<PAGE>

                                   Exhibit 32


                         SHELBOURNE PROPERTIES II, INC.
                         ------------------------------
                 FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2003
                 ----------------------------------------------

                            CERTIFICATION PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

         In connection with the Annual Report of Shelbourne Properties II, Inc.,
(the "Company"), on Form 10-K for the year ended December 31, 2003, as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
the undersigned, in the capacities and on the date indicated below, hereby
certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that: (1) the Report fully complies with the
requirements of Section 13(a) or 15(d) of the Securities and Exchange Act of
1934; and (2) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.

         Date:  March 25, 2004                  /s/ Michael L. Ashner
                                                -------------------------------
                                                   Michael L. Ashner
                                                   Chief Executive Officer


         Date:  March 25, 2004                  /s/ Carolyn B. Tiffany
                                                -------------------------------
                                                   Carolyn B. Tiffany
                                                   Chief Financial Officer

















                                       52
<PAGE>


                           ANNUAL REPORT ON FORM 10-K
                               ITEM 8 AND 15(a)(2)



                         SHELBOURNE PROPERTIES II, INC.
                         ------------------------------

                             A DELAWARE CORPORATION
                             ----------------------

                        CONSOLIDATED FINANCIAL STATEMENTS
                        ---------------------------------

                  YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
                  --------------------------------------------

                                    I N D E X
                                    ---------

<TABLE>
<CAPTION>
                                                                                                              Page
                                                                                                             Number
                                                                                                             ------

<S>                                                                                                          <C>
Independent Auditors' Report..................................................................................54

Consolidated Financial Statements, years ended December 31, 2003, 2002 and 2001

Consolidated Statements of Net Assets (Liquidation Basis) as of December 31, 2003
and December 31, 2002  .......................................................................................55

Consolidated Statements of Operations and Changes in Net Assets for the Year
Ended December 31, 2003 (Liquidation Basis), the Period October 30, 2002 to
December 31, 2002 (Liquidation Basis) and Consolidated Statements of Operations
for the Period January 1, 2002 to October 29, 2002 and for the Year Ended
December 31, 2001 (Going Concern Basis).......................................................................56

Consolidated Statements of Equity (Going Concern Basis) for the Period January 1, 2002
 to October 29, 2002 and the Year Ended December 31, 2001 ....................................................58

Consolidated Statements of Cash Flows for the Year Ended December 31, 2003
(Liquidation Basis), the Periods October 30, 2002 to December 31, 2002
(Liquidation Basis) and January 1, 2002 to October 29, 2002 and for the Year
Ended December 31, 2001 (Going Concern
Basis)........................................................................................................59

Notes to Consolidated Financial Statements....................................................................61
</TABLE>














                                       53
<PAGE>


INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Stockholders of Shelbourne Properties II, Inc.

We have audited the accompanying consolidated statements of net assets
(liquidation basis) of Shelbourne Properties II, Inc. (the "Corporation") as of
December 31, 2003 and 2002, and the related consolidated statements of
operations and changes in net assets (liquidation basis) and cash flows
(liquidation basis) for the year ended December 31, 2003 and for the period
October 30, 2002 to December 31, 2002. In addition, we have audited the
accompanying consolidated statements of operations, equity and cash flows for
the year ended December 31, 2001 and for the period January 1, 2002 to October
29, 2002. These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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

As discussed in Note 1 to the financial statements, the stockholders of the
Corporation approved a plan of liquidation on October 29, 2002. As a result the
Corporation has changed its basis of accounting from the going concern basis to
the liquidation basis effective October 30, 2002.

In our opinion, such consolidated financial statements present fairly, in all
material respects (1) the net assets (liquidation basis) of the Corporation and
its subsidiaries as of December 31, 2003 and 2002, (2) the changes in their net
assets (liquidation basis) and their cash flows (liquidation basis) for the year
ended December 31, 2003 and for the period October 30, 2002 to December 31, 2002
and (3) the results of their operations (going concern basis) and their cash
flows (going concern basis) for the year ended December 31, 2001 and for the
period January 1, 2002 to October 29, 2002, in conformity with accounting
principles generally accepted in the United States of America.

As discussed in Note 1 to the consolidation financial statements, because of the
inherent uncertainty of valuation when a company is in liquidation, the amounts
realizable from the disposition of the remaining assets and the amounts
creditors agree to accept in settlement of the obligations due them may differ
materially from the amount shown in the accompanying consolidated statements of
net assets as of December 31, 2003 and 2002.


DELOITTE & TOUCHE LLP

Boston, Massachusetts
March 25, 2004






                                       54
<PAGE>


                         SHELBOURNE PROPERTIES II, INC.
                         ------------------------------


            CONSOLIDATED STATEMENTS OF NET ASSETS (LIQUIDATION BASIS)
            ---------------------------------------------------------
                  AS OF DECEMBER 31, 2003 AND DECEMBER 31, 2002
                  ---------------------------------------------


<TABLE>
<CAPTION>
                                                                            2003                        2002
                                                                    ---------------------      -----------------------
<S>                                                                       <C>                        <C>
ASSETS

Real estate held for sale                                                 $   14,514,877             $     17,091,316
Investment in joint ventures                                                  10,979,376                   62,344,354
Cash and cash equivalents                                                      1,242,698                   10,898,495
Other assets                                                                     222,806                      255,246
Receivables, net                                                                 128,161                       83,523
                                                                            ------------                 ------------

       Total Assets                                                           27,087,918                   90,672,934
                                                                            ------------                 ------------

LIABILITIES

Accounts payable and accrued expenses                                          1,414,537                      691,344
Credit Facility                                                                        -                   23,779,343
Loans payable and accrued interest due to related parties                      6,735,892                            -
Reserve for estimated costs during the period of liquidation                   1,500,000                    1,600,000
Deferrals of gains on real estate assets and joint ventures                    5,286,904                   43,847,675

COMMITMENTS AND CONTINGENCIES (Note 8, 9)

CLASS B Partnership Interests (Note 8)                                                 -                            -

CLASS A Partnership Units, liquidation value (Note 9)                                  -                    1,015,148
                                                                            ------------                 ------------

       Total Liabilities                                                      14,937,333                   70,933,510
                                                                            ------------                 ------------

NET ASSETS IN LIQUIDATION                                               $     12,150,585           $       19,739,424
                                                                            ============                 ============
</TABLE>


         See notes to consolidated financial statements.















                                       55
<PAGE>
                         SHELBOURNE PROPERTIES II, INC.
                         ------------------------------


  CONSOLIDATED STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS FOR THE YEAR
  ----------------------------------------------------------------------------
   ENDED DECEMBER 31, 2003, THE PERIOD OCTOBER 30, 2002 TO DECEMBER 31, 2002
   -------------------------------------------------------------------------
  (LIQUIDATION BASIS) AND CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE PERIOD
  ----------------------------------------------------------------------------
  JANUARY 1, 2002 TO OCTOBER 29, 2002 AND FOR THE YEAR ENDED DECEMBER 31, 2001
  ----------------------------------------------------------------------------
                              (GOING CONCERN BASIS)
                              ---------------------

<TABLE>
<CAPTION>
                                                             PERIOD 10/30/02     PERIOD 1/1/02
                                                               TO 12/31/02        TO 10/29/02                           2001
                                               2003            (LIQUIDATION      (GOING CONCERN        2002        (GOING CONCERN
                                        (LIQUIDATION BASIS)        BASIS)             BASIS)        (AGGREGATED)        BASIS)
                                        -------------------  ----------------   ---------------  ----------------- ---------------
<S>                                     <C>                  <C>                <C>              <C>               <C>
Rental revenue                                $  2,571,747      $   825,439       $   3,546,822      $  4,372,261    $ 11,569,278
                                             --------------    -------------    ----------------   ---------------  --------------

Costs and expenses:
    Operating expenses                           1,576,083           83,248           1,219,910         1,303,158       3,500,423
    Depreciation and amortization                        -                -           1,249,356         1,249,356       2,096,134
    Asset management fee                           200,000           33,333             174,249           207,582       1,342,002
    Transition management fee                            -                -             208,250           208,250               -
    Purchase of advisory agreements                      -                -          23,049,398        23,049,398               -
    Administrative expenses                      1,086,591          688,272           3,798,642         4,486,914       1,032,875
    Property management fee                         73,240           21,088             106,911           127,999         357,126
                                             --------------    -------------    ----------------   ---------------  --------------
                                                 2,935,914          825,941          29,806,716        30,632,657       8,328,560
                                             --------------    -------------    ----------------   ---------------  --------------

Income (loss) before equity income
from joint ventures, interest and
other income, and gain on sale of
real estate                                       (364,167)            (502)        (26,259,894)      (26,260,396)      3,240,718

    Equity income from joint ventures           38,502,411          631,300           3,479,303         4,110,603               -
    Gain on sale of real estate
    held for sale                                  846,203        6,760,285                   -         6,760,285       3,207,975
    Interest expense                              (594,539)        (193,172)           (851,669)       (1,044,841)              -
    Interest income                                 50,966           12,056             153,046           165,102         709,913
    Other income                                   303,499                -                 549               549          29,576
                                             --------------    -------------    ----------------   ---------------  --------------

Net income (loss) from continuing operations    38,744,373        7,209,967         (23,478,665)      (16,268,698)      7,188,182
Net loss from discontinued operations                    -                -            (304,336)         (304,336)       (338,031)
                                             --------------    -------------    ----------------   ---------------  --------------

Net income (loss)                             $ 38,744,373      $ 7,209,967       $ (23,783,001)    $ (16,573,034)    $ 6,850,151
Preferred dividends                              $ (51,462)       $ (32,168)          $ (32,146)        $ (64,314)    $         -
                                             --------------    -------------    ----------------   ---------------  --------------

Net income (loss) available for common
stockholders                                  $ 38,692,911      $ 7,177,799       $ (23,815,147)    $ (16,637,348)    $ 6,850,151
                                                                                ================   ===============  ==============

Net assets at October 29, 2002                           -       27,831,952
Net assets in liquidation at January 1, 2003    19,739,424                -

Adjustments to liquidation basis of
acounting                                                -       (2,743,237)
Increase in reserve for estimated liquidation
costs                                             (423,660)               -

Liquidating dividends- common shares           (45,858,090)     (12,527,090)
                                             --------------    -------------

Net assets in liquidation at end of period    $ 12,150,585     $ 19,739,424
                                             ==============    =============
                                                                                                                        (continued)
</TABLE>

                                       56
<PAGE>
                         SHELBOURNE PROPERTIES II, INC.
                         ------------------------------


  CONSOLIDATED STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS FOR THE YEAR
  ----------------------------------------------------------------------------
   ENDED DECEMBER 31, 2003, THE PERIOD OCTOBER 30, 2002 TO DECEMBER 31, 2002
   -------------------------------------------------------------------------
  (LIQUIDATION BASIS) AND CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE PERIOD
  ----------------------------------------------------------------------------
  JANUARY 1, 2002 TO OCTOBER 29, 2002 AND FOR THE YEAR ENDED DECEMBER 31, 2001
  ----------------------------------------------------------------------------
                        (GOING CONCERN BASIS) (CONTINUED)
                        ---------------------------------

<TABLE>
<CAPTION>
                                                             PERIOD 10/30/02     PERIOD 1/1/02
                                                               TO 12/31/02        TO 10/29/02                           2001
                                               2003            (LIQUIDATION      (GOING CONCERN        2002        (GOING CONCERN
                                        (LIQUIDATION BASIS)        BASIS)             BASIS)        (AGGREGATED)        BASIS)
                                        -------------------  ----------------   ---------------  ----------------- ---------------
<S>                                     <C>                  <C>                <C>              <C>               <C>

Earnings (loss) per share - Basic and
Diluted

Net income (loss) from continuing
operations                                    $      43.24                                          $     (17.43)      $     5.80

Net loss from discontinued operations                    -                                          $      (0.32)      $    (0.27)
                                         ------------------                                      ----------------- ---------------
Income (loss) per common share                $      43.24                                          $     (17.75)      $     5.53
                                         ==================                                      ================= ===============

Weighted average common shares                     894,792                                                937,035       1,237,916
                                         ==================                                      ================= ===============



                                                                                                        (CONCLUDED)
</TABLE>

                 See notes to consolidated financial statements.

















                                       57
<PAGE>
                         SHELBOURNE PROPERTIES II, INC.
                         ------------------------------


     CONSOLIDATED STATEMENTS OF EQUITY (GOING CONCERN BASIS) FOR THE PERIOD
     ----------------------------------------------------------------------
    JANUARY 1, 2002 TO OCTOBER 29, 2002 AND THE YEAR ENDED DECEMBER 31, 2001
    ------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                          PARTNERS' EQUITY                                 STOCKHOLDERS' EQUITY
                                    --------------------------- -----------------------------------------------------------------
                                       GENERAL       LIMITED                   ADDITIONAL    TREASURY      RETAINED
                                      PARTNERS      PARTNERS     COMMON STOCK    CAPITAL       STOCK        EARNINGS     TOTAL
                                    ------------  ------------- ------------- ------------ -------------  ------------ -----------

<S>                                 <C>           <C>           <C>           <C>          <C>           <C>          <C>
 Balance, January 1, 2001           $  3,264,724  $ 62,010,830  $          -  $          - $          -  $          - $ 65,275,554

 Net income through April 17, 2001        51,439     1,015,345             -             -            -             -    1,066,784

 Conversion of Partnership to REIT    (3,316,163) (63,026,175)        12,379    66,329,959            -             -            -

 Net income after conversion                   -            -              -             -            -     5,783,367    5,783,367

 Distributions ($2.11 per share)               -             -             -             -            -    (2,612,003) (2,612,003)
                                     -----------   -----------   -----------   ----------- ------------  ------------  ----------

 Balance, December 31, 2001                    -  -                   12,379    66,329,959            -     3,171,364   69,513,702

 Net loss                                      -             -             -             -            -   (23,783,001) (23,783,001)

 Purchase of treasury stock                    -             -             -             -  (17,866,603)            -  (17,866,603)


 Dividends paid-Preferred                      -             -             -             -            -       (32,146)     (32,146)
                                    ------------  ------------  ------------  ------------ ------------  ------------  -----------

 Balance, October 29, 2002          $          -  $          -  $      12,379  $66,329,959 $(17,866,603) $(20,643,783) $27,831,952
                                    ============  ============  =============  =========== ============  ============  ===========
</TABLE>



                 See notes to consolidated financial statements.




                                       58
<PAGE>
                         SHELBOURNE PROPERTIES II, INC.
                         ------------------------------


   CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2003
   --------------------------------------------------------------------------
     (LIQUIDATION BASIS), THE PERIODS OCTOBER 30, 2002 TO DECEMBER 31, 2002
     ----------------------------------------------------------------------
    (LIQUIDATION BASIS) AND JANUARY 1, 2002 (GOING CONCERN BASIS) TO OCTOBER
    ------------------------------------------------------------------------
     29, 2002 AND FOR THE YEAR ENDED DECEMBER 31, 2001 (GOING CONCERN BASIS)
     -----------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                          PERIOD        PERIOD 1/1/02
                                                           2003         10/30/02 TO       TO 10/29/02                      2001
                                                      (LIQUIDATION       12/31/02       (GOING CONCERN      2002      (GOING CONCERN
                                                          BASIS)    (LIQUIDATING BASIS)     BASIS)      (AGGREGATED)      BASIS)
                                                     -------------- ------------------- -------------- -------------  --------------
CASH FLOW FROM OPERATING ACTIVITIES:
<S>                                                  <C>             <C>                <C>            <C>             <C>
Net income (loss)                                    $ 38,744,372    $    7,209,967     $ (23,783,001) $(16,573,034)   $ 6,850,151
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:                                                                                                              2,096,134
     Depreciation and amortization                              -                 -         1,249,356     1,249,356
     Straight line adjustment for stepped                                                                                  243,063
     lease rentals                                              -                 -            15,567        15,567
     Change in bad debt reserve                           (89,176)           38,139           (34,146)        3,993              -
     Purchase of advisory agreement                                               -        23,049,398    23,049,398              -
     Distributions in excess of income from joint
     ventures                                          15,209,006           768,829         6,209,542     6,978,371              -
     Loss from discontinued operations                          -                 -           304,336       304,336        338,031
     Gain on sale of real estate held for sale           (846,203)       (6,760,285)                -    (6,760,285)    (3,207,975)

Changes in operating assets and liabilities:
     Receivables                                         (133,814)          (52,560)           77,159        24,599        (46,207)
     Other assets                                          32,440            62,881        (1,342,102)   (1,279,221)      (509,974)
     Accounts payable and accrued expenses               (291,864)          168,989          (113,213)       55,776       (165,410)
     Liquidating expenses paid                           (523,660)                -                 -             -              -
     Accrued interest due to related parties               15,192                 -                 -             -              -
     Due to affiliates                                          -                 -                 -             -       (512,473)
                                                     ------------    --------------     -------------  ------------   ------------

     Net cash provided by operating activities         52,116,293         1,435,960         5,632,896     7,068,856      5,085,340
                                                     ------------    --------------     -------------  ------------   ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Discontinued operations                                         -                 -          (458,584)     (458,584)      (242,880)
Improvements to real estate held for sale                (849,853)          (50,063)         (478,907)     (528,970)    (1,705,797)
Investment in Accotel                                  (1,079,675)                -                 -             -              -
Proceeds from sales of real estate held for sale        3,125,632        16,456,646                 -    16,456,646      7,879,568
                                                     ------------    --------------     -------------  ------------   ------------

Net cash provided by (used in) investing activities     1,196,104        16,406,583          (937,491)   15,469,092      5,930,891

CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock                                      -                 -       (17,866,603)  (17,866,603)             -
Proceeds from Fleet Loan                               22,081,542                 -                 -             -              -
Paydown of Fleet Loan                                 (22,081,542)                -                 -             -              -
Proceeds from related party loans payable               6,720,701
Proceeds from Credit Facility                                   -                 -        29,779,343    29,779,343              -
Paydown of Credit Facility due to sales                  (475,180)       (6,000,000)                -    (6,000,000)             -
Payoff of Credit Facility                             (23,304,163)                -                 -             -              -
Payoff of note payable                                          -                 -       (22,034,250)  (22,034,250)             -
Dividends - Common                                    (45,858,090)      (12,527,090)                -   (12,527,090)    (2,612,003)
Distributions paid-Class A Unitholder                     (51,462)          (64,314)                -       (64,314)             -
                                                     ------------    --------------     -------------  ------------   ------------
Net cash used in financing activities                 (62,968,194)      (18,591,404)      (10,121,510)  (28,712,914)    (2,612,003)
                                                     ------------    --------------     -------------  ------------   ------------
</TABLE>


                                                                     (CONTINUED)

                                       59
<PAGE>

                         SHELBOURNE PROPERTIES II, INC.
                         ------------------------------


   CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2003
   --------------------------------------------------------------------------
     (LIQUIDATION BASIS), THE PERIODS OCTOBER 30, 2002 TO DECEMBER 31, 2002
     ----------------------------------------------------------------------
    (LIQUIDATION BASIS) AND JANUARY 1, 2002 (GOING CONCERN BASIS) TO OCTOBER
    ------------------------------------------------------------------------
     29, 2002 AND FOR THE YEAR ENDED DECEMBER 31, 2001 (GOING CONCERN BASIS)
     -----------------------------------------------------------------------
                                   (CONTINUED)
                                   -----------





<TABLE>
<CAPTION>
                                                                        PERIOD         PERIOD 1/1/02
                                                        2003          10/30/02 TO        TO 10/29/02                      2001
                                                   (LIQUIDATION        12/31/02        (GOING CONCERN      2002      (GOING CONCERN
                                                       BASIS)     (LIQUIDATING BASIS)      BASIS)      (AGGREGATED)      BASIS)
                                                  --------------  -------------------  -------------- -------------  --------------
CASH FLOW FROM OPERATING ACTIVITIES:
<S>                                                <C>             <C>                <C>             <C>            <C>
Decrease (increase) in cash and cash equivalents      (9,655,797)     (748,861)          (5,426,105)     (6,174,966)     8,404,228
                                                   ---------------  --------------    --------------  --------------  --------------

Cash and cash equivalents, beginning of period                  -               -        26,011,761      26,011,761     17,607,533
Cash and cash equivalents related to
investments in join ventures                                    -               -        (8,938,300)     (8,938,300)             -
                                                   ---------------  --------------    --------------  --------------  --------------
Adjusted cash and cash equivalents, beginning
of period                                              10,898,495      11,647,356        17,073,461      17,073,461     17,607,533
                                                   ---------------  --------------    --------------  -------------- --------------
Cash and cash equivalents, end of period             $  1,242,698    $ 10,898,495      $ 11,647,356   $  10,898,495   $ 26,011,761
                                                   ===============  ==============    ==============  ============== ==============

Supplemental Disclosure of Cash Flow Information
Cash paid for interest                                $   579,347      $  193,172       $   851,669   $   1,044,841   $         -
                                                   ===============  ==============    ==============  ============== ==============
</TABLE>



                                                                     (CONCLUDED)



                 See notes to consolidated financial statements.

















                                       60
<PAGE>


                         SHELBOURNE PROPERTIES II, INC.
                         ------------------------------

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------

1.       ORGANIZATION
         ------------

         Shelbourne Properties II, Inc., a Delaware corporation (the
         "Corporation") was formed on April 17, 2001. The Corporation's
         wholly-owned operating partnership, Shelbourne Properties II L.P., a
         Delaware limited partnership (the "Operating Partnership", and together
         with the Corporation, the "Company"), holds directly and indirectly all
         of the Company's assets. Pursuant to a merger that was consummated on
         April 17, 2001, the Operating Partnership became the successor by
         merger High Equity Partners, Series 86 (the "Predecessor Partnership").

         In August 2002, the Board of Directors adopted a Plan of Liquidation
         (the "Plan of Liquidation") and directed that the Plan of Liquidation
         be submitted to the Corporation's stockholders for approval. The
         stockholders of the Corporation approved the Plan of Liquidation at a
         Special Meeting of Stockholders held on October 29, 2002. The Plan of
         Liquidation contemplates the orderly sale of all of the Corporation's
         assets for cash or such other form of consideration as may be
         conveniently distributed to the Corporation's stockholders and the
         payment of (or provision for) the Corporation's liabilities and
         expenses, as well as to the extent deemed advisable, the establishment
         of a reserve to fund the Corporation's contingent liabilities. The Plan
         of Liquidation gives the Corporation's Board of Directors the power to
         sell any and all of the assets of the Corporation without further
         approval by the stockholders.

         The Corporation presently expects that on April 16, 2004 any then
         remaining assets and liabilities will be transferred to a liquidating
         trust. With the transfer to a liquidating trust, the liquidation will
         be completed for federal and state income tax purposes, although one or
         more distributions of the remaining cash and net proceeds from future
         asset sales may occur subsequent to the establishment of a liquidating
         trust.

         At such time as the assets of the Company are distributed to a
         liquidating trust, the interests in such trust will be
         non-transferable. Accordingly, investors will not be able to sell their
         interests in the liquidating trust but will receive distributions from
         the liquidating trust as the remaining assets are liquidated.


2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         ------------------------------------------

         BASIS OF PRESENTATION
         ---------------------

         As a result of the adoption of the Plan of Liquidation and its approval
         by the Corporation's stockholders, the Corporation adopted the
         liquidation basis of accounting for the period subsequent to October
         29, 2002. Under the liquidation basis of accounting, assets are stated
         at their estimated net realizable value. Liabilities including the
         reserves for estimated costs during the period of liquidation are
         stated at their anticipated settlement amounts. The valuation of
         investments in joint ventures and real estate held for sale is based
         upon current contracts, estimates as determined by independent
         appraisals or other indications of sales values. The valuations for
         other assets and liabilities under the liquidation basis of accounting
         are based on management's estimates as of December 31, 2003 and 2002.
         The actual values realized for assets and settlement of liabilities may
         differ materially from the amounts estimated.

         The accompanying consolidated financial statements include the accounts
         of the Corporation and its wholly owned subsidiaries, the Operating
         Partnership and Shelbourne Properties II GP LLC, the general partner of
         the Operating Partnership and a wholly owned subsidiary of the
         Corporation. Intercompany accounts and transactions have been
         eliminated in consolidation.

         As a result of the Operating Partnership incurring debt, the
         Corporation is no longer allowed to account for its investments in
         joint ventures on a pro-rata consolidation basis. The Corporation must
         instead utilize the equity method of accounting. As required, the
         Corporation's consolidated statements of operations reflect the equity
         method of accounting subsequent to January 1, 2002, and pro-rata
         consolidation prior to that date (see Investments in Joint Ventures
         below).


                                       61
<PAGE>

                         SHELBOURNE PROPERTIES II, INC.
                         ------------------------------

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------


2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
         ------------------------------------------------------

         ADJUSTMENTS TO LIQUIDATION BASIS OF ACCOUNTING
         ----------------------------------------------

         On October 30, 2002, in accordance with the liquidation basis of
         accounting, assets were adjusted to estimated net realizable value and
         liabilities were adjusted to estimated settlement amounts, including
         estimated costs associated with carrying out the liquidation. Since the
         sale of the properties located in Melrose Park, Illinois; Hilliard,
         Ohio; New York, New York; San Diego, California; Grove City, Ohio, and
         Orange, Ohio, the valuation of investments in joint ventures and real
         estate held for sale have been adjusted to reflect estimated realizable
         value as of December 31, 2003. Further adjustments were included in the
         December 31, 2003 Consolidated Statement of Changes in Net Assets. The
         valuation is based on current contracts, estimates as determined by
         independent appraisals or other indications of sales value, net of
         estimated selling costs and capital expenditures anticipated during the
         liquidation period. The valuations of other assets and liabilities are
         based on management's estimates as of December 31, 2003. During the
         year ended December 31, 2003, in addition to decreases due to the
         result of sales, the deferred gain was decreased by $968,196 to reflect
         revisions to the carrying value of real estate and joint ventures. The
         actual values realized for assets and settlement of liabilities may
         differ materially from amounts estimated.

         The anticipated gains which include any distributions payable to the
         Class B Unitholder associated with the adjustment in value of these
         real estate properties have been deferred until such time as a sale
         occurs. During the year ended December 31, 2003, the Corporation
         recognized actual gains of $846,203 on the sale of real estate and
         $37,125,122 included in equity income from joint ventures attributable
         to real estate sales. As a result of these sales, the Corporation's
         deferred gain at December 31, 2003 was reduced by $37,592,575 to
         $5,286,904.

         RESERVE FOR ESTIMATED COSTS DURING THE PERIOD OF LIQUIDATION
         ------------------------------------------------------------

         Under liquidation accounting, the Corporation is required to estimate
         and accrue the costs associated with executing the Plan of Liquidation.
         These amounts can vary significantly due to, among other things, the
         timing and realized proceeds from property sales, the costs of
         retaining agents and trustees to oversee the liquidation, the costs of
         insurance, the timing and amounts associated with discharging known and
         contingent liabilities and the costs associated with cessation of the
         Company's operations. These costs are estimates and are expected to be
         paid out over the liquidation period. Such costs do not include costs
         incurred in connection with ordinary operations.

         The reserve for additional costs associated with liquidation was
         reduced from $1,600,000 at December 31, 2002 to $1,500,000 at December
         31, 2003. The decrease is the result of (a) professional costs
         associated with obtaining the Fleet Loan of $504,926, (b) $2,066
         incurred in connection with the payoff of the Fleet Loan and (c) tax
         planning costs of $16,666 paid to an affiliate of Presidio Capital
         Investment Company, LLC in connection with the Accotel transaction (see
         note 10). These expenditures were partially offset by an increase in
         management's estimate of costs associated with executing the Plan of
         Liquidation of $423,660.

         USE OF ESTIMATES
         ----------------

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

         CASH EQUIVALENTS
         ----------------

         The Corporation considers all short-term investments that have original
         maturities of three months or less from the date of acquisition to be
         cash equivalents.

                                       62
<PAGE>

                         SHELBOURNE PROPERTIES II, INC.
                         ------------------------------

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------


2.       SUMMARY OF SIGNIFCANT ACCOUNTING POLICIES (CONTINUED)
         -----------------------------------------------------

         RECEIVABLES
         -----------

         Receivables are stated net of allowance for doubtful accounts of
         $43,517 and $92,693 as of December 31, 2003 and December 31, 2002,
         respectively.

         REVENUE RECOGNITION
         -------------------

         Prior to the adoption of the liquidation basis of accounting, base
         rents were recognized on a straight-line basis over the terms of the
         related leases. Subsequent to the adoption of the liquidation basis of
         accounting, the amount of the previously deferred straight-line rent
         was grouped with real estate for purposes of comparing such balances to
         their net realizable value and, if such amounts when aggregated with
         real estate exceeded the net realizable value, the amount of the excess
         was included in the write-off of other assets as part of the adjustment
         to the liquidation basis of accounting. At October 29, 2002
         approximately $299,737 of deferred straight-line rent, that was
         included in other assets, was subsequently grouped with real estate
         with no write-off required.

         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," and the Emerging Issues
         Task Force's consensus on Issue 98-9, "Accounting for Contingent Rent
         in Interim Financial Periods," the Corporation 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 for
         taxes, insurance and other operating expenses are recognized as revenue
         in the period the applicable costs are incurred.

         INVESTMENTS IN JOINT VENTURES
         -----------------------------

         Certain properties are or were owned in joint ventures with Shelbourne
         Properties I L.P. and/or Shelbourne Properties III L.P. Prior to April
         30, 2002, the Corporation 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 January 1, 2002, the
         Corporation's consolidated financial statements had presented the
         assets, liabilities, revenues and expenses of the joint ventures on a
         pro rata basis in accordance with the Corporation's percentage of
         ownership.

         After April 30, 2002, as a result of the Operating Partnership's
         incurring debt in connection with entering into the Credit Facility
         discussed in Note 6, the Corporation was 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 Corporation's
         consolidated balance sheet at December 31, 2002 and the Corporation's
         consolidated statements of operations commencing January 1, 2002
         reflect the equity method of accounting.

         REAL ESTATE HELD FOR SALE
         -------------------------

         Subsequent to the adoption of the liquidation basis of accounting, real
         estate assets were adjusted to their net realizable value and
         classified as real estate held for sale. Additionally, the Corporation
         suspended recording any further depreciation expense.

         Repairs and maintenance are charged to expense as incurred.
         Replacements and betterments are capitalized.


                                       63
<PAGE>
                         SHELBOURNE PROPERTIES II, INC.
                         ------------------------------

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------


2.       SUMMARY OF SIGNIFCANT ACCOUNTING POLICIES (CONTINUED)
         -----------------------------------------------------

         DEPRECIATION AND AMORTIZATION
         -----------------------------

         Upon the adoption of the liquidation basis of accounting, deferred loan
         fees of $892,599 were written off to reflect the balances at their net
         realizable value. Direct lease costs associated with the real estate
         were grouped with real estate for purposes of comparing carrying
         amounts to their net realizable value, and if such amounts when
         aggregated with real estate exceeded the net realizable value, these
         costs were written off.

         Prior to the Corporation adopting the liquidation basis of accounting,
         depreciation was computed using the straight-line method over the
         useful life of the property, which was estimated to be 40 years. The
         cost of properties represented the initial cost of the properties to
         the Company plus acquisition and closing costs less impairment
         adjustments. Tenant improvements, leasing costs and deferred loan fees
         were amortized over the applicable lease term.

         FINANCIAL INSTRUMENTS
         ---------------------

         The carrying values reflected in the consolidated statements of net
         assets at December 31, 2002 reasonably approximate the fair values for
         cash and cash equivalents, other assets, receivables, accounts payable,
         accrued expenses and note payable. Additionally, as the Corporation
         currently expects that the liquidation will be substantially completed
         not later than October 2004, the net realizable value of notes payable
         approximates the fair value. In making such assessment, the Corporation
         has utilized discounted cash flow analyses, estimates, and quoted
         market prices as deemed appropriate.

         INCOME TAXES
         ------------

         The Corporation is operating with the intention of qualifying as a real
         estate investment trust ("REIT") under Sections 856-860 of the Internal
         Revenue Code of 1986 as amended. Under those sections, a REIT which
         pays at least 90% of its ordinary taxable income as a dividend to its
         stockholders each year and which meets certain other conditions will
         not be taxed on that portion of its taxable income which is distributed
         to its stockholders.

         The Corporation paid to stockholders an amount greater than its taxable
         income; therefore, no provision for federal income taxes is required.
         For federal income tax purposes, the cash dividends distributed to
         stockholders are characterized as follows:

                                            2003           2002         2001
                                            ----           ----         ----

             Liquidating Distribution       100%           100%            -
             Ordinary Income                   -              -          54%
             Return of Capital                 -              -          46%
                                            ----           ----         ----

             Total                          100%           100%         100%
                                            ====           ====         ====

         Prior to the conversion to a REIT, no provision had been made for
         federal, state and local income taxes since they were the personal
         responsibility of the partners. A final tax return and K-1's were
         issued for the short tax year ended April 17, 2001.

         Taxable income differs from net income for financial reporting purposes
         principally because of differences in the timing of recognition of
         rental income and depreciation. As a result of these differences,
         impairment of long-lived assets and the initial write off of
         organization costs for book purposes, the tax basis of the
         Corporation's net assets exceeded its book value by $5,811,761 and
         $61,206,115 at December 31, 2003 and 2002, respectively.

                                       64
<PAGE>
                         SHELBOURNE PROPERTIES II, INC.
                         ------------------------------

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------


2.       SUMMARY OF SIGNIFCANT ACCOUNTING POLICIES (CONTINUED)
         -----------------------------------------------------

         AMOUNTS PER SHARE
         -----------------

         Basic earnings (loss) per share is computed based on weighted average
         common shares outstanding during the period.

         DIVIDENDS PER SHARE
         -------------------

         On December 7, 2001 the Board of Directors declared a dividend of $2.11
         per share. The dividend was paid on December 21, 2001 to all
         stockholders of record as of December 17, 2001

         On November 5, 2002, the Board of Directors declared a dividend of
         $14.00 per share. The dividend was paid on November 21, 2002 to all
         stockholders of record as of November 15, 2002.

         On January 13, 2003, the Board of Directors declared a dividend of
         $14.50 per share. The dividend was paid on January 31, 2003 to
         stockholders of record at the close of business on January 23, 2003.

         On February 28, 2003, the Board of Directors declared a dividend of
         $30.00 per share. The dividend was paid on March 18, 2003 to
         stockholders of record at the close of business on March 10, 2003.

         On June 19, 2003 the Board of Directors declared a dividend of $6.75
         per share. The dividend was paid on July 9, 2003 to the stockholders of
         record at the close of business on June 30, 2003.

         RECENTLY ISSUED ACCOUNTING STANDARDS
         ------------------------------------

         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 will be effective for fiscal years
         beginning after May 15, 2002. This statement had no material effect on
         the Corporation's financial statements.

         In November 2002, the FASB issued Interpretation No. 45, Guarantors'
         Accounting and Disclosure Requirements for Guarantees, Including
         Indirect Guarantees of Indebtedness of Others. The Interpretation
         elaborates on the disclosures to be made by a guarantor in its
         financial statements about its obligations under certain guarantees
         that it has issued. It also clarifies that a guarantor is required to
         recognize, at the inception of a guarantee, a liability for the fair
         value of the obligation undertaken in issuing the guarantee. This
         Interpretation does not prescribe a specific approach for subsequently
         measuring the guarantor's recognized liability over the term of the
         related guarantee. The disclosure provisions of this Interpretation
         were effective for the Corporation's December 31, 2002 financial
         statements. The initial recognition and initial measurement provisions
         of this Interpretation are applicable on a prospective basis to
         guarantees issued or modified after December 31, 2002. This
         Interpretation had no material effect on the Corporation's financial
         statements.

         In April 2003, the FASB issued SFAS No. 149, "Amendment of SFAS No. 133
         on Derivative Instruments and Hedging Activities." This statement
         amends and clarifies financial accounting and reporting for derivative
         instruments, including certain derivative instruments embedded in other
         contracts (collectively referred to as derivatives) and for hedging
         activities under SFAS No. 133, "Accounting for Derivative Instruments
         and Hedging Activities." This statement had no material effect on the
         Corporation's financial statements.



                                       65
<PAGE>


                         SHELBOURNE PROPERTIES II, INC.
                         ------------------------------

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------


2.       SUMMARY OF SIGNIFCANT ACCOUNTING POLICIES (CONTINUED)
         -----------------------------------------------------

         RECENTLY ISSUED ACCOUNTING STANDARDS (CONTINUED)
         ------------------------------------------------

         In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
         Financial Instruments with Characteristics of both Liabilities and
         Equity." The statement improves the accounting for certain financial
         instruments that under previous guidance, issuers could account for as
         equity. The new statement requires that those instruments be classified
         as liabilities in statements of financial position. SFAS No. 150
         affects the issuer's accounting for three types of freestanding
         financial instruments. One type is mandatorily redeemable shares, which
         the issuing company is obligated to buy back in exchange for cash and
         other assets. A second type, which includes put options and forward
         purchase contracts, involves instruments that do or may require the
         issuer to buy back some of its shares in exchange for cash or other
         assets. The third type of instruments that are liabilities under this
         statement is obligations that can be settled with shares, the monetary
         value of which is fixed, tied solely or predominately to a variable
         such as a market index, or varies inversely with the value of the
         issuer's shares. SFAS No. 150 does not apply to features embedded in a
         financial instrument that is not a derivative in its entirety. In
         addition to its requirements for the classification and measurement of
         financial instruments in its scope, SFAS No. 150 also requires
         disclosures about alternative ways of settling the instruments and the
         capital structure of entities, all of whose shares are mandatorily
         redeemable. Most of the guidance in SFAS No. 150 is effective for all
         financial instruments entered into or modified after May 31, 2003 and
         otherwise is effective at the beginning of the first interim period
         beginning after June 15, 2003. This statement had no material effect on
         the Corporation's financial statements.

         In December 2003, the FASB issued FASB Interpretation No. 46 (revised
         December 2003). Consolidation of Variable Interest Entities ("VIEs"),
         which addresses how a business enterprise should evaluate whether it
         has a controlling financial interest in an entity through means other
         than voting rights and accordingly should consolidate the entity. FIN
         46R replaces FASB Interpretation No. 46, Consolidation of Variable
         Interest Entities, which was issued in January 2003. The Corporation
         will be required to adopt FIN 46R in the first fiscal period ending
         after March 15, 2004. Upon adoption of FIN 46R, the assets, liabilities
         and noncontrolling interest of the VIE initially would be measured at
         their carrying amounts with any difference between the net amount added
         to the balance sheet and any previously recognized interest being
         recognized as the cumulative effect of an accounting change. If
         determining the carrying amounts is not practicable, fair value at the
         date FIN 46R first applies may be used to measure the assets,
         liabilities and noncontrolling interest of the VIE. The Corporation
         does not expect that this will have a material impact on the
         Corporation's consolidated financial statements.

3.       CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES
         -----------------------------------------------------------

         During the years ended December 31, 2001, 2002 and 2003, property
         management services (the "Property Management Services") and asset
         management services, investor relation services and accounting services
         (the "Asset Management Services") have been provided to (i) the
         Predecessor Partnership by affiliates of the general partners of the
         Predecessor Partnership's (the "Predecessor General Partners") and (ii)
         the Company by affiliates of the Company.

         ASSET MANAGEMENT SERVICES
         -------------------------

         For the period January 1, 2001 through April 16, 2001, an affiliate of
         the Predecessor General Partners, Resources Supervisory, provided Asset
         Management Services for an annual fee equal to 1.25% of the Predecessor
         Partnership's gross asset value. In addition, the Predecessor
         Partnership was obligated to (i) pay $200,000 for non-accountable
         expenses and (ii) reimburse Resources Supervisory for expenses incurred
         in connection with the performance of its services.


                                       66
<PAGE>
                         SHELBOURNE PROPERTIES II, INC.
                         ------------------------------

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------



3.       CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
         -----------------------------------------------------------------------

         ASSET MANAGEMENT SERVICES (CONTINUED)
         -------------------------------------

         Effective April 17, 2001 through February 14, 2002, Shelbourne
         Management LLC ("Shelbourne Management"), a wholly-owned subsidiary of
         Presidio Capital Investment Company, LLC ("PCIC"), provided asset
         management services to the Company pursuant to the terms of an Advisory
         Agreement (the "Advisory Agreement") between the Corporation, the
         Operating Partnership and Shelbourne Management. Pursuant to the terms
         of the Advisory Agreement, the Corporation was obligated to pay for
         asset management services, an annual asset management fee, payable
         quarterly, equal to 1.25% of the Corporation's gross asset value as of
         the last day of each year. In addition, the Corporation was obligated
         to (i) pay $200,000 for non-accountable expenses and (ii) reimburse
         Shelbourne Management for expenses incurred in connection with the
         performance of its services.

         Effective February 14, 2002, in connection with the Transaction (as
         described below), PCIC began providing such services for a reduced fee
         of $333,333 per annum (the "Transition Management Fee"). Both
         Shelbourne Management and PCIC were affiliates of the then management
         of the Corporation.

         Effective October 1, 2002, as contemplated by the Plan of Liquidation,
         the agreement with PCIC was terminated and Kestrel Management, L.P.
         ("Kestrel") began providing the Asset Management Services for a fee of
         $200,000 per annum. Kestrel is an affiliate of the Corporation's
         current Chief Executive Officer.

         PROPERTY MANAGEMENT SERVICES
         ----------------------------

         During the years ended December 31, 2001, 2002 and 2003, property
         management services were provided by Kestrel pursuant to agreements
         that provide for a fee of up to 3% of property revenue.

         The following table summarizes the amounts paid to affiliates for
         Expense Reimbursements, Asset Management Fees, Transition Management
         Fees, and Property Management Fees for the twelve-month periods ended
         December 31, 2003, 2002 and 2001. All numbers in the tables below
         include the Corporation's share of fees paid to Kestrel by properties
         owned by joint ventures in which the Corporation has an interest.

         YEAR ENDED DECEMBER 31, 2003

                                         Resources      Shelbourne
                                        Supervisory     Management    Kestrel
                                        -----------     ----------    -------

         Expense Reimbursement          $      -        $      -     $      -
         Asset Management Fee                  -               -      200,000
         Property Management Fees              -               -      183,513



         YEAR ENDED DECEMBER 31, 2002

                                         Resources      Shelbourne
                                        Supervisory     Management     Kestrel
                                        -----------     ----------     -------

         Expense Reimbursement          $      -       $   25,000     $      -
         Asset Management Fee                  -          157,582       50,000
         Transition Management Fee             -          208,250            -
         Property Management Fees              -                -      366,524

                                       67
<PAGE>
                         SHELBOURNE PROPERTIES II, INC.
                         ------------------------------

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------


3.       CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
         -----------------------------------------------------------------------

         PROPERTY MANAGEMENT SERVICES (CONTINUED)
         ----------------------------------------

         YEAR ENDED DECEMBER 31, 2001

                                         Resources      Shelbourne
                                        Supervisory     Management     Kestrel
                                        -----------     ----------     -------

         Expense Reimbursement           $   59,444     $  140,556     $      -
         Asset Management Fee               394,808        947,194            -
         Property Management Fees                 -              -      369,139


         ALLOCATION OF DIVIDENDS BY THE CORPORATION

         Dividends payable to affiliates for the years ended December 31, 2003,
         2002 and 2001 on account of shares of common stock owned are as
         follows:

<TABLE>
<CAPTION>
                                                                        Year Ended December 31,
                                                                2003                2002               2001
                                                                ----                ----               ----

<S>                                                       <C>                    <C>                <C>
         Presidio Capital Investment Company, LLC         $           -          $         -        $   723,992
         HX Investors, L.P.                                  19,014,365            5,194,168             86,299
</TABLE>


         In addition, effective August 19, 2002, in connection with the
         settlement of the lawsuit brought by HX Investors, L.P. ("HX
         Investors"), Shelbourne Management agreed to pay to HX Investors
         approximately 42% of the amounts paid to Shelbourne Management with
         respect to the Class A units. Distributions paid to Shelbourne
         Management on account of its Class A units for the years ended December
         31, 2003 and 2002 were $51,462 and $64,314, respectively, of which
         $21,614 and $11,659, respectively, are payable by Shelbourne Management
         to HX Investors pursuant to their agreement.

         THE TRANSACTION
         ---------------

         On February 14, 2002, the Corporation, Shelbourne Properties I, Inc.
         and Shelbourne Properties III, Inc. (the "Companies") consummated a
         transaction (the "Transaction") whereby the Corporation purchased the
         343,124 shares of the Corporation's common stock held by subsidiaries
         of PCIC and the Advisory Agreement was contributed to the Operating
         Partnership. Pursuant to the Transaction, the Corporation paid PCIC
         $17,866,603 in cash and the Operating Partnership issued preferred
         partnership interests with an aggregate liquidation preference of
         $1,015,148 and a note in the amount of $22,034,250. This note was
         satisfied in April 2002 from the proceeds of the Credit Facility (see
         note 6). The liquidation preference was eliminated on January 15, 2003
         in connection with the Accotel Transaction (see note 11).

         RELATED PARTY LOAN PAYABLE
         --------------------------

         In connection with the Fleet Loan financing (see note 7), the
         Corporation, Shelbourne Properties I, Inc. and Shelbourne Properties
         III, Inc. entered into Indemnity, Contribution and Subrogation
         Agreements, the purpose and intent of which was to place operating
         partnerships in the same position (as among each other) as each would
         have been had the lender made three separate loans. Under the terms of
         the Fleet Loan, the Shelbourne Properties I, Inc. and Shelbourne
         Properties III, Inc. were required to utilize a portion of their
         proceeds generated by property sales to make principal payments on the
         Fleet Loan on behalf of the Corporation. In accordance with the terms
         of the Indemnity, Contribution and Subrogation Agreements, the portion
         of the Corporation's principal payments made by Shelbourne Properties
         I, Inc., in the amount of $1,349,257, and Shelbourne Properties III,
         Inc., in the amount of $5,371,444 are recorded as loans payable

                                       68
<PAGE>
                         SHELBOURNE PROPERTIES II, INC.
                         ------------------------------

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------


3.       CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
         -----------------------------------------------------------------------

         RELATED PARTY LOAN PAYABLE (CONTINUED)
         --------------------------------------

         that are secured by the Corporation's interest in the entities that own
         its properties. The principal and accrued interest due to Shelbourne
         Properties I, Inc. and Shelbourne Properties III, Inc. at December 31,
         2003 are $1,352,307 and $5,383,586, respectively. The loans payable
         require payment of interest under the same terms as the Fleet Loan,
         which is LIBOR plus 2.75% (3.875% at December 31, 2003).

4.       REAL ESTATE HELD FOR SALE
         -------------------------

         The following table is a summary of the Corporation's real estate as
         of:

                                                     LIQUIDATION BASIS
                                            ------------------------------------
                                                       DECEMBER 31,
                                            ------------------------------------
                                                 2003                2002
                                            ----------------    ----------------

             Real Estate Held for Sale        $ 14,514,877       $ 17,091,316


         As of December 31, 2003, the Corporation owned two properties. One is
         located in Matthews, North Carolina and the other is located in
         Richmond, Virginia.

         On December 20, 2002, the Corporation sold Sutton Square Shopping
         Center for $16,750,000. The Corporation received $10,393,025 in net
         proceeds after the required pay down of the Credit Facility described
         in Note 6 of $6,000,000, expenses, and settlement charges. The
         Corporation realized a gain on sale for financial reporting purposes of
         approximately $6,760,000.

         On February 28, 2003, the Corporation sold its property located in
         Melrose Park, Illinois for a gross sales price of $3,247,200. The
         Corporation received proceeds of $3,125,632 after closing costs and net
         proceeds of $2,934,617 after closing adjustments. The Corporation
         recognized a gain for financial reporting purposes of $846,203.

         On August 18, 2003, a subsidiary of the Corporation entered into a
         contract to purchase two parcels of land adjacent to its property
         located in Matthews, North Carolina. The purchase, which is subject to
         the Corporation's satisfactory completion of the due diligence process,
         is expected to close, if at all, in the second quarter of 2004.

5.       INVESTMENT IN JOINT VENTURES
         ----------------------------

         As of December 31, 2003, the Corporation was invested in two joint
         ventures (the Accor S.A. Properties, described in note 11, and Seattle
         Landmark). The joint ventures are accounted for utilizing the equity
         method of accounting.

         On October 30, 2002, the Corporation adopted the liquidation basis of
         accounting. Subsequent to the adoption of the liquidation basis of
         accounting, the investments in joint ventures were adjusted to their
         net realizable value based on current contracts, estimates as
         determined by independent appraisals or other indications of sales
         value.

         On January 31, 2003, the Hilliard, Ohio property, which was owned by
         Tri-Columbus Associates, in which the Corporation holds a 20.66%
         interest, was sold for a gross sales price of $4,600,000. After making
         required payments on the Credit Facility, the property, closing
         adjustments and other closing costs, net proceeds were approximately
         $2,063,000, $426,330 of which is attributable to the Corporation's
         interest.



                                       69
<PAGE>

                         SHELBOURNE PROPERTIES II, INC.
                         ------------------------------

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------


5.       INVESTMENT IN JOINT VENTURES (CONTINUED)
         ----------------------------------------

         The joint venture recognized no gain or loss on the sale for financial
         reporting purposes as the joint venture's property was previously
         written down to its net realizable value.

         Due to significant amount of the investment in Seattle Landmark Joint
         Venture, the property's financial information is as follows:

         BALANCE SHEET


<TABLE>
<CAPTION>
                                                    For the Year Ended December 31,
                                                    2003                      2002
                                                -------------              ------------
<S>                                        <C>                <C>    <C>                <C>
         Assets:
         Real estate held for sale             $  19,775,003              $ 18,944,000
         Cash and cash equivalents                   608,297                 1,245,464
         Other assets                                 80,771                    96,513
         Receivables, net                            763,029                   174,283
                                                -------------              ------------
         Total assets:                            21,227,100                20,460,260

         Liabilities:
         Other Liabilities:                        1,426,996                   458,931

         Partners Equity:
         Shelbourne Properties II, Inc.            9,899,701    50%         10,001,313    50%
         Other Partners Equity                     9,900,403    50%         10,000,016    50%
                                                -------------              ------------
         Total Liabilities and Partners
         Equity:                               $  21,227,100              $ 20,460,260

</TABLE>







                                       70
<PAGE>
                         SHELBOURNE PROPERTIES II, INC.
                         ------------------------------

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------


5.       INVESTMENT IN JOINT VENTURES (CONTINUED)
         ----------------------------------------


         STATEMENT OF OPERATIONS


<TABLE>
<CAPTION>
                                                      For the Year Ended December 31,
                                                    2003             2002              2001
                                                ------------     ------------       ------------
<S>                                         <C>                  <C>                <C>
        Revenues:

        Rental Income                           $  2,936,572     $  3,106,686       $  2,896,480
        Interest Income                                2.960           11,440             69,896
                                                ------------     ------------       ------------
        Total Revenues:                            2,969,532        3,118,126          2,966,376

        Expenses:

        Depreciation and Amortization                      -          467,417            392,190
        Other Expenses                             1,600,466        1,332,727          1,217,086
                                                ------------     ------------       ------------
        Total Expenses:                            1,600,466        1,800,144          1,609,276

        Revenue in Excess of Expenses           $  1,339,066     $  1,317,982       $  1,357,100

        Revenue in Excess of
          Expenses allocated to
          Shelbourne Properties II, Inc.             669,533          660,053            680,120

        Revenue in Excess of Expenses
          allocated to Other Partners           $    669,533     $    657,929       $    676,980
</TABLE>



         RECONCILIATION OF INVESTMENT IN JOINT VENTURES



<TABLE>
<CAPTION>
                                                         For the Year Ended December 31,
                                                              2003                     2002
                                                          ------------              ------------
<S>                                                     <C>                      <C>
        Investment in Seattle Landmark                    $  9,899,701              $ 10,001,313
          Joint Venture
        Investment in other joint ventures                   1,079,675                52,344,041
                                                          ------------              ------------
        Total investment in joint ventures                $ 10,979,376              $ 62,344,354
                                                          ============              ============
</TABLE>


         On February 28, 2003, 568 Broadway Joint Venture, a joint venture in
         which the Company held a 38.925% interest, sold its property located at
         568 Broadway, New York, New York for a gross sale price of $87,500,000.
         After assumption of the debt encumbering the property ($10,000,000),
         closing adjustments and other closing costs, net proceeds were
         approximately $73,000,000, approximately $28,415,250 of


                                       71
<PAGE>

                         SHELBOURNE PROPERTIES II, INC.
                         ------------------------------

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------


5.       INVESTMENT IN JOINT VENTURES (CONTINUED)
         ----------------------------------------

         which was allocated to the Operating Partnership. The joint venture
         recognized a gain for financial reporting purposes of $67,746,480 of
         which $26,702,093 was attributable to the Corporation and is reported
         as equity income from joint ventures.

         On April 29, 2003, Century Park I Joint Venture, a joint venture in
         which the Company held a 50% interest, sold its property located in San
         Diego, California for a gross sales price of $29,750,000. The Fleet
         Loan required that a payment of $20,000,000 be made to pay down the
         loan. After the required paydown, closing adjustments and other closing
         costs, net proceeds were $9,403,450 of which the Operating Partnership
         was allocated $4,701,725. The joint venture recognized a gain for
         financial reporting purposes of $20,394,138 of which $10,261,579 was
         attributable to the Corporation and is reported as equity income from
         joint ventures.

         On June 18, 2003, the Grove City, Ohio property, which was owned by
         Tri-Columbus Associates was sold for a gross sales price of $4,090,000.
         The Fleet Loan encumbering this property (see note 7) required a
         principal payment equal to the greater of $3,300,000 or 90% of the net
         proceeds. After closing adjustments and costs the net proceeds were
         $3,938,286. As a result, the principal payment was $3,544,457 of which
         the Corporation was allocated $732,285. The remaining proceeds after
         the principal payment were $393,829 of which the Corporation was
         allocated $81,365. The joint venture recognized no gain or loss for
         financial reporting purposes on the sale as the joint venture's
         property was previously written down to its net realizable value.

         On December 11, 2003, the Orange, Ohio property, which was owned by
         Tri-Columbus Associates, was sold for a gross sales price of
         $4,090,000. After the required principal paydown on the Fleet Loan,
         closing adjustments and closing costs, net proceeds amounted to
         $4,419,613 of which the Corporation was allocated $913,092. The
         Corporation recognized a gain for financial reporting purposes of
         $161,450 from the sale and is reported as equity income from joint
         ventures.

6.       CREDIT FACILITY
         ---------------

         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 (referred to as the
         "Credit Facility" or the "Note Payable"). The Credit Facility had a
         term of three years and was prepayable in whole or in part at any time
         without penalty or premium. The Companies initially borrowed
         $73,330,073 under the Credit Facility. The Company's share of the
         proceeds amounted to $29,779,343 of which $22,034,250 was used to repay
         the note issued in the Transaction, $215,768 to pay associated accrued
         interest and $840,624 to pay costs associated with the Credit Facility.
         The excess proceeds of approximately $6,688,701 were deposited into the
         Company's operating cash account. On December 20, 2002, in connection
         with the sale of Sutton Square, the Corporation made a principal
         paydown of $6,000,000. The Credit Facility was subsequently satisfied
         on February 20, 2003 (see note 7 below.)

7.       FLEET LOAN
         ----------

         On February 20, 2003, in a transaction designed to provide flexibility
         to the Corporation, Shelbourne Properties I, Inc. and Shelbourne
         Properties III, Inc., (collectively, the "Companies") and their
         respective operating partnerships (the "Shelbourne OPs") in
         implementing their respective plans of liquidation and to enable them
         to distribute 100% of the net proceeds from the sale of the New York,
         New York property, direct and indirect subsidiaries of each of the
         Companies (the "Borrowers") entered into a Loan Agreement with Fleet
         National Bank, as agent for itself and other lenders ("Fleet") pursuant
         to which the Borrowers obtained a $55,000,000 loan (the "Fleet Loan").
         The Companies believed that by entering into a single loan transaction
         instead of three separate loan transactions they were able to obtain a
         larger loan at a more favorable interest rate.



                                       72
<PAGE>

                         SHELBOURNE PROPERTIES II, INC.
                         ------------------------------

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------


7.       FLEET LOAN (CONTINUED)
         ----------------------

         The Borrowers are jointly and severally liable for the repayment of the
         amounts due under the Fleet Loan and the Shelbourne OPs and the
         Companies have guaranteed the repayment of the Fleet Loan. A portion of
         the Fleet Loan proceeds, as well as the balance of a note in the amount
         of $10,000,000 secured by the 568 Broadway property, were used to
         satisfy the Credit Facility that had a balance due in aggregate of
         $37,417,249 as of February 20, 2003.

         The Fleet Loan was satisfied on December 11, 2003 from the proceeds of
         the sales of properties owned by the Corporation, Shelbourne Properties
         I, Inc. and Shelbourne Properties III, Inc.

         Pursuant to the terms of the Loan, each Borrower is jointly and
         severally liable for the repayment of the entire principal, interest
         and other amounts due under the Loan. Accordingly, the Borrowers, the
         Companies and the Shelbourne OPs entered into Indemnity, Contribution
         and Subrogation Agreements, the purpose and intent of which was to
         place the operating partnerships in the same position (as among each
         other) as each would have been had the lender made three separate
         loans, one to each of the operating partnerships. The principal benefit
         derived from obtaining one loan instead of three separate loans is that
         the interest rate on the Fleet Loan and the costs associated with the
         Fleet Loan were less than that which would have been incurred for three
         separate smaller loans.

         Pursuant to the terms of the Indemnity, Contribution and Subrogation
         Agreement, the amounts paid by Shelbourne Properties I, Inc. and
         Shelbourne Properties III, Inc. on behalf of the Corporation to satisfy
         the terms of the Fleet Loan have been recorded by the Corporation as
         loans payable and are secured by the Corporation's interest in its
         properties. The loans payable to Shelbourne Properties I, Inc. and
         Shelbourne Properties III, Inc., which have a balance, including
         accrued interest , at December 31, 2003 of $1,349,257 and $5,371,444,
         respectively, have the same terms as the Fleet Loan. At December 31,
         2003 the interest rate was 3.875%.

8.       CLASS B PARTNERSHIP INTERESTS
         -----------------------------

         Under the Plan of Liquidation which has been approved by the
         Corporation's Board of Directors and stockholders, HX Investors is
         entitled to receive an incentive payment of 15% of (i) the cash and
         other proceeds generated from operating the assets and properties of
         the Company, plus the aggregate fair value of all consideration
         received from the disposal of the assets and properties of the Company
         less (ii) the sum of all direct costs incurred in connection with such
         disposal (the "Incentive Fee"), after the payment of a priority return
         of approximately $66.25 per share to stockholders of the Corporation
         plus interest thereon compounded quarterly at 6% per annum (the
         "Priority Return"). On August 19, 2002, the Board of Directors of the
         Corporation authorized the issuance by the Operating Partnership of,
         and the Operating Partnership issued, Class B Units to HX Investors
         which Class B Units provide distribution rights to HX Investors
         consistent with the intent and financial terms of the Incentive Fee.
         The Class B Units entitle the holder thereof to receive distributions
         equal to 15% of gross proceeds after the Priority Return. After giving
         effect to dividends paid from August 19, 2002 to March 24, 2004, the
         remaining unpaid per share Priority Return is $3.20.

9.       CLASS A 5% PREFERRED PARTNERSHIP INTERESTS
         ------------------------------------------

         In connection with the Transaction, the Operating Partnership issued to
         Shelbourne Management 1,015.148 Class A 5% Preferred Partnership Units
         (the "Class A Units"). The Class A Units entitled the holder to a
         quarterly distribution equal to 1.25% of the aggregate liquidation
         preference of the Class A Units ($1,015,148). In addition, upon the
         liquidation of the Operating Partnership, each Class A Unit was
         entitled to a liquidation preference of $1,000 per unit. The Class A
         Units are not convertible into common units of the Operating
         Partnership or shares in the Corporation and the holders of the Class A
         Units do not have voting rights except in limited circumstances.
         Although the holders of the Class A Units do not have redemption
         rights, pursuant to the terms of the Purchase and Contribution
         Agreement entered into in connection with the Transaction, Shelbourne
         Management had the right to cause the Operating Partnership


                                       73
<PAGE>

                         SHELBOURNE PROPERTIES II, INC.
                         ------------------------------

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------


9.       CLASS A 5% PREFERRED PARTNERSHIP INTERESTS (CONTINUED)
         ------------------------------------------------------

         to reacquire the Class A Units upon the occurrence of certain events
         including, without limitation, if the aggregate assets of the Companies
         is below approximately $75 million or the outstanding debt under which
         the Companies are obligated is less than $55 million, for a purchase
         price equal to the liquidation preference plus an amount (the "Put
         Premium") which was equal to approximately $6,605,000 at December 31,
         2002 and declined each February 13, May 13, August 13 and November 13
         until it reached zero on May 13, 2007.

         The terms of the Class A Units were subsequently modified to eliminate
         the liquidation preference and limit the circumstances under which the
         holders of the Class A Units can cause the Operating Partnership to
         purchase the Class A Units at a premium. These circumstances include
         the occurrence of any of the following if any of the Class A Units are
         outstanding; (i) the filing of bankruptcy by a Shelbourne OP; (ii) the
         failure of a Shelbourne OP to be taxed as a partnership; (iii) the
         termination of the Advisory Agreement; (iv) the issuing of a guaranty
         by any of the Companies on the debt securing the Accor S.A. Properties
         (see below); or (v) the taking of any action with respect to the Accor
         S.A. Properties without the consent of the Class A Unitholder (the
         "Class A Trigger Events").

         Effective August 19, 2002, in connection with the settlement of the
         lawsuit brought by HX Investors, Shelbourne Management agreed to pay to
         HX Investors 42% of the amounts paid to Shelbourne Management with
         respect to the Class A units (see note 3).

10.      CHANGE IN CONTROL
         -----------------

         On July 1, 2002, the Companies entered into a settlement agreement with
         respect to certain outstanding litigation involving the Companies. In
         connection with the settlement, the Corporation entered into a stock
         purchase agreement (the "Stock Purchase Agreement") with 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 Corporation, agreed to
         conduct a tender offer for up to an additional 30% of the Corporation's
         outstanding stock at a price per share of $62.00 (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
         Corporation approved a plan of liquidation for the Corporation (the
         "Plan of Liquidation") and agreed to submit the Plan of Liquidation to
         its stockholders for approval. HX Investors agreed to vote all of its
         shares in favor of the Plan of Liquidation. Under the Plan of
         Liquidation, HX Investors was to receive an incentive payment of 25% of
         gross proceeds after the payment of a priority return of approximately
         $66.25 per share was made to the stockholders of the Corporation.

         Subsequently, on July 29, 2002, Longacre Corp. ("Longacre") commenced a
         lawsuit individually and derivatively against the Corporation,
         Shelbourne Properties I, Inc., Shelbourne Properties III, Inc., their
         boards, HX Investors, and Exeter seeking preliminary and permanent
         injunctive relief and monetary damages based on purported violations of
         the securities laws and mismanagement related to the tender offer by HX
         Investors, the Stock Purchase Agreement, and the Plan of Liquidation.
         The suit was filed in federal court in New York, New York. On August 1,
         2002, the court denied Longacre's motion for a preliminary injunction,
         and, on September 30, 2002, the court dismissed the lawsuit at the
         request of Longacre.






                                       74
<PAGE>
                         SHELBOURNE PROPERTIES II, INC.
                         ------------------------------

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------



10.      CHANGE IN CONTROL (CONTINUED)
         -----------------------------

         Contemporaneous with filing its July 29, 2002 lawsuit, Longacre
         publicly announced that its 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 Corporation as were
         tendered for under the HX Investors Offer, at a price per share of
         $68.20. Over the course of the next several days, Longacre and HX
         Investors submitted competing proposals to the board of directors of
         the Corporation and made those proposals public. On August 4, 2002,
         Longacre notified the Corporation that it was no longer interested in
         proceeding with its proposed offer.

         On August 5, 2002, the Corporation entered into an amendment to the
         Stock Purchase Agreement. Pursuant to the terms of the amendment, the
         purchase price per share offered under the HX Investors Offer was
         increased from $62.00 to $73.85. 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
         $66.25 per share priority return to stockholders of the Corporation
         (the "Incentive Fee"), and included certain corporate governance
         provisions.

         On August 16, 2002, the HX Investors offer expired and HX Investors
         acquired 268,444 shares representing 30% of the outstanding shares.

         On August 19, 2002, as contemplated by the Stock Purchase Agreement,
         the existing Board of Directors and executive officer of the
         Corporation resigned and the Board was reconstituted to consist of six
         members, four of whom are independent directors. In addition, new
         executive officers were appointed.

         Also on August 19, 2002, the Board of Directors of the Corporation
         authorized the issuance by the Operating Partnership of Class B Units
         to HX Investors which Class B Units provide distribution rights
         consistent with the intent and financial terms of the incentive payment
         provided for in the Stock Purchase Agreement described above and which
         distributions are payable only in the event that the Plan of
         Liquidation was adopted. On August 19, 2002, the Operating Partnership
         issued the Class B Units to HX Investors in full satisfaction of the
         Incentive Fee payment otherwise required under the Plan of Liquidation.

11.      ACCOTEL TRANSACTION
         -------------------

         On January 15, 2003, a joint venture owned by the Operating Partnership
         and the operating partnerships of Shelbourne Properties I, Inc. and
         Shelbourne Properties III, Inc. acquired from Realty Holdings of
         America, LLC, an unaffiliated third party, a 100% interest in an entity
         that owns 20 motel properties which are triple net leased to an
         affiliate of Accor S.A. (the "Accor S.A. Properties"). The cash
         purchase price, which was provided from working capital, was
         $2,668,272, of which $867,806, $1,079,675 and $720,791 was paid by
         Shelbourne Properties I, Inc., the Corporation and Shelbourne
         Properties III, Inc., respectively. The Accor S.A. Properties are also
         subject to existing mortgage indebtedness in the current principal
         amount of approximately $72,200,000.

         The Companies formed the joint venture and acquired the interest in the
         new properties in order to facilitate the disposition of the other
         properties of the Companies and the distribution to stockholders of the
         sales proceeds in accordance with the Plan of Liquidation. Prior to the
         acquisition of the Accor S.A. Properties, the holder of the Class A
         Units had the right to cause the Operating Partnerships to purchase the
         Class A Units at a substantial premium to their liquidation value (at
         the time of the acquisition, a premium of approximately $6,605,000 in
         the case of the Operating Partnership and approximately $16,265,000 for
         all three operating partnerships) unless the operating partnerships
         maintained at least approximately $54,200,000 of aggregate indebtedness
         ($22,026,000 in the case of the Operating Partnership) guaranteed by
         the holder of the Class A Units and secured by assets having an
         aggregate market value of at least approximately $74,800,000
         ($30,400,000 in the case of the Operating Partnership). These
         requirements significantly impaired the ability of the Corporation to
         sell its properties and make distributions in




                                       75
<PAGE>
                         SHELBOURNE PROPERTIES II, INC.
                         ------------------------------

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------



11.      ACCOTEL TRANSACTION (CONTINUED)
         -------------------------------

         accordance with the Plan of Liquidation. In lieu of these requirements,
         the operating partnerships acquired the Accor S.A. Properties for the
         benefit of the holder of the Class A Units. The holder of the Class A
         Units does, however, continue to have the right, under certain limited
         circumstances which the Companies do not anticipate will occur, to
         cause the operating partnerships to purchase the Class A Units at the
         premium as described above.

         The terms of the Class A Units were also modified to eliminate the
         $2,500,000 aggregate liquidation preference to which the holder of the
         Class A Units was previously entitled ($1,015,148 in the case of the
         Operating Partnership).

         The holder of the Class A Units has the right to require the operating
         partnerships to acquire other properties for its benefit at an
         aggregate cash cost to the operating partnerships of $2,500,000
         (approximately $1,015,000 of which would be paid by the Operating
         Partnership). In that event the Accor S.A. Properties would not be held
         for the benefit of the holder of the Class A Units and would be
         disposed of as part of the liquidation of the Companies.

12.      SUBSEQUENT EVENT
         ----------------

         On March 17, 2004, the holder of the Class A Units agreed to retain its
         beneficial ownership of the motel properties and relinquish its right
         to require the acquisition of other properties, thereby enabling the
         Corporation to set up liquidating trusts to complete its liquidation as
         early as April 16, 2004. In consideration of the Class A Unitholder
         electing to take title to the Accor S.A. Properties earlier than
         required, the Corporation waived its right to require the Class A
         Unitholder to reimburse it for up to $75,000 of costs associated with
         the acquisition of the Accor S.A. Properties and agreed to make a
         payment to the Class A Unitholder of approximately $41,667.






















                                       76
<PAGE>

                         SHELBOURNE PROPERTIES II, INC.
                         ------------------------------

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------


13.      QUARTERLY DATA (UNAUDITED)
         --------------------------

         The following table presents unaudited financial data by quarter for
         the years ended December 31, 2003 and 2002. Periods prior to October
         30, 2002 were on a going concern basis, liquidation basis was used
         thereafter.


<TABLE>
<CAPTION>
                                                                                         Income (Loss) Available to
                                   Total Rental         Income (Loss) Available to         Common Stockholders Per
                                     Revenues               Common Stockholders                   Share
                                ---------------------------------------------------------------------------------------------
<S>                              <C>                      <C>                                  <C>
         Year 2003 Total           $  2,571,747             $  38,692,911                        $    43.24
         4th Quarter 2003               594,809                   564,304                               .63
         3rd Quarter 2003               656,272                   269,522                               .30
         2nd Quarter 2003               541,265                10,055,021                             11.24
         1st Quarter 2003               779,401                27,804,064                             31.07

         Year 2002 Total            $ 4,773,826              $(16,637,348)                       $   (17.75)(c)
         4th Quarter 2002             1,205,150                 7,431,805                              8.31 (b)
         3rd Quarter 2002             1,123,912                   216,821                              0.24 (b)
         2nd Quarter 2002             1,244,039                (1,506,221)                            (1.68)(b)
         1st Quarter 2002             1,200,725               (22,779,753)                           (21.37)(a)

</TABLE>

         (a)      Net Income (Loss) per Common Share was calculated using a
                  weighted average shares outstanding of 1,066,354.

         (b)      Net Income (Loss) per Common Share was calculated using a
                  weighted average shares outstanding of 894,792.

         (c)      Net Income (Loss) per Common Share was calculated using a
                  weighted average shares outstanding of 937,095.












                                       77