UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C.  20549





FORM
10-K





(Mark
one)





[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934





For the
fiscal year ended December 31,
2007





Or





[   ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934





For the
transition period from _____________ to ____________





Commission
File Number 333-125347





VESTIN
      REALTY MORTGAGE I, INC.(Exact
      name of registrant as specified in its
charter)








MARYLAND
            
            20-4028839(State
      or Other Jurisdiction of
            
            (I.R.S.
      EmployerIncorporation
      or Organization)
            
            Identification
      No.)








6149
SOUTH RAINBOW BOULEVARD, LAS VEGAS, NEVADA 89118


(Address
of principal executive offices)  (Zip Code)





Registrant’s
telephone number, including area code 702.227.0965





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





None
            
            None(Title
      of each class)
            
            (Name
      of each exchange on which
registered)





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





Common
      Stock, $0.0001 Par Value(Title
      of class)





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.


Yes
[   ] No [X]





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.


Yes
[   ] No [X]





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.


Yes [X]
No [   ]





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.  [   ]





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.





Large
      accelerated filer [   ]
            Accelerated
      filer [X]Non-accelerated
      filer [   ](Do
      not check if a smaller reporting company)
            Smaller
      reporting company
[   ]





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).


Yes
[   ] No [X]





State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold, or the average bid and asked price of such common equity, as of the
last business day of the registrant’s most recently completed second fiscal
quarter.





Class
            
            
            Market
      Value as of
              June
      30, 2007Common
      Stock, $0.0001 Par Value
            
            $
            38,681,828.86





Indicate
the number of shares outstanding of each of the registrant’s classes of common
stock, as of the latest practicable date.





Class
            
            
            Number
      of Shares Outstanding
              As
      of March 10, 2008Common
      Stock, $0.0001 Par Value
            
            
            6,874,109














Table of Contents








TABLE OF CONTENTS





PagePART IITEM 1.
            BUSINESS
            1ITEM 1A.
            RISK FACTORS
            10ITEM 1B.
            UNRESOLVED STAFF COMMENTS
            22ITEM 2.
            PROPERTIES
            22ITEM 3.
            LEGAL PROCEEDINGS
            22ITEM 4.
            SUBMISSION OF MATTERS TO A VOTE OF SECURITY
      HOLDERS
            22PART IIITEM 5.
            MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED
      STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
      SECURITIES
            22ITEM 6.
            SELECTED FINANCIAL DATA
            26ITEM 7.
            MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS
            27ITEM 7A.
            QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK
            42ITEM 8.
            FINANCIAL STATEMENTS AND SUPPLEMENTARY
      DATA
            43ITEM 9.
            CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
      ACCOUNTING AND FINANCIAL DISCLOSURE
            76ITEM 9A.
            CONTROLS AND PROCEDURES
            76ITEM 9A(T).
            CONTROLS AND PROCEDURES
            79ITEM 9B.
            OTHER INFORMATION
            79PART IIIITEM 10.
            DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
      GOVERNANCE
            79ITEM 11.
            EXECUTIVE COMPENSATION
            85ITEM 12.
            SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
      MANAGEMENT AND RELATED STOCKHOLDER MATTERS
            85ITEM 13.
            CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
      DIRECTOR INDEPENDENCE
            86ITEM 14.
            PRINCIPAL ACCOUNTING FEES AND
    SERVICES
            87PART IVITEM 15.
            EXHIBITS, FINANCIAL STATEMENT
    SCHEDULES
            87EXHIBIT INDEX
            88SIGNATURES
            89

















Table of Contents








PARTI





Note
Regarding Forward-Looking Statements





This
report and other written reports and oral statements made from time to time by
us may contain forward-looking statements.  Such forward-looking
statements may be identified by the use of such words as “expects,” “plans,”
“estimates,” “intend,” “might,” “may,” “could,” “will,” “feel,” “forecasts,”
“projects,” “anticipates,” “believes” and words of similar
expression.  Forward-looking statements are likely to address such
matters as our business strategy, future operating results, future sources of
funding for real estate loans brokered by us, future economic conditions and
pending litigation involving us.  Some of the factors which could
affect future results are set forth in the discussion under “Management’s
Discussion and Analysis of Financial Condition and Results of Operations —
Factors Affecting Our Operating Results.”





ITEM
1.                      BUSINESS





General





Vestin
Fund I, LLC (“Fund I”) was organized in December 1999 as a Nevada limited
liability company for the purpose of investing in commercial real estate loans
(hereafter referred to as “real estate loans”).  Vestin Realty
Mortgage I, Inc. (“VRM I”) was organized in January 2006 as a Maryland
corporation for the sole purpose of effecting a merger with Fund
I.  On May 1, 2006, Fund I merged into VRM I and the members of Fund I
received one share of VRM I’s common stock for each membership unit of Fund
I.  References in this report to the “Company”, “we”, “us” or “our”
refer to Fund I with respect to the period prior to May 1, 2006 and to VRM I
with respect to the period commencing on May 1, 2006.  Because we were
a limited liability company (“LLC”) during the prior periods reflected in this
report, we make reference to Fund I’s “members” rather than “stockholders” in
reporting our financial results.





We invest
in loans secured by real estate through deeds of trust or mortgages (hereafter
referred to collectively as “deeds of trust” and as defined in our Management
Agreement as “Mortgage Assets”).  We commenced operations in August
2000.





We
operate as a real estate investment trust (“REIT”).  We are not a
mutual fund or an investment company within the meaning of the Investment
Company Act of 1940, nor are we subject to any regulation
thereunder.  As a REIT, we are required to have a December 31 fiscal
year end.





Our
manager is Vestin Mortgage, Inc. (the “manager” or “Vestin Mortgage”), a Nevada
corporation, which is a wholly owned subsidiary of Vestin Group, Inc. (“Vestin
Group”), a Delaware corporation.  Michael Shustek, the CEO and
director of our manager and CEO, President and a director of us, wholly owns
Vestin Group, Inc., which is engaged in asset management, real estate lending
and other financial services through its subsidiaries.  Our manager,
prior to June 30, 2006, also operated as a licensed Nevada mortgage broker and
was generally engaged in the business of brokerage, placement and servicing of
commercial loans secured by real property.  On July 1, 2006, the
mortgage broker license was issued to an affiliated company, Vestin
Originations, Inc. that has continued the business of brokerage, placement and
servicing of real estate loans.  Vestin Originations, Inc. is a wholly
owned subsidiary of Vestin Group.  On September 1, 2007, the servicing
of real estate loans was assumed by our manager.





Pursuant
to our management agreement, our manager implements our business strategies on a
day-to-day basis, manages and provides services to us, and provides similar
services to our subsidiary.  Without limiting the foregoing, our
manager performs other services as may be required from time to time for
management and other activities relating to our assets, as our manager shall
deem appropriate.  Consequently, our operating results are dependent
upon our manager’s ability and performance in managing our operations and
servicing our assets.





Vestin
Mortgage, Inc. is also the manager of Vestin Realty Mortgage II, Inc. (“VRM
II”), as the successor by merger to Vestin Fund II, LLC (“Fund II”), Vestin Fund
III, LLC (“Fund III”) and inVestin Nevada, Inc. (“inVestin”), a company wholly
owned by our manager’s CEO.  These entities also invest in real estate
loans.





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The
consolidated financial statements include the accounts of us and our wholly
owned taxable REIT subsidiary, TRS I, Inc.  All significant
inter-company transactions and balances have been eliminated in
consolidation.





Segments





We
operate as one business segment.





Real
Estate Loan Objectives





As of
December 31, 2007, our loans were in the following states: Arizona, California,
Hawaii, Nevada, New York, Oklahoma, Oregon, Texas and Washington.  The
loans we invest in are selected for us by our manager from among loans
originated by Vestin Originations or non-affiliated mortgage
brokers.  When Vestin Originations or a non-affiliated mortgage broker
originates a loan for us, that entity identifies the borrower, processes the
loan application, brokers and sells, assigns, transfers or conveys the loan to
us.  We believe that our loans are attractive to borrowers because of
the expediency of our manager’s loan approval process, which takes about ten to
twenty days.





As a
commercial real estate lender willing to invest in loans to borrowers who may
not meet the credit standards of other financial institutional lenders, the
default rate on our loans could be higher than those generally experienced in
the mortgage lending industry.  Because of our increased willingness
to fund riskier loans, borrowers are generally willing to pay us an interest
rate that is two to five points above the rates generally charged by other
commercial lenders.  We invest a significant amount of our funds in
loans in which the real property, held as collateral, is not generating any
income to the borrower.  The loans in which we invest are generally
riskier because the borrower’s repayment depends on their ability to refinance
the loan or develop the property so they can refinance the loan.





Our
principal investment objectives are to maintain and grow stockholder value
by:





·
            Producing
      revenues from the interest income on our real estate
  loans;





·
            Providing
      cash distributions from the net income generated by our real estate loans;
      and





·
            Reinvesting,
      to the extent permissible, payments of principal and sales (net of
      expenses).





Acquisition
and Investment Policies





We seek
to invest approximately 97% of our assets in real estate
loans.  Approximately 3% will be held as a working capital cash
reserve.  As of December 31, 2007, approximately 78% of our assets,
net of allowance for loan losses, are classified as investments in real estate
loans.





Generally,
the collateral on our real estate loans is the real property that the borrower
is purchasing or developing with the funds that we make available.  We
sometimes refer to these real properties as the security
properties.  While we may invest in other types of loans, most of the
loans in which we invest have been made to real estate developers.





Our real
estate investments are not insured or guaranteed by any government
agency.





Our
manager continuously evaluates prospective investments, selects the loans in
which we invest and makes all investment decisions on our behalf.  In
evaluating prospective real estate loan investments, our manager considers such
factors as the following:





·
            The
      ratio of the amount of the investment to the value of the property by
      which it is secured, or the loan-to-value
ratio;





·
            The
      potential for capital appreciation or depreciation of the property
      securing the investment;





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·
            Expected
      levels of rental and occupancy rates, if
  applicable;





·
            Potential
      for rental increases, if
applicable;





·
            Current
      and projected revenues from the property, if
  applicable;





·
            The
      status and condition of the record title of the property securing the
      investment;





·
            Geographic
      location of the property securing the investment;
  and





·
            The
      financial condition of the borrowers and their principals, if any, who
      guarantee the loan.





Our
manager may obtain our loans from an affiliated or non-affiliated mortgage
broker who may solicit previous or new borrowers in those states where
permissible.  We may purchase existing loans that were originated by
third party lenders or brokered by Vestin Originations to facilitate our
purchase of the loans.  Vestin Originations and/or our manager will
sell, assign, transfer or convey the loans to us without a premium, but may
include its service fees and compensation.





When
selecting real estate loans for us, our manager generally adheres to the
following guidelines, which are intended to control the quality of the
collateral given for our loans:





1.Priority of
Loans.Generally, our assets are secured by first deeds of
trust.  First deeds of trust are loans secured by a full or divided
interest in a first deed of trust secured by the property.  We will
not invest in any loan that is junior to more than one loan.  As of
December 31, 2007, approximately 99.44% of the principal amount of our
outstanding investments in loans was secured by first deeds of
trust.





2.Loan-to-Value
Ratio.The amount of our loan combined with the outstanding
debt secured by a senior loan on a security property generally does not exceed
the following percentage of the appraised value of the security property at
origination:





Type
      of Secured Property
            Loan-to-Value
      RatioResidential
            75%Unimproved
      Land
            60%
       (of anticipated as-if developed value)Acquisition
      and Development
            60%
       (of anticipated as-if developed value)Commercial
      Property
            75%
       (of anticipated as-if developed value)Construction
            75%
       (of anticipated post- developed value)Leasehold
      Interest
            75%
       (of value of leasehold
interest)





We may
deviate from these guidelines under certain circumstances.  For
example, our manager, in its discretion, may increase any of the above
loan-to-value ratios if a given loan is supported by credit adequate to justify
a higher loan-to-value ratio, including personal
guarantees.  Occasionally, our collateral may include personal
property attached to the real property as well as real property.  We
do not have specific requirements with respect to the projected income or
occupancy levels of a property securing our investment in a particular
loan.  These loan-to-value ratios will not apply to financing offered
to the purchaser of any real estate acquired through foreclosure or to refinance
an existing loan that is in default when it matures.  In those cases,
our manager, in its sole discretion, shall be free to accept any reasonable
financing terms that it deems to be in our best interest.  As of
December 31, 2007, our actual loan-to-value ratio for our loan portfolio as a
whole, prior to allowances for loan losses based on updated appraisals obtained
during the year, was 80.97% on a weighted average basis.





Loan-to-value
ratios are based on appraisals that the manager receives at the time of loan
underwriting and may not reflect subsequent changes in value
estimates.  Such appraisals, which may have been commissioned by the
borrower and may precede the placement of the loan with us, are generally dated
no greater than 12 months prior to the date of loan
origination.





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The
appraisals may be for the current estimate of the “as-if developed” value of the
property, which approximates the post-construction value of the collateralized
roperty assuming that such property is developed.  “As-if developed”
values on raw land loans or acquisition and development loans often dramatically
exceed the immediate sales value and may include anticipated zoning changes, and
successful development by the purchaser; upon which development is dependent on
availability of financing.  As most of the appraisals will be prepared
on an “as-if developed” basis, if a loan goes into default prior to development
of a project, the market value of the property may be substantially less than
the appraised value.  As a result, there may be less security than
anticipated at the time the loan was originally made.  If there is
less security and a default occurs, we may not recover the full amount of the
loan.





We or the
borrower retain appraisers who are state certified or licensed appraisers and/or
hold designations from one or more of the following organizations: the Federal
National Mortgage Association, the Federal Home Loan Mortgage Corporation, the
National Association of Review Appraisers, the Appraisal Institute, the National
Society of Real Estate Appraisers, American Society of Real Estate Appraisers,
or from among appraisers with other qualifications acceptable to Vestin
Originations and/or our manager.  However, appraisals are only
estimates of value and cannot be relied on as measures of realizable
value.  An employee or agent of Vestin Originations or our manager
will review each appraisal report and will generally conduct a physical
inspection for each property.  A physical inspection includes an
assessment of the subject property, the adjacent properties and the
neighborhood, but generally does not include entering any structures on the
property.





3.  Terms of Real Estate
Loans.Our loans as of December 31, 2007, had original terms
of four months to twenty-four months, excluding extensions.  Most of
our loans are for an initial term of 12 months.  Generally our
original loan agreements permit extensions to the term of the loan by mutual
consent.  Such extensions are generally provided on loans where the
original term was 12 months or less and where a borrower requires additional
time to complete a construction project or negotiate take out
financing.





As of
December 31, 2007, all of our loans provided for payments of interest only with
a “balloon” payment of principal payable in full at the end of the
term.  In addition, we invest in real estate loans that require
borrowers to maintain interest reserves funded from the principal amount of the
loan for a period of time.  At December 31, 2007, we had approximately
$13.5 million in investments in real estate loans that had interest reserves
where the total outstanding principal due to our co-lenders and us was
approximately $108.1 million.  These loans had interest reserves of
approximately $9.7 million, of which our portion was approximately $1.3
million.  At December 31, 2006, we had approximately $17.1 million in
investments in real estate loans that had interest reserves where the total
outstanding principal due to our co-lenders and us was approximately $120.3
million.  These loans had interest reserves of approximately $5.6
million, of which our portion was approximately $0.7 million.





4.  Escrow
Conditions.Our loans will often be funded by us through an
escrow account held by a title insurance company, subject to the following
conditions:





·
            Borrowers
      will obtain title insurance coverage for all loans, providing title
      insurance in an amount at least equal to the principal amount of the
      loan.  Title insurance insures only the validity and priority of
      our deed of trust, and does not insure us against loss by other causes,
      such as diminution in the value of the security
  property.





·
            Borrowers
      will obtain liability insurance coverage for all
  loans.





·
            Borrowers
      will obtain fire and casualty insurance for all loans secured by improved
      real property, covering us in an amount sufficient to cover the
      replacement cost of improvements.





·
            All
      insurance policies, notes, deeds of trust or loans, escrow agreements, and
      any other loan documents for a particular transaction will cover us as a
      beneficiary.





5.  Purchase of Real Estate Investments
from Affiliates.We may acquire real estate loans from our
affiliates, including our manager, without a premium, but may include allowable
fees and expenses, but without allowance of any other compensation for the
loans.





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6.  Note
Hypothecation.We may also acquire real estate loans secured
by assignments of secured promissory notes.  These real estate loans
must satisfy our stated investment standards, including our loan-to-value
ratios, and may not exceed 80% of the principal amount of the assigned note upon
acquisition.  For example, if the property securing a note we acquire
is commercial property, the total amount of outstanding debts secured by the
property must not exceed 75% of the appraised value of the property, and the
real estate loan will not exceed 80% of the principal amount of the assigned
note.  For real estate loans secured by promissory notes, we will rely
on the appraised value of the underlying property, as determined by an
independent written appraisal that was conducted within the then-preceding
twelve months.  If an appraisal was not conducted within that period,
then we will arrange for a new appraisal to be prepared for the property prior
to acquisition of the loan.





7.  Participation.We
participate in loans with other lenders, including affiliates and voluntarily
comply with the North American Securities Administrators Association (“NASAA”)
Guidelines or otherwise approved by our board of directors, by providing funds
for or purchasing an undivided interest in a loan meeting our investment
guidelines described above.  Typically, we participate in loans
if:





·
            We
      did not have sufficient funds to invest in an entire
  loan;





·
            We
      are seeking to increase the diversification of our loan portfolio;
      or





·
            A
      loan fits within our investment guidelines, however it would constitute
      more than 20% of our anticipated capital contribution or otherwise be
      disproportionately large given our then existing
  portfolio.





Loans in
which unaffiliated investors have participated through inter-creditor agreements
(“Inter-creditor Agreements”) are accounted for as secured borrowings in
accordance with Statement of Financial Accounting Standards (“FAS”) 140 – Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities(“FAS
140”).  The Inter-creditor Agreements provide us additional funding
sources for real estate loans whereby an unaffiliated investor (the “Investor”)
may participate on a non-pari passu basis in certain real estate loans with us
and/or VRM II and/or Fund III (collectively, the “Lead Lenders”).  In
the event of borrower non-performance, the Inter-creditor Agreements generally
provide that the Lead Lenders must repay the Investor’s loan amount either by
(i) continuing to remit to the Investor the interest due on the participated
loan amount; (ii) substituting an alternative loan acceptable to the Investor;
or (iii) repurchasing the participation from the Investor for the outstanding
balance plus accrued interest.





An
Investor may participate in certain loans with the Lead Lenders through
participation agreements.  In the event of borrower non-performance,
the participation agreement may allow the Investor to be repaid up to the amount
of the Investor’s investment prior to the Lead Lenders being
repaid.





As of
December 31, 2007, all of our loans were loans in which we participated with
other lenders, most of whom are our affiliates.





8.  Diversification.We
voluntarily comply with NASAA Guidelines, unless otherwise approved by our board
of directors, which provide that we neither invest in or make real estate loans
on any one property, which would exceed, in the aggregate, an amount equal to
20% of our capital, nor may we invest in or make real estate loans to or from
any one borrower, which would exceed, in the aggregate, an amount greater than
20% of our capital.  As of December 31, 2007, our single largest loan,
net of allowance for loan losses, accounted for approximately 8% of our
stockholders’ equity.  The loan yields interest at 14% per annum and
as of December 31, 2007, our portion of the outstanding balance of the loan was
approximately $4.6 million, net of allowance for loan losses of $4.7
million.  As of March 10, 2008, this loan was non-performing according
to the terms of the loan.  See in Note D – Investments In Real Estate
Loans of the Notes to the Consolidated Financial Statements included in
Part II, Item 8 Financial
Statement and Supplementary Data of this Report Form 10-K.





9.  Reserve Fund.We
have established contingency working capital reserves of approximately 3% of our
capital to cover our unexpected cash needs.





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10.  Credit
Evaluations.When reviewing a loan proposal, our manager
determines whether a borrower has sufficient equity in the security
property.  Our manager may also consider the income level and
creditworthiness of a borrower to determine its ability to repay the real estate
loan.





11.  Sale of Real Estate Loan
Investments.Although our manager has no plans to do so, our
manager may sell our real estate loans or interest in our loans to either
affiliates or non-affiliated parties when our manager believes that it is
advantageous for us to do so.  However, we do not expect that the
loans will be marketable or that a secondary market will ever develop for
them.





Real
Estate Loans to Affiliates





We will
not invest in real estate loans made to our manager, Vestin Group or any of our
affiliates.  However, we may acquire an investment in a real estate
loan payable by our manager when our manager has assumed the obligations of the
borrower under that loan, through a foreclosure on the property.





Investment
of Loans from our manager and Its Affiliates





In
addition to those loans our manager selects for us, we invest in loans that were
originated by Vestin Originations or other parties as long as the loan(s)
otherwise satisfies all of our lending criteria.  However, we will not
acquire a loan from or sell a loan to a real estate program in which our manager
or an affiliate has an interest except in compliance with NASAA Guidelines or as
otherwise approved by our board of directors.





Types
of Loans We Invest In





We
primarily invest in loans that are secured by first or second trust deeds on
real property.  Such loans fall into the following categories: raw and
unimproved land, acquisition and development, construction, commercial property
and residential loans.  The following discussion sets forth certain
guidelines our manager intends to follow in allocating our investments among the
various types of loans.  Our manager, however, may change these
guidelines at its discretion, subject to review by our board of
directors.  Actual investments will be determined by our manager
pursuant to the terms of the management agreement, and the actual percentages
invested among the various loan categories may vary from the guidelines
below.





Raw
and Unimproved Land Loans





Generally,
15% to 25% of the loans invested in by us may be loans made for the purchase or
development of raw, unimproved land.  Generally, we determine whether
to invest in these loans based upon the appraised value of the property and the
borrower’s actual capital investment in the property.  We will
generally invest in loans for up to 60% of the as-if developed appraised value
of the property and we generally require that the borrower has invested in the
property actual capital expenditures of at least 25% of the property’s
value.  As-if developed values on raw and unimproved land loans often
dramatically exceed the immediate sales value and may include anticipated zoning
changes, and successful development by the purchaser, upon which development is
dependent on availability of financing.  As of December 31, 2007,
approximately 32% of our loans were in this category.





Acquisition
and Development Loans





Generally,
10% to 25% of the loans invested in by us may be acquisition and development
loans.  Such loans enable borrowers to acquire and/or complete the
basic infrastructure and development of their property prior to the construction
of buildings or structures.  Such development may include installing
utilities, sewers, water pipes, and/or streets, together with the costs
associated with obtaining entitlements, including zoning, mapping and other
required governmental approvals.  We will generally invest in loans
with a face value of up to 60% of the appraised value of the
property.  Loan-to-value ratios on acquisition and development loans
are calculated using as-if developed appraisals.  Such appraisals have
the same valuation limitations as raw and unimproved land loans, described
above.  As of December 31, 2007, approximately 5% of our loans were in
this category.





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Construction
Loans





Generally,
10% to 70% of our loans may be construction loans.  Such loans provide
funds for the construction of one or more structures on developed
land.  Funds under this type of loan will generally not be forwarded
to the borrower until work in the previous phase of the project has been
completed and an independent inspector has verified certain aspects of the
construction and its costs.  We will typically require material and
labor lien releases by the borrower per completed phase of the
project.  We will review the appraisal of the value of the property
and proposed improvements, and will generally finance up to 75% of the appraised
value of the property and proposed improvements.  Such appraisals have
the same valuation limitations as raw and unimproved land loans, described
above.  As of December 31, 2007, approximately 4% of our loans were in
this category.





Commercial
Property Loans





Generally,
20% to 50% of the loans we invest in may be commercial property
loans.  Such loans provide funds to allow borrowers to acquire
income-producing property or to make improvements or renovations to the property
in order to increase the net operating income of the property so that it may
qualify for institutional refinancing.  Generally, we review the
property appraisal and generally invest in loans for up to 75% of such appraised
value of the property.  As of December 31, 2007, approximately 59% of
our loans were in this category.





Residential
Loans





A small
percentage of the loans invested in by us may be residential
loans.  Such loans facilitate the purchase or refinance of one to four
family residential property units provided the borrower uses one of the units on
the property as such borrower’s principal residence.  We will
generally invest in loans for up to 75% of the value of the
property.  As of December 31, 2007, none of our loans were in this
category.





Collateral





Each loan
is secured by a lien on either a fee simple or leasehold interest in real
property as evidenced by a first deed of trust or a second deed of
trust.





First
Deed of Trust





Most of
our loans are secured by first deeds of trust.  Thus as a lender, we
will have rights as a first priority lender of the collateralized
property.  As of December 31, 2007, approximately 99.44% of our loans
were secured by first deeds of trust.





Second
Deed of Trust





Up to 10%
of our loans may be secured by second deeds of trust.  In a second
priority loan, the rights of the lender (such as the right to receive payment on
foreclosure) will be subject to the rights of the first priority
lender.  In a wraparound loan, the lender’s rights will be comparably
subject to the rights of a first priority lender, but the aggregate indebtedness
evidenced by the loan documentation will be the first priority loan plus the new
funds the lender invests.  The lender would receive all payments from
the borrower and forward to the senior lender its portion of the payments the
lender receives.  As of December 31, 2007, approximately 0.56% of our
loans were secured by a second deed of trust.





Prepayment
Penalties and Exit Fees





Generally,
the loans we invest in will not contain prepayment penalties but may contain
exit fees payable when the loan is paid in full, by the borrower, to Vestin
Originations or its affiliates as part of their compensation.  If our
loans are at a high rate of interest in a market of falling interest rates, the
failure to have a prepayment penalty provision or exit fee in the loan may allow
the borrower to refinance the loan at a lower rate of interest, thus providing a
lower yield to us on the reinvestment of the prepayment
proceeds.






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However,
these loans will usually be written with relatively high minimum interest rates,
which we would expect to minimize the risk of lower yields.  As of
December 31, 2007, none of our loans had a prepayment penalty and 17 of our
loans, totaling approximately $18.7 million, had an exit fee.





Extensions
to Term of Loan





Our
original loan agreements generally permit extension to the term of the loan by
mutual consent.  Such extension is generally provided on loans where
the original term was 12 months or less and where a borrower requires additional
time to complete a construction project or negotiate take out
financing.  However, we only grant extensions when a borrower is in
compliance with the material terms of the loan, including, but not limited to,
the borrower’s obligation to make interest payments on the loan.  As
of December 31, 2007, approximately 53% of our loans, totaling approximately
$25.3 million, had received an extension to the terms of the loan.





Interest
Reserves





We may
invest in loans that include a commitment for an interest reserve, which is
usually established at loan closing.  The interest reserve may be
advanced by us or other lenders with the amount of the borrower’s indebtedness
increased by the amount of such advances.  At December 31, 2007, we
had approximately $13.5 million in investments in real estate loans that had
interest reserves where the total outstanding principal due to our co-lenders
and us was approximately $108.1 million.  These loans had interest
reserves of approximately $9.7 million, of which our portion was approximately
$1.3 million.





Balloon
Payment





As of
December 31, 2007, all of our loans provided for payments of interest only with
a “balloon” payment of principal payable in full at the end of the
term.  There are no specific criteria used in evaluating the credit
quality of borrowers for real estate loans requiring balloon
payments.  Furthermore, a substantial period of time may elapse
between the review of the financial statements of the borrower and the date when
the balloon payment is due.  As a result, there is no assurance that a
borrower will have sufficient resources to make a balloon payment when
due.  To the extent that a borrower has an obligation to pay real
estate loan principal in a large lump sum payment, its ability to repay the loan
may be dependent upon its ability to sell the property, obtain suitable
refinancing or otherwise raise a substantial amount of cash.  As a
result, these loans can involve a higher risk of default than loans where the
principal is paid at the same time as the interest payments.





Repayment
of Loans on Sale of Properties





We may
require a borrower to repay a real estate loan upon the sale of the property
rather than allow the buyer to assume the existing loan.  We will
require repayment if we determine that repayment appears to be advantageous to
us based upon then-current interest rates, the length of time that the loan has
been held by us, the creditworthiness of the buyer and our
objectives.





Variable
Rate Loans





Occasionally
we may acquire variable rate loans.  Variable rate loans originated by
Vestin Originations may use as indices the one and five year Treasury Constant
Maturity Index, the Prime Rate Index and the Monthly Weighted Average Cost of
Funds Index for Eleventh District Savings Institutions (Federal Home Loan Bank
Board).  As of December 31, 2007, all of the loans in our real estate
loan portfolio were fixed rate loans, with the exception of two loans with a
variable interest rate, totaling $3.0 million.  One of these loans was
non-performing as of December 31, 2007, see Note D – Investments in Real Estate
Loans in Part II, Item 8 Financial Statements and
Supplementary Data of this Annual Report on Form 10-K for more
information.





It is
possible that the interest rate index used in a variable rate loan will rise (or
fall) more slowly than the interest rate of other loan investments available to
us.  Our manager and Vestin Originations attempt to minimize this
interest rate differential by tying variable rate loans to indices that are
sensitive to fluctuations in market rates.  Additionally, most
variable rate loans originated by Vestin Originations contain provisions under
which the interest rate cannot fall below the initial rate.  Variable rate
loans generally have interest rate caps.  For these loans, there is
the risk that the market rate may exceed the interest cap rate.





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Borrowing





We may
incur indebtedness to:





·
            Make
      distributions to enable us to comply with REIT distribution
      requirements;





·
            Finance
      our investments in real estate
loans;





·
            Prevent
      a default under real estate loans that are senior to our real estate
      loans;





·
            Discharge
      senior real estate loans if this becomes necessary to protect our
      investment in real estate loans; or





·
            Operate
      or develop a property that we acquired under a defaulted
    loan.





Our
indebtedness will not exceed 70% of the fair market value of our real estate
loans.  This indebtedness may be with recourse to our
assets.





In
addition, we may enter into structured arrangements with other lenders in order
to provide them with a senior position in real estate loans that we might
jointly fund.  For example, we might establish a wholly-owned special
purpose corporation that would borrow funds from an institutional lender under
an arrangement where the resulting real estate loans would be assigned to a
trust, and the trust would issue a senior certificate to the institutional
lender and a junior certificate to the special purpose
corporation.  This would assure the institutional lender of repayment
in full prior to our receipt of any repayment on the jointly funded real estate
loans.





Competition





Generally,
real estate developers depend upon the timely completion of a project to obtain
a competitive advantage when selling their properties.  We have sought
to attract real estate developers by offering expedited loan processing, which
generally provides quick loan approval and funding of a loan.  As a
result, we have established a market niche as a non-conventional real estate
lender.





We
consider our direct competitors to be the providers of real estate loans who
offer short-term, equity-based loans on an expedited basis for higher fees and
rates than those charged by other financial institutional lenders such as
commercial banks, insurance companies, mortgage brokers and pension
funds.  Many of the companies against which we compete have
substantially greater financial, technical and other resources than either our
company or our manager.  Competition in our market niche depends upon
a number of factors, including price and interest rates of the loan, speed of
loan processing, cost of capital, reliability, quality of service and support
services.





Regulation





We are
managed by Vestin Mortgage, subject to the oversight of our board of directors,
pursuant to the terms and conditions of our Management
Agreement.  Vestin Originations, an affiliate of Vestin Mortgage,
operates as a mortgage broker and is subject to extensive regulation by federal,
state and local laws and governmental authorities.  Vestin
Originations conducts its real estate loan business under a license issued by
the State of Nevada Mortgage Lending Division.  Under applicable
Nevada law, the division has broad discretionary authority over Vestin
Originations’ activities, including the authority to conduct periodic regulatory
audits of all aspects of Vestin Originations’ operations.





We, our
manager and Vestin Originations are also subject to the Equal Credit Opportunity
Act of 1974, which prohibits creditors from discriminating against loan
applicants on the basis of race, color, sex, age or marital status, and the Fair
Credit Reporting Act of 1970, which requires lenders to supply applicants with
the name and address of the reporting agency if the applicant is denied
credit.  We are also subject to various other federal and state
securities laws regulating our activities.  In addition, our manager
is subject to the Employee Retirement Income Security Act of 1974.





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The NASAA
Guidelines have been adopted by various state agencies charged with protecting
the interest of the investors.  Administrative fees, loan fees, and
other compensation paid to our manager and its affiliates would be generally
limited by the NASAA Guidelines.  These guidelines also include
certain investment procedures and criteria, which are required for new loan
investments.  We are not required to comply with NASAA Guidelines;
however, we voluntarily do so unless a majority of our unaffiliated directors
determines that it is in our best interest to diverge from NASAA
Guidelines.





Because
our business is regulated, the laws, rules and regulations applicable to us are
subject to regular modification and change.  There can be no assurance
that laws, rules or regulations will not be adopted in the future that could
make compliance much more difficult or expensive, restrict our ability to broker
or service loans, further limit or restrict the amount of commissions, interest
and other charges earned on loans brokered by us, Vestin Originations, our
manager, or otherwise adversely affect our business or prospects.





Employees





We have
no employees.  Our manager (Vestin Mortgage), Vestin Originations and
their parent company, Vestin Group, Inc., have provided and will continue to
provide all of the employees necessary for our operations.  As of
December 31, 2007, those entities had a total of 23 full-time and no part-time
employees.  All employees are at-will employees and none are covered
by collective bargaining agreements, except John Alderfer our manager’s prior
CFO.  Mr. Alderfer is party to an employment, non-competition and
confidentiality contract with Vestin Group, Inc., the parent company of our
manager, through December 31, 2008.





Available
Information





Our
Internet website address is www.vestinrealtymortgage1.com.  We
make available free of charge through http://phx.corporate-ir.net/phoenix.zhtml?c=193757&p=irol-sec
our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports
on Form 8-K and all amendments to those reports as soon as reasonably practical
after such material is electronically filed with or furnished, pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, to the United
States Securities and Exchange Commission (“SEC”).  Further, a copy of
this annual report on Form 10-K is located at the SEC’s Public Reference Room at
100 F Street, NE, Washington, D.C. 20549.  Information on the
operations of the Public Reference Room can be obtained by calling the SEC at
1-800-SEC-0330.  The SEC maintains an internet site that contains
reports, proxy and information statements and other information regarding our
filings at www.sec.gov.  Information
contained on our website does not constitute a part of this Report on Form
10-K.





ITEM
1A.                 RISK
FACTORS





In
considering our future performance and any forward-looking statements made in
this report, the material risks described below should be considered
carefully.  These factors should be considered in conjunction with the
other information included elsewhere in this report.





RISKS
RELATED TO OUR BUSINESS





Defaults
on our real estate loans will decrease our revenues and
distributions.





We are in
the business of investing in real estate loans and, as such, we are subject to
risk of defaults by borrowers.  Our performance will be directly
impacted by any defaults on the loans in our portfolio.  As a
commercial real estate lender willing to invest in loans to borrowers who may
not meet the credit standards of other financial institutional lenders, the rate
of default on our loans could be higher than those generally experienced in the
real estate lending industry.  Any sustained period of increased
defaults could adversely affect our business, financial condition, liquidity and
the results of our operations.





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We seek
to mitigate the risk by estimating the value of the underlying collateral and
insisting on adequate oan-to-value ratios.  However, we cannot be
assured that these efforts will fully protect us against losses on defaulted
loans.  Our appraisals are generally dated within 12 months of the
date of loan origination and may not reflect a decrease in the value of the real
estate due to events subsequent to the date of the appraisals.  Any
subsequent decline in real estate values on defaulted loans could result in less
security than anticipated at the time the loan was originally made, which may
result in our not recovering the full amount of the loan.  Our
weighted average loan-to-value ratio, based on updated appraisals obtained
during the year and prior to allowances for loan losses, as of December 31,
2007, was 80.97%, as compared to 71.35% as of December 31, 2006.  Any
failure of a borrower to pay interest on loans will reduce our revenues, the
distributions we pay to stockholders and, most likely, the value of common
stock.  Similarly, any failure of a borrower to repay loans when due
may reduce the capital we have available to make new loans, thereby adversely
affecting our operating results.





As of
December 31, 2007, we had in our portfolio approximately $11.3 million in
delinquent loans, net of allowance for loan losses of approximately $5.6
million, which does not include allowances of approximately $0.4 million for
performing loans, and approximately $3.5 million of real estate held for sale
for a total of approximately $14.8 million in non-performing assets, which
represented approximately 24% of our stockholders’ equity.





Our
underwriting standards and procedures are more lenient than many institutional
lenders, which may result in a higher level of non-performing assets and less
amounts available for distribution.





There may
be a greater risk of default by our borrowers, which may impair our ability to
make timely distributions and which may reduce the amount we have available to
distribute.  Our underwriting standards and procedures are more
lenient than many institutional lenders in that we will invest in loans to
borrowers who may not be required to meet the credit standards of other
financial institutional real estate lenders, which may lead to an increase in
non-performing assets in our loan portfolio and create additional risks of
return.  We approve real estate loans more quickly than other
lenders.  We rely heavily on third-party reports and information such
as appraisals and environmental reports.  Because of our accelerated
due diligence process, we may accept documentation that was not specifically
prepared for us or commissioned by us.  This creates a greater risk of
the information contained therein being out of date or
incorrect.  Generally, we will not spend more than 20 days assessing
the character and credit history of our borrowers.  Due to the nature
of loan approvals, there is a risk that the credit inquiry we perform will not
reveal all material facts pertaining to the borrower and the
security.





We
depend upon our real estate security to secure our real estate loans, and we may
suffer a loss if the value of the underlying property declines.





We depend
upon our real estate security to protect us on the loans that we
make.  We depend upon the skill of independent appraisers to value the
security underlying our loans.  However, notwithstanding the
experience of the appraisers, they may make mistakes, or the value of the real
estate may decrease due to subsequent events.  Our appraisals are
generally dated within 12 months of the date of loan origination and may have
been commissioned by the borrower.  Therefore, the appraisals may not
reflect a decrease in the value of the real estate due to events subsequent to
the date of the appraisals.  In addition, most of the appraisals are
prepared on an as-if developed basis, which approximates the post-construction
value of the collateralized property assuming such property is
developed.  As-if developed values on raw land loans or acquisition
and development loans often dramatically exceed the immediate sales value and
may include anticipated zoning changes and successful development by the
purchaser upon which development is dependent on availability of
financing.  As most of the appraisals will be prepared on an as-if
developed basis, if the loan goes into default prior to completion of the
project, the market value of the property may be substantially less than the
appraised value.  As a result, there may be less security than
anticipated at the time the loan was originally made.  If there is
less security and a default occurs, we may not recover the full amount of our
loan, thus reducing the amount of funds available to distribute.





We
typically make “balloon payment” loans, which are riskier than loans with
payments of principal over an extended period of time.





The loans
we invest in or purchase generally require the borrower to make a “balloon
payment” on the principal amount upon maturity of the loan.  A balloon
payment is a large principal balance that is payable after a period of time
during which the borrower has repaid none or only a small portion of the
principal balance.  As of December 31, 2007, all of our loans provided
for payments of interest only with a “balloon” payment of principal payable in
full at
the end of the term.





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Loans
with balloon payments are riskier than loans with payments of principal over an
extended time period such as 15 or 30 years because the borrower’s repayment
depends on its ability to sell the property profitably, obtain suitable
refinancing or otherwise raise a substantial amount of cash when the loan comes
due.  The borrower’s ability to achieve a successful sale or
refinancing of the property may be adversely impacted by deteriorating economic
conditions or illiquidity in the credit markets.  There are no
specific criteria used in evaluating the credit quality of borrowers for loans
requiring balloon payments.  Furthermore, a substantial period of time
may elapse between the review of the financial statements of the borrower and
the date when the balloon payment is due.  As a result, there is no
assurance that a borrower will have sufficient resources to make a balloon
payment when due.





A
prolonged economic slowdown, lengthy or severe recession or significant increase
in interest rates could harm our business.





The risks
associated with our business are more acute during periods of economic slowdown
or recession because these periods can be accompanied by illiquid credit markets
and declining real estate values.  During the year ended December 31,
2007, we VRM II and Fund III conducted updated appraisals on a number of
properties securing our loans, representing approximately 71% of our loan
portfolio, and concluded that the estimated value of such properties should be
reduced by approximately $22.9 million.  Our share of this reduction
was approximately $3.0 million, which has adversely impacted our weighted
average loan to value ratio.  As a commercial real estate lender
willing to invest in riskier loans, rates of delinquencies, foreclosures and
losses on our loans could be higher than those generally experienced in the
commercial mortgage lending industry during periods of economic slowdown or
recession.  We are of the opinion that problems in the sub-prime
residential mortgage market have adversely affected the general economy and the
availability of funds for commercial real estate developers.  We
believe this lack of available funds has led to an increase in defaults on our
loans.  Furthermore, problems experienced in U.S. credit markets since
the summer of 2007 have reduced the availability of credit for many prospective
borrowers.  These problems have made it more difficult for our
borrowers to obtain the anticipated re-financing necessary to pay back our
loans.  Thus, an extended period of illiquidity in the credit markets
could result in a material increase in the number of our loans that are not paid
back on time.  For the year ended December 31, 2007, loan originations
accounted for all loans funded, except for eight loans that were refinanced
during that period.  All eight of these refinanced loans had interest
rates equal to or higher than the interest rates on the original
loan.  Any sustained period of increased delinquencies, defaults or
foreclosures will likely have an adverse affect upon our ability to originate,
purchase and securitize loans, which could significantly harm our business,
financial condition, liquidity and results of operations.





Our
loans are not guaranteed by any governmental agency.





Our loans
are not insured or guaranteed by a federally owned or guaranteed mortgage
agency.  Consequently, our recourse, if there is a default, may be to
foreclose upon the real property securing a loan and/or pursuing the borrower’s
guarantee of the principal.  The value of the foreclosed property may
have decreased and may not be equal to the amount outstanding under the
corresponding loan, resulting in a decrease of the amount available to
distribute.





Our
real estate loans may not be marketable, and we expect no secondary market to
develop.





We do not
expect our real estate loans to be marketable, and we do not expect a secondary
market to develop for them.  As a result, we will generally bear all
the risk of our investment until the loans mature.  This will limit
our ability to hedge our risk in changing real estate markets and may result in
reduced returns to our investors.





Any
borrowing by us will increase risk and may reduce the amount we have available
to distribute to stockholders.





We may
borrow funds to expand our capacity to invest in real estate
loans.  We may borrow up to 70% of the fair market value of our
outstanding real estate loans at any time.  Any such borrowings will
require us to carefully manage our cost of funds.  No assurance can be
given that we will be successful in this effort.  Should we be unable
to repay the indebtedness and make the interest payments on the loans, the
lender will likely declare us in default and require that we repay all amounts
owing under the loan facility.  Even if we are repaying the
indebtedness in a timely manner, interest payments owing on the borrowed funds
may reduce our income and the distributions.




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We may
borrow funds from several sources, and the terms of any indebtedness we incur
may vary.  However, some lenders may require as a condition of making
a loan to us that the lender will receive a priority on loan repayments received
by us.  As a result, if we do not collect 100% on our investments, the
first dollars may go to our lenders and we may incur a loss that will result in
a decrease of the amount available for distribution.  In addition, we
may enter into securitization arrangements in order to raise additional
funds.  Such arrangements could increase our leverage and adversely
affect our cash flow and our ability to make distributions.  During
October 2006, we, our manager, Vestin Originations, Inc., VRM II and Fund III
entered into an intercreditor agreement with an unrelated third party related to
the funding of a construction real estate loan.  The secured borrowing
was recognized pro rata between us, VRM II and Fund III for the amount each
entity has funded for the loan.  During May 2007, the secured
borrowings were paid in full.





We may
need cash to meet our minimum REIT distribution requirements and limit U.S.
federal income taxation.  Because we are required to distribute
annually to our stockholders at least 90% of our REIT taxable income (determined
without regard to the dividends paid deduction and by excluding net capital
gains) to qualify as a REIT and because we intend to distribute substantially
all of our REIT taxable income and net capital gain, our ability to expand our
loan portfolio will depend in large part on external sources of
capital.  In addition, if our minimum distribution requirements to
maintain our REIT status and minimize U.S. federal income taxation become large
relative to our cash flow as a result of our taxable income exceeding our cash
flow from operations, then we may be required to borrow funds or raise capital
by selling assets to meet those distribution requirements.  Any equity
financing may result in substantial dilution to our stockholders, and any debt
financing may include restrictive covenants.  We may not be able to
raise capital on reasonable terms, if at all.





We
may have difficulty protecting our rights as a secured lender.





We
believe that our loan documents will enable us to enforce our commercial
arrangements with borrowers.  However, the rights of borrowers and
other secured lenders may limit our practical realization of those
benefits.  For example:





·
            Judicial
      foreclosure is subject to the delays of protracted
      litigation.  Although we expect non-judicial foreclosure to be
      quicker, our collateral may deteriorate and decrease in value during any
      delay in foreclosing on it;





·
            The
      borrower’s right of redemption during foreclosure proceedings can deter
      the sale of our collateral and can for practical purposes require us to
      manage the property;





·
            Unforeseen
      environmental hazards may subject us to unexpected liability and
      procedural delays in exercising our
rights;





·
            The
      rights of senior or junior secured parties in the same property can create
      procedural hurdles for us when we foreclose on
  collateral;





·
            Required
      licensing and regulatory approvals may complicate our ability to foreclose
      or to sell a foreclosed property where our collateral includes an
      operating business.  See Note N – Legal Matters Involving The
      Company in the notes to the consolidated financial statement under
      Part II, Item 8 Financial Statements and
      Supplementary Data of this Annual Report on Form 10-K for further
      information.





·
            We
      may not be able to pursue deficiency judgments after we foreclose on
      collateral; and





·
            State
      and federal bankruptcy laws can prevent us from pursuing any actions,
      regardless of the progress in any of these suits or
      proceedings.





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By
becoming the owner of property, we may incur additional obligations, which may
reduce the amount of funds available for distribution.





We intend
to own real property only if we foreclose on a defaulted loan and purchase the
property at the foreclosure sale.  Acquiring a property at a
foreclosure sale may involve significant costs.  If we foreclose on
the security property, we expect to obtain the services of a real estate broker
and pay the broker’s commission in connection with the sale of the
property.  We may incur substantial legal fees and court costs in
acquiring a property through contested foreclosure and/or bankruptcy
proceedings.  In addition, significant expenditures, including
property taxes, maintenance costs, mortgage payments, insurance costs and
related charges, must be made on any property we own regardless of whether the
property is producing any income.





Under
applicable environmental laws, any owner of real property may be fully liable
for the costs involved in cleaning up any contamination by materials hazardous
to the environment.  Even though we might be entitled to
indemnification from the person that caused the contamination, there is no
assurance that the responsible person would be able to indemnify us to the full
extent of our liability.  Furthermore, we would still have court and
administrative expenses for which we may not be entitled to
indemnification.





Our
results are subject to fluctuations in interest rates and other economic
conditions.





Our
results of operations will vary with changes in interest rates and with the
performance of the relevant real estate markets.  If the economy is
healthy, we expect that more people will be borrowing money to acquire, develop
or renovate real property.  However, if the economy grows too fast,
interest rates may increase too much and the cost of borrowing may become too
expensive.  Alternatively, if the economy enters a recession, real
estate development may slow.  A slowdown in real estate lending may
mean we will have fewer loans to acquire, thus reducing our revenues and
distributions to stockholders.





Interest
rate fluctuations may affect our operating results as follows:





§
            If
      interest rates rise, borrowers under loans with monthly or quarterly
      principal payments may be compelled to extend their loans to decrease the
      principal paid with each payment because the interest component has
      increased.  If this happens, we are likely to be at a greater
      risk of the borrower defaulting on the extended loan, and the increase in
      the interest rate on our loan may not be adequate compensation for the
      increased risk.  Additionally, any fees paid to extend the loan
      are paid to Vestin Originations or our manager, not to us.  Our
      revenues and distributions will decline if we are unable to reinvest at
      higher rates or if an increasing number of borrowers default on their
      loans; and





§
            If
      interest rates decline, the amount we can charge as interest on our loans
      will also likely decline.  Moreover, if a borrower should prepay
      obligations that have a higher interest rate from an earlier period, we
      will likely not be able to reinvest the funds in real estate loans earning
      that higher rate of interest.  In the absence of a prepayment
      fee, we will receive neither the anticipated revenue stream at the higher
      rate nor any compensation for its loss.  As of December 31,
      2007, none of our loans had a prepayment penalty, although 17 of our
      loans, totaling approximately $18.7 million, had an exit
      fee.  However, depending upon the amount by which interest rates
      decline, the amount of the exit fees is generally not significant in
      relation to the potential savings borrowers may realize as a result of
      prepaying their loans.





Our
loan portfolio may exhibit greater risk if it is not diversified
geographically.





As of
December 31, 2007, our loans were in the following states: Arizona, California,
Hawaii, Nevada, New York, Oklahoma, Oregon, Texas and Washington, with
approximately 30%of our loans in Nevada.  Depending on the market and
on our company’s performance, we plan to expand our investments throughout the
United States.  However, our manager has limited experience outside of
the Western and Southern United States.  Real estate markets vary
greatly from location to location and the rights of secured real estate lenders
vary considerably from state to state.





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Legal
actions seeking damages and appraisal rights could harm our operating results
and financial condition.





We have
been named in several legal actions seeking damages and appraisal rights in
connection with the REIT conversion.  See Note M – Legal Matters Involving The
Manager and Note N – Legal Matters Involving The
Company in the notes to the consolidated financial statement under Part
II, Item 8 Financial
Statements and Supplementary Data of this Annual Report on Form
10-K.  While we believe these actions are without merit, the defense
of such actions has materially increased our legal costs and may require the
substantial attention of our management.  This in turn might adversely
impact our operating results.  During the year ended December 31,
2007, we incurred legal expenses of $279,000 related to such
actions.  Moreover, any adverse outcome in such actions could result
in our having to pay substantial damages, which would reduce our cash resources
and harm our financial condition.





We
face competition for real estate loans that may reduce available yields and fees
available.





We
consider our direct competitors to be the providers of real estate loans who
offer short-term, equity-based loans on an expedited basis for higher fees and
rates than those charged by other financial institutional lenders such as
commercial banks, insurance companies, mortgage brokers and pension
funds.  Many of the companies against which we compete have
substantially greater financial, technical and other resources than either our
company or our manager.  Competition in our market niche depends upon
a number of factors, including price and interest rates of the loan, speed of
loan processing, cost of capital, reliability, quality of service and support
services.  If our competition decreases interest rates on their loans
or makes funds more easily accessible, yields on our loans could decrease and
the costs associated with making loans could increase, both of which would
reduce our revenues and our distributions to stockholders.





We
may have a lack of control over participations.





We will
consider investing in or purchasing loans jointly with other lenders and
purchasers, some of whom might be affiliates of Vestin Mortgage.  We
will initially have, and will maintain a controlling interest as lead lender in
participations with non-affiliates.  Although it is not our intention
to lose control, there is a risk that we will be unable to remain as the lead
lender in the loans in which we participate in the future.  In the
event of participation with a publicly registered affiliate, the investment
objectives of the participants shall be substantially
identical.  There shall be no duplicate fees.  The
compensation to the sponsors must be substantially identical, and the investment
of each participant must be on substantially the same terms and
conditions.





Each
participant shall have a right of first refusal to buy the other's interest if
the co-participant decides to sell its interest.  We will not
participate in joint ventures or partnerships with affiliates that are not
publicly registered except as permitted in the NASAA Guidelines or otherwise
approved by our board of directors.  If our co-participant affiliate
determines to sell its interest in the loan, there is no guarantee that we will
have the resources to purchase such interest and we will have no control over a
sale to a third party purchaser.





MANAGEMENT
AND CONFLICTS OF INTEREST RISKS





We
rely on our manager to manage our day-to-day operations and select our loans for
investment.





Our
ability to achieve our investment objectives and to make distributions depends
upon our manager’s and its affiliate’s performance in obtaining, processing,
making and brokering loans for us to invest in and determining the financing
arrangements for borrowers.  Stockholders have no opportunity to
evaluate the financial information or creditworthiness of borrowers, the terms
of mortgages, the real property that is our collateral or other economic or
financial data concerning our loans.  We pay our manager an annual
management fee of up to 0.25% of our aggregate capital received by us and Fund I
from the sale of shares or membership units.  This fee is payable
regardless of the performance of our loan portfolio.  Our manager’s
duties to our stockholders are generally governed by the terms of the management
contract, rather than by common law principles of fiduciary
duty.  Moreover, our manager is not required to devote its employees’
full time to our business and may devote time to business interests competitive
to our business.





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Our
manager’s lack of experience with certain real estate markets could impact its
ability to make prudent investments on our behalf.





As of
December 31, 2007, our loans were in the following states:  Arizona,
California, Hawaii, Nevada, New York, Oklahoma, Oregon, Texas and
Washington.  Depending on the market and on our company’s performance,
we plan to expand our investments throughout the United
States.  However, our manager has limited experience outside of the
Western and Southern United States.  Real estate markets vary greatly
from location to location and the rights of secured real estate lenders vary
considerably from state to state.  Our manager’s limited experience in
most U.S. real estate markets may impact its ability to make prudent investment
decisions on our behalf.  Accordingly, where our manager deems it
necessary, it plans to utilize independent real estate advisors and local legal
counsel located in markets where it lacks experience for consultation prior to
making investment decisions.  Stockholders will not have an
opportunity to evaluate the qualifications of such advisors and no assurance can
be given that they will render prudent advice to our manager.





Our
success depends on key personnel of our manager, the loss of whom could
adversely affect our operating results, and on our manager’s ability to attract
and retain qualified personnel.





Our
success depends in part upon the continued contributions of our officers;
Michael V. Shustek (our Chief Executive Officer) and Rocio Revollo (our Chief
Financial Officer), as well as certain key personnel of our manager, including
James M. Townsend (Chief Operating Officer) and Daniel B. Stubbs (Senior Vice
President, Underwriting) some of whom would be difficult to replace because of
their extensive experience in the field, extensive market contacts and
familiarity with our company.  If any of these individuals were to
cease their employment or our manager, our operating results could
suffer.  None of the key personnel are subject to an employment,
non-competition or confidentiality agreement with our manager, or us and we do
not maintain “key man” life insurance policies on any of them.  Our
future success also depends in large part upon our manager’s ability to hire and
retain additional highly skilled managerial, operational and marketing
personnel.  Our manager may require additional operations and
marketing people who are experienced in obtaining, processing, making and
brokering loans and who also have contacts in the relevant
markets.  Competition for personnel is intense, and we cannot be
assured that we will be successful in attracting and retaining skilled
personnel.  If our manager were unable to attract and retain key
personnel, the ability of our manager to make prudent investment decisions on
our behalf may be impaired.





Vestin
Mortgage serves as our manager pursuant to a long-term management agreement that
may be difficult to terminate and does not reflect arm’s length
negotiations.





We have
entered into a long-term management agreement with Vestin Mortgage to act as our
manager.  The term of the management agreement is for the duration of
our existence.  The management agreement may only be terminated upon
the affirmative vote of a majority in interest of stockholders entitled to vote
on the matter or by our board of directors for cause upon 90 days’ written
notice of termination.  Consequently, it may be difficult to terminate
our management agreement and replace our manager in the event that our
performance does not meet expectations or for other reasons unless the
conditions for termination of the management agreement are
satisfied.  The management agreement was negotiated by related parties
and may not reflect terms as favorable as those subject to arm’s length
bargaining.





Our
manager will face conflicts of interest concerning the allocation of its
personnel’s time.





Our
manager is also the manager of VRM II, Fund III and inVestin, companies with
investment objectives similar to ours.  Our manager and Mr. Shustek,
who indirectly owns 100% of our manager, anticipate that they may also sponsor
other real estate programs having investment objectives similar to
ours.  As a result, our manager and Mr. Shustek may have conflicts of
interest in allocating their time and resources between our business and other
activities.  During times of intense activity in other programs and
ventures, our manager and its key people will likely devote less time and
resources to our business than they ordinarily would.  Our management
agreement with our manager does not specify a minimum amount of time and
attention that our manager and its key people are required to devote to our
company.  Thus, our manager may not spend sufficient time managing our
operations, which could result in our not meeting our investment
objectives.





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Our
manager and its affiliates will face conflicts of interest arising from our fee
structure.





Vestin
Originations, an affiliate of our manager, will receive substantial fees from
borrowers for transactions involving real estate loans.  Many of these
fees are paid on an up-front basis.  In some cases, Vestin
Originations or our manager may be entitled to additional fees for loan
extensions or modifications and loan assumptions, reconveyances and exit
fees.  These and other fees are quantified and described in greater
detail under “Management Agreement — Compensation.”  Vestin
Originations’ compensation is based on the volume and size of the real estate
loans selected for us, regardless of their performance, which could create an
incentive to make or extend riskier loans.  Our interests may diverge
from those of our manager, Vestin Originations and Mr. Shustek to the extent
that Vestin Originations benefits from up-front fees that are not shared with
us.





Vestin
Originations will be receiving fees from borrowers that would otherwise increase
our returns.  Because Vestin Originations receives all of these fees,
our interests will diverge from those of our manager, Vestin Originations and
Mr. Shustek when our manager decides whether we should charge the borrower
higher interest rates or our manager’ affiliates should receive higher fees from
borrowers.





We paid
our manager a management fee of approximately $277,000 for the year ended
December 31, 2007.  In addition, Vestin Mortgage and Vestin
Originations received a total of approximately $4.7 million and $13.0 million,
respectively, in fees directly from borrowers for the year ended December 31,
2007.  The amounts received from borrowers represent fees earned by
Vestin Mortgage and Vestin Originations for loans originated for all funds
managed by Vestin Mortgage, including us, VRM II, Fund III and
inVestin.  Our assets represented approximately 14% of the assets
managed by Vestin Mortgage as of December 31, 2007.





Our
manager will face conflicts of interest relating to other investments in real
estate loans.





We expect
to invest in real estate loans when one or more other companies managed by our
manager are also investing in real estate loans.  There is a risk that
our manager may select for us a real estate loan investment that provides lower
returns than a real estate loan investment purchased by another program or
entity managed by our manager.  Our manager also serves as the manager
for VRM II, Fund III and inVestin, which have similar investment objectives as
our company.  There are no restrictions or guidelines on how our
manager will determine which loans are appropriate for us and which are
appropriate for VRM II, Fund III, inVestin or another company that our manager
manages.  Moreover, our manager has no obligation to provide us with
any particular opportunities or even a pro rata share of opportunities afforded
to other companies it manages.





Our
manager may face conflicts of interest in considering a possible combination of
us and VRM II.





After
announcing its interest in exploring a possible combination of VRM I with VRM
II, the Board of VRM II recently decided to postpone consideration of such a
combination.  VRM II is a company, which is engaged in making mortgage
loans similar to the loans that we make and is managed by our
manager.  There may be cost savings and operating synergies that could
be achieved by combining the VRM I with VRM II.  Notwithstanding the
postponement, it is possible the potential combination will be considered again
in the future.  At this time, no decision has been made with respect
to whether a combination will be pursued, nor with respect to the possible form
of any such combination.  Since our manager owes a duty to the
investors in each of these entities, it could face a conflict of interest in
considering such a possible combination.  Any decision with respect to
a proposed combination with VRM II will most likely be subject to approval of a
majority of our independent directors and/or our stockholders.





UNITED
STATES FEDERAL INCOME TAX RISKS RELATING TO OUR REIT QUALIFICATION





Our
failure to qualify as a REIT would subject us to U.S. federal income tax, which
would reduce amounts available for distribution to our
stockholders.





We have
elected to be taxed as a REIT under the Code.  Our qualification as a
REIT requires us to satisfy numerous requirements (some on an annual and
quarterly basis) established under highly technical and complex Code provisions
for which there are only limited judicial or administrative interpretations, and
involves the determination of various factual matters and circumstances not
entirely within our control.  We intend that our organization and
method of operation will enable us to qualify as a REIT, but we may not so
qualify or we may not be able to remain so qualified in the
future.  Future legislation, new regulations, administrative
interpretations or court decisions could adversely affect our ability to qualify
as a REIT or adversely affect our stockholders.





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If we
fail to qualify as a REIT in any taxable year, we would be subject to U.S.
federal income tax (including any applicable alternative minimum tax) on our
taxable income at corporate rates, and we would not be allowed to deduct
distributions made to our stockholders in computing our taxable
income.  We may also be disqualified from treatment as a REIT for the
four taxable years following the year in which we failed to
qualify.  The additional tax liability would reduce our net earnings
available for investment or distribution to stockholders.  In
addition, we would no longer be required to make distributions to our
stockholders.  Even if we continue to qualify as a REIT, we will
continue to be subject to certain U.S. federal, state and local taxes on our
income and property.





Distributions
from a REIT are currently taxed at a higher rate than corporate
distributions.





Under the
Tax Relief and Reconciliation Act of 2003, the maximum U.S. federal income tax
rate on both distributions from certain domestic and foreign corporations and
net long-term capital gain for individuals was reduced to 15% until
2008.  The Tax Increase Prevention and Reconciliation Act of 2005,
which signed into law on May 17, 2006, extended the 15% long-term net capital
gain rate to 2010.  However, this reduced rate of tax on distributions
generally will not apply to our distributions (except those distributions
identified by the company as “capital gain dividends” which are taxable as
long-term capital gain) and therefore such distributions generally will be taxed
as ordinary income.  Ordinary income generally is subject to U.S.
federal income tax rate at a rate of up to 35% for individuals.  The
higher tax rate on our distributions may cause the market to devalue our common
stock relative to stock of those corporations whose distributions qualify for
the lower rate of taxation.  Please note that, as a general matter,
distributions from a REIT will be taxed at the same rate as stockholders’ share
of Vestin Realty Mortgage I’s taxable income attributable to its realized net
interest income.





A
portion of our business is potentially subject to prohibited transactions
tax.





As a
REIT, we are subject to a 100% tax on our net income from “prohibited
transactions.”  In general, prohibited transactions are sales or other
dispositions of property to customers in the ordinary course of
business.  Sales by us of property in the course of our business will
generally constitute prohibited transactions.





We intend
to avoid the 100% prohibited transactions tax on property foreclosed upon by
Fund I prior to the REIT conversion by holding and selling such properties
through one or more wholly-owned taxable REIT subsidiaries.  However,
under the Code, no more than 20% of the value of the assets of a REIT may be
represented by securities of one or more taxable REIT subsidiaries and a taxable
REIT subsidiary generally cannot operate a lodging or health care
facility.





As of
December 31, 2007, we held one property with a total carrying value of
approximately $3.5 million recorded as investments in real estate held for sale
and no properties in which we or an affiliate provided the financing, recorded
as real estate held for sale – seller financed.  United States
generally accepted accounting principals (“GAAP”) requires us to include real
estate held for sale – seller financed until the borrower has met and maintained
certain requirements.  The real estate held for sale collectively
constituted approximately 6% of our assets as of December 31, 2007.





Taxable
REIT subsidiaries are subject to corporate-level tax, which may devalue our
common stock relative to other companies.





Taxable
REIT subsidiaries are corporations subject to corporate-level
tax.  Our use of taxable REIT subsidiaries may cause the market to
value its common stock lower than the stock of other publicly traded REITs which
may not use taxable REIT subsidiaries and lower than the equity of mortgage
pools taxable as non-publicly traded partnerships such as Fund I’s intended
qualification prior to the REIT conversion, which generally are not subject to
any U.S. federal income taxation on their income and gain.





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Our
use of taxable REIT subsidiaries may have adverse U.S. federal income tax
consequences.





We must
comply with various tests to continue to qualify as a REIT for U.S. federal
income tax purposes, and our income from and investments in taxable REIT
subsidiaries generally do not constitute permissible income and investments for
purposes of the REIT qualification tests.  While we will attempt to
ensure that our dealings with our taxable REIT subsidiaries will not adversely
affect our REIT qualification, we cannot be assured that we will successfully
achieve that result.  Furthermore, we may be subject to a 100% penalty
tax, or our taxable REIT subsidiaries may be denied deductions, to the extent
our dealings with our taxable REIT subsidiaries are not deemed to be arm’s
length in nature.





We
may endanger our REIT status if the distributions we receive from our taxable
REIT subsidiaries exceed applicable REIT gross income tests.





The
annual gross income tests that must be satisfied to ensure REIT qualification
may limit the amount of distributions that we can receive from our taxable REIT
subsidiaries and still maintain our REIT status.  Generally, not more
than 25% of our gross income can be derived from non-real estate related
sources, such as distributions from a taxable REIT subsidiary.  If,
for any taxable year, the distributions we received from our taxable REIT
subsidiaries, when added to our other items of non-real estate related income,
represent more than 25% of our total gross income for the year, we could be
denied REIT status, unless we were able to demonstrate, among other things, that
our failure of the gross income test was due to reasonable cause and not willful
neglect.





We
may lose our REIT status if we issue shares under our stockholders’ rights
plan.





Under
Section 562(c) of the Code, a REIT generally cannot make a distribution unless
the distribution is pro rata, with no preference to any share of stock as
compared to other shares of the same class of stock.  A REIT that is
not in compliance with this requirement may lose its REIT
status.  Under our stockholders’ rights plan, upon certain events,
some holders of our common stock and not others will have the right to acquire
shares of Series A preferred stock.  When effective, this right could
be treated as a deemed distribution to those holders of our common stock
entitled to the right with no distribution to other such
holders.  Thus, this right, when effective, could be treated as a
distribution that is not consistent with the requirements of Section 562(c) of
the Code, which could result in the loss of our REIT qualification.





RISK
OF OWNERSHIP OF OUR COMMON STOCK





The
market price and trading volume of our common stock may be
volatile.





The
market price of our common stock since trading commenced on June 1, 2006 to
December 31, 2007, has ranged from $1.01 to $7.48.  We believe the
price of our stock in the months after we were listed was affected by, among
other things, selling pressure from stockholders seeking immediate liquidity and
the level of non-performing assets, which we own.  We continue to own
a significant level of non-performing assets and our sector of the market has
suffered from the problems encountered by sub-prime residential
lenders.  Our stock price may continue to be highly volatile and
subject to wide fluctuations.  In addition, the trading volume in our
common stock may fluctuate and cause significant price variations to
occur.  Our Company will be dissolved on December 31, 2019 unless the
holders of a majority of our common stock determine otherwise.  As we
move closer to the dissolution date, we expect to stop making new loans and our
stock price could approach our book value per share.  However, no
assurance can be given that the stock price will approach book value and then
prevailing market conditions may affect the price of our stock even as we near
2019.





The
market price of our common stock may fluctuate or decline significantly in the
future.  Some of the factors, many of which are beyond our control,
that could negatively affect our stock price or result in fluctuations in the
price or trading volume of our common stock include:





·
            Increases
      in loans defaulting or becoming non-performing or being written
      off;





·
            Actual
      or anticipated variations in our quarterly operating results or
      distributions;





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·
            Publication
      of research reports about us or the real estate
  industry;





·
            Changes
      in market valuations of similar
companies;





·
            Changes
      in tax laws affecting REITs;





·
            Litigation;





·
            Adverse
      market reaction to any increased indebtedness we incur in the future;
      and





·
            General
      market and economic conditions.





Market
interest rates could have an adverse effect on our stock price.





One of
the factors that will influence the price of our common stock will be the
dividend yield on our common stock (as a percentage of the price of our common
stock) relative to market interest rates.  Thus, an increase in market
interest rates may lead prospective purchasers of our common stock to expect a
higher dividend yield, a lack of which could adversely affect the market price
of our common stock.





We
are the subject of stockholder litigation which may depress the price of our
stock.





A number
of lawsuits have been filed against us by stockholders who claim, among other
things, that they were improperly denied dissenter’s rights in connection with
the conversion of Fund I into a REIT.  We believe the suits are
without merit and we intend to vigorously defend against such
claims.  Nonetheless, the outcome of the lawsuits cannot be predicted
at this time, nor can a meaningful evaluation be made of the potential impact
upon us if the plaintiffs were to prevail in their claims.  The
resulting uncertainty may depress the price of our stock.  Moreover,
concerns about the costs of defense and the potential diversion of our manager’s
time to deal with these lawsuits may have an adverse effect upon the price of
our stock.





Our
charter documents and Maryland law contain provisions that may delay, defer or
prevent a change of control transaction.





Our
charter and bylaws and Maryland corporate law contain a number of provisions (as
further described in exhibit 3.2 Bylaws of the Registrant
under the Exhibit Index included in Part IV, Item 15 Exhibits and Financial Statement
Schedules of this Report Form 10-K) that could delay, defer or prevent a
transaction or a change in control of us that might involve a premium price for
holders of our common stock or otherwise be in their best interests,
including:





·
            Ownership
      Limit.  Our articles of incorporation, subject to certain
      exceptions, authorizes our board of directors to take such actions as are
      necessary and desirable to preserve our qualification as a REIT and to
      limit any person to actual or constructive ownership of no more than a
      9.8% of the number or value, whichever is more restrictive, of the
      outstanding shares of our stock, unless our board of directors waives this
      ownership limit.  However, our board of directors may not grant
      a waiver of the ownership limit that would permit a person to acquire more
      than 15% of our stock without exception.  The ownership limit
      may have the effect of precluding a change in control of us by a third
      party, even if such change in control would be in the interest of our
      stockholders (and even if such change in control would not reasonably
      jeopardize our REIT status).





·
            Staggered
      Board.  Our board of directors is divided into three
      classes, with each class serving staggered three-year
      terms.  This classification of our board of directors may have
      the effect of delaying or preventing changes in our control or
      management.





·
            Removal of
      Directors.  Directors may be removed only for cause and
      only by the affirmative vote of stockholders holding at least a majority
      of the shares then outstanding and entitled to be cast for the election of
      directors.





·
            Stockholders’ Rights
      Plan.  We have a stockholders’ rights plan that enables
      our board of directors to deter coercive or unfair takeover tactics and to
      prevent a person or a group from gaining control of us without offering a
      fair price to all stockholders.  Unless our board of directors
      approves the person’s or group’s purchase, after that person gains control
      of us, all other stockholders will have the right to purchase securities
      from us at a price that is less than their then fair market
      value.  Purchases by other stockholders would substantially
      reduce the value and influence of the shares of our common stock owned by
      the acquiring person or group.  Our board of directors, however,
      can prevent the stockholders’ rights plan from operating in this
      manner.  This gives our board of directors’ significant
      discretion to approve or disapprove a person’s or group’s efforts to
      acquire a large interest in us.





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·
            Duties of Directors with
      Respect to Unsolicited Takeovers.  Under Maryland law, a
      director is required to perform his or her duties (a) in good faith, (b)
      in a manner he or she believes to be in the best interests of the
      corporation and (c) with the care that an ordinarily prudent person in a
      like position would use under similar circumstances.  Maryland
      law provides protection for Maryland corporations against unsolicited
      takeovers by, among other things, retaining the same standard of care in
      the performance of the duties of directors in unsolicited takeover
      situations.  The duties of directors of Maryland corporations do
      not require them to (a) accept, recommend or respond to any proposal by a
      person seeking to acquire control of the corporation, (b) authorize the
      corporation to redeem any rights under, or modify or render inapplicable,
      any stockholders rights plan, (c) make a determination under Maryland
      Business Combination Act or Maryland Control Share Acquisition Act or (d)
      act or fail to act solely because of the effect of the act or failure to
      act may have on an acquisition or potential acquisition of control of the
      corporation or the amount or type of consideration that may be offered or
      paid to the stockholders in an acquisition. Moreover, under Maryland law
      the act of the directors of a Maryland corporation relating to or
      affecting an acquisition or potential acquisition of control is not
      subject to any higher duty or greater scrutiny than is applied to any
      other act of a director.  Maryland law also contains a statutory
      presumption that an act of a director of a Maryland corporation satisfies
      the applicable standards of conduct for directors under Maryland
      law.





·
            Maryland General Corporation
      Law.  Certain provisions of the MGCL may have the effect
      of inhibiting a third party from making a proposal to acquire us or of
      impeding a change of control under circumstances that otherwise could
      provide the holders of shares of our common stock with the opportunity to
      realize a premium over the then-prevailing market price of such shares,
      including:





·
            “business
      combination” provisions that, subject to limitations, prohibit certain
      business combinations between us and an “interested stockholder” (defined
      generally as any person who beneficially owns 10% or more of the voting
      power of our shares or an affiliate or associate of ours who, at any time
      within the two-year period prior to the date in question, was the
      beneficial owner of 10% or more of our then outstanding voting shares) or
      an affiliate thereof for five years after the most recent date on which
      the stockholder becomes an interested stockholder, and thereafter imposes
      special appraisal rights and special stockholder voting requirements on
      these combinations; and





·
            “control
      share” provisions that provide that “control shares” of our company
      (defined as shares which, when aggregated with other shares controlled by
      the stockholder, entitle the stockholder to exercise one of three
      increasing ranges of voting power in electing directors) acquired in a
      “control share acquisition” (defined as the direct or indirect acquisition
      of ownership or control of “control shares”) have no voting rights except
      to the extent approved by our stockholders by the affirmative vote of at
      least two-thirds of all the votes entitled to be cast on the matter,
      excluding all interested shares.





·
            We
      have opted out of the control share provisions of the MGCL pursuant to a
      provision in our bylaws.  However, our board of directors may by
      amendment to our bylaws opt in to the control share provisions of the MGCL
      in the future.





·
            Advance Notice of Director
      Nominations and Stockholder Proposals.  Our bylaws impose
      certain advance notice requirements that must be met for nominations of
      persons for election to the board of directors and the proposal of
      business to be considered by
stockholders.





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Our
rights and the rights of our stockholders to take action against our directors
and officers are limited.





Maryland
law provides that a director has no liability in that capacity if he or she
performs his or her duties in good faith, in a manner he or she reasonably
believes to be in our best interests and with the care that an ordinarily
prudent person in a like position would use under similar
circumstances.  Our charter limits the liability of our directors and
officers to us and our stockholders for money damages, except for liability
resulting from:





·
            Actual
      receipt of an improper benefit or profit in money, property or services;
      or





·
            A
      final judgment based upon a finding of active and deliberate dishonesty by
      the director or officer that was material to the cause of action
      adjudicated.





In
addition, our articles of incorporation authorize us to obligate our company,
and our bylaws require us, to indemnify our directors and officers for actions
taken by them in those capacities to the maximum extent permitted by Maryland
law.  As a result, we and our stockholders may have more limited
rights against our directors and officers than might otherwise exist under
common law.  Accordingly, in the event that actions taken in good
faith by any of our directors or officers impede the performance of our company,
stockholders’ ability to recover damages from such director or officer will be
limited.





ITEM
1B.                   UNRESOLVED
STAFF COMMENTS





None.





ITEM
2.                      PROPERTIES





Our
manager shares office facilities, in Las Vegas, Nevada, with its parent
corporation, Vestin Group, in a building which a company wholly owned by our CEO
holds the majority interest and an unrelated third party holds the minority
interest.  Our manager believes that this facility is adequate for
their foreseeable office space needs.  We do not have any separate
offices.





ITEM
3.                      LEGAL
PROCEEDINGS





Please
refer to Note M - Legal
Matters Involving The Manager and Note N - Legal Matters Involving The
Company in Part II, Item 8 Financial Statements and
Supplementary Data of this Annual Report on Form 10-K for information
regarding legal proceedings, which discussion is incorporated herein by
reference.





ITEM
4.                      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS





None.





PART II





ITEM
      5.
            MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
      MATTERS AND ISSUER PURCHASES OF EQUITY
  SECURITIES





Market
Information





Our
common stock is traded on the Nasdaq Global Market under the symbol VRTA and
began trading on June 1, 2006.  The price per share of common stock
presented below represents the highest and lowest sales price for our common
stock on the Nasdaq Global Market during each quarter since it began
trading.






- 22
-
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2007
            
            High
            
            
            LowFirst
      Quarter
            
            $
            6.00
            
            
            $
            4.99Second
      Quarter
            
            $
            5.99
            
            
            $
            5.25Third
      Quarter
            
            $
            5.95
            
            
            $
            5.00Fourth
      Quarter
            
            $
            5.60
            
            
            $
            4.45





2006
            
            High
            
            
            LowFirst
      Quarter
            
            $
            N/A
            
            
            $
            N/ASecond
      Quarter
            
            $
            6.43
            
            
            $
            1.01Third
      Quarter
            
            $
            7.48
            
            
            $
            4.97Fourth
      Quarter
            
            $
            6.49
            
            
            $
            4.75





On
December 11, 2007, our board of directors declared a cash dividend of $0.06 per
common share for the month of December 2007, which was paid on January 29, 2008
to stockholders of record as of December 31, 2007.





On
January 16, 2008, our board of directors declared a cash dividend of $0.041 per
common share for the month of January 2008, payable on February 28, 2008 to
stockholders of record as of February 8, 2008.





On
February 21, 2008, our board of directors declared a cash dividend of $0.041 per
common share for the month of February 2008, payable on March 28, 2008 to
stockholders of record as of March 7, 2008.





On March
10, 2008, the common stock closed at $3.95 per share.





Holders





As of
March 10, 2008, there were approximately 495 holders of record of 6,874,109
shares of our common stock.





Dividend
Policy





In order
to maintain its qualification as a REIT under the Code, we are required to
distribute (within a certain period after the end of each year) at least 90% of
our REIT taxable income for such year (determined without regard to the
distributions made deduction and by excluding net capital gain).  We
currently intend, to the extent practicable, to distribute substantially all of
our REIT taxable income and net capital gain each year.  We may
distribute an amount in excess of our REIT taxable income, which amount will be
treated as a return of capital to the stockholder.  We anticipate that
distributions generally will be paid from cash available for distribution
(generally equal to cash from operations other than repayments of mortgage loan
principal less an amount set aside for creation or restoration of reserves
during the quarter).  However, the actual amount and timing of the
dividends will be as determined and declared by our board of directors and will
depend on our financial condition, earnings and other factors.  In
August 2006, our board of directors voted to authorize a Dividend Declaration
Policy that allows, at the Company’s discretion, for dividends to be declared
monthly instead of quarterly.  Dividends declared per share for the
year ended December 31, 2007 and dividends declared par share / cash
distributions per membership unit for the twelve months ended December 31, 2006
are listed below:






- 23
-
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Date
      of Declaration
            Record
      Date
            Date
      Paid
            
            Dividend
      Per ShareMarch
      21, 2007
            April
      9, 2007
            April
      26, 2007
            
            $
            0.15April
      19, 2007
            May
      9, 2007
            May
      30, 2007
            
            
            0.05May
      14, 2007
            June
      7, 2007
            June
      26, 2007
            
            
            0.05June
      7, 2007
            July
      9, 2007
            July
      26, 2007
            
            
            0.05July
      23, 2007
            August
      9, 2007
            August
      30, 2007
            
            
            0.05August
      20, 2007
            September
      10, 2007
            September
      28, 2007
            
            
            0.05September
      19, 2007
            October
      10, 2007
            October
      30, 2007
            
            
            0.05October
      16, 2007
            November
      9, 2007
            November
      29, 2007
            
            
            0.05November
      15, 2007
            December
      3, 2007
            December
      28, 2007
            
            
            0.05December
      11, 2007
            December
      31, 2007
            January
      29, 2008
            
            
            0.06Dividends
      declared per common share for year ended December 31, 2007
            
            $
            0.58








Distributions
      During:
            
            Cash
      Distribution to Members Per Membership UnitJanuary
      2006
            
            $
            0.06February
      2006
            
            
            0.05March
      2006
            
            
            0.05April
      2006
            
            
            0.10Cash
      distributions per membership unit for the four months ended April 30,
      2006
            
            $
            0.26Date
      of Declaration
            Record
      Date
            Date
      Paid
            
            Dividend
      Per ShareJuly
      27, 2006
            August
      7, 2006
            August
      21, 2006
            
            $
            0.08October
      24, 2006
            November
      13, 2006
            November
      29, 2026
            
            
            0.15December
      18, 2006
            December
      31, 2006
            January
      26, 2007
            
            
            0.15Total
      dividends declared during the nine months ended December 31,
      2006
            
            $
            0.38Dividends
      declared per common share / cash distributions to members per membership
      unit for the twelve months ended December 31, 2006
            
            $
            0.64





Performance
Graph





The
following graph, provided by Research Data Group, Inc., compares the cumulative
total return to stockholders of our common stock for the period from June 1,
2006, the date our stock began trading to December 31, 2007 under the symbol
VRTA, to the cumulative total return of the Nasdaq Composite Index (U.S.) and
the NAREIT Mortgage Index for the same period. This graph assumes the investment
of $100.00 on June 1, 2006 in our common stock, the Nasdaq Composite Index
(U.S.) and NAREIT Mortgage Index (published by the National Association of
REITs) and assumes any dividends are reinvested.





- 24
-
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06/01/06
            
            
            06/30/06
            
            
            09/30/06
            
            
            12/31/06
            
            
            03/31/07
            
            
            06/30/07
            
            
            09/30/07
            
            
            12/31/07Vestin
      Realty Mortgage I, Inc.
            
            $
            100.00
            
            
            $
            108.10
            
            
            $
            125.25
            
            
            $
            108.23
            
            
            $
            122.19
            
            
            $
            124.09
            
            
            $
            122.81
            
            
            $
            108.55NASDAQ
      Composite
            
            $
            100.00
            
            
            $
            99.71
            
            
            $
            103.99
            
            
            $
            111.84
            
            
            $
            112.17
            
            
            $
            120.21
            
            
            $
            125.24
            
            
            $
            122.19NAREIT
      Mortgage
            
            $
            100.00
            
            
            $
            103.42
            
            
            $
            103.35
            
            
            $
            110.33
            
            
            $
            94.59
            
            
            $
            88.30
            
            
            $
            63.44
            
            
            $
            63.61





Recent Sales of Unregistered
Securities





None.





Equity Compensation Plan
Information





None.





Purchases of Equity
Securities by the Issuer and Affiliated Purchasers





- 25
-
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On
February 21, 2008, our board of directors authorized the repurchase of up to $5
million worth of the company’s common stock.  Depending upon market
conditions, shares may be repurchased from time to time at prevailing market
prices through open market or privately negotiated transactions.





We are
not obligated to purchase any shares.  Subject to applicable
securities laws, including SEC Rule 10b-18, repurchases may be made at such
times and in such amounts, as our management deems appropriate.  The
share repurchase program may be discontinued or terminated at any time and we
have not established a date for completion of the share repurchase
program.  The repurchases will be funded from our available
cash.





ITEM
6.                      SELECTED FINANCIAL DATA




Balance
      atVestin
      Realty Mortgage I, Inc.
              
              12/31/2007
              
              
              12/31/2006
              
              
              12/31/2005
              
              
              12/31/2004
              
              
              6/30/2005
              
              
              6/30/2004(Unaudited)Balance
      Sheet Data:Investments
      in real estate loans (net of allowance)
              
              $
              47,716,000
              
              
              $
              48,631,000
              
              
              $
              51,309,000
              
              
              $
              41,027,000
              
              
              $
              54,878,000
              
              
              $
              47,344,000Cash
      and marketable securities – related party
              
              $
              8,751,000
              
              
              $
              3,626,000
              
              
              $
              9,904,000
              
              
              $
              20,510,000
              
              
              $
              3,162,000
              
              
              $
              10,130,000Real
      estate held for sale
              
              $
              3,505,000
              
              
              $
              3,689,000
              
              
              $
              2,497,000
              
              
              $
              11,645,000
              
              
              $
              7,757,000
              
              
              $
              15,287,000Real
      estate held for sale-seller financed
              
              $
              --
              
              
              $
              7,911,000
              
              
              $
              8,797,000
              
              
              $
              10,802,000
              
              
              $
              10,374,000
              
              
              $
              10,801,000Assets
      under secured borrowing
              
              $
              --
              
              
              $
              310,000
              
              
              $
              2,719,000
              
              
              $
              3,177,000
              
              
              $
              11,391,000
              
              
              $
              6,134,000Total
      assets
              
              $
              61,211,000
              
              
              $
              65,332,000
              
              
              $
              76,724,000
              
              
              $
              87,882,000
              
              
              $
              88,363,000
              
              
              $
              91,142,000Total
      liabilities
              
              $
              993,000
              
              
              $
              2,993,000
              
              
              $
              4,404,000
              
              
              $
              5,886,000
              
              
              $
              15,092,000
              
              
              $
              8,864,000Stockholder's
      equity
              
              $
              60,218,000
              
              
              $
              62,339,000
              
              
              $
              --
              
              
              $
              --
              
              
              $
              --
              
              
              $
              --Members’
      equity
              
              $
              --
              
              
              $
              --
              
              
              $
              72,320,000
              
              
              $
              81,996,000
              
              
              $
              73,271,000
              
              
              $
              82,278,000
 
 
 For
      the Year Ended
              
              
              For
      the Twelve Months Ended
              
              
              For
      the Six
                Months
      Ended
              
              
              For
      the Six
                Months
      Ended
              
              
              For
      the Nine Month Transition Period Ended
              
              
              For
      the Year Ended12/31/2007
              
              
              12/31/2006
              
              
              12/31/2005
              
              
              12/31/2004
              
              
              6/30/2005
              
              
              9/30/2004(Unaudited)Income
      Statement Data:Revenues
              
              $
              4,857,000
              
              
              $
              4,615,000
              
              
              $
              3,050,000
              
              
              $
              3,030,000
              
              
              $
              4,883,000
              
              
              $
              7,891,000Operating
      expenses
              
              
              3,210,000
              
              
              
              4,596,000
              
              
              
              492,000
              
              
              
              758,000
              
              
              
              2,562,000
              
              
              
              2,504,000Operating
      income
              
              
              1,647,000
              
              
              
              19,000
              
              
              
              2,558,000
              
              
              
              2,272,000
              
              
              
              2,321,000
              
              
              
              5,387,000Non-operating
      income
              
              
              440,000
              
              
              
              348,000
              
              
              
              89,000
              
              
              
              52,000
              
              
              
              114,000
              
              
              
              108,000Income
      (loss) from real estate held for sale
              
              
              723,000
              
              
              
              220,000
              
              
              
              419,000
              
              
              
              (95,000
              )
              
              
              (1,307,000
              )
              
              
              3,072,000Net
      income
              
              $
              2,810,000
              
              
              $
              587,000
              
              
              $
              3,066,000
              
              
              $
              2,229,000
              
              
              $
              1,128,000
              
              
              $
              8,567,000Income
      from operations per common share / membership unit
              
              $
              0.24
              
              
              $
              0.00
              
              
              $
              0.33
              
              
              $
              0.27
              
              
              $
              0.29
              
              
              $
              0.62Basic
      and diluted earnings per common share / membership unit
              
              $
              0.41
              
              
              $
              0.09
              
              
              $
              0.40
              
              
              $
              0.27
              
              
              $
              0.14
              
              
              $
              0.99Cash
      dividends declared per common share / cash distributions per membership
      unit
              
              $
              0.58
              
              
              $
              0.64
              
              
              $
              0.30
              
              
              $
              0.32
              
              
              $
              0.47
              
              
              $
              0.59Weighted
      average common shares / membership units
              
              
              6,871,671
              
              
              
              6,882,809
              
              
              
              7,668,098
              
              
              
              8,334,448
              
              
              
              7,919,977
              
              
              
              8,653,998






- 26
-
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The
information in this table should be read in conjunction with the accompanying
audited consolidated financial statements and notes to the consolidated
financial statements included elsewhere in this document.





ITEM
      7.
            MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS





The
following is a financial review and analysis of our financial condition and
results of operations for the year ended December 31, 2007, the twelve months
ended December 31, 2006, the six months ended December 31, 2005 and 2004 and the
fiscal year ended June 30, 2005.  This discussion should be read in
conjunction with our financial statements and accompanying notes and other
detailed information regarding us appearing elsewhere in this report on Form
10-K and our reports on Form 10-Q, Part I, Item 2 Management’s Discussion and Analysis
of Financial Conditions and Results of Operations for the quarters ended
March 31, 2007, June 30, 2007 and September 30, 2007.





FORWARD-LOOKING
STATEMENTS





Certain
statements in this report, including, without limitation, matters discussed
under this Item 7, “Management’s Discussion and Analysis of Financial Condition
and Results of Operations,” should be read in conjunction with the consolidated
financial statements, related notes, and other detailed information included
elsewhere in this report on Form 10-K.  We are including this
cautionary statement to make applicable and take advantage of the safe harbor
provisions of the Private Securities Litigation Reform Act of
1995.  Statements that are not historical fact are forward-looking
statements.  Certain of these forward-looking statements can be
identified by the use of words such as “believes,” “anticipates,” “expects,”
“intends,” “plans,” “projects,” “estimates,” “assumes,” “may,” “should,” “will,”
or other similar expressions.  Such forward-looking statements involve
known and unknown risks, uncertainties and other important factors, which could
cause actual results, performance or achievements to differ materially from
future results, performance or achievements.  These forward-looking
statements are based on our current beliefs, intentions and
expectations.  These statements are not guarantees or indicative of
future performance.  Important assumptions and other important factors
that could cause actual results to differ materially from those forward-looking
statements include, but are not limited to, those factors, risks and
uncertainties described in Part I Item 1A Risk Factors of this Annual
Report on Form 10-K and in our other securities filings with the Securities and
Exchange Commission (“SEC”).  Our future financial condition and
results of operations, as well as any forward-looking statements, are subject to
change and involve inherent risks and uncertainties.  The
forward-looking statements contained in this report are made only as of the date
hereof.  We undertake no obligation to update or revise information
contained herein to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.





RESULTS
OF OPERATIONS





OVERVIEW





Our
primary business objective is to generate income while preserving principal by
investing in real estate loans.  We believe there is a significant
market opportunity to make real estate loans to owners and developers of real
property whose financing needs are not met by other real estate
lenders.  The loan underwriting standards utilized by our manager and
Vestin Originations are less strict than those used by many institutional real
estate lenders.  In addition, one of our competitive advantages is our
ability to approve loan applications more quickly than many institutional
lenders.  As a result, in certain cases, we may make real estate loans
that are riskier than real estate loans made by many institutional lenders such
as commercial banks.  However, in return, we seek a higher
interestrate and our manager takes steps to mitigate the lending risks such as
imposing a lower loan-to-value ratio.  While we may assume more risk
than many institutional real estate lenders, in return, we seek to generate
higher yields from our real estate loans.





- 27
-
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Our
operating results are affected primarily by: (i) the amount of capital we have
to invest in real estate loans, (ii) the level of real estate lending activity
in the markets we service, (iii) our ability to identify and work with suitable
borrowers, (iv) the interest rates we are able to charge on our loans and (v)
the level of non-performing assets, foreclosures and related loan losses which
we may experience.  Our capital, subject to a 3% reserve, will
constitute the bulk of the funds we have available for investment in real estate
loans.  We do not have any arrangements in place to materially
increase the funds we will have available to invest from any other
sources.  See discussion under – “Capital and Liquidity.”





Our
operating results during the past several years have been adversely affected by
increases in allowances for loan losses.  At December 31, 2007, the
following loans were non-performing (based on current information and events, it
is probable that we will be unable to collect all amounts due according to the
contractual terms of the loan agreement or when the payment of interest is 90
days past due); RightStar, Inc. (Part I & Part II), Monterrey Associates LP,
Forest Development LLC, Pirates Lake, Ltd, Jeffrey's Court, LLC, V & M Homes
at the Palms, Inc. and Brawley CA 122, LLC.  These loans are currently
carried on our books at a value of approximately $11.3 million, net of allowance
for loan losses of approximately $5.6 million, which does not include the
allowances of approximately $0.4 million relating to the decrease in the
property value for performing loans as of December 31, 2007.  These
loans have been placed on non-accrual of interest status and are the subject of
pending foreclosure proceedings.  On February 5, 2008, we, VRM II and
Fund III foreclosed upon Pirates Lake, Ltd. and classified it as real estate
held for sale.  On March 7, 2008, we, VRM II and Fund III foreclosed
upon Forest Development LLC and classified it as real estate held for
sale.  For additional information, see “Specific Loan Allowance” in
Note D – Investments In Real
Estate Loans of the Notes to the Consolidated Financial Statements
included in Part II, Item 8 Financial Statements and
Supplementary Data of this Annual Report on Form 10-K.





Non-performing
assets, net of allowance for loan losses, totaled approximately $14.8 million or
24% of our total assets as of December 31, 2007, as compared to approximately
$11.8 million or 18% of our total assets as of December 31, 2006.  At
December 31, 2007, non-performing assets consisted of approximately $3.5 million
of real estate held for sale and approximately $11.3 million of non-performing
loans, net of allowance for loan losses.  In addition, during the year
ended December 31, 2007, our manager evaluated the carrying value of real estate
acquired through foreclosure located in Cathedral City,
California.  Based on our manager’s estimate, we have written down the
value of the property by approximately $0.2 million.  We also
recognized expenses related to real estate held for sale for this property of
approximately $0.4 million.





The level
of our non-performing assets may reflect the continuing weakness in certain
sectors of the economy and the risk inherent in our business strategy that
entails more lenient underwriting standards and expedited loan approval
procedures.  As the economy weakens and our borrowers who develop and
sell commercial real estate projects are unable to complete their projects or
obtain takeout financing or are otherwise adversely impacted, we may experience
an increase in loan defaults, which may reduce the amount of funds we have to
pay dividends to our stockholders.  Such conditions may also require
us to restructure loans.  The weighted average term of our outstanding
loans, including extensions and loans related to real estate held for sale –
seller financed, was 19 months as of both December 31, 2007 and
2006.





A
recession or uncertain economic conditions during the next year could have a
material impact on the collectibility of our loans.  The downturn in
the real estate markets where we conduct business might increase defaults on our
loans and might require us to record additional reserves.  The
problems experienced by some lenders in the sub-prime market may have a material
adverse affect on the commercial mortgage markets in which we
operate.  We are aware that weakness in the credit markets has had an
adverse impact upon our markets.  In addition, we are aware that
weakness in residential lending has had and may continue to have an adverse
impact upon our markets.  Recognizing the risk, we seek to maintain an
adequate loan-to-value ratio, which, as of December 31, 2007, was 80.97%, prior
to allowances for loan losses, on a weighted average basis generally using
appraisals prepared on an “as-if developed basis” in connection with the loan
origination.





- 28
-
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The
increase in the weighted average loan-to-value ratio, prior to allowances for
loan losses, from 71.35%, as of December 31, 2006, to 80.97%, as of December 31,
2007, is primarily due to nine loans that were funded during the year ended
December 31, 2007, totaling approximately $8.5 million, with loan-to-value
ratios ranging from 72.32% to 78.10%.  The majority of these loans
were to repeat borrowers with a history of good standing with us.  The
original terms of these loans were 12 months.  In addition, during the
year ended December 31, 2007, we VRM II and Fund III conducted updated
appraisals on a number of properties securing our loans, representing
approximately 71% of our loan portfolio, and concluded that the estimated value
of such properties should be reduced by approximately $22.9
million.  Our share of this reduction was approximately $3.0 million,
which has adversely impacted our weighted average loan to value
ratio.  We hope to retain sufficient cushion in the underlying equity
position to protect the value of our loans in the event of a
default.  Nevertheless, no assurances can be given that a marked
increase in loan defaults accompanied by a rapid decline in real estate values
will not have a material adverse effect upon our financial condition and
operating results.





During
the year ended December 31, 2007, we provided a specific reserve allowance for
two non-performing loans and two performing loans based on updated appraisals of
the underlying collateral and our evaluation of the borrower for these loans,
obtained by our manager during the year.  For further information
regarding allowance for loan losses, refer to Note D – Investments in Real Estate
Loans in the notes to our consolidated financials statements in Part II,
Item 8 Financial Statements
and Supplementary Data of this Annual Report on Form 10-K.





From time
to time, we may acquire or sell investments in real estate loans from/to our
manager or other related parties pursuant to the terms of our Management
Agreement without a premium.  No gain or loss is recorded on these
transactions, as it is not our intent to make a profit on the purchase or sale
of such investments.  The purpose is generally to diversify our
portfolio by syndicating loans, thereby providing us with additional capital to
make additional loans.  For further information regarding related
party transactions, refer to Note H – Related Party Transactions in
the notes to our consolidated financials statements in Part II, Item 8 Financial Statements and
Supplementary Data of this Annual Report on Form 10-K.





As of
December 31, 2007, our loans were in the following states: Arizona, California,
Hawaii, Nevada, New York, Oklahoma, Oregon, Texas and Washington.





The
Year Ended December 31, 2007





Total
Revenues:  For the year ended December 31, 2007, total revenues
increased by approximately $242,000 or 5.2% compared to the same period in 2006,
due in significant part to the following factors:





·
            During
      the year ended December 31, 2007, we earned approximately $0.3 million
      from principal payments on notes receivable that were fully reserved
      compared to $15,000 earned during the same period in
  2006.





·
            Interest
      income from investment in real estate loans totaled approximately $4.4
      million during the year ended December 31, 2007, compared to approximately
      $4.6 million during the same period in 2006.  This decrease was
      primarily due to the increase in non-performing loans to approximately
      $16.9 million as of December 31, 2007 compared to approximately $12.7
      million as of December 31, 2006.  For additional information see
      Note D – Investment Real
      Estate Loans of the Notes to the Consolidated Financial Statements
      included in Part II, Item 8 Financial Statement and
      Supplementary Data of this Report Form
  10-K.





Total Operating
Expenses:  For the year ended December 31, 2007, total
operating expenses were approximately $3.2 million compared to approximately
$4.6 during the twelve months ended December 31, 2006, a decrease of
approximately $1.4 million or 30.2%.  Expenses were primarily affected
by the following factors:





·
            Our
      operating expenses are impacted materially by the recognition of loan
      losses.  During the year ended December 31, 2007, we recognized
      provisions for loan losses of approximately $1.3 million related to the
      following; a performing land loan for property located in Glendale,
      Arizona, a performing commercial loan on a 100 unit condominium/apartment
      project in North Las Vegas, Nevada, a non-performing loan secured by
      various real estate collateral, including a 248 unit apartment complex in
      Oklahoma City, Oklahoma, and a non-performing loan secured by 25 acres for
      proposed 122 single-family subdivision in Brawley,
      California.  During the twelve months ended December 31, 2006,
      we recognized a provision for loan loss of $3.0 million related to the
      loans secured by 4 cemeteries and 8 mortuaries in Hawaii.  See
      “Specific Loan Allowance” in Note D – Investments In Real Estate
      Loans of the Notes to the Consolidated Financial Statements
      included in Part II, Item 8 Financial Statement and
      Supplementary Data of this Report Form
  10-K.





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·
            Professional
      fees increased approximately $0.3 million during the year ended December
      31, 2007, compared to the same period in 2006, primarily due to the
      accrual of approximately $0.3 million in legal fees relating to the legal
      actions that have been filed against us in connection with the REIT
      conversion and RightStar.  See Note N – Legal Matters Involving The
      Company ofthe Notes to the
      Consolidated Financial Statements included in Part II, Item 8 Financial Statement and
      Supplementary Data of this Report Form
  10-K.





Non-operating
income:  For the year ended December 31, 2007, total income for
other non-operating income totaled approximately $0.4 million, primarily
consisting of approximately $0.3 million in dividend income from a related party
and approximately $0.1 million in bank interest income.





Total Income from Real Estate Held
for Sale:  For the year ended December 31, 2007, total income
from real estate held for sale was approximately $0.7 million compared to
approximately $0.2 million during the same period in 2006.  The total
income was primarily due to the following factors:





·
            We
      recorded a gain on sale of real estate held for sale related to seller
      financed loans of approximately $1.3 million during the year ended
      December 31, 2007 compared to approximately $0.2 million during the same
      period in 2006, as a result of a seller financed loan being paid in
      full.





·
            During
      the year ended December 31, 2007, our manager evaluated the carrying value
      and estimated liabilities associated with real estate owned located in
      Cathedral City, CA.  Based on these estimates, our write downs
      on real estate held for sale for this property totaled approximately $0.2
      million. We also recognized expenses related to real estate held for sale
      for this property which totaled approximately $0.4 million for the year
      ended December 31, 2007.





Dividends to Stockholders; Reliance
on Non-GAAP Financial Measurements:  To maintain our status as
a REIT, we are required to make distributions, other than capital gain
dividends, to our stockholders each year in an amount at least equal to (1) the
sum of (a) 90% of our taxable income, computed without regard to the dividends
paid deduction and our net capital gain, and (b) 90% of the net income, after
tax, from foreclosure property, minus (2) the sum of certain specified items of
noncash income over 5% of our REIT taxable income, determined without regard to
the dividends paid and our net capital gain.  Because we expect to
make distributions based on these requirements, and not based on our earnings
computed in accordance with GAAP, we expect that our distributions may at times
be more or less than our reported earnings as computed in accordance with
GAAP.





Total
taxable income and REIT taxable income are non-GAAP financial measurements, and
do not purport to be an alternative to reported net income or cash flow from
operations determined in accordance with GAAP as a measure of operating
performance.  Our total taxable income represents the aggregate amount
of taxable income generated by us and our wholly owned taxable REIT subsidiary,
TRS I, Inc.  REIT taxable income is calculated under U.S. federal tax
laws in a manner that, in certain respects, differs from the calculation of net
income pursuant to GAAP.  REIT taxable income excludes the
undistributed taxable income of TRS I, Inc., which is not included in REIT
taxable income until distributed to us.  Subject to certain TRS value
limitations, there is no requirement that the TRS I, Inc. distribute their
earnings to us.  Since we are structured as a REIT and the Internal
Revenue Code requires that we distribute substantially all of our net taxable
income in the form of distributions to our stockholders, we believe that
presenting investors with the information management uses to calculate our
taxable income is useful to investors in understanding the amount of the minimum
distributions that we must make to our stockholders so as to comply with the
rules set forth in the Internal Revenue Code.  Because not all
companies have identical calculations, this presentation of total taxable income
and REIT taxable income may not be comparable to those and reported by other
companies.





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In
addition to satisfying the 90% taxable income distribution rule referred to
above, the amount of distribution we make is ultimately based on distributing
100% of the REIT taxable income in order to limit any tax
liability.  The distribution of this additional 10% of REIT taxable
income is typically made in the following tax year as IRC section 858 allows us
to carryback distributions made, for example, in 2007 to 2006, for the purposes
of zeroing out our REIT taxable income.  As a result, included in the
$4.0 million in distributions made during the year ended December 31, 2007 is
approximately $0.4 million that was used to zero out our 2006 REIT taxable
income.





The table
below reconciles the differences between reported net income and total estimated
taxable income and estimated REIT taxable income for the year ended December 31,
2007:





For
      the Year EndedDecember
      31, 2007Net
      income, as reported
            
            $
            2,810,000Add
      (deduct):Provision
      for loan losses
            
            
            1,336,000Gain
      on sale of real estate held for sale-seller financed
            
            
            (1,265,000
            )Capitalization
      of REO expenditures on a tax basis
            
            
            294,000Write
      down on real estate held for sale
            
            
            184,000Provision
      for doubtful accounts related to receivable
            
            
            86,000Recovery
      of allowance for doubtful notes receivable
            
            
            (281,000
            )Accrued
      legal reserve
            
            
            242,000Other
      book to tax differences
            
            
            319,000Total
      estimated taxable income
            
            
            3,725,000Less:
      Estimated taxable income attributable to TRS I, Inc.
            
            
            (55,000
            )Estimated
      REIT taxable income (prior to deductions for dividends
    paid)
            
            $
            3,670,000





The
Twelve Months Ended December 31, 2006





Total
Revenues:  For the twelve months ended December 31, 2006, total
revenues were approximately $4.6 million due in significant part to the
following factors:





·
            We
      recognized interest income from investments in real estate loans of
      approximately $4.6 million.  Our revenue is dependent upon the
      balance of our investment in real estate loans and the interest earned on
      these loans.  As of December 31, 2006, our investment in real
      estate loans was approximately $60.7 million with a weighted average
      interest rate of 10.85%.  As of December 31, 2005, our
      investment in real estate loans, including loans related to real estate
      held for sale – seller financed, was approximately $61.6 million with a
      weighted average interest rate of 10.04%.  The amount we have to
      invest in real estate loans is attributable to the capital we have
      available.





In
addition, our interest income is affected by the performances of our
loans.  During the twelve months ended December 31, 2006, four loans
totaling approximately $7.0 million became non-performing.  One of the
non-performing loans, with a balance of approximately $3.7 million was
foreclosed upon and reclassified to real estate held for sale.





Total Operating
Expenses:  For the twelve months ended December 31, 2006, total
operating expenses were approximately $4.6 million.  Expenses were
primarily affected by the following factors:





·
            Recognition
      of provisions for loan loss of approximately $3.0 million related to the
      loans secured by 4 cemeteries and 8 mortuaries in
  Hawaii.





·
            We
      recognized a provision for doubtful receivable relating to a note
      receivable in default of approximately $0.2 million during the twelve
      months ended December 31, 2006.





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·
            Included
      in other expenses are expenses totaling approximately $0.2 million related
      to the liability insurance for our directors and officers and expenses
      relating to investor services for the twelve months ended December 31,
      2006.





Non-operating
income:  For the twelve months ended December 31, 2006, income
from other non-operating activities totaled approximately $0.3 million,
consisting of approximately $0.2 million in bank interest income and
approximately $0.1 million in dividend income from marketable securities –
related party.





Total Income (Loss) from Real Estate
Held for Sale:  For the twelve months ended December 31, 2006,
total income from real estate held for sale was approximately $0.2
million.





·
            We
      recorded a gain on sale of real estate held for sale of approximately $0.2
      million from the recognition of approximately $1.1 million of deposit
      liabilities received from a seller financed loan during the twelve months
      ended December 31, 2006.  As of December 31, 2006, we had
      approximately $7.9 million in real estate held for sale – seller
      financed.  Upon the sale of real estate held for sale, where we
      provide the financing, GAAP requires the new borrower to have a certain
      percentage equity ownership (ranging from 10% to 25%) to allow us to
      record the sale of property.  In addition, the borrower must
      maintain a minimum commitment in the property on a continuing
      basis.  Therefore, until the borrower meets these requirements,
      the proceeds received from the borrower are recorded as a deposit
      liability or applied to the balance in the real estate held for sale –
      seller finance, depending on the guidelines established by
      GAAP.  Our revenues will continue to be impacted until we are
      able to convert these assets into investment in real estate loans or the
      loans are paid in full and we reinvest the proceeds into new
      loans.  As of December 31, 2006, we had approximately $1.3
      million in deposit liability.





·
            During
      July 2006, we and VRM II sold the land containing residential lots in
      Henderson, NV, for approximately $3.8 million, of which we received
      approximately $2.5 million which resulted in a gain of
      $41,000.





Dividends:  To
maintain our status as a REIT, we are required to make distributions, other than
capital gain dividends, to our stockholders each year in an amount at least
equal to (1) the sum of (a) 90% of our taxable income, computed without regards
to the dividends paid deduction and our net capital gain, and (b) 90% of the net
income, after tax, from foreclosure property, minus (2) the sum of certain
specified items of non-cash income over 5% of our REIT taxable
income.  During the twelve months ended December 31, 2006 we declared
dividends to our stockholders of approximately $2.6 million.





Distributions to
Members:  We distributed to Fund I’s members approximately $1.7
million, net of reinvestments, during the four months ended April 30,
2006.





The
Six Months Ended December 31, 2005 Compared to Six Months Ended December 31,
2004





Revenues:  Revenues
for the six months ended December 31, 2005 and 2004 were consistent with each
other.  Included in other income for the six months ended December 31,
2005 was a title insurance settlement received in the amount of
$272,000.





Total Operating
Expenses:For the six months ended December 31, 2005 and 2004,
total expenses were approximately $0.5 million and $0.8 million, respectively,
representing a decrease of approximately $0.3 million or
35.1%.  Operating expenses were affected by the decrease in interest
expense of approximately $0.3 million due to the decrease in secured borrowing
for the six months ended December 31, 2005 compared to the same period in 2004,
approximately $2.7 million and $3.2 million, respectively.





Total Income (Losses) from Real
Estate Held for Sale: For the six months ended December 31, 2005 and
2004, total income/(loss) from real estate held for sale was approximately $0.4
million and a loss of approximately $0.1 million,
respectively.  Income (loss) from real estate held for sale was
primarily affected by the following factors:





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·
            Gains
      on sale of real estate held for sale related to seller financed loans,
      which were paid during the six months ended December 31, 2005 were
      approximately $0.5 million.





·
            During
      the six months ended December 31, 2004, we recorded a gain on sale of real
      estate held for sale relating to raw land in Mesquite,
      Nevada.  The transaction resulted in a gain of approximately $1
      million.  This gain was offset by a loss on sale of real estate
      held for sale of approximately $0.5 million.  During the six
      months ended December 31, 2005, we recorded a gain of $24,000 related to
      the sale of 460 acre residential subdivision in Lake Travis,
      Texas.





·
            During
      the six months ended December 31, 2004, we recorded approximately $0.3
      million in write downs on real estate held for sales as a result of a
      reassessment of the value of two of our real estate properties based on
      purchase offers received.  We incurred no write downs during the
      same period in 2005.





·
            Expenses
      related to real estate held for sale decreased by approximately $0.3
      million due to the decrease in the balance of real estate held for sale at
      December 31, 2004 of approximately $11.6 million compared to $2.5 million
      at December 31, 2005.





As of
December 31, 2005 and 2004, we had approximately $8.8 million and $10.8 million,
respectively, in real estate held for sale-seller financed.  As of
December 31, 2005 and 2004, we had approximately $0.7 million and $0.8 million,
respectively, in deposit liability.





Annualized Rate of Return to
Members.  For the six months ended December 31, 2005 and 2004,
the annualized rate of return to members, as calculated in accordance with GAAP,
was 7.93% and 5.31%, respectively





Distributions to
Members.  The following is a schedule of distributions made to
members for the six months ended December 31, 2005 and 2004.




For
      the Six
                Months
      Ended
                December
      31, 2005
              
              
              For
      the Six
                Months
      Ended
                December
      31, 2004(Unaudited)Distributions
      of Net Income Available for Distribution
              
              $
              2,306,000
              
              
              $
              2,521,000Distributions
      in Excess of Net Income Available for a Distribution Generated During the
      Period
              
              
              --
              
              
              
              122,000Total
      Distributions
              
              $
              2,306,000
              
              
              $
              2,643,000


Net
Income Available for Distributions is a non-GAAP financial measure that is
defined in the operating agreement which governed Fund I as cash flows from
operations, less certain reserves, and may exceed net income as calculated in
accordance with GAAP.  We have presented net income available for
distribution because management believes this financial measure is useful and
important to members as net income available for distribution is the minimum
amount required to be distributed to members pursuant to our operating
agreement.  Although we generally do not plan to make distributions in
excess of net income available for distribution, we may do so from time to
time.  Any such distribution will be treated as a return of capital
for income tax purposes.  In addition, cash flows from operations,
which are the significant component of net income available for distribution,
affect the capital available for investment in new loans.  This
non-GAAP financial measure should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with GAAP or as an
alternative to cash flows from operating activities as a measure of our
liquidity.  We compensate for these limitations by relying primarily
on our GAAP results and using net income available for distribution only
supplementally.





The most
directly comparable GAAP measure to net income available for distribution is
cash flows from operating activities.  The following table reconciles
net income available for distribution to cash flows from operating activities
and presents the two other major categories of our statement of cash
flows:





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For
      the Six
              Months
      Ended
              December
      31, 2005
            
            
            For
      the Six
              Months
      Ended
              December
      31, 2004Distribution
      of Net Income Available for Distribution
            
            $
            2,306,000
            
            
            $
            2,521,000Additions
      to Working Capital Reserves (Amount Not Distributed)
            
            
            752,000
            
            
            
            --Gain
      on Sale of Marketable Securities
            
            
            (46,000
            )
            
            
            --Gain
      on Real Estate Held for Sale
            
            
            (519,000
            )
            
            
            (1,049,000
            )Loss
      on Sale of Real Estate Held for Sale
            
            
            --
            
            
            
            474,000Change
      in Operating Assets and Liabilities:Net
      Change in Amounts Due to Manager
            
            
            (1,170,000
            )
            
            
            288,000Net
      Change in Amounts Due to Fund II
            
            
            (1,560,000
            )
            
            
            2,062,000Net
      Change in Other Operating Assets
            
            
            (54,000
            )
            
            
            664,000Net
      Change in Accounts Payable and Accrued Liabilities
            
            
            (339,000
            )
            
            
            (7,000
            )Net
      Change in Amounts Due to Related Parties
            
            
            (8,000
            )
            
            
            (170,000
            )Net
      Cash Provided (Used) by Operating Activities
            
            $
            (638,000
            )
            
            $
            4,783,000Net
      Cash Provided by Investing Activities
            
            $
            8,800,000
            
            
            $
            14,164,000Net
      Cash Used in Financing Activities
            
            $
            (3,140,000
            )
            
            $
            (5,308,000
            )





Nine
month transition period ended June 30, 2005 compared to the nine months ended
June 30, 2004 (Unaudited)





Total
Revenues.  For the nine month transition period ended June 30,
2005, revenues totaled approximately $4.9 million compared to approximately $6.1
million for the nine months ended June 30, 2004, a decrease of approximately
$1.2 million or 20%.





·
            During
      the nine months ended June 30, 2004, we recognized approximately $4.7
      million of a finder’s fee as revenue related to the sale of real estate in
      the City of Mesquite, Nevada.  We and Fund II were presented
      with an opportunity to purchase the property but were prohibited by their
      respective operating agreements from purchasing the
      property.  Instead, our manager facilitated the purchase and
      subsequent sale of the property.  The subsequent sale of the
      property was made possible due to buyer financing provided by our company
      and Fund II.  Our manager directed that the buyer (an
      unaffiliated third party) pay a finder’s fee in the form of a promissory
      note to our company for approximately $4.7 million and a $2.3 million
      promissory note to Fund II to reflect the fact that the transaction was
      made possible by financing provided by our company and Fund
      II.  We received a promissory note in lieu of cash from an
      unaffiliated party in connection with the sale.  The note
      required monthly interest payments at a rate of 8.5% per annum and had an
      original maturity date of June 13, 2005.  In addition, we loaned
      approximately $0.9 million to the unaffiliated party and received a
      promissory note with an original maturity date of June 13, 2004 in
      connection with the sale.  We were using the cost recovery
      method of accounting for the transaction.  We did not loan any
      money to the unaffiliated party with respect to the $4.7
      million.  We had no such revenue in the nine months ended June
      30, 2005.





·
            Revenues
      for the nine month transition period ended June 30, 2005 included other
      income of $0.7 million, compared to $0.4 million, for the nine months
      ended June 30, 2004.  The increase in other income is primarily
      related to an increase in late fees received on our investments in real
      estate loans of approximately $0.4 million and bank interest revenue of
      $0.1 million.





·
            Approximately
      $1.3 million of our interest revenue for the nine month transition period
      ended June 30, 2005 was derived from interest reserves compared to
      interest revenue of approximately $1.4 million for the nine months ended
      June 30, 2004.





·
            Total
      non-performing assets decreased to approximately $14.6 million at June 30,
      2005 from $38.6 million at June 30, 2004.  Non-performing assets
      at June 30, 2005 consist of approximately $6.8 million of non-performing
      loans, net of allowance for loan losses, and approximately $7.8 million of
      real estate held for sale not resold through seller financing. The
      amount of non-performing assets may reflect the risks inherent in our
      business strategy which entails more lenient underwriting standards and
      expedited loan approval procedures.  Our revenues will continue
      to be impacted until we are able to convert these non-performing assets
      into interest paying real estate loans.  We attempt to
      accomplish this by working with the borrower where possible and by
      foreclosing on the underlying property where necessary.  We
      intend to sell properties acquired through foreclosure as soon as
      practicable, consistent with our objective of avoiding a loss of
      principal.  However, we cannot predict how quickly we can
      convert non-performing assets and any increase in our non-performing
      assets will have an adverse affect upon our
  revenues.





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·
            As
      of June 30, 2005, our manager had granted extensions on four loans
      pursuant to the terms of the original loan agreements, which permit
      extensions by mutual consent.  Such extensions are generally
      provided on loans where the original term was 12 months or less and where
      a borrower requires additional time to complete a construction project or
      negotiate take out financing.  However, our manager only grants
      extensions when a borrower is in compliance with the material terms of the
      loan, including, but not limited to the borrower’s obligation to make
      interest payments on the loan.  The aggregate amount due from
      borrowers whose loans had been extended as of June 30, 2005 was
      approximately $4.3 million.  At June 30, 2005, one such loan was
      non-performing with an outstanding balance of $51,000.  Our
      manager concluded that no allowance for loan loss was necessary with
      respect to these loans as of that
date.





Total Operating
Expenses.  For the nine month transition period ended June 30,
2005, expenses totaled approximately $2.6 million compared to approximately $2.0
million for the nine months ended June 30, 2004, an increase of approximately
$0.6 million or 30%.  The increase is primarily related to the
following:





·
            We
      have commenced a judicial foreclosure on a loan secured by 4 cemeteries
      and 8 mortuaries in Hawaii.  Upon completion of a valuation
      analysis it was deemed necessary to provide a valuation allowance for the
      entire carrying value of the loan by approximately $1.2 million during the
      quarter ended June 30, 2005 See “RightStar Loan
  Allowance.”





·
            For
      the nine month transition period ended June 30, 2005 and the nine months
      ended June 30, 2004, we recognized professional fees of approximately $0.5
      million and $0.1 million, respectively, which was an increase of
      approximately $0.4 million.





The
increase in expenses was partially offset by an interest expense decrease of
approximately $1.1 million due to a decrease in the amount of secured borrowings
of approximately $7.7 million.





Total Income (Loss) from Real Estate
Held for Sale:  For the nine month transition period ended June
30, 2005, total income from real estate held for sale decreased approximately
$5.1 million or 135% compared to the nine months ended June 30, 2004, due to the
following factors:





·
            During
      the nine months ended June 30, 2005 we recorded a charge of approximately
      $0.3 million in connection with the write down of real estate held for
      sale related to a custom residential property located in Santa Fe, New
      Mexico, a write down of approximately $0.4 million related to the carrying
      value of 166 residential lots located in Henderson, Nevada and a charge of
      approximately $0.6 million relating to a 126 unit assisted living facility
      in Phoenix, Arizona





·
            During
      September 2004, we and Fund II entered into an agreement to sell the
      remaining 28 acres of raw land in Mesquite, Nevada for approximately $6.2
      million.  Prior to September 2004, approximately $0.1 million
      was released from escrow representing an early release of
      funds.  The transaction was finalized in December 2004 and
      resulted in a gain of approximately $1.0
  million.





·
            We
      sold a 126 unit hotel in Mesquite, Nevada and sustained a loss of
      approximately $0.4 million during the quarter ended March 31,
      2005.





·
            Expenses
      related to the maintenance of real estate held for sale increased by
      approximately $0.3 million.  This increase includes expenses of
      approximately $0.2 million in property
taxes.





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Annualized Rate of Return to
Members.  For the nine month transition period ended June 30,
2005, annualized rate of return to members totaled 1.90% as compared to 12.55%
for the same period in 2004.





Distributions to
Members.  The following is a schedule of distributions paid
from Net Income Available for Distribution as defined in our Operating Agreement
and a return of capital for the nine month transition period ended June 30, 2005
and the nine months ended June 30, 2004.  Net Income Available for
Distribution is based upon cash flow from operations, less certain reserves, and
may exceed net income as calculated in accordance with GAAP.




For
      the Nine Month Transition Period Ended June 30, 2005
              
              
              For
      the Nine Months Ended June 30, 2004(Unaudited)Distributions
      of Net Income Available for Distribution
              
              $
              3,694,000
              
              
              $
              3,705,000Distributions
      in Excess of Net Income Available for a Distribution Generated During the
      Period
              
              
              --
              
              
              
              --Total
      Distributions
              
              $
              3,694,000
              
              
              $
              3,705,000


Net
income available for distribution is a non-GAAP financial measure that is
defined in our operating agreement as cash flows from operations, less certain
reserves, and may exceed net income as calculated in accordance with
GAAP.  We have presented net income available for distribution because
management believes this financial measure is useful and important to members as
net income available for distribution is the minimum amount required to be
distributed to members pursuant to our operating agreement.  In
addition, cash flows from operations, which are the significant component of net
income available for distribution, affect the capital available for investment
in new loans.  This non-GAAP financial measure should not be
considered in isolation or as a substitute for measures of performance prepared
in accordance with GAAP or as an alternative to cash flows from operating
activities as a measure of our liquidity.  We compensate for these
limitations by relying primarily on our GAAP results and using net income
available for distributions only supplementally.





The most
directly comparable GAAP measure to net income available for distribution is
cash flows from operating activities.  The following table reconciles
net income available for distribution to cash flows from operating activities
and presents the two other major categories of our statement of cash
flows.





For
      the Nine Month Transition Period Ended June 30, 2005
            
            
            For
      the Nine Months Ended June 30, 2004(Unaudited)Distribution
      of Net Income Available for Distribution
            
            $
            3,694,000
            
            
            $
            3,705,000Additions
      to Working Capital Reserves (Amount Not Distributed)
            
            
            1,000
            
            
            
            4,828,000Gain
      on sale of real estate held for sale
            
            
            (1,072,000
            )
            
            
            --Loss
      on sale of real estate held for sale
            
            
            400,000
            
            
            
            --Change
      in operating assets and liabilities:Interest
      and other receivables
            
            
            612,000
            
            
            
            286,000Due
      to manager
            
            
            270,000
            
            
            
            98,000Due
      to related parties
            
            
            84,000
            
            
            
            2,104,000Prepaid
      expenses
            
            
            --
            
            
            
            8,000Accounts
      payable and accrued liabilities
            
            
            92,000
            
            
            
            (16,000
            )Net
      cash provided by operating activities
            
            $
            4,081,000
            
            
            $
            11,013,000Net
      cash used by investing activities
            
            $
            (914,000
            )
            
            $
            (6,797,000
            )Net
      cash used in financing activities
            
            $
            (10,135,000
            )
            
            $
            (11,353,000
            )








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CAPITAL
AND LIQUIDITY





Liquidity
is a measure of a company’s ability to meet potential cash requirements,
including ongoing commitments to fund lending activities and general operating
purposes.  Subject to a 3% reserve, we generally seek to use all of
our available funds to invest in real estate loans.  Distributable
cash flow generated from such loans is paid out to our stockholders, in the form
of a dividend.  We do not anticipate the need for hiring any
employees, acquiring fixed assets such as office equipment or furniture, or
incurring material office expenses during the next twelve months because our
manager will manage our affairs.  We may pay our manager an annual
management fee of up to 0.25% of our aggregate capital received by us and Fund I
from the sale of shares or membership units.





During
the year ended December 31, 2007, cash flows provided by operating activities
approximated $3.2 million.  Investing activities consisted of cash
provided by loan payoffs and sales of real estate loans of approximately $26.0
million.  Cash used for new investments and purchases of real estate
loans totaled approximately $19.2 million.  In addition, we used
approximately $1.2 million for the purchase of investment in marketable
securities – related party.  Financing activities mainly consisted of
dividends to stockholders, net of reinvestment, of approximately $4.6
million.





At
December 31, 2007, we had approximately $6.6 million in cash, $2.2 million in
marketable securities – related party and approximately $61.3 million in total
assets.  We intend to meet short-term working capital needs through a
combination of proceeds from loan payoffs, loan sales and/or
borrowings.  We believe we have sufficient working capital to meet our
operating needs in the near term.





Since we
distribute most or all of our distributable cash generated by operations, our
sources of liquidity include  repayments of outstanding loans,
dividend reinvestments by our stockholders, arrangements with third parties to
participate in our loans and proceeds from issuance of note payable and secured
borrowings.





We rely
primarily upon repayment of outstanding loans to provide capital for investment
in new loans.  Any significant level of defaults on outstanding loans
could reduce the funds we have available for investment in new
loans.  Resulting foreclosure proceedings may not generate full
repayment of our loans and may result in significant delays in the return of
invested funds.  This would diminish our capital resources and would
impair our ability to invest in new loans.  Non-performing assets
included loans in non-accrual status, net of allowance for loan losses, and real
estate held for sale not sold through seller financing, totaling approximately
$11.3 million and $3.5 million, respectively, as of December 31, 2007, compared
to approximately $8.1 million and $3.7 million, respectively, as of December 31,
2006.  It is possible that no earnings will be recognized from these
assets until they are disposed of, or that no earnings will be recognized at
all, and the time it will take to dispose of these assets cannot be
predicted.  Our manager believes that these non-performing assets are
a result of factors unique to specific borrowers and
properties.  Because of the estimated value of the underlying
properties, we do not currently believe that any losses beyond those already
recognized will be incurred from these assets upon final
disposition.  However, it is possible that we will not be able to
realize the full estimated carrying values upon disposition.





We have
no current plans to sell any new shares except through our dividend reinvestment
program.  As of March 10, 2008, approximately 3% of our stockholders
owning less than 1% our outstanding shares have elected to reinvest their
dividends.  The level of dividend reinvestment in the future will
depend upon our performance, as well as the number of our stockholders who
prefer to reinvest rather than receive current dividends.





Loans in
which unaffiliated investors have participated through inter-creditor agreements
(“Inter-creditor Agreements”) are accounted for as secured borrowings in
accordance with Statement of Financial Accounting Standards (“FAS”) 140 – Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities(“FAS
140”).  The Inter-creditor Agreements provide us additional funding
sources for real estate loans whereby an unaffiliated investor (the “Investor”)
may participate on a non-pari passu basis in certain real estate loans with us
and/or VRM II and/or Fund III (collectively, the “Lead Lenders”).  In
the event of borrower non- performance, the Inter-creditor Agreements generally
provide that the Lead Lenders must repay the Investor’s loan amount either by
(i) continuing to remit to the Investor the interest due on the participated
loan amount; (ii) substituting an alternative loan acceptable to the Investor;
or (iii) repurchasing the participation from the Investor for the outstanding
balance plus accrued interest.





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During
October 2006, we, our manager, Vestin Originations, Inc., VRM II and Fund III
entered into an intercreditor agreement with an unrelated third party related to
the funding of a construction real estate loan.  The secured borrowing
was recognized pro rata between us, VRM II and Fund III for the amount each
entity has funded for the loan.  During May 2007, the secured
borrowings were paid in full.  As of December 31, 2007, we did not
have any funds used under Inter-creditor Agreements as compared to approximately
$310,000 used under Inter-creditor Agreements as of December 31,
2006.





We
maintain working capital reserves of approximately 3% in cash and cash
equivalents, certificates of deposits and short-term investments or liquid
marketable securities.  This reserve is available to pay expenses in
excess of revenues, satisfy obligations of underlying properties, expend money
to satisfy our unforeseen obligations and for other permitted uses of working
capital.





Investments
in Real Estate Loans Secured by Real Estate Portfolio





We offer
five real estate loan products consisting of commercial property, construction,
acquisition and development, land, and residential loans.  The
effective interest rates on all product categories range from 9% to
14%.  Revenue by product will fluctuate based upon relative balances
during the period.  We had investments in 34 real estate loans, as of
December 31, 2007, with a balance of approximately $53.7 million as compared to
investments in 33 real estate loans, including loans related to real estate held
for sale – seller financed, as of December 31, 2006, with a balance of
approximately $60.7 million.





At
December 31, 2007, the following loans were non-performing (based on current
information and events, it is probable that we will be unable to collect all
amounts due according to the contractual terms of the loan agreement or when the
payment of interest is 90 days past due); RightStar, Inc. (Part I & Part
II), Monterrey Associates LP, Forest Development LLC, Pirates Lake, Ltd,
Jeffrey's Court, LLC, V & M Homes at the Palms, Inc. and Brawley CA 122,
LLC.  These loans are currently carried on our books at a value of
approximately $11.3 million, net of allowance for loan losses of approximately
$5.6 million, which does not include the allowances of approximately $0.4
million relating to the decrease in the property value for performing loans as
of December 31, 2007.  These loans have been placed on non-accrual of
interest status and are the subject of pending foreclosure
proceedings.  On August 7, 2007, we, VRM II and Fund III entered into
a settlement agreement with the borrower of the Pirates Lake, Ltd. loan whereby
the foreclosure was postponed.  Principal, accrued interest and
$75,000 for expenses incurred by us, VRM II and Fund III relating to the loan
were due on October 1, 2007.  On October 2, 2007, the borrower was in
default of the settlement and loan agreements. Subsequently the borrower filed
for protection under Chapter 11 of the Bankruptcy Code in the United States
Bankruptcy Court for the Southern District of Texas. On November 7, 2007, our
legal counsel was successful in seeking the dismissal, with prejudice, of the
subject bankruptcy, together with the lifting of the automatic stay from
foreclosure.  On February 5, 2008, we, VRM II and Fund III foreclosed
upon Pirates Lake, Ltd. and classified it as real estate held for
sale.  On March 7, 2008, we, VRM II and Fund III foreclosed upon
Forest Development LLC and classified it as real estate held for
sale.  Our manager has evaluated these loans and concluded that the
value of the underlying collateral is sufficient to protect us from loss of
principal.  No specific allowance was deemed necessary.





During
March 2007, our manager extended the Mid-State Raceway loan from March 31, 2007
to March 31, 2008.  As part of the extension agreement, the borrower
made a principal payment of approximately $3.0 million, of which our portion was
approximately $0.4 million, and the loan interest rate increased from 9% to
12%.  As of December 31, 2007, this loan had a balance of
approximately $19.8 million, of which our portion was approximately $2.8
million.





Our
manager periodically reviews and makes a determination as to whether the
allowance for loan losses is adequate to cover any potential
losses.  Additions to the allowance for loan losses are made by
charges to the provision for loan losses.  Recoveries of previously
charged off amounts are credited to the allowance for loan losses or included as
income when the asset is disposed.  During the year ended December 31,
2007, we have provided a specific reserve related to two non-performing loans
and two performing loans, based on updated appraisals and evaluation of the
borrower obtained by our manager during the year ended December 31,
2007.  Our manager evaluated these loans and concluded that the
remaining underlying collateral was sufficient to protect us against further
losses of principal or interest.  Our manager will continue to
evaluate these loans in order to determine if any other allowance for loan
losses should be recorded.  For additional information on our
investments in real estate loans, refer to Note D – Investments In Real Estate
Loans of the Notes to the Consolidated Financial Statements included in
Part II, Item 8 Financial
Statements and Supplementary Data of this Annual Report on Form
10-K.





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Asset
Quality and Loan Reserves





Losses
may occur from investing in real estate loans.  The amounts of losses
will vary as the loan portfolio is affected by changing economic conditions and
the financial condition of borrowers.





The
conclusion that a real estate loan is uncollectible or that collectibility is
doubtful is a matter of judgment.  On a periodic basis, our manager
evaluates our real estate loan portfolio for impairment.  The fact
that a loan is temporarily past due does not necessarily mean that the loan is
impaired.  Rather, all relevant circumstances are considered by our
manager to determine impairment and the need for specific
reserves.  Such evaluation, which includes a review of all loans on
which full collectibility may not be reasonably assured, considers among other
matters:





·
            Prevailing
      economic conditions;





·
            Historical
      experience;





·
            The
      nature and volume of the loan
portfolio;





·
            The
      borrowers’ financial condition and adverse situations that may affect the
      borrowers’ ability to pay;





·
            Evaluation
      of industry trends; and





·
            Estimated
      net realizable value of any underlying collateral in relation to the real
      estate loan amount.





Based
upon this evaluation, a determination is made as to whether the allowance for
loan losses is adequate to cover any potential losses.  Additions to
the allowance for loan losses are made by charges to the provision for loan
losses.  Recoveries of previously charged off amounts are credited to
the allowance for loan losses.  For additional information regarding
the roll-forward of the allowance for loan losses for the year ended December
31, 2007, refer to Note D – Investments In Real Estate
Loans of the Notes to the Consolidated Financial Statements included in
Part II, Item 8 Financial
Statements and Supplementary Data of this Annual Report on Form
10-K.





Investments
in Real Estate Held for Sale





At
December 31, 2007, we held one property with
a total carrying value of approximately $3.5 million, which was acquired through
foreclosure and recorded as investments in real estate held for
sale.  Our investments in real estate held for sale are
accounted for at the lower of cost or fair value less costs to sell with fair
value based on appraisals and knowledge of local market
conditions.  It is not our intent to invest in or own real estate as a
long-term investment.  We seek to sell properties acquired through
foreclosure as quickly as circumstances permit.  For additional
information on our investments in real estate held for sale, refer to Note F
–Real Estate Held for
Sale of the Notes to the Consolidated Financial Statements included in
Part II, Item 8 Financial
Statements and Supplementary Data of this Annual Report on Form
10-K.





Investments
in Real Estate Held for Sale — Seller Financed





At
December 31, 2007, we had no investments where we provided the financing to the
purchaser classified as real estate held for sale – seller
financed.  GAAP requires us to include real estate held for sale –
seller financed until the borrower has met and maintained certain
requirements.  We may share ownership of such properties with VRM II,
Fund III, our manager, or other related and/or unrelated
parties.  These investments in real estate held for sale – seller
financed are accounted for at the lower of cost or fair value less costs to sell
with fair value based on appraisals and knowledge of local market
conditions.  For
additional information on our investments in real estateloans, refer to Note G –
Real Estate Held for
Sale-Seller Financed of the Notes to the Consolidated FinancialStatements
included in Part II, Item 8 Financial Statements and
Supplementary Data of this Annual Report on Form
10-K.





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OFF-BALANCE
SHEET ARRANGEMENTS





We do not
have any interests in off-balance sheet special purpose entities nor do we have
any interests in non-exchange traded commodity contracts.





CONTRACTUAL
OBLIGATIONS





As of
December 31, 2007, we had no contractual obligations.  See Note K –
Notes Payable of the
Notes to the Consolidated Financial Statements included in Part II, Item 8 Financial Statements and
Supplementary Data of this Annual Report on Form 10-K.





CRITICAL
ACCOUNTING ESTIMATES





Revenue
Recognition





Interest
income on loans is accrued by the effective interest method.  We do
not accrue interest income from loans once they are determined to be
impaired.  A loan is impaired when, based on current information and
events, it is probable that we will be unable to collect all amounts due
according to the contractual terms of the loan agreement or when the payment of
interest is 90 days past due.





The
following table presents a sensitivity analysis, averaging the balance of our
loan portfolio at the end of the last six quarters, to show the impact on our
financial condition at December 31, 2007, from fluctuations in weighted average
interest rate charged on loans as a percentage of the loan
portfolio:





Changed Assumption
            
            Increase
      (Decrease) in Interest IncomeWeighted
      average interest rate assumption increased by 1.0% or 100 basis
      points
            
            $
            590,000Weighted
      average interest rate assumption increased by 5.0% or 500 basis
      points
            
            $
            2,948,000Weighted
      average interest rate assumption decreased by 1.0% or 100 basis
      points
            
            $
            (590,000
            )Weighted
      average interest rate assumption decreased by 5.0% or 500 basis
      points
            
            $
            (2,948,000
            )





The
purpose of this analysis is to provide an indication of the impact that the
weighted average interest rate fluctuations would have on our financial
results.  It is not intended to imply our expectation of future
revenues or to estimate earnings.  We believe that the assumptions
used above are appropriate to illustrate the possible material impact on the
consolidated financial statements.





Allowance for Loan
Losses





We
maintain an allowance for loan losses on our investments in real estate loans
for estimated credit impairment in our investment in real estate loans
portfolio.  Our manager’s estimate of losses is based on a number of
factors including the types and dollar amounts of loans in the portfolio,
adverse situations that may affect the borrower’s ability to repay, prevailing
economic conditions and the underlying collateral securing the
loan.  Additions to the allowance are provided through a charge to
earnings and are based on an assessment of certain factors, which may indicate
estimated losses on the loans.  Actual losses on loans are recorded as
a charge-off or a reduction to the allowance for loan
losses.  Subsequent recoveries of amounts previously charged off are
added back to the allowance or included as income.





The
following table presents a sensitivity analysis to show the impact on our
financial condition at December 31, 2007, from increases and decreases to our
allowance for loan losses as a percentage of the loan portfolio:





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Changed Assumption
            
            Increase
      (Decrease) in Allowance for Loan LossesAllowance
      for loan losses assumption increased by 1.0% of loan
    portfolio
            
            $
            537,000Allowance
      for loan losses assumption increased by 5.0% of loan
    portfolio
            
            $
            2,687,000Allowance
      for loan losses assumption decreased by 1.0% of loan
    portfolio
            
            $
            (537,000
            )Allowance
      for loan losses assumption decreased by 5.0% of loan
    portfolio
            
            $
            (2,687,000
            )





Estimating
allowances for loan losses requires significant judgment about the underlying
collateral, including liquidation value, condition of the collateral, competency
and cooperation of the related borrower and specific legal issues that affect
loan collections or taking possession of the property.  As a
commercial real estate lender willing to invest in loans to borrowers who may
not meet the credit standards of other financial institutional lenders, the
default rate on our loans could be higher than those generally experienced in
the mortgage lending industry.  We, our manager and Vestin
Originations generally approves loans more quickly than other real estate
lenders and, due to our expedited underwriting process, there is a risk that the
credit inquiry we perform will not reveal all material facts pertaining to a
borrower and the security.





We may
discover additional facts and circumstances as we continue our efforts in the
collection and foreclosure processes.  This additional information
often causes management to reassess its estimates.  In recent years,
we have revised estimates of our allowance for loan
losses.  Circumstances that may cause significant changes in our
estimated allowance include, but not limited to:





·
            Declines
      in real estate market conditions that can cause a decrease in expected
      market value;





·
            Discovery
      of undisclosed liens for community improvement bonds, easements and
      delinquent property taxes;





·
            Lack
      of progress on real estate developments after we advance
      funds.  We customarily utilize disbursement agents to monitor
      the progress of real estate developments and approve loan
      advances.  After further inspection of the related property,
      progress on construction occasionally does not substantiate an increase in
      value to support the related loan
advances;





·
            Unanticipated
      legal or business issues that may arise subsequent to loan origination or
      upon the sale of foreclosed upon property;
and





·
            Appraisals,
      which are only opinions of value at the time of the appraisal, may not
      accurately reflect the value of the
property.





Real Estate Held For
Sale





Real
estate held for sale includes real estate acquired through foreclosure and will
be carried at the lower of the recorded amount, inclusive of any senior
indebtedness, or the property's estimated fair value, less estimated costs to
sell, with fair value based on appraisals and knowledge of local market
conditions.  While pursuing foreclosure actions, we seek to identify
potential purchasers of such property.  It is not our intent to invest
in or own real estate as a long-term investment.  In accordance with
FAS 144 - Accounting for the
Impairment or Disposal of Long Lived Assets,we seek to sell properties
acquired through foreclosure as quickly as circumstances permit.  The
carrying values of real estate held for sale are assessed on a regular basis
from updated appraisals, comparable sales values or purchase
offers.





Management
classifies real estate held for sale when the following criteria are
met:





·
            Management
      commits to a plan to sell the
properties;





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·
            The
      property is available for immediate sale in its present condition subject
      only to terms that are usual and
customary;





·
            An
      active program to locate a buyer and other actions required to complete a
      sale have been initiated;





·
            The
      sale of the property is probable;





·
            The
      property is being actively marketed for sale at a reasonable price;
      and





·
            Withdrawal
      or significant modification of the sale is not
  likely.





Real Estate Held For Sale –
Seller Financed





We
occasionally finance sales of foreclosed properties to independent third
parties.  In order to record a sale of real estate when the seller is
providing continued financing, FAS 66 – Accounting for Sales of Real
Estate ("FAS 66'') requires the buyer of the real estate to make minimum
and initial continuing investments.  Minimum initial investments as
defined by FAS 66 range from 10% to 25% based on the type of real estate
sold.  In addition, FAS 66 limits commitments and contingent
obligations incurred by a seller in order to record a sale.





Because
we occasionally foreclose on loans with raw land or developments in progress,
available financing for such properties is often limited and we frequently
provide financing up to 100% of the selling price on these
properties.  In addition, we may make additional loans to the buyer to
continue development of a property.  Although sale agreements are
consummated at closing, they lack adequate initial investment by the buyer to
qualify as a sales transaction as defined in FAS 66.  These sale
agreements are not recorded as a sale until the requirements of FAS 66 are
met.





These
sales agreements are recorded under the deposit method or cost recovery method
as defined in FAS 66.  Under the deposit method, no profit is
recognized and any cash received from the buyer is reported as a deposit
liability on the balance sheet.  Under the cost recovery method, no
profit is recognized until payments by the buyer exceed the carrying basis of
the property sold.  Principal payments received will reduce the
related receivable, and interest collections will be recorded as unrecognized
gross profit on the balance sheet.  The carrying values of these
properties are included in real estate held for sale on the accompanying
consolidated balance sheets.





ITEM
7A.                      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





We are
exposed to market risk, primarily from changes in interest rates.  We
do not deal in any foreign currencies and do not own any options, futures or
other derivative instruments.  We do not have a significant amount of
debt.





Most of
our assets consisted of investments in real estate loans, which from time to
time include those that are financed under Inter-creditor
Agreements.  At December 31, 2007, our aggregate investment in real
estate loans was approximately $47.7 million, net of allowance, with a weighted
average effective interest rate of 12.21%.  Most of the real estate
loans had an initial term of 12 months.  The weighted average term of
outstanding loans, including extensions, at December 31, 2007, was 19
months.  All but two of the outstanding real estate loans at December
31, 2007, were fixed rate loans.  One of the two variable interest
rate loans was non-performing as of December 31, 2007, see Note D – Investments in Real Estate
Loans in Part II, Item 8 Financial Statements and
Supplementary Data of this Annual Report on Form 10-K.  All of
the real estate loans are held for investment purposes; none are held for
sale.  We intend to hold such real estate loans to
maturity.  None of the real estate loans had prepayment penalties and
17 loans, totaling approximately $18.7 million, had an exit fee.





Market
fluctuations in interest rates generally do not affect the carrying value of our
investment in real estate loans.  However, significant and sustained
changes in interest rates could affect our operating results.  If
interest rates decline significantly, some of the borrowers could prepay their
loans with the proceeds of a refinancing at lower interest
rates.  This would reduce our earnings and funds available for
dividend distribution to stockholders.  On the other hand, a
significant increase in interest rates could result in a slowdown in real estate
development activity that would reduce the demand for commercial real estate
loans.  As a result, we might encounter greater difficulty
inidentifying appropriate borrowers.  We are not in a position to
quantify the potential impact on our operating results from a material change in
interest rates.





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The
following table contains information about the investment of real estate loans
in our portfolio as of December 31, 2007.  The presentation aggregates
the investment in real estate loans by their maturity dates for maturities
occurring in each of the years 2008 through 2012 and thereafter and separately
aggregates the information for all maturities arising after 2012.  The
carrying values of these assets approximate their fair value as of December 31,
2007.





Interest
      Earning Assets
              Aggregated
      by Maturity at December 31, 2007Interest
      Earning Assets
            
            2008
            
            
            2009
            
            
            2010
            
            
            2011
            
            
            2012
            
            
            Thereafter
            
            
            TotalInvestments
      In Real Estate Loans
            
            $
            50,730,000
            
            
            $
            3,000,000
            
            
            $
            --
            
            
            $
            --
            
            
            $
            --
            
            
            $
            --
            
            
            $
            53,730,000Weighted
      Average Interest Rates
            
            
            12.26%
            
            
            
            11.50%
            
            
            
            --%
            
            
            
            --%
            
            
            
            --%
            
            
            
            --%
            
            
            
            12.21%





At
December 31, 2007, we also had approximately $8.8 million invested in cash and
marketable securities – related party (VRM II).  Approximately 3% of
our assets will be held in such accounts as a cash reserve; additional deposits
in such accounts will be made as funds are received from investors and repayment
of loans pending the deployment of such funds in new real estate
loans.  We believe that these financial assets do not give rise to
significant interest rate risk due to their short-term nature.





ITEM
      8.
            FINANCIAL STATEMENTS AND SUPPLEMENTARY
  DATA








INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION





PageREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
      FIRM
            44CONSOLIDATED
      FINANCIAL STATEMENTSConsolidated Balance Sheets
            45Consolidated Statements of Income
            46Consolidated Statements of Equity and Other Comprehensive
      Income
            47Consolidated Statements of Cash Flows
            48Notes to the Consolidated Financial
      Statements
            50SUPPLEMENTARY
      INFORMATIONInvestments
      in Real Estate Loans:Real Estate Loan Roll Forward
            73Real Estate Loans by Type of
Property
            74Real Estate Loans by Lien Position
            74Real Estate Loans that Exceed Three Percent of the
      Portfolio
            75








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REPORT
OF INDEPENDENT REGISTEREDPUBLIC ACCOUNTING FIRM








To the
Board of Directors and Stockholders of Vestin Realty Mortgage I,
Inc.
 
 We have
audited the accompanying consolidated balance sheets of Vestin Realty Mortgage
I, Inc., (“the Company”) as of December 31, 2007 and 2006 and related
consolidated statements of income, equity and other comprehensive income (loss)
and its cash flows for the year ended December 31, 2007, the twelve months ended
December 31, 2006, the six months ended December 31, 2005, and the nine month
transition period ended June 30, 2005.   Our audits also included
the financial statement schedules listed in the Index at Item 15. These
consolidated financial statements and financial statement schedules are the
responsibility of the Company’s management.  Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedules based on our audits.
 
 We
conducted our audits in accordance with the standards of the Public Accounting
Oversight Board (United States).  Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial
statements.  An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated financial statement
presentation.  We believe that our audits provide a reasonable basis
for our opinion.
 
 In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Vestin Realty Mortgage I,
Inc. as of December 31, 2007 and 2006 and the results of its operations and its
cash flows for the year ended December 31, 2007, the twelve months ended
December 31, 2006, the six months ended December 31, 2005, and the nine month
transition period ended June 30, 2005 in conformity with accounting principles
generally accepted in the United States of America.  Also, in our
opinion, such financial statement schedules, when considered in relation to the
basic consolidated financial statements taken as a whole, present fairly, the
information set forth therein.
 
 We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Vestin Realty Mortgage I, Inc’s. internal
control over financial reporting as of December 31, 2007, based on criteria
established in Internal
Control – Integrated Frameworkissued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report dated March 13,
2008, expressed an unqualified opinion  on the effectiveness of
internal control over financial reporting.
 
 
 
 /s/ Moore
Stephens Wurth Frazer and Torbet, LLP
 
 
 Orange,
California
 March 13,
2008











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FINANCIAL
STATEMENTS





VESTIN
      REALTY MORTGAGEI, INC.CONSOLIDATED
      BALANCE SHEETSASSETSDecember
      31, 2007
            
            
            December
      31, 2006AssetsCash
            
            $
            6,556,000
            
            
            $
            1,523,000Certificates
      of deposit
            
            
            --
            
            
            
            150,000Investment
      in marketable securities - related party
            
            
            2,195,000
            
            
            
            1,953,000Interest
      and other receivables
            
            
            1,019,000
            
            
            
            938,000Notes
      receivable, net of allowance of $684,000 at December 31, 2007 and $885,000
      at December 31, 2006
            
            
            --
            
            
            
            102,000Real
      estate held for sale
            
            
            3,505,000
            
            
            
            3,689,000Real
      estate held for sale - seller financed
            
            
            --
            
            
            
            7,911,000Investment
      in real estate loans, net of allowance for loan losses of $5,982,000 at
      December 31, 2007 and $4,534,000 at December 31, 2006
            
            
            47,716,000
            
            
            
            48,631,000Assets
      under secured borrowings
            
            
            --
            
            
            
            310,000Due
      from related parties
            
            
            121,000
            
            
            
            1,000Other
      assets
            
            
            99,000
            
            
            
            124,000Total
      assets
            
            $
            61,211,000
            
            
            $
            65,332,000LIABILITIES
      AND STOCKHOLDERS' EQUITYLiabilitiesAccounts
      payable and accrued liabilities
            
            $
            581,000
            
            
            $
            307,000Secured
      borrowings
            
            
            --
            
            
            
            310,000Notes
      payable
            
            
            --
            
            
            
            22,000Deposit
      liability
            
            
            --
            
            
            
            1,255,000Unearned
      revenue
            
            
            --
            
            
            
            69,000Dividend
      payable
            
            
            412,000
            
            
            
            1,030,000Total
      liabilities
            
            
            993,000
            
            
            
            2,993,000Commitments
      and ContingenciesStockholders'
      equityCommon
      stock, $0.0001 par value; 25,000,000 shares authorized; 6,873,416 share
      issued and outstanding at December 31, 2007 and 6,869,790 shares issued
      and outstanding at December 31, 2006
            
            
            1,000
            
            
            
            1,000Additional
      paid in capital
            
            
            62,255,000
            
            
            
            62,235,000Accumulated
      deficit
            
            
            (1,176,000
            )
            
            
            (7,000
            )Accumulated
      other comprehensive income (loss)
            
            
            (862,000
            )
            
            
            110,000Total
      stockholders' equity
            
            
            60,218,000
            
            
            
            62,339,000Total
      liabilities and stockholders' equity
            
            $
            61,211,000
            
            
            $
            65,332,000








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VESTIN
      REALTY MORTGAGEI, INC.CONSOLIDATED
      STATEMENTS OF INCOMEFor
      the
              Year
      Ended
            
            
            For
      the Twelve Months Ended
            
            
            For
      the Six
              Months
      Ended
            
            
            For
      the Six
              Months
      Ended
            
            
            For
      the Nine Month Transitions Period Ended12/31/2007
            
            
            12/31/2006
            
            
            12/31/2005
            
            
            12/31/2004
            
            
            6/30/2005(Unaudited)RevenuesInterest
      income from investment in real estate loans
            
            $
            4,377,000
            
            
            $
            4,558,000
            
            
            $
            2,693,000
            
            
            $
            2,913,000
            
            
            $
            4,303,000Recovery
      of allowance for doubtful notes receivable
            
            
            281,000
            
            
            
            15,000
            
            
            
            8,000
            
            
            
            --
            
            
            
            --Other
      income
            
            
            199,000
            
            
            
            42,000
            
            
            
            349,000
            
            
            
            117,000
            
            
            
            580,000Total
      revenues
            
            
            4,857,000
            
            
            
            4,615,000
            
            
            
            3,050,000
            
            
            
            3,030,000
            
            
            
            4,883,000Operating
      expensesManagement
      fees - related party
            
            
            277,000
            
            
            
            277,000
            
            
            
            138,000
            
            
            
            128,000
            
            
            
            201,000Provision
      for loan loss
            
            
            1,336,000
            
            
            
            3,000,000
            
            
            
            --
            
            
            
            --
            
            
            
            1,296,000Interest
      expense
            
            
            15,000
            
            
            
            85,000
            
            
            
            107,000
            
            
            
            440,000
            
            
            
            408,000Professional
      fees
            
            
            986,000
            
            
            
            638,000
            
            
            
            131,000
            
            
            
            182,000
            
            
            
            411,000Professional
      fees - related party
            
            
            33,000
            
            
            
            61,000
            
            
            
            93,000
            
            
            
            5,000
            
            
            
            83,000Provision
      for doubtful accounts related to receivable
            
            
            86,000
            
            
            
            171,000
            
            
            
            --
            
            
            
            --
            
            
            
            --Other
            
            
            477,000
            
            
            
            364,000
            
            
            
            23,000
            
            
            
            3,000
            
            
            
            163,000Total
      operating expenses
            
            
            3,210,000
            
            
            
            4,596,000
            
            
            
            492,000
            
            
            
            758,000
            
            
            
            2,562,000Income
      from operations
            
            
            1,647,000
            
            
            
            19,000
            
            
            
            2,558,000
            
            
            
            2,272,000
            
            
            
            2,321,000Non-operating
      incomeGain
      on sale of marketable securities
            
            
            --
            
            
            
            --
            
            
            
            46,000
            
            
            
            --
            
            
            
            --Dividend
      income - related party
            
            
            294,000
            
            
            
            151,000
            
            
            
            --
            
            
            
            --
            
            
            
            --Interest
      income from banking institutions
            
            
            146,000
            
            
            
            197,000
            
            
            
            43,000
            
            
            
            52,000
            
            
            
            114,000Total
      other non-operating income
            
            
            440,000
            
            
            
            348,000
            
            
            
            89,000
            
            
            
            52,000
            
            
            
            114,000Income
      from real estate held for saleRevenue
      related to real estate held for sale
            
            
            26,000
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --Net
      gain on sale of real estate held for sale
            
            
            --
            
            
            
            44,000
            
            
            
            24,000
            
            
            
            575,000
            
            
            
            672,000Gain
      on sale of real estate held for sale - seller financed
            
            
            1,265,000
            
            
            
            245,000
            
            
            
            495,000
            
            
            
            --
            
            
            
            --Expenses
      related to real estate held for sale
            
            
            (384,000
            )
            
            
            (69,000
            )
            
            
            (100,000
            )
            
            
            (378,000
            )
            
            
            (708,000
            )Write
      down on real estate held for sale
            
            
            (184,000
            )
            
            
            --
            
            
            
            --
            
            
            
            (292,000
            )
            
            
            (1,271,000
            )Total
      income (loss) from real estate held for sale
            
            
            723,000
            
            
            
            220,000
            
            
            
            419,000
            
            
            
            (95,000
            )
            
            
            (1,307,000
            )Income
      before provision for income taxes
            
            
            2,810,000
            
            
            
            587,000
            
            
            
            3,066,000
            
            
            
            2,229,000
            
            
            
            1,128,000Provision
      for income taxes
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --NET
      INCOME
            
            $
            2,810,000
            
            
            $
            587,000
            
            
            $
            3,066,000
            
            
            $
            2,229,000
            
            
            $
            1,128,000Basic
      and diluted earnings per weighted average common share / membership
      unit
            
            $
            0.41
            
            
            $
            0.09
            
            
            $
            0.40
            
            
            $
            0.27
            
            
            $
            0.14Dividends
      declared per common share / cash distribution to members per membership
      unit
            
            $
            0.58
            
            
            $
            0.64
            
            
            $
            0.30
            
            
            $
            0.32
            
            
            $
            0.47Weighted
      average common shares / membership units
            
            
            6,871,671
            
            
            
            6,882,809
            
            
            
            7,668,098
            
            
            
            8,334,448
            
            
            
            7,919,977








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VESTIN
      REALTY MORTGAGEI, INC.CONSOLIDATED
      STATEMENTS OF EQUITY AND OTHER COMPREHENSIVE INCOME (LOSS)FOR
      THE YEAR ENDED DECEMBER 31, 2007Common
      StockUnits
            
            
            Number
      of Shares
            
            
            Amount
            
            
            Additional
      Paid-in-Capital
            
            
            Retained
      Earnings (Accumulated Deficit)
            
            
            Accumulated
      Other Comprehensive Income (Loss)
            
            
            Members'
      Equity
            
            
            TotalMembers'
      Equity at
              September
      30, 2004
            
            
            8,354,057
            
            
            
            --
            
            
            $
            --
            
            
            $
            --
            
            
            $
            --
            
            
            $
            --
            
            
            $
            82,278,000
            
            
            $
            82,278,000Net
      Income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,128,000
            
            
            
            1,128,000Distributions
      to Members
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (3,694,000
            )
            
            
            (3,694,000
            )Reinvestments
      of Distributions
            
            
            48,930
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            489,000
            
            
            
            489,000Members'
      Redemptions
            
            
            (716,664
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (6,930,000
            )
            
            
            (6,930,000
            )Members'
      Equity at
              June
      30, 2005
            
            
            7,686,323
            
            
            
            --
            
            
            $
            --
            
            
            $
            --
            
            
            $
            --
            
            
            $
            --
            
            
            $
            73,271,000
            
            
            $
            73,271,000Comprehensive
      Income:Net
      Income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            3,066,000
            
            
            
            3,066,000Unrealized
      Gain on Marketable Securities
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            4,000
            
            
            
            
            
            
            
            4,000Total
      Comprehensive Income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            3,070,000Distributions
      to Members
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (2,306,000
            )
            
            
            (2,306,000
            )Reinvestments
      of Distributions
            
            
            19,435
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            194,000
            
            
            
            194,000Members'
      Redemptions
            
            
            (195,774
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (1,909,000
            )
            
            
            (1,909,000
            )Members'
      Equity at
              December
      31, 2005
            
            
            7,509,984
            
            
            
            --
            
            
            $
            --
            
            
            $
            --
            
            
            $
            --
            
            
            $
            4,000
            
            
            $
            72,316,000
            
            
            $
            72,320,000Comprehensive
      Income:Net
      Income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            2,603,000
            
            
            
            
            
            
            
            (2,016,000
            )
            
            
            587,000Reversal
      of Unrealized Gain on Marketable Securities
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (4,000
            )
            
            
            
            
            
            
            (4,000
            )Unrealized
      Gain on Marketable Securities - Related Party
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            110,000
            
            
            
            
            
            
            
            110,000Total
      Comprehensive Income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            693,000Distributions
      to Members
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (1,822,000
            )
            
            
            (1,822,000
            )Reinvestments
      of Distributions
            
            
            12,846
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            129,000
            
            
            
            129,000Members'
      Redemptions
            
            
            (654,090
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (6,377,000
            )
            
            
            (6,377,000
            )Reclassify
      members' equity to stockholders' equity
            
            
            (6,868,740
            )
            
            
            6,868,740
            
            
            
            1,000
            
            
            
            62,229,000
            
            
            
            
            
            
            
            
            
            
            
            (62,230,000
            )
            
            
            --Dividends
      to Stockholder
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (2,610,000
            )
            
            
            
            
            
            
            
            
            
            
            (2,610,000
            )Reinvestment
      of Dividends
            
            
            
            
            
            
            1,050
            
            
            
            --
            
            
            
            6,000
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            6,000Stockholders'
      Equity at
              December
      31, 2006
            
            
            --
            
            
            
            6,869,790
            
            
            $
            1,000
            
            
            $
            62,235,000
            
            
            $
            (7,000
            )
            
            $
            110,000
            
            
            $
            --
            
            
            $
            62,339,000Comprehensive
      Income:Net
      Income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            2,810,000
            
            
            
            
            
            
            
            
            
            
            
            2,810,000Unrealized
      Gain on Marketable Securities - Related Party
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (972,000
            )
            
            
            
            
            
            
            (972,000
            )Total
      Comprehensive Income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,838,000Dividends
      Declared to Stockholders
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (3,979,000
            )
            
            
            
            
            
            
            
            
            
            
            (3,979,000
            )Reinvestment
      of Dividends
            
            
            
            
            
            
            3,626
            
            
            
            --
            
            
            
            20,000
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            20,000Stockholders'
      Equity at
              December
      31, 2007
            
            
            --
            
            
            
            6,873,416
            
            
            $
            1,000
            
            
            $
            62,255,000
            
            
            $
            (1,176,000
            )
            
            $
            (862,000
            )
            
            $
            --
            
            
            $
            60,218,000








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VESTIN
      REALTY MORTGAGEI, INC.CONSOLIDATED
      STATEMENTS OF CASH FLOWSFor
      the
              Year
      Ended
            
            
            For
      the Twelve Months Ended
            
            
            For
      the Six
              Months
      Ended
            
            
            For
      the Six
              Months
      Ended
            
            
            For
      the Nine Month Transition Period Ended12/31/2007
            
            
            12/31/2006
            
            
            12/31/2005
            
            
            12/31/2004
            
            
            6/30/2005(Unaudited)Cash
      flows from operating activities:Net
      income
            
            $
            2,810,000
            
            
            $
            587,000
            
            
            $
            3,066,000
            
            
            $
            2,229,000
            
            
            $
            1,128,000Adjustments
      to reconcile net income to net cash provided by operating
      activities:Provision
      for doubtful accounts related to receivable
            
            
            86,000
            
            
            
            171,000
            
            
            
            --
            
            
            
            --
            
            
            
            --Impairment
      of real estate held for sale
            
            
            184,000
            
            
            
            --
            
            
            
            --
            
            
            
            292,000
            
            
            
            1,271,000Gain
      on sale of real estate held for sale
            
            
            --
            
            
            
            (286,000
            )
            
            
            (519,000
            )
            
            
            (1,049,000
            )
            
            
            (1,072,000
            )Loss
      on sale of real estate held for sale
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            474,000
            
            
            
            400,000Gain
      on real estate held for sale - seller financed
            
            
            (1,265,000
            )
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --Recovery
      of allowance for doubtful notes receivable
            
            
            (281,000
            )
            
            
            (15,000
            )
            
            
            (8,000
            )
            
            
            --
            
            
            
            --Provision
      for loan loss
            
            
            1,336,000
            
            
            
            3,000,000
            
            
            
            --
            
            
            
            --
            
            
            
            1,296,000Gain
      on sale of marketable securities
            
            
            --
            
            
            
            (1,000
            )
            
            
            (46,000
            )
            
            
            --
            
            
            
            --Amortized
      interest income
            
            
            (69,000
            )
            
            
            (159,000
            )
            
            
            --
            
            
            
            --
            
            
            
            --Change
      in operating assets and liabilities:Interest
      and other receivables
            
            
            (14,000
            )
            
            
            (1,000
            )
            
            
            (54,000
            )
            
            
            664,000
            
            
            
            612,000Due
      to/from related parties
            
            
            (120,000
            )
            
            
            247,000
            
            
            
            (2,738,000
            )
            
            
            2,180,000
            
            
            
            354,000Other
      assets
            
            
            25,000
            
            
            
            70,000
            
            
            
            --
            
            
            
            --
            
            
            
            --Accounts
      payable and accrued liabilities
            
            
            489,000
            
            
            
            203,000
            
            
            
            (339,000
            )
            
            
            (7,000
            )
            
            
            92,000Net
      cash provided (used) by operating activities
            
            
            3,181,000
            
            
            
            3,816,000
            
            
            
            (638,000
            )
            
            
            4,783,000
            
            
            
            4,081,000Cash
      flows from investing activities:Investments
      in real estate loans
            
            
            (14,716,000
            )
            
            
            (37,455,000
            )
            
            
            (17,009,000
            )
            
            
            (5,627,000
            )
            
            
            (20,565,000
            )Purchase
      of investments in real estate loans including interest
      receivable
            
            
            --
            
            
            
            --
            
            
            
            (5,408,000
            )
            
            
            --
            
            
            
            --Purchase
      of investments in real estate loans from:VRM
      II
            
            
            (4,434,000
            )
            
            
            (500,000
            )
            
            
            --
            
            
            
            --
            
            
            
            (600,000
            )Third
      parties
            
            
            --
            
            
            
            (75,000
            )
            
            
            --
            
            
            
            (1,459,000
            )Proceeds
      from loan payoffs
            
            
            18,585,000
            
            
            
            33,043,000
            
            
            
            17,908,000
            
            
            
            15,259,000
            
            
            
            11,490,000Principal
      payments on real estate held for sale-seller financed
            
            
            7,402,000
            
            
            
            886,000
            
            
            
            2,585,000
            
            
            
            507,000
            
            
            
            --Sale
      of investments in real estate loans to:VRM
      II
            
            
            --
            
            
            
            1,350,000
            
            
            
            7,600,000
            
            
            
            --
            
            
            
            --Third
      parties
            
            
            --
            
            
            
            125,000
            
            
            
            337,000
            
            
            
            155,000
            
            
            
            --Proceeds
      from sale of investment in real estate held for sale
            
            
            --
            
            
            
            2,551,000
            
            
            
            4,227,000
            
            
            
            7,333,000
            
            
            
            8,245,000Legal
      expenses paid and applied against loan allowance
            
            
            (138,000
            )
            
            
            (362,000
            )
            
            
            --
            
            
            
            --
            
            
            
            --Proceeds
      from note receivable
            
            
            297,000
            
            
            
            33,000
            
            
            
            8,000
            
            
            
            --
            
            
            
            --Purchase
      of marketable securities
            
            
            --
            
            
            
            --
            
            
            
            (3,565,000
            )
            
            
            --
            
            
            
            --Purchase
      of marketable securities - related party
            
            
            (1,214,000
            )
            
            
            (1,843,000
            )
            
            
            --
            
            
            
            --
            
            
            
            --Proceeds
      from sale of marketable securities
            
            
            --
            
            
            
            1,717,000
            
            
            
            1,895,000
            
            
            
            --
            
            
            
            --Cash
      outlays for real estate held for sale
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            (2,251,000
            )
            
            
            --Purchase
      of certificates of deposit
            
            
            --
            
            
            
            (2,532,000
            )
            
            
            --
            
            
            
            --
            
            
            
            --Proceeds
      from maturities of certificates of deposit
            
            
            150,000
            
            
            
            2,682,000
            
            
            
            --
            
            
            
            --
            
            
            
            --Proceeds
      from unearned revenue
            
            
            --
            
            
            
            100,000
            
            
            
            --
            
            
            
            --
            
            
            
            --Deposit
      liability
            
            
            519,000
            
            
            
            800,000
            
            
            
            222,000
            
            
            
            247,000
            
            
            
            516,000Net
      cash provided (used) by investing activities
            
            $
            6,451,000
            
            
            $
            520,000
            
            
            $
            8,800,000
            
            
            $
            14,164,000
            
            
            $
            (914,000
            )











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VESTIN
      REALTY MORTGAGE I, INC.CONSOLIDATED
      STATEMENTS OF CASH FLOWS (CONTINUED)For
      The
              Year
      Ended
            
            
            For
      The Twelve Months Ended
            
            
            For
      The Six
              Months
      Ended
            
            
            For
      The Six
              Months
      Ended
            
            
            For
      The Nine Month Transition Period Ended12/31/2007
            
            
            12/31/2006
            
            
            12/31/2005
            
            
            12/31/2004
            
            
            6/30/2005(Unaudited)Cash
      flows from financing activities:Principal
      payments on notes payable
            
            $
            (210,000
            )
            
            $
            (1,053,000
            )
            
            $
            --
            
            
            $
            (2,000,000
            )
            
            $
            --Proceeds
      from issuance of notes payable
            
            
            188,000
            
            
            
            --
            
            
            
            881,000
            
            
            
            --
            
            
            
            --Dividends
      paid to stockholders, net of reinvestments
            
            
            (4,199,000
            )
            
            
            (1,502,000
            )
            
            
            --
            
            
            
            --
            
            
            
            --Dividends
      paid to stockholders - related party
            
            
            (378,000
            )
            
            
            (72,000
            )
            
            
            --
            
            
            
            --
            
            
            
            --Members'
      distributions, net of reinvestments
            
            
            --
            
            
            
            (1,668,000
            )
            
            
            (2,082,000
            )
            
            
            (2,222,000
            )
            
            
            (3,159,000
            )Members'
      distributions - related party
            
            
            --
            
            
            
            (25,000
            )
            
            
            (30,000
            )
            
            
            (31,000
            )
            
            
            (46,000
            )Members'
      redemptions
            
            
            --
            
            
            
            (6,377,000
            )
            
            
            (1,909,000
            )
            
            
            (1,055,000
            )
            
            
            (6,930,000
            )Net
      cash used in financing activities
            
            
            (4,599,000
            )
            
            
            (10,697,000
            )
            
            
            (3,140,000
            )
            
            
            (5,308,000
            )
            
            
            (10,135,000
            )NET
      CHANGE IN CASH
            
            
            5,033,000
            
            
            
            (6,361,000
            )
            
            
            5,022,000
            
            
            
            13,639,000
            
            
            
            (6,968,000
            )Cash,
      beginning of period
            
            
            1,523,000
            
            
            
            7,884,000
            
            
            
            2,862,000
            
            
            
            6,571,000
            
            
            
            9,830,000Cash,
      end of period
            
            $
            6,556,000
            
            
            $
            1,523,000
            
            
            $
            7,884,000
            
            
            $
            20,210,000
            
            
            $
            2,862,000Supplemental
      disclosures of cash flows information:Income
      taxes paid
            
            $
            --
            
            
            $
            --
            
            
            $
            --
            
            
            $
            --
            
            
            $
            --Interest
      paid
            
            $
            15,000
            
            
            $
            85,000
            
            
            $
            107,000
            
            
            $
            440,000
            
            
            $
            --Non-cash
      investing and financing activities:Adjustment
      to note receivable and related allowance
            
            $
            6,000
            
            
            $
            --
            
            
            $
            --
            
            
            $
            --
            
            
            $
            --Dividend
      payable
            
            $
            412,000
            
            
            $
            1,030,000
            
            
            $
            --
            
            
            $
            --
            
            
            $
            --Investment
      in real estate held for sale reclassified from interest
      receivable
            
            $
            --
            
            
            $
            --
            
            
            $
            --
            
            
            $
            --
            
            
            $
            33,000Issuance
      of note receivable related to sale of real estate held for
      sale
            
            $
            --
            
            
            $
            --
            
            
            $
            171,000
            
            
            $
            --
            
            
            $
            --Loan
      rewritten with same or similar collateral
            
            $
            5,281,000
            
            
            $
            --
            
            
            $
            --
            
            
            $
            --
            
            
            $
            --Loans
      funded through secured borrowings
            
            $
            --
            
            
            $
            310,000
            
            
            $
            1,665,000
            
            
            $
            2,084,000
            
            
            $
            8,830,000Note
      payable relating to prepaid E & O insurance policy
            
            $
            --
            
            
            $
            194,000
            
            
            $
            --
            
            
            $
            --
            
            
            $
            --Note
      receivable from guarantor in exchange for release of
    guarantee
            
            $
            --
            
            
            $
            --
            
            
            $
            --
            
            
            $
            119,000
            
            
            $
            --Payoffs
      of loans funded through secured borrowings
            
            $
            310,000
            
            
            $
            2,719,000
            
            
            $
            10,337,000
            
            
            $
            18,000,000
            
            
            $
            3,574,000Real
      estate held for sale acquired through foreclosure
            
            $
            --
            
            
            $
            3,702,000
            
            
            $
            --
            
            
            $
            5,458,000
            
            
            $
            2,149,000Receivable
      related to loan rewritten with same or similar property, net of allowance,
      as collateral applied to unearned income
            
            $
            --
            
            
            $
            40,000
            
            
            $
            --
            
            
            $
            --
            
            
            $
            --Reinvestment
      of dividends
            
            $
            20,000
            
            
            $
            6,000
            
            
            $
            --
            
            
            $
            --
            
            
            $
            --Reinvestment
      of member distributions
            
            $
            --
            
            
            $
            129,000
            
            
            $
            194,000
            
            
            $
            39,000
            
            
            $
            489,000Sale
      of real estate held for sale where we provided the
    financing
            
            $
            --
            
            
            $
            --
            
            
            $
            886,000
            
            
            $
            7,910,000
            
            
            $
            --Transfer
      of pro-rata interest in real property to Fund II
            
            $
            --
            
            
            $
            --
            
            
            $
            --
            
            
            $
            4,278,000
            
            
            $
            --Unearned
      revenue from loans rewritten with same or similar property as
      collateral
            
            $
            69,000
            
            
            $
            66,000
            
            
            $
            --
            
            
            $
            868,000
            
            
            $
            868,000Unrealized
      gain on marketable securities - related party
            
            $
            (972,000
            )
            
            $
            110,000
            
            
            $
            --
            
            
            $
            --
            
            
            $
            --





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VESTIN
REALTY MORTGAGEI, INC.





NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS





DECEMBER
31, 2007





NOTE
A — ORGANIZATION





Vestin
Fund I, LLC (“Fund I”) was organized in December 1999 as a Nevada limited
liability company for the purpose of investing in commercial real estate loans
(hereafter referred to as “real estate loans”).  Vestin Realty
Mortgage I, Inc. (“VRM I”) was organized in January 2006 as a Maryland
corporation for the sole purpose of effecting a merger with Fund
I.  On May 1, 2006, Fund I merged into VRM I and the members of Fund I
received one share of VRM I’s common stock for each membership unit of Fund
I.  References in this report to the “Company”, “we”, “us” or “our”
refer to Fund I with respect to the period prior to May 1, 2006 and to VRM I
with respect to the period commencing on May 1, 2006.  Because we were
a limited liability company (“LLC”) during the prior periods reflected in this
report, we make reference to Fund I’s “members” rather than “stockholders” in
reporting our financial results.





We invest
in loans secured by real estate through deeds of trust or mortgages (hereafter
referred to collectively as “deeds of trust” and as defined in our Management
Agreement as “Mortgage Assets”).  We commenced operations in August
2000.





We
operate as a real estate investment trust (“REIT”).  We are not a
mutual fund or an investment company within the meaning of the Investment
Company Act of 1940, nor are we subject to any regulation
thereunder.  As a REIT, we are required to have a December 31 fiscal
year end.





Our
manager is Vestin Mortgage, Inc. (the “manager” or “Vestin Mortgage”), a Nevada
corporation, which is a wholly owned subsidiary of Vestin Group, Inc. (“Vestin
Group”), a Delaware corporation.  Michael Shustek, the CEO and
director of our manager and CEO, President and a director of us, wholly owns
Vestin Group, Inc., which is engaged in asset management, real estate lending
and other financial services through its subsidiaries.  Our manager,
prior to June 30, 2006, also operated as a licensed Nevada mortgage broker and
was generally engaged in the business of brokerage, placement and servicing of
commercial loans secured by real property.  On July 1, 2006, the
mortgage broker license was issued to an affiliated company, Vestin
Originations, Inc. that has continued the business of brokerage, placement and
servicing of real estate loans.  Vestin Originations, Inc. is a wholly
owned subsidiary of Vestin Group.  On September 1, 2007, the servicing
of real estate loans was assumed by our manager.





Pursuant
to our management agreement, our manager implements our business strategies on a
day-to-day basis, manages and provides services to us, and provides similar
services to our subsidiary.  Without limiting the foregoing, our
manager performs other services as may be required from time to time for
management and other activities relating to our assets, as our manager shall
deem appropriate.  Consequently, our operating results are dependent
upon our manager’s ability and performance in managing our operations and
servicing our assets.





Vestin
Mortgage, Inc. is also the manager of Vestin Realty Mortgage II, Inc. (“VRM
II”), as the successor by merger to Vestin Fund II, LLC (“Fund II”), Vestin Fund
III, LLC (“Fund III”) and inVestin Nevada, Inc. (“inVestin”), a company wholly
owned by our manager’s CEO.  These entities also invest in real estate
loans.





The
consolidated financial statements include the accounts of us and our wholly
owned taxable REIT subsidiary, TRS I, Inc.  All significant
inter-company transactions and balances have been eliminated in
consolidation.





NOTE
B — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES








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Management
Estimates
 
 The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America (“GAAP”) 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





Cash and Cash
Equivalents





Cash and
cash equivalents include interest-bearing and non-interest-bearing bank
deposits, money market accounts, short-term certificates of deposit with
original maturities of three months or less, and short-term instruments with a
liquidation provision of one month or less.





Revenue
Recognition





Interest
is recognized as revenue when earned according to the terms of the loans, using
the effective interest method.  We do not accrue interest income on
loans once they are determined to be impaired.  A loan is impaired
when based on current information and events, it is probable that we will be
unable to collect all amounts due according to the contractual terms of the loan
agreement or when the payment of interest is 90 days past due.  Cash
receipts will be allocated to interest income, except when such payments are
specifically designated by the terms of the loan as principal reduction or when
management does not believe our investment in the loan is fully
recoverable.





Investments in Real Estate
Loans





We may
from time to time acquire or sell investments in real estate loans from or to
our manager or other related parties pursuant to the terms of our Management
Agreement without a premium.  The primary purpose is to either free up
capital to provide liquidity for various reasons, such as loan diversification,
or place excess capital in investments to maximize the use of our
capital.  Selling or buying loans allows us to diversify our loan
portfolio within these parameters.  Due to the short-term nature of
the loans we make and the similarity of interest rates in loans we normally
would invest in, the fair value of a loan typically approximates its carrying
value.  Accordingly, discounts or premiums typically do not apply upon
sales of loans and therefore, generally no gain or loss is recorded on these
transactions, regardless of whether to a related or unrelated
party.





Investments
in real estate loans are secured by deeds of trust or
mortgages.  Generally, our real estate loans require interest only
payments with a balloon payment of the principal at maturity.  We have
both the intent and ability to hold real estate loans until maturity and
therefore, real estate loans are classified and accounted for as held for
investment and are carried at amortized cost.  Loans sold to or
purchased from affiliates are accounted for at the principal balance and no gain
or loss is recognized by us or any affiliate.  Loan-to-value ratios
are based on appraisals obtained at the time of loan origination and may not
reflect subsequent changes in value estimates.  Such appraisals are
generally dated within 12 months of the date of loan origination and may be
commissioned by the borrower.





The
appraisals may be for the current estimate of the “as-if developed” value of the
property, which approximates the post-construction value of the collateralized
property assuming that such property is developed.  As-if developed
values on raw land loans or acquisition and development loans often dramatically
exceed the immediate sales value and may include anticipated zoning changes and
timely successful development by the purchaser.  As most of the
appraisals will be prepared on an as-if developed basis, if a loan goes into
default prior to any development of a project, the market value of the property
may be substantially less than the appraised value.  As a result,
there may be less security than anticipated at the time the loan was originally
funded.  If there is less security and a default occurs, we may not
recover the full amount of the loan.





Allowance for Loan
Losses





We
maintain an allowance for loan losses on our investments in real estate loans
for estimated credit impairment.  Our manager’s estimate of losses is
based on a number of factors including the types and dollar amounts of loans in
the portfolio, adverse situations that may affect the borrower’s ability to
repay, prevailing economic conditions and the underlying collateral securing the
loan.  Additions to the allowance are provided through a charge to
earnings and are based on an assessment of certain factors, which may indicate
estimated losses on the loans.  Actual losses on loans are recorded as
a charge-off or a reduction to the allowance for loan
losses.  Generally, subsequent recoveries of amounts previously
charged off are added back to the allowance and included as income.





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Estimating
allowances for loan losses requires significant judgment about the underlying
collateral, including liquidation value, condition of the collateral, competency
and cooperation of the related borrower and specific legal issues that affect
loan collections or taking possession of the property.  As a
commercial real estate lender willing to invest in loans to borrowers who may
not meet the credit standards of other financial institutional lenders, the
default rate on our loans could be higher than those generally experienced in
the real estate lending industry.  We, our manager and Vestin
Originations generally approve loans more quickly than other real estate lenders
and, due to our expedited underwriting process, there is a risk that the credit
inquiry we perform will not reveal all material facts pertaining to a borrower
and the security.





Additional
facts and circumstances are discovered as we continue our efforts in the
collection and foreclosure processes.  This additional information
often causes management to reassess its estimates.  In recent years,
we have revised estimates of our allowance for loan
losses.  Circumstances that may cause significant changes in our
estimated allowance include, but are not limited to:





·
            Declines
      in real estate market conditions, which can cause a decrease in expected
      market value;





·
            Discovery
      of undisclosed liens for community improvement bonds, easements and
      delinquent property taxes;





·
            Lack
      of progress on real estate developments after we advance
      funds.  We customarily utilize disbursement agents to monitor
      the progress of real estate developments and approve loan
      advances.  After further inspection of the related property,
      progress on construction occasionally does not substantiate an increase in
      value to support the related loan
advances;





·
            Unanticipated
      legal or business issues that may arise subsequent to loan origination or
      upon the sale of foreclosed upon property;
and





·
            Appraisals,
      which are only opinions of value at the time of the appraisal, may not
      accurately reflect the value of the
property.





Real Estate Held For
Sale





Real
estate held for sale includes real estate acquired through foreclosure and will
be carried at the lower of the recorded amount, inclusive of any senior
indebtedness, or the property's estimated fair value, less estimated costs to
sell, with fair value based on appraisals and knowledge of local market
conditions.  While pursuing foreclosure actions, we seek to identify
potential purchasers of such property.  It is not our intent to invest
in or own real estate as a long-term investment.  In accordance with
Statement of Financial Accounting Standards (“FAS”) 144 – Accounting for the Impairment or
Disposal of Long Lived Assets(“FAS 144”), we seek to sell properties
acquired through foreclosure as quickly as circumstances permit.  The
carrying values of real estate held for sale are assessed on a regular basis
from updated appraisals, comparable sales values or purchase
offers.





Management
classifies real estate held for sale when the following criteria are
met:





·
            Management
      commits to a plan to sell the
properties;





·
            The
      property is available for immediate sale in its present condition subject
      only to terms that are usual and
customary;





·
            An
      active program to locate a buyer and other actions required to complete a
      sale have been initiated;





·
            The
      sale of the property is probable;





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·
            The
      property is being actively marketed for sale at a reasonable price;
      and





·
            Withdrawal
      or significant modification of the sale is not
  likely.





Real Estate Held For Sale –
Seller Financed





We
occasionally finance sales of foreclosed properties to independent third
parties.  In order to record a sale of real estate when the seller is
providing continued financing, FAS 66 – Accounting for Sales of Real
Estate ("FAS 66'') requires the buyer of the real estate to make minimum
initial and continuing investments.  Minimum initial investments as
defined by FAS 66 range from 10% to 25% based on the type of real estate
sold.  In addition, FAS 66 limits commitments and contingent
obligations incurred by a seller in order to record a sale.





Because
we occasionally foreclose on loans with raw land or developments in progress,
available financing for such properties is often limited and we frequently
provide financing up to 100% of the selling price on these
properties.  In addition, we may make additional loans to the buyer to
continue development of a property.  Although sale agreements are
consummated at closing, they lack adequate initial investment by the buyer to
qualify as a sales transaction as defined in FAS 66.  These sale
agreements are not recorded as a sale until the requirements of FAS 66 are
met.





These
sale agreements are recorded under the deposit method or cost recovery method as
defined in FAS 66.  Under the deposit method, no profit is recognized
and any cash received from the buyer is reported as a deposit liability on the
balance sheet.  Under the cost recovery method, no profit is
recognized until payments by the buyer exceed the carrying basis of the property
sold.  Principal payments received will reduce the related receivable,
and interest collections will be recorded as unrecognized gross profit on the
balance sheet.  The carrying values of these properties are included
in real estate held for sale on the accompanying consolidated balance
sheets.





In cases
where the investment by the buyer is significant (generally 20% or more) and the
buyer has an adequate continuing investment, the purchase money debt is not
subject to future subordination, and a full transfer of risks and rewards has
occurred, we will use the full accrual method.  Under the full accrual
method, a sale is recorded and the balance remaining to be paid is recorded as a
normal note.  Interest is recorded as income when
received.





Classification of Operating
Results from Real Estate Held for Sale





FAS 144 –
Accounting for the Impairment
or Disposal of Long-Lived Assets ("FAS 144'') generally requires
operating results from long lived assets held for sale to be classified as
discontinued operations as a separately stated component of net
income.  Our operations related to real estate held for sale are
separately identified in the accompanying consolidated statements of
income.





Secured
Borrowings





Secured
borrowings provide an additional source of capital for our lending
activity.  Secured borrowings allow us to increase the diversification
of our loan portfolio and to invest in loans that we might not otherwise invest
in.  We do not receive any fees for entering into secured borrowing
arrangements; however, we may receive revenue for any differential of the
interest spread, if applicable.  Loans in which unaffiliated investors
have participated through inter-creditor agreements (“Inter-creditor
Agreements”) are accounted for as secured borrowings in accordance with
Statement of Financial Accounting Standards (“FAS”) 140 – Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities(“FAS
140”).





The
Inter-creditor Agreements provide us additional funding sources for real estate
loans whereby an unaffiliated investor (the “Investor”) may participate on a
non-pari passu basis in certain real estate loans with us and/or VRM II and/or
Fund III (collectively, the “Lead Lenders”).  In the event of borrower
non-performance, the Inter-creditor Agreements generally provide that the Lead
Lenders must repay the Investor’s loan amount either by (i) continuing to remit
to the Investor the interest due on the participated loan amount; (ii)
substituting an alternative loan acceptable to the Investor; or (iii)
repurchasing the participation from the Investor for the outstanding balance
plus accrued interest.





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Additionally,
an Investor may participate in certain loans with the Lead Lenders through
Participation Agreements.  In the event of borrower non-performance,
the Participation Agreement may allow the Investor to be repaid up to the amount
of the Investor’s investment prior to the Lead Lender being
repaid.  Real estate loan financing under the Participation Agreements
are also accounted for as a secured borrowing in accordance with FAS
140.  We do not receive any revenues for entering into secured
borrowing arrangements.





Investment in Marketable
Securities – Related Party





Investment
in marketable securities – related party consists of stock in VRM
II.  The securities are stated at fair value as determined by the
market price as of December 31, 2007.  All securities are classified
as available-for-sale under the provisions of FAS 115 – Accounting for Certain Investments
in Debt and Equity Securities.





Fair Value of Financial
Instruments





FAS 107 –
Disclosures about Fair Value
of Financial Instruments(“FAS 107”), requires the determination of fair
value of our financial assets.  The following methods and assumptions
were used to estimate the fair value of financial instruments included in the
following categories:





(a)
            Certificate
      of Deposits and Short-Term Investments:  The carrying amounts of
      these instruments are at amortized cost, which approximates fair
      value.





(b)
            Investment
      in Real Estate Loans:  The carrying value of these instruments,
      net of the allowance for loan losses, approximates the fair value due to
      their short-term maturities.  Fair values for loans, which are
      delinquent and/or in foreclosure are determined by underlying collateral
      securing the loans.





(c)
            Assets
      under Secured Borrowing:  The carrying amount of these
      instruments approximate fair value.  The fair value is estimated
      based upon projected cash flows discounted at the estimated current
      interest rates at which similar loans would be
  made.





At
December 31, 2007 and 2006, the estimated fair values of the real estate loans,
including seller financed loans, were approximately $45.0 million and $54.2
million, respectively.  These estimates were based upon the present
value of expected cash flows discounted at rates currently available for similar
loans.  Fair value estimates are made at a specific point in time;
based on relevant market information; are subjective in nature; and involve
uncertainties and matters of significant judgment.  Accordingly, the
estimates presented herein are not necessarily indicative of the amounts that
would be collected upon maturity or disposition of the loans.





Basic and Diluted Earnings
Per Common Share





Basic
earnings per share (“EPS”) is computed, in accordance with FAS 128 – Earnings per Share (“FAS
128”), by dividing net income available to common stockholders by the weighted
average number of common shares outstanding.  Diluted EPS is similar
to basic EPS except that the weighted average number of common shares
outstanding is increased to include the number of additional common shares that
would have been outstanding if the dilutive potential common shares had been
exercised.  We had no outstanding common share equivalents during the
year ended December 31, 2007.  The following is a computation of the
EPS data for the year ended December 31, 2007:





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For
      the
              Year
      Ended
              December
      31, 2007Net
      income available to common stockholders
            
            $
            2,810,000Weighted
      average number of common shares outstanding during the
    period
            
            
            6,871,671Basic
      and diluted earnings per weighted average common share
            
            $
            0.41





Net Income Allocated to
Members Per Weighted Average Membership Unit





Fund I
was an LLC prior to the merger, which stated net income allocated to members per
weighted average membership unit that is computed by dividing net income
calculated in accordance with GAAP by the weighted average number of membership
units outstanding for the period.  We had no outstanding common shares
equivalents during the twelve months ended December 31, 2006.  The
following is a computation of the net income per weighted average membership
unit for the four months ended April 30, 2006, basic earnings per share for the
eight months ended December 31, 2006 and total earnings per weighted average
share/membership unit for the twelve months ended December 31,
2006:





For
      the Four Months Ended April 30, 2006
            
            
            For
      the Eight Months Ended December 31, 2006
            
            
            For
      the Twelve Months Ended December 31, 2006Net
      income available to common stockholders / members
            
            $
            (2,016,000
            )
            
            $
            2,603,000
            
            
            $
            587,000Weighted
      average number of common shares / units outstanding during the
      period
            
            
            6,910,950
            
            
            
            6,869,035
            
            
            
            6,882,809Basic
      and diluted earnings per common share / membership unit
            
            $
            (0.29
            )
            
            $
            0.38
            
            
            $
            0.09





Common Stock
Dividends





During
the year ended December 31, 2007, cash dividends declared totaled approximately
$0.58 per common share, representing ordinary income.





On
January 16, 2008, the board of directors declared a monthly cash dividend of
$0.041 per share for the month of January 2008, that will be paid on February
28, 2008, to the stockholders of record as of February 8, 2008.





On
February 21, 2008, our board of directors declared a cash dividend of $0.041 per
common share for the month of February 2008, payable on March 28, 2008 to
stockholders of record as of March 7, 2008.





Segments





We
operate as one business segment.





Principles of
Consolidation





The
accompanying consolidated financial statements include, on a consolidated basis,
our accounts, the accounts of our wholly-owned subsidiary. All significant
intercompany balances and transactions have been eliminated in
consolidation.





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Income
Taxes





We are
organized and conduct our operations to qualify as a real estate investment
trust (“REIT”) under Sections 856 to 860 of the Internal Revenue Code of 1986,
as amended (the “Code”) and to comply with the provisions of the Internal
Revenue Code with respect thereto.  A REIT is generally not subject to
federal income tax on that portion of its REIT taxable income (“Taxable Income”)
which is distributed to its stockholders, provided that at least 90% of Taxable
Income is distributed and provided that certain other requirements are
met.  Our taxable income may substantially exceed or be less than our
net income as determined based on GAAP, because, differences in GAAP and taxable
net income consist primarily of allowances for loan losses or doubtful account,
write downs on real estate held for sale, amortization of deferred financing
cost, capital gains and losses, and deferred income.





Certain
assets of ours are held in a taxable REIT subsidiary (“TRS”).  The
income of a TRS is subject to federal and state income taxes.  The net
income tax provision for the year ended December 31, 2007, was approximately
zero.





Reclassifications





Certain
reclassifications have been made to the prior periods’ consolidated financial
statements to conform to the current period presentation.





NOTE
C — FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK





Financial
instruments with concentration of credit and market risk include cash and loans
secured by deeds of trust.





We
maintain cash deposit accounts and certificates of deposit, which at times may
exceed federally insured limits.  We have not experienced any losses
in such accounts and believe we are not exposed to any significant credit risk
related to cash deposits.  As of December 31, 2007 and 2006, we had
approximately $6.4 million and $1.5 million, respectively, in excess of the
federally insured limits.





As of
December 31, 2007, 30%, 17%, 16% and 15% of our loans were in Nevada, Hawaii,
Arizona and Oregon, respectively, compared to 35%, 15%, 9% and 9%, at December
31, 2006, respectively.  As a result of this geographical
concentration of our real estate loans, a downturn in the local real estate
markets in these states could have a material adverse effect on us.





At
December 31, 2007, the aggregate amount of loans to our three largest borrowers
represented approximately 32% of our total investment in real estate
loans.  These real estate loans consisted of commercial and land
loans, located in Hawaii, Nevada and Oregon with first lien positions, interest
rates between 12.0% and 14.0%, with an aggregate outstanding balance of
approximately $17.2 million and maturing through December 2008.  At
December 31, 2006, the aggregate amount of loans to our three largest borrowers
represented 33% of our total investment in real estate loans including loans
related to real estate held for sale – seller financed.  These real
estate loans consisted of commercial and land located in Hawaii and Nevada, with
a first lien position, interest rates between 9% and 14%, with an aggregate
outstanding balance of approximately $20.3 million.  The loans in
Hawaii described above referred to the RightStar loans discussed in Note D –
Investments in Real Estate
Loans.  We have a significant concentration of credit risk with
our largest borrowers, any additional defaults by such borrowers could have a
material adverse effect on us.





The
success of a borrower’s ability to repay its real estate loan obligation in a
large lump-sum payment may be dependent upon the borrower’s ability to refinance
the obligation or otherwise raise a substantial amount of cash.  An
increase in interest rates over the loan rate applicable at origination of the
loan may have an adverse effect on the borrower’s ability to
refinance.





NOTE
D — INVESTMENTS IN REAL ESTATE LOANS





As of
December 31, 2007, all of our loans provided for payments of interest only with
a “balloon” payment of principal payable in full at the end of the
term.





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In
addition, we may invest in real estate loans that require borrowers to maintain
interest reserves funded from the principal amount of the loan for a period of
time.  At December 31, 2007, we had approximately $13.5 million in
investments in real estate loans that had interest reserves where the total
outstanding principal due to our co-lenders and us was approximately $108.1
million.  These loans had interest reserves of approximately $9.7
million, of which our portion was approximately $1.3 million.  At
December 31, 2006, we had approximately $17.1 million in investments in real
estate loans that had interest reserves where the total outstanding principal
due to our co-lenders and us was approximately $120.3 million.  These
loans had interest reserves of approximately $5.6 million, of which our portion
was approximately $0.7 million.





As of
December 31, 2007, we had five real estate loan products consisting of
commercial, construction, acquisition and development, land and
residential.  The effective interest rates on all product categories
range from 9% to 14%.  Revenue by product will fluctuate based upon
relative balances during the period.





Investments
in real estate loans as of December 31, 2007, were as follows:





Loan
      Type
            
            Number
      Of Loans
            
            
            Balance
      (2)
            
            
            Weighted
      Average Interest Rate
            
            
            Portfolio
      Percentage
            
            
            Weighted
      Average Loan-To-Value (1)Acquisition
      and development
            
            
            3
            
            
            $
            2,750,000
            
            
            
            12.64%
            
            
            
            5.12%
            
            
            
            79.42%Commercial
            
            
            14
            
            
            
            31,926,000
            
            
            
            12.06%
            
            
            
            59.42%
            
            
            
            91.33%Construction
            
            
            8
            
            
            
            1,950,000
            
            
            
            11.49%
            
            
            
            3.63%
            
            
            
            72.38%Land
            
            
            9
            
            
            
            17,104,000
            
            
            
            12.52%
            
            
            
            31.83%
            
            
            
            62.84%34
            
            
            $
            53,730,000
            
            
            
            12.21%
            
            
            
            100.00%
            
            
            
            80.97%





Investments
in real estate loans, including loans related to real estate held for sale –
seller financed, as of December 31, 2006 were as follows:





Loan
      Type
            
            Number
      Of Loans
            
            
            Balance
      (2)
            
            
            Weighted
      Average Interest Rate
            
            
            Portfolio
      Percentage
            
            
            Weighted
      Average Loan-To-Value (1)Acquisition
      and development
            
            
            4
            
            
            $
            2,788,000
            
            
            
            12.01%
            
            
            
            4.60%
            
            
            
            64.20%Commercial
            
            
            14
            
            
            
            36,072,000
            
            
            
            9.99%
            
            
            
            59.43%
            
            
            
            81.44%Construction
            
            
            6
            
            
            
            5,994,000
            
            
            
            11.68%
            
            
            
            9.87%
            
            
            
            64.66%Land
            
            
            9
            
            
            
            15,843,000
            
            
            
            12.31%
            
            
            
            26.10%
            
            
            
            52.16%33
            
            
            $
            60,697,000
            
            
            
            10.85%
            
            
            
            100.00%
            
            
            
            71.35%





(1)
            Loan-to-value
      ratios are based on the most recent appraisals and may not reflect
      subsequent changes in value and are prior to allowances for loan
      losses.  Such appraisals, which may be commissioned by the
      borrower, are generally dated no greater than 12 months prior to the date
      of loan origination.  The appraisals may be for the current
      estimate of the “as-if developed” value of the property, which
      approximates the post-construction value of the collateralized property
      assuming that such property is developed.  “As-if developed”
      values on raw land loans or acquisition and development loans often
      dramatically exceed the immediate sales value and may include anticipated
      zoning changes, and successful development by the purchaser; upon which
      development is dependent on availability of financing.  As most
      of the appraisals will be prepared on an “as-if developed” basis, if a
      loan goes into default prior to completion of the development of the
      project, the market value of the property may be substantially less than
      the appraised value.  As a result, there may be less security
      than anticipated at the time the loan was originally made.  If
      there is less security and a default occurs, we may not recover the full
      amount of the loan.





(2)
            The
      following table reconciles the balance of the loan portfolio to the amount
      shown on the accompanying Consolidated Balance Sheets.  The
      contra accounts represent the amount of real estate held for sale sold to
      third parties where we provided financing.  GAAP requires the
      borrower to have a certain percentage of equity ownership (ranging from
      10% to 25%) to allow us to record the sale of a property.  In
      addition, the borrower must maintain a minimum commitment in the property
      on a continuing basis.  Therefore, until the borrower meets
      this requirement, the investment in the new loan is reduced by the amount
      originally invested in the real estate held for
    sale.





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December
      31, 2007 Balance
            
            
            December
      31, 2006 BalanceBalance
      per loan portfolio
            
            $
            53,730,000
            
            
            $
            60,697,000Less:Seller
      financed loans included in real estate held for sale
            
            
            --
            
            
            
            (7,911,000
            )Proceeds
      of principal on seller financed loans included in deposit
      liability
            
            
            --
            
            
            
            379,000Allowance
      for loan losses **
            
            
            (6,014,000
            )
            
            
            (4,534,000
            )Balance
      per consolidated balance sheet
            
            $
            47,716,000
            
            
            $
            48,631,000





The
following is a schedule of priority of real estate loans, including loans
related to real estate held for sale – seller financed, as of December 31, 2007
and 2006:





Loan
      Type
            
            Number
      of Loans
            
            
            December
      31, 2007 Balance*
            
            
            Portfolio
              Percentage
            
            
            Number
      of Loans
            
            
            December
      31, 2006
              Balance*
            
            
            Portfolio
              PercentageFirst
      deeds of trust
            
            
            33
            
            
            $
            53,430,000
            
            
            
            99.44%
            
            
            
            31
            
            
            $
            60,359,000
            
            
            
            99.44%Second
      deeds of trust
            
            
            1
            
            
            
            300,000
            
            
            
            0.56%
            
            
            
            2
            
            
            
            338,000
            
            
            
            0.56%34
            
            
            $
            53,730,000
            
            
            
            100.00%
            
            
            
            33
            
            
            $
            60,697,000
            
            
            
            100.00%





*  Please
see (2) above


**  Please
refer to (3) Specific Reserve
Allowance below.





The
following is a schedule of contractual maturities of investments in real estate
loans as of December 31, 2007:





January
      2008 - March 2008 (a)
            
            $
            33,636,000April
      2008 - June 2008
            
            
            7,394,000July
      2008 - September 2008
            
            
            5,266,000October
      2008 - December 2008
            
            
            4,434,000Thereafter
            
            
            3,000,000Total
            
            $
            53,730,000





(a)
            Amount
      includes the balance of non-performing loans and loans that have been
      subsequently extended as of December 31,
2007.





The
following is a schedule by geographic location of investments in real estate
loans, including loans related to real estate held for sale – seller financed,
as of December 31, 2007 and 2006:




December
      31, 2007 Balance*
              
              
              Portfolio
      Percentage
              
              
              December
      31, 2006 Balance*
              
              
              Portfolio
      PercentageArizona
              
              $
              8,344,000
              
              
              
              15.53%
              
              
              $
              5,509,000
              
              
              
              9.08%California
              
              
              3,750,000
              
              
              
              6.98%
              
              
              
              6,988,000
              
              
              
              11.51%Hawaii
              
              
              9,307,000
              
              
              
              17.32%
              
              
              
              9,307,000
              
              
              
              15.33%Nevada
              
              
              16,085,000
              
              
              
              29.94%
              
              
              
              21,310,000
              
              
              
              35.11%New
      York
              
              
              2,819,000
              
              
              
              5.25%
              
              
              
              3,246,000
              
              
              
              5.35%Oklahoma
              
              
              1,891,000
              
              
              
              3.52%
              
              
              
              1,937,000
              
              
              
              3.19%Oregon
              
              
              8,134,000
              
              
              
              15.14%
              
              
              
              5,200,000
              
              
              
              8.57%Texas
              
              
              3,000,000
              
              
              
              5.58%
              
              
              
              4,168,000
              
              
              
              6.87%Washington
              
              
              400,000
              
              
              
              0.74%
              
              
              
              3,032,000
              
              
              
              4.99%Total
              
              $
              53,730,000
              
              
              
              100.00%
              
              
              $
              60,697,000
              
              
              
              100.00%


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*  Please
see (2) above





At
December 31, 2007, the following loans were non-performing (based on current
information and events, it is probable that we will be unable to collect all
amounts due according to the contractual terms of the loan agreement or when the
payment of interest is 90 days past due); RightStar, Inc. (Part I & Part
II), Monterrey Associates LP, Forest Development LLC, Pirates Lake, Ltd,
Jeffrey's Court, LLC, V & M Homes at the Palms, Inc. and Brawley CA 122,
LLC.  These loans are currently carried on our books at a value of
approximately $11.3 million, net of allowance for loan losses of approximately
$5.6 million, which does not include the allowances of approximately $0.4
million relating to the decrease in the property value for performing loans as
of December 31, 2007.  These loans have been placed on non-accrual of
interest status and are the subject of pending foreclosure
proceedings.





·
            RightStar,
      Inc. (Part I & Part II), are loans secured by a lien on the business
      and virtually all of the property of RightStar, which includes 4
      cemeteries and 8 mortuaries in Hawaii with an outstanding balance of
      approximately $32.3 million of which our portion is approximately $9.3
      million ($4.4 million for Part I and $4.9 million for Part
      II).  The lenders have commenced a judicial foreclosure on the
      loans, Part I and Part II.





·
            Monterrey
      Associates, L.P. is a non-performing loan which was originally secured by
      various real estate collateral, including a 248 unit apartment complex in
      Oklahoma City, Oklahoma.  The outstanding balance on the loan is
      approximately $4.4 million, of which our portion is approximately $1.2
      million.  As of December 31, 2007, this loan has been considered
      non-performing for the last sixteen months.  Our manager brought
      foreclosure and other legal proceedings to protect our interest in the
      collateral.  The borrowers have alleged that our lien on the
      Oklahoma City apartment complex was extinguished as a result of legal
      actions commenced on our behalf with respect to other collateral securing
      the non-performing loan, of which our portion is approximately $0.5
      million net of allowance for loan loss.   We are vigorously
      contesting their position; however, we cannot determine at this time the
      outcome of these legal proceedings.  Our manager has evaluated
      this loan and based on an appraisal obtained during January 2008, a
      specific allowance of approximately $2.4 million, of which our portion was
      approximately $0.7 million, was
recorded.





·
            Forest
      Development, LLC, is a loan secured by two 4,000 square foot single family
      residences, together with the four remaining lots in a subdivision,
      located on Mt. Charleston, NV with an outstanding balance of approximately
      $2.6 million of which our portion is approximately $0.6
      million.  As of December 31, 2007, this loan has been considered
      non-performing for the last fourteen months.  We commenced
      foreclosure proceedings and filed litigation to enforce the personal
      guarantee on the loan.  Forest Development subsequently
      counterclaimed and also filed a separate lawsuit against us, Fund I, Fund
      II, VRM II, Fund III, Vestin Mortgage, Inc. and Vestin Originations, Inc.
      (the “Defendants”).  In April 2007, the borrower filed for
      protection under Chapter 11 of the United States Bankruptcy
      Code.  In September 2007, Forest Development filed a lawsuit in
      the United States Bankruptcy Court for the District of Nevada, against us,
      Fund I, Fund II VRM II, Fund III, Vestin Mortgage, Inc. and Vestin
      Originations, Inc. (the “Defendants”) alleging breach of contract, breach
      of the implied covenant of good faith and fair dealing, and unjust
      enrichment, which claims are substantially the same as was filed in the
      State Court action.  On December 10, 2007, the United States
      Bankruptcy Court for the District of Nevada granted a motion approving
      settlement between the parties. The settlement provides for the mutual
      dismissal with prejudice of all litigation between the parties, and
      approves the sale of the property to a third party, the proceeds of which
      shall provide for the repayment of all principal, together with the
      payment of interest at the note rate from October 25, 2007.  In
      addition, the settlement lifted the automatic stay, and on March 7, 2008,
      we, VRM II and Fund III foreclosed upon Forest Development LLC and
      classified it as real estate held for sale.  Our manager has
      evaluated this loan and concluded that the value of the underlying
      collateral is sufficient to protect us from loss of
      principal.  No specific allowance was deemed
      necessary.





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·
            Pirates
      Lake, Ltd., is a loan to provide bridge financing for approximately 46.75
      acres of land in Galveston, TX, with an outstanding balance of
      approximately $8.5 million of which our portion is approximately $3.0
      million.  The loan is secured by a first lien on the property
      and guaranteed by the borrower.  Additionally, the loan is
      secured by a second position lien on approximately 0.5 acres of land
      located in Houston, Texas.  As of December 31, 2007, this loan
      has been considered non-performing for the last seven
      months.  On August 7, 2007, we, VRM II and Fund III entered into
      a settlement agreement with the borrower whereby the foreclosure was
      postponed.  Principal, accrued interest and $75,000 for expenses
      incurred by us, VRM II and Fund III relating to the loan were due on
      October 1, 2007.  On October 2, 2007, the borrower was in
      default of the settlement and loan agreements. Subsequently the borrower
      filed for protection under Chapter 11 of the Bankruptcy Code in the United
      States Bankruptcy Court for the Southern District of Texas. On November 7,
      2007, our legal counsel was successful in seeking the dismissal, with
      prejudice, of the subject bankruptcy, together with the lifting of the
      automatic stay from foreclosure.  On February 5, 2008, we, VRM
      II and Fund III foreclosed upon Pirates Lake, Ltd. and classified it as
      real estate held for sale.  Our manager has evaluated this loan
      and concluded that the value of the underlying collateral is sufficient to
      protect us from loss of principal.  No specific allowance was
      deemed necessary.





·
            Jeffrey's
      Court, LLC, is a loan to provide financing for the development of 4.92
      acres of land into 119 condominium units in Las Vegas, NV, with an
      outstanding balance of approximately $5.1 million of which our portion is
      $1.0 million and is secured by a first lien on the property and guaranteed
      by the borrower.  As of December 31, 2007, this loan has been
      considered non-performing for the last five months.  Our manager
      commenced foreclosure proceedings, and on December 6, 2007, the borrower
      filed for protection under Chapter 11 of the Bankruptcy Code in the United
      States Bankruptcy Court for the District of Nevada.  Our manager
      has instructed legal counsel to seek relief from the automatic
      stay.  In addition, we have filed a complaint in State Court,
      against the guarantors of the loan, in order to enforce the personal
      guarantees.  Our manager has evaluated this loan and concluded
      that the value of the underlying collateral is sufficient to protect us
      from loss of principal.  No specific allowance was deemed
      necessary.





·
            V
      & M Homes at the Palms, Inc., is a loan, with a variable interest
      rate, to provide acquisition financing for an 80 acre parcel of land in
      Florence, AZ, with an outstanding balance of approximately $3.9 million of
      which our portion is approximately $1.0 million and is secured by a first
      lien on the property and guaranteed by the principals of the
      borrower.  As of December 31, 2007, this loan has been
      considered non-performing for the last four months.  Our manager
      commenced foreclosure proceedings, and on December 24, 2007, the borrower
      filed for protection under Chapter 11 of the Bankruptcy Code in the United
      States Bankruptcy Court for the District of Arizona.  Our legal
      counsel is seeking relief from the automatic stay.  We are in
      the process of bringing legal action against the guarantors of this
      loan.  Our manager has evaluated this loan and concluded that
      the value of the underlying collateral is sufficient to protect us from
      loss of principal.  No specific allowance was deemed
      necessary.





·
            Brawley
      CA 122, LLC, is a loan to provide acquisition and development financing
      for a 25 acre proposed 122 single-family subdivision to be known as River
      Drive Subdivision in Brawley, CA, with an outstanding balance of
      approximately $2.3 million of which our portion is $750,000 and is secured
      by a first lien on the property and guaranteed by the
      borrower.  As of December 31, 2007, this loan has been
      considered non-performing for the last two months.  Our manager
      has commenced both foreclosure proceedings and litigation against the
      personal guarantors in order to enforce the personal
      guarantees.  Our manager has evaluated this loan and based on an
      appraisal obtained during January 2008, a specific allowance of $766,000,
      of which our portion was $255,000, was
recorded.





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The
following schedule summarizes the non-performing loans as of December 31,
2007:





Description
      of Collateral
              
              Balance
      at
                December
      31, 2007
              
              Maturity
      Date
              
              Number
      of Months Non-Performing
              
              
              Percentage
      of Total Loan Balance4
      cemeteries and 8 mortuaries in Hawaii Part I**
              
              $
              4,415,000
              
              3/31/2004
              
              
              45
              
              
              
              24%
      of Part I4
      cemeteries and 8 mortuaries in Hawaii Part II**
              
              
              4,892,000
              
              3/31/2004
              
              
              45
              
              
              
              35%
      of Part II248-unit
      apartment complex in Oklahoma City, OK
              
              
              1,237,000
              
              9/1/2006
              
              
              16
              
              
              
              28%2
      single family residences and 4 lots in Mt. Charleston, NV
              
              
              631,000
              
              10/27/2006
              
              
              14
              
              
              
              24%46.75
      acres of land located in Galveston, TX
              
              
              3,000,000
              
              6/30/2007
              
              
              7
              
              
              
              35%4.92
      acres of land in Las Vegas, NV
              
              
              1,000,000
              
              7/17/2007
              
              
              5
              
              
              
              20%80
      acre parcel of land in Florence, AZ
              
              
              1,000,000
              
              8/16/2007
              
              
              4
              
              
              
              26%25
      acres for proposed 122 single-family subdivision  in Brawley,
      CA
              
              
              750,000
              
              8/1/2007
              
              
              2
              
              
              
              33%$
              16,925,000




**  Please
refer to (3) Specific Reserve
Allowancebelow.





Our
manager periodically reviews and makes a determination as to whether the
allowance for loan losses is adequate to cover any potential
losses.  Additions to the allowance for loan losses are made by
charges to the provision for loan losses.  Recoveries of previously
charged off amounts are credited to the allowance for loan losses or included as
income when the asset is disposed.  As of December 31, 2007, we have
provided specific reserves, related to three non-performing loans and two
performing loans, of approximately $6.0 million.  Our manager
evaluated the loans and concluded that the remaining underlying collateral was
sufficient to protect us against further losses of principal.  Our
manager will continue to evaluate these loans in order to determine if any other
allowance for loan losses should be recorded in future periods.





Because
any decision regarding the allowance for loan losses reflects a judgment about
the probability of future events, there is an inherent risk that such judgments
will prove incorrect.  In such event, actual losses may exceed (or be
less than) the amount of any reserve.  To the extent that we
experience losses greater than the amount of our reserves, we may incur a charge
to our earnings that will adversely affect our operating results and the amount
of any distributions payable to our stockholders.





The
following is a roll-forward of the allowance for loan losses for the year ended
December 31, 2007:





Description
            
            Balance
      at
              December
      31, 2006
            
            
            Specific
      Reserve Allocation
            
            
            Reduction
      of Reserve
            
            
            Balance
      at
              December
      31, 2007RightStar,
      Inc. (Part I & Part II)
            
            $
            4,396,000
            
            
            $
            282,000
            
            
            $
            --
            
            
            $
            4,678,000RightStar
      Legal Reserve
            
            
            138,000
            
            
            
            --
            
            
            
            (138,000
            )
            
            
            --Monterrey
      Associates, L.P.
            
            
            --
            
            
            
            673,000
            
            
            
            --
            
            
            
            673,000Brawley
      CA 122, LLC
            
            
            --
            
            
            
            255,000
            
            
            
            --
            
            
            
            255,000Peoria
      180, LLC
            
            
            --
            
            
            
            225,000
            
            
            
            --
            
            
            
            225,000Terravita,
      LLC
            
            
            --
            
            
            
            183,000
            
            
            
            --
            
            
            
            183,000Total
      (3)
            
            $
            4,534,000
            
            
            $
            1,618,000
            
            
            $
            (138,000
            )
            
            $
            6,014,000





(3)
            Specific
      Reserve Allowances





RightStar Loan Allowance –
RightStar, Inc. (“RightStar”) defaulted on our loans in the fall of
2004.  The lenders commenced a judicial foreclosure on the loans, part
I and part II, which is secured by a lien on the business
and virtually all of the property of RightStar, which includes 4 cemeteries and
8 mortuaries in Hawaii.  The aggregate principal balance of the loan
is approximately $32.3 million.  The loans, part I and part II, are
owned as follows:





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Senior
      Principal Amount (Part II)
            
            
            Junior
      Principal Amount (Part I)
            
            
            TotalVRM
      I
            
            $
            4,892,000
            
            
            $
            4,415,000
            
            
            $
            9,307,000VRM
      II
            
            
            9,108,000
            
            
            
            8,183,000
            
            
            
            17,291,000Vestin
      Mortgage
            
            
            --
            
            
            
            5,657,000
            
            
            
            5,657,000Total
            
            $
            14,000,000
            
            
            $
            18,255,000
            
            
            $
            32,255,000





The loans
are subject to an inter-creditor agreement which states the order of priority
for any payments received are disbursed as follows:





·
            First
      to reimburse collection and foreclosure expenses advanced by the
      lenders;





·
            Second
      to pay past due interest on the Senior Principal Amount (Part II)
      (including default rate interest);





·
            Third
      to pay past due interest on the Junior Principal Amount (Part I)
      (including default rate interest);





·
            Fourth
      to pay Senior Principal; and





·
            Fifth
      to pay Junior Principal.





We and
VRM II acquired the senior portion of the loan on July 14, 2005 for
approximately $15.5 million of which our portion was approximately $5.4 million
(including accrued interest of approximately $0.5 million).  We and
VRM II acquired this balance to expedite the foreclosure process and remove the
prior senior lender from its priority position, which had the potential to
impair the value we may receive at the time the property is sold.  In
exchange for assistance in expediting the foreclosure process, the lenders
jointly agreed to release the guarantors from their guaranty of the
loan.  In March 2007, Vestin Mortgage, Inc. purchased the junior
principal amount owned by the unrelated third party for
$500,000.  Vestin Mortgage, Inc. has agreed that any monies it
receives as a result of payment of the notes or proceeds from a foreclosure sale
are limited to its $500,000 investment in the notes plus expenses.





RightStar
is currently being operated by a court appointed receiver however the lenders
are working with the State of Hawaii to appoint a management group to continue
to improve the operations of the property.





In early
2006, the State of Hawaii notified the lenders of a potential statutory trust
fund deficiency, estimated to be between $20 million and $30 million and claimed
that this balance has priority over all lenders.  The State of Hawaii
is pursuing approximately $30 million in recoveries from the former trustees,
prior owners of the property and other parties. The proceeds from these
recoveries, if any, will be used to fund the potential deficiency in the
statutory trust. The lenders dispute the amount and priority of this
deficit.





In April
2006, the lenders filed suit against the State of Hawaii listing 26 causes of
action, including allegations that the State of Hawaii has illegally blocked the
lender’s right to foreclose and take title to its collateral by inappropriately
attaching conditions to the granting of licenses needed to operate the business,
the pre-need trust funds and the perpetual care trust funds and that the State
of Hawaii has attempted to force the lenders to accept liability for any
statutory trust fund deficits while no such lender liability exists under the
laws of the State of Hawaii.  The State of Hawaii responded by filing
allegations against Vestin Mortgage, Inc. and VRM II alleging that these Vestin
entities improperly influenced the former RightStar trustees to transfer trust
funds to VRM II.





On May 9,
2007, we, VRM II, Vestin Mortgage, the State of Hawaii and Comerica Incorporated
announced that an arrangement had been reached to auction the RightStar
assets.  On June 12, 2007 the court approved the resolution agreement,
which provides that the proceeds of the foreclosure sale will be allocated in
part to VRM  II, Vestin Mortgage and us and in part to fund the trusts
statutory minimum balances.  We, VRM II, Vestin Mortgage, the State of
Hawaii and Comerica have pledged to cooperate to recover additional amounts owed
to the trusts and the creditors from others, while mutually releasing each other
and RightStar from all claims.  We, VRM II, Vestin Mortgage and the
State of Hawaii have received offers and are currently requesting, entertaining,
and reviewing bids on the RightStar properties.  The outcome of this
auction cannot be determined at this time.





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During
December 2007, we, VRM II, and the statutory trust fund received a settlement
totaling $2.8 million, of which approximately $2.0 million was applied against
outstanding trust obligations. Approximately $0.8 million, of which our portion
totaling approximately $0.3 million, was applied towards the allowance for
doubtful accounts on this loan and was recorded as a reimbursement of legal fees
totaling approximately $0.2 million.





We have
evaluated the estimated value of the underlying collateral and the expected cost
and length of litigation.  Based on this estimate we have maintained
our total specific reserve allowance for loss.  The reserve allowance
includes approximately $0.5 million for estimated litigation fees and expenses
that we have incurred in enforcing our rights against the underlying collateral,
which have been fully consumed as of December 31, 2007.  We will
continue to evaluate our position in the RightStar loan as the situation
progresses.  As of December 31, 2007, our specific reserve allowance
on the RightStar loans totaled approximately $4.7 million.





Peoria 180, LLC Loan
Allowance – During the year ended December 31, 2007, our manager provided
a specific reserve allowance, related to a land loan on property located in
Glendale, AZ, of approximately $1.6 million, of which our portion was
$183,000.  This specific reserve allowance was based on an updated
appraisal of the underlying collateral for this loan and evaluation of the
borrower, obtained by our manager during October 2007.  As of December
31, 2007, and March 10, 2008, the loan was performing as
required.  Our manager will continue to evaluate our position in the
loan.





Monterrey Associates, L.P. –
During the year ended December 31, 2007, our manager provided a specific reserve
allowance, related to a commercial loan on a 248-unit apartment complex in
Oklahoma City, OK, of approximately $2.4 million, of which our portion was
approximately $0.7 million.  This specific reserve allowance was based
on an updated appraisal of the underlying collateral for this loan, obtained by
our manager during January 2008.  As of December 31, 2007, the loan
was considered non-performing.  Our manager will continue to evaluate
our position in the loan.





Brawley CA 122, LLC – During
the year ended December 31, 2007, our manager provided a specific reserve
allowance, related to an acquisition and development loan on 25 acres for
proposed 122 single-family subdivision in Brawley, CA, of $766,000, of which our
portion was $255,000.  This specific reserve allowance was based on an
updated appraisal of the underlying collateral for this loan, obtained by our
manager during January 2008.  As of December 31, 2007, the loan was
considered non-performing.  Our manager will continue to evaluate our
position in the loan.





Terravita, LLC – During the
year ended December 31, 2007, our manager provided a specific reserve allowance,
related to a commercial loan on a 100 unit condominium/apartment project in
North Las Vegas, Nevada, totaling $720,000, of which our portion was
$225,000.  This specific reserve allowance was based on an updated
appraisal of the underlying collateral for this loan and evaluation of the
borrower, obtained by our manager during January 2008.  As of December
31, 2007, and March 10, 2008, the loan was performing as
required.  Our manager will continue to evaluate our position in the
loan.





In
addition, as of December 31, 2007, our manager granted extensions on 18 loans,
totaling approximately $210.9 million of which our portion was approximately
$25.3 million, pursuant to the terms of the original loan agreements, which
permit extensions by mutual consent.  Such extensions are generally
provided on loans where the original term was 12 months or less and where a
borrower requires additional time to complete a construction project or
negotiate take-out financing.  However, our manager only grants
extensions when a borrower is in compliance with the material terms of the loan,
including, but not limited to the borrower’s obligation to make interest
payments on the loan.  Included in the 18 extended loans was the
Mid-State Raceway loan, which was extended from March 31, 2007 to March 31,
2008.  As part of the extension agreement, the borrower made a
principal payment of approximately $3.0 million, of which our portion was
approximately $0.4 million, and the loan interest rate increased from 9% to
12%.  Our manager concluded that no allowance for loan loss was
necessary with respect to these loans, except for the Terravita, LLC, Peoria
180, LLC, Monterrey Associates, LP and Brawley CA 122, LLC loans referred to
above, as of December 31, 2007.





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Asset Quality and Loan
Reserves





Losses
may occur from investing in real estate loans.  The amount of losses
will vary as the loan portfolio is affected by changing economic conditions and
the financial condition of borrowers.





The
conclusion that a real estate loan is uncollectible or that collectibility is
doubtful is a matter of judgment.  On a quarterly basis, our manager
evaluates our real estate loan portfolio for impairment.  The fact
that a loan is temporarily past due does not necessarily mean that the loan is
impaired.  Rather, all relevant circumstances are considered by our
manager to determine impairment and the need for specific
reserves.  Such evaluation, which includes a review of all loans on
which full collectibility may not be reasonably assured, considers among other
matters:





·
            Prevailing
      economic conditions;





·
            Historical
      experience;





·
            The
      nature and volume of the loan
portfolio;





·
            The
      borrowers’ financial condition and adverse situations that may affect the
      borrowers’ ability to pay;





·
            Evaluation
      of industry trends; and





·
            Estimated
      net realizable value of any underlying collateral in relation to the loan
      amount.





Based
upon this evaluation, a determination is made as to whether the allowance for
loan losses is adequate to cover any potential losses.  Additions to
the allowance for loan losses are made by charges to the provision for loan
losses.  As of December 31, 2007 and 2006, approximately $5.6 million
and $3.4 million, respectively, in non-performing loans had no specific
allowance for loan losses.  As of December 31, 2007 and 2006,
approximately $11.3 million and $9.3 million, respectively, in non-performing
loans had a specific allowance for loan losses of approximately $5.6 million and
$4.5 million, respectively, which does not include the allowances of
approximately $0.4 million relating to the decrease in property value for
performing loans at December 31, 2007.  At December 31, 2007, the
following loans were non-performing (based on current information and events, it
is probable that we will be unable to collect all amounts due according to the
contractual terms of the loan agreement or when the payment of interest is 90
days past due); RightStar, Inc. (Part I & Part II), Monterrey Associates LP,
Forest Development LLC, Pirates Lake, Ltd, Jeffrey's Court, LLC, V & M Homes
at the Palms, Inc. and Brawley CA 122, LLC.  These loans have been
placed on non-accrual of interest status and are the subject of pending
foreclosure proceedings.  Our manager evaluated the loans and
concluded that the underlying collateral was sufficient to protect us against
further losses of principal or interest.  Our manager will continue to
evaluate these loans in order to determine if any other allowance for loan
losses should be recorded.





NOTE
E — INVESTMENT IN MARKETABLE SECURITIES – RELATED PARTY





As of
December 31, 2007, we owned 225,134 shares of VRM II’s common stock,
representing approximately 1.51% of their total outstanding common
stock.





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NOTE
F — REAL ESTATE HELD FOR SALE





At
December 31, 2007, we held one property with
a total carrying value of approximately $3.5 million, which was acquired through
foreclosure and recorded as investments in real estate held for
sale.  The summary below includes our percentage ownership in
the property.  Our investments in real estate held for sale are
accounted for at the lower of cost or fair value less costs to sell with fair
value based on appraisals and knowledge of local market
conditions.  It is not our intent to invest in or own real estate as a
long-term investment.  We seek to sell properties acquired through
foreclosure as quickly as circumstances permit.  The following is a
roll-forward of investments in real estate held for sale during the year ended
December 31, 2007:





Description
            Date
      Acquired
            
            Percentage
      of Ownership
            
            
            Balance
      at December 31, 2006
            
            
            Acquisitions
      (Reductions)
            
            
            Seller
      Financed Sales
            
            
            Balance
      at December 31, 2007480
      residential building lots  & 2 family dwellings in Cathedral
      City, CA (1)
            12/21/2006
            
            
            12%
            
            
            $
            3,689,000
            
            
            $
            (184,000
            )
            
            $
            --
            
            
            $
            3,505,000$
            3,689,000
            
            
            $
            (184,000
            )
            
            $
            --
            
            
            $
            3,505,000





(1)
            During
      November 2006, we, VRM II and Fund III acquired through foreclosure
      proceedings 480 residential building lots and two single family dwellings
      in Rio Vista Village Subdivision in Cathedral City, CA.  During
      the year ended December 31, 2007, our manager evaluated the carrying value
      of real estate acquired through foreclosure located in Cathedral City,
      California.  Based on our manager’s estimate, we have written
      down the value of the property by approximately $0.2
      million.  We also recognized expenses related to real estate
      held for sale for this property of approximately $0.4
    million.





NOTE
G — REAL ESTATE HELD FOR SALE – SELLER FINANCED





As of
December 31, 2007, we sold our interest in the oneseller-financed property
we held at December 31, 2006.  GAAP requires us to include these
properties in real estate held for sale until the borrower has met and
maintained certain requirements.  We may share ownership of such
properties with VRM II, Fund III, our manager, or other related and/or unrelated
parties.  The summary below includes our percentage of ownership in
each property held during the year ended December 31, 2007.  These
investments in real estate held for sale are accounted for at the lower of cost
or fair value less costs to sell with fair value based on appraisals and
knowledge of local market conditions.  The following is a roll-forward
of real estate held for sale – seller financed for the year ended December 31,
2007:





Description
              Date
      Acquired
              
              Percentage
      of Ownership
              
              
              Balance
      at December 31, 2006
              
              
              Sales
              
              
              Gain
      (Loss) on Sale
              
              
              Balance
      at
                December
      31, 2007Assisted
      living facility in Las Vegas, Nevada (1)
              9/23/2004
              
              
              52%
              
              
              $
              7,911,000
              
              
              $
              (9,176,000
              )
              
              $
              1,265,000
              
              
              $
              --Total
              
              
              
              
              
              
              $
              7,911,000
              
              
              $
              (9,176,000
              )
              
              $
              1,265,000
              
              
              $
              --


(1)
            During
      September 2004, we and VRM II sold an assisted living facility in Las
      Vegas, NV and financed 100% of the purchase price of approximately $15.3
      million maturing in September 2007.  During November 2007, the
      loan was paid in full resulting in a gain of approximately $1.3
      million.





Until
borrowers have met the minimum equity ownership requirement to allow us to
record a sale, we will record payments received under the deposit method or the
cost recovery method, which ever is applicable in accordance with FAS
66.





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NOTE
H — RELATED PARTY TRANSACTIONS





From time
to time, we may acquire or sell investments in real estate loans from/to our
manager or other related parties pursuant to the terms of our Management
Agreement without a premium.  No gain or loss is recorded on these
transactions, as it is not our intent to make a profit on the purchase or sale
of such investments.  The purpose is generally to diversify our
portfolio by syndicating loans, thereby providing us with additional capital to
make additional loans.





Transactions with the
Manager





Our
manager is entitled to receive from us an annual management fee of up to 0.25%
of our aggregate capital contributions received by us and Fund I from the sale
of shares or membership units, paid monthly.  The amount of management
fees paid to our manager for the year ended December 31, 2007 and the twelve
months ended December 31, 2006, were approximately $277,000, for each
period.





As of
December 31, 2007, our manager owned 100,000 of our common shares. For the year
ended December 31, 2007, we declared $58,000, in dividends payable to our
manager based on the number of shares our manager held on the dividend record
dates.  During the four months ended April 30, 2006, we recorded
pro-rata distributions owed to our manager of $25,000.  For the eight
months ended December 31, 2006, we declared approximately $38,000 in dividends
payable to our manager based on the number of shares our manager held on the
dividend record dates.





As of
December 31, 2007, we owed our manager of $2,000.  As of December 31,
2006, we had no receivables from our manager and did not owe our
manager.





Transactions with Other
Related Parties





As of
December 31, 2007, we owned 225,134 common shares of VRM II, representing
approximately 1.51% of their total outstanding common stock.  For the
year ended December 31, 2007 and the twelve months ended December 31, 2006, we
recognized $294,000 and $151,000, respectively, in dividend income from VRM II
based on the number of shares we held on the dividend record dates.





As of
December 31, 2007, VRM II owned 533,675 of our common shares, representing
approximately 7.76% of our total outstanding common stock.  For the
year ended December 31, 2007 and the twelve months ended December 31, 2006, we
declared approximately $282,000 and $97,000, respectively, in dividends payable
to VRM II based on the number of shares VRM II held on the dividend record
dates.





During
the year ended December 31, 2007 we bought approximately $4.4 million in real
estate loans from VRM II.  During the twelve months ended December 31,
2006 we sold approximately $1.4 million in real estate loans to VRM II and
bought $0.5 million in real estate loans to VRM II.  No gain or loss
resulted from these transactions.





As of
December 31, 2007, we had receivable form VRM II $123,000.  As of
December 31, 2006, we had receivable form Vestin Originations of
$1,000.





During
the year ended December 31, 2007 and the twelve months ended December 31, 2006,
we incurred $33,000 and $61,000, respectively, for legal fees to the law firm of
Levine, Garfinkel & Katz in which the Secretary of Vestin Group has an
equity ownership interest in the law firm.





NOTE
I — NOTES RECEIVABLE





During
October 2004, we and VRM II sold the Castaways Hotel/Casino in Las Vegas, Nevada
of which our portion of the net cash proceeds was approximately $2.1
million.  We originally sold this property under a 100% seller
financing arrangement.  The borrowers then sold the property to an
unrelated third party that resulted in a payoff of the note and also allowed us
to record the sale and remove the asset from real estate held for sale – seller
financed.  In addition, during September 2004, we received a
promissory note from the guarantors of the loan in the amount of $160,000 in
exchange for a release of their personal guarantees.  Since payments
on the note did not begin for 18months from the date of the note, we discounted
the face value of the note to $119,000, which is based on a discount rate of 8%
as of that date.  As of December 31, 2007, we have received $33,000 in
principal payments.  During the year ended December 31, 2007, the
balance of $126,000 was fully reserved.





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During
March 2005, we and VRM II sold the 126 unit hotel in Mesquite, Nevada for
$5,473,000 of which our share of the proceeds were approximately $1.8 million,
which resulted in a loss of $389,000.  In addition, during June 2005,
we and VRM II entered into a settlement agreement with the guarantors of the
loan in the amount of $2,000,000 in exchange for a release of their personal
guarantees, of which our share was $640,000.  The balance is secured
by a second deed of trust, with a first installment of $100,000 due in July 2005
and monthly interest only payments of 5% on $1,100,000 from July 2005 through
July 2008, at which time the entire balance is due.  As of December
31, 2007, we have received $294,000 in principal payments.  Payments
will be recognized as income when received.  The balance of $346,000
is fully reserved as of December 31, 2007.





During
November 2004, we and VRM II sold the 140 Unit/224 beds senior facility in Mesa,
Arizona of which our portion of the consideration received totaled
$1,009,000.  We and VRM II received a promissory note from the
original guarantor in the amount of $478,000 of which our portion was
$67,000.  The promissory note is payable in interest only payments of
8% on the principal balance outstanding.  From June 25, 2005 through
May 25, 2006, monthly payments increased to $15,000 and were applied to
principal and accrued interest.  From June 25, 2006 through May 25,
2009, payments increase to $20,000 monthly.  Due to the uncertainty of
collectibility, we have provided a valuation allowance for the entire remaining
balance of the promissory note.  Income will be recognized when
payments are received.  On August 7, 2007, we and VRM II filed a
complaint against the guarantor in the U.S. District Court of the District of
Nevada, seeking to recover the amounts due pursuant to the promissory
note.  The guarantor did not answer or otherwise respond to the
lawsuit.  We and VRM II will seek a default judgment for all the
amounts due.  If granted, we and VRM II will seek to enforce the
Complaint against the guarantor; however, there can be no assurance that we and
VRM II will recover the amounts.  As of December 31, 2007, we received
$28,000 in principal payments.  The balance of $31,000 is fully
reserved as of December 31, 2007.





During
December 2005, we and VRM II sold the 460 acre residential subdivision in Lake
Travis, TX for approximately $5.5 million, of which our portion was
approximately $1.8 million.  The purchase price included cash proceeds
of $5 million and a $500,000 note receivable with an imputed interest rate of 8%
in July 2006.  A net gain of $71,000 resulted from this transaction,
of which our portion was $24,000.  The purchaser defaulted on the note
and our manager pursued litigation.  During the year ended December
31, 2007, we and VRM II entered into a settlement agreement, which reduced the
note to $175,000, of which our portion is $60,000. As of December 31, 2007,
we had received $17,000 in principal payments.  The balance of $43,000
is fully reserved as of December 31, 2007.





During
2006, we and VRM II entered into a settlement agreement in the amount of $1.5
million with the guarantors of a loan, we had foreclosed on.  Our
portion was approximately $137,000.  The promissory note is payable in
seven annual installments of $100,000 with an accruing interest rate of 7%, with
the remaining note balance due in April 2013.  The balance of
approximately $137,000 is fully reserved as of December 31, 2007.





NOTE
J— SECURED BORROWINGS





Secured
borrowings provide an additional source of capital for our lending
activity.  Secured borrowings allow us to increase the diversification
of our loan portfolio and to invest in loans that we might not otherwise invest
in.  We do not receive any fees for entering into secured borrowing
arrangements; however, we may receive revenue for any differential of the
interest spread, if applicable.  Loans in which unaffiliated investors
have participated through inter-creditor agreements (“Inter-creditor
Agreements”) are accounted for as secured borrowings in accordance with
Statement of Financial Accounting Standards (“FAS”) 140 – Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities(“FAS
140”).  The Inter-creditor Agreements provide us additional funding
sources for real estate loans whereby an unaffiliated investor (the “Investor”)
may participate on a non-pari passu basis in certain real estate loans with us
and/or VRM II and/or Fund III (collectively, the “Lead Lenders”).  In
the event of borrower non-performance, the Inter-creditor Agreements generally
provide that the Lead Lenders must repay the Investor’s loan amount either by
(i) continuing to remit to the Investor the interest due on the participated
loan amount; (ii) substituting an alternative loan acceptable to the Investor;
or (iii) repurchasing the participation from the Investor for the outstanding
balance plus accrued interest.





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Additionally,
an Investor may participate in certain loans with the Lead Lenders through
Participation Agreements.  In the event of borrower non-performance,
the Participation Agreement may allow the Investor to be repaid up to the amount
of the Investor’s investment prior to the Lead Lender being
repaid.  Real estate loan financing under the Participation Agreements
are also accounted for as a secured borrowing in accordance with FAS
140.  We do not receive any revenues for entering into secured
borrowings arrangements.





During
October 2006, we, our manager, Vestin Originations, Inc., VRM II and Fund III
entered into an intercreditor agreement with an unrelated third party related to
the funding of a construction real estate loan.  The secured borrowing
was recognized pro rata between us, VRM II and Fund III for the amount each
entity has funded for the loan.  During May 2007, the secured
borrowings were paid in full.  As of December 31, 2007, we did not
have any funds used under Inter-creditor Agreements as compared to approximately
$310,000 used under Inter-creditor Agreements as of December 31,
2006.





NOTE
K — NOTE PAYABLE





In May
2007, we financed a 12-month insurance policy for Directors and Officers
liability, with an annual interest rate of 7.25%.  The agreement
required a down payment of $34,000 and nine monthly payments of $21,000
beginning on May 27, 2007.  During August 2007, the note was paid in
full.





NOTE
L — RECENT ACCOUNTING PRONOUNCEMENTS





In
December 2007, Financial Accounting Standards Board (“FASB”) issued FAS 160,
Noncontrolling Interests in
Consolidated Financial Statements – an amendment of ARB No.
51.  FAS 160 requires that ownership interests in subsidiaries held by
parties other than the parent, and the amount of consolidated net income, be
clearly identified, labeled, and presented in the consolidated financial
statements within equity, but separate from the parent’s equity. It also
requires once a subsidiary is deconsolidated, any retained noncontrolling equity
investment in the former subsidiary be initially measured at fair value.
Sufficient disclosures are required to clearly identify and distinguish between
the interests of the parent and the interests of the noncontrolling
owners.  In addition to the amendments to ARB 51, this Statement
amends FAS 128, Earnings per
Share; so that earnings-per-share data will continue to be calculated the
same way those data were calculated before this Statement was
issued.  This Statement is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15,
2008.  Earlier adoption is prohibited.  This Statement shall
be applied prospectively as of the beginning of the fiscal year in which this
Statement is initially applied, except for the presentation and disclosure
requirements.  The presentation and disclosure requirements shall be
applied retrospectively for all periods presented.  FAS 160 will be
effective for us beginning January 1, 2009.  We are evaluating FAS 160
and have not yet determined the impact the adoption will have on our
consolidated financial statements, but it is not expected to be
significant.





In
December 2007, the FASB issued FAS 141R, Business
Combinations.  This Statement replaces FAS No.
141.  FAS 141R establishes principles and requirements for how the
acquirer of a business recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any noncontrolling
interest in the acquiree.  FAS 141R also provides guidance for
recognizing and measuring the goodwill acquired in the business combination and
determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination.  This Statement applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15,
2008.  We are evaluating FAS 141 Rand have not yet determined the
impact the adoption will have on our consolidated financial statements, but it
is not expected to be significant.





In
February 2007, the FASB issued FAS 159, The Fair Value Option for Financial
Assets and Financial Liabilities.  FAS 159 permits entities to
choose to measure financial assets and liabilities (except for those that are
specifically scoped out of the Statement) at fair value.  The election
to measure a financial asset or liability at fair value can be made on an
instrument-by-instrument basis and is irrevocable.  The difference
between carrying value and fair value at the election date is recorded as a
transition adjustment to opening retained earnings.  Subsequent
changes in fair value are recognized in earnings.  The effective date
for FAS 159 is as of the beginning of an entity's first fiscal year that begins
after November 15, 2007.  We are evaluating FAS 159 and have not yet
determined the impact the adoption will have on our consolidated financial
statements, but it is not expected to be significant.





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NOTE
M — LEGAL MATTERS INVOLVING THE MANAGER





The
United States Securities and Exchange Commission (the “Commission”), conducted
an investigation of certain matters related to us, our manager, Vestin Capital,
VRM II and Fund III.  We fully cooperated during the course of the
investigation.  On September 27, 2006, the investigation was resolved
through the entry of an Administrative Order by the Commission (the
“Order”).  Our manager, Vestin Mortgage and its Chief Executive
Officer, Michael Shustek, as well as Vestin Capital (collectively, the
“Respondents”), consented to the entry of the Order without admitting or denying
the findings therein.





In the
Order, the Commission found that the Respondents violated Sections 17(a)(2) and
17(a)(3) of the Securities Act of 1933 through the use of certain slide
presentations in connection with the sale of units in Fund III and in Fund II,
the predecessor to VRM II.  The Respondents consented to the entry of
a cease and desist order, the payment by Mr. Shustek of a fine of $100,000 and
Mr. Shustek’s suspension from association with any broker or dealer for a period
of six months, which expired in March 2007.  In addition, the
Respondents agreed to implement certain undertakings with respect to future
sales of securities.  We are not a party to the Order and we do not
expect that the sanctions imposed upon the Respondents will have any material
affect upon our operations.





VRM II
and Vestin Mortgage, Inc. (“Defendants”) are defendants in a breach of contract
action filed in San Diego Superior Court by certain plaintiffs who allege, among
other things, that they were wrongfully denied appraisal rights in connection
with the merger of Fund II into Vestin Realty Mortgage II, Inc.  The
action is being brought as a purported class action on behalf of all members of
Vestin Fund II who did not vote in favor of the merger.  The
Defendants believe that the allegations are without merit and that they have
adequate defenses.  The Defendants intend to undertake a vigorous
defense.  The terms of VRM II’s management agreement and Fund II’s
Operating Agreement contain indemnity provisions whereby, Vestin Mortgage and
Michael V. Shustek may be eligible for indemnification by VRM II with respect to
the above actions.





VRM II,
Vestin Mortgage, Inc. and Michael V. Shustek (“Defendants”) are defendants in a
civil action filed by 88 separate plaintiffs (“Plaintiffs”) in District Court
for Clark County, Nevada.  The Plaintiffs allege, among other things,
that Defendants: breached certain alleged contractual obligations owed to
Plaintiffs; breached fiduciary duties supposedly owed to Plaintiffs; and
misrepresented or omitted material facts regarding the conversion of Fund II
into VRM II.  The action seeks monetary damages and a rescission of
the REIT conversion.  The Defendants believe that the allegations are
without merit and that they have adequate defenses.  The Defendants
intend to undertake a vigorous defense.  The terms of VRM II’s
management agreement and Fund II’s operating agreement contain indemnity
provisions whereby, Vestin Mortgage and Michael V. Shustek may be eligible for
indemnification by VRM II with respect to the above actions.





In
addition to the matters described above, our manager is involved in a number of
other legal proceedings concerning matters arising in connection with the
conduct of its business activities.  Our manager believes it has
meritorious defenses to each of these actions and intends to defend them
vigorously.  Other than the pending state court litigation involving
Desert Land as further described below and the matters described in Note N –
Legal Matters Involving The
Company below, our manager believes that it is not a party to any pending
legal or arbitration proceedings that would have a material adverse effect on
our manager’s financial condition or results of operations or cash flows,
although it is possible that the outcome of any such proceedings could have a
material impact on the manager’s net income in any particular
period.





NOTE
N — LEGAL MATTERS INVOLVING THE COMPANY





On
November 21, 2005, Desert Land filed a complaint in the state District court of
Nevada against Vestin Group, Vestin Mortgage and Del Mar Mortgage, Inc. which
complaint is substantially similar to a complaint previously filed by Desert
Land in the United States District Court, which complaint was dismissed by the
Ninth Circuit United Court of Appeals, which dismissal was upheld when the
United States Supreme Court denied Desert Land’s Writ of
Certiorari.  The action is based upon allegations that Del Mar
Mortgage, Inc and/or Vestin Mortgage charged unlawful fees on various loans
arranged by them in 1999.





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On March
6, 2006, Desert Land amended the state court complaint to name
us.  Desert Land alleges that one or more of the defendants have
transferred assets to other entities without receiving reasonable value
therefore; alleges plaintiffs are informed and believe that defendantshave made
such transfers with the actual intent to hinder, delay or defraud Desert Land;
that such transfers made the transferor insolvent and that sometime between
February 27 and April 1, 2003, Vestin Group transferred $1.6 million to VRM I
for that purpose.  The state court complaint further alleges that
Desert Land is entitled to void such transfers and that pursuant to NRS 112.20,
Desert Land is entitled to an injunction to enjoin defendants from further
disposition of assets.  Additionally, Del Mar Mortgage, Inc. has
indemnified Vestin Group and Vestin Mortgage for any losses and expenses in
connection with the action, and Mr. Shustek has guaranteed the
indemnification.  The Defendants believe that the allegations are
without merit and that they have adequate defenses.  The Defendants
intend to undertake a vigorous defense.





In April
2006, the lenders filed suit against the State of Hawaii listing 26 causes of
action, including allegations that the State of Hawaii has illegally blocked the
lender’s right to foreclose and take title to its collateral by inappropriately
attaching conditions to the granting of licenses needed to operate the business,
the pre-need trust funds and the perpetual care trust funds and that the State
of Hawaii has attempted to force the lenders to accept liability for any
statutory trust fund deficits while no such lender liability exists under the
laws of the State of Hawaii.  The State of Hawaii responded by filing
allegations against Vestin Mortgage, Inc. and VRM II alleging that these Vestin
entities improperly influenced the former RightStar trustees to transfer trust
funds to VRM II.





On May 9,
2007, we, VRM II, Vestin Mortgage, the State of Hawaii and Comerica Incorporated
announced that an arrangement had been reached to auction the RightStar
assets.  On June 12, 2007 the court approved the resolution agreement
which provides that the proceeds of the foreclosure sale will be allocated in
part to VRM II, Vestin Mortgage and us and in part to fund the trusts statutory
minimum balances.  We, VRM II, Vestin Mortgage, the State of Hawaii
and Comerica have pledged to cooperate to recover additional amounts owed to the
trusts and the creditors from others, while mutually releasing each other and
RightStar from all claims.  We, VRM II, Vestin Mortgage and the State
of Hawaii have received offers and are currently requesting, entertaining, and
reviewing bids on the RightStar properties.  The outcome of this
auction cannot be determined at this time.





We and
Vestin Mortgage, Inc. (“Defendants”) are defendants in a breach of contract
action filed in San Diego Superior Court by certain plaintiffs who allege, among
other things, that they were wrongfully denied appraisal rights in connection
with the merger of Fund I into Vestin Realty Mortgage I, Inc.  The
action is being brought as a purported class action on behalf of all members of
Vestin Fund I who did not vote in favor of the merger.  The Defendants
believe that the allegations are without merit and that they have adequate
defenses.  The Defendants intend to undertake a vigorous
defense.  The terms of our management agreement and Fund I’s Operating
Agreement contain indemnity provisions whereby, Vestin Mortgage and Michael V.
Shustek may be eligible for indemnification by us with respect to the above
actions.





We,
Vestin Mortgage, Inc. and Michael V. Shustek (“Defendants”) are defendants in a
civil action filed by 25 separate plaintiffs (“Plaintiffs”) in District Court
for Clark County, Nevada.  The Plaintiffs allege, among other things,
that Defendants: breached certain alleged contractual obligations owed to
Plaintiffs; breached fiduciary duties supposedly owed to Plaintiffs; and
misrepresented or omitted material facts regarding the conversion of Fund I into
VRM I.  The action seeks monetary damages, punitive damages and a
rescission of the REIT conversion.  The Defendants believe that the
allegations are without merit and that they have adequate
defenses.  The Defendants intend to undertake a vigorous
defense.  The terms of VRM I’s management agreement and Fund I’s
operating agreement contain indemnity provisions whereby, Vestin Mortgage and
Michael V. Shustek may be eligible for indemnification by us with respect to the
above actions.





In
addition to the matters described above, we are involved in a number of other
legal proceedings concerning matters arising in connection with the conduct of
our business activities.  We believe we have meritorious defenses to
each of these actions and intend to defend them vigorously.  Other
than the matters described above, we believe that we are not a party to any
pending legal or arbitration proceedings that would have a material adverse
effect on our financial condition or results of operations or cash flows,
although it is possible that the outcome of any such proceedings could have a
material impact on our net income in any particular period.





NOTE
O — DIVIDEND REQUIREMENT





To
maintain our status as a REIT, we are required to make dividend distributions,
other than capital gain dividends, to our stockholders each year in an amount at
least equal to (1) the sum of (a) 90% of our taxable income, computed without
regards to the dividends paid deduction and our net capital gain, and (b) 90% of
the net income, after tax, from foreclosure property, minus (2) the sum of
certain specified items of non-cash income over 5% of our REIT taxable
income.  All dividend distributions will be made at the discretion of
our board of directors and will depend on our earnings, both tax and GAAP,
financial condition, maintenance of REIT status and such other factors as the
board of directors deems relevant.




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NOTE
P — SUBSEQUENT EVENT





On
January 16, 2008, 2008, the board of directors declared a monthly cash dividend
of $0.041 per share for the month of January 2008, that will be paid on February
28, 2008, to the stockholders of record as of February 8, 2008.





On
February 5, 2008, we, VRM II and Fund III foreclosed upon Pirates Lake, Ltd. and
classified it as real estate held for sale.





On
February 21, 2008, our board of directors declared a cash dividend of $0.041 per
common share for the month of February 2008, payable on March 28, 2008 to
stockholders of record as of March 7, 2008.  In addition, our board of
directors authorized the repurchase of up to $5 million worth of the company’s
common stock.  Depending upon market conditions, shares may be
repurchased from time to time at prevailing market prices through open market or
privately negotiated transactions.





We are
not obligated to purchase any shares.  Subject to applicable
securities laws, including SEC Rule 10b-18, repurchases may be made at such
times and in such amounts, as our management deems appropriate.  The
share repurchase program may be discontinued or terminated at any time and we
have not established a date for completion of the share repurchase
program.  The repurchases will be funded from our available
cash.





On March
7, 2008, we, VRM II and Fund III foreclosed upon Forest Development LLC and
classified it as real estate held for sale.





NOTE
Q — SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)





The
following schedule is a selected quarterly financial data for the year ended
December 31, 2007 and the twelve months ended December 31, 2006:





For
      the Year Ended December 31, 20071st
      Quarter
            
            
            2nd
      Quarter
            
            
            3rd
      Quarter
            
            
            4th
      Quarter
            
            
            YearTotal
      revenues
            
            $
            1,287,000
            
            
            $
            1,475,000
            
            
            $
            1,020,000
            
            
            $
            1,075,000
            
            
            $
            4,857,000Total
      operating expenses
            
            
            331,000
            
            
            
            435,000
            
            
            
            893,000
            
            
            
            1,551,000
            
            
            
            3,210,000Total
      non-operating income
            
            
            51,000
            
            
            
            93,000
            
            
            
            145,000
            
            
            
            151,000
            
            
            
            440,000Total
      income (loss) from real estate held for sale
            
            
            35,000
            
            
            
            (399,000
            )
            
            
            (167,000
            )
            
            
            1,254,000
            
            
            
            723,000Income
      before provision for income taxes
            
            
            1,042,000
            
            
            
            734,000
            
            
            
            105,000
            
            
            
            929,000
            
            
            
            2,810,000Provision
      for income taxes
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --NET
      INCOME
            
            $
            1,042,000
            
            
            $
            734,000
            
            
            $
            105,000
            
            
            $
            929,000
            
            
            $
            2,810,000Basic
      and diluted earnings per weighted average common share
            
            $
            0.15
            
            
            $
            0.11
            
            
            $
            0.02
            
            
            $
            0.14
            
            
            $
            0.41Dividends
      declared per common share
            
            $
            0.15
            
            
            $
            0.14
            
            
            $
            0.14
            
            
            $
            0.15
            
            
            $
            0.58


Weighted
      average common shares
            
            
            6,870,361
            
            
            
            6,871,260
            
            
            
            6,872,140
            
            
            
            6,872,889
            
            
            
            6,871,671Weighted
      average term of outstanding loans, including extensions
            
            19
      months
            
            
            20
      months
            
            
            20
      months
            
            
            19
      months
            
            
            19
      months







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For
      the 12 Months Ended December 31, 20061st
      Quarter
            
            
            2nd
      Quarter
            
            
            3rd
      Quarter
            
            
            4th
      Quarter
            
            
            YearTotal
      revenues
            
            $
            1,125,000
            
            
            $
            992,000
            
            
            $
            1,244,000
            
            
            $
            1,254,000
            
            
            $
            4,615,000Total
      operating expenses
            
            
            3,440,000
            
            
            
            279,000
            
            
            
            390,000
            
            
            
            487,000
            
            
            
            4,596,000Total
      non-operating income
            
            
            39,000
            
            
            
            105,000
            
            
            
            106,000
            
            
            
            98,000
            
            
            
            348,000Total
      income (loss) from real estate held for sale
            
            
            (16,000
            )
            
            
            (1,000
            )
            
            
            40,000
            
            
            
            197,000
            
            
            
            220,000Income
      (loss) before provision for income taxes
            
            
            (2,292,000
            )
            
            
            817,000
            
            
            
            1,000,000
            
            
            
            1,062,000
            
            
            
            587,000Provision
      for income taxes
            
            $
            --
            
            
            $
            --
            
            
            $
            15,000
            
            
            $
            (15,000
            )
            
            $
            --NET
      INCOME (LOSS)
            
            $
            (2,292,000
            )
            
            $
            817,000
            
            
            $
            985,000
            
            
            $
            1,077,000
            
            
            $
            587,000Basic
      and diluted earnings (loss) per weighted average share / membership
      unit
            
            $
            (0.33
            )
            
            $
            0.12
            
            
            
            0.14
            
            
            
            0.16
            
            
            
            0.09Dividends
      declared per common share / cash distributions per membership
      unit
            
            $
            0.16
            
            
            $
            0.10
            
            
            
            0.08
            
            
            
            0.30
            
            
            
            0.64Weighted
      average common shares / membership units
            
            
            6,925,788
            
            
            
            6,867,957
            
            
            
            6,868,907
            
            
            
            6,869,357
            
            
            
            6,882,809Weighted
      average term of outstanding loans, including extensions
            
            20
      months
            
            
            20
      months
            
            
            20
      months
            
            
            19
      months
            
            
            19
      months








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SUPPLEMENTARY
INFORMATION





ScheduleIVESTIN
      REALTY MORTGAGE I, INC.REAL
      ESTATE LOANS ON REAL ESTATE *REAL
      ESTATE LOAN ROLL FORWARDBalance,
      June 30, 2005 *
            
            $
            67,148,000Additions
      during the periodNew
      real estate loans and additions
            
            
            17,009,000Real
      estate loans bought
            
            
            5,923,000Deductions
      during the periodCollections
      of principal and reductions
            
            
            20,495,000Foreclosed
      loans (Real estate held for sale)
            
            
            --Real
      estate loans sold
            
            
            7,937,000Net
      Change in 2005
            
            
            (5,500,000
            )Balance,
      December 31, 2005 *
            
            $
            61,648,000Additions
      during the periodNew
      real estate loans and additions
            
            
            37,898,000Real
      estate loans bought
            
            
            575,000Deductions
      during the periodCollections
      of principal and reductions
            
            
            34,247,000Foreclosed
      loans (Real estate held for sale)
            
            
            3,702,000Real
      estate loans sold
            
            
            1,475,000Net
      Change in 2006
            
            
            (951,000
            )Balance,
      December 31, 2006 *
            
            $
            60,697,000Additions
      during the periodNew
      real estate loans and additions
            
            
            15,015,000Real
      estate loans bought
            
            
            4,434,000Deductions
      during the periodCollections
      of principal and reductions
            
            
            26,416,000Foreclosed
      loans (Real estate held for sale)
            
            
            --Real
      estate loans sold
            
            
            --Net
      Change in 2007
            
            
            (6,967,000
            )Balance,
      December 31, 2007
            
            $
            53,730,000





*  Includes
loans related to real estate held for sale – seller financed.








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ScheduleIIVESTIN
      REALTY MORTGAGE I, INC.REAL
      ESTATE LOANS ON REAL ESTATE *REAL
      ESTATE LOANS BY TYPE OF PROPERTYAs
      of December 31, 2007:Type
      of Property
            
            Interest
      Rate
            
            
            Face
              Amount
      of Loan
            
            
            Carrying
              Amount
      of Loan
            
            Maturity
      Date
            
            Amount
      Subject to DelinquencyAcquisition
      and Development
            
            
            12%-13.75%
            
            
            $
            11,270,000
            
            
            $
            2,750,000
            
            07/07-08/07
            
            $
            2,750,000Commercial
            
            
            9%-14%
            
            
            $
            188,455,000
            
            
            $
            31,926,000
            
            03/04-12/08
            
            $
            10,544,000Construction
            
            
            10.5%-12.5%
            
            
            $
            58,006,000
            
            
            $
            1,950,000
            
            10/06-07/08
            
            $
            631,000Land
            
            
            10.5%-14%
            
            
            $
            110,250,000
            
            
            $
            17,104,000
            
            06/07-12/09
            
            $
            3,000,000$
            367,981,000
            
            
            $
            53,730,000
            
            
            
            $
            16,925,000As
      of December 31, 2006:Type
      of Property
            
            Interest
      Rate
            
            
            Face
              Amount
      of Loan
            
            
            Carrying
              Amount
      of Loan
            
            Maturity
      Date
            
            Amount
      Subject to DelinquencyAcquisition
      and Development
            
            
            12%-13%
            
            
            $
            18,932,000
            
            
            $
            2,788,000
            
            01/07-07/07
            
            $
            --Commercial
            
            
            5%-14%
            
            
            $
            182,715,000
            
            
            $
            36,072,000
            
            03/04-12/07
            
            $
            10,544,000Construction
            
            
            10%-12%
            
            
            $
            100,466,000
            
            
            $
            5,994,000
            
            10/06-11/07
            
            $
            631,000Land
            
            
            10%-13%
            
            
            $
            77,750,000
            
            
            $
            15,843,000
            
            03/07-12/07
            
            $
            1,500,000$
            379,863,000
            
            
            $
            60,697,000
            
            
            
            $
            12,675,000








ScheduleIIIVESTIN
      REALTY MORTGAGE I, INC.REAL
      ESTATE LOANS ON REAL ESTATE *REAL
      ESTATE LOANS BY LIEN POSITIONAs
      of December 31, 2007:Lien
      Position
            
            Face
      Amount of Loan
            
            
            Interest
      Rate
            
            
            Carrying
              Amount
      of Loan
            
            
            Maturity
      Date
            
            
            Amount
      Subject to Delinquency1st
            
            $
            366,981,000
            
            
            
            9%
      - 14%
            
            
            $
            53,430,000
            
            
            03/04
      - 12/09
            
            
            $
            16,925,0002nd
            
            $
            1,000,000
            
            
            
            10.50%
            
            
            $
            300,000
            
            
            
            06/08
            
            
            $
            --$
            367,981,000
            
            
            
            
            
            
            $
            53,730,000
            
            
            
            
            
            
            $
            16,925,000As
      of December 31, 2006:Lien
      Position
            
            Face
      Amount of Loan
            
            
            Interest
      Rate
            
            
            Carrying
              Amount
      of Loan
            
            
            Maturity
      Date
            
            
            Amount
      Subject to Delinquency1st
            
            $
            371,201,000
            
            
            
            5%
      - 14%
            
            
            $
            60,359,000
            
            
            03/04
      - 12/07
            
            
            $
            12,675,0002nd
            
            $
            8,662,000
            
            
            
            10.5%
      - 13%
            
            
            $
            338,000
            
            
            07/07
      - 12/07
            
            
            $
            --$
            379,863,000
            
            
            
            
            
            
            $
            60,697,000
            
            
            
            
            
            
            $
            12,675,000





*  Includes
loans related to real estate held for sale – seller financed.








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ScheduleIVVESTIN
      REALTY MORTGAGE I, INC.REAL
      ESTATE LOANS ON REAL ESTATEREAL
      ESTATE LOANS THAT EXCEED THREE PERCENT OF THE PORTFOLIOAs
      of December 31, 2007:Description
      of Loan
            
            Interest
      Rate
            
            Final
      Maturity Date
            Periodic
      Payment Terms
            Lien
      Position
            
            Face
      Amount of Loan
            
            
            Carrying
      Amount of Loan
            
            
            Amount
      Subject to DelinquencyCommercial
            
            
            14.0%
            
            03/31/04
            Fixed
      Interest only, Balloon Payment $9,307,000
            1st
            
            $
            26,598,000
            
            
            $
            9,307,000
            
            
            $
            9,307,000Commercial
            
            
            10.5%
            
            07/12/08
            Fixed
      Interest only, Balloon Payment $3,000,000
            1st
            
            $
            25,370,000
            
            
            $
            3,000,000
            
            
            $
            --Commercial
            
            
            12.0%
            
            03/31/08
            Fixed
      Interest only, Balloon Payment $2,819,000
            1st
            
            $
            19,800,000
            
            
            $
            2,819,000
            
            
            $
            --Commercial
            
            
            10.0%
            
            02/29/08
            Fixed
      Interest only, Balloon Payment $3,000,000
            1st
            
            $
            16,000,000
            
            
            $
            3,000,000
            
            
            $
            --Commercial
            
            
            11.5%
            
            04/05/08
            Fixed
      Interest only, Balloon Payment $2,344,000
            1st
            
            $
            15,026,000
            
            
            $
            2,344,000
            
            
            $
            --Commercial
            
            
            10.5%
            
            06/14/08
            Fixed
      Interest only, Balloon Payment $2,750,000
            1st
            
            $
            8,747,000
            
            
            $
            2,750,000
            
            
            $
            --Commercial
            
            
            12.0%
            
            12/05/08
            Fixed
      Interest only, Balloon Payment $4,434,000
            1st
            
            $
            6,000,000
            
            
            $
            4,434,000
            
            
            $
            --Land
            
            
            11.0%
            
            06/30/08
            Variable
      Interest only, Balloon Payment $2,000,000
            1st
            
            $
            17,980,000
            
            
            $
            2,000,000
            
            
            $
            --Land
            
            
            11.5%
            
            12/11/09
            Fixed
      Interest only, Balloon Payment $3,000,000
            1st
            
            $
            17,171,000
            
            
            $
            3,000,000
            
            
            $
            --Land
            
            
            14.0%
            
            01/27/08
            Fixed
      Interest only, Balloon Payment $3,414,000
            1st
            
            $
            16,852,000
            
            
            $
            3,414,000
            
            
            $
            --Land
            
            
            13.0%
            
            06/30/07
            Fixed
      Interest only, Balloon Payment $3,000,000
            1st
            
            $
            8,500,000
            
            
            $
            3,000,000
            
            
            $
            3,000,000Land
            
            
            13.0%
            
            02/10/08
            Fixed
      Interest only, Balloon Payment $1,986,000
            1st
            
            $
            8,500,000
            
            
            $
            1,986,000
            
            
            $
            --$
            186,544,000
            
            
            $
            41,054,000
            
            
            $
            12,307,000








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As
      of December 31, 2006: *Description
      of Loan
            
            Interest
      Rate
            
            Final
      Maturity Date
            Periodic
      Payment Terms
            Lien
      Position
            
            Face
      Amount of Loan
            
            
            Carrying
      Amount of Loan
            
            
            Amount
      Subject to DelinquencyCommercial
            
            
            14.0%
            
            03/31/04
            Fixed
      Interest only, Balloon Payment $9,307,000
            1st
            
            $
            34,000,000
            
            
            $
            9,307,000
            
            
            $
            9,307,000Commercial
            
            
            5.0%
            
            09/21/07
            Fixed
      Interest and Principal, Balloon Payment $7,532,000
            1st
            
            $
            15,334,000
            
            
            $
            7,532,000
            
            
            $
            --Commercial
            
            
            9.0%
            
            03/31/07
            Fixed
      Interest only, Balloon Payment $3,246,000
            1st
            
            $
            24,500,000
            
            
            $
            3,246,000
            
            
            $
            --Commercial
            
            
            10.0%
            
            06/30/07
            Fixed
      Interest only, Balloon Payment $3,000,000
            1st
            
            $
            16,000,000
            
            
            $
            3,000,000
            
            
            $
            --Commercial
            
            
            9.0%
            
            07/12/07
            Fixed
      Interest only, Balloon Payment $3,000,000
            1st
            
            $
            23,900,000
            
            
            $
            3,000,000
            
            
            $
            --Commercial
            
            
            10.5%
            
            12/14/07
            Fixed
      Interest only, Balloon Payment $2,750,000
            1st
            
            $
            8,750,000
            
            
            $
            2,750,000
            
            
            $
            --Commercial
            
            
            11.5%
            
            10/05/07
            Fixed
      Interest only, Balloon Payment $2,500,000
            1st
            
            $
            18,000,000
            
            
            $
            2,500,000
            
            
            $
            --Construction
            
            
            12.0%
            
            05/16/07
            Fixed
      Interest only, Balloon Payment $3,032,000
            1st
            
            $
            26,000,000
            
            
            $
            3,032,000
            
            
            $
            --Land
            
            
            13.0%
            
            07/28/07
            Fixed
      Interest only, Balloon Payment $3,414,000
            1st
            
            $
            15,000,000
            
            
            $
            3,414,000
            
            
            $
            --Land
            
            
            12.0%
            
            04/11/07
            Fixed
      Interest only, Balloon Payment $3,200,000
            1st
            
            $
            8,400,000
            
            
            $
            3,200,000
            
            
            $
            --Land
            
            
            13.0%
            
            06/30/07
            Fixed
      Interest only, Balloon Payment $3,000,000
            1st
            
            $
            10,000,000
            
            
            $
            3,000,000
            
            
            $
            --Land
            
            
            10.0%
            
            12/30/07
            Variable
      Interest only, Balloon Payment $2,000,000
            1st
            
            $
            18,000,000
            
            
            $
            2,000,000
            
            
            $
            --Land
            
            
            13.0%
            
            08/10/07
            Fixed
      Interest only, Balloon Payment $1,986,000
            1st
            
            $
            8,500,000
            
            
            $
            1,986,000
            
            
            $
            --226,384,000
            
            
            $
            47,967,000
            
            
            $
            9,307,000





*  Includes
loans related to real estate held for sale – seller financed.





ITEM
      9.
            CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
      ACCOUNTING AND FINANCIAL DISCLOSURE





None.





ITEM
9A.                      CONTROLS AND PROCEDURES





Evaluation of Disclosure
Controls and Procedures





We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our reports under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer (“CEO”)
and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions
regarding required financial disclosure.  In connection with the
preparation of this Report on Form 10-K, our management carried out an
evaluation, under the supervision and with the participation of our management,
including the CEO and CFO, as of December 31, 2007, of the effectiveness of the
design and operation of our disclosure controls and procedures, as such term is
defined under Rule 13a-15(e) under the Exchange Act.  Based upon our
evaluation, our CEO and CFO concluded that, as of December 31, 2007, our
disclosure controls and procedures are designed at a reasonable assurance level
and are effective to provide reasonable assurance that information we are
required to disclose in reports that we file or submit under theExchange Act is
recorded, processed, summarized and reported within the time periods specified
by the SEC’s rules and forms, and that such information is accumulated and
communicated to our management, including our CEO and CFO, as appropriate, to
allow timely decisions regarding required disclosure.




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Because
of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues within our company have
been or will be detected.  Even effective internal control over
financial reporting can only provide reasonable assurance with respect to
financial statement preparation.  Furthermore, because of changes in
conditions, the effectiveness of internal control over financial reporting may
vary over time.  Our management, including our Chief Executive Officer
and Chief Financial Officer, does not expect that our controls and procedures
will prevent all errors.





Management's Report on
Internal Control over Financial Reporting





Management
is responsible for establishing and maintaining adequate internal control over
financial reporting for our Company, as such term is defined in Rules 13a-15(f)
and 15d-15(f) under the Exchange Act.  Our internal control over
financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external reporting purposes in accordance with
accounting principles generally accepted in the United
States.  Internal control over financial reporting includes those
policies and procedures that: pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of our Company; provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial
statements in accordance with accounting principles generally accepted in the
United States, and that receipts and expenditures of our Company are being made
only in accordance with authorizations of management and directors of our
Company; and provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of our Company's
assets that could have a material effect on our financial statements. Because of
its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements.  In addition, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.  Therefore, even those systems determined to be effective
can provide only reasonable assurance with respect to financial statement
preparation and presentation.





Management
has conducted an assessment, including testing, of the effectiveness of our
internal control over financial reporting as of December 31, 2007.  In
making its assessment of internal control over financial reporting, management
used the criteria inInternal
Control -- Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”).  Based on this
assessment, management, with the participation of the Chief Executive and Chief
Financial Officers, believes that, as of December 31, 2007, the Company’s
internal control over financial reporting is effective based on those
criteria.





Our
internal control over financial reporting as of December 31, 2007 have been
audited by Moore Stephens Wurth Frazer and Torbet, LLP, our independent
registered public accounting firm, as stated in its report, which appears below
in this Item 9A.





Changes in Internal Control
Over Financial Reporting





Our
management has not identified any changes in our internal controls over
financial reporting during the Quarter ended December 31, 2007.








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REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the
Board of Directors and Stockholders of


Vestin
Realty Mortgage I, Inc.





We have
audited Vestin Realty Mortgage I, Inc’s., (the Company) internal control over
financial reporting as of December 31, 2007, based on criteria established in
Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the COSO criteria).  Vestin Realty Mortgage I’s
management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal
control over financial reporting, included in the accompanying “Management's
Report on Internal Control over Financial Reporting”.  Our
responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit.





We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects.  Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances.  We
believe that our audit provides a reasonable basis for our opinion.





A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles.  A company’s internal
control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements.  Also, projections of any evaluation
of the effectiveness to future periods are subject to the risk that the controls
may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.





In our
opinion, the Company maintained in all material respects, effective internal
control over financial reporting as of December 31, 2007 based on the COSO
criteria.





We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheet of Vestin Realty
Mortgage I, Inc., as of December 31, 2007 and 2006, and the related consolidated
statements of income, equity and other comprehensive income (loss) and its
cash flows for the year ended December 31, 2007, the twelve months ended
December 31, 2006, the six months ended December 31, 2005, and the nine month
transition period ended June 30, 2005 and our report dated March 13, 2008
expressed an unqualified opinion on those consolidated financial
statements.





/s/Moore
Stephens Wurth Frazer and Torbet, LLP





Orange,
California


March 13,
2008











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ITEM
      9A(T).
            CONTROLS AND
PROCEDURES





Not
applicable.





ITEM
9B.                     OTHERINFORMATION





None.





PART III





ITEM
10.                      DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE





We are
managed on a day to day basis by Vestin Mortgage, a privately held company
wholly owned by Vestin Group.





Directors
and Executive Officers





The
following table sets forth the names, ages as of December 31, 2007 and positions
of the individuals who serve as our directors and executive
officers:




Name
              Age
              TitleMichael
      V. Shustek
              49
              President,
      Chief Executive Officer and DirectorRocio
      Revollo
              46
              Chief
      Financial OfficerJohn
      E. Dawson
              50
              DirectorRobert
      J. Aalberts(1)(2)(3)
              56
              DirectorFredrick
      J. Zaffarese Leavitt(1)(2)(3)
              37
              DirectorRoland
      M. Sansone(1)(2)(3)
              52
              Director
  (1)
              Member
      of the audit committee.
 
 (2)
              Member
      of the nominating committee.
 
 (3)
              Member
      of the compensation committee.
 
 On
January 16, 2008, our independent directors resigned and elected the following
individuals to serve as our new independent directors:
 
 Name
              Age
              TitleDonovan
      Jacobs
              51
              DirectorKenneth
      A Seltzer (1)(2)(3)
              55
              DirectorRobert
      L. Forbuss(1)(2)(3)
              60
              DirectorDaryl
      C. Idler, Jr.(1)(2)(3)
              63
              Director
 
 (1)
              Member
      of the audit committee.
 
 (2)
              Member
      of the nominating committee.
 
 (3)
              Member
      of the compensation committee.
 
 The
following table sets forth the names, ages as of January 31, 2008 and positions
of the individuals who serve as directors, executive officers and certain
significant employees of Vestin Mortgage (our manager), Vestin Group, Vestin
Originations or our affiliates:






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Name
            Age
            TitleMichael
      V. Shustek
            49
            President,
      Chief Executive Officer and ChairmanRocio
      Revollo
            46
            Chief
      Financial OfficerJames
      M. Townsend
            38
            Chief
      Operating Officer of Vestin GroupMichael
      J. Whiteaker
            58
            Vice
      President of Regulatory Affairs of Vestin GroupDaniel
      B. Stubbs
            46
            Senior
      Vice President of Vestin GroupEdwin
      H. Bentzen IV
            31
            Corporate
      Controller of Vestin Group





Directors,
Executive Officers and certain significant employees of Vestin Realty Mortgage
I, Vestin Mortgage (our manager), Vestin Group, Vestin Originations or our
affiliates





Michael V. Shustek has been a
director of our manager and Chairman of the board of directors, Chief Executive
Officer and a director of Vestin Group since April 1999 and a Director and CEO
of us and Vestin Realty Mortgage II, Inc. (“VRM II”) since January
2006.  In February 2004, Mr. Shustek became the President of Vestin
Group.  Mr. Shustek also serves on the loan committee of our manager
and its affiliates.  In 2003, Mr. Shustek became the Chief Executive
Officer of our manager.  In 1995, Mr. Shustek founded Del Mar
Mortgage, and has been involved in various aspects of the real estate industry
in Nevada since 1990.  In 1993, he founded Foreclosures of Nevada,
Inc., a company specializing in non-judicial foreclosures.  In 1993,
Mr. Shustek also started Shustek Investments, a company that originally
specialized in property valuations for third-party lenders or investors and
which continues today as the primary vehicle for his private investment
portfolio.





In 1997,
Mr. Shustek was involved in the initial founding of Nevada First Bank, with the
largest initial capital base of any new state charter in Nevada’s
history.  Mr. Shustek has co-authored two books, entitled “Trust Deed
Investments,” on the topic of private mortgage lending, and “If I Can Do It, So
Can You.”  Mr. Shustek is a guest lecturer at the University of
Nevada, Las Vegas, where he also has taught a course in Real Estate Law and
Ethics.  Mr. Shustek received a Bachelor of Science degree in Finance
at the University of Nevada, Las Vegas.  See Note N Legal Matters Involving The
Manager in Part II, Item 8 Financial Statements and
Supplementary Data of this Annual Report on Form 10-K for information
regarding legal matters involving our manager and Mr. Shustek.





Rocio Revollowas appointed as our
Chief Financial Officer on March 21, 2007.  In addition, Ms. Revollo
was appointed the CFO of VRM II and Vestin Group on March 21,
2007.  Prior to being appointed as the CFO of us, VRM II and Vestin
Group, Ms. Revollo served as the Corporate Controller of Vestin Group since June
2005.  Ms. Revollo previously served as Corporate Controller for Sobel
Westex from January 2002 through May 2005.  From April 1999 to
December 2001, Ms. Revollo was a financial consultant for Re:Source
Connections.  Ms. Revollo is a Certified Public Accountant and worked
for the accounting firm of KPMG LLP.  She received a Bachelor of
Business Administration degree in Accounting and a Bachelor of Arts degree in
Communication Studies from the University of Nevada, Las Vegas.





James M. Townsendhas served
as the Chief Operating Officer of Vestin Group since January
2007.  Mr. Townsend has over 15 years of experience in the securities
industry.  From February 2004 to September 2006, Mr. Townsend was the
National Sales Manager of Samco Financial Services, Inc.  From
November 2003 to February 2004, Mr. Townsend was employed by Vestin Group as
Manager of the Wholesale Division.  From September 2002 to October of
2003, Mr. Townsend was National Sales Manager of Samco Financial Services,
Inc.  From February 1997 to July 2002, Mr. Townsend was employed by
Donald & Co. Securities, Inc., as both a Sales Manager and the National
Sales Manager.  Mr. Townsend received a Bachelor of Science degree in
Business Administration from The University of Texas at Dallas.





Michael J. Whiteaker has been
Vice President of Regulatory Affairs of our manager and Vestin Group since May
1999.  Mr. Whiteaker is experienced in the banking and finance
regulatory fields, having served with the State of Nevada, Financial Institution
Division from 1982 to 1999 as its Supervisory Examiner, responsible for the
financial and regulatory compliance audits of all financial institutions in
Nevada.  Mr. Whiteaker has worked extensively on matters pertaining to
both state and federal statutes, examination procedures, policy determination
and credit administration for commercial and real estate loans.  From
1973 to 1982, Mr. Whiteaker was Assistant Vice President of Nevada National
Bank, responsible for a variety of matters including loan review.  Mr.
Whiteaker haspreviously served on the Nevada Association of Mortgage Brokers,
Legislative Committee and is a past member of the State of Nevada, Mortgage
Advisory Council. He currently is a director of the Private Lenders Group, an
organization devoted to creating and maintaining the highest professional
standards possible among licensed Nevada Mortgage brokers.




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Daniel B. Stubbs has been the
Senior Vice President of Underwriting and Secretary of our manager since January
2000.  Mr. Stubbs heads the loan department for our manager and its
affiliates and is responsible for reviewing loan requests and performs due
diligence necessary for risk analysis in connection with the underwriting
process.  In addition, Mr. Stubbs serves on the loan committee and
acts as liaison for our manager and its affiliates with the various commercial
loan participants.  Mr. Stubbs has 15 years experience in the title
insurance industry and has received a Bachelor of Arts degree in Communication
Studies from the University of Nevada, Las Vegas.





Edwin H. Bentzen IVhas been
the Corporate Controller of Vestin Group since April 2007.  Prior to
being Corporate Controller of Vestin Group, Mr. Bentzen served as a Financial
Reporting Analyst for Vestin Group since January 2006.  Mr. Bentzen
served at Ameristar Casinos Inc. as Senior Internal Auditor from June 2005
through January 2006 and an Internal Auditor from June 2003 to June
2005.  Prior to June 2003, Mr. Bentzen was engaged in public tax
accounting at a local firm in Las Vegas.  Mr. Bentzen is a Certified
Internal Auditor and received a Masters of Science in Accountancy and a Bachelor
of Science degree in Hotel Administration, with an emphasis in gaming, from the
University of Nevada, Las Vegas.





Unaffiliated
Directors of Vestin Realty Mortgage I





The
principal occupation and business experience for the individuals who served as
independent and unaffiliated directors of Vestin Realty Mortgage I during 2007
are as follows:





Robert J. Aalberts was a
director of Vestin Group from April 1999 to December 2005, and was a director of
us from January 2006 to January 2008.  He has been a director of VRM
II since January 2006.  Since 1991, Professor Aalberts has held the
Ernst Lied Professor of Legal Studies professorship in the College of Business
at the University of Nevada, Las Vegas.  From 1984 to 1991, Professor
Aalberts was an Associate Professor of Business Law at Louisiana State
University in Shreveport, Louisiana.  From 1982 through 1984, he
served as an attorney for Gulf Oil Company.  Professor Aalberts has
co-authored a book relating to the regulatory environment, law and business of
real estate; including Real Estate Law (7th Ed. (2009) 6th Ed. (2006)) published
by the Thomson/West Company.  He is also the author of numerous legal
articles, dealing with various aspects of real estate, business and the practice
of law.  Since 1992, Professor Aalberts has been the Editor-in-chief
of the Real Estate Law Journal.  Professor Aalberts received his Juris
Doctor degree from Loyola University, in New Orleans, Louisiana, a Masters of
Arts from the University of Missouri, Columbia, and received a Bachelor of Arts
degree in Social Sciences, Geography from the Bemidji State University in
Bemidji, Minnesota.  He was admitted to the State Bar of Louisiana in
1982 (currently inactive status).





Fredrick J. Zaffarese Leavitt
was a director for Vestin Group from November 2004 to December 2005, and was a
director of us from January 2006 to January 2008.  He has been a
director of VRM II since January 2006.  Since August of 1993 Mr.
Zaffarese Leavitt has been an accountant for the United States Department of the
Interior where his responsibilities include the review and audit of various
states, local and municipality governments for compliance with federal laws and
regulations as well as preparation of financial statements for Executive Branch
and Congressional review.  Additionally, Mr. Zaffarese Leavitt sits on
various audit committees involving the utility industry.  Mr.
Zaffarese Leavitt is a CPA and a graduate of University of Nevada Las
Vegas.





Roland M. Sansone was a
director for Vestin Group from December 2004 to December 2005, and was a
director of us from January 2006 to January 2008.  He has been a
director of VRM II since January 2006.  In additions, has served as
President of Sansone Development, Inc. since 2002.  Sansone
Development, Inc. is a real estate development company.  Mr. Sansone
has been self-employed as a Manager and developer of real estate since
1980.  Mr. Sansone is currently the president of several companies
that develop, own and manage commercial and residential property.  Mr.
Sansone attended Mt. San Antonio College.





John E. Dawson was previously
a director of Vestin Group from March 2000 to December 2005, and was a director
of us from March 2007 to January 2008.  He has been a director of VRM
II since January 2006.  Since 2005 Mr. Dawson has been a partner of
the Las Vegas law firm of Lionel Sawyer & Collins.   Previous
to that, from 1995 to 2005, Mr. Dawson was a partner at the law firm of Marquis
& Aurbach.  Mr. Dawson received his Bachelor’s Degree from
Weber State and his Juris Doctor from
Brigham Young University.  Mr. Dawson received his Masters
of Law (L.L.M.) in Taxation from the University of San Diego in
1993.  Mr. Dawson was admitted to the Nevada Bar in 1988 and the Utah
Bar in 1989.





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On
January 16, 2008, the following series of events occurred:  Roland M.
Sansone resigned from the board of directors (the “Board”) of Vestin Realty
Mortgage I, Inc. (the “Company”) and the remaining directors appointed Robert L.
Forbuss to fill the resulting vacancy.  John E. Dawson resigned from
the Board and the remaining directors appointed Donovan J. Jacobs to fill the
resulting vacancy.  Robert J. Aalberts resigned from the Board and the
remaining directors appointed Daryl C. Idler, Jr. to fill the resulting
vacancy.  Fredrick J. Zaffarese Leavitt resigned from the Board and
the remaining directors appointed Kenneth A. Seltzer to fill the resulting
vacancy.  Each of the resigning directors indicated that they are also
directors of Vestin Realty Mortgage II, Inc. (“VRTB”) and that they were
resigning in order to eliminate any potential conflict between their duties to
the Company and their duties to VRTB.  There are no known
disagreements between the Company and the resigning directors on any matter
relating to the Company’s operations, policies or practices.





On
January 16, 2008, the Board determined that each Mr. Forbuss, Mr. Seltzer, and
Mr. Idler are “independent” pursuant to the independence standards for directors
set forth in Rule 10A-3(b)(1) under the Securities Exchange Act of 1934 and
NASDAQ Rule 4200(a)(15).  The Board also determined that Mr. Seltzer
meets the audit committee financial expert requirements of NASDAQ Marketplace
Rule 4350(d)(2)(A).





As of
January 16, 2008, the Board constituted the following committees:





Audit
Committee


Kenneth A Seltzer
(Chairman)


Robert L. Forbuss


Daryl C. Idler, Jr.





Compensation
Committee


Robert L. Forbuss
(Chairman)


Kenneth A. Seltzer


Daryl C. Idler, Jr.





Nominating
Committee


Daryl C. Idler, Jr.
(Chairman)


Kenneth A. Seltzer


Robert L. Forbuss





The
principal occupation and business experience for the newly appointed independent
and unaffiliated directors of Vestin Realty Mortgage I is as
follows:





Kenneth A. Seltzer is the
president of the accounting firm of Kenneth A. Seltzer, CPA A.P.C. since 1993.
His firm specializes in compilations and reviews for small and medium size
businesses as well as federal and state tax reporting.  In addition,
his firm has performed accounting engagements for bankruptcy cases in the State
of Nevada.  Mr. Seltzer is a CPA in the State of Nevada and a graduate
of California State University, Northridge.





Robert L. Forbuss has been
the President of Strategic Alliances, a business and government affairs
consulting organization since February 1999. From March 1998 through February
1999, he was the President of Medical Transportation of America. From February
1997 to March 1998, Mr. Forbuss was the Chief Executive Officer of the Southwest
Division of American Medical Response.  From March 1994 to February
1997, he was Senior Vice President of Laidlaw Medical Transportation, which had
acquired Mercy Medical Services, Inc., a company that Mr. Forbuss founded, owned
and managed for 22 years.  The latter four companies are all in the
business of providing emergency ambulance and transportation
services.  Mr. Forbuss was previously a director of Vestin Group from
March 2000 to November 2003.  Mr. Forbuss received his Bachelor of
Arts in Public Administration and Political Science from the University of
California at Long Beach.





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Daryl C. Idler, Jr. has been
President and Managing General Partner of Premier Golf Properties, LP, dba
Cottonwood Golf Club in Rancho San Diego, California, since
2002.  From 2000 to 2002, Mr. Idler was Executive Vice President and
General Counsel to Global Axcess Corp. (GAXC). From 1973 to 2000, Mr. Idler
practiced corporate and real estate law in California.  Mr. Idler
received his Bachelor’s Degree from the University of Redlands, California and
his Juris Doctor from the University of San Diego School of Law.  Mr.
Idler has been an active member of the California Bar since 1973.  Mr.
Idler is a member of the board of directors of Sonshine Haven in El Cajon,
California. In addition, Mr. Idler sits on the Board of Trustees and Board of
Administration for Skyline Wesleyan Church in La Mesa,
California.  Mr. Idler served in the United States Navy Reserve from
1966 to 1973, with active service from 1967 to 1969.





Donovan J. Jacobs was an
employee of Vestin Group from 2000 to 2004 and from September 2005 to October
2006.  At Vestin Group, he was responsible for opening and managing
three Vestin Mortgage’s branch offices.  Since 1992, Mr. Jacobs has
been practicing law in San Diego, California where he represents police officers
in both administrative and civil actions.  Mr. Jacobs is a retired San
Diego Police Officer, where he served for 13 years.  Mr. Jacobs holds
a lifetime teaching credential from the State of California and has taught law
and police science at Miramar College, Southwestern College and Central Texas
College.  Mr. Jacobs has authored two books on narcotics
investigations, Street Crime Investigations and Street Cop.  Mr.
Jacobs received his Bachelor’s Degree from San Diego State and his Juris Doctor
from Thomas Jefferson School of Law.  Mr. Jacobs was admitted to the
California Bar in 1992.





Board
Composition





Our board
of directors is authorized to have up to 15 directors.  Our board of
directors is currently comprised of five directors.  In accordance
with our articles of charter and bylaws, our board of directors is divided into
three classes, class I, class II and class III, with each class serving
staggered three-year terms.  The members of the classes are divided as
follows:





·
            The
      class I director is Mr. Seltzer, and his term will expire at the 2010
      annual meeting of stockholders;





·
            The
      class II directors are Messrs, Jacobs and Forbuss, and their terms will
      expire at the 2008 annual meeting of stockholders;
  and





·
            The
      class III directors are Messrs, Idler and Shustek, and their terms will
      expire at the 2009 annual meeting of
  stockholders.





The
authorized number of directors may be changed only by resolution of the board of
directors.  Any additional directors resulting from an increase in the
number of directors will be distributed between the three classes so that, as
nearly as possible, each class will consist of one third of the
directors.  This classification of our board of directors may have the
effect of delaying or preventing changes in our control or
management.  Our directors will hold office until their successors
have been elected and qualified or until their earlier death, resignation,
disqualification or removal for cause by the affirmative vote of the holders of
at least a majority of our outstanding stock entitled to vote on election of
directors.





During
the year ended December 31, 2007, the Board held 18 meetings.  Each
previous director attended at least 75% of the aggregate of all Board and
applicable standing committee meetings.  Directors are encouraged to
attend annual meetings of our stockholders.  At the last annual
meeting of stockholders, 3 of the 5 then-current directors
attended.





Board
Committees





Our board
of directors has appointed an audit committee, a nominating committee and a
compensation committee.  There are no family relationships among any
of our directors or executive officers.




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Audit committee– The Audit
Committee is responsible for the appointment, compensation, retention and
oversight of the Company’s independent accountants.  In addition, the
Audit Committee reviews with the Company’s management and its independent
accountants financial information that will be provided to stockholders and
others, the systems of internal controls which management and our board of
directors have established and our audit and financial reporting
processes.  The Audit Committee operates under a written Audit
Committee Charter adopted by our board of directors which is available at http://www.vestinrealtymortgage1.com/VRT_About/CommitteeCharters.aspx.  Our
Audit Committee, consisting of Mr. Seltzer (chair), Mr. Forbuss and Mr. Idler,
met in March 2008 in connection with the audit of our 2007 financial statements,
and the previous audit committee members held a total of four meetings in fiscal
2007.Our Audit
Committee oversees our accounting and financial reporting processes, internal
systems of control, independent auditor relationships and the audits of our
financial statements.  This committee’s responsibilities include,
among other things:





·
            Selecting
      and hiring our independent
auditors;





·
            Evaluating
      the qualifications, independence and performance of our independent
      auditors;





·
            Approving
      the audit and nonaudit services to be performed by our independent
      auditors;





·
            Reviewing
      the design, implementation, adequacy and effectiveness of our internal
      controls and our critical accounting
policies;





·
            Overseeing
      and monitoring the integrity of our financial statements and our
      compliance with legal and regulatory requirements as they relate to
      financial statements or accounting matters;
and





·
            Reviewing
      with management and our auditors any earnings announcements and other
      public announcements regarding our results of
  operations.





Our
independent auditors and internal financial personnel regularly meet privately
with our audit committee and have unrestricted access to this
committee.  Our Audit Committee currently consists of Mr. Seltzer, Mr.
Idler and Mr. Forbuss.  Our board of directors has determined that
each of these directors meet the independence standards for audit committee
members and that Mr. Seltzer meets the financial expertise requirements set
forth in Section 407 of the Sarbanes Oxley Act of 2002.





Nominating Committee– Our
Nominating Committee’s was formed to assist our board of directors by
identifying individuals qualified to become directors.  During fiscal
2007, the Nominating Committee, consisting of Mr. Sansone (chair), Mr. Zaffarese
Leavitt and Mr. Aalberts, held one meeting.  Our nominating committee
currently consists of Mr. Forbuss, Mr. Seltzer and Mr. Idler, Jr
(chair).





The
Nominating Committee operates under a charter adopted by our board of directors
which is available at http://www.vestinrealtymortgage1.com/VRT_About/CommitteeCharters.aspx  
Responsibilities of the Nominating Committee include, among other
things:





·
            Evaluating
      the composition, size, operations and governance of our board of directors
      and making recommendations regarding future planning and the appointment
      of directors;





·
            Evaluating
      the independence of our directors and candidates for election to the
      Board; and





·
            Evaluating
      and recommending candidates for election to our board of
      directors.





In
evaluating candidates, the Nominating Committee will consider an individual’s
business and professional experience, the potential contributions they could
make to our Board and their familiarity with our business.  The
Nominating Committee will consider candidates recommended by our directors,
members of our management team and third parties.  The Nominating
Committee will also consider candidates suggested by our
stockholders.  We do not have a formal process established for this
purpose.  Stockholders are encouraged to contact the Chair of the
Nominating Committee if they wish the Committee to consider a proposed
candidate.  Stockholders should submit the names of any candidates in
writing, together with background information about the candidate, and send the
materials to the attention of Mr. Idler at the following address: 6149 South
Rainbow Boulevard, Las Vegas, NV 89118.  Stockholders wishing to
directly nominate candidates for election to the Board must provide timely
notice in accordance with the requirements of our Bylaws, between the 150th and
120th days
prior to the anniversary of the date of mailing of the notice for the preceding
year’s annual meeting of stockholders.





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Compensation Committee– Our
Compensation Committee operates under a charter adopted by our board of
directors which is available at http://www.vestinrealtymortgage1.com/VRT_About/CommitteeCharters.aspx 
It was established to assist our board of directors relating to compensation of
the Company’s directors and its sole manager, Vestin Mortgage, Inc.; and to
produce as may be required an annual report on executive officer
compensation.  Subject to applicable provisions of our bylaws and the
Management Agreement with our manager, the compensation committee is responsible
for reviewing and approving compensation paid by us to our
manager.  During fiscal 2007 the Compensation Committee, consisting of
Mr. Aalberts, Mr. Zaffarese Leavitt and Mr. Sansone, held one
meeting.  Our compensation committee currently consists of Mr. Idler,
Mr. Seltzer and Mr. Forbuss (chair).  No member of the Compensation
Committee had a relationship that requires disclosure as a compensation
committee interlock.





Our board
of directors may establish other committees to facilitate the management of our
business.





Code
of Ethics





Our board
of directors has adopted a Code of Business Conduct and Ethics that applies to
all of our directors, officers and employees of our manager.  The Code
of Business Conduct and Ethics may be found on our web site at http://www.vestinrealtymortgage1.com/VRT_About/GovernanceDocuments.aspx.





ITEM
11.                      EXECUTIVE COMPENSATION





We do not
pay any compensation to our executive officers.  We pay a management
fee of up to 0.25% of the amounts raised by us and Fund I through the sale of
shares or units.  Payment of the management fee is reviewed by and
subject to approval of our Compensation Committee.  For the year ended
December 31, 2007, we paid our manager $277,000 for its management services,
which represented less than 10% of the revenues received by our manager and its
affiliates in 2007.





Our
independent directors receive $500 for each board meeting and committee meeting
they attend, whether in person or by phone, and are reimbursed for travel
expenses and other out-of-pocket costs of attending board and committee
meetings.





ITEM
      12.
            SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
      MANAGEMENT AND RELATED STOCKHOLDER
MATTERS





Shown
below is certain information as of January 31, 2008, with respect to beneficial
ownership, as that term is defined in Rule 13d-3 under the Securities Exchange
Act of 1934, as amended (the “Exchange Act”), of shares of common stock by the
only persons or entities known to us to be a beneficial owner of more than 5% of
the outstanding shares of common stock.  Unless otherwise noted, the
percentage ownership is calculated based on 6,873,803 shares of our common stock
as of January 31, 2008.





Name
      and Address of
              Beneficial
      Owner
            
            Amount
      and Nature of
              Beneficial
      Ownership
            
            Percent
      of ClassVestin
      Reality Mortgage II, Inc.
              6149
      South Rainbow Boulevard
              Las
      Vegas, NV 89118
            
            Sole
      voting and dispositive power of 533,675 shares
            
            7.76%





The
following table sets forth the total number and percentage of our common stock
beneficially owned as of January 31, 2008, by:





·
            Each
      director;





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·
            Our
      chief executive officer, chief financial officer and the officers of our
      manager who function as the equivalent of our executive officers;
      and





·
            All
      executive officers and directors as a
group.





Unless
otherwise noted, the percentage ownership is calculated based on 6,873,803
shares of our total outstanding common stock as of January 31,
2008.





Common
      Shares Beneficially OwnedBeneficial
      Owner
            
            Number
            
            
            PercentMichael
      V. Shustek(1)
            
            
            188,741
            
            
            
            2.75%Rocio
      Revollo
            
            
            --
            
            
            
            --James
      M. Townsend (2) (5)
            
            
            7,344
            
            
            
            **John
      E. Dawson (3) (4) (5)
            
            
            3,200
            
            
            
            **Robert
      J. Aalberts (4) (5)
            
            
            440
            
            
            
            **Frederick
      J. Zaffarese Leavitt (4)
            
            
            --
            
            
            
            --Roland
      M. Sansone (4)
            
            
            --
            
            
            
            --Donovan
      Jacobs (4)
            
            
            --
            
            
            
            --Kenneth
      A Seltzer (4)
            
            
            --
            
            
            
            --Robert
      L. Forbuss (4)
            
            
            --
            
            
            
            --Daryl
      C. Idler, Jr. (4)
            
            
            --
            
            
            
            --All
      directors and executive officers as a group
            
            
            199,725
            
            
            
            2.91%





**  Less
than one percent of our total outstanding common stock.





(1)
            Includes
      100,000 share held by our manager and 88,741 shares held by Michael
      Shustek.  Mr. Shustek is the Chairman, President and Chief
      Executive Officer of Vestin Mortgage and indirectly owns all of the
      capital stock of our manager through Vestin Group.  Mr. Shustek
      has sole voting and investment power in all these
  shares.





(2)
            Mr.
      Townsend became an officer of Vestin Group in January
  2007.





(3)
            Shares
      are held by the 12557 Limited Partnership, which Mr. Dawson is the
      controlling general partner.





(4)
            Messrs
      Dawson, Aalberts, Zaffarese Leavitt, and Sansone resigned as directors on
      January 16, 2008 and were replaced by Messrs Jacobs, Seltzer, Forbuss and
      Idler.





(5)
            Except
      as otherwise indicated, and subject to applicable community property and
      similar laws, the persons listed as beneficial owners of the shares have
      sole voting and investment power with respect to such
    shares.





ITEM
      13.
            CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
      DIRECTOR INDEPENDENCE





From time
to time, we may acquire or sell investments in real estate loans from/to our
manager or other related parties pursuant to the terms of our Management
Agreement without a premium.  No gain or loss is recorded on these
transactions, as it is not our intent to make a profit on the purchase or sale
of such investments.  The purpose is generally to diversify our
portfolio by syndicating loans, thereby providing us with additional capital to
make additional loans.





Please
refer to Note H Related Party
Transactions in Part II, Item 8 Financial Statements and
Supplementary Data of this Annual Report on Form 10-K, for information
regarding our related party transactions, which are incorporated herein by
reference.





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ITEM
      14.
            PRINCIPAL ACCOUNTING FEES AND
  SERVICES





During
the year ended December 31, 2007 and the twelve months ended December 31, 2006,
Moore Stephens Wurth Frazer and Torbet, LLP (“Moore Stephens”) provided various
audit, audit related and non-audit services to us as follows:





December
      31, 2007
            
            
            December
      31, 2006Audit
      Fees
            
            $
            256,000
            
            
            $
            379,000Audit
      Related Fees
            
            $
            --
            
            
            $
            --Tax
      Fees
            
            $
            --
            
            
            $
            --All
      Other Fees
            
            $
            --
            
            
            $
            --





Our Audit
Committee has considered whether provision of the services described regarding
audit related fees, tax fees and all other fees above were compatible with
maintaining the independent accountant’s independence and has determined that
such services did not adversely affect Moore Stephens’
independence.





The Audit
Committee has direct responsibility to review and approve the engagement of the
independent auditors to perform audit services or any permissible non-audit
services.  All audit and non-audit services to be provided by the
independent auditors must be approved in advance by the Audit
Committee.  The Audit Committee may not engage the independent
auditors to perform specific non-audit services proscribed by law or
regulation.  All services performed by our independent auditors under
engagements entered into from May 6, 2003 to May 1, 2006, were approved by the
Audit Committee of Vestin Group, all services performed after May 1, 2006, were
approved by our Audit Committee, pursuant to our pre-approval policy, and none
was approved pursuant to the de minimusexception to the
rules and regulations of the Securities Exchange Act of 1934, Section
10A(i)(1)(B), on pre-approval.





PART IV





ITEM
15.                      EXHIBITS, FINANCIAL STATEMENT SCHEDULES





The
following are filed as part of this Report:





(a)
1.  Financial
Statements





The list
of the financial statements contained herein are contained in Part II, Item 8
Financial Statements and
Supplementary Data on this Annual Report on Form 10-K, which is hereby
incorporated by reference.





(a)
2.  Financial Statement
Schedules





The list
of the financial statements schedules contained herein are contained in Part II,
Item 8 Financial Statements
and Supplementary Data on this Annual Report on Form 10-K, which is
hereby incorporated by reference.





(a)
3.  Exhibits






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 EXHIBIT INDEX
 
 Exhibit
      No.
              
              Description
      of Exhibits2.1(1)
              
              Agreement
      and Plan of Merger between Vestin Fund I, LLC and the
      Registrant3.1(1)
              
              Articles
      of Incorporation of the Registrant3.2(1)
              
              Bylaws
      of the Registrant3.3(1)
              
              Form
      of Articles Supplementary of the Registrant4.1(1)
              
              Reference
      is made to Exhibits 3.1, 3.2 and 3.34.2(2)
              
              Specimen
      Common Stock Certificate4.3(1)
              
              Form
      of Rights Certificate10.1(1)
              
              Form
      of Management Agreement between Vestin Mortgage, Inc. and the
      Registrant10.2(1)
              
              Form
      of Rights Agreement between the Registrant and the rights
      agent21.1(2)
              
              List
      of subsidiaries of the Registrant31.1
              
              Section 302 Certification of Michael V.
      Shustek31.2
              
              Section 302 Certification of Rocio
      Revollo32
              
              Certification Pursuant to U.S.C. 18 Section
      135099.2R(3)
              
              Vestin
      Realty Mortgage I, Inc. Code of Business Conduct and
  Ethics
 
 (1)
              
              Incorporated
      herein by reference to Post-Effective Amendment No. 3 to our Form S-4
      Registration Statement filed on January 4, 2006 (File No.
      333-125347).(2)
              
              Incorporated
      herein by reference to Post-Effective Amendment No. 4 to our Form S-4
      Registration Statement filed on January 31, 2006 (File No.
      333-125347).(3)
              
              Incorporated
      herein by reference to the Transition Report on Form 10-K for the ten
      month transition period ended April 30, 2006 filed on June 28, 2006 (File
      No. 000-51964)
 
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SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) 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.





Vestin
      Realty Mortgage I, Inc.By:
            /s/
      Michael V. ShustekMichael
      V. ShustekPresident
      and Chief Executive OfficerDate:
            March
      13, 2008





Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.





Signature
            
            Capacity
            
            Date/s/
      Michael V. Shustek
            
            President
      and Chief Executive Officer and Director
            
            March
      13, 2008Michael
      V. Shustek
            
            (Principal
      Executive Officer)/s/
      Rocio Revollo
            
            Chief
      Financial Officer and Director
            
            March
      13, 2008Rocio
      Revollo
            
            (Principal
      Financial and Accounting Officer)/s/
      Donovan J. Jacobs
            
            Director
            
            March
      13, 2008Donovan
      J. Jacobs/s/
      Kenneth A. Seltzer
            
            Director
            
            March
      13, 2008Kenneth
      A. Seltzer/s/
      Robert L. Forbuss
            
            Director
            
            March
      13, 2008Robert
      L. Forbuss/s/
      Daryl C. Idler, Jr.
            
            Director
            
            March
      13, 2008Daryl
      C. Idler, Jr.











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