation and recognition of a much broader list of intangibles as part of

business combinations than prior practice, most of which will continue to be

amortized. The Company will adopt the following standard on June 1, 2002 and

does not believe that the adoption of SFAS No. 141 and SFAS No. 142 will have a

material impact on its financial position or results of operation.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement

Obligations". SFAS No. 143 addresses financial accounting and reporting for

obligations associated with the retirement of tangible long-lived assets and the

associated asset retirement costs. It applies to legal obligations associated

with the retirement of long-lived assets that result from the acquisition,

construction, development and (or) the normal operations of a long-lived asset,

except for certain obligations of leases. SFAS No. 143 is effective for

financial statements issued for fiscal years beginning after June 15, 2002. The

Company has not assessed the impact of adopting SFAS No. 143 on its financial

position or results of operations.

In December 1999, the staff of the Securities and Exchange Commission issued its

Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition." SAB No. 101

provides guidance on the measurement and timing of revenue recognition in

financial statements of public companies. The adoption of SAB No. 101 did not

have a material effect on the Company's financial position or results of

operations.

The FASB has issued SFAS No. 133, "Accounting for Derivative Instruments and

Hedging Activities," as subsequently amended by SFAS No. 137. SFAS No. 133

requires that companies recognize all derivatives as either assets or

liabilities in the balance sheet at fair value. Under SFAS No. 133, accounting

for changes in fair value of a derivative depends on its intended use and

designation. SFAS No. 133 as amended by SFAS No. 137 was adopted in the first

quarter of fiscal year 2001. The adoption of SFAS No. 133 as amended by SFAS

No. 137 did not have a material impact on the Company's financial position or

results of operations.

Reclassifications

-----------------

Certain prior period amounts have been reclassified to conform to the current

year presentation.

3. RESTRICTED CASH AND INVESTMENTS:

-----------------------------------

The Company maintains reserve funds to secure future bond service obligations as

required under the bond agreements. Amounts on deposit in the reserve funds

will be transferred to the bond trustee, as needed, to cover any deficiencies in

required bond service payments. Reserve funds held are invested in U.S.

Governmental Securities. The Company has the positive intent and ability to

hold all of its investment securities to maturity and does not engage in trading

or sales activity relating to these investments. These investments are

classified as held to maturity and are recorded at amortized cost, which

approximates their fair value.

Other amounts held as current restricted cash represent reserves required under

various insurance and purchase contracts.

4. LONG-TERM DEBT:

----------------

Long-term debt consists of the following as of May 31, 2001 and 2000:

		May 31,		May 31,
		2001		2000
Series 1989A Industrial Development Revenue Refunding
Bonds, interest at 9%; principal and interest payable in
quarterly installments to Trustee with unpaid principal due
on maturity, February 1, 2010. Secured in parity by certain
assets and agreements of the Company. (Including
unamortized premium of $280,524 and $311,693 as of May
31, 2001 and 2000, respectively).	$	8,983,974	$	9,554,193
Note payable to a third party, interest at prime plus 1%, (8%
at May 31, 2001); principal and interest payable in
December, January, February, March and April each year
with unpaid principal due on maturity, April 1, 2008.
Secured by certain assets of the Company.		2,031,866		-
		May 31,		May 31,
		2001		2000
Mortgage payable, interest at 9.4%; principal and interest
payable monthly with unpaid principal due on maturity,
October 1, 2001. Secured by the underlying real estate.	$	495,493	$	509,094
Notes payable to Duncan, paid in full in April 2001.		-		2,500,000
		11,511,333		12,563,287
Less: Current portion		1,409,289		3,087,260
	$	10,102,044	$	9,476,027

Bond Covenants

---------------

The bond agreements include various covenants and restrictions, the most

restrictive of which relate to limits on the payment of dividends, capital

expenditures, financial ratios, and the incurrence or guarantee of additional

debt.

Debt Maturities

----------------

Annual maturities for all long-term notes and bonds payable, net of bond premium

are as follows:

Year ending May 31-

2002                                                                         $ 1,378,263

2003                                                                               935,270

2004                                                                               995,270

2005                                                                            1,057,770

2006                                                                            1,127,770

      Thereafter                                                            5,736,466

                                                                                    --------------

                                                                                $ 11,230,809

                                                                      ====================

5. MANAGEMENT AGREEMENT:

----------------------

DSC entered into a management agreement with the Company effective May 1, 1996

that was terminated on April 30, 2000 in connection with the Purchase

Transaction discussed in Note 1. Under the terms of the management agreement,

DSC was responsible for operating, managing and maintaining the resort as a

full-service ski and summer destination resort. The Company was required to

reimburse DSC for the total compensation and employment related expenses of any

DSC employee who performed services under the agreement. Also, the Company

reimbursed DSC for amounts used to purchase and maintain equipment and supplies

to be utilized by the resort up to a budgeted amount. The total amount

reimbursed to DSC was $5,536,774 and $6,096,095 for the eleven-month period

ended April 30, 2000 and the year ended May 31, 1999, respectively, and has been

allocated to the various expense categories in the statements of operations

based upon actual services provided as follows.

		For the Eleven-
		Month Period		For the year
		Ended April 30, 2000		Ended May 31, 1999
Lift operations	$	1,576,836	$	1,741,760
Commercial and other mountain operations		1,872,245		2,046,510
Other		519,860		504,122
General, administrative and marketing		1,567,833		1,803,703
Total	$	5,536,774	$	6,096,095

DSC was also entitled to a management fee from 2% to 5% of earnings before

interest, income taxes, depreciation (and amortization), ("EBITDA") based on

annual budget versus actual EBITDA, provided that actual EBITDA is at least 100%

of budget. No such amounts were earned for the eleven-month period ended April

30, 2000 or the year ended May 31, 1999.

6. RELATED PARTY TRANSACTIONS:

-----------------------------

The Company leased land, retail sales locations and equipment from certain

affiliates prior to the Purchase Transaction. In connection with the Purchase

Transaction the leased land, retail sales locations and equipment were

contributed to the Company (Note 1). Lease payments made by the Company totaled

approximately $101,000 and $320,000 for the eleven-month period ended April 30,

2000 and the year ended May 31, 1999, respectively.

Insurance coverage is purchased through an insurance agency in which Duncan has

a financial interest. Payments under such insurance contracts were

approximately $222,000, $3,000, $188,000 and $160,000 for the year ended May 31,

2001, the one-month period ended May 31, 2000, the eleven-month period ended

April 30, 2000, and the year ended May 31, 1999, respectively.

During the year ended May 31, 2001, the Company repaid the note payable to

Duncan in the amount of $2,500,000. The Company also paid interest of $216,000

to Duncan associated with this note payable.

As of May 31, 2001 and 2000, certain affiliates of the Members owed the Company

approximately $162,000 and $124,000, respectively, for services provided, which

is included in accounts receivable in the accompanying consolidated balance

sheets. In addition, the Company owed certain affiliates

approximately $121,000 and $115,000, as of May 31, 2001 and 2000, respectively,

for services provided by the affiliates. The amounts receivable and payable are

as follows:

		Year Ended May 31, 2001							Year Ended May 31, 2000
		Receivable		Payable		Net			Receivable		Payable		Net
Durango	$	7,000	$	-	$	7,000		$	1,500	$	-	$	1,500
Duncan		30,000		113,000		(83,000	)		87,000		115,000		(28,000	)
Other affiliates		125,000		8,000		117,000			35,500		-		35,500
	$	162,000	$	121,000	$	41,000		$	124,000	$	115,000	$	9,000

7. COMMITMENTS AND CONTINGENCIES:

---------------------------------------

During the normal course of its operations, the Company is a defendant in

several ski-related lawsuits which the Company and its insurance carriers are

actively contesting. In management's opinion, the outcome of these disputes,

net of insurance recoveries will not have a significant effect on the Company's

financial position or results of operations.

The Company finances a portion of its machinery and equipment under capital

lease obligations at interest rates ranging from 6.9% to 10.7%. The future

minimum lease payments under capitalized lease obligations at May 31, 2001 are

as follows:

Year Ending May 31-
2002	$	91,808
2003		91,808
2004		91,808
2005		120,258
Total payments		395,682
Less: amounts representing interest		(75,901	)
Present value of future minimum
lease payments		319,781
Less: current portion of capital
lease obligations		(79,424	)
Long-term capital lease obligations	$	240,357

The Company leases office and other facilities and certain equipment under

long-term operating leases.

The majority of the leased office and other facilities and equipment was

contributed to the Company in the Purchase Transaction (Note 1). Total rent

expense for all operating leases for the year ended May 31, 2001, the one-month

period ended May 31, 2000, the eleven-month period ended April 30, 2000, and the

year ended May 31, 1999, was approximately $65,000, $9,000, $168,000 and

$402,000, respectively.

Aggregate future minimum annual rental commitments under noncancellable

operating leases as of May 31, 2001, are as follows:

Year Ending May 31-

2002                                       $ 3,592

2003                                          2,676

2004                                          2,676

2005                                          2,676

2006                                          2,230

                                                 --------

                                              $ 13,850

                                ====================

The Company has an agreement with two airlines to provide direct flights into

the Durango - La Plata County Airport, where one agreement expires March 31,

2002 and the other agreement is indefinite. The agreements require the Company

to guarantee specified minimum airline revenue. Any guaranteed obligations are

expected to be off-set, in part, by reimbursements from local businesses. The

guaranteed amounts expensed for the year ended May 31, 2001, one-month period

ended May 31, 2000, the eleven-month period ended April 30, 2000, and the year

ended May 31, 1999, totaled approximately $185,000, $0, $118,000 and $150,000,

respectively, and are included in general, administrative, and marketing on the

accompanying statements of operations.

8. SUBSEQUENT EVENTS:

-------------------

Subsequent to yearend the Company entered into a $3.5 million revolving line of

credit with a local bank, (the "Revolving Line"). The Revolving Line bears

interest based upon Prime and matures on August 1, 2002.

Unaudited Subsequent Events

-----------------------------

The Company also refinanced its mortgage payable. The refinanced mortgage bears

interest at 8% per annum, which could change on October 1, 2006 and October 1,

2011.

On November 29, 2001, the Company issued $8,845,000 of La Plata County, Colorado

Recreational Facilities Refunding Revenue Bonds, Series 2001A (the "Series 2001A

Bonds"), which will refund the outstanding Series 1989A Industrial Development

Revenue Refunding Bonds. The Series 2001A Bonds bear interest at 6.875% and are

due February 1, 2012. On November 29, 2001, the Company also issued $3,000,000

of La Plata County, Colorado Taxable Recreational Facilities Revenue Bonds,

Series 2001B, which bear interest at 9.0% and are due February 1, 2006.

EX-99.1

Exhibit 99.1

Certification Pursuant to 18 U.S.C. Section 1350,

As Adopted Pursuant to Section 906 of the

Sarbanes - Oxley Act of 2002

In connection with the AFG Investment Trust C (the "Trust"), Form 10-K/A Amendment No. 2 for the year ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, the Principal Executive Officer of the Trust’s Managing Trustee, hereby certifies pursuant to 18 U.S.C. §1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that:

(1) the Report of the Trust filed today fully complies with the requirements of Section 13(a) or 15 (d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Trust.

/s/ Gary D. Engle   

Gary D. Engle

President of AFG ASIT Corporation,

the Managing Trustee of the Trust

(Principal Executive Officer)

January 21, 2004

EX-99.2

Exhibit 99.2

Certification Pursuant to 18 U.S.C. Section 1350,

As Adopted Pursuant to Section 906 of the

Sarbanes - Oxley Act of 2002

In connection with the AFG Investment Trust C (the "Trust"), Form 10-K/A Amendment No. 2 for the year ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, the Principal Financial and Accounting Officer of the Trust’s Managing Trustee, hereby certifies pursuant to 18 U.S.C. §1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that:

(2) the Report of the Trust filed today fully complies with the requirements of Section 13(a) or 15 (d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Trust.

/s/ Richard K Brock    

Richard K Brock

Chief Financial Officer and Treasurer of AFG ASIT Corp.,

the Managing Trustee of the Trust

(Principal Financial and Accounting Officer)

January 21, 2004