<PAGE>


Exhibit 32


                          SHELBOURNE PROPERTIES I, 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 I, 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








                                       48
<PAGE>


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





                          SHELBOURNE PROPERTIES I, 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.....................................................................................50

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............................................................................................51

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)..........................................................................52

Consolidated Statements of Equity (Going Concern Basis) for the Period January 1, 2002
to October 29, 2002 and the Year Ended December 31, 2001 ........................................................53

Consolidated Statements of Cash Flows for the Year ended December 31, 2003
(Liquidation Basis), the Period 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)....................................................................54

Notes to Consolidated Financial Statements.......................................................................56


</TABLE>


                                       49
<PAGE>


INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying consolidated statements of net assets
(liquidation basis) of Shelbourne Properties I, 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


                                       50
<PAGE>


                          SHELBOURNE PROPERTIES I, 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                                      $      --     $30,341,402
Investments in joint ventures                                   10,768,209    57,791,273
Cash and cash equivalents                                        2,176,924       550,061
Other assets                                                       348,787       359,699
Loan and accrued interest receivable from related party          1,352,307          --
Receivables, net                                                      --         166,723
                                                               -----------   -----------
        Total Assets                                            14,646,227    89,209,158
                                                               -----------   -----------

LIABILITIES

Accounts payable and accrued expenses                              880,104       386,903
Credit Facility                                                       --      23,832,274
Common share dividend payable                                    1,275,716          --
Class B Unitholder distribution payable                            225,348          --
Reserve for estimated costs during the period of liquidation     1,500,000     1,300,000
Deferrals of gains on real estate assets and joint ventures      4,431,694    52,537,883

COMMITMENTS AND CONTINGENCIES (Notes 8, 9)

CLASS B Partnership Interests (Note 8)                                --            --

CLASS A 5% Preferred Partnership Interests,
at liquidation value (Note 9)                                         --         812,674
                                                               -----------   -----------
        Total Liabilities                                        8,312,862    78,869,734
                                                               -----------   -----------
NET ASSETS IN LIQUIDATION                                      $ 6,333,365   $10,339,424
                                                               ===========   ===========
</TABLE>


                See notes to consolidated financial statements.


                                       51

<PAGE>
                          SHELBOURNE PROPERTIES I, 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       PERIOD 1/1/02
                                                                            10/30/02 TO     TO 10/29/02                    2001
                                                                2003        12/31/2002       (GOING                       (GOING
                                                            (LIQUIDATION   (LIQUIDATION     CONCERN          2002         CONCERN
                                                               BASIS)          BASIS)        BASIS)      (AGGREGATED)      BASIS)
                                                            ------------   ------------   ------------   ------------   ------------
<S>                                                         <C>            <C>            <C>            <C>            <C>
Rental revenue                                              $  2,011,425   $    713,451   $  3,688,510   $  4,401,961   $ 10,337,996
                                                            ------------   ------------   ------------   ------------   ------------

Costs and expenses:
    Operating expenses                                           594,821        200,389      1,343,650      1,544,039      3,516,980
    Depreciation and amortization                                   --             --          791,233        791,233      1,510,579
    Asset management fee                                         200,000         33,333        152,472        185,805      1,071,503
    Transition management fee                                       --             --          208,250        208,250           --
    Purchase of advisory agreements                                 --             --       18,452,133     18,452,133           --
    Administrative expenses                                    1,023,188        297,586      3,758,297      4,055,883      1,037,509
    Property management fee                                       62,636         21,241        107,527        128,768        312,777
                                                            ------------   ------------   ------------   ------------   ------------
                                                               1,880,645        552,549     24,813,562     25,366,111      7,449,348
                                                            ------------   ------------   ------------   ------------   ------------
Income (loss) before equity income from joint ventures,          130,780        160,902    (21,125,052)   (20,964,150)     2,888,648
interest and other income

    Equity income from joint ventures                         37,642,794        569,022      3,170,305      3,739,327           --
    Gain on sale of real estate held for sale                 12,631,607           --             --             --             --
    Interest expense                                            (374,993)      (161,513)      (681,798)      (843,311)          --
    Interest income                                               40,296          3,255         43,836         47,091        551,031
    Other income                                                 259,587            862          6,517          7,379         31,189
                                                            ------------   ------------   ------------   ------------   ------------

Net income (loss)                                             50,330,071        572,528    (18,586,192)   (18,013,664)     3,470,868
Preferred dividends                                              (41,198)       (25,750)       (25,735)       (51,485)          --
                                                            ------------   ------------   ------------   ------------   ------------

Net income (loss) available for common
stockholders                                                  50,288,873        546,778   $(18,611,927)  $(18,065,149)  $  3,470,868
                                                                                          ============   ============   ============

Net assets at October 29, 2002                                      --       15,570,265
Net assets in liquidation for January 1, 2003                 10,339,424           --

Adjustments to liquidation basis                                    --       (2,000,832)
of accounting

Increase in reserve for estimated
liquidation costs                                               (606,299)          --

Class B Unitholder distribution                                 (947,900)          --
Liquidating dividends - common shares                        (52,740,733)    (3,776,787)
                                                            ------------   ------------

Net assets in liquidation at end of period                  $  6,333,365   $ 10,339,424
                                                            ============   ============

Earnings (loss) per share - Basic and Diluted
Income (loss) per common share                              $      59.92                                 $     (20.26)  $       2.75
                                                            ============                                 ============   ============

Weighted average common shares                                   839,286                                      891,548      1,263,189
                                                            ------------                                 ------------   ------------
</TABLE>


                 See notes to consolidated financial statements.


                                       52
<PAGE>

                          SHELBOURNE PROPERTIES I, 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
                                    ----------------------------
                                        GENERAL        LIMITED
                                      PARTNERS         PARTNERS
                                    ------------    ------------
<S>                                 <C>             <C>
Balance, January 1, 2001            $  2,335,671    $ 44,358,754

Net income through April 18, 2001         69,555       1,321,549

Conversion of Partnership to REIT     (2,405,226)    (45,680,303)

Net income after conversion                 --              --

Dividends ($1.33 per share)                 --              --

Balance, December 31, 2001                  --              --

Net loss                                    --              --

Purchase of treasury stock                  --              --

Dividends paid-Preferred                    --              --
                                    ------------    ------------

Balance, October 29, 2002           $       --      $       --
                                    ============    ============
<CAPTION>
                                                               STOCKHOLDERS' EQUITY
                                    --------------------------------------------------------------------------
                                                    ADDITIONAL      TREASURY       RETAINED
                                    COMMON STOCK      CAPITAL         STOCK        EARNINGS         TOTAL
                                    ------------   ------------   ------------    ------------    ------------
<S>                                 <C>            <C>            <C>             <C>             <C>
Balance, January 1, 2001            $       --     $       --     $       --      $       --      $ 46,694,425

Net income through April 18, 2001           --             --             --              --         1,391,104

Conversion of Partnership to REIT         12,632     48,072,897           --              --              --

Net income after conversion                 --             --             --         2,079,764       2,079,764

Dividends ($1.33 per share)                 --             --             --        (1,680,041)     (1,680,041)
                                    ------------   ------------   ------------    ------------    ------------

Balance, December 31, 2001                12,632     48,072,897           --           399,723      48,485,252

Net loss                                    --             --             --       (18,586,192)    (18,586,192)

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

Dividends paid-Preferred                    --             --             --           (25,735)        (25,735)
                                    ------------   ------------   ------------    ------------    ------------

Balance, October 29, 2002           $     12,632   $ 48,072,897   $(14,303,060)   $(18,212,204)   $ 15,570,265
                                    ============   ============   ============    ============    ============
</TABLE>



                See notes to consolidated financial statements.


                                       53
<PAGE>

                          SHELBOURNE PROPERTIES I, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2003, THE
PERIOD 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)

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

CASH FLOW FROM OPERATING ACTIVITIES:
<S>                                                        <C>            <C>            <C>            <C>            <C>
Net income (loss)                                          $ 50,330,071    $   572,528   $(18,586,192)  $(18,013,664)  $  3,470,868
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
     Depreciation and amortization                                 --             --          791,233        791,233      1,510,579
     Straight line adjustment for stepped lease rentals            --             --           20,023         20,023        120,451
     Change in bad debt reserve                                 (17,749)       (63,215)        14,082        (49,133)          --
     Purchase of advisory agreement                                --             --       18,452,133     18,452,133           --
     Distributions in excess of earnings
       from joint ventures                                   10,670,877        831,110      4,886,401      5,717,511           --
     Gain on sales of real estate held for sale             (12,631,607)          --             --             --             --
Changes in operating assets and liabilities:
     Due from related parties and receivables                   145,925         71,883        (54,222)        17,661        (63,204)
     Other assets                                                10,912        (83,935)    (1,123,854)    (1,207,789)      (428,653)
     Accounts payable and accrued expenses                     (319,474)      (197,135)       227,670         30,535          1,372
     Liquidating expenses paid                                 (406,299)          --             --             --             --
     Due to affiliates                                             --             --             --             --         (396,320)
                                                           ------------   ------------   ------------   ------------   ------------
Net cash provided by operating activities                    47,782,656      1,131,236      4,627,274      5,758,510      4,215,093
                                                           ------------   ------------   ------------   ------------   ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Improvements to real estate held for sale                      (225,899)       (67,537)       (85,144)      (152,681)    (1,573,270)
Investment in Accotel                                          (867,806)          --             --             --             --
Proceeds from sales of real estate held for sale             32,348,210           --             --             --             --
                                                           ------------   ------------   ------------   ------------   ------------

Net cash used in investing activities                        31,254,505        (67,537)       (85,144)      (152,681)    (1,573,270)
                                                           ------------   ------------   ------------   ------------   ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock                                         --             --      (14,303,060)   (14,303,060)          --
Proceeds from Fleet Loan                                     17,495,084           --             --             --             --
Paydown of Fleet Loan                                       (17,495,084)          --             --             --             --
Related party loan receivable                                (1,349,257)          --             --             --             --
Proceeds from Credit Facility                                      --             --       23,832,274     23,832,274           --
Paydown of Credit Facility due to sales                     (22,981,815)          --             --             --             --
Payoff of Credit Facility                                      (850,459)          --             --             --             --
Payoff of note payable                                             --             --      (17,639,459)   (17,639,459)          --
Class B Unitholder distributions                               (722,551)          --             --             --             --
Dividends - common                                          (51,465,018)    (3,776,787)          --       (3,776,787)    (1,680,041)
Distributions paid-Class A Unitholder                           (41,198)       (51,485)          --          (51,485)          --
                                                           ------------   ------------   ------------   ------------   ------------
Net cash used in financing activities                       (77,410,298)    (3,828,272)    (8,110,245)   (11,938,517)    (1,680,041)
                                                           ------------   ------------   ------------   ------------   ------------

                                                                                                                        (continued)
</TABLE>



                                       54
<PAGE>



                          SHELBOURNE PROPERTIES I, INC.
   CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2003,
    THE PERIOD 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) (CONTINUED)


<TABLE>
<CAPTION>
                                                              PERIOD
                                                           10/30/02 TO   PERIOD 1/1/02
                                                           12/31/2002     TO 10/29/02
                                                          (LIQUIDATION  (GOING CONCERN       2002
                                               2003          BASIS)          BASIS)      (AGGREGATED)        2001
                                           ------------   ------------  --------------   ------------    ------------
<S>                                       <C>            <C>            <C>             <C>             <C>
Increase (decrease) in cash and cash
equivalents                                   1,626,863     (2,764,573)    (3,568,115)     (6,332,688)        961,782
                                           ------------   ------------   ------------    ------------    ------------

Cash and cash equivalents, beginning of            --        3,314,634     14,191,726      14,191,726      13,229,944
period
Cash and cash equivalents related to
investments in joint ventures                      --             --       (7,308,977)     (7,308,977)           --
                                           ------------   ------------   ------------    ------------    ------------
Adjusted cash and cash equivalents,
beginning of period                             550,061      3,314,634      6,882,749       6,882,749            --
                                           ------------   ------------   ------------    ------------    ------------
Cash and cash equivalents, end of period   $  2,176,924   $    550,061   $  3,314,634    $    550,061    $ 14,191,726
                                           ============   ============   ============    ============    ============

Supplemental Disclosure of Cash Flow
Information
Cash paid for interest                     $    374,993   $    161,513   $    681,798    $    843,311    $       --
                                           ============   ============   ============    ============    ============

Common share dividend payable              $  1,275,716   $       --     $       --      $       --      $       --
                                           ============   ============   ============    ============    ============
Class B Unitholder distribution payable    $    225,348   $       --     $       --      $       --      $       --
                                           ============   ============   ============    ============    ============

                                                                                                         (CONCLUDED)
</TABLE>




                 See notes to consolidated financial statements.




                                       55
<PAGE>

                          SHELBOURNE PROPERTIES I, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.       ORGANIZATION

         Shelbourne Properties I, Inc., a Delaware corporation (the
         "Corporation"), was formed on April 18, 2001. The Corporation's
         wholly-owned operating partnership, Shelbourne Properties I 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 18, 2001, the Operating Partnership became the successor by
         merger to Integrated High Equity Partners, Series 85, a California
         limited partnership, (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 real
         estate held for sale and investment in joint ventures 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 I 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).

                                       56
<PAGE>


                          SHELBOURNE PROPERTIES I, 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 Ft. Lauderdale, Florida; New York,
         New York; San Diego, California and Towson, Maryland, the valuation of
         investments in joint ventures and real estate held for sale has 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 $670,146 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 $12,631,607 on the sale of real estate and
         $36,611,052 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 $47,436,043 to
         $4,431,694.

         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
         increased from $1,300,000 at December 31, 2002 to $1,500,000 at
         December 31, 2003 as a result of higher estimated costs associated with
         the execution of the Plan of Liquidation of $606,299. The increase in
         the reserve was offset by payments of (a) professional costs associated
         with obtaining the Fleet Loan of $387,565, (b) $2,067 incurred in
         connection with the payoff of the Fleet Loan, and (c) tax planning
         costs of $16,667 paid to an affiliate of Presidio Capital Investment
         Company, LLC in connection with the Accotel transaction (see note 11).

         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.


                                       57
<PAGE>

                          SHELBOURNE PROPERTIES I, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         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.

         RECEIVABLES

         Receivables are stated net of an allowance for doubtful accounts of
         $8,692 and $26,441 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 $254,181 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 owned in joint ventures with Shelbourne
         Properties II 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, 2003 and 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.


                                       58
<PAGE>
                          SHELBOURNE PROPERTIES I, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         DEPRECIATION AND AMORTIZATION

         Upon the adoption of the liquidation basis of accounting, deferred loan
         fees of $700,832 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, 2003 and 2002 reasonably approximate the fair
         values for cash and cash equivalents, other assets, receivables and
         accounts payable due to their short term nature.

         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 Dividend         100%            100%            -
                 Ordinary Income                 -               -         100%
                 Return of Capital               -               -            -
                                              ----            ----         ----

                 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 18, 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 $40,230,668 at
         December 31, 2002.


                                       59
<PAGE>

                          SHELBOURNE PROPERTIES I, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2.       SUMMARY OF SIGNIFICANT 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 $1.33
         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
         $4.50 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
         $3.50 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
         $52.00 per share. The dividend was paid on March 18, 2003 to
         stockholders of record at the close of business on March 10, 2003.

         The stockholders' Priority Return (defined in note 8 below) as of July
         9, 2003 was $0.94 per share, which was satisfied on that date.
         Consequently, the Class B Unitholder, which is entitled to receive
         distributions only after the satisfaction of the Priority Return, was
         paid a distribution of $278,223 on July 9, 2003. All of the Class B
         Units are held by HX Investors, L.P. ("HX Investors"), an affiliate of
         the Corporation's current Chief Executive Officer.

         On June 19, 2003, the Board of Directors declared a dividend of $2.82
         per share. The dividend was paid on July 9, 2003 to the stockholders of
         record at the close of business on June 30, 2003.

         The Class B Unitholder, HX Investors, was paid a distribution in the
         amount of $444,328 on August 21, 2003.

         On August 1, 2003 the Corporation's Board of Directors declared a
         dividend of $3.00 per share. The dividend was paid on August 21, 2003
         to its stockholders of record at the close of business on August 11,
         2003. The dividend was paid out of the Corporation's cash reserve.

         On December 16, 2003, the Board of Directors declared a dividend of
         $1.52 per share. The dividend was paid January 8, 2004 to stockholders
         of record as of the close of business on December 26, 2003.

         The Class B Unitholder, HX Investors, was paid a distribution in the
         amount of $225,348 on January 8, 2004.

         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.



                                       60
<PAGE>
                          SHELBOURNE PROPERTIES I, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         RECENTLY ISSUED ACCOUNTING STANDARDS (CONTINUED)

         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.

         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 impact 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.


                                       61
<PAGE>
                          SHELBOURNE PROPERTIES I, INC.

                   NOTES TO 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 17, 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 $150,000 for non-accountable
         expenses and (ii) reimburse Resources Supervisory for expenses incurred
         in connection with the performance of its services.

         Effective April 18, 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 the year. In addition, the Corporation was obligated to
         (i) pay $150,000 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 the 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
         Fee 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 Fee               -                -        161,017


                                       62
<PAGE>

                              SHELBOURNE PROPERTIES I, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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

         PROPERTY MANAGEMENT SERVICES (CONTINUED)


         YEAR ENDED DECEMBER 31, 2002

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

         Expense Reimbursement               $     -      $  18,750     $      -
         Asset Management Fee                      -        135,805       50,000
         Transition Management Fee                 -        208,250            -
         Property Management Fee                   -              -      342,289


         YEAR ENDED DECEMBER 31, 2001

                                             Resources     Shelbourne
                                            Supervisory    Management    Kestrel
                                            -----------   ----------     -------
         Expense Reimbursement               $  44,583     $ 105,417    $      -
         Asset Management Fee                  314,102       757,401           -
         Property Management Fee                     -             -     312,777


         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    $         -     $        -      $ 563,791
         HX Investors, L.P.                           21,614,380     1,586,183         61,845

</TABLE>

         The stockholders' Priority Return was satisfied on July 9, 2003.
         Consequently, the Class B Unitholder, HX Investors, which is entitled
         to receive distributions only after the satisfaction of the Priority
         Return, has received distribution payments totaling $722,551 since the
         Priority Return was satisfied.

         In addition, effective August 19, 2002, in connection with the
         settlement of the lawsuit brought by 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
         $41,198 and $51,486, respectively, of which $17,303 and $9,334,
         respectively, were paid by Shelbourne Management to HX Investors
         pursuant to their agreement.

         THE TRANSACTION

         On February 14, 2002, the Corporation, Shelbourne Properties II, Inc.
         and Shelbourne Properties III, Inc. (the "Companies") consummated a
         transaction (the "Transaction") whereby the Corporation purchased the
         423,903 shares of the Corporation's common stock held by subsidiaries
         of PCIC and the Advisory

                                       63
<PAGE>
                          SHELBOURNE PROPERTIES I, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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

         THE TRANSACTION (CONTINUED)

         Agreement was contributed to the Operating Partnership. Pursuant to the
         Transaction, the Corporation paid PCIC $14,303,060 in cash and the
         Operating Partnership issued preferred partnership interests with an
         aggregate liquidation preference of $812,674 and a note in the amount
         of $17,639,459. 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 RECEIVABLE

         In connection with the Fleet Loan financing, the Corporation,
         Shelbourne Properties II, 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 Corporation was required to utilize a portion of its proceeds
         generated by property sales to make principal payments on the Fleet
         Loan on behalf of Shelbourne Properties II, Inc. In accordance with the
         terms of the Indemnity, Contribution and Subrogation Agreements, the
         portion of the principal payments made by the Corporation that were
         allocable to Shelbourne Properties II, Inc. have been recorded as a
         loan receivable from Shelbourne Properties II, Inc. that is secured by
         Shelbourne Properties II Inc.'s interests in the entities that own its
         properties. The principal and accrued interest due to the Corporation
         from Shelbourne Properties II, Inc. at December 31, 2003 is $1,352,307
         and requires payments of interest under the same terms as the Fleet
         Loan, which is LIBOR plus 2.75% (3.875% at December 31, 2003). During
         2003, Shelbourne Properties III, Inc. was required to make principal
         payments on the Fleet Loan for the benefit of the Corporation. Pursuant
         to the terms of the Indemnity, Contribution, and Subrogation
         Agreements, the Corporation paid interest on this loan under the same
         terms as the Fleet Loan. On December 11, 2003 the Corporation repaid in
         full the loan due to Shelbourne Properties III, Inc. The Corporation
         paid $18,815 in interest to Shelbourne Properties III, Inc.

4.       REAL ESTATE HELD FOR SALE

         As of December 31, 2003, the Corporation sold all of its wholly-owned
         real estate.

         On January 21, 2003, the Corporation sold Southport Shopping Center
         located in Ft. Lauderdale, Florida for a gross sales price of
         $23,430,000. The Corporation received proceeds of $23,178,855 after
         closing costs. Under the terms of the Credit Facility, which was in
         place at the time of the sale, all of the net proceeds from the sale
         were paid to reduce the amount due under the Credit Facility. The
         Corporation recognized the previously deferred gain and realized a gain
         for financial reporting purposes of $9,285,661.

         On December 11, 2003, the Corporation sold Loch Raven Plaza located in
         Towson, Maryland for a gross sales price of $9,575,000. After closing
         adjustments and closing costs, net proceeds amounted to $9,153,158. The
         Fleet Loan, required a principal paydown of $7,500,000. After the total
         principal payment the remaining proceeds from the sale amounted to
         $1,653,158. The Corporation recognized the previously deferred gain and
         realized a gain for financial reporting purposes of $3,345,946.

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


                                       64
<PAGE>
                          SHELBOURNE PROPERTIES I, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


5.       INVESTMENT IN JOINT VENTURES (CONTINUED)

         realizable value based on current contracts, estimates as determined by
         independent appraisals or other indications of sales values with the
         unrealized gain deferred until an actual sale occurs.

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

</TABLE>



                                       65
<PAGE>
                          SHELBOURNE PROPERTIES I, 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
                                                ------------     ------------       ------------
        Revenues:
<S>                                                     <C>                      <C>
        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 I, Inc.              669,533          657,929            676,980

        Revenue in Excess of Expenses
          allocated to Other Partners                669,533          660,053            680,120
</TABLE>

         RECONCILIATION OF INVESTMENT IN JOINT VENTURES



<TABLE>
<CAPTION>
                                                             For the Year Ended December 31,
                                                              2003                     2002
                                                          ------------             -------------
<S>                                                     <C>                      <C>
        Investment in Seattle Landmark                    $  9,900,403             $  10,001,016
          Joint Venture

        Investment in other joint ventures                     867,806                47,790,257
                                                          ------------             -------------
        Total investment in joint ventures                $ 10,768,209             $  57,791,273
                                                          ============             =============
</TABLE>




                                       66
<PAGE>

                          SHELBOURNE PROPERTIES I, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



5.       INVESTMENT IN JOINT VENTURES (CONTINUED)


         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 which was
         allocated to the Operating Partnership. The joint venture recognized a
         gain for financial reporting purposes of $67,746,480 of which
         $26,478,493 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 $10,132,559 was
         attributable to the Corporation 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 (the "Credit
         Facility"). 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 $23,832,274 of which
         $17,639,459 was used to repay the note issued in the Transaction,
         $172,733 to pay associated accrued interest and $667,145 to pay costs
         associated with the Credit Facility. The excess proceeds of
         approximately $5,352,937 were deposited into the Company's operating
         cash account. 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 II, 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.

         The Borrowers were 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 an aggregate balance due 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
         II, Inc. and Shelbourne Properties III, Inc.



                                       67
<PAGE>
                          SHELBOURNE PROPERTIES I, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



7.       FLEET LOAN (CONTINUED)

         Pursuant to the terms of the Fleet Loan, each Borrower was jointly and
         severally liable for the repayment of the entire principal, interest
         and other amounts due under the Fleet 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.

8.       CLASS B PARTNERSHIP INTERESTS

         Under the Plan of Liquidation which has been approved by the
         Corporation's Board of Directors and stockholders, the Class B
         Unitholder 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 $59.00 per share to stockholders
         of the Corporation plus interest thereon compounded quarterly at 6% per
         annum from August 19, 2002 (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. The remaining Priority Return was $0.94 per share as of July 9,
         2003 and was satisfied on that date. Consequently, HX Investors as the
         Class B Unitholder is entitled to receive distributions on account of
         its Class B Units which replaced the Incentive Fee. The Class B
         Unitholder was paid a distribution of $278,223 on July 9, 2003.

         On August 1, 2003, the Board of Directors declared a dividend to the
         common stockholders of $3.00 per share. The Class B Unitholder was
         entitled to a distribution of $444,328. The dividend and distribution
         was paid on August 21, 2003. The total amount of distributions received
         during 2003 by the Class B Unitholder since the Priority Return was
         satisfied on July 9, 2003 is $722,551.

         On December 16, 2003, the Board of Directors declared a dividend to the
         common stockholders of $1.52 per share. The Class B Unitholder is
         entitled to a distribution of $225,348. The dividend and distribution
         was paid on January 8, 2004.

9.       CLASS A 5% PREFERRED PARTNERSHIP INTERESTS

         In connection with the Transaction, the Operating Partnership issued to
         Shelbourne Management 812.674 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 (812.674). 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 and prior to
         the modification described below, Shelbourne Management had the right
         to cause the Operating Partnership 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 $5,286,000 at December 31, 2002 and declined each
         February 13, May 13, August 13 and November 13 until it reached zero on
         May 13, 2007.

                                       68
<PAGE>
                          SHELBOURNE PROPERTIES I, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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

         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 $53.00 (the "HX Investors
         Offer"). The tender offer commenced on July 5, 2002 following the
         filing of the required tender offer documents with the Securities and
         Exchange Commission by HX Investors.

         Pursuant to the Stock Purchase Agreement, the Board of Directors of the
         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
         $59.00 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 II, 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.

         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
         $58.30. 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 $53.00 to $63.15. The amendment also reduced the
         incentive payment payable to HX Investors under the Plan of Liquidation
         from 25% to 15% of gross proceeds after payment of the approximately
         $59.00 per share priority return to stockholders of the Corporation
         (the "Incentive Fee"), and included certain corporate governance
         provisions.


                                       69
<PAGE>
                          SHELBOURNE PROPERTIES I, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



10.      CHANGE IN CONTROL (CONTINUED)

         On August 16, 2002, the HX Investors offer expired and HX Investors
         acquired 251,785 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 II, 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 the Corporation,
         Shelbourne Properties II, Inc., 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 $5,286,000 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
         ($17,600,000 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
         ($24,300,000 in the case of the Operating Partnership). These
         requirements significantly impaired the ability of the Corporation to
         sell its properties and make distributions in 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 ($812,674 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 $812,000 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.



                                       70
<PAGE>
                          SHELBOURNE PROPERTIES I, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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.

13.      QUARTERLY DATA (UNAUDITED)

         The following table presents the 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
                                                           Income (Loss) Available to      Common Stockholders Per
                                   Total Rental Revenues       Common Stockholders                  Share
                                   ----------------------------------------------------------------------------------

<S>                                 <C>                           <C>                             <C>
         Year 2003 Total            $     2,011,425               $     50,288,873                $       59.92
         4th Quarter 2003                   272,745                      4,073,509                         4.85
         3rd Quarter 2003                   328,098                      (365,938)                        (0.44)
         2nd Quarter 2003                   336,682                     10,000,085                        11.92
         1st Quarter 2003                 1,073,900                     36,581,217                        43.59

         Year 2002 Total            $     4,401,961               $   (18,065,149)                $      (20.26)(c)
         4th Quarter 2002                 1,009,516                        780,055                         0.93 (b)
         3rd Quarter 2002                   914,766                        264,899                         0.32 (b)
         2nd Quarter 2002                   870,132                    (1,552,989)                        (1.85)(b)
         1st Quarter 2002                 1,607,547                   (17,557,114)                       (16.70)(a)
</TABLE>



         (a)  Net Income (Loss) per Common Share was calculated using a weighted
              average shares outstanding of 1,051,238.

         (b)  Net Income (Loss) per Common Share was calculated using a weighted
              average shares outstanding of 839,286.

         (c)  Net Income (Loss) per Common Share was calculated using a weighted
              average shares outstanding of 891,548.




                                       71