10-Q 1 p17892_10q.txt QUARTERLY REPORT FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark one) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003 or |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 000-32859 BFA LIQUIDATION TRUST (Exact name of registrant as specified in its charter) Arizona 86-1018485 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3300 N. Central Ave., Suite 900, Phoenix, Arizona 85012 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (602) 279-3587 Former Address: 1313 E. Osborn Rd, Suite 250, Phoenix, AZ 85014 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| Indicate by check mark whether the registrant is an accelerated filer (as described in Rule 12b-2 of the Act |_| Yes |X| No Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date: As of November 12, 2003, 448,610,056 units of Class A Beneficial Interests and 137,246,636 units of Class B Beneficial Interests were outstanding. BFA Liquidation Trust Form 10-Q Table of Contents PART 1 - FINANCIAL INFORMATION Item 1. Financial Statements 1 Item 2. Management's Discussion and Analysis of Financial Condition And Results of Operations 11 Item 4 Controls and Procedures 13 PART 2 - OTHER INFORMATION Item 1 Legal Proceedings 14 PART I - FINANCIAL INFORMATION Item 1. Financial Statements BFA LIQUIDATION TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENT OF NET ASSETS IN LIQUIDATION (UNAUDITED)

The accompanying notes are an integral part of these Consolidated Financial Statements. 1 BFA LIQUIDATION TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS IN LIQUIDATION (UNAUDITED)

The accompanying notes are an integral part of these Consolidated Financial Statements. 2 BFA LIQUIDATION TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS IN LIQUIDATION (UNAUDITED)

The accompanying notes are an integral part of these Consolidated Financial Statements. 3 BFA LIQUIDATION TRUST AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION NATURE OF OPERATIONS The BFA Liquidation Trust (the "TRUST") was formed pursuant to the "First Amended Joint Liquidating Plan of Reorganization of the Debtors Under Chapter 11 of the Bankruptcy Code" proposed by the Baptist Foundation of Arizona ("BFA") and related subsidiaries and affiliates (the "DEBTORS"), Official Collateralized Investors' Committee and Official Joint Committee of Unsecured Creditors, relating to Case No. 99-13275 ECF GBN (the "PLAN"), which was confirmed by the Bankruptcy Court for the District of Arizona ("BANKRUPTCY COURT"), by an order entered on December 22, 2000 and became effective on January 22, 2001 ("EFFECTIVE DATE"). The primary purpose of the Trust is to (i) oversee and direct the liquidation of the assets that were transferred to the Trust pursuant to the Plan (the "TRUST ASSETS") for the benefit of the Trust's beneficiaries; (ii) prosecute all claims and causes of action that the Trust may have against any person or entity (the "LITIGATION CLAIMS") for the benefit of the Trust's beneficiaries; and (iii) distribute any proceeds of the Litigation Claims and the Trust Assets received by the Trust to the Trust's beneficiaries. The Trust is not operated with the objective of continuing or engaging in the conduct of a trade or business, except to the extent reasonably necessary to preserve or enhance the liquidation value of the Trust Assets, consistent with the primary purpose of the Trust. To facilitate the orderly administration of the Trust and to maximize the value of the Trust Assets, the Trust owns one subsidiary, New Asset Subsidiary, LLC ("NAS"). The assets will be grouped in a consistent and coherent manner and held, pending sale, by NAS. The Trust and NAS are charged with the responsibility of appraising the assets, listing them for sale in an orderly manner, and distributing the proceeds from the sale to its beneficiaries on a regular basis. The Trust is expected to terminate after five (5) years on January 22, 2006 unless the Bankruptcy Court determines that an extension of the Trust is necessary for the purposes of the Trust. The Plan provides for the appointment of a liquidating trustee (the "LIQUIDATING TRUSTEE") and a liquidating trust board ("LIQUIDATION TRUST BOARD") to oversee the liquidation of the Trust Assets and to ensure that such liquidation is conducted in a cost-effective manner and in a reasonable time. In addition, the Liquidating Trustee and Liquidating Trust Board are directing the prosecution of the Litigation Claims in an attempt to maximize the Trust's recoveries from such claims. The Liquidating Trustee and the Liquidating Trust Board are making ongoing efforts to dispose of the Trust Assets, to make timely distributions and to minimize the duration of the Trust. The Trust has a wholly-owned subsidiary to assist in liquidating the assets, NAS, an Arizona limited liability company. NAS was formed on the Effective Date, and the Trust is the sole member of that company. The Trust is able to direct NAS to take any actions that the Liquidating Trustee believes will maximize the value of the assets held by NAS. The Trust transferred substantially all of its assets to NAS, which NAS is currently marketing for sale. NAS is not permitted to sell any assets or take any other action unless so directed by the Trust. Collectively, the Trust and NAS are referred to as the "Trust". BASIS OF PRESENTATION The accompanying consolidated financial statements as of September 30, 2003 and December 31, 2002 and for the three and nine months ended September 30, 2003 and 2002 include the accounts of the Trust and NAS. All intercompany transactions and accounts are eliminated in consolidation. The Trust's investments in certain wholly-owned entities are included in these financial statements at their estimated fair value since the Trust expects to liquidate the investments by selling the entire individual businesses as going concerns. These unaudited consolidated financial statements have been prepared based on the liquidation basis of accounting, accordingly assets and liabilities have been recorded at estimated fair values. In accordance with the liquidation 4 basis of accounting, the financial statements reflect the estimated costs of liquidating the assets and distributing the proceeds to holders of beneficial interests. The accompanying unaudited consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments that are, in the opinion of management, necessary for a fair statement of the results for the interim period presented. Such financial information should be read in conjunction with the consolidated financial statements and related notes thereto as of December 31, 2002 and for the fiscal years ended December 31, 2002 and December 31, 2001 included in the Trust's Form 10 -K as filed with the Securities and Exchange Commission. The results for the three and nine months ended September 30, 2003 may not be indicative of the future results for the entire year 2003. The Trust's management has made certain estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. Under the liquidation basis of accounting, assets and liabilities have been recorded at their estimated fair values. Given that there is inherent uncertainty in the valuation process, the amounts actually realized or settled could be materially different from those reflected in the accompanying consolidated financial statements. TRUST ASSETS The assets of the Trust are carried at estimated fair values determined by discounting, at appropriate risk adjusted discount rates, the Trust's current best estimate of cash flows expected to be realized from the collection, liquidation and disposition of assets held by the Trust. Such assets consist principally of notes receivable, income producing real estate and interests in real estate, interests in partnerships and operating companies and miscellaneous other assets and receivables transferred to the Trust upon the consummation of the Plan. The estimates of the future cash flows from which the asset values of the Trust were derived are made under the direction of the Trust's management based upon information available and believed to be reliable. These estimates reflect significant judgments regarding assumptions, discount rates, timing of cash flows, market risk and allowable disputed claims. Because of the inherent uncertainty regarding the valuation of these assets there will likely be differences between actual results and the estimated fair values reflected in the accompanying consolidated financial statements and the difference may be material. In addition to the assets described above, the Trust also holds the Litigation claims, which consist of claims against the former directors and officers of BFA and judgments and deficiencies related to loans made to former borrowers of the Debtors. Because of the significant uncertainties associated with estimating the probability and timing of cash flows related to these claims, it is not practical to estimate their fair value. There can be no assurance that the Trust will realize any value of such Litigation Claims. However, if realized these Litigation Claims could be material to the Trust. The fair value of Trust Assets is reassessed at least quarterly and adjustments to estimated fair values are reflected in the period in which they become known. For each asset, estimates of income, expenses and net cash flow on a quarterly basis through the expected final disposition date are prepared. The individual asset cash flow estimates are developed based upon factors, which include appraisals by independent appraisers, physical inspection of the asset or the collateral underlying the related loans, local market conditions, contractual payments and discussions with the relevant borrower. LIQUIDATION LIABILITIES Accounts payable and accrued liabilities are reflected at their estimated settlement amounts which in the opinion of the Trust approximate their fair value. Notes payable are reported in the accompanying consolidated financial statements at their stated amounts. In the opinion of the Trust these amounts approximate their estimated fair value since the respective interest rates approximate the market rates of interest for similar instruments. 5 ESTIMATED COSTS TO COMPLETE LIQUIDATION AND LITIGATION The estimated costs to complete liquidation represent the estimated cash costs of operating the Trust through its expected termination on January 21, 2006, discounted using a 4.00% present value factor at September 30, 2003 and a 4.25% factor at December 31, 2002. These costs, which include personnel, facilities, Trustee and Liquidating Trust Board compensation, professional fees, litigation costs and other related costs, are estimated based on various assumptions regarding the number of employees, the use of outside professionals (including attorneys and accountants) and other costs. Litigation costs contain assumptions based on what management expects the likely course of actions will be regarding litigating and or settling certain contingencies (Note 6 and 9). Given that there is inherent uncertainty in the estimation process, actual results could be materially different. NEW ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 143,"Accounting for Asset Retirement Obligations." SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 143 is effective for financial statements issued for fiscal years beginning after June 15, 2002, and we expect that the adoption will not have a material impact on our consolidated statement of net assets in liquidation or statement of changes in net assets. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 retains the fundamental provisions of existing accounting principles generally accepted in the United States with respect to the recognition and measurement of long-lived asset impairment contained in SFAS No. 121, ""Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." SFAS No. 144 also provides additional guidance intended to address certain significant implementation issues associated with SFAS No. 121, including expanded guidance with respect to appropriate cash flows to be used in determining whether recognition of a long-lived asset impairment is required, and if required, how to measure the amount of the impairment. SFAS No. 144 also requires that any net assets to be disposed of by sale be reported at the lower of carrying value or fair value less cost to sell, and expands the reporting of discontinued operations to include any component of any entity with operations and cash flows that can be clearly distinguished from the rest of the entity. SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001, and our adoption of it did not have a material effect on our consolidated statement of net assets in liquidation or statement of changes in net assets. In April 2002, the FASB issued SFAS No. 145, ""Rescission of SFAS Nos. 4, 44 and 64, Amendment of SFAS 13, and Technical Corrections." SFAS No. 145 rescinds SFAS No. 4, ""Reporting Gains and Losses from Extinguishment of Debt," and excludes extraordinary item treatment for gains and losses associated with the extinguishment of debt that do not meet the criteria for such treatment, as outlined in APB Opinion No. 30, ""Reporting the Results of Operations I Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." Any gain or loss on extinguishment of debt that was previously classified as an extraordinary item in the reported financial results that does not meet the criteria in APB Opinion No. 30 for classification as an extraordinary item shall be reclassified. SFAS No. 145 was effective beginning after May 15, 2002, and our adoption of it did not have a material effect on our consolidated statement of net assets in liquidation or statement of changes in net assets. In June 2002, the FASB issued SFAS No. 146, ""Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and replaces Emerging Issues Task Force (EITF) Issue No. 94-3, ""Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred and should be initially measured at fair value. Under EITF Issue No. 94-3, a liability for such costs is recognized as of the date of an entity's commitment to an exit plan. The provisions of SFAS No. 146 are effective for exit or disposal activities that we initiated after December 31, 2002. Our adoption of SFAS No. 146 did not have a material effect on our consolidated statement of net assets in liquidation or statement of changes in net assets. In November 2002, the FASB issued Interpretation (FIN) No. 45, ""Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." FIN No. 45 requires certain guarantees to be recorded at fair value and also requires a guarantor to make certain disclosures regarding guarantees. FIN No. 45's initial recognition and initial measurement provisions are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. Our adoption of this Interpretation did not have a material impact on our consolidated financial statements or disclosures. In December 2002, the FASB issued SFAS No. 148, ""Accounting for Stock-Based Compensation Transition and Disclosure." This statement amends SFAS No. 123, ""Accounting for Stock-Based Compensation I An Amendment of SFAS No. 123." Although SFAS 148 does not require use of the fair value method of accounting for stock-based employee compensation, it does provide alternative methods of transition. It also amends the disclosure provisions of SFAS 123 and APB Opinion No. 28, ""Interim Financial Reporting," to require disclosure in the summary of significant accounting policies or the effects of an entity's accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. SFAS 148's amendment of the transition and annual disclosure requirements is effective for fiscal years ending after December 15, 2002. The amendment of disclosure requirements of APB Opinion No. 28 is effective for interim periods beginning after December 15, 2002. Our adoption of this pronouncement did not have a material impact on our consolidated financial statements or disclosures. In January 2003, the FASB issued FIN No. 46, ""Consolidation of Variable Interest Entities, an Interpretation of ARB 51." FIN No. 46 provides guidance on the identification of entities of which control is achieved through means other than voting rights (""variable interest entities" or ""VIEs") and how to determine when and which business enterprise should consolidate the VIE (the ""primary beneficiary"). In addition, FIN No. 46 requires that both the primary beneficiary and all other enterprises with a significant variable interest in a VIE make additional disclosures. The transitional disclosure requirements of FIN No. 46 are required in all financial statements initially issued after January 31, 2003, if certain conditions are met. Our adoption of this Interpretation did not have a material impact on our consolidated financial statements or disclosures. In April 2003, the FASB issued SFAS No. 149, ""Amendment of Statement 133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and clarifies the accounting guidance on derivative instruments (including certain derivative instruments embedded in other contracts) and hedging activities that fall within the scope of SFAS No. 133, ""Accounting for Derivative Instruments and Hedging Activities." SFAS No. 149 is effective prospectively for contracts entered into or modified after June 30, 2003, with certain exceptions, and for hedging relationships designated after June 30, 2003. Our adoption of SFAS No. 149 did not have a material impact on our consolidated financial statements or disclosures. In May 2003, the FASB issued SFAS No. 150, ""Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150 changes the accounting and disclosure requirements for certain financial instruments that, under previous guidance, could be classified as equity. The guidance in SFAS No. 150 is generally effective for all financial instruments entered into or modified after May 31, 2003 and is otherwise effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 is not expected to have a material impact on our consolidated financial statements or disclosures. 2. RECEIVABLES, NET At September 30, 2003, receivables consisted primarily of various note receivables related to land contracts, mortgage notes receivable and various other commercial receivables most of which are collateralized by real estate. At December 31, 2002 receivables consisted primarily of a note receivable from Shea Homes, Inc. ("SHEA") of $53.0 million. At December 31, 2002, the note receivable from Shea is collateralized by a master planned community, and the remaining other receivables relate to land contracts, mortgage notes receivable and various other commercial receivables. During July 2003 the Shea note receivable was paid in full. The following is a summary of gross cash flows and related valuation allowances at:

Some of the debtors are in default on their contractual obligations to the Trust. At this time management does not expect to receive future cash flows related to receivables in default and thus no amount is included in the above stated receivable amount. The Trust is aggressively pursuing collection of these debts by various means including, but not limited to, foreclosure and litigation and recoveries from these actions, if any, could be material. 3. OTHER TRUST ASSETS, NET The other trust assets, net are carried at estimated fair values which are the result of discounting, at appropriate discount rates, the currently estimated cash flows projected to be realized from the collection, liquidation and disposition. These valuations include appraisals by independent appraisers of the liquidation value of some assets. These values do not represent the full future cash flow values expected from the sale or operations of these assets due to the discounting of respective cash flows. Such assets consist principally of income producing real estate and interests in real estate, interests in partnerships and operating companies, and miscellaneous other assets transferred to the Trust upon the consummation of the Plan. Other trust assets consist of the following:

6 4. FAIR VALUE OF EXPECTED CASH FLOWS FROM SETTLEMENTS Settlement proceeds at September 30, 2003 primarily consist of the net proceeds from the settlement with National Union Fire Insurance Company of Pittsburgh, PA ("NATIONAL UNION") in regards to insurance claims of the Debtors against former officers and directors. The National Union settlement consists of gross proceeds of $3.75 million less legal fees and expenses of approximately $550,000 for a net amount of approximately $3.2 million. Both the Superior Court for the State of Arizona, Maricopa County (the "SUPERIOR COURT") and Bankruptcy Court approved the settlement on October 17 and 21, 2003, respectively. The National Union Settlement will become final pending the expiration of the 30-day appeal period on November 17, 2003. As of the date of this filing no appeals have been filed. In addition to the National Union net settlement proceeds there is approximately $1.7 million in litigation proceeds that was derived from the sale of assets received as part of the litigation settlements with Jalma W. and Carole Hunsinger and their affiliates. Settlement proceeds at December 31, 2002 primarily consist of net proceeds from Arthur Andersen ("AA"). The AA settlement consists of gross proceeds of $217 million less legal fees of approximately $32.9 million and litigation expenses incurred for prosecuting the litigation of approximately $4.0 million for a net amount of approximately $180.1 million. Both the Superior Court and Bankruptcy Court approved the settlement on September 13, 2002. Interest of approximately $1.1 million was earned on the cash balances held by the Trust for the AA settlement at December 31, 2002 and is reflected in these financial statements. On December 27, 2002, the Trust distributed $6.5 million of the AA settlement to the Class 3A and 3B beneficial interest holders of the Trust and class action members in accordance with the court approved plan of allocation. At December 31, 2002, approximately $174.7 million representing both the Trust and class action share of the AA settlement proceeds remained to be distributed. In addition to the AA settlement, the Trust and class action were able to reach settlements with Henry & Horne, P.L.C., Nelson Lambson & Co., P.L.C., E. A. and Rebecca Kuhn, Jalma W. and Carole Hunsinger and their affiliates, The Arizona Southern Baptist Convention and affiliated entities, Harold D. and Stephanie B. Friend their affiliated entities and L. Dwain Hoover, Beva J. Hoover, D. Hoover & Associates and the D. Hoover & Associates Investments, Inc. Retirement Trust. These settlements aggregately total approximately $15.3 million less discounts and consist of cash and other real property. Litigation expenses related to these settlements total approximately $1.6 million for a net amount of approximately $13.7 million. The court approved plan of allocation states that the Trust is allocated 50% of the proceeds and that the class action is allocated the remaining 50% of the proceeds. On January 23, 2003, the remaining AA settlement funds of $174.7 million were distributed to the Class 3A and 3B beneficial interest holders and class action members in accordance with the court approved plan of allocation. On March 24, 2003 the cash proceeds received from the other litigation settlements of $7.1 million were distributed to the Class 3A and 3B beneficial interest holders and class action members in accordance with the court approved plan of allocation. The remaining non-cash assets of $6.6 million received as part of these additional settlements has been reclassified to the appropriate asset classification and are being sold in accordance with the liquidation plan. Any funds received from the sale of litigation assets has been separated from operating cash and will be distributed per the court approved plan of allocation. 5. NOTES PAYABLE At September 30, 2003 the Trust had no outstanding notes payable. The final note payable was paid in full during July 2003. The following is a summary of notes payable to third parties at December 31, 2002: Notes payable of approximately $3.3 million, including interest of approximately $98,000, to a creditor collateralized by the Shea Homes note receivable, with payment terms of annual principal and interest payments, with an interest rate of 6.75%. Due on June 26, 2005. Notes payable of approximately $815,000, including interest of approximately $28,000, to various creditors collateralized by real estate, with payment terms including monthly interest only payments and monthly principal 7 and interest payments, with interest rates ranging from 7% to 12%. Due at various dates ranging from June 1, 2002 to October 31, 2008. Notes payable of approximately $20,000, including interest of approximately $200, to various creditors collateralized by various notes receivable, with monthly principal and interest payments and interest rates ranging from 7.5% to 8.75%. Due at various dates ranging from March 1, 2007 to July 25, 2007. At December 31, 2002, aggregate debt maturities including interest were as follows: 2003 $1,425,715 2004 1,223,206 2005 1,297,153 2006 6,577 2007 15,424 Thereafter 644,241 --------------- 4,612,316 Less present value discount (6.75%-12%) (486,099) --------------- Notes payable $4,126,217 =============== 6. ESTIMATED COSTS TO COMPLETE LIQUIDATION AND LITIGATION The estimated costs to complete liquidation and litigation of $5,061,437 at September 30, 2003 and $6,679,030 at December 31, 2002 represent the estimated costs of operating the Trust through its expected termination on January 21, 2006, discounted using a 4.00% present value factor at September 30, 2003 and a 4.25% present value factor at December 31, 2002. These costs, which include personnel, facilities, Trustee and Board compensation, professional fees and litigation costs, are estimated based on various assumptions regarding the number of employees, the use of outside professionals (including attorneys and accountants) and other matters. Litigation costs contain assumptions based on what management expects the likely course of actions will be regarding litigating and or settling certain contingencies (Note 9). Given that there is inherent uncertainty in the estimation process, actual results could be materially different. 7. SETTLEMENT LIABILITY The settlement liability at September 30, 2003 represents the class action's 50% portion of the settlement proceeds and assets from National Union, Jalma W. and Carole Hunsinger and their affiliates and Harold D. and Stephanie B. Friend and their affiliates. The settlement liability relates to assets reported in fair value of expected cashflows from settlements of approximately $4.9 million, receivables of approximately $200,000 and other trust assets of approximately $350,000. In January 2003 the courts approved an allocation process for the January 2003 settlements whereby the Trust and the class action each are allocated 50% of the settlement proceeds. From all Litigation Claims, the Trust will distribute its allocated share of the proceeds to the beneficial holders on a pro rata basis in accordance with the Plan. The class action proceeds will be distributed to its investors based on a formula as agreed by its members. The Trust has recorded a settlement liability for the settlement proceeds, net of legal fees, equal to the amount allocated to the class action. The liability will remain until the proceeds are distributed to the class action investors by the Trust. 8. CHANGES IN OTHER TRUST ASSETS During the three months ended September 30, 2003, the valuation of certain other trust assets were adjusted based on current and pending sales offers, new information received by management and actual operating results. These adjustments aggregately total an approximate $4.5 million increase in other trust assets. Included in actual operating results are sales of approximately $2.0 million for the sale of property at Ironwood and Southern and parcels from ASC San Antonio. During the three months ended September 30, 2002, the valuation of certain other trust assets were adjusted based on current and pending sales offers, new information received by management and actual operating results. These 8 adjustments aggregately total an approximate $1.0 million increase in other trust assets. Included in actual operating results are sales of approximately $5.7 million for the sale of various lots and parcels from Rancho Vistoso and Westside Property and the sale of the Document Technologies assets. During the nine months ended September 30, 2003, the valuation of certain other trust assets were adjusted based on current and pending sales offers, new information received by management and actual operating results. These adjustments aggregately total an approximate $1.7 million decrease in other trust assets. Included in actual operating results are sales of approximately $6.6 million for the sale of the Park at Juniper Ridge, property in Casa Grande, property at Ironwood and Southern and various other lots and parcels from ASC San Antonio and Westside Property. During the nine months ended September 30, 2002, the valuation of certain other trust assets were adjusted based on current and pending sales offers, new information received by management and actual operating results. These adjustments aggregately total an approximate $3.1 million increase in other trust assets. Included in actual operating results are sales of approximately $9.1 million for the sale of various lots and parcels from Coyote Lakes, Rancho Vistoso, Show Low Country Club and Westside Property and the sale of the Document Technologies assets. 9. COMMITMENTS, CONTINGENCIES AND SETTLEMENTS Contingent Liabilities The Trust is involved in various legal proceedings. A number of creditors filed proofs of claims in the Debtors' bankruptcy proceedings. As of September 30, 2003 all of these claims have been resolved and either paid in full (if any amount was due) or fully reserved for (if disputed). Contingent Assets During late 2001, the Trust commenced two (2) separate adversary proceedings in the Bankruptcy Court against William Crotts and Thomas Grabinski, the Chief Executive Officer and General Counsel, respectively, of BFA during the period that the fraud occurred. The Trust alleges that Messrs. Crotts and Grabinski were the primary architects of the fraud, thereby breaching their fiduciary duties to BFA and its investors. The Trust has successfully defeated motions by Crotts and Grabinski to dismiss the action, and since that time has engaged in extensive discovery with these parties. During this discovery process the Trust and class action were able to reach a settlement with the defendant's and Debtors' insurance carrier, National Union, in the gross amount of $3.75 million. The settlement calls for the Trust to dismiss its cases against Messrs. Crotts and Grabinski. The settlement consists of gross proceeds of $3.75 million less legal fees and expenses of approximately $550,000 for a net amount of approximately $3.2 million. Both the Superior Court and Bankruptcy Court approved the settlement on October 17, 2003 and October 21, 2003, respectively (See note 4). The National Union Settlement will become final pending the expiration of the 30-day appeal period on November 17, 2003. As of the date of this filing no appeals have been filed. In 2002 a complaint alleging four (4) separate causes of action was filed in the Superior Court against BFA's former limited liability company member, Chaparral Pines, LLC, in the development of the Chaparral Pines property. The complaints center around the mismanagement of the property by the defendant. Chaparral Pines filed a Motion to dismiss the complaint. After briefings and argument, the Superior Court has allowed the Trust to proceed on three of the four counts in the complaint. Discovery has commenced. Because of the substantial nature of the Chaparral Pines project, the defendants' are working to accumulate all the construction-related documents. Currently, both the Trust and defendants are in a document review process. No amount has been recorded in the accompanying consolidated financial statements related to this contingent asset. In an effort to avoid repaying $4 million dollars in debt to the Trust, Mr. William Blair has engaged in a number of legal maneuvers. In 2001, the Trust filed a Notice of Trustee's Sale on the collateral securing repayment on one of the Notes (the "DESERT DIAMOND NOTE"). The Trust separately filed a lawsuit and obtained a judgment against Mr. Blair individually as a co-maker under the Desert Diamond Note. That debt has been reduced to judgment in an amount of $1.4 million dollars, plus interest at 19% until paid in full. With regards to Mr. Blair's second obligation (the "CAMPBELL NOTE") the Superior Court entered judgment on March 19, 2003 against both 9 Mr. Blair and his Trust in the amount of $1,418,329.82 with interest at the rate of 18% from August 13, 2001, until paid. The Trust has authorized the initiation of a new lawsuit to recover a substantial number of real property transfers made by Mr. Blair to mostly third party related entities on the eve of the state court judgments. These claims will be pursued under Arizona state law theories of fraudulent transfer. The Trust now has successfully litigated and received judgments on the two state court actions and defended the Trust's claims against the actions of Mr. Blair in connection with the Desert Diamond bankruptcy. This bankruptcy included a proposed cramdown plan and an adversary lawsuit to modify the underlying contract. The assets of the bankruptcy estate have been liquidated and the proceeds from the sale of the assets distributed to the Trust. With regard to the remaining action against Fidelity Title (the "TITLE COMPANY") the Title Company hired by Mr. Blair to transfer title to portions of the Trust's collateral to third parties without lien releases, the Bankruptcy Court recently granted the Title Company's Motion for Reconsideration and reversed its prior ruling. The effect is that the Bankruptcy Court has upheld an alleged contract modification disallowed by a different judge in an earlier litigation. If the Bankruptcy Court's ruling stands as issued, the Trust would be required to release its liens on the remaining real property collateral for a release price of $12,500/lot (a total of $275,000 for the remaining lots). The Title Company also has on file a Motion for Award of Fees seeking an award of approximately $138,000 in fees and costs incurred. An amount equal to approximately $138,000 has been recorded in the accompanying consolidated financial statements related to this contingent asset. The Trust holds a note receivable in an outstanding amount of approximately $2 million dollars from W.H.H.C. Through this note the Trust has begun foreclosing on approximately 70 acres of real property located in Maricopa County, Arizona. The estimated value of the 70 acres of real property has been included in the notes receivable portion of the accompanying consolidated financial statements. Additionally, the Trust has recourse against one of the partners of the partnership. The Trust Board has recently agreed to a proposal to release the one remaining individual partner for receipt of the sum of $50,000 cash. This proposal is subject to court approval. All remaining partners have previously paid the Trust cash payments in exchange for release of their of personal recourse liability. A lawsuit has been filed in the Superior Court to foreclose on the mortgage and obtain a judgment against the partnership. No answers have been filed. No amount has been recorded in the accompanying consolidated financial statements related to future amounts from a judgement or partner not yet received from this contingent asset. Because of the significant uncertainty associated with the valuation of these contingent assets, it is likely that the amounts ultimately realized could differ from the amounts that are actually reflected in the accompanying consolidated financial statements and the differences could be material. 10. CASH RECEIPTS AND DISBURSEMENTS For the three months ended September 30, 2003 and September 30, 2002, the Trust received net cash proceeds from sales of assets, note receivable collections and operations of approximately $46.5 and $20.3 million respectively, consisting of the following:

Conversely, for the same respective periods, the Trust paid out to various creditors approximately $40.9 and $13.1 million as follows:

10 For the nine months ended September 30, 2003 and September 30, 2002, the Trust received net cash proceeds from sales of assets, note receivable collections and operations of approximately $245.9 and $35.5 million respectively, consisting of the following:

Conversely, for the same respective periods, the Trust paid out to various creditors approximately $240.6 and $28.6 million as follows:

11. SUBSEQUENT EVENTS On October 15, 2003 the Trust distributed approximately $12.5 million to the holders of Class 3A and 3B beneficial interests. On October 29 and 31, 2003 the Trust sold two pieces of real estate for the gross aggregate amount of $5.7 million in cash. 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. The historical financial data presented below for the three and nine months ended September 30, 2003 and September 30, 2002 are derived from our consolidated financial statements. The selected financial data should be read in conjunction with the notes below and the consolidated financial statements and related notes included in Item 1.

Certain statements under the headings "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business," and elsewhere in this report constitute "forward-looking statements" within the meaning of the rules and regulations promulgated by the Securities and Exchange Commission. This report contains a number of forward-looking statements, which reflect the Trust's current views with respect to future events and financial performance. Such forward-looking statements are based on management's beliefs and assumptions regarding information that is currently available, and are made pursuant to the "safe harbor" provisions of the federal securities laws. These forward-looking statements are subject to certain risks and uncertainties. The Trust's actual performance and results could differ materially from those expressed in the forward-looking statements due to risks and uncertainties that could materially impact the Trust in an adverse fashion and are only predictions of future results, and there can be no assurance that the Trust's actual results will not materially differ from those anticipated in these forward-looking statements. In this report, the words "anticipates", "believes", "expects", "intends", "plans", "may", "future", and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on the forward-looking statements contained herein, which speak only as of the date hereof. The Trust has no obligation to publicly update or revise any of the forward-looking statements to reflect events or circumstances that may arise after the date hereof. THREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002 The estimated fair value of the Trust's net assets in liquidation decreased approximately $34.3 million for the three months ended September 30, 2003 as compared to approximately $7.3 million decrease for the three months ended September 30, 2002. Factors which contributed to the majority of the net decrease of the net asset value of the Trust's net assets for the three months ended September 30, 2003 include (i) interest income from notes receivables which increased net assets by approximately $345,000, (ii) interest expense for notes payable which decreased net assets by approximately $12,000, (iii) increase in value of certain other trust assets which decreased net assets by approximately $4.5 million, (iv) increase in value of estimated costs to liquidate which increased net assets by approximately $1.1 million and (v) distributions to holders of Class 3A and 3B beneficial interests which decreased net assets by approximately $38.0 million. Factors which contributed to the majority of the net decrease of the net 12 asset value of the Trust's net assets for the three months ended September 30, 2002 include (i) interest income from notes receivable which increased net assets by approximately $1.6 million, (ii) interest expense for notes payable which decreased net assets by approximately $113,000, (iii) increase in value of certain other trust assets which increased net asset by approximately $1.0 million, (iv) increase in estimated costs to liquidate which decreased net assets by approximately $830,000 and (v) distributions to holders of Class 3A and 3B beneficial interests which decreased net assets by approximately $9.0 million. Interest income from notes receivable decreased in 2003 as compared to 2002 because of principal payments received. Interest expense on notes payable decreased from 2003 as compared 2002 because of principal payments made by the Trust. The changes in fair value of other trust assets in 2003 as compared to 2002 differed because of changes in the fair market value of assets and certain related liabilities due to pending or current sales offers, receipt of current information and actual operating results of the assets. In the three months ended September 30, 2003, the Trust distributed approximately $38.0 million to holders of Class 3A or 3B beneficial interests. This distribution was made principally from collections on Trust Assets. The Class 3A and 3B beneficial interests were valued at approximately $50.9 million at September 30, 2003 and $129.8 million at December 31, 2002. NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002 The estimated fair value of the Trust's net assets in liquidation decreased approximately $143.7 million for the nine months ended September 30, 2003 as compared to approximately $8.4 million decrease for the nine months ended September 30, 2002. Factors which contributed to the majority of the net decrease of the net asset value of the Trust's net assets for the nine months ended September 30, 2003 include (i) interest income from notes receivables which increased net assets by approximately $3.1 million, (ii) interest expense for notes payable which decreased net assets by approximately $135,000, (iii) decrease in value of certain other trust assets which decreased net assets by approximately $1.7 million, (iv) increase in value of estimated costs to liquidate which decreased net assets by approximately $1.1 million and (v) distributions to holders of Class 3A and 3B beneficial interests which decreased net assets by approximately $144.0 million. Factors which contributed to the majority of the net decrease of the net asset value of the Trust's net assets for the nine months ended September 30, 2002 include (i) interest income from notes receivable which increased net assets by approximately $4.9 million, (ii) interest expense for notes payable which decreased net assets by approximately $499,000, (iii) increase in value of certain other trust assets which increased net asset by approximately $3.1 million, (iv) increase in estimated costs to liquidate which decreased net assets by approximately $1.3 million and (v) distributions to holders of Class 3A and 3B beneficial interests which decreased net assets by approximately $14.6 million. Interest income from notes receivable decreased in 2003 as compared to 2002 because of principal payments received. Interest expense on notes payable decreased from 2003 as compared 2002 because of principal payments made by the Trust. The changes in fair value of other trust assets in 2003 as compared to 2002 differed because of changes in the fair market value of assets and certain related liabilities due to pending or current sales offers, receipt of current information and actual operating results of the assets. In the nine months ended September 30, 2003, the Trust distributed approximately $144.0 million to holders of Class 3A or 3B beneficial interests. These distributions were made principally from collections on Trust Assets and proceeds from litigation. The Class 3A and 3B beneficial interests were valued at approximately $50.9 million at September 30, 2003 and $129.8 million at December 31, 2002. 13 Non-cash trust assets at September 30, 2003 and December 31, 2002 were comprised of the following:

The fair value of Trust Assets is reassessed at least quarterly and adjustments to estimated fair values are reflected in the period in which they become known. For each asset, estimates of income, expenses and net cash flow on a quarterly basis through the expected final disposition date are prepared. The individual asset cash flow estimates are developed based upon factors, which include appraisals by independent appraisers, physical inspection of the asset or the collateral underlying the related loans, local market conditions, contractual payments and discussions with the relevant borrower. At September 30, 2003 and September 30, 2002, the projected monthly cash flows were discounted at various rates to reflect the Trust Assets at estimated fair value. The Trust's consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and in accordance with the liquidating basis of accounting. During preparation of these consolidated financial statements, the Trust is required to make estimates and assumptions that affect the reported amounts of assets at estimated fair value, liquidation liabilities, resolution of disputed claims, estimates of liquidating costs to be incurred, resolution of current and potential litigation and the fair value of and related disclosure of contingent assets and liabilities. On an on-going basis the Trust evaluates and updates its estimates and assumptions. The Trust bases its estimates and assumptions on historical experience and on various other assumptions that the Trust believes are reasonable under the circumstances. The basis for making judgments about the fair values of assets and liquidation liabilities are not always readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The Trust believes the following critical accounting policies affect the Trust's more significant estimates and assumptions used in the preparation of our consolidated financial statements, which have been prepared in accordance with the liquidation basis of accounting: o Receivables are recorded at fair value, which represents our discounted expected future cash flows calculated based on the following factors: receivable payment history, financial performance of debtor, and underlying collateral of the Trust. o Other assets consist of real estate partnerships, interests in operating companies and other assets and are recorded at fair value, which represents discounted expected future cash flows, based on estimates and assumptions regarding timing of sales, timing of payments, projected cash flows and appropriate discount factors. o Payables, accrued liabilities and notes payable are recorded based on expected cash outflows, which require estimates and assumptions relating to the timing of the payments and discount factors. o Estimated costs to complete liquidation and litigation represent the estimated costs of operating the Trust to its expected termination on January 21, 2006, discounted using a 4.00% present value factor at September 30, 2003 and a 4.25% present value factor at December 31, 2002. o The costs include personnel, facilities, Liquidating Trustee and Liquidating Trust Board compensation, professional fees and litigation costs, and are estimated based on assumptions regarding the number of employees, use of outside professionals, and timing of cash flows. 14 o Contingent Assets, Litigation Settlements and related liabilities are recorded at the Trust's estimated future cash flows which require a significant amount of estimates and assumptions regarding collectibility, probable outcomes, timing of cash flows and various other factors. NEW ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 143,"Accounting for Asset Retirement Obligations." SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 143 is effective for financial statements issued for fiscal years beginning after June 15, 2002, and we expect that the adoption will not have a material impact on our consolidated statement of net assets in liquidation or statement of changes in net assets. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 retains the fundamental provisions of existing accounting principles generally accepted in the United States with respect to the recognition and measurement of long-lived asset impairment contained in SFAS No. 121, ""Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." SFAS No. 144 also provides additional guidance intended to address certain significant implementation issues associated with SFAS No. 121, including expanded guidance with respect to appropriate cash flows to be used in determining whether recognition of a long-lived asset impairment is required, and if required, how to measure the amount of the impairment. SFAS No. 144 also requires that any net assets to be disposed of by sale be reported at the lower of carrying value or fair value less cost to sell, and expands the reporting of discontinued operations to include any component of any entity with operations and cash flows that can be clearly distinguished from the rest of the entity. SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001, and our adoption of it did not have a material effect on our consolidated statement of net assets in liquidation or statement of changes in net assets. In April 2002, the FASB issued SFAS No. 145, ""Rescission of SFAS Nos. 4, 44 and 64, Amendment of SFAS 13, and Technical Corrections." SFAS No. 145 rescinds SFAS No. 4, ""Reporting Gains and Losses from Extinguishment of Debt," and excludes extraordinary item treatment for gains and losses associated with the extinguishment of debt that do not meet the criteria for such treatment, as outlined in APB Opinion No. 30, ""Reporting the Results of Operations I Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." Any gain or loss on extinguishment of debt that was previously classified as an extraordinary item in the reported financial results that does not meet the criteria in APB Opinion No. 30 for classification as an extraordinary item shall be reclassified. SFAS No. 145 was effective beginning after May 15, 2002, and our adoption of it did not have a material effect on our consolidated statement of net assets in liquidation or statement of changes in net assets. In June 2002, the FASB issued SFAS No. 146, ""Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and replaces Emerging Issues Task Force (EITF) Issue No. 94-3, ""Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred and should be initially measured at fair value. Under EITF Issue No. 94-3, a liability for such costs is recognized as of the date of an entity's commitment to an exit plan. The provisions of SFAS No. 146 are effective for exit or disposal activities that we initiated after December 31, 2002. Our adoption of SFAS No. 146 did not have a material effect on our consolidated statement of net assets in liquidation or statement of changes in net assets. In November 2002, the FASB issued Interpretation (FIN) No. 45, ""Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." FIN No. 45 requires certain guarantees to be recorded at fair value and also requires a guarantor to make certain disclosures regarding guarantees. FIN No. 45's initial recognition and initial measurement provisions are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. Our adoption of this Interpretation did not have a material impact on our consolidated financial statements or disclosures. In December 2002, the FASB issued SFAS No. 148, ""Accounting for Stock-Based Compensation Transition and Disclosure." This statement amends SFAS No. 123, ""Accounting for Stock-Based Compensation I An Amendment of SFAS No. 123." Although SFAS 148 does not require use of the fair value method of accounting for stock-based employee compensation, it does provide alternative methods of transition. It also amends the disclosure provisions of SFAS 123 and APB Opinion No. 28, ""Interim Financial Reporting," to require disclosure in the summary of significant accounting policies or the effects of an entity's accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. SFAS 148's amendment of the transition and annual disclosure requirements is effective for fiscal years ending after December 15, 2002. The amendment of disclosure requirements of APB Opinion No. 28 is effective for interim periods beginning after December 15, 2002. Our adoption of this pronouncement did not have a material impact on our consolidated financial statements or disclosures. In January 2003, the FASB issued FIN No. 46, ""Consolidation of Variable Interest Entities, an Interpretation of ARB 51." FIN No. 46 provides guidance on the identification of entities of which control is achieved through means other than voting rights (""variable interest entities" or ""VIEs") and how to determine when and which business enterprise should consolidate the VIE (the ""primary beneficiary"). In addition, FIN No. 46 requires that both the primary beneficiary and all other enterprises with a significant variable interest in a VIE make additional disclosures. The transitional disclosure requirements of FIN No. 46 are required in all financial statements initially issued after January 31, 2003, if certain conditions are met. Our adoption of this Interpretation did not have a material impact on our consolidated financial statements or disclosures. In April 2003, the FASB issued SFAS No. 149, ""Amendment of Statement 133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and clarifies the accounting guidance on derivative instruments (including certain derivative instruments embedded in other contracts) and hedging activities that fall within the scope of SFAS No. 133, ""Accounting for Derivative Instruments and Hedging Activities." SFAS No. 149 is effective prospectively for contracts entered into or modified after June 30, 2003, with certain exceptions, and for hedging relationships designated after June 30, 2003. Our adoption of SFAS No. 149 did not have a material impact on our consolidated financial statements or disclosures. In May 2003, the FASB issued SFAS No. 150, ""Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150 changes the accounting and disclosure requirements for certain financial instruments that, under previous guidance, could be classified as equity. The guidance in SFAS No. 150 is generally effective for all financial instruments entered into or modified after May 31, 2003 and is otherwise effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 is not expected to have a material impact on our consolidated financial statements or disclosures. Item 4. Controls and Procedures Based on their evaluation, as of the end of the period covered by this Form 10-Q, the Trust's Liquidating Trustee (the Trust's principal executive officer) and Assistant to the Liquidating Trustee (the Trust's principal financial officer) have concluded that they have reasonable assurance of the effectiveness of the Trust's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). In connection with this evaluation, the Liquidating Trustee and the Assistant to the Liquidating Trustee identified no change in internal control over financial reporting that occurred during the Trust's fiscal quarter ended September 30, 2003, and that has materially affected, or is reasonably likely to materially affect, the Trust's internal control over financial reporting. PART II OTHER INFORMATION Item 1. Legal Proceedings Crotts and Grabinski During late 2001, the Trust commenced two (2) separate adversary proceedings in the Bankruptcy Court against William Crotts and Thomas Grabinski, the Chief Executive Officer and General Counsel, respectively, of BFA during the period that the fraud occurred. The Trust alleges that Messrs. Crotts and Grabinski were the primary architects of the fraud, thereby breaching their fiduciary duties to BFA and its investors. The Trust has successfully defeated motions by Crotts and Grabinski to dismiss the action, and since that time has engaged in extensive discovery with these parties. During this discovery process the Trust and class action was able to reach a settlement with the defendant's and Debtors' insurance carrier, National Union, in the gross amount of $3.75 million. The settlement calls for the Trust to dismiss its cases against Messrs. Crotts and Grabinski. The settlement consists of gross proceeds of $3.75 million less legal fees and expenses of approximately $550,000 for a net amount of approximately $3.2 million. Both the Superior Court and Bankruptcy Court approved the settlement on October 17, 2003 and October 21, 2003, respectively. The National Union Settlement will become final pending the expiration of the 30-day appeal period on November 17, 2003. As of the date of this filing no appeals have been filed. Cook Charitable Trust Claim and Related Matters This claim arises out of the Sovereign Sherwood Crossing LLC venture in which Cook Charitable Trust and Sovereign Realty Advisors ("SRA") were shareholders. In 1999, BFA exercised its power as trustee of the Cook Charitable Trust ("CCT") to arrange for CCT to contribute $6.3 million in capital and substitute for a BFA subsidiary as a shareholder in the entity purchasing the Sherwood Crossing apartment complex. CCT alleges that, among other things, BFA breached its fiduciary duties to CCT by investing virtually the entire corpus of the trust in Sovereign Sherwood Crossing and by permitting SRA to receive a substantial equity stake in the entity without contributing any capital. CCT brought an arbitration proceeding against SRA, in which the Trust produced documents and witnesses. That case was settled in September 2002 with CCT buying out SRA's interest for $4 million, exclusive of approximately $1.1 million in prior distributions to SRA. CCT sought to recoup its payments to SRA in its claim against BFA. The Trust has settled this claim and as of June 30, 2003 no liability remains outstanding. W.H.H.C. The Trust holds a note receivable from W.H.H.C. in an outstanding amount of approximately $2 million dollars. Through this note the Trust has begun foreclosing on approximately 70 acres of real property located in Maricopa 15 County, Arizona. The estimated value of the 70 acres of real property has been included in the notes receivable portion of the accompanying consolidated financial statements. Additionally, the Trust has recourse against one of the partners of the partnership. The Trust Board has recently agreed to a proposal to release the one remaining individual partner for receipt of the sum of $50,000 cash. This proposal is subject to court approval. All remaining partners have previously paid the Trust cash payments in exchange for release of their of personal recourse liability. A lawsuit has been filed in the Superior Court to foreclose on the mortgage and obtain a judgment against the partnership. No answers have been filed. No amount has been recorded in the accompanying consolidated financial statements related to future amounts from a judgment or partner not yet received from this contingent asset. Chaparral Pines In 2002 a complaint alleging four (4) separate causes of action was filed in the Superior Court against BFA's former limited liability company member, Chaparral Pines, LLC, in the development of the Chaparral Pines property. The complaints center around the mismanagement of the property by the defendant. Chaparral Pines filed a Motion to dismiss the complaint. After briefings and argument, the Superior Court has allowed the Trust to proceed on three of the four counts in the complaint. Discovery has commenced. Because of the substantial nature of the Chaparral Pines project, the defendants' are working to accumulate all the construction-related documents. Currently, both the Trust and defendants are in a document review process. William Blair In an effort to avoid repaying $4 million dollars in debt to the Trust, Mr. Blair has engaged in a number of legal maneuvers. In 2001, the Trust filed a Notice of Trustee's Sale on the collateral securing repayment on one of the Notes (the "DESERT DIAMOND NOTE"). Mr. Blair then filed a petition for bankruptcy relief under Chapter 11 to frustrate the collection efforts of the Trust. Separately, Fidelity Title (the "TITLE COMPANY"), the Title Company hired by Mr. Blair to transfer title to portions of the Trust's collateral to third party buyers without lien releases, filed its own lawsuit in a different jurisdiction, seeking a variety of legal and equitable relief. With regard to the petition for bankruptcy relief filed by Mr. Blair in the name of Desert Diamond, in 2002, the Trust successfully opposed a "cramdown" plan of reorganization, and then separately succeeded in converting the Desert Diamond bankruptcy case to a liquidation under the provisions of Chapter 7. The Trust worked with the Chapter 7 Trustee to sell the remaining real property collateral to a third party purchaser. That sale has closed, netting approximately $380,000 to the Trust. The Trust previously recovered approximately $100,000 from other collection efforts, bringing the Trust's recovery to approximately $480,000. The Trust separately filed a lawsuit and obtained a judgment against Mr. Blair individually as a co-maker under the Desert Diamond Note. That debt has been reduced to judgment in an amount of $1.4 million dollars, plus interest at 19% until paid in full. With regards to Mr. Blair's second obligation (the "CAMPBELL NOTE") the Superior Court entered judgment on March 19, 2003 against both Mr. Blair and his Trust in the amount of $1,418,329.82 with interest at the rate of 18% from August 13, 2001, until paid. Additionally the court awarded the Trust legal fees in the amount of $54,931.00 and costs of $1,279.20. The Trust has authorized the initiation of a new lawsuit to recover a substantial number of real property transfers made by Mr. Blair to mostly third party related entities on the eve of the state court judgments. These claims will be pursued under Arizona state law theories of fraudulent transfer. The Trust now has successfully litigated and received judgments on the two state court actions and defended the Trust's claims against the actions of Mr. Blair in connection with the Desert Diamond bankruptcy. This bankruptcy included a proposed cramdown plan and an adversary lawsuit to modify the underlying contract. The assets of the bankruptcy estate have been liquidated and the proceeds from the sale of the assets distributed to the Trust. With regard to the remaining action against the Title Company defendants, the Bankruptcy Court recently granted the Title Company's Motion for Reconsideration and reversed its prior ruling. The effect is that the Bankruptcy Court has upheld an alleged contract modification disallowed by a different judge in earlier litigation. If the Bankruptcy Court's ruling stands as issued, the Trust would be required to release its liens on the remaining real property collateral for a release price of $12,500/lot (a total of $275,000 for the remaining lots) The Title Company also has on file a Motion for Award of Fees seeking an award of approximately $138,000 in fees and costs incurred. 16 Disputed Proofs of Claims A number of creditors filed proofs of claims in the Debtors' bankruptcy proceedings. As of September 30, 2003 all of these claims have been resolved and either paid in full (if any amount was due) or fully reserved for (if disputed). SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated November 13, 2003 BFA LIQUIDATION TRUST By: /s/ Clifton R. Jessup, Jr. Name: Clifton R. Jessup, Jr. Title: Liquidating Trustee 17

BFA LIQUIDATION TRUST 10-Q