<PAGE>

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

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-Q


/X/     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
            OF THE SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended June 30, 2002

                         Commission file number 0-16345

                          SHELBOURNE PROPERTIES I, INC.
             (Exact name of registrant as specified in its charter)

       Delaware                                       04-3502384
       --------                                       ----------
(State or other jurisdiction of                    (I.R.S. Employer
incorporation or organization)                    Identification No.)

     P.O. Box 9507, 7 Bulfinch Place, Suite 500, Boston, Massachusetts 02114
     -----------------------------------------------------------------------
                    (Address of principal executive offices)

                                 (617) 570-4600
              (Registrant's telephone number, including area code)



Indicate by check whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (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
                      --------               --------

As of August 13, 2002, there were 839,286 shares of common stock outstanding.

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



                                       1




<PAGE>



The financial information contained in this Form 10-Q for the periods prior to
April 18, 2001 are those of Shelbourne Properties I, Inc.'s predecessor in
interest, Integrated Resources High Equity Partners, Series 85, A California
Limited Partnership (the "Predecessor Partnership"). On April 18, 2001, the
Predecessor Partnership was merged with and into Shelbourne Properties I, L.P. a
limited partnership wholly owned, directly and indirectly, by Shelbourne
Properties I, Inc.

                                      INDEX

                                                                            Page
        Part I.  Financial Information
        Item 1. Condensed Consolidated Financial Statements:

           Condensed Consolidated Balance Sheets -
            June 30, 2002 and December 31, 2001............................    3

           Condensed Consolidated Statements of Operations -
            Three and Six Months Ended June 30, 2002 and 2001..............    4

           Condensed Consolidated Statement of Equity -
            Six Months Ended June 30, 2002.................................    5

           Condensed Consolidated Statements of Cash Flows -
            Six Months Ended June 30, 2002 and 2001........................    6

           Notes to Condensed Consolidated Financial Statements............    7

        Item 2.  Management's Discussion and Analysis of Financial
                 Condition and Results of Operations.......................   14

        Item 3.  Quantitative and Qualitative Disclosures
                 about Market Risk.........................................   24


        Part II. Other Information:

        Item 1.  Legal Proceedings.........................................   25

        Item 6.  Exhibits and Reports on Form 8-K..........................   26

        Signatures.........................................................   28




                                       2


<PAGE>


                          SHELBOURNE PROPERTIES I, INC.
                           FORM 10-Q - JUNE 30, 2002


                      CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                           (Unaudited)
                                                                           June 30, 2002            December 31, 2001
                                                                        ---------------------     -----------------------
ASSETS
<S>                                                                      <C>                       <C>
Real estate, net                                                         $        18,963,674       $          31,783,227
Cash and cash equivalents                                                          4,606,591                  14,191,726
Other assets                                                                       1,786,559                   3,013,830
Receivables, net of allowances of
   $95,114 and $92,074, respectively                                                 209,128                     279,777
Investment in joint ventures                                                      18,296,528                           -
                                                                        ---------------------     -----------------------

TOTAL ASSETS                                                             $        43,862,480       $          49,268,560
                                                                        =====================     =======================



LIABILITIES AND EQUITY


Accounts payable and accrued expenses                                    $         2,167,221       $             783,308
Other liabililities                                                                1,978,222                           -
Note payable                                                                      23,832,274                           -
                                                                        ---------------------     -----------------------

Total Liabilities                                                                 27,977,717                     783,308
                                                                        ---------------------     -----------------------

COMMITMENTS AND CONTINGENCIES

CLASS A 5% PREFERRED PARTNERSHIP INTERESTS,
   AT LIQUIDATION VALUE                                                              812,674                           -
                                                                        ---------------------     -----------------------


EQUITY


Common Stock:
   $.01 par value share; authorized 2,500,000 shares;
   issued 1,263,189 shares; outstanding 839,286 and
   1,263,189, respectively                                                            12,632                      12,632
Additional capital                                                                48,072,897                  48,072,897
Treasury stock, at cost                                                         (14,303,060)                           -
Retained earnings                                                               (18,710,380)                     399,723
                                                                        ---------------------     -----------------------

Total Equity                                                                      15,072,089                  48,485,252
                                                                        ---------------------     -----------------------

TOTAL LIABILITIES AND EQUITY                                             $        43,862,480       $          49,268,560
                                                                        =====================     =======================
</TABLE>


            See notes to condensed consolidated financial statements.



                                       3


<PAGE>


                          SHELBOURNE PROPERTIES I, INC.
                           FORM 10-Q - JUNE 30, 2002


                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                           For the Three Months Ended            For the Six Months Ended

                                                             June 30,           June 30,           June 30,          June 30,
                                                               2002               2001               2002              2001
                                                         ----------------   --------------     ----------------  --------------
<S>                                                       <C>                <C>                <C>               <C>
Rental revenues                                           $      870,132     $  2,432,586       $    2,477,679    $  5,492,411
                                                         ----------------   --------------     ----------------  --------------

Costs and Expenses


      Operating expenses                                         435,425          835,568              815,290       1,652,443
      Depreciation and amortization                              239,606          359,938              429,613         741,999
      Asset management fee                                             -          267,524              135,805         531,094
      Transition management fee                                   83,300                -              124,950               -
      Purchase of advisory agreements                                  -                -           18,452,133               -
      Administrative expenses                                  2,292,623          275,325            3,041,288         737,548
      Property management fee                                     25,373           77,043               71,286         164,684
                                                         ----------------   --------------     ----------------  --------------
                                                               3,076,327        1,815,398           23,070,365       3,827,768
                                                         ----------------   --------------     ----------------  --------------

(Loss) income before equity income from joint
      ventures, interest and other income                     (2,206,195)         617,188          (20,592,686)      1,664,643


      Equity income from joint ventures                          888,308                -            1,808,180               -
      Interest expense                                          (239,727)               -             (342,002)              -
      Interest income                                             12,938          149,440               27,805         332,522
      Other income                                                 1,959            2,320                3,951          17,966
                                                         ----------------   --------------     ----------------  --------------

Net (loss) income                                             (1,542,717)         768,948          (19,094,752)      2,015,131
Preferred dividends                                              (10,272)               -              (15,351)              -
                                                         ----------------   --------------     ----------------  --------------

Net (loss) income available for common shares             $   (1,552,989)    $    768,948       $  (19,110,103)   $  2,015,131
                                                         ================   ==============     ================  ==============

Earnings per share - basic and diluted

Net (loss) income per common share                        $        (1.85)    $       0.61       $       (20.23)   $       1.60
                                                         ================   ==============     ================  ==============

Weighted average common shares                                   839,286        1,263,189              944,676       1,263,189
                                                         ================   ==============     ================  ==============
</TABLE>



            See notes to condensed consolidated financial statements.



                                       4


<PAGE>



                          SHELBOURNE PROPERTIES I, INC.
                           FORM 10-Q - JUNE 30, 2002

                   CONDENSED CONSOLIDATED STATEMENT OF EQUITY
                                   (Unaudited)

<TABLE>
<CAPTION>
                               Common    Additional       Treasury       Retained
                                Stock     Capital          Stock         Earnings           Totals
                             ---------- --------------  --------------  --------------   ---------------
<S>                           <C>        <C>             <C>             <C>              <C>
Balance, January 1, 2002      $ 12,632   $ 48,072,897    $          -    $    399,723     $  48,485,252

Purchase of treasury stock           -              -     (14,303,060)              -       (14,303,060)

Preferred dividends                  -              -               -         (15,351)          (15,351)

Net loss                             -              -               -     (19,094,752)      (19,094,752)
                             ---------- --------------  --------------  ---------------   ---------------

Balance, June 30, 2002         $12,632    $48,072,897    $(14,303,060)   $(18,710,380)     $ 15,072,089
                             ========== ==============  ==============  ===============   ===============
</TABLE>












            See notes to condensed consolidated financial statements.



                                       5


<PAGE>


                          SHELBOURNE PROPERTIES I, INC.
                           FORM 10-Q - JUNE 30, 2002

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                            For the Six Months Ended
                                                                  June 30,
                                                   -----------------------------------------
                                                        2002                      2001
                                                   ----------------         ----------------
<S>                                                 <C>                      <C>
CASH FLOW FROM OPERATING ACTIVITIES:

Net (loss) Income                                   $ (19,094,752)           $    2,015,131
Adjustments to reconcile net (loss) income
  to net cash provided by operating activities:
    Depreciation and amortization                         429,613                   741,999
    Straight-line adjustment for stepped
      lease rentals                                        15,550                    22,309
    Increase in bad debt reserve                           50,000                         -
    Purchase of advisory agreement                     18,452,133                         -
    Equity income from joint ventures                  (1,808,180)                        -




Change in assets and liabilities:
    Accounts payable and accrued expenses               1,795,502                   246,352
    Other liabilities                                   1,978,222
    Receivables                                          (123,877)                  (20,910)
    Due to affiliates                                           -                  (396,320)
    Other assets                                        4,195,340                  (312,844)
                                                   ----------------         ----------------


Net Cash Provided by Operating Activities               5,889,551                 2,295,717
                                                   ----------------         ----------------

CASH FLOW FROM INVESTING ACTIVITIES:

    Improvements to real estate                           (55,464)                 (622,325)


CASH FLOW FROM FINANCING ACTIVITIES:


    Purchase of treasury stock                        (14,303,060)                        -
    Proceeds from note payable                         23,832,274                         -
    Payoff of note payable                            (17,639,459)                        -
                                                   ----------------         ----------------

Net Cash Used in Financing Activities                  (8,110,245)                        -
                                                   ----------------         ----------------

(Decrease) Increase in cash and cash equivalents       (2,276,158)                1,673,392

Cash and cash equivalents, beginning of year          14,191,726                13,229,944
                                                   ----------------         ----------------
Cash and cash equivalents related to investment
   in joing ventures                                   (7,308,977)                        -
                                                   ----------------         ----------------
    Adjusted cash and cash equivalents,
    beginning of year                                   6,882,749                13,229,944
                                                   ----------------         ----------------
Cash and cash equivalents, end of quarter           $   4,606,591            $   14,903,336
                                                   ================         ================

Supplemental Disclosure of Cash Flow Information:

    Cash Paid for Interest                          $     342,002            $            -
                                                   ================         ================
</TABLE>



            See notes to condensed consolidated financial statements.


                                       6


<PAGE>


              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

l.        GENERAL

          The accompanying condensed consolidated financial statements, notes
          and discussions should be read in conjunction with the consolidated
          financial statements, related notes and discussions contained in the
          Annual Report on Form 10-K of Shelbourne Properties I, Inc., a
          Delaware corporation (the "Company"), for the year ended December 31,
          2001.

          The financial information contained herein is condensed and unaudited;
          however, in the opinion of management, all adjustments (consisting
          only of normal recurring adjustments) necessary for a fair
          presentation of such financial information have been included. Results
          of operations for the three months and six months ended June 30, 2002
          are not necessarily indicative of the results to be expected for the
          entire year.


2.        SIGNIFICANT ACCOUNTING POLICIES

          Investment in Joint Ventures

          Certain properties are owned in joint ventures with Shelbourne
          Properties II, L.P. and/or Shelbourne Properties III, L.P. Prior to
          April 30, 2002, the Company owned an undivided interest in the assets
          owned by these joint ventures and was severally liable for
          indebtedness it incurred in connection with its ownership interest in
          those properties. Therefore, for periods prior to April 30, 2002, the
          Company's condensed consolidated financial statements presented the
          assets, liabilities, revenues and expenses of the joint ventures on a
          pro rata basis in accordance with the Company's percentage of
          ownership.

          After April 30, 2002, as a result of the Company's incurring debt in
          connection with entering into the Note Payable discussed in Note 8,
          the Company is no longer allowed to account for its investments in
          joint ventures on a pro-rata consolidation basis in accordance with
          its percentage of ownership but must instead utilize the equity method
          of accounting. Accordingly, the Company's condensed consolidated
          balance sheet at June 30, 2002 and the Company's condensed
          consolidated statements of operations for the three and six month
          period ended June 30, 2002 reflect the equity method of accounting.

          The impact of the change to equity accounting on the December 31, 2001
          condensed consolidated balance sheet was to reduce real estate by
          $12.5 million, cash and cash equivalents by $7.3 million, receivables
          by $0.1 million, accounts payable and accrued expenses by $0.4 million
          and to increase other assets by $3.1 million and investment in joint
          ventures by $16.4 million.

          Real Estate

          Real estate is carried at cost, net of adjustments for impairment.
          Repairs and maintenance are charged to expense as incurred.
          Replacement and betterments are capitalized. The Company evaluates the
          recoverability of the net carrying value of its real estate and
          related assets at least annually, and more often if circumstances
          dictate. If this review indicates that the carrying value of a
          property might not be recoverable, the Company prepares estimates of
          the future undiscounted cash flows expected to result from the use of
          the property and its eventual disposition, generally over a five-year
          holding period. In performing this review, management



                                       7


<PAGE>


              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


          takes into account, among other things, the existing occupancy, the
          expected leasing prospects of the property and the economic situation
          in the region where the property is located.

          If the sum of the expected future cash flows, undiscounted, is less
          than the carrying amount of the property, the Company recognizes an
          impairment loss and reduces the carrying amount of the property to its
          estimated fair value. Fair value is the amount at which the property
          could be bought or sold in a current transaction between willing
          parties, that is, other than in a forced or liquidation sale.
          Management estimates fair value using discounted cash flows or market
          comparables as most appropriate for each property. Independent
          certified appraisers are utilized to assist management when warranted.

          Impairment write-downs recorded by the Company prior to April 18, 2001
          did not affect the tax basis of the assets and were not included in
          the determination of taxable income or loss. No additional write-downs
          have been recorded since the effective date of the merger.

          Because the expected cash flows used to evaluate the recoverability of
          the property and their fair values are based upon projections of
          future economic events, such as property occupancy rates, rental
          rates, operating cost inflation and market capitalization rates, the
          amounts ultimately realized at disposition may differ materially from
          the net carrying values at the balance sheet dates. The cash flows and
          market comparables used in this process were based on good faith
          estimates and assumptions developed by management. Unanticipated
          events and circumstances may occur and some assumptions may not
          materialize; therefore, actual results may vary materially from the
          estimates. The Company may in the future provide additional
          write-downs, which could be material, if real estate markets or local
          economic conditions change.

          Treasury Stock

          Treasury stock is stated at cost.

          Amounts Per Share

          Net income (loss) per share is computed based on average shares
          outstanding.

          Recently Issued Accounting Pronouncements

          In July 2001, the FASB issued SFAS No. 142 "Goodwill and Other
          Intangible Assets." SFAS No. 142 addresses accounting and reporting
          for intangible assets acquired, except for those acquired in a
          business combination. SFAS No. 142 presumes that goodwill and certain
          intangible assets have indefinite useful lives. Accordingly, goodwill
          and certain intangibles will not be amortized but rather will be
          tested at least annually for impairment. SFAS No. 142 also addresses
          accounting and reporting for goodwill and other intangible assets
          subsequent to their acquisition. SFAS No. 142 is effective for fiscal
          years beginning after December 15, 2001. The Company has adopted this
          statement, which did not materially affect the Company's financial
          statements.

          In August 2001, the FASB issued SFAS No. 144 "Accounting for the
          Impairment or Disposal of Long-Lived Assets," which addresses
          financial accounting and reporting for the impairment or disposal of
          long-lived assets. This statement supersedes SFAS No. 121, "Accounting
          for the Impairment of Long-Lived Assets and for Long-Lived Assets to
          be Disposed Of" and the accounting and reporting provisions of APB
          Opinion No. 30, "Reporting the Results of


                                       8


<PAGE>


              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

          Operations - Reporting the Effects of a Disposal of a Business and
          Extraordinary, Unusual and Infrequently Occurring Events and
          Transactions," for the disposal of a segment of a business. SFAS No.
          144 is effective for fiscal years beginning after December 15, 2001,
          and interim periods within those fiscal years. The provisions of this
          Statement generally are to be applied prospectively. The Company has
          adopted this statement, which did not materially effect the Company's
          financial statements.

          In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
          Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and
          Technical Corrections," which updates, clarifies and simplifies
          existing accounting pronouncements. In part, this statement rescinds
          SFAS 4, "Reporting Gains and Losses from Exstinguishment of Debt."
          FASB No. 145 will be effective for fiscal years beginning after May
          15, 2002. Under adoption, enterprises must reclassify prior period
          items that do not meet the extraordinary item classification criteria
          in APB opinion No. 30. The Company does not expect that this statement
          will have an effect on the Company's financial statements.

3.        RELATED PARTY TRANSACTIONS

          On February 14, 2002, the Company, Shelbourne Properties II, Inc. and
          Shelbourne Properties III, Inc. (the "Companies") consummated a
          transaction (the "Transaction") whereby the Company purchased an
          advisory agreement (the "Advisory Agreement") between the Company and
          Shelbourne Management LLC ("Shelbourne Management"), an affiliate of
          Presidio Capital Investment Company, LLC ("PCIC"), and the 423,903
          shares of the Company's common stock held by subsidiaries of PCIC.
          PCIC is controlled and principally owned by affiliates of former
          senior management and one current director of the Company. The
          Company's operating partnership, Shelbourne Properties I, L.P., issued
          preferred partnership interests with an aggregate liquidation
          preference of $812,674 and a note in the amount of $17,639,459.
          Shelbourne Management's obligations under the contract terminated as
          of the effective date of the Transaction.

          In conjunction with the Transaction, PCIC entered into an agreement
          with the Companies and their respective operating partnerships to
          provide transition services, namely, accounting, asset management,
          investor services and treasury and cash management, for a period up to
          one year from the date of the agreement (until February 14, 2003) for
          a fee of $83,300 per month. This fee is allocated equally among the
          Companies. For the period from April 1, 2002 to June 30, 2002, the
          Company paid $83,300 for transition services and for the period from
          February 15, 2002 to June 30, 2002, the Company paid PCIC $124,950 for
          transition services. As a result of the settlement of all lawsuits
          (see note 8) this agreement was terminated effective September 30,
          2002 and all 3rd quarter transition fees owed were required to be paid
          in full by the Company in July 2002. The Company paid all transition
          fees owed on July 11, 2002.

          Prior to the Transaction, under the terms of the Advisory Agreements,
          Shelbourne Management provided the Company with all management,
          advisory and property management services. For providing these
          services, Shelbourne Management received (1) an annual asset
          management fee, payable quarterly, equal to 1.25% of the gross asset
          value of the Company as of the last day of each year, (2) property
          management fees of up to 6% of property revenues, (3) $150,000 for
          non-accountable expenses and (4) reimbursement of expenses incurred in
          connection with the performance of its services.

          Upon its disposition of the Advisory Agreements, Shelbourne Management
          was entitled to



                                       9



<PAGE>


              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

          receive reimbursement for non-accountable expenses for the period from
          January 1, 2002 through February 14, 2002. For that period Shelbourne
          Management received $18,750. Shelbourne Management was also entitled
          to receive an asset management fee for the period of January 1, 2002
          through February 14, 2002 equal to 1.25% of the gross asset value of
          the Company. For that period, Shelbourne Management received $135,805.

          On April 18, 2001, High Equity Partners LP Series 85, (the
          "Predecessor Partnership") was converted into a Real Estate Investment
          Trust. With the conversion, the Managing General Partner of the
          predecessor partnership was no longer entitled to receive fees for the
          administration of the partnership. As of the conversion date,
          Shelbourne Management was entitled to receive the fees formerly paid
          to the Managing General Partner. During the three months June 30,
          2001, the Managing General Partner received $7,083 for non-accountable
          expenses and $50,532 for the asset management fee. Shelbourne
          Management received $30,417 for non-accountable expenses and $216,992
          for the asset management fee. For the six months ended June 30, 2001,
          the Managing General Partner received $44,583 and Shelbourne
          Management received $30,417 for non-accountable expense. For the six
          months ended June 30, 2001 the Managing General Partner received
          $314,102 and Shelbourne Management received $216,992 for the asset
          management fee.

          Since October 2000, Kestrel Management L.P. ("Kestrel") has performed
          all property management services directly for the Predecessor
          Partnership and, as of April 18, 2001, the Company. The Transaction
          did not have any effect on the property management services contract
          between the Company and Kestrel. For the three months ended June 30,
          2002 and 2001, Kestrel earned $25,373 and $28,537, respectively. For
          the six months ended June 30, 2002 and 2001, Kestrel earned $71,286
          and $71,432, respectively.

          At June 30, 2002, $1,978,222 of payables to related joint ventures
          are included in other liabilities.

4.        REAL ESTATE

          The following table is a summary of the Company's real estate as of
          June 30, 2002:

                                             June 30, 2002     December 31, 2001
                                             (Unaudited)

          Land                               $ 7,505,421           $ 10,370,965
          Building and improvements           20,948,992             39,444,906
                                             ------------          -------------
                                              28,454,413             49,815,871
          Less: Accumulated depreciation      (9,490,739)           (18,032,644)
                                             ------------          -------------

                                             $18,963,674           $ 31,783,227
                                             ============          =============

          See footnote 2 "Investment in Joint Ventures" for the impact on real
          estate as a result of the change to equity accounting for joint
          ventures.

5.        INVESTMENT IN JOINT VENTURES

          The Company invests in three joint ventures, (568 Broadway, Century
          Park and Seattle Landmark). The joint ventures condensed consolidated
          statement of operations for the three and six months ending June 30,
          2002, are as follows:



                                       10



<PAGE>


              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                     FOR THREE MONTHS ENDED     FOR SIX MONTHS ENDED
                                                            JUNE 30,                   JUNE 30,
                                                              2002                       2002
                                                     ----------------------     --------------------
<S>                                                       <C>                        <C>
          Rental Revenues                                 $4,166,656                 $8,278,158

          Costs and Expenses                               2,068,105                  4,032,372
                                                          ----------                 ----------

          Income before interest and other income          2,098,551                  4,245,786

          Interest Income                                      6,980                     45,783
                                                          ----------                 ----------

          Net income for joint ventures                   $2,105,532                 $4,291,569
                                                          ==========                 ==========



          Equity Income from joint ventures for
          Shelbourne Properties I, Inc.                   $  888,308                 $1,808,180
                                                          ==========                 ==========
</TABLE>


6.        FEDERAL INCOME TAX CONSIDERATIONS

          As of April 18, 2001, our Predecessor Partnership was converted into a
          corporation that elected to be taxed as a real estate investment trust
          (REIT) under the provisions of the Internal Revenue Code. As a result,
          the shareholders of the REIT are required to include their
          proportionate share of any distribution of taxable income on their
          returns. REITs are required to distribute at least 90% of their
          ordinary taxable income to shareholders and meet certain income, asset
          and shareholder ownership requirements.

7.        CONVERSION

          As the first step in reorganizing the Predecessor Partnership into a
          publicly-traded REIT, a registration statement was filed with the
          Securities and Exchange Commission on February 11, 2000. On or about
          February 15, 2001, a prospectus/consent solicitation statement was
          mailed to the limited partners of the Predecessor Partnership seeking
          their consent to the reorganization of the Predecessor Partnership
          into a real estate investment trust. The consent solicitation period
          expired on April 16, 2001, and holders of a majority of the
          partnership units approved the conversion.

          On April 18, 2001 the conversion was accomplished by merging the
          Predecessor Partnership into our operating partnership. Pursuant to
          the merger, each limited partner received three shares of stock of the
          Company for each unit they owned, and the general partners received an
          aggregate of 63,159 shares of stock of the Company in exchange for
          their general partner interests. The common stock of the Company is
          listed on the American Stock Exchange under the symbol HXD.

  8.      NOTE PAYABLE

          On May 1, 2002, the operating partnerships of the Companies and
          certain of the operating


                                       11


<PAGE>


              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

          partnerships' subsidiaries entered into a $75,000,000 revolving credit
          facility with Bayerische Hypo-Und Vereinsbank AG, New York Branch, as
          agent for itself and other lenders (referred to as the "Credit
          Facility" or the "Note Payable"). The Credit Facility has a term of
          three years and is prepayable in whole or in part at any time without
          penalty or premium. The Companies initially borrowed $73,330,075 under
          the Credit Facility. The Company's share of the proceeds amounted to
          $23,832,274, of which $17,639,459 was used to repay the note issued in
          the Transaction, $172,733 to pay associated accrued interest and
          $667,145 to pay costs related to the Credit Facility. The excess
          proceeds of $5,352,937 were deposited into the Company's operating
          cash account. The Companies have the right, from time to time, to
          elect an annual interest rate equal to (i) LIBOR plus 2.5% or (ii) the
          greater of (a) agent's prime rate or (b) the federal funds rate plus
          1.5%. The Companies are required to pay the lenders, from time to
          time, a commitment fee equal to .25% of the unborrowed portion of the
          Credit Facility. Interest is payable monthly in arrears. The interest
          rate at June 30, 2002 was approximately 4.19%.

          The Credit Facility is secured by (i) a pledge by the operating
          partnerships of their membership interest in their wholly-owned
          subsidiaries that hold their interests in joint ventures with the
          other Company and (ii) mortgages on certain real properties owned
          directly or indirectly by the operating partnerships. All of the
          properties of the Companies are security for the Credit Facility.

          Under the terms of the Credit Facility, the Companies may only sell
          the pledged property if certain conditions are met. In addition, the
          Companies must maintain certain debt yield maintenance ratios and
          comply with restrictions relating to engaging in certain equity
          financings, business combinations and other transactions that may
          result in a change of control (as defined under the Credit Facility).

          The Companies are jointly and severally liable under the Credit
          Facility but have entered into a Contribution and
          Cross-Indemnification Agreement.

9.        SUBSEQUENT EVENTS

          On July 1, 2002, the Company, along with Shelbourne Properties II,
          Inc. and Shelbourne Properties III, Inc., entered into settlement
          agreements with respect to certain outstanding litigation involving
          the Companies. In connection with the settlement, the Company entered
          into a stock purchase agreement (the "HX Investors Stock Purchase
          Agreement") with HX Investors, L.P. ("HX Investors") and Exeter
          Capital Corporation ("Exeter"), the general partner of HX Investors,
          pursuant to which HX Investors, the owner of approximately 12% of the
          outstanding common stock of the Company, agreed to conduct a tender
          offer for up to an additional 30% of the Company's outstanding stock
          at a price per share of $53.00 (the "HX Investors Offer"). The tender
          offer commenced on July 5, 2002 following the filing of the required
          tender offer documents with the Securities and Exchange Commission by
          HX Investors.

          Pursuant to the Stock Purchase Agreement, the board of directors of
          the Company approved a plan of liquidation for the Company (the "Plan
          of Liquidation") and agreed to submit the Plan of Liquidation to its
          stockholders for approval at the 2002 annual meeting of stockholders
          to be held on September 9, 2002 (the "Annual Meeting"). HX Investors
          agreed to vote all of its shares in favor of the Plan of Liquidation
          at the Annual Meeting. Under the Plan of Liquidation, HX Investors
          would have received an incentive payment of 25% of gross proceeds
          after the payment of a priority return of approximately $59.00 per
          share was made to the stockholders of the Company.

          Subsequently, on July 29, 2002, Longacre Corp., an affiliate of Carl
          C. Icahn ("Icahn"),



                                       12


<PAGE>


              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

          commenced a litigation against the Company, and Icahn publicly
          announced that his related companies, together with outside investors,
          were prepared to initiate a competing tender offer for the same number
          of shares of common stock of the Company as were tendered for under
          the HX Investors Offer, at a price per share of $58.30. Over the
          course of the next several days, Icahn and HX Investors submitted
          competing proposals to the board of directors of the Company and made
          those proposals public. On August 4, 2002, Icahn notified the Company
          that he was no longer interested in proceeding with his proposed
          offer.

          On August 5, 2002, the Company entered into an amendment to the HX
          Investors Stock Purchase Agreement. Pursuant to the terms of the
          amendment, the purchase price per share offered under the HX Investors
          Offer was increased from $53.00 to $63.15. The amendment also reduced
          the incentive payment payable to HX Investors under the Plan of
          Liquidation from 25% to 15% of gross proceeds after payment of the
          approximately $59.00 per share priority return to stockholders of the
          Company, and included certain corporate governance provisions.

          The HX Investors Offer is scheduled to expire at midnight on Friday,
          August 16, 2002.




                                       13





<PAGE>



Item 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

          CAUTIONARY STATEMENTS UNDER THE PRIVATE SECURITIES LITIGATION REFORM
          ACT OF 1995. Statements contained herein may constitute
          "forward-looking statements" within the meaning of Section 27A of the
          Securities Act of 1933, as amended, and Section 21E of the Securities
          Exchange Act of 1934, as amended. Any statements contained herein
          which are not statements of historical facts and that address
          activities, events or developments that Shelbourne Properties I, Inc.
          expects, believes or anticipates will or may occur in the future shall
          be deemed to be forward-looking statements. Forward-looking statements
          are inherently subject to risks and uncertainties, many of which
          cannot be predicted with accuracy and some of which might not even be
          anticipated. Future events, actual results and performance financial
          and otherwise, could differ materially from those set forth in or
          contemplated by the forward-looking statements herein. Factors that
          could cause actual results to differ materially from those in
          forward-looking statements include the terms of future property sales,
          investments and financings, general economic and business conditions
          and various other risk factors listed in the registration statement of
          Shelbourne Properties I, Inc. filed with the Securities and Exchange
          Commission.

          This item should be read in conjunction with the financial statements
          and other items contained elsewhere in the report.

          On February 14, 2002, the Companies announced the consummation of the
          Transaction whereby the Companies (i) purchased each of the Advisory
          Agreements between the Companies and PCIC and (ii) repurchased all of
          the shares of capital stock in the Companies held by PCIC (the
          "Shares").

          Pursuant to the Transaction, the Company paid PCIC $14,303,060 in cash
          and its operating partnership, Shelbourne Properties I, L.P. issued
          preferred partnership interests with an aggregate liquidation
          preference of $812,674 and issued a note in the amount of $17,639,459.

          The Transaction was unanimously approved by the Boards of Directors of
          each of the Companies after recommendation by their respective Special
          Committees comprised of the Companies' three independent directors.

          Houlihan Lokey Howard & Zukin Capital served as financial advisor to
          the Special Committees of the Companies and rendered a fairness
          opinion to the Special Committees with respect to the Transaction.

          On May 1, 2002, the operating partnerships of the Companies and
          certain of the operating partnerships' subsidiaries entered into a
          $75,000,000 revolving credit facility with Bayerische Hypo-Und
          Vereinsbank AG, New York Branch, as agent for itself and other lenders
          (the "Credit Facility"). The Credit Facility has a term of three years
          and is prepayable in whole or in part at any time without penalty or
          premium. The Companies initially borrowed $73,330,075 under the Credit
          Facility. The Company's share of the proceeds amounted to $23,832,274,
          of which $17,639,459 was used to repay the note issued in the
          Transaction, $172,733 to pay associated accrued interest and $667,145
          to pay costs related to the Credit Facility. The excess proceeds of
          $5,352,937 were deposited into the Company's operating cash account.
          The Companies have the right, from time to time, to elect an annual
          interest rate equal to (i) LIBOR plus 2.5% or (ii) the greater of (a)
          the agent's prime rate or (b) the federal funds rate plus 1.5%. The
          Companies are



                                       14



<PAGE>



          required to pay the lenders, from time to time, a commitment fee equal
          to .25% of the unborrowed portion of the Credit Facility.

          The Credit Facility is secured by (i) a pledge by the operating
          partnerships of their membership interest in their wholly-owned
          subsidiaries that hold their interests in joint ventures with the
          other Companies and (ii) mortgages on certain real properties owned
          directly or indirectly by the operating partnerships. All of the
          properties of the Company are security for the Credit Facility.

          Under the terms of the Credit Facility, the Companies may only sell
          the pledged property if certain conditions are met. In addition, the
          Companies must maintain certain debt yield maintenance ratios and
          comply with restrictions relating to engaging in certain equity
          financings, business combinations and other transactions that may
          result in a change of control (as defined under the Credit Facility).

          The Companies are joint and severally liable under the Credit Facility
          but have entered into a Contribution and Cross-Indemnification
          Agreement.

          At the request of HX Investors, L.P. ("HX Investors") - the largest
          stockholder of the Company and an entity controlled by Mr. Michael
          Ashner - the board of directors of the Company waived a provision in
          its certificate of incorporation (as it applies to HX Investors) that
          otherwise prohibits a stockholder from beneficially owning more than
          8% of the common stock of the Company to allow HX Investors to own up
          to 12% of the common stock of the Company. Pursuant to a Stockholder
          Agreement among the Company, Shelbourne Properties II, Inc.,
          Shelbourne Properties III, Inc., HX Investors and the general partner
          of HX Investors, HX Investors agreed that until January 1, 2003, with
          respect to all matters submitted for the approval of the Company's
          stockholders (1) with the approval and recommendation of the Company's
          board of directors or (2) by HX Investors or its affiliates, HX
          Investors and its affiliates would vote all shares beneficially owned
          by them in excess of the 8% threshold in proportion to the votes cast
          by the stockholders of the Company (including the 8% of the shares
          beneficially owned by HX Investors). Mr. Ashner is associated with
          Kestrel, the property manager for the Company's properties.

          The foregoing description of the Stockholder Agreement and the Credit
          Facility are qualified in their entirety by reference to such
          agreements, copies of which are attached as exhibits to our Current
          Report on Form 8-K filed on May 14, 2002, which is incorporated herein
          by reference.

          Recent Developments

          On July 1, 2002, the Company, along with Shelbourne Properties II,
          Inc. and Shelbourne Properties III, Inc., entered into settlement
          agreements with respect to certain outstanding litigation involving
          the Companies. In connection with the settlement, the Company entered
          into a stock purchase agreement (the "HX Investors Stock Purchase
          Agreement") with HX Investors and Exeter, the general partner of HX
          Investors, pursuant to which HX Investors, the owner of approximately
          12% of the outstanding common stock of the Company, agreed to conduct
          a tender offer for up to an additional 30% of the Company's
          outstanding stock at a price per share of $53.00 (the "HX Investors
          Offer"). The tender offer commenced on July 5, 2002 following the
          filing of the required tender offer documents with the Securities and
          Exchange Commission by HX Investors.

          Pursuant to the Stock Purchase Agreement, the board of directors of
          the Company approved a plan of liquidation for the Company (the "Plan
          of Liquidation") and agreed to submit the Plan of




                                       15



<PAGE>



          Liquidation to its stockholders for approval at the 2002 annual
          meeting of stockholders to be held on September 9, 2002 (the "Annual
          Meeting"). HX Investors agreed to vote all of its shares in favor of
          the Plan of Liquidation at the Annual Meeting. Under the Plan of
          Liquidation, HX Investors would have received an incentive payment of
          25% of gross proceeds after the payment of a priority return of
          approximately $59.00 per share was made to the stockholders of the
          Company.

          Subsequently, on July 29, 2002, Longacre Corp., an affiliate of Carl
          C. Icahn ("Icahn"), commenced a litigation against the Company, and
          Icahn publicly announced that his related companies, together with
          outside investors, were prepared to initiate a competing tender offer
          for the same number of shares of common stock of the Company as were
          tendered for under the HX Investors Offer, at a price per share of
          $58.30. Over the course of the next several days, Icahn and HX
          Investors submitted competing proposals to the board of directors of
          the Company and made those proposals public. On August 4, 2002, Icahn
          notified the Company that he was no longer interested in proceeding
          with his proposed offer.

          On August 5, 2002, the Company entered into an amendment to the HX
          Investors Stock Purchase Agreement. Pursuant to the terms of the
          amendment, the purchase price per share offered under the HX Investors
          Offer was increased from $53.00 to $63.15. The amendment also reduced
          the incentive payment payable to HX Investors under the Plan of
          Liquidation from 25% to 15% of gross proceeds after payment of the
          approximately $59.00 per share priority return to stockholders of the
          Company, and included certain corporate governance provisions.

          The HX Investors Offer is scheduled to expire at midnight on Friday,
          August 16, 2002.

          Critical Accounting Policies

          The preparation of financial statements in conformity with accounting
          principles generally accepted in the United States requires management
          to make estimates and assumptions in certain circumstances that affect
          amounts reported in the accompanying financial statements and related
          footnotes. In preparing these financial statements, management has
          made its best estimates and judgments of certain amounts included in
          the financial statements, giving due consideration to materiality. The
          Company does not believe there is a great likelihood that materially
          different amounts would be reported related to the accounting policies
          described below. However, application of these accounting policies
          involves the exercise of judgment and use of assumptions as to future
          uncertainties and, as a result, actual results could differ from these
          estimates.

          Impairment of long-lived assets. At June 30, 2002 and December 30,
          2001, the Company had $18,963,674 and $19,238,027 of real estate
          (net), accounting for approximately 43% and 39%, respectively, of the
          Company's total assets. Property and equipment is carried at cost net
          of adjustments for impairment. The fair value of the Operating
          Partnership's property and equipment is dependent on the performance
          of the properties.

          The Company evaluates recoverability of the net carrying value of its
          real estate and related assets at least annually, and more often if
          circumstances dictated. If there is an indication that the carrying
          value of a property might not be recoverable, the Company prepares an
          estimate of the future undiscounted cash flows expected to result from
          the use of the property and its eventual disposition, generally over a
          five-year holding period. In performing this review, management takes
          into account, among other things, the existing occupancy, the expected
          leasing prospects of the property and the economic situation in the
          region where the property was located.

          If the sum of the expected future undiscounted cash flows is less than
          the carrying amount of the



                                       16



<PAGE>


          property, the Company recognizes an impairment loss, and reduces the
          carrying amount of the asset to its estimated fair value. Fair value
          is the amount at which the asset could be bought or sold in a current
          transaction between willing parties, that is, other than in a forced
          or liquidation sale. Management estimates fair value using discounted
          cash flows or market comparables, as most appropriate for each
          property. Independent certified appraisers are utilized to assist
          management, when warranted.

          For the years ended December 31, 2001, 2000, and 1999, no impairment
          losses have been recorded. Cumulative impairment losses from previous
          years for all properties included in real estate in the accompanying
          balance sheets would amount to $9,700,000. Impairment write-downs
          recorded by the Corporation do not affect the tax basis of the assets
          and are not included in the determination of taxable income or loss.

          Because the cash flows used to evaluate the recoverability of the
          assets and their fair values are based upon projections of future
          economic events, such as property occupancy rates, rental rates,
          operating cost inflation and market capitalization rates which are
          inherently subjective, the amounts ultimately realized at disposition
          may differ materially from the net carrying values at the balance
          sheet dates. The cash flows and market comparables used in this
          process are based on good faith estimates and assumptions developed by
          management.

          Unanticipated events and circumstances may occur and some assumptions
          may not materialize; therefore, actual results may vary from the
          estimates and variances may be material. The Company may provide
          additional write-downs, which could be material in subsequent years if
          real estate markets or local economic conditions change.

          Useful lives of long-lived assets. Property and equipment, and certain
          other long-lived assets are amortized over their useful lives.
          Depreciation and amortization are computed using the straight-line
          method over the useful life of the property and equipment. The cost of
          properties represents the initial cost of the properties to the
          Company plus acquisition and closing costs less impairment
          adjustments. Tenant improvements and leasing costs are amortized over
          the applicable lease term. Useful lives are based upon management's
          estimate over the period that the assets will generate revenue.

          Revenue Recognition. Base rents are recognized on a straight-line
          basis over the terms of the related leases. Percentage rents charged
          to retail tenants based on sales volume are recognized when earned
          pursuant to Staff Accounting Bulletin No 101, "Revenue Recognition in
          Financial Statements," issued by the Securities and Exchange
          Commission in December 1999, and the Emerging Issues Tax Force's
          consensus on Issue 98-9, "Accounting for Contingent Rent in Interim
          Financial Periods." The Company defers recognition of contingent
          rental income (i.e., percentage/excess rent) in interim periods until
          the specified target (i.e., breakpoint) that triggers the contingent
          rental income is achieved. Recoveries from tenants or taxes, insurance
          and other operating expenses are recognized as revenue in the period
          the applicable taxes are incurred.

          New Accounting Policies

          Certain properties are owned in joint ventures with Shelbourne
          Properties II, L.P. and/or Shelbourne Properties III, L.P. Prior to
          April 30, 2002, the Company owned an undivided interest in the assets
          owned by these joint ventures and was severally liable for
          indebtedness it incurred in connection with its ownership interest in
          those properties. Therefore, for periods prior to April 30, 2002, the
          Company's condensed consolidated financial statements presented the



                                       17



<PAGE>


          assets, liabilities, revenues and expenses of the joint ventures on a
          pro rata basis in accordance with the Company's percentage of
          ownership.

          After April 30, 2002, as a result of the Company's incurring debt in
          connection with entering into the Note Payable discussed in Note 8 in
          the "Notes to Condensed Consolidated Financial Statements", after
          April 30, 2002, the Company is no longer allowed to account for its
          investments in joint ventures on a pro-rata consolidation basis in
          accordance with its percentage of ownership but must utilize the
          equity method of accounting. Accordingly, the Company's condensed
          consolidated balance sheet at June 30, 2002 and the Company's
          condensed consolidated statements of operations for the three and six
          month period ended June 30, 2002 reflect the equity method of
          accounting.

          Pro Forma Information

          The following tables show (i) the pro-forma condensed consolidated
          balance sheet as of December 31, 2001 and (ii) the pro-forma statement
          of operations for the three and six months ended June 30, 2001, both
          reflecting the impact of the change to equity accounting for the
          investment in joint ventures. The pro forma information is provided
          for the purpose of comparing results of operations in the review of
          management's discussion and analysis. The Company's total equity did
          not change.

           CONDENSED CONSOLIDATED PRO-FORMA BALANCE SHEET INFORMATION

<TABLE>
<CAPTION>
                                                          Previously Reported           Pro-Forma            Equity Method
                                                           December 31, 2001           Adjustments         December 31, 2001
                                                        ----------------------    --------------------  ----------------------
<S>                                                     <C>                       <C>                   <C>
ASSETS

Real estate, net                                        $           31,783,227    $       (12,545,200)  $           19,238,027
Cash and cash equivalents                                           14,191,726             (7,308,977)               6,882,749
Other assets                                                         3,013,830              3,083,415                6,097,245
Receivables, net of allowances of
   $95,114 and $92,074, respectively                                   279,777               (144,526)                 135,251
Investment in joint ventures                                                 -             16,488,348               16,488,348
                                                        ----------------------    -------------------   ----------------------

TOTAL ASSETS                                            $           49,268,560    $          (426,940)  $           48,841,620
                                                        ======================    ===================   ======================





LIABILITIES

Accounts payable and accrued expenses                   $              783,308    $          (426,940)  $              356,368
                                                        ----------------------    -------------------   ----------------------

Total Liabilities                                       $              783,308    $          (426,940)  $              356,368
                                                        ======================    ===================   ======================
</TABLE>




                                       18




<PAGE>



            CONDENSED CONSOLIDATED PRO-FORMA STATEMENTS OF OPERATIONS



<TABLE>
<CAPTION>

                                                    For the Three                                 For the Six
                                                     Months Ended                                  Months Ended
                                                        June 30,                                    June 30,

                                      Previously       Pro forma                Previously          Pro forma
                                      reported        Adjustments                reported          Adjustments
                                        2001             2001         Total        2001               2001       Total
<S>                                  <C>            <C>            <C>          <C>               <C>          <C>
Rental revenues                      $2,432,586      (1,583,693)   $ 848,893    $ 5,492,411       (3,082,261)  $ 2,410,150
                                     ----------     ------------   ---------    -----------       -----------  -----------


Costs and expenses                    1,815,398        (761,099)   1,054,299      3,827,768       (1,527,453)    2,300,315
                                     ----------     ------------   ---------    -----------       -----------  -----------

Income (loss) before equity
   income from joint ventures
   interest and other income            617,188        (822,594)    (205,406)     1,664,643       (1,554,808)      109,835
                                     ----------     ------------   ---------    -----------       -----------  -----------

   Equity income from joint ventures          -         920,924      920,924              -        1,770,726     1,770,726
   Interest income                      149,440         (98,330)      51,110        332,522         (215,918)      116,604
   Other income                           2,320               -        2,320         17,966                -        17,966
                                     ----------     ------------   ---------    -----------       -----------  -----------


Net income                           $  768,948     $          -   $ 768,948    $ 2,015,131      $         -   $ 2,015,131
                                     ==========     ============   =========    ===========      ============  ===========
</TABLE>


          Liquidity and Capital Resources

          The Company uses its working capital reserves and any cash from
          operations as its primary source of liquidity. Unlike the Predecessor
          Partnership, which could not incur indebtedness or issue additional
          equity, the Company has as potential sources of liquidity, in addition
          to cash, capital raised by either borrowing money on a long-term or
          short-term basis or issuing additional equity securities. Due to the
          restriction on the incurrence of debt on the Predecessor Partnership
          and the resulting lack of mortgage debt on the properties, it is
          anticipated that the Company will have significantly enhanced capital
          resources as compared to the Predecessor Partnership. The Company's
          use of these sources of capital may result in the encumbrance of its
          current and future assets with substantial amounts of indebtedness. As
          a result, the Company may have an increased risk of default on its
          obligations and thus a decrease in its long-term liquidity.

          The Company had $4,606,591 in cash and cash equivalents at June 30,
          2002. Cash and cash equivalents are temporarily invested in short-term
          instruments. The Company's level of liquidity is based upon cash and
          cash equivalents decreased by $2,276,158 from $6,882,749 for the year
          ended December 31, 2001. The decrease is due to $14,303,060 paid to
          Presidio in connection with the Transaction. The Company also incurred
          $55,464 in expenses related to improvements to real estate. The
          Company received proceeds from the initial borrowing under the Credit
          Facility of $23,832,274, of which $17,639,459 was used to retire the
          note that was issued in relation to the Transaction. These
          expenditures were offset by $5,889,551 of cash provided by operating
          activities.

          Currently, the Company's primary source of funds is cash flow from the
          operation of its properties, principally rents billed to tenants,
          which amounted to $870,132 and $2,477,679 for the three and six months
          ended June 30, 2002. In the event the Company acquires additional
          assets, its cash flow from operations would be derived from a larger,
          more diverse, and potentially riskier group of assets than currently
          owned. Likewise, the Company's ability to pay dividends



                                       19


<PAGE>



          may be affected by the leveraging of its assets and reinvestment of
          sale and financing proceeds for the acquisition of additional assets.

          For the six months ended June 30, 2002, the Company made $55,464 in
          capital expenditures that were funded from cash flow and the Company's
          working capital reserves. The Company's primary capital expenditures
          were for tenant improvements at the properties.

          The budgeted expenditures for 2002 capital improvements and
          capitalized tenant procurement costs in 2002 are an aggregate of
          $253,647. These costs are expected to be incurred in the normal course
          of business and are funded from cash flows from the operation of the
          properties and working capital reserves that are temporarily invested
          in short-term money market instruments. Other sources of capital could
          include including financing proceeds and the issuance of additional
          equity. The actual amount of such expenditures depends upon the level
          of leasing activity and other factors that cannot be predicted with
          certainty. In the event that the Company were to purchase additional
          real estate assets or incur additional mortgage indebtedness, the
          Company's expenses would increase, which would raise the risk that the
          Company would be unable to fund the necessary capital and tenant
          procurement costs at its properties.

          Except as discussed herein, management is not aware of any other
          trends, events, commitments or uncertainties that will have a
          significant impact on the Company's liquidity. If, however, real
          estate market conditions deteriorate in any areas where properties are
          located, there is substantial risk that future cash flow may be
          insufficient to fund the capital improvements and lease procurement
          costs of the properties. In that event, the Company would utilize its
          remaining working capital reserves, reduce distributions, raise
          additional capital through financing or the issuance of equity, or
          sell one or more properties.

          Results of Operations

          Six months ended June 30, 2002 vs. June 30, 2001

          Net income

          The Company's net income decreased by $21,109,883 to a net loss of
          $(19,094,752) for the six months ended June 30, 2002 from a net income
          of $2,015,131 for the same period in 2001. This is primarily due to
          fees incurred in connection with the Transaction, as well as legal
          fees related to the Transaction and the subsequent lawsuits, and the
          payment of consulting fees to Lazard Freres & Co LLC ("Lazard"). The
          Company paid $18,452,133 in relation to the Transaction, consisting of
          a note payable in the amount of $17,639,459 and a Class A 5%
          cumulative preferred partnership interest with a liquidation
          preference of $812,674. Legal costs associated with the Transaction
          and litigation for the six months were $1,556,323, $1,176,219 higher
          than for legal services rendered during the first six months of 2001.
          The Company also incurred $878,827 in fees to Lazard for consulting
          services.

          The decrease in net income was also a result of an increase in
          operating expenses of $181,491 to $815,290 for the six months ended
          June 30, 2002 from $633,799 for the same period in 2001 primarily due
          to an increase in insurance costs as a result of an increase in
          insurance rates stemming from the terrorist attacks of September 11,
          2001 and to the incurrence of additional real estate taxes. The
          increases in expenses were partially offset by an increase in rental
          revenue of $67,529 due to increases in base rent, percentage rent and
          common area maintenance charges.





                                       20



<PAGE>



          Rental Revenues

          Rental revenues increased $67,529, or 3%, to $2,477,679 during the six
          months ended June 30, 2002 from $2,410,150 during the six months ended
          June 30, 2001 due to an increase in base rent of $38,317. Percentage
          rent increased in the same period due to payments by Eckerd Drugs and
          Publix Supermarkets at Southport Shopping Center, which increased
          cumulatively by $24,032 along with an aggregate increase in all rental
          revenue categories of $5,180.

          Income

          Income (defined as rental revenue, equity income from joint ventures,
          interest and other income) increased by $2,169, or less than 1%, to
          $4,317,615 for the six months ended June 30, 2002 from $4,315,446 for
          the same period in 2001. Income from the investment in joint ventures
          increased by $37,454, or 2% to $1,808,180 from $1,770,726 for the same
          period in 2001 due to increased rental revenue from 568 Broadway. The
          increase in rental revenues and joint venture income was offset by the
          decrease in interest income and other income. Interest income
          decreased by $88,799, or 76%, to $27,805 for the current period as
          compared to $116,604 for the comparable period in 2001 due to
          significantly lower cash balances due to the Transaction and other
          fees paid. Other income decreased for the six months ended June 30,
          2002 as compared to the same period ended June 30, 2001 by $14,015, or
          78%, to $3,951 from $17,966 due to the absence, as a result of the
          conversion of the Predecessor Partnership into a REIT, of transfer
          fees that were previously generated by the transfer of partnership
          interests.

          Costs and Expenses

          Total costs and expenses, including interest expense, for the six
          months ended June 30, 2002 amounted to $23,412,367 an increase of
          $21,112,052 from the same period in 2001. This increase consists of a
          one-time expense of $18,452,133 in relation to the purchase of the
          Advisory Agreements and interest expense of $172,733 incurred on the
          note issued in the Transaction and $169,269 in interest on the
          proceeds received from the initial borrowing under the Credit
          Facility. The remaining costs and expenses amounted to $4,618,232 for
          the six months ended June 30, 2002, an increase of $2,317,917 from the
          $2,300,315 incurred for the same period in 2001. The increase is
          primarily due to an increase in general and administrative expenses
          due to the Transaction, legal, professional and consulting fees.

          Operating expenses increased by $181,491, or 28.6%, to $815,290 for
          the six months ended June 30, 2002 from $633,799 for the same period
          in 2001 due to increased premiums as a result of the September 11,
          2001 terrorist attacks and to the incurrence of additional real estate
          taxes. The Company also experienced higher depreciation and
          amortization expense due to real estate improvements and tenant
          procurement costs. Property management fees decreased slightly due to
          a decrease in rental collections. Expenses related to the partnership
          asset management fees decreased by $270,339 for the six months ended
          June 30, 2002 from $531,094 for the same period in 2001 as the
          obligation to pay the partnership asset management fee terminated with
          the consummation of the Transaction. For the six months ended June 30,
          2002, $260,755 in asset management fees were paid to Shelbourne
          Management prior to February 14, 2002 and to PCIC thereafter in
          accordance with PCIC's agreement to provide transition services to the
          Company upon the consummation of the Transaction.



                                       21



<PAGE>


          Inflation

          Inflation is not expected to have a material impact on the operations
          or financial position of Company.

          Three months ended June 30, 2002 vs. June 30, 2001

          Net income

          The Company incurred a net loss of $1,542,717 for the three months
          ended June 30, 2002, a decrease of $2,311,665, or 200% from $768,948
          for the same period in 2001. This was primarily due to the incurrence
          of legal, professional and consulting fees resulting from lawsuits.
          The decrease in net income was also due to an increase in operating
          expenses of $112,867 primarily due to an increase in insurance costs
          as a result of an increase in insurance stemming from the terrorist
          attacks of September 11, 2001 and to the incurrence of additional real
          estate taxes. The increases in expenses were partially offset by an
          increase in rental revenue of $21,239 due to increases in base rent
          and common area maintenance charges. The Company incurred $169,269 of
          interest expense on the proceeds of the initial borrowing under the
          Credit Facility and $70,458 in interest expense on the note issued in
          the Transaction.

          Rental Revenues

          Rental revenues increased $21,239, or 2.5%, from $848,893 during the
          three months ended June 30, 2001 to $870,132 during the three months
          ended June 30, 2002 due to an increase in base rent.

          Income

          Income (defined as rental revenue, equity income from joint ventures,
          interest and other income) decreased by $49,910, or 27%, to $1,773,337
          for the three months ended June 30, 2002 from $1,823,247 for the same
          period in 2001. Equity income from joint ventures decreased by $32,616
          due to an increase in vacancies at the Seattle Tower property.
          Interest income decreased by $38,172, or 74.7%, as compared to the
          same period in 2001 due to significantly lower cash balances due to
          the Transaction. Other income decreased for the three months ended
          June 30, 2002 as compared to the same period ended June 30, 2001 by
          $361. These decreases were offset by an increase in rental revenues of
          $21,239.

          Costs and Expenses

          Total costs and expenses, including interest expense, for the three
          months ended June 30, 2002 amounted to $2,300,315, an increase of
          $2,261,755 from $1,054,299 in the same period in 2001. The increase is
          primarily due to an increase in general and administrative expenses
          due to increased legal, professional and consulting fees. The
          remaining costs and expenses, including interest expense, amounted to
          $1,023,431 for the three months ended June 30, 2002, an increase of
          $224,329, or 128%, from the same period in 2001.

          Operating expenses increased by $112,867, or 26%, to $435,425 for the
          three months ended June 30, 2002 as compared to $322,558 for the same
          period in 2001 due to an increase in insurance premiums as a result of
          the September 11, 2001 terrorist attacks and to the incurrence of
          additional real estate taxes. The Company also experienced higher
          depreciation and amortization expense due to real estate improvements
          and tenant procurement costs. Property management fees decreased
          slightly due to a decrease in rental collections. Expenses related to
          partnership




                                       22



<PAGE>



          asset management fees decreased by $184,224 for the three months ended
          June 30, 2002 from the same period in 2001 as the obligation to pay
          the partnership asset management fee terminated with the consummation
          of the Transaction.

          Interest expense for the three months ended June 30, 2002 on the note
          issued to PCIC in relation to the Transaction was $70,458 and on the
          funds borrowed by the Company under the Credit Facility on May 1, 2002
          was $169,269. This is a first-time expense because prior to the
          conversion from a partnership to a REIT, no debt was allowed on any of
          the properties.

          Funds From Operations

          Management believes that Funds From Operations ("FFO") is helpful to
          investors as a measure of the performance of an equity REIT because,
          along with cash flows from operating activities, financing activities
          and investing activities, it provides investors with an understanding
          of the ability of the Company to incur and service debt, to make
          capital expenditures and to fund other cash needs.

          FFO, which is a commonly used measurement of the performance of an
          equity REIT, as defined by the National Association of Real Estate
          Investment Trusts, Inc. ("NAREIT"), is net income (computed in
          accordance with accounting principles generally accepted in the United
          States), excluding gains (or losses) from debt restructurings, asset
          valuation provisions and sales of property, plus depreciation and
          amortization, and after adjustments for unconsolidated partnerships
          and joint ventures.

          The Company's FFO may not be comparable to FFO reported by other REITs
          that do not define the term in accordance with the current NAREIT
          definition or that interpret the NAREIT definition differently. FFO
          does not represent cash generated from operating activities determined
          in accordance with accounting principles generally accepted in the
          United States and should not be considered as an alternative to net
          income (determined in accordance with accounting principles generally
          accepted in the United States) as a measure of the Company's
          liquidity, nor is it indicative of funds available to fund the
          Company's cash needs, including its ability to make cash
          distributions.




                                       23





<PAGE>



<TABLE>
<CAPTION>
                                                 Three Months Ended,               Six Months Ended,
                                             30-Jun-02         30-Jun-01       30-Jun-02        30-Jun-01
                                           --------------   -------------   ----------------   ------------
<S>                                        <C>              <C>             <C>                <C>
          Net (Loss) Income (A)            $  (1,542,717)   $     768,948   $   (19,094,752)   $  2,015,131

          Plus: Depreciation of
                real estate assets and
                tenant improvements              166,326          161,272           329,817         322,370

          Plus: Amortization of leasing
                commissions                       28,189           19,212            54,706          38,274

          Plus: Adjustments for
                unconsolidated joint
                ventures (B)                     285,521          179,454           489,275         381,355
                                           --------------  --------------  -----------------  -------------

          Funds From Operations (A)        $  (1,062,681)   $   1,128,886   $   (18,220,954)   $  2,757,130
                                           ==============  ==============  =================  =============
</TABLE>



          (A) Net Income and Funds From Operations for the six months ended June
          30, 2002 includes $18,452,133 related to the purchase of the Advisory
          Agreements.

          (B) Adjustments for unconsolidated joint ventures includes all
          adjustments to convert the Company's share of net income from
          unconsolidated joint ventures to FFO.

Item 3.   Quantitative and Qualitative Disclosures About Market Risk

The primary market risk we face is interest rate sensitivity. Our long-term debt
bears interest at a floating rate, and therefore we are exposed to the risk of
interest rate changes. At August 13, 2002, borrowings under our secured
revolving credit facility totaled $23,832,274 and initially bore an interest
rate of LIBOR plus 2.5%. Based on the balance outstanding on our credit facility
at August 13, 2002 and the interest rate at that date, a 10% increase in LIBOR
would increase our interest expense in 2002 by approximately $41,300.
Conversely, a 10% decrease in LIBOR would decrease our interest expense in 2002
by the same amount. The gain or loss we ultimately realize with respect to
interest rate fluctuations will depend on the actual interest rates during that
period. We do not believe that we have any risk related to derivative financial
instruments.





                                       24


<PAGE>



PART II. OTHER INFORMATION


Item 1.  LEGAL PROCEEDINGS

HX Investors, L.P. Litigation

HX Investors, L.P. ("HX Investors") and other plaintiffs filed an action on May
22, 2002 against the Company, Shelbourne Properties II and Shelbourne Properties
III (collectively, the "Companies") seeking an order directing that each of the
Companies hold a stockholder election for the purpose of electing directors to
nine seats on the boards of each of the Companies. The action (i) sought to
compel the holding of an annual meeting of stockholders and (ii) challenged an
action taken by the boards of directors of the Companies reclassifying the
boards of each company from nine to four directors and reappointing three
directors in connection with such reclassification.

A stipulation of dismissal, with prejudice, was entered on July 3, 2002. In
connection with the settlement, HX Investors agreed to conduct tender offers for
up to 30% of the outstanding common stock (the "HX Investors Offer"), and the
board of directors approved plans of liquidation for each of the Companies,
subject to stockholder approval. Also pursuant to the settlement, the parties
agreed that the board of directors of each of the Companies would be increased
to six members, with two directors designated by HX Investors, and four
directors would be independent.

Delaware Plaintiffs Litigation

As previously disclosed in the Company's report on Form 10-Q filed May 15, 2002,
a group of plaintiffs (the "Delaware Plaintiffs") brought suit derivatively on
behalf of the Companies against NorthStar, PCIC, Shelbourne Management and eight
former and present directors of the boards of directors of the Companies (the
"Individual Defendants"). The Delaware Plaintiffs filed a consolidated class and
derivative complaint on April 10, 2002 alleging that the boards of directors of
the Companies mismanaged the Companies making it less likely that they could pay
dividends. Plaintiffs seek disgorgement of profits, accounting for profits and
rescission of an agreement to repurchase shares of stock held by PCIC and
purchase the Advisory Agreements.

The Delaware Plaintiffs also filed an action under Section 211 of the General
Corporation Law of Delaware on May 7, 2002 (i) seeking to compel the holding of
an annual meeting of stockholders and (ii) challenging an action taken by the
Companies' boards of directors in which the boards of directors of each company
were reclassified from nine to four directors. This matter was consolidated with
the HX Investors action described above, for the limited purpose of discovery on
the statutory issues.

A letter of agreement of settlement was signed by the parties on July 1, 2002. A
stipulation of settlement was entered on July 3, 2002. The principal terms of
the settlement were that the Companies and their boards of directors would
facilitate the completion of the HX Investors Offer; conduct annual meetings on
September 9, 2002 and expand the board of directors of each of the Companies
from four members to six, four of whom would be independent directors as well as
implementing corporate governance protections. The settlement also provided for
a contribution by Shelbourne Management of 42% of the Preferred Operating Units
of the Companies to HX Investors with the purpose of providing funds to HX
Investors in connection with the HX Investors Offer, as well as allowing for a
contribution of up to one million dollars, as approved by the court, for
plaintiffs' attorneys fees.

Icahn Litigation

As previously disclosed in the Company's report on Form 10-Q filed May 15, 2002,
in February 2002, Carl C. Icahn ("Icahn") brought suit derivatively in the New
York State Supreme Court on behalf of the



                                       25



<PAGE>


Companies against NorthStar, PCIC, Shelbourne Management and the Individual
Defendants. On or about March 8 and March 12, 2002, Icahn filed a motion seeking
leave to intervene in the unconsolidated actions in Delaware. On May 16, 2002,
Icahn filed a Derivative Complaint in Intervention. The matter has been settled
with respect to NorthStar and the actions in Delaware have been dismissed
without prejudice.

Longacre Corp. Litigation

Longacre Corp. ("Longacre") filed an action on July 29, 2002 in the United
States District Court for the Southern District of New York against the
Companies seeking (i) a declaration that HX Investors violated Sections 13(e)
and 14(d) and (e) of the Securities and Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder, and that the 25% liquidation
premium to be paid to HX Investors and Exeter Capital Corporation upon
liquidation of the Companies is invalid and illegal; and (2) an injunction
enjoining HX Investors from proceeding with the HX Investors Offer until HX
Investors makes the appropriate filings and disclosures. A hearing on Longacre's
Motion for an Injunction was held on August 1, 2002, and a preliminary
injunction was denied.


Item 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

Exhibits furnished pursuant to the requirements of Form 10-Q:

Number           Description

(3.1)     Amended and Restated Certificate of Incorporation of the Company*

(3.2)     Amended and Restated Bylaws of the Corporation*

(4.1)     Amended and Restated Agreement of Limited Partnership of the operating
          partnership*

(4.2)     Shareholder Rights Agreement*

(4.3)     Amendment to Shareholder Rights Agreement**

(4.4)     Certificate of Designations, Preferences and Rights of Series A
          Preferred Stock*

(4.5)     Stockholder Agreement, among the Companies and HX Investors, LP and
          Exeter Capital Corporation, dated as of April 30, 2002 ***

(10.1)    Revolving Credit Agreement, dated as of April 30, 2002, among the
          operating partnerships of the Companies, such operating partnerships'
          wholly-owned subsidiaries, the lenders from time to time party thereto
          and Bayerische Hypo-Und Vereinsbank AG, New York branch, as agent for
          itself and the other lenders ***

(10.2)    Promissory note, dated April 30, 2002, issued by the operating
          partnerships of the Companies and such operating partnerships'
          wholly-owned subsidiaries in favor of each lender in the aggregate
          principal amount of $75,000,000 ***

(10.3)    Cash Management Agreement, dated as of April 30, 2002, among
          the operating partnerships of the Companies, such operating
          partnerships' wholly-owned subsidiaries, the agent and Deposit Bank
          (as defined therein), as the same may be amended, restated, replaced,
          supplemented or otherwise modified from time to time ***

(10.4)    Contribution and Cross-Indemnification Agreement, dated as of
          April 30, 2002, among




                                       26


<PAGE>


          the operating partnerships of the Companies and such operating
          partnerships' wholly-owned subsidiaries ***

(10.5)    Pledge and Security Agreement, dated as of April 30, 2002, by
          the operating partnerships of the Companies and such operating
          partnerships' wholly-owned subsidiaries in favor of the lenders ***

(10.6)    Form of Mortgage, dated as of April 30, 2002, issued by
          Shelbourne Properties II, Inc. to Bayerische Hypo- Und Vereinsbank AG,
          New York Branch, as agent for itself and other lenders, with respect
          to its real property located in Fort Lauderdale, Florida and Townson,
          Maryland ***

(99.1)    Partnership Unit Designation of the Class A Preferred Partnership
          Units of the Operating Partnership**

(99.2)    Certification pursuant to Section 906 of Sarbanes-Oxley Act of 2002,
          18 U.S.C. Section 1350.

*    incorporated by reference to the Registration Statement of the Company on
     Form S-4 filed on February 11, 2000, as amended

**   incorporated by reference to the Current Report of the Company on Form 8-K
     filed on February 14, 2002

***  incorporated by reference to the Current Report of the Company on Form 8-K
     filed on May 14, 2002.

(b) Reports on Form 8-K

The following reports on Form 8-K were filed on behalf of the Registrant during
     the quarter ended June 30, 2002:

(i)  Press release announcing that the Companies had entered into a Revolving
     Credit Facility with Hypo-Und Vereinsbank, AG.

Item reported: 5

Dated filed: April 14, 2002

(ii) Press release announcing that the Companies had retained Lazard Freres &
     Co. as a strategic advisor.

Item reported: 5

Date filed: April 23, 2002

(iii) Press release announcing the date of the Annual Meeting of Stockholders of
     the Company.

Item reported: 5

Date filed: May 9, 2002

(iv) Press release announcing a change in the date of the Annual Meeting of
     Stockholders of the Company.

Item reported: 5

Date filed: June 5, 2002





                                       27



<PAGE>


                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                     Shelbourne Properties I, Inc.
                                     (Registrant)


Dated:August 19, 2002                By:  /s/ Michael L. Ashner
                                          -------------------------------
                                          Michael L. Ashner
                                          Chief Executive Officer



                                       28



<PAGE>


                                  EXHIBIT INDEX

Number   Description

(3.1)     Amended and Restated Certificate of Incorporation of the Company*

(3.2)     Amended and Restated Bylaws of the Corporation*

(4.1)     Amended and Restated Agreement of Limited Partnership of the operating
          partnership*

(4.2)     Shareholder Rights Agreement*

(4.3)     Amendment to Shareholder Rights Agreement**

(4.4)     Certificate of Designations, Preferences and Rights of Series A
          Preferred Stock*

(4.5)     Stockholder Agreement, among the Companies and HX Investors, LP and
          Exeter Capital Corporation, dated as of April 30, 2002 ***

(10.1)    Revolving Credit Agreement, dated as of April 30, 2002, among the
          operating partnerships of the Companies, such operating partnerships'
          wholly-owned subsidiaries, the lenders from time to time party thereto
          and Bayerische Hypo-Und Vereinsbank AG, New York branch, as agent for
          itself and the other lenders ***

(10.2)    Promissory note, dated April 30, 2002, issued by the operating
          partnerships of the Companies and such operating partnerships'
          wholly-owned subsidiaries in favor of each lender in the aggregate
          principal amount of $75,000,000 ***

(10.3)    Cash Management Agreement, dated as of April 30, 2002, among
          the operating partnerships of the Companies, such operating
          partnerships' wholly-owned subsidiaries, the agent and Deposit Bank
          (as defined therein), as the same may be amended, restated, replaced,
          supplemented or otherwise modified from time to time ***

(10.4)    Contribution and Cross-Indemnification Agreement, dated as of
          April 30, 2002, among the operating partnerships of the Companies and
          such operating partnerships' wholly-owned subsidiaries ***

(10.5)    Pledge and Security Agreement, dated as of April 30, 2002, by
          the operating partnerships of the Companies and such operating
          partnerships' wholly-owned subsidiaries in favor of the lenders ***

(10.6)    Form of Mortgage, dated as of April 30, 2002, issued by
          Shelbourne Properties II, Inc. to Bayerische Hypo- Und Vereinsbank AG,
          New York Branch, as agent for itself and other lenders, with respect
          to its real property located in Fort Lauderdale, Florida and Townson,
          Maryland ***

(99.1)    Partnership Unit Designation of the Class A Preferred Partnership
          Units of the Operating Partnership**

(99.2)    Certification pursuant to Section 906 of Sarbanes-Oxley Act of 2002,
          18 U.S.C. Section 1350.

*    incorporated by reference to the Registration Statement of the Company on
     Form S-4 filed on February 11, 2000, as amended

**   incorporated by reference to the Current Report of the Company on Form 8-K
     filed on February 14, 2002

***  incorporated by reference to the Current Report of the Company on Form 8-K
     filed on May 14, 2002.


                                       29