**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **WASHINGTON,
        D.C.**  **20549**
 
 **FORM
        10-K**
 
 (Mark
        one)
 
 [   ]
        ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
        ACT OF
        1934
 
 For
        the
        year ended ______________________
 
 Or
 
 [X]
        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
        ACT
        OF 1934
 
 For
        the
        transition period from July
        1, 2005 to April
        30, 2006
 
 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.)
 
 
 8379
        WEST
        SUNSET ROAD, LAS VEGAS, NEVADA  89113
 (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
 
 Securities
        registered pursuant to Section 12(g) of the Act:
 NONE
 
 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 (Sec 229.405 of this chapter) is not contained herein, and
        will
        not be contained, to the best of the 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, or a non-accelerated filer. See definition of “accelerated
        filer and large accelerated filer” in Rule 12b-2 of the Exchange
        Act.  (Check one):
 
 Large
                  accelerated filer [   ]
              Accelerated
                  filer [X]
              Non-accelerated
                  filer [   ]
 
 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
        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.
 Not
        applicable.
 
 As
        of
        June 27, 2006 there were 6,868,740 shares of the Company’s Common Stock
        outstanding.
 *Table
            of Contents*
 
 
  **EXPLANATORY
        NOTE**
 
 On
        May 1,
        2006, Vestin Fund I, LLC, a Nevada limited liability company ("Fund I"),
        merged
        into Vestin Realty Mortgage I, Inc., a Maryland corporation (the "Registrant").
        The Registrant was formed in January 2006 for the sole purpose of effecting
        the
        merger. Prior to the merger, the Registrant did not have any material assets
        or
        operations. This report is filed by the Registrant as the successor to Fund
        I
        which had a June 30 fiscal year end. Accordingly, this report has been filed
        for
        the ten month transition period ended April 30, 2006. Due to the merger,
        the
        Registrant's fiscal year end is December 31 st .
 
 
 
 *Table
            of Contents*
  
 **TABLE
        OF CONTENTS**
 
 **Page**PART
                  IITEM
                  1.
              BUSINESS
              4ITEM
                  1A.
              RISK
                  FACTORS
              13ITEM
                  1B.
              UNRESOLVED
                  STAFF COMMENTS
              25ITEM
                  2.
              PROPERTIES
              25ITEM
                  3.
              LEGAL
                  PROCEEDINGS
              25ITEM
                  4.
              SUBMISSION
                  OF MATTERS TO A VOTE OF SECURITY
                  HOLDERS
              27PART
                  IIITEM
                  5.
              MARKET
                  FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
                  MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
              27ITEM
                  6.
              SELECTED
                  FINANCIAL DATA
              28ITEM
                  7.
              MANAGEMENT’S
                  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                  AND RESULTS OF OPERATIONS
              29ITEM
                  7A.
              QUANTITATIVE
                  AND QUALITATIVE DISCLOSURES ABOUT MARKET
                  RISK
              47ITEM
                  8.
              FINANCIAL
                  STATEMENTS AND SUPPLEMENTARY
                  DATA
              47ITEM
                  9.
              CHANGES
                  IN AND DISAGREEMENTS WITH INDEPENDENT AUDITORS ON
                  ACCOUNTING AND FINANCIAL DISCLOSURE
              48ITEM
                  9A.
              CONTROL
                  AND PROCEDURES
              48ITEM
                  9B.
              OTHER
                  INFORMATION
              52PART
                  IIIITEM
                  10.
              DIRECTORS
                  AND EXECUTIVE OFFICERS OF
                  REGISTRANT
              52ITEM
                  11.
              EXECUTIVE
                  COMPENSATION
              56ITEM
                  12.
              SECURITY
                  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                  MANAGEMENT AND RELATED STOCKHOLDER MATTERS
              56ITEM
                  13.
              CERTAIN
                  RELATIONSHIPS AND RELATED
                  TRANSACTIONS
              57ITEM
                  14.
              PRINCIPAL
                  ACCOUNTING FEES AND SERVICES
              58PART
                  IVITEM
                  15.
              EXHIBITS
                  AND FINANCIAL STATEMENT
                  SCHEDULES
              58EXHIBIT
                  INDEX
              59SIGNATURES
              60BALANCE
                  SHEETS
              F-3STATEMENTS
                  OF OPERATIONS
              F-4STATEMENTS
                  OF STOCKHOLDERS' EQUITY
              F-5STATEMENTS
                  OF CASH FLOWS
              F-6NOTES
                  TO FINANCIAL STATEMENTS
              F-8SUPPLEMENTARY
                  INFORMATION
              F-29
 
 
 *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,”
“forecasts,” “projects,” “anticipates,” “believes” and words of similar meaning.
        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 real estate loans. Vestin
        Realty Mortgage I, Inc. (the “Registrant”) 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 the Registrant and the members of Fund I
        received one share of the Registrant’s common stock for each membership unit of
        Fund I. This report is filed by the Registrant as the successor to Fund I.
        References in this report to the “Company”, “we”, “us” or “our” refer to Fund I
        with respect to the period ending on April 30, 2006 and to the Registrant
        with
        respect to the period commencing on May 1, 2006. Because we were a limited
        liability company during the periods reflected in this report, we make reference
        to our “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 as “deeds of trust”). We commenced operations in August
        2000.
 
 We
        intend
        to 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 st year
        end.
 
 Our
        Manager is Vestin Mortgage, Inc. (the “Manager” or “Vestin Mortgage”), a Nevada
        corporation and licensed mortgage broker engaged in the business of brokerage,
        placement and servicing of commercial loans secured by real property. Our
        Manager is a wholly owned subsidiary of Vestin Group, Inc., a Delaware
        corporation (“Vestin Group”) wholly owned by Michael V. Shustek, the CEO and
        director of the Manager. Through its subsidiaries, Vestin Group is engaged
        in
        asset management, real estate lending and other financial services.
 
 Pursuant
        to a Management Agreement, the Manager controls the daily operating activities
        of the Company, including the power to assign duties, to determine how to
        invest
        our assets, to sign bills of sale, title documents, leases, notes, security
        agreements, mortgage investments and contracts, and to direct our business
        operations. As a result, our operating results are dependent upon the 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., as
        the
        successor by merger to Vestin Fund II, LLC, referred to as “Fund II”, Vestin
        Fund III, LLC (“Fund III”) and inVestin Nevada, Inc., a company wholly owned by
        our Manager’s CEO. These entities also invest in commercial real estate
        loans.
  -
            4
            -
 *Table
            of Contents*
  **Real
        Estate Loan Objectives**
 
 We
        generally invest in real estate loans throughout the areas in which Vestin
        Mortgage and its correspondents have experience. As of April 30, 2006 our
        loans
        were in the following states; Arizona, California, Hawaii, Nevada, New York,
        Oklahoma, Oregon, Texas, Washington and Wisconsin. The loans we invest in
        are
        selected for us by Vestin Mortgage from among loans originated by Vestin
        Mortgage or non-affiliated mortgage brokers. When Vestin Mortgage or a
        non-affiliated mortgage broker originates a loan for us, that entity identifies
        the borrower, processes the loan application, makes or invests in the loan
        and
        brokers or sells the loan to us. We believe that our loans are attractive
        to
        borrowers because of the expediency of Vestin Mortgage’s loan approval process,
        which takes about ten to twenty days.
 
 As
        a
        non-conventional lender, we are more willing to invest in real estate loans
        to
        borrowers that conventional lenders would not deem to be creditworthy. Because
        of our increased willingness to fund riskier loans, borrowers are willing
        to pay
        us an interest rate that is two to five points above the rates generally
        charged
        by conventional lenders. We invest a significant amount of our funds in loans
        in
        which the real property being developed is not generating any income to the
        borrower. The “balloon payment” loans in which we invest are riskier because the
        borrower’s repayment depends on its ability to refinance the loan or develop the
        property so it can refinance the loan.
 
 Our
        principal investment objectives are to:
 
 ·
            Produce
                revenues from the interest income on our real estate
                loans; 
 ·
            Provide
                cash distributions from the net income generated by our real estate
                loans; 
 ·
            Reinvest,
                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 April 30, 2006,
        approximately 63% of our assets are classified as investments in real estate
        loans net of allowance for loan losses.
 
 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 with a lesser proportion of loans involving land
        loans.
 
 Our
        real
        estate investments are not insured or guaranteed by any government
        agency.
  Vestin
            Mortgage continuously evaluates prospective investments, selects the
            loans in
            which we invest and makes all investment decisions on our behalf in its
            sole
            discretion. In evaluating prospective real estate loan investments, Vestin
            Mortgage 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; 
 ·
                Expected
                    levels of rental and occupancy rates, if applicable; 
 ·
                Potential
                    for rental increases, if applicable; 
 ·
                Current
                    and projected revenues from the property if
                    applicable;  -
                5
                -
 *Table
                of Contents*
 ·
                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. 
 Vestin
            Mortgage may obtain our loans from non-affiliated mortgage brokers and
            previous
            borrowers and by solicitation of new borrowers in those states where
            permissible. We may purchase existing loans that were originated by third
            party
            lenders and acquired by Vestin Mortgage to facilitate our purchase of
            the loans.
            Vestin Mortgage will sell the loans to us for no greater than Vestin
            Mortgage’s
            cost, not including its service fees and compensation. There are no specific
            requirements or guidelines governing Vestin Mortgage’s discretion in determining
            which real estate loans it will place with us and which it will place
            with other
            funding sources.
 When
        selecting real estate loans for us, Vestin Mortgage 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. Other loans that we invest in on the security property will not
        be
        junior to more than one other loan. As of April 30, 2006, approximately 99.93%
        of the principal amount of our outstanding interest 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
                  Ratio**Residential
              75%Unimproved
                  Land
              60%
                   (of anticipated as-if development value)Acquisition
                  and Development
              60%
                   (of anticipated as-if development value)Commercial
                  Property
              75%
                   (of anticipated as-if development value)Construction
              75%
                   (of anticipated post-development value)Leasehold
                  Interest
              75%
                  (of value of leasehold interest)
 
 We
        may
        deviate from these guidelines under certain circumstances. For example, Vestin
        Mortgage, 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 by us
        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, Vestin
        Mortgage, in its sole discretion, shall be free to accept any reasonable
        financing terms it deems to be in our best interest. The target loan-to-value
        ratio for our loan portfolio as a whole is approximately 70%.
 
 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 also
        may
        precede the placement of the loan with us, 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 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
        made. If there is less security and a default occurs, we may not recover
        the
        full amount of the loan.
  -
            6
            -
 *Table
            of Contents*
  We
        or the
        borrower retain appraisers who are licensed or qualified as independent
        appraisers and certified by 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 Society of Real Estate Appraisers, M.A.I., Class
        IV
        Savings and Loan appraisers or from among appraisers with other qualifications
        acceptable to Vestin Mortgage. However, appraisals are only estimates of
        value
        and cannot be relied on as measures of realizable value. An employee or agent
        of
        Vestin Mortgage will review each appraisal report and will 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. *Construction
        Real Estate Loans.* We
        invest
        in construction loans other than home improvement loans on residential property,
        when the loan-to-value ratio does not exceed 75% of the appraised, completed
        value of the security property at origination.
 
 4. *Terms
        of Real Estate Loans.* Our
        loans
        as of April 30, 2006 range from a six month term to a sixty-eight month term,
        including approved extensions. Most of our loans are for a term of 12 months.
        Our original loan agreements, however, 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
        April 30, 2006, 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, with the
        exception of one of our loans which includes principal and interest payments.
        As
        of April 30, 2006, the loan had a balance of approximately $7.6 million and
        had
        a term of thirty-six months, maturing in the next 17 months. In addition,
        we
        invest in real estate loans which require borrowers to maintain interest
        reserves funded from the principal amount of the loan for a period of time.
        At
        April 30, 2006, we had $5.8 million investments in real estate loans which
        had
        interest reserves where the total outstanding principal was approximately
        $29.6
        million, including participating lenders. These loans had interest reserves
        of
        approximately $1.3 million, of which our portion is $0.2 million. At June
        30,
        2005, we had $13.5 million in investments in real estate loans that had interest
        reserves where the total outstanding principal was approximately $67.8 million,
        including participating lenders. These loans had interest reserves of
        approximately $3.7 million, of which our portion was $0.6 million.
 
 5. *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 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. 
 6. *Purchase
        of Real Estate Investments from Affiliates.* We
        may
        acquire real estate loans from our affiliates, including Vestin Mortgage,
        for a
        price not in excess of the par value of the note, plus allowable fees and
        expenses, but without allowance of any other compensation for the
        loans.
  -
            7
            -
 *Table
            of Contents*
  7. *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 also 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 which 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.
 
 8. *Participation.* We
        participate in loans with other lenders, including affiliates as permitted
        by
        the NASAA Guidelines, which we voluntarily comply with unless a majority
        of our
        unaffiliated board members determines that it is in our best interests not
        to
        comply with such guidelines, by providing funds for or purchasing an undivided
        interest in a loan meeting our investment guidelines described above. (See
        the
        discussion under “Regulation” regarding the NASAA Guidelines.) 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 
 ·
            Vestin
                Mortgage originated a loan that fit within our investment guidelines
                but
                it would constitute more than 20% of our anticipated capital contribution
                or otherwise be disproportionately large given our then existing
                portfolio. 
 Loans
        in
        which third party investors have participated through inter-creditor agreements
        (“Inter-creditor Agreements”) are accounted for as secured borrowings in
        accordance with SFAS 140, *Accounting
        for Transfers and Servicing of Financial Assets and Extinguishments of
        Liabilities* (“SFAS
        140”). The Inter-creditor Agreements provide us additional funding sources for
        real estate loans whereby a third party investor (the “Investor”) may
        participate on a non-pari passu basis in certain real estate loans with us
        and/or Fund 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
        April 30, 2006, all of our loans were loans in which we participated with
        other
        lenders, most of whom are our affiliates.
 
 9. *Diversification.* We
        voluntarily comply with NASAA Guidelines unless a majority of our unaffiliated
        board members determines that it is in our best interests not to comply with
        such guidelines. The NASAA Guidelines 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 April 30, 2006, our single
        largest
        loan accounted for 15% of our stockholders’ equity. The loan is non-performing,
        see Specific Reserve Allowance in Note D - *Investments
        in Real Estate Loans* of the
        Notes to the Financial Statements included in Part IV, Item *15
        Exhibits and Financial Statement Schedules* of this
        Transition Report Form 10-K.
 
 10. *Reserve
        Fund.* We
        have
        established contingency working capital reserves of approximately 3% of our
        capital to cover our unexpected cash needs.
 
 11. *Credit
        Evaluations.* When
        reviewing a loan proposal, Vestin Mortgage determines whether a borrower
        has
        sufficient equity in the security property. Vestin Mortgage may also consider
        the income level and creditworthiness of a borrower to determine its ability
        to
        repay the real estate loan.
  -
            8
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 *Table
            of Contents*
  12. *Sale
        of Real Estate Loan Investments.* Although
        Vestin Mortgage has no plans to do so, Vestin Mortgage may sell our real
        estate
        loans or interest in our loans to either affiliates or non-affiliated parties
        when Vestin Mortgage believes that it is advantageous to 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 Vestin Mortgage, Vestin Group or
        any of
        our affiliates. However, we may acquire an investment in a real estate loan
        payable by Vestin Mortgage when Vestin Mortgage has assumed the obligations
        of
        the borrower under that loan, through a foreclosure on the
        property.
 
 **Purchase
        of Loans from Vestin Mortgage and Its Affiliates**
 
 In
        addition to those loans Vestin Mortgage selects for us, we purchase loans
        that
        were originated by Vestin Mortgage or other parties and first held for Vestin
        Mortgage’s own portfolio, as long as the loan is not in default and otherwise
        satisfies all of our lending criteria. This requirement also applies to any
        loan
        originated by an affiliate of Vestin Mortgage, such as Vestin Group, Michael
        Shustek, Chief Executive Officer of Vestin Group or another principal of
        Vestin
        Mortgage. However, we will not acquire a loan from or sell a loan to a real
        estate program in which Vestin Mortgage has an interest except in compliance
        with NASAA Guidelines. We voluntarily comply with NASAA Guidelines unless
        a
        majority of our unaffiliated board members determines that it is in our best
        interests not to comply with such guidelines. The NASAA Guidelines, however,
        will not apply if a majority of our unaffiliated directors determines that
        it is
        in our best interests to deviate from the NASAA Guidelines.
 
 **Types
        of Loans We Invest In**
 
 We
        primarily invest in loans which 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 and residential
        loans. The following discussion sets forth certain guidelines the 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 April 30, 2006, approximately 11.38% 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. 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 April 30, 2006, approximately
        12.35% 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
        April 30, 2006, approximately 9.39% 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 commercial 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 April 30, 2006 approximately 66.88% 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 April 30, 2006, we did not have any loans
        in
        this category.
 
 **Collateral**
 
 The
        types
        of collateral that will secure the loans include first deeds of trust, second
        deeds of trust or a leasehold interest.
 
 **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 April
        30, 2006, approximately 99.93% 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
        April
        30, 2006, approximately 0.07% 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 or exit fees.
        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
        allows 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.
        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 April 30, 2006, none of our loans had a prepayment penalty and one of
        our
        loans had an exit fee.
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  **Extensions
        to Term of Loan**
 
 Our
        original loan agreements 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 full compliance with the terms of the loan,
        including, but not limited to, the borrower’s obligation to make interest
        payments on the loan. As of April 30, 2006, approximately 24% of our loans
        had
        received an extension to 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 April 30, 2006, we had $5.8 investments in real
        estate loans which had interest reserves where the total outstanding principal
        was approximately $29.6 million, including participating lenders. These loans
        had interest reserves of approximately $1.3 million, of which our portion
        is
        $0.2 million.
 
 **Balloon
        Payment**
 
 As
        of
        April 30, 2006, 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, with the
        exception of one of our loans which includes principal and interest payments.
        As
        of April 30, 2006, the loan had a balance of approximately $7.6 million and
        had
        a term of thirty-six months, maturing in the next 17 months. 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. We will invest
        our
        net proceeds from any capital transaction in new real estate loans, hold
        the net
        proceeds as cash or distribute them to our members. These net proceeds will
        also
        include the principal of a loan deemed to be repaid for tax purposes as a
        result
        of the nature of a loan modification or loan extension. Our operating agreement
        provided that whether we choose to distribute the proceeds or reinvest them,
        our
        members will be deemed to have received a distribution of capital and
        recontributed the same amount to us. Capital transactions include payments
        of
        principal, foreclosures and prepayments of loans to the extent classified
        as a
        return of capital under the Internal Revenue Code and any other disposition
        of a
        loan or property.
 
 **Variable
        Rate Loans**
 
 Occasionally
        we may acquire variable rate loans. Variable rate loans originated by Vestin
        Mortgage 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).
        Vestin Mortgage may negotiate spreads over these indices of 2.5% to 5.5%,
        depending upon market conditions when the loan is made. As of April 30, 2006,
        we
        did not hold any variable rate loans, and all of the loans in the real estate
        loans portfolio were fixed rate loans.
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  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. Vestin Mortgage attempts 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
        Mortgage contain provisions under which the interest rate cannot fall below
        the
        initial rate.
 
 Variable
        rate loans generally have interest rate caps. We anticipate that the interest
        rate cap will be a ceiling that is 2% to 4% above the starting rate with
        a floor
        rate equal to the starting rate. For these loans there is the risk that the
        market rate may exceed the interest cap rate.
 
 Variable
        rate loans of five to ten year maturities are not assumable without the prior
        consent of Vestin Mortgage. We do not expect to invest in or purchase a
        significant amount of other assumable loans. To minimize our risk, any borrower
        assuming an existing real estate loan will be subject to the same underwriting
        criteria as the original borrower.
 
 **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 which we might
        jointly fund. For example, we might establish a wholly-owned special purpose
        corporation which 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 non-conventional real
        estate loans, that is, lenders who offer short-term, equity-based loans on
        an
        expedited basis for higher fees and rates than those charged by conventional
        lenders. In addition, there has been an increase in competition from
        conventional real estate lenders and real estate loan investors, such as
        commercial banks, thrifts, conduit lenders, insurance companies, mortgage
        brokers, pension funds and other financial institutions that offer conventional
        real estate loans. No particular competitor dominates the market. Many of
        the
        companies against which we compete have substantially greater financial,
        technical and other resources than us. 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.
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  **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
        Mortgage operates as a mortgage broker and is subject to extensive regulation
        by
        federal, state and local laws and governmental authorities. Vestin Mortgage
        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 Mortgage’s activities, including the
        authority to conduct periodic regulatory audits of all aspects of Vestin
        Mortgage’s operations.
 
 We
        and
        Vestin Mortgage 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 the
        issuance and sale of securities, as well as the Employee Retirement Income
        Security Act of 1974.
 
 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 Vestin Mortgage 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 determine 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, or otherwise adversely affect
        our
        business or prospects.
 
 **Employees**
 
 We
        have
        two officers and no other employees. Our Manager, Vestin Mortgage, and its
        parent company, Vestin Group, Inc., have provided and will continue to provide
        all of the employees necessary for our operations. As of April 30, 2006,
        those
        entities had a total of 35 full-time and no part-time employees. All employees
        are at will employees and none are covered by collective bargaining
        agreements.
 
 **Available
        Information**
 
 Our
        Internet website address is www.vestinrealtymortgage1.com .
        We make
        available free of charge through www.vestinrealtymortgage1.com 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 practicable
        after such material is electronically filed with or furnished to the United
        States Securities and Exchange Commission (“SEC”). Information contained on our
        website does not constitute a part of this Report on Form 10-K.
 
 **ITEM
        1A.**  **RISKS**
 
 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**
 
 **We
        will rely on our manager to manage our day-to-day operations and select our
        loans for investment.**
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  Our
        ability to achieve our investment objectives and to make distributions depends
        upon our manager’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% based
        on
        total capital contributions made to us. This fee is payable regardless of
        the
        performance of our loan portfolio. Our manager has no fiduciary obligations
        to
        our stockholders, is not required to devote its employees full time to our
        business and may devote time to business interests competitive to our
        business.
 
 **Our
        manager’s lack of experience with certain real estate markets could impact its
        ability to make prudent investments on our behalf.**
 
 We
        invest
        in real estate loans throughout the areas in which our manager and its
        correspondents have experience. As of April 30, 2006, our loans were in the
        following states; Arizona, California, Hawaii, Nevada, New York, Oklahoma,
        Oregon, Texas, Washington and Wisconsin. 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 Southwest.
        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 certain key
        personnel of our manager, including Michael V. Shustek (Chief Executive Officer
        and President), John W. Alderfer (Chief Financial 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 key employees
        were to
        cease employment, our operating results could suffer. None of these individuals
        is subject to an employment, non-competition or confidentiality agreement
        with
        us or our manager, 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.
 
 **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 which 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.
 
 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.
 
 **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 non-conventional lender willing
        to
        invest in loans to borrowers who may not meet the credit standards of
        conventional 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. We seek to mitigate
        the
        risk by estimating the value of the underlying collateral and insisting on
        low
        loan-to-value ratios. However, we cannot be assured that these efforts will
        fully protect us against losses on defaulted loans. 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. Any failure of a borrower to
        repay
        loans or interest on loans will reduce our revenues and distributions and
        the
        value of common stock. Our weighted average loan-to-value ratio as of April
        30,
        2006 was 72.62% as compared to 64.56% for the fiscal years ended June 30,
        2005.
        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.
 
 As
        of
        April 30, 2006, we had in our portfolio approximately $7.8 million in delinquent
        loans, net of allowance for loan losses, and approximately $2.5 million of
        real
        estate held for sale for a total of $10.3 million in non-performing assets,
        which represented approximately 16.5% of our total capital. As of April 30,
        2006, we also had approximately $8.8 million of seller financed real estate
        held
        for sale and had received approximately $0.9 million in payments from borrowers
        on the loans associated with these properties. We do not believe that a rising
        interest rate environment will increase or accelerate our delinquency rate
        because all of our loans are short term, with fixed interest rates.
 
 **Our
        underwriting standards and procedures are more lenient than conventional
        lenders, which may result in a higher level of non-performing assets and
        less
        amounts available for distribution.**
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  Our
        underwriting standards and procedures are more lenient than conventional
        lenders
        in that we will invest in loans to borrowers who may not be required to meet
        the
        credit standards of conventional real estate lenders, which may lead to greater
        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. 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.
 
 **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, 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 April 30, 2006, all of our loans required balloon payments at the end
        of
        their terms. Loans with balloon payments are riskier than loans with even
        payments of principal over an extended time period like 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. 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.
 
 **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.
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  **Our
        real estate loans will 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.
 
 **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. We have recently experienced difficulties in
                foreclosing on the RightStar loans discussed below because of the
                need to
                obtain a license from the State of Hawaii to operate funeral homes
                and
                cemeteries; 
 ·
            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. 
 **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.
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  **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 decreased demand
        for
        consumer credit and declining real estate values. As a non-conventional 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
        mortgage lending industry during periods of economic slowdown or recession.
        Furthermore, if interest rates were to increase significantly, the costs
        of
        borrowing may become too expensive, which may negatively impact the refinance
        market by reducing demand for real estate lending. For the ten month transition
        period ended April 30, 2006, loan originations accounted for all but one
        loan
        funded during that period as there was one loan refinanced during the period.
        For the nine month transition period ended June 30, 2005, loan originations
        and
        loan refinances accounted for approximately 96% and 4%, respectively, of
        all
        loans funded during that period. Any sustained period of increased
        delinquencies, foreclosures or losses or a significant increase in interest
        rates could adversely affect our ability to originate, purchase and securitize
        loans, which could significantly harm our business, financial condition,
        liquidity and results of operations.
 
 **Our
        results are subject to fluctuations in interest rates and other economic
        conditions.**
 
 As
        of
        April 30, 2006, none of our loans had a prepayment penalty and only one loan
        had
        an exit fee. Based on our manager’s historical experience, we expect that at
        least 90% of our loans will continue to not have a prepayment penalty. Should
        interest rates decrease, our borrowers may prepay their outstanding loans
        with
        us in order to receive a more favorable rate. This may reduce the amount
        of
        funds we have available to distribute.
 
 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 the distributions.
 
 One
        of
        the results of interest rate fluctuations is that borrowers may seek to extend
        their low-interest-rate loans after market interest rates have increased.
        This
        creates two risks for us:
 
 ·
            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 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,
                at a time of relatively low interest rates, 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 mortgage 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. This is a risk if the loans we invest
                in do not
                have prepayment penalties or exit fees. 
 Our
        results will also reflect other economic conditions, such as a particular
        industry migrating to or from one of the states into which we make
        loans.
 
 **We
        face competition for real estate loans that may reduce available yields and
        fees
        available.**
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  Our
        competitors consist primarily of conventional real estate lenders and real
        estate loan investors, including commercial banks, insurance companies, mortgage
        brokers, pension funds and other institutional lenders. Many of the companies
        against which we and our manager compete have substantially greater financial,
        technical and other resources than either our company or our manager. 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
        the
        distributions.
 
 **Vestin
        Mortgage serves as our manager pursuant to a long-term management agreement
        that
        may be difficult to terminate and may not reflect arm’s length
        negotiations.**
 
 We
        have
        entered into a long-term management agreement with Vestin Mortgage to act
        as our
        manager. The management agreement will continue in force 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 Fund II, Fund III and inVestin Nevada, funds
        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.
 
 **Our
        manager will face conflicts of interest arising from our fee
        structure.**
 
 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, our manager is entitled to additional fees for loan extensions or
        modifications and loan assumptions and reconveyances. These and other fees
        are
        quantified and described in greater detail in exhibit 10.1 *Form
        of Management Agreement between Vestin Mortgage, Inc. and the
        Registrant* under
        the Exhibit Index included in Part IV, Item 15 *Exhibits
        and Financial Statement Schedules* of this
        Transition Report Form 10-K. Our manager’s 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 and Mr. Shustek to the
        extent that our manager benefits from up-front fees which are generally not
        shared with us.
 
 Our
        manager will be receiving fees from borrowers that would otherwise increase
        our
        returns. Because our manager receives all of these fees, our interests will
        diverge from those of our manager and Mr. Shustek when our manager decides
        whether we should charge the borrower higher interest rates or our manager
        should receive higher fees from borrowers.
 
 Fund
        I
        paid Vestin Mortgage a total of approximately $230,000 for the ten months
        ended
        April 30, 2006 and approximately $201,000 and $255,000 for the nine month
        transition period ended June 30, 2005 and the year ended September 30, 2004,
        respectively, for managing Fund I. In addition, Vestin Mortgage was paid
        a total
        of approximately $4.4 million, $14.3 million and $19.5 million in fees directly
        from borrowers for the four months ended April 30, 2006 and the years ended
        December 31, 2005 and 2004, respectively. The total amount paid to Vestin
        Mortgage represents fees earned by Vestin Mortgage for loans originated for
        all
        of its managed funds, including us, Fund II, Fund III and inVestin Nevada.
        Fund
        I represented approximately 10.77% of the funds managed by Vestin Mortgage
        as of
        April 30, 2006.
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            19
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  **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
        Fund
        II, Fund III and inVestin Nevada, which have the same 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
        Fund
        II, Fund III, inVestin Nevada or another company which 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.
 
 **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.
 
 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, extends the 15% long-term net capital gain rate to 2010. However,
        this reduced rate of tax on distributions generally will not apply to Vestin
        Realty Mortgage I’s 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 distributions of Vestin
        Realty Mortgage I may cause the market to devalue Vestin Realty Mortgage
        I
        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.
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  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
        April 30, 2006, we held one property with a total carrying value of
        approximately $2.5 million recorded as investments in real estate held for
        sale.
        As of April 30, 2006, we also held interests in two properties with a total
        carrying value of approximately $8.8 million, which were sold in transactions
        in
        which we or an affiliate provided the financing and which were recorded as
        seller financed real estate held for sale. United States generally accepted
        accounting principals (“GAAP”) requires us to include these properties in real
        estate held for sale until the borrower has met and maintained a certain
        percentage of equity ownership. The real estate held for sale and the seller
        financed real estate held for sale collectively constituted approximately
        17.8%
        of our assets as of April 30, 2006. In addition, both of the seller financed
        real estate held for sale properties are assisted living facilities, which
        cannot be operated by a taxable REIT subsidiary.
 
 **Taxable
        REIT subsidiaries are subject to corporate-level tax, which may devalue Vestin
        Realty Mortgage I’s common stock relative to other companies.**
 
 Taxable
        REIT subsidiaries are corporations subject to corporate-level tax. Vestin
        Realty
        Mortgage I’s 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.
 
 **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 which is not consistent with the requirements of Section 562(c)
        of
        the Code, which could result in the loss of our REIT
        qualification.
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            21
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  **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
        has
        ranged from $1.01 to $6.43. We believe the price of our stock has been affected
        by, among other things, selling pressure form stockholders seeking immediate
        liquidity and our recent operating losses. Our stock price may be highly
        volatile and be 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, 2020 unless the holders of
        a
        majority of our common stock determine otherwise.
 
 We
        cannot
        be assured that the market price of our common stock will not 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; 
 ·
            Publication
                of research reports about us or the real estate
                industry; 
 ·
            Changes
                in market valuations of similar
                companies; 
 ·
            Changes
                in tax laws affecting REITs; 
 ·
            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
        distribution 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 distribution yield, which would adversely affect the market price
        of our
        common stock.
 
 **We
        are the subject of a pending SEC investigation which may depress the price
        of
        our stock.**
 
 The
        Staff
        of the SEC conducted an investigation of us as well as Fund II, Fund III,
        Vestin
        Mortgage, Vestin Capital and Vestin Group. The Staff has notified us, Fund
        II,
        Fund III, our manager, Vestin Capital and Michael Shustek, the principal
        executive officer of our manager and Vestin Capital, or collectively the
        Vestin
        Entities, that they intend to seek authority to bring an enforcement proceeding
        against the Vestin Entities alleging violations of Section 17(a) of the
        Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934
        and
        Rule 10b-5 thereunder based upon certain sales practices employed for a period
        of time by the Vestin Entities. Specifically, the Staff has advised that
        they
        believe certain slides used at sales seminars held to promote the sale of
        Fund
        II and Fund III units included disclosure regarding distributions to
        stockholders of Fund I and Fund II that were misleading. The Vestin Entities
        are
        engaged in discussions with the Staff regarding the proposed recommendation
        and
        any remedies that might be sought by the Staff. Based upon these discussions,
        we
        currently believe that neither we nor Fund II nor Fund III will be named
        as
        parties in any enforcement recommendation or any order entered as a result
        of a
        settlement. The parties have reached a tentative agreement with the SEC Staff,
        subject to review and approval of the Commission. We do not know if the
        commission will approve the settlement.
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  We
        believe that this investigation has harmed our business by causing certain
        potential borrowers, co-lenders and others to decline to do business with
        us. As
        a result, our operating results have suffered and may continue to suffer
        in the
        future. Moreover, the terms of any settlement or any allegations of misconduct
        which might be filed if a settlement is not approved could further impair
        our
        ability to conduct our business. Any remedies that the SEC may seek could
        prove
        disruptive to our business. Concerns regarding these uncertainties may depress
        our stock price while this matter is pending. The nature of any charges made
        by
        the SEC or remedies sought by the SEC may cause further harm to the market’s
        perception of our future performance and could cause our stock price to
        decline.
 
 **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
        Transition 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 the 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.  -
            23
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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. 
 **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  -
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            of Contents*
  
 ·
            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.** **UNRESOLVEDSTAFF
        COMMENTS**
 
 None.
 
 **ITEM
        2.** **PROPERTIES**
 
 Our
        Manager, Vestin Mortgage, operates from its executive offices at 8379 West
        Sunset Road, Las Vegas, Nevada 89113. We do not have any separate
        offices.
 
 Our
        Manager shares office facilities of approximately 42,000 square feet with
        its
        parent corporation, Vestin Group, which in turn leases its principal executive
        offices from Vestin Fund III, LLC (“Vestin Fund III”). The lease agreement
        governing this property expires in March 2014.
 
 **ITEM
        3.** **LEGAL
        PROCEEDINGS**
 
 **Legal
        Matters Involving Our Manager**
 
 Our
        Manager is involved in a number of legal proceedings concerning matters arising
        in connection with the conduct of its business activities. The Manager believes
        it has meritorious defenses to each of these actions and intends to defend
        them
        vigorously. The Manager believes that it is not a party to any pending legal
        or
        arbitration proceedings that would have a material adverse effect on the
        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.
 
 **Legal
        Matters Involving the Company**
 
 Vestin
        Group, Vestin Mortgage, and Del Mar Mortgage, Inc., a company wholly owned
        by
        Michael V. Shustek, the sole shareholder and CEO of Vestin Group, are defendants
        in a civil action entitled Desert Land, LLC et al. v. Owens Financial Group,
        Inc. et al (the “Action”). The Action is based upon allegations that Del Mar
        Mortgage, Inc. and/or Vestin Mortgage charged unlawful fees on various loans
        arranged by them. Desert Land sought in excess of $10 million in monetary
        damages. On April 10, 2003, the United States District Court for the District
        of
        Nevada (the “Court”) entered judgment jointly and severally in favor of Desert
        Land against Vestin Group, Vestin Mortgage and Del Mar Mortgage, Inc. Judgment
        was predicated upon the Court’s finding that Del Mar Mortgage, Inc. received an
        unlawful penalty fee from the plaintiffs.
  -
            25
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  The
        defendants subsequently filed a motion for reconsideration. The Court denied
        the
        motion and, on August 13, 2003, held that Vestin Group, Vestin Mortgage,
        and Del Mar Mortgage, Inc. are jointly and severally liable for the judgment
        in
        the amount of $5,683,312 (which amount includes prejudgment interest and
        attorney’s fees). On August 27, 2003, the Court stayed execution of the judgment
        against Vestin Group and Vestin Mortgage based upon the posting of a bond
        in the
        amount of $5,830,000. Mr. Shustek personally posted a cash bond without any
        cost
        or obligation to Vestin Group and Vestin Mortgage. 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 with his cash bond. On September 12, 2003, all of the defendants
        held liable to Desert Land appealed the judgment to the United States Court
        of
        Appeals for the Ninth Circuit, which heard the case on October 18, 2005.
        On
        November 15, 2005, the Ninth Circuit vacated the judgment of the District
        Court
        and dismissed the state law claims against the defendants without prejudice
        on
        the basis that the District Court lacked subject matter jurisdiction in the
        case. On November 29, 2005, Desert Land petitioned the Ninth Circuit Court
        for
        rehearing with a suggestion that the matter be heard en banc. On December
        16,
        2005, the District Court issued an Order releasing the bond, and on January
        6,
        2006, the Ninth Circuit denied Desert Land’s petition and the matter remains
        dismissed.
 
 On
        November 21, 2005, Desert Land filed a complaint in the state courts of Nevada,
        which complaint is substantially similar to the original complaint previously
        filed by Desert Land in the United States District Court, with the exception
        of
        claiming Nevada State Law violations and seeking Nevada State Law remedies
        rather than claiming Federal Law violations and seeking Federal Law remedies.
        On
        March 6, 2006, Desert Land amended the state court complaint to name us as
        a
        defendant. 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 defendants have
        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 us
        for
        that purpose. The state court complaint further alleges that Desert Land
        is
        entitled to avoid 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 with his cash bond.
 
 Most
        recently, on or about April 6, 2006, Desert Land filed a Writ of Certiorari
        seeking review of the 9th Circuit’s decision by the United States Supreme Court.
        Vestin continues to believe that Desert Land’s claims are without merit and will
        vigorously oppose the Writ of Certiorari and defend against the state court
        complaint.
 
 The
        United States Securities and Exchange Commission conducted an investigation
        into
        certain matters related to us, Vestin Group, Vestin Capital, Fund II and
        Fund
        III (the “Vestin Entities”). We have fully cooperated during the course of the
        investigation.
 
 The
        SEC
        Staff has notified the Vestin Entities that they believe certain slides used
        at
        sales seminars held to promote the sale of Fund II and Fund III units included
        disclosure regarding distributions to members of Fund I and Fund II that
        were
        misleading. The Vestin Entities have engaged in discussions with the Staff
        regarding a possible resolution of this matter. Based upon these discussions,
        we
        currently believe that neither we nor Fund II and Fund III will be named
        as
        parties in any enforcement recommendation or any order entered as a result
        of a
        settlement. These settlement negotiations are ongoing and, at this time,
        we do
        not know if a mutually acceptable settlement will be reached.
 
 On
        April
        21, 2006, through our Manager, we filed a complaint in the Circuit Court
        of the
        First Circuit in Hawaii to expedite our efforts to foreclose upon first trust
        deeds secured by the assets of Rightstar International, Inc. (the “Rightstar
        Trust Deeds”). In the filing, we allege that the State of Hawaii has
        unreasonably blocked the foreclosure without any legal basis for doing so.
        On
        April 24, 2006, the State of Hawaii responded by filing allegations against
        Vestin Mortgage, Inc., and Vestin Fund II, LLC alleging that these Vestin
        entities improperly influenced the former RightStar trustees to transfer
        trust
        funds to Vestin Fund II. We believe the State’s claims to be without merit and
        intend to vigorously pursue our remedies while defending against the allegations
        made by the State. The outcome of this litigation is unforeseeable at this
        time.
  -
            26
            -
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            of Contents*
  We
        are
        involved in a number of 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. 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.
 
 **ITEM
        4.** **SUBMISSION
        OF MATTERSTO A VOTE OF SECURITY HOLDERS**
 
 At
        a
        special meeting held on March 14, 2006 the members of Vestin Fund I, LLC
        approved its merger into Vestin Realty Mortgage I, Inc. as reported in an
        8-K
        filed by Vestin Fund I, on March 15, 2006.
 
 **PARTII**
 
 **ITEM
                  5.**
              **MARKET
                  FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDERS
                  MATTERS AND ISSUER PURCHASES OF EQUITY
                  SECURITIES**
 
 **Market
        Information**
 
 There
        was
        no established public trading market for the trading of Fund I Units. The
        Registrant’s shares have been listed on the Nasdaq National Market under the
        symbol VRTA. Trading on Nasdaq commenced on June 1, 2006. On June 27, 2006,
        the
        common stock closed at $5.49.
 
 **Holders**
 
 As
        of
        April 30, 2006, 1,103 accounts held 6,868,740 Units of interest in the
        Company.
 
 **Distribution
        Policy**
 
 Fund
        I
        generally distributed to Unit holders on a monthly basis most of its Net
        Income
        Available for Distribution (as defined in its Operating Agreement). 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.
        Fund
        I’s Operating Agreement also permitted distributions of capital. Fund I made
        distributions of approximately $4.1 million (prior to reinvested distributions)
        during the ten months ended April 30, 2006, $4,050,000 of which was paid
        from
        Net Income Available for Distribution and $78,000 of which was in excess
        of Net
        Income Available for Distribution.
 
 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, consistent with Fund I’s practice
        of distributing all of its net income available for distribution. We may
        distribute an amount in excess of our REIT taxable income, which amount will
        be
        treated as a return of capital to the shareholder. 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.
 
 **Recent
        Sales of Unregistered Securities**
 
 None.
 
 **Equity
        Compensation Plan Information**
 
 None.
  -
            27
            -
 *Table
            of Contents*
  **Purchases
        of Equity Securities by the Issuer and Affiliated
        Purchasers**
 
 **Period**
              **Total
                  Number of Units Purchased (1)**
              **Average
                  Price Paid per Unit**
              **Total
                  Number of Units Purchased as Part of Publicly Announced Plans or
                  Programs**
              **Maximum
                  Number (or Approximate Dollar Value) of Units that May Yet be Purchased
                  under the Plans or Programs**April
                  2006
              695
              $9.75
              None
              None
  (1)
              In
                  the ten month transition period ended April 30, 2006, we redeemed
                  approximately $8.3 million of members’ equity. Due to our subsequent
                  merger into Vestin Realty Mortgage I, Inc. on May 1, 2006, we will
                  no
                  longer redeem units since all units have been converted into shares
                  of
                  Vestin Realty Mortgage I, Inc.
  **ITEM
        6.** **SELECTED
        FINANCIALDATA**
  **Balance
                    at****Vestin
                    Realty Mortgage I, Inc.**
                
                **April
                    30, 2006**
                
                **June
                    30, 2005**
                
                **September
                    30, 2004**
                
                **September
                    30, 2003**
                
                **September
                    30, 2002**Balance
                    Sheet Data:Investments
                    in real estate loans (net of allowance)
                
                $
                39,975,000
                
                $
                54,878,000
                
                $
                47,344,000
                
                $
                51,695,000
                
                $
                91,091,000Cash,
                    cash equivalents, certificates of deposits and short-term investments
                
                
                11,032,000
                
                
                3,162,000
                
                
                10,130,000
                
                
                14,883,000
                
                
                5,538,000Interest
                    and other receivables
                
                
                953,000
                
                
                682,000
                
                
                1,327,000
                
                
                1,632,000
                
                
                1,176,000Real
                    estate held for sale
                
                
                2,497,000
                
                
                7,757,000
                
                
                15,287,000
                
                
                22,517,000
                
                
                1,541,000Real
                    estate held for sale-seller financed
                
                
                8,797,000
                
                
                10,374,000
                
                
                10,801,000
                
                
                4,006,000
                
                
                --Note
                    receivable
                
                
                291,000
                
                
                119,000
                
                
                119,000
                
                
                --
                
                
                --Assets
                    under secured borrowing
                
                
                --
                
                
                11,391,000
                
                
                6,134,000
                
                
                20,324,000
                
                
                6,637,000Other
                    assets
                
                
                --
                
                
                --
                
                
                --
                
                
                7,000
                
                
                84,000Total
                    assets
                
                $
                63,545,000
                
                $
                88,363,000
                
                $
                91,142,000
                
                $
                115,064,000
                
                $
                106,067,000Liabilities
                
                
                1,315,000
                
                
                15,092,000
                
                
                8,864,000
                
                
                28,549,000
                
                
                7,068,000Members’
                    equity
                
                
                62,230,000
                
                
                73,271,000
                
                
                82,278,000
                
                
                86,515,000
                
                
                98,999,000Total
                    liabilities and Members’ equity
                
                $
                63,545,000
                
                $
                88,363,000
                
                $
                91,142,000
                
                $
                115,064,000
                
                $
                106,067,000
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            28
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 **For
                  the Ten Month Transition Period Ended**
              
              **For
                  the Nine Month Transition Period Ended**
              
              **For
                  the 12 Months Ended****April
                  30, 2006**
              
              **June
                  30, 2005**
              
              **September
                  30, 2004**
              
              **September
                  30, 2003**
              
              **September
                  30, 2002**Income
                  Statement Data:Revenues
              
              $
              5,184,000
              
              $
              6,069,000
              
              $
              12,666,000
              
              $
              10,365,000
              
              $
              13,151,000Expenses
              
              
              4,134,000
              
              
              4,941,000
              
              
              4,099,000
              
              
              6,054,000
              
              
              566,000Net
                  income
              
              $
              1,050,000
              
              $
              1,128,000
              
              $
              8,567,000
              
              $
              4,311,000
              
              $
              12,585,000Net
                  income allocated to Members
              
              $
              1,050,000
              
              $
              1,128,000
              
              $
              8,567,000
              
              $
              4,311,000
              
              $
              12,585,000Net
                  income allocated to Members per weighted average membership
                  units
              
              $
              0.14
              
              $
              0.14
              
              $
              1.03
              
              $
              0.45
              
              $
              1.23Cash
                  distributions
              
              $
              4,128,000
              
              $
              3,694,000
              
              $
              5,098,000
              
              $
              10,364,000
              
              $
              9,637,000Cash
                  distributions per weighted average membership units
              
              $
              0.56
              
              $
              0.47
              
              $
              0.61
              
              $
              1.07
              
              $
              0.95Weighted
                  average membership units
              
              
              7,369,224
              
              
              7,919,354
              
              
              8,339,404
              
              
              9,668,310
              
              
              10,193,776
  The
        information in this table should be read in conjunction with the accompanying
        audited financial statements and notes to financial statements included
        elsewhere in this document.
 
 **ITEM
                  7.**
              **MANAGEMENT’S
                  DISCUSSIONAND ANALYSIS OF FINANCIAL CONDITION
                  AND
                  RESULTS OF OPERATIONS**
 
 Our
        financial results reflect the amount of capital we had available for investment
        in real estate loans. Our past performance may not be indicative of future
        results. On May 1, 2006, Fund I merged into the Registrant and the members
        of
        Fund I received one share of the Registrant’s common stock for each membership
        unit of Fund I. This report is filed by the Registrant as the successor to
        Fund
        I. References in this report to the “Company”, “we”, “us” or “our” refer to Fund
        I with respect to the period ending on April 30, 2006 and to the Registrant
        with
        respect to the period commencing on May 1, 2006. Because we were a limited
        liability company during the periods reflected in this report, we make reference
        to our “members” rather than “stockholders” in reporting our financial results.
        We intend to operate as a real estate investment trust (“REIT”). As a REIT, we
        are required to have a December 31 st year
        end. This discussion should be read in conjunction with our financial statements
        and accompanying notes and other detailed information regarding the Company
        appearing elsewhere in this transition report Form 10-K.
  -
            29
            -
 *Table
            of Contents*
  **RESULTS
        OF OPERATIONS**
 
 **OVERVIEW**
 
 Our
        primary business objective is to generate income 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 traditional real estate lenders. The loan underwriting standards our
        Manager utilizes are less strict than traditional real estate lenders. In
        addition, one of our competitive advantages is our ability to approve loan
        applications more quickly than traditional lenders. As a result, in certain
        cases, we may make real estate loans which are riskier than real estate loans
        made by commercial banks. However, in return we seek a higher interest rate
        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 traditional real
        estate
        lenders, in return, we seek to generate higher yields from our real estate
        loans.
 
 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
        allowances for non-performing loans. As of April 30, 2006, we have provided
        a
        specific allowance of approximately $4.8 million on loans secured by 4
        cemeteries and 8 mortuaries in Hawaii. For additional information see “Specific
        Loan Allowance” in Note D - *Investment
        Real Estate Loans* of the
        Notes to Financial Statements included in Part IV, Item 15 *Exhibits
        and Financial Statement Schedules* of this
        Transition Report Form 10-K. Non-performing assets, net of allowance for
        loan
        losses, totaled approximately $10.3 million or 16.1% of our total assets
        as of
        April 30, 2006 as compared to $14.6 million or 16.5% of our total assets
        as of
        June 30, 2005. At April 30, 2006, non-performing assets consist of approximately
        $2.5 million of real estate held for sale not sold through seller financing
        and
        approximately $7.8 million of non-performing loans, net of allowance for
        loan
        losses. The level of non-performing assets may reflect the continuing weakness
        in certain sectors of the economy and the risk inherent in our business strategy
        which entails more lenient underwriting standards and expedited loan approval
        procedures. If 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 for
        distribution to our members. Such conditions may also require us to restructure
        loans. The weighted average term of our outstanding loans as of April 30,
        2006
        was 18 months, compared to 19 months at June 30, 2005. Our annualized rate
        of
        return to members for the ten month transition period ended April 30, 2006
        was
        1.71%, compared to 1.90%, for the nine month transition period ended June
        30,
        2005. Our revenues also have been impacted by lower interest rates and by
        member
        redemptions which leave us with less capital to invest.
 
 Uncertain
        economic conditions during the next year could have a material impact on
        the
        collectibility of our loans. Recognizing the risk, we seek to maintain an
        adequate loan-to-value ratio which, as of April 30, 2006, was 72.62% on a
        weighted average basis, generally using appraisals prepared on an as-if
        developed basis in connection with the loan origination. In this manner,
        we hope
        to retain sufficient cushion in the underlying equity position to protect
        the
        value of our loan 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.
 
 We
        generally invest in real estate loans throughout the areas in which Vestin
        Mortgage and its correspondents have experience. As of April 30, 2006 our
        loans
        were in the following states; Arizona, California, Hawaii, Nevada, New York,
        Oklahoma, Oregon, Texas, Washington and Wisconsin.
  -
            30
            -
 *Table
            of Contents*
  **Ten
        Month Transition Period Ended April 30, 2006 Compared To the Nine Month
        Transition Period Ended June 30, 2005**
 
 **For
                  the Ten Month Transition Period Ended April 30,
                  2006**
              
              **Annualized
                  for**
                **April
                  30, 2006***
              
              **For
                  the Nine Month Transition Period Ended June 30,
                  2005**
              
              **Annualized
                  for**
                **June
                  30, 2005****Total
                  Revenues
              
              $
              5,184,000
              
              $
              6,221,000
              
              $
              6,069,000
              
              $
              8,092,000Total
                  Operating Expenses
              
              $
              4,134,000
              
              $
              4,961,000
              
              $
              4,941,000
              
              $
              6,588,000**NET
                  INCOME**
              
              $
              1,050,000
              
              $
              1,260,000
              
              $
              1,128,000
              
              $
              1,504,000Net
                  Income Allocated to Members
              
              $
              1,050,000
              
              
              
              
              $
              1,128,000Net
                  Income Allocated to Members Per Weighted Average Membership
                  Units
              
              $
              0.14
              
              
              
              
              $
              0.14Weighted
                  Average Membership Units
              
              
              7,369,224
              
              
              
              
              
              7,919,354Annualized
                  Rate of Return to Members
              
              
              1.71%
              
              
              
              
              
              1.90%Cash
                  Distributions
              
              $
              4,128,000
              
              
              
              
              $
              3,694,000Cash
                  Distributions Per Weighted Average Membership Units
              
              $
              0.56
              
              
              
              
              $
              0.47Weighted
                  Average Term of Outstanding Loans
              
              
              18
                  months
              
              
              
              
              
              19
                  months
 
 *
        Annualized revenues and operating expenses are calculated by revenues and
        operating expenses for the ten month transition period divided by 10 months
        and
        multiplied by 12 months.
 
 **
        Annualized revenues and operating expenses are calculated by revenues and
        operating expenses for the nine month transition period divided by 9 months
        and
        multiplied by 12 months.
 
 (a)
            The
                annualized rate of return to members is calculated based upon the
                net GAAP
                income allocated to members per weighted average units as of April
                30,
                2006 and June 30, 2005 divided by the number of days during the period
                (304 days for the ten month transition period ended April 30, 2006
                and 273
                days for the nine month transition period ended June 30, 2005) and
                multiplied by three hundred sixty five (365) days, then divided by the
                cost per unit ($10.00).  *Total
          Revenues* :
          Revenues for the ten month transition period ended April 30, 2006 decreased
          compared to the nine month transition period ended June 30, 2005 by
          approximately $1.9 million or 23% on an annualized basis due in significant
          part
          to the following factors:
 
 ·
              Our
                  interest income decreased on an annualized basis by $765,000 as
                  a result
                  of a decrease in investment in real estate loans and an increase
                  in
                  non-performing loans. Investment in real estate loans, net of allowance
                  declined by $14.9 million from $54.9 million at June 30, 2005 to
                  $40.0
                  million at April 30, 2006. The decline in investments in real estate
                  loans
                  is attributable to the reduction in capital we had available for
                  investments and the increase in specific reserve allowance. (See
                  further
                  discussion in Note D -*Investment
                  Real Estate Loans*of
                  the notes to Financial Statements included in Part IV, Item 15*Exhibits
                  and Financial Statement Schedules*of
                  this Transition Report Form 10-K). Our capital was reduced by redemptions
                  of approximately $8.3 million paid to our members during the ten
                  months
                  ended April 30, 2006. Due to Fund I’s merger into Vestin Realty Mortgage
                  I, Inc. as of May 1, 2006, we will no longer redeem units since
                  all units
                  have been converted into shares of Vestin Realty Mortgage I,
                  Inc.  -
              31
              -
 *Table
              of Contents*
  ·
              During
                  the nine month transition period ended June 30, 2005, we recorded
                  a gain
                  of approximately $1 million on the sale of raw land in Mesquite,
                  Nevada.
                  During the ten month transition period ended April 30, 2006, we
                  recognized
                  a gain of $24,000 on sale of real estate held for sale on a residential
                  sub-division in Lake Travis, Texas and a gain on the sale of real
                  estate
                  held for sale related to seller financed loans, which were paid
                  during the
                  period of approximately $495,000. As of April 30, 2006 and June
                  30, 2005,
                  we had approximately $8.8 million and $10.4 million, respectively
                  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 April 30, 2006 and
                  June 30,
                  2005 we had approximately $916,000 and $768,000, respectively in
                  deposit
                  liability. 
 ·
              Included
                  in other income for the nine month transition period ended June
                  30, 2005,
                  are late fees received from borrowers of approximately $400,000.
                  During
                  the ten month transition period ended April 10, 2006 we received
                  $20,000
                  in late fees. 
 The
          factors were partially offset by the following items:
 ·
            During
                the ten month transition period ended April 30, 2006, we recorded
                a gain
                on sale of marketable securities of approximately $47,000. As of
                April 30,
                2006, we held no investments in marketable
                securities. 
 ·
            During
                the ten months ended April 30, 2006, we received $272,000 as a result
                of
                the settlement of a claim against a title insurance
                company. 
 *Total
        Expenses* :
        Expenses for the ten month transition period ended April 30, 2006 were
        significantly impacted by the recognition of an additional allowance for
        loan
        loss of $3 Million related to the loan secured by 4 cemeteries and 8 mortuaries
        in Hawaii. See “Specific Loan Allowance” in Note D - *Investment
        Real Estate Loans* of the
        Notes to Financial Statements included in Part IV, Item 15 of this Report
        on
        Form 10-K. Nonetheless, expenses for the ten month transition period decreased
        compared to the nine month transition period ended June 30, 2005 by
        approximately $1.6 million or 25% on an annualized basis due to the following
        factors:
 
 ·
            Interest
                expense decreased on an annualized basis by approximately $333,000
                due to
                the decrease in secured borrowing from approximately $11.4 million
                at June
                30, 2005 to $0 at April 30, 2006. 
 ·
            During
                the nine months ended June 30, 2005 we recorded a charge of approximately
                $278,000 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 $354,000 related to the carrying value of 166 residential
                lots located in Henderson, Nevada and a charge of approximately $639,000
                relating to a 126 unit assisted living facility in Phoenix, Arizona.
                There
                were no write downs on real estate held for sale during the ten month
                transition period ended April 30, 2006. 
 ·
            We
                recognized a loss of approximately $400,000 during the nine month
                transition period ended June 30, 2005 resulting from the sale of
                a 126
                unit Hotel in Mesquite, Nevada. In addition, we wrote off a receivable
                balance relating to the property of approximately $146,000 to bad
                debt.
                There were no losses recorded from sale of real estate held for sale
                during the ten month transition period ended April 30,
                2006. 
 ·
            Expenses
                related to real estate held for sale decreased on an annualized basis
                by
                72% primarily due to the decrease in the balance of real estate held
                for
                sale from approximately $7.8 million at June 30, 2005 to approximately
                $2.5 million at April 30, 2006, a decrease of approximately $5.3
                million
                or 67.81%.  -
            32
            -
 *Table
            of Contents*
  *Net
        Income* .
        Overall
        net income for the ten month transition period ended April 30, 2006 decreased
        on
        an annualized basis 16% compared to the nine month transition period ended
        June
        30, 2005.
 
 *Annualized
        Rate of Return to Members.* For
        the
        ten month transition period ended April 30, 2006, the annualized rate of
        return
        to members, as calculated in accordance with GAAP, was 1.71% compared to
        1.90%
        for the nine month transition period ended June 30, 2005.
 
 *Distributions
        to Members.* The
        following is a schedule of distributions made to members for the ten month
        transition period ended April 30, 2006 and the nine month transition period
        ended June 30, 2005.
 
 **For
                  the Ten Month Transition Period Ended April 30,
                  2006**
              
              **For
                  the Nine Month Transition Period Ended June 30,
                  2005**Distributions
                  of Net Income Available for Distribution
              
              $
              4,050,000
              
              $
              3,694,000Distributions
                  in Excess of Net Income Available for a Distribution Generated
                  During the
                  Period
              
              
              78,000
              
              
              --Total
                  Distributions
              
              $
              4,128,000
              
              $
              3,694,000
 
 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.
  -
            33
            -
 *Table
            of Contents*
  
 **For
                  the Ten Month Transition Period Ended**
                **April
                  30, 2006**
              
              **For
                  the Nine Month Transition Period Ended**
                **June
                  30, 2005**Distribution
                  of Net Income Available for Distribution
              
              $
              4,050,000
              
              $
              3,694,000Additions
                  to Working Capital Reserves (Amount Not Distributed)
              
              
              --
              
              
              1,000Collection
                  of doubtful accounts related to receivables
              
              
              (17,000
              )
              
              --Gain
                  on sale of real estate held for sale
              
              
              (519,000
              )
              
              (1,072,000
              )Loss
                  on sale of real estate held for sale
              
              
              --
              
              
              400,000Gain
                  on sale of marketable securities
              
              
              (47,000
              )
              
              --Change
                  in operating assets and liabilities:Interest
                  and other receivables
              
              
              (30,000
              )
              
              612,000Due
                  to Manager
              
              
              (885,000
              )
              
              270,000Due
                  to Vestin Group
              
              
              (2,000
              )
              
              (3,000
              )Due
                  to Fund II
              
              
              (1,560,000
              )
              
              81,000Due
                  to Fund III
              
              
              (6,000
              )
              
              6,000Allowance
                  for loan losses
              
              
              (95,000
              )
              
              --Accounts
                  payable and accrued liabilities
              
              
              (81,000
              )
              
              92,000Net
                  cash provided by operating activities
              
              $
              808,000
              
              $
              4,081,000Net
                  cash provided (used) by investing activities
              
              $
              19,153,000
              
              $
              (914,000
              )Net
                  cash used in financing activities
              
              $
              (12,091,000
              )
              $
              (10,135,000
              )
 
 *Stated
        Unit Value Adjustment.* Following a periodic review by our Manager as required pursuant to the Operating
        Agreement of Fund I, as a result of write downs on the carrying value of
        real
        estate held for sale, effective April 1, 2005 we adjusted the stated unit
        value
        of each unit to $9.75 to reflect the estimated net unit value of each unit
        at
        that date. Due to Fund I’s merger into Vestin Realty Mortgage I, Inc. on May 1,
        2006 and the conversion of member units to common stock, the stated unit
        value
        is no longer applicable. The common shares have been listed on the NASDAQ
        National Market under the symbol VRTA. Trading began on June 1,
        2006.
 
 *Redemptions.* Pursuant
        to Fund I’s Operating Agreement, it redeemed units submitted for redemption. In
        accordance with the terms of the Operating Agreement and the Internal Revenue
        Code, Fund I’s redemptions were limited to no more than 10% of the members’
capital in any calendar year. As of April 30, 2006, the total of redemptions
        made from inception was approximately $47.8 million. During the ten month
        transition period ended April 30, 2006, we redeemed approximately $8.3 million
        of Members’ capital. As a result of Fund I’s merger into the Registrant on May
        1, 2006, we no longer redeem units since all units have been converted into
        common shares of Vestin Realty Mortgage I, Inc.
 
 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 noncash income over 5% of our REIT taxable
        income.
  -
            34
            -
 *Table
            of Contents*
  **Transition
        period ended June 30, 2005 compared to the nine months ended June 30, 2004
        (Unaudited)**
 
 **For
                  the Nine Month Transition Period Ended**
              
              **For
                  the Nine**
                **Months
                  Ended****June
                  30, 2005**
              
              **June
                  30, 2004****(Unaudited)**Total
                  Revenues
              
              $
              6,069,000
              
              $
              10,845,000Total
                  Operating Expenses
              
              $
              4,941,000
              
              $
              2,933,000**NET
                  INCOME**
              
              $
              1,128,000
              
              $
              7,912,000Net
                  Income Allocated to Members
              
              $
              1,128,000
              
              $
              7,912,000Net
                  Income Allocated to Members Per Weighted Average Membership
                  Units
              
              $
              0.14
              
              $
              0.94Weighted
                  Average Membership Units
              
              
              7,919,354
              
              
              8,398,813Annualized
                  Rate of Return to Members (a)
              
              
              1.90
              %
              
              12.6
              %Cash
                  Distributions
              
              $
              3,694,000
              
              $
              3,705,000Cash
                  Distributions Per Weighted Average Membership Units
              
              $
              0.47
              
              $
              0.44Weighted
                  Average Term of Outstanding Loans
              
              
              19
                  months
              
              
              16
                  months
 
 (a)
            The
                annualized rate of return to members is calculated based upon the
                GAAP net
                income allocated to members per weighted average units as of June
                30, 2005
                and 2004 divided by 273 days and 274 days, respectively (the number
                of
                days during each respective period) and multiplied by 365 days, then
                divided by ten (the original cost of $10 per
                unit). 
 *Total
        Revenues* .
        For the
        transition period ended June 30, 2005, revenues totaled approximately $6.1
        million compared to approximately $10.8 million for the nine months end June
        30,
        2004, a decrease of approximately $4.7 million or 44%. 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.
        Our company 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, Vestin Mortgage 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. Vestin
        Mortgage 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 $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.
        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, $145,000 was released from escrow representing
        an early release of funds. The transaction was finalized in December 2004
        and
        resulted in a gain of $1.0 million.
  -
            35
            -
 *Table
            of Contents*
  Revenues
        for the transition period ended June 30, 2005 included other income of
        approximately $700,000, compared to $400,000, 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 $350,000
        and bank interest revenue of $100,000.
 
 Approximately
        $1.3 million of our interest revenue for the 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.
 
 As
        of
        June 30, 2005 we also had approximately $10.4 million of seller financed
        real
        estate held for sale. GAAP requires the borrower to have a certain percentage
        of
        equity ownership (typically 20%) 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 these requirements,
        the
        investment in the new loan is reduced by the amount originally invested in
        the
        real estate held for sale.
 
 As
        of
        June 30, 2005, our Manager had granted extensions on 4 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 full compliance with the 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, 1 such loan was non-performing with an outstanding balance
        of
        approximately $51,000. Our Manager concluded that no allowance for loan loss
        was
        necessary with respect to these loans as of that date.
 
 *Total
          Expenses* .
          For the
          transition period ended June 30, 2005, expenses totaled approximately $4.9
          million compared to approximately $2.9 million for the nine months ended
          June
          30, 2004, an increase of approximately $2.0 million or 68%. 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.” 
 ·
              During
                  the nine months ended June 30, 2005 we recorded a charge of approximately
                  $278,000 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 $354,000 related to the carrying value of 166 residential
                  lots located in Henderson, Nevada and a charge of approximately
                  $639,000
                  relating to a 126 unit assisted living facility in Phoenix,
                  Arizona 
 ·
              We
                  sold a 126 unit hotel in Mesquite, Nevada and sustained a loss
                  of
                  approximately $389,000 during the quarter ended March 31,
                  2005.  -
              36
              -
 *Table
              of Contents*
 
 ·
              For
                  the nine months ended June 30, 2005 and 2004, we recognized professional
                  fees of approximately $494,000 and $144,000, respectively, which
                  was an
                  increase of approximately $350,000. We expect these fees to continue
                  at
                  the amounts being incurred during the nine months ended June 30,
                  2005 due
                  to continued costs related to foreclosures and the implementation
                  and
                  maintenance of requirements of the Sarbanes-Oxley Act of
                  2002. 
 ·
              Expenses
                  related to the maintenance of real estate held for sale increased
                  by
                  approximately $340,000. This increase includes expenses of approximately
                  $160,000 in property taxes. 
 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.
 *Net
        Income* .
        As a
        result of the foregoing factors the net income for the transition period
        ended
        June 30, 2005 totaled $1.1 million compared to $7.9 million for the nine
        months
        ended June 30, 2004, a decrease of $6.8 million or 86%.
 
 *Annualized
        Rate of Return to Members* .
        For the
        transition period ended June 30, 2005, annualized rate of return to members
        totaled 1.9% as compared to 12.6% 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 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.
  -
            37
            -
 *Table
            of Contents*
  
 **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
              )
 
 **Fiscal
        Year Ended September 30, 2004 Compared To September 30,
        2003**
 
 **For
                  the Year Ended**
              
              **For
                  the Year Ended****September
                  30, 2004**
              
              **September
                  30, 2003**Total
                  Revenues
              
              $
              12,666,000
              
              $
              10,365,000Total
                  Operating Expenses
              
              $
              4,099,000
              
              $
              6,054,000**NET
                  INCOME**
              
              $
              8,567,000
              
              $
              4,311,000Net
                  Income Allocated to Members
              
              $
              8,567,000
              
              $
              4,311,000Net
                  Income Allocated to Members Per Weighted Average Membership
                  Units
              
              $
              1.03
              
              $
              0.45Weighted
                  Average Membership Units
              
              
              8,339,404
              
              
              9,668,310Annualized
                  Rate of Return to Members (a)
              
              
              10.24
              %
              
              4.46
              %Cash
                  Distributions
              
              $
              5,098,000
              
              $
              10,364,000Cash
                  Distributions Per Weighted Average Membership Units
              
              $
              0.61
              
              $
              1.07Weighted
                  Average Term of Outstanding Loans
              
              
              19
                  months
              
              
              13
                  months
 
 (a)
            The
                annualized rate of return to members is calculated based upon the
                net
                income allocated to members per weighted average units divided by
                the
                number of days during the period (366 for the year ended September
                30,
                2004 and 365 for the year ended September 30, 2003) and multiplied
                by 365
                days in a year, then divided by ten (the original cost of $10 per
                unit).  -
            38
            -
 *Table
            of Contents*
  *Total
        Revenues* .
        For the
        fiscal year ended September 30, 2004, total revenues were approximately $12.7
        million compared to $10.4 million for the fiscal year ended September 30,
        2003,
        an increase of $2.3 million or 22%.
 
 The
        increase in revenue for the year compared to the prior year was primarily
        due to
        the recognition of $4.7 million in revenue related to a finder’s fee on the sale
        of real estate in the City of Mesquite, Nevada. Our Company 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,
        Vestin Mortgage 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. Vestin Mortgage directed that the buyer
        (an
        unaffiliated third party) pay a finder’s fee in the form of a promissory note to
        our company for $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 $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. Accordingly, the Company did not recognize any income on the
        $4.7
        million note until the principal balance of both notes was paid in full.
        Under
        the cost recovery method, interest payments received by the Company in excess
        of
        the principal balance are not recorded as income until such time as the note
        is
        paid off which occurred in the first calendar quarter of 2004. In February
        2004,
        both notes were paid off and the Company recorded the $4.7 million as revenue
        related to the sale of real estate related to the original note and $0.3
        million
        in interest income related to interest payments received prior to loan
        payoff.
 
 The
        increase in revenue was partially offset by the declining amount of investments
        in real estate loans from approximately $51.7 million as of September 30,
        2003
        to approximately $47.3 million at September 30, 2004, a decrease of
        approximately $4.4 million or 9%. The decrease is primarily related to member
        redemptions for the year ended September 30, 2004. In addition, the weighted
        average interest rate on our loans as of September 30, 2004 was 10.28%, compared
        to 12.32% at September 30, 2003. At September 30, 2004 and 2003, interest
        income
        was approximately $7.5 million and $9.2 million, a decrease of approximately
        $1.7 million or 18%. While there has some movement in the economy towards
        higher
        interest rates, it is not clear if or when any such rate increases will impact
        our business.
 
 Additionally,
        loan fees for the year ended September 30, 2004 decreased by approximately
        $0.4
        million due to a decrease in loan fee sharing arrangements for the
        year.
 
 The
        overall decline in interest rates over the past several years may have
        diminished the interest rates we can charge in our loans. The weighted average
        interest rate on our loans at September 30, 2004 was 10.28%, as compared
        to
        12.32% at September 30, 2003. In addition, there has been an increase in
        competition from more conventional real estate lenders and real estate loan
        investors, such as commercial banks, thrifts, and mortgage brokers, due to
        the
        overall decline in interest rates. It is not clear yet if and when the recent,
        modest increases in federal funds rates will enable us to charge higher interest
        rates on our future loans. We do not believe the rising interest rate
        environment will increase or accelerate our loan delinquency rate or otherwise
        materially harm our business because all our loans are short term with fixed
        interest rates.
 
 As
        of
        September 30, 2004, our Manager had granted extensions on 10 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 full compliance with the terms
        of
        the loan, including, but not limited to the borrower’s obligation to make
        interest payments on the loan. The aggregate amount due to us from borrowers
        whose loans had been extended as of September 30, 2004 was approximately
        $6.9
        million. At September 30, 2004, 7 such loans were performing with an outstanding
        balance of $3.2 million and 3 such loans were non-performing with an outstanding
        balance of $3.7 million. Our Manager concluded that no additional allowance
        for
        loan losses was necessary with respect to such loans.
  -
            39
            -
 *Table
            of Contents*
  *Total
        Expenses* .
        In
        fiscal year ended September 30, 2004, total expenses were approximately $4.1
        million compared to $6.1 million for fiscal year ended September 30, 2003,
        a
        decrease of $2.0 million or 33%. The decrease in expenses resulted from several
        factors including the following:
 
 ·
            Provisions
                for loan losses decreased by $0.3 million to $0.1 million for the
                year
                ended September 30, 2004 compared to $0.4 million for the same period
                in
                the prior year due to our Manager’s determination that our general
                allowance for loan losses is sufficient to cover any inherent losses
                related to our loan portfolio. Therefore, the general provision for
                loan
                losses was limited to $0.1 million for the year ended September 30,
                2004. 
 ·
            We
                incurred valuation losses on real estate held for sale of approximately
                $1.1 million for the year ended September 30, 2004 as compared to
                $3.4
                million in the prior year, a decrease of approximately $2.3 million.
                The
                decrease is based on factors specific to each property but generally
                related to our Manager’s evaluation of the real estate held for sale
                portfolio and the respective estimated values. Refer to “Investment in
                real estate held for sale.” 
 The
        decreases in expenses were partially offset by an increase in interest expense
        related to secured borrowings of approximately $0.7 million which totaled
        $1.8
        million for the year ended September 30, 2004 compared to $1.1 million for
        the
        same period in the prior year.
 
 *Net
        Income* .
        Overall, net income for the year ended September 30, 2004 was approximately
        $8.6
        million compared to approximately $4.3 million for the same period in the
        2003,
        an increase of $4.3 million or 100%.
 
 *Annualized
        Rate of Return to Members* .
        For
        fiscal year ended September 30, 2004, the annualized rate of return to members
        was 10.27% compared to 4.45% for fiscal year ended September 30, 2003. The
        increase in annualized rate of return to members was primarily due to the
        factors as outlined above.
 
 *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 years ended September 30, 2004 and 2003.
 
 **For
                  the Year Ended September 30, 2004**
              
              **For
                  the Year Ended September 30, 2003**Distributions
                  of Net Income Available for Distribution
              
              $
              5,098,000
              
              $
              8,174,000Distributions
                  in Excess of Net Income Available for a Distribution Generated
                  During the
                  Period
              
              
              --
              
              
              2,190,000Total
                  Distributions
              
              $
              5,098,000
              
              $
              10,364,000
 
 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.
  -
            40
            -
 *Table
            of Contents*
  
 **For
                  the Year Ended September 30, 2004**
              
              **For
                  the Year Ended September 30, 2003**Distribution
                  of Net Income Available for Distribution
              
              $
              5,098,000
              
              $
              8,174,000Additions
                  to Working Capital Reserves (Amount Not Distributed)
              
              
              3,569,000
              
              
              --Loss
                  on sale of real estate held for sale
              
              
              998,000
              
              
              3,247,000Change
                  in operating assets and liabilities:Interest
                  and other receivables
              
              
              226,000
              
              
              (450,000
              )Due
                  to Manager
              
              
              260,000
              
              
              272,000Due
                  to Vestin Group
              
              
              (127,000
              )
              
              476,000Due
                  to Fund II
              
              
              4,102,000
              
              
              --Note
                  receivable from Manager
              
              
              --
              
              
              724,000Prepaid
                  expenses
              
              
              8,000
              
              
              (8,000
              )Accounts
                  payable and accrued liabilities
              
              
              327,000
              
              
              23,000Net
                  cash provided by operating activities
              
              $
              14,461,000
              
              $
              12,458,000Net
                  cash provided by investing
              
              $
              (3,536,000
              )
              $
              16,884,000Net
                  cash (used) by financing
              
              $
              (14,803,000
              )
              $
              (18,397,000
              )
 
 **Investments
        in Real estate loans Secured by Real Estate Portfolio**
 
 We
        have
        five real estate loan products consisting of commercial, construction,
        acquisition and development, land, and residential loans. The effective interest
        rates on all product categories range from 5% to 14%. Revenue by product
        will
        fluctuate based upon relative balances during the period. We had investments
        in
        25 real estate loans as of April 30, 2006, with a fund balance of $53.4 million
        as compared to investments in 29 real estate loans as of June 30, 2005, with
        a
        fund balance of $67.1 million.
 
 At
        April
        30, 2006, three of our loans totaling approximately $7.8 million were
        non-performing, net of allowance for loan losses, (more than 90 days past
        due on
        interest payments or past due on principal). These loans have been placed
        on
        non-accrual of interest status. We commenced foreclosure proceedings on these
        loans identified as the Mid-State and RightStar loans.
 
 On
        May 1,
        2006 the bankruptcy plan of Mid-State Raceway, Inc for Vernon Downs became
        effective. As a result of the bankruptcy plan, we and Fund II received the
        following:
 
 ·
            New
                first deed of trust from the buyer, Vernon Downs Acquisition, LLC,
                approximating $22.8 million, of which our portion is approximately
                $3.2
                million. The new terms reflect a $1.2 million principal reduction,
                reducing our principal balance by approximately $171,000. The transaction
                resulted in our recording unearned revenue of approximately $171,000.
                The
                terms of the loan are 9% due in 6 months, with an option to extend
                for an
                additional 6 months for a fee. 
 ·
            The
                loan is secured by a first trust deed on Vernon Downs properties
                and a
                150% personal guarantee by the borrowers. 
 ·
            Prepayment
                of interest in the aggregate amount of $500,000, of which our portion
                is
                approximately $71,000. 
 ·
            Delay
                fees from the date of the bankruptcy confirmation until the effective
                date
                in the aggregate amount of $282,000 of which our portion is approximately
                $40,000. 
 ·
            Payment
                of past due forbearance fees of approximately $555,000 of which our
                portion is approximately $79,000.  -
            41
            -
 *Table
            of Contents*
  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 April 30, 2006, we have provided a specific reserve related to the four
        cemeteries and eight mortuaries in Hawaii, of which our portion of the specific
        reserve is $4.8 million. Our Manager evaluated the 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 Financial Statements included in Part IV, Item *15
        Exhibits and Financial Statement Schedules* of this
        Transition Report Form 10-K.
 
 **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 quarterly basis, the 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.
        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 ten months ended April 30, 2006, refer
        to Note
        D - *Investments
        In Real Estate Loans* of the
        Notes to Financial Statements included in Part IV, Item 15 *Exhibits
        and Financial Statement Schedules* of this
        Transition Report Form 10-K.
 
 **Investments
        in Real Estate Held for Sale**
 
 At
        April
        30, 2006, we held one property with a carrying value of approximately $2.5
        million, which was acquired through foreclosure and recorded as an investment
        in
        real estate held for sale. During the ten month transition period we sold
        two
        properties. 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. 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 loans, refer to
        Note F
        - *Real
        Estate Held for Sale* of the
        Notes to the Financial Statements included in Part IV, Item *15
        Exhibits and Financial Statement Schedules* of this
        Transition Report Form 10-K.
  -
            42
            -
 *Table
            of Contents*
  **Investments
        in real estate held for sale — seller financed**
 
 At
        April
        30, 2006, we held an interest in two **** properties
        with a total carrying value of approximately $8.8 million, which have been
        sold
        in transactions where we provided the financing to the purchaser. GAAP requires
        us to include these properties in real estate held for sale until the borrower
        has met and maintained a certain percentage of equity ownership, which ranges
        from 10% to 25%. We may share ownership of such properties with Fund II,
        Fund
        III, the Manager, or other related and/or unrelated parties. 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. For additional information on our investments in
        real
        estate loans, refer to Note G - *Real
        Estate Held for Sale-Seller Financed* of the
        Notes to the Financial Statements included in Part IV, Item *15
        Exhibits and Financial Statement Schedules* of this
        Transition Report Form 10-K.
 
 **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
        April 30, 2006, all contractual obligations were paid in full.
 
 **CRITICAL
        ACCOUNTING ESTIMATES**
 
 **Revenue
        Recognition**
 
 Interest
        income on loans is accrued by the effective interest method. We do not recognize
        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 to show the impact on our
        financial condition at April 30, 2006 from fluctuations in weighted average
        interest rate charged on loans as a percentage of the loan
        portfolio:
 
 **Changed
                  Assumption**
              
              **Increase
                  (Decrease) in Interest Income**Weighted
                  average interest rate assumption increased by 1% or 100 basis
                  points
              $
              604,000Weighted
                  average interest rate assumption increased by 5% or 500 basis
                  points
              $
              3,022,000Weighted
                  average interest rate assumption decreased by 1% or 100 basis
                  points
              $
              (604,000)Weighted
                  average interest rate assumption decreased by 5% or 500 basis
                  points
              $
              (3,022,000)
 
 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 financial
        statements.
 
 **Allowance
        for Loan Losses**
 
 We
        maintain an allowance for loan losses on our investments in real estate loans
        for estimated credit impairment. The 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.
  -
            43
            -
 *Table
            of Contents*
  The
        following table presents a sensitivity analysis to show the impact on our
        financial condition at April 30, 2006 from increases and decreases to our
        allowance for loan losses as a percentage of the loan portfolio:
 
 Changed
                  Assumption
              
              **Increase
                  (Decrease) in Allowance for Loan Losses**Allowance
                  for loan losses assumption increased by 1.0% of loan
                  portfolio
              $
              535,000Allowance
                  for loan losses assumption increased by 5.0% of loan
                  portfolio
              $
              2,673,000Allowance
                  for loan losses assumption decreased by 1.0% of loan
                  portfolio
              $
              (535,000)Allowance
                  for loan losses assumption decreased by 5.0% of loan
                  portfolio
              $
              (2,673,000)
 
 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 non-conventional
        lender willing to invest in loans to borrowers who may not meet the credit
        standards of conventional lenders, the default rate on our loans could be
        higher
        than those generally experienced in the mortgage lending industry. We 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 the 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 have caused significant
        changes in our estimated allowance include:
 
 ·
            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. 
 ·
            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, the Company seeks to identify
        potential purchasers of such property. It is not the Company's 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,* the
        Company seeks 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.
  -
            44
            -
 *Table
            of Contents*
  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; 
 ·
            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**
 
 The
        Company occasionally finances 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 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
        the Company occasionally forecloses on loans with raw land or developments
        in
        progress, available financing for such properties is often limited and the
        Company frequently provides financing up to 100% of the selling price on
        these
        properties. In addition, the Company 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 balance sheet.
 
 **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 use all of our available
        funds
        to invest in real estate loans. Distributable cash flow generated from such
        loans is paid out to our members unless they have elected to reinvest their
        dividends. 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 Vestin Mortgage will manage
        our
        affairs. We may pay Vestin Mortgage an annual management fee of up to 0.25%
        of
        our aggregate capital contributions.
 
 During
        the ten month transition period ended April 30, 2006, cash flows provided
        by
        operating activities approximated $0.8 million. Investing activities consisted
        of cash provided by loan payoffs of approximately $36.3 million, cash proceeds
        from sale of investments in real estate loans of approximately $9.3 million.
        Cash used for new investments and purchases of real estate loans of
        approximately $33.7 million, and proceeds from the sale of real estate held
        for
        sale of approximately $4.2 million. Financing activities consisted of members’
redemptions in the amount of approximately $8.3 million and distributions
        of
        approximately $3.8 million (net of reinvestments).
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  At
        April
        30, 2006, we had approximately $10.7 million in cash, $0.3 million in
        certificates of deposit, and approximately $63.5 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, distribution
        reinvestments by our members and arrangements with third parties to participate
        in our loans and proceeds from issuance of note payable and secured
        borrowings.
 
 As
        of
        April 30, 2006, 15% of our members have elected to reinvest their distributions.
        We have no current plans to sell any new shares except through our dividend
        reinvestment program. The level of dividend reinvestment in the future will
        depend upon our performance, as well as, the number of our members who prefer
        to
        reinvest rather than receive current dividends.
 
 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 include loans in non-accrual status, net of
        allowance for loan losses, and real estate held for sale totaling $7.8 million
        and $2.5 million, respectively, as of April 30, 2006 compared to $6.8 million
        and $7.8 million, respectively, as of June 30, 2005. 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.
 
 Historically,
        redemptions by our members reduced the capital we had available for investment.
        As of April 30, 2006, the total of redemptions made from inception was
        approximately $47.8 million. During the ten month transition period ended
        April
        30, 2006, we redeemed approximately $8.3 million of Members’ capital. Due to
        Fund I’s subsequent merger into Vestin Realty Mortgage I, Inc. as of May 1,
        2006, we will no longer redeem units since all units have been converted
        into
        shares of Vestin Realty Mortgage I, Inc.
 
 To
        maintain our status as a REIT, we will be 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 noncash income over 5% of our REIT taxable
        income.
 
 Loans
        in
        which third party investors have participated through inter-creditor agreements
        (“Inter-creditor Agreements”) are accounted for as secured borrowings in
        accordance with 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
        a
        third party investor (the “Investor”) may participate on a senior basis in
        certain real estate loans with us and/or Fund 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.
 
 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.
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            46
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  As
        of
        April 30, 2006, we did not have any funds being used under Inter-creditor
        and
        Participation Agreements where we have potential obligations as defined above
        compared to $11.4 million at June 30, 2005.
 
 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.
 
 **ITEM
        7A.** **QUANTITATIVE
        AND QUALITATIVEDISCLOSURES 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 consist of investments in real estate loans. At April 30, 2006,
        our
        aggregate investment in real estate loans was approximately $40.0 million
        net of
        allowance with a weighted average effective interest rate of 9.85%. Most
        of the
        real estate loans have an initial term of 12 months; the weighted average
        term
        of outstanding loans at April 30, 2006 was 18 months. All of the outstanding
        real estate loans at April 30, 2006 were fixed rate loans. 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
        have
        prepayment penalties and one has 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 distribution to Members. On the other hand, a significant
        increase in interest rates could result in a slowdown in real estate development
        activity which would reduce the demand for commercial real estate loans.
        As a
        result, we might encounter greater difficulty in identifying appropriate
        borrowers. We are not in a position to quantify the potential impact on our
        operating results from a material change in interest rates.
 
 The
        following table contains information about the investment in mortgage loans
        held
        in our portfolio as of April 30, 2006. The presentation aggregates the
        investment in mortgage loans by their maturity dates for maturities occurring
        in
        each of the years 2006 through 2010 and separately aggregates the information
        for all maturities arising after 2010. The carrying values of these assets
        approximate their fair value as of April 30, 2006.
 
 **Interest
                  Earning Assets**
                **Aggregated
                  by Maturity at April 30, 2006****Interest
                  Earning Assets**
              
              **2006**
              
              **2007**
              
              **2008**
              
              **2009**
              
              **Thereafter**
              
              **Total**Investments
                  In Real Estate Loans
              
              $
              33,986,000
              
              $
              19,468,000
              
              $
              --
              
              $
              --
              
              $
              --
              
              $
              53,454,000Weighted
                  Average Interest Rates
              
              
              10.48%
              
              
              8.75%
              
              
              --%
              
              
              --%
              
              
              --%
              
              
              9.85%
 
 At
        April
        30, 2006, we also had approximately $11.0 million invested in cash, cash
        equivalents, and certificates of deposit. 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 SUPPLEMENTARYDATA**
 
 The
        financial statements and supplementary data are indexed in Part IV, Item
        15 *Exhibits
        and Financial Statement Schedules* of this
        Transition Report Form 10-K.
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            47
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 *Table
            of Contents*
  **ITEM
        9.** **CHANGES
        IN AND DISAGREEMENTS WITH ACCOUNTANTSON ACCOUNTING AND
        FINANCIAL DISCLOSURE**
 
 None.
 
 **ITEM
        9A.**  **CONTROL
        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 Transition Report on Form 10−K, our management carried out an evaluation,
        under the supervision and with the participation of the our management,
        including the CEO and CFO, as of April 30, 2006, 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 this evaluation,
        our CEO and CFO concluded that our disclosure controls and procedures were
        not
        effective as of April 30, 2006 because of the material weaknesses discussed
        below. Notwithstanding the material weaknesses discussed below, our management
        has concluded that the financial statements included in this Transition Report
        on Form 10−K fairly present in all material respects our financial condition,
        results of operations and cash flows for the periods presented in conformity
        with accounting principles generally accepted in the United States.
 
 **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. Also, 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.
 
 Management
        has conducted an assessment, including testing, of the effectiveness of our
        internal control over financial reporting as of April 30, 2006. In making
        its
        assessment of internal control over financial reporting, management used
        the
        criteria in *Internal
        Control — Integrated Framework* issued
        by
        the Committee of Sponsoring Organizations of the Treadway Commission
        (“COSO”).
 
 A
        material weakness is a control deficiency, or combination of control
        deficiencies, that results in more than a remote likelihood that a material
        misstatement of the annual or interim financial statements will not be prevented
        or detected. As of April 30, 2006, management identified the following material
        weaknesses in their assessment of the effectiveness of our internal control
        over
        financial reporting:
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            48
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            of Contents*
  ·
            We
                did not adequately implement certain controls over investments in
                real
                estate loans, specifically relating to the computer database of
                investments in real estate loans which summarizes information used
                to
                prepare the related disclosures. We also identified errors in recording
                transactions specifically related to interest income from investment
                in
                real estate loans. These disclosures include the classification of
                the
                types of loans, portfolio percentage, loan to value percentage, and
                the
                geographical location of the investment in real estate loans. These
                areas
                included logical access security controls to the computer database,
                and we
                have therefore identified a material weakness in our information
                technology general controls as of April 30,
                2006. 
 Management’s
        assessment of the effectiveness of our internal control over financial reporting
        as of April 30, 2006 has 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.
 
 **Remediation
        Plan**
 
 To
        remediate our material weakness over the computer database of investments
        in
        real estate loans, management is currently establishing and implementing
        controls, policies and procedures within our information technology department
        that will provide monitoring and management of the computer systems access
        rights. Such procedures, when established, will provide for various levels
        of
        access by certain individuals as deemed appropriate by management. These
        procedures will also provide for appropriate approvals for programming changes,
        along with supporting documentation of such approvals. Management is currently
        reviewing all individuals and their functions and duties within our information
        technology department to fully establish these access and approval controls.
        Management will also continue evaluating controls related to the recognition
        of interest
        income from investment in real estate loans to determine whether additional
        controls and procedures should be implemented.
 
 **Changes
        in Internal Control Over Financial Reporting**
 
 Our
        management has not identified any changes in our internal controls over
        financial reporting during our Transition Quarter that have materially affected,
        or are reasonably likely to materially affect, our internal controls over
        financial reporting, except as discussed above.
 
 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.
 
 Notwithstanding
        the above, nothing has come to the attention of management which would cause
        management to believe that the material weaknesses noted above have resulted
        in
        material misstatements or errors in our financial statements as of April
        30,
        2006, or for any prior periods.
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            49
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 *Table
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 Report
        of
        Independent Registered Public Accounting Firm
 
 To
        the
        Board of Directors and Stockholders of
 Vestin
        Realty Mortgage I, Inc., successor to Vestin Fund I, LLC
 
 We
        have
        audited management’s assessment, included in the accompanying Management’s
        Report on Internal Control over Financial Reporting (Item 9A), that Vestin
        Realty Mortgage I, Inc., successor to Vestin Fund I, LLC (the Company) did
        not
        maintain effective internal control over financial reporting as of the ten
        month
        transition period ended April 30, 2006, because of the effect of material
        weaknesses identified in management’s assessment, based on criteria established
        in *Internal
        Control - Integrated Framework* issued
        by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
        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. Our responsibility
        is to express an opinion on management’s assessment and an opinion on the
        effectiveness of 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, evaluating management’s assessment, testing and evaluating
        the design and operating effectiveness of internal control, 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 the inherent limitations of internal control over financial reporting,
        including the possibility of collusion or improper management override of
        controls, material misstatements due to error or fraud may not be prevented
        or
        detected on a timely basis. Also, projections of any evaluation of the
        effectiveness of the internal control over financial reporting 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.
 
 A
        material weakness is a control deficiency, or combination of control
        deficiencies, that results in more than a remote likelihood that a material
        misstatement of the annual or interim financial statements will not be prevented
        or detected. The following material weaknesses have been identified and included
        in management’s assessment as of the ten month transition period ended April 30,
        2006:
 
 ·
            The
                Company did not adequately implement certain controls over investments
                in
                real estate loans, specifically relating to the computer database
                of
                investments in real estate loans which summarizes information used
                to
                prepare the related disclosures. The Company also identified errors
                in
                recording transactions specifically related to interest income from
                investment in real estate loans. These disclosures include the
                classification of the types of loans, portfolio percentage, loan
                to value
                percentage, and the geographical location of the investment in real
                estate
                loans. These areas included logical access security controls to the
                computer database, and we have therefore identified a material weakness
                in
                our information technology general controls as of April 30,
                2006.  -
            50
            -
 *Table
            of Contents*
  In
        our
        opinion, management’s assessment that Vestin Realty Mortgage I, Inc. did not
        maintain effective internal control over financial reporting as of April
        30,
        2006, is fairly stated, in all material respects, based on criteria established
        in *Internal
        Control - Integrated Framework* issued
        by
        the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
        Also, in our opinion, because of the effect of the material weaknesses described
        above on the achievement of the objectives of the control criteria, Vestin
        Realty Mortgage I, Inc. has not maintained effective internal control over
        financial reporting as of April 30, 2006 based on criteria established in *Internal
        Control - Integrated Framework* issued
        by the Committee of Sponsoring Organizations of the Treadway Commission
        (COSO).
 
 /s/Moore
        Stephens Wurth Frazer and Torbet, LLP
 
 Orange,
        California
 June
        27,
        2006
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            51
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 *Table
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  **ITEM
        9B.**  **OTHER
        INFORMATION**
 
 None.
 
 **PARTIII**
 
 **ITEM
        10.**  **DIRECTORS
        AND EXECUTIVE OFFICERS OF REGISTRANT**
 
 We
        are
        managed by Vestin Mortgage which is engaged in asset management, real estate
        lending and other financial services. Vestin Mortgage, a privately held company
        and wholly-owned subsidiary of Vestin Group, has no audit committee and no
        requirement for independence at this time.
 
 **Directors
        and Executive Officers**
 
 The
        following table sets forth the names, ages as of April 30, 2006 and positions
        of
        the individuals who serve as our directors and executive officers:
 
 **Name**
              **Age**
              **Title**Michael
                  V. Shustek
              47
              President,
                  Chief Executive Officer and DirectorJohn
                  W. Alderfer
              62
              Chief
                  Financial Officer and DirectorRobert
                  J. Aalberts(1)(2)(3)
              55
              DirectorFredrick
                  J. Zaffarese Leavitt(1)(2)(3)
              34
              DirectorRoland
                  M. Sansone(1)(2)(3)
              50
              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 April 30, 2006 and positions
        of
        the individuals who serve as directors and executive officers of Vestin
        Mortgage, our manager:
 
 **Name**
              **Age**
              **Title**Michael
                  V. Shustek
              47
              President,
                  Chief Executive Officer and ChairmanJohn
                  W. Alderfer
              61
              Chief
                  Financial OfficerMichael
                  J. Whiteaker
              56
              Vice
                  President of Regulatory AffairsDaniel
                  B. Stubbs
              44
              Senior
                  Vice President, UnderwritingJennifer
                  Tsuneta
              34
              Vice
                  President of Loan ServicingShannon
                  Haddow
              37
              Vice
                  President of Investor Relations
 
 **Directors
        and Executive Officers of Vestin Realty Mortgage I and Vestin
        Mortgage**
 
 The
        principal occupation and business experience for the directors and executive
        officers of Vestin Realty Mortgage I and Vestin Mortgage, other than the
        independent and unaffiliated directors of Vestin Realty Mortgage I described
        below, are as follows:
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            52
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  *Michael
        V. Shustek* has been
        a director of Vestin Mortgage and Chairman of the Board of Directors, Chief
        Executive Officer and a director of Vestin Group since April 1999. In February
        2004, Mr. Shustek became the President of Vestin Group. Mr. Shustek also
        serves
        on the loan committee of Vestin Mortgage. In 2003, Mr. Shustek became the
        Chief
        Executive Officer of Vestin Mortgage. 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.
 
 *John
        W. Alderfer* has
        served as the Chief Financial Officer of Vestin Group effective January 2005
        and
        was elected a director of Vestin Group effective March 2005. Mr. Alderfer
        previously served as Chief Financial Officer of Vestin Group from September
        2002
        to February 2004. From February 2004 to December 2004, Mr. Alderfer served
        as a
        consultant to Vestin Group. From October 1998 to September 2002, Mr. Alderfer
        was retired. From September 1996 to October 1998, Mr. Alderfer was a Director,
        Vice President, Treasurer, and Chief Financial Officer of Interactive Flight
        Technologies, Inc. From September 1990 to June 1996, Mr. Alderfer was Senior
        Vice President, Treasurer, and Chief Financial Officer of Alliance Gaming
        Corporation. Mr. Alderfer is the former Senior Vice President, Corporate
        Controller and Chief Accounting Officer of Summa Corporation and The Hughes
        Corporation, 100% owned by the Estate of Howard R. Hughes. Mr. Alderfer received
        his BBA degree in accounting from Texas Tech University. He is a Certified
        Public Accountant.
 
 *Michael
        J. Whiteaker* has been
        Vice President of Regulatory Affairs of Vestin Mortgage and Vestin Group
        since
        May 1999. Mr. Whiteaker is experienced in the banking and finance regulatory
        fields, having most recently 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.
 
 *Daniel
        B. Stubbs* has been
        the Senior Vice President, Underwriting of Vestin Mortgage since January
        of
        2000. Mr. Stubbs heads the loan department for Vestin Mortgage 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 Vestin Mortgage
        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.
 
 *Jennifer
        Tsuneta* is Vice
        President of the Loan Servicing Department of Vestin Mortgage. Ms. Tsuneta
        currently is the Manager of the Loan Servicing Department and has served
        in
        various capacities with Vestin Mortgage since 1994. As one of the very first
        employees of Vestin, Ms. Tsuneta is familiar with the daily company operations
        as well as client relations. Prior to her employment at Vestin Mortgage,
        Ms.
        Tsuneta served as an assistant in the Trust Department with Bank of America.
        Ms.
        Tsuneta received a Bachelor of Science degree in Business Administration
        from
        the University of Nevada, Las Vegas in 1993.
 
 *Shannon
        Haddow* is Vice
        President of Investor Relations of Vestin Mortgage. Ms. Haddow has served
        as the
        Compliance Officer for Vestin Capital, Inc. since October of 2004 and previously
        was a registered sales representative beginning in May of 2000. Prior to
        Vestin
        Capital, Ms. Haddow was employed as an investor relations representative
        with
        Vestin Mortgage from December 1998 to May 2000. Ms. Haddow has also served
        as a
        controller for Ivory Homes located in Salt Lake City, Utah and has a real
        estate
        license in the State of Nevada as well as Series 7, 22, 24 and 63 securities
        licenses.
  -
            53
            -
 *Table
            of Contents*
  **Unaffiliated
        Directors of Vestin Realty Mortgage I**
 
 The
        principal occupation and business experience for the independent and
        unaffiliated directors of Vestin Realty Mortgage I are as follows:
 
 *Robert
        J. Aalberts* was a
        director of Vestin Group from April 1999 to December 2005. He has been a
        director of Vestin Realty Mortgage I 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 6 th 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 of Vestin Group from November 2004 to December 2005. He has been
        a
        director of Vestin Realty Mortgage I since January 2006. Since August of
        1993
        Mr. Zaffarese 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 sits on various audit
        committees involving the utility industry. Mr. Zaffarese is a CPA and a graduate
        of University of Nevada Las Vegas.
 
 *Roland
        M. Sansone* has been
        a director of Vestin Realty Mortgage I since January 2006 and 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.
 
 **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. Zaffarese, and his term will expire at the
                2007
                annual meeting of stockholders; 
 ·
            The
                class II directors is Messrs, Alderfer and Sansone, and their terms
                will
                expire at the 2008 annual meeting of stockholders;
                and 
 ·
            The
                class III directors is Messrs, Aalberts 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.
  -
            54
            -
 *Table
            of Contents*
  **Board
        Committees**
 
 Our
        board
        of directors have an audit committee, a nominating committee and a compensation
        committee. There are no family relationships among any of our directors or
        executive officers.
 
 *Audit
        Committee.* The
        audit
        committee consists of Messrs, Aalberts, Zaffarese and Sansone. Our board
        of
        directors has determined that Mr. Zaffarese is an audit committee financial
        expert as defined under the applicable rules of the SEC and has the requisite
        financial sophistication as defined under the applicable Nasdaq stock market
        rules. We believe the composition of our audit committee meets the criteria
        for
        independence under, and the functioning of our audit committee complies with
        applicable requirements of, the Sarbanes-Oxley Act of 2002, the current rules
        of
        the Nasdaq Stock Market and SEC rules and regulations.
 
 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.
 
 *Nominating
        Committee.* The
        nominating committee consists of Messrs, Aalberts,
        Zaffarese and Sansone .
        We
        believe the composition of our nominating committee meets the criteria for
        independence under, and the functioning of our nominating committee complies
        with applicable requirements of, the Sarbanes-Oxley Act of 2002, the current
        rules of the Nasdaq Stock Market and SEC rules and regulations.
 
 Our
        nominating committee’s purpose is to assist our board of directors by
        identifying individuals qualified to become directors. This committee’s
        responsibilities include, among other things:
 
 ·
            Evaluating
                the composition, size and governance of our board of directors and
                make
                recommendations regarding future planning and the appointment of
                directors; 
 ·
            Establishing
                a policy for considering stockholder nominees for election to our
                board of
                directors; and 
 ·
            Evaluating
                and recommending candidates for election to our board of
                directors. 
 *Compensation
        Committee* **** The
        compensation committee consists of Messer, Aalberts, Zaffarese and Sansone.
        We
        believe the composition of our compensation committee meets the criteria
        for
        independence under, and the functioning of our compensation committee complies
        with applicable requirements of, the Sarbanes-Oxley Act of 2002, the current
        rules of the Nasdaq Stock Market and SEC rules and regulations.
  -
            55
            -
 *Table
            of Contents*
  Our
        compensation committee’s purpose is to assist our board of directors relating to
        compensation of the Company’s directors, executive officers and its sole
        manager, Vestin Mortgage, Inc.; and to produce as may be required an annual
        report on executive officer compensation. Subject to applicable provision
        of our
        bylaws and the Management Agreement with Vestin Mortgage, the compensation
        committee is responsible for reviewing and approving compensation paid by
        us to
        Vestin Mortgage.
 
 **Director
        Compensation**
 
 Currently,
        our directors who are also employees of our company receive no additional
        compensation for their services as directors. Our non-employee directors
        receive
        $500 for each board 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.
 
 **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 www.vestinrealtymortgage1.com .
 
 **ITEM
        11.**  **EXECUTIVE
        COMPENSATION**
 
 Not
        applicable.
 
 **ITEM
                  12.**
              **SECURITY
                  OWNERSHIPOF CERTAIN BENEFICIAL OWNERS
                  AND MANAGEMENT
                  AND RELATED STOCKHOLDER
                  MATTERS**
 
 The
        following table sets forth the total number and percentage of Fund I units
        beneficially owned as of April 30, 2006 by:
 
 ·
            each
                director; 
 ·
            our
                chief executive officer and our other executive officers;
                and 
 ·
            all
                executive officers and directors as a
                group. 
 As
        of
        April 30, 2006, none of our members were beneficial owners of 5% or more
        of our
        units.
 
 Unless
        otherwise noted, the percentage ownership is calculated based on 6,868,740
        shares of Fund I outstanding as of April 30, 2006. The address of each of
        the
        persons in the table is c/o Vestin Realty Mortgage I, Inc., 8379 West Sunset
        Road, Las Vegas, Nevada 89113.
 
 **Units
                  Beneficially Owned****Beneficial
                  Owner**
              
              **Number**
              
              **Percent**Michael
                  V. Shustek(1)
              
              
              101,042
              
              
              1.47%John
                  W. Alderfer
              
              
              --
              
              
              --Robert
                  J. Aalberts
              
              
              --
              
              
              --Frederick
                  J. Zaffarese Leavitt
              
              
              --
              
              
              --Roland
                  M. Sansone
              
              
              --
              
              
              --All
                  directors and executive officers as a group (5 persons)
              
              
              101,042
              
              
              1.47%
  (1)
              Includes
                  100,000 units held by Vestin Mortgage and 1,042 units held by The
                  Michael
                  V. Shustek Trust. Mr. Shustek is the Chairman, President and Chief
                  Executive Officer of Vestin Mortgage and indirectly owns all of
                  the
                  capital stock of Vestin Mortgage. Mr. Shustek is the trustee of
                  the
                  Michael V. Shustek Family Trust.
 -
            56
            -
 *Table
            of Contents*
  **ITEM
        13.**  **CERTAIN
        RELATIONSHIPSAND RELATED 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 Operating
        Agreement provided the price does not exceed the original cost. 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, paid monthly. The amount of management
        fees paid to our Manager for the ten month transition period ended April
        30,
        2006 and the nine month transition period ended June 30, 2005 approximated
        $230,000 and $201,000, respectively.
 
 Additionally,
        for the ten months ended April 30, 2006, we recorded pro rata distributions
        owed
        to our Manager of approximately $55,000 and $46,000 for the same period in
        the
        prior year based upon the total of 100,000 units owned by our
        Manager.
 
 As
        of
        April 30, 2006, and June 30, 2005, we owed the Manager $37,000 and $922,000,
        respectively, related to unpaid management fees, and expenses paid on our
        behalf
        related to the maintenance of real estate held for sale.
 
 **Transactions
        with the Funds**
 
 As
        of
        April 30, 2006 and June 30, 2005, we owed Fund II $0 and $1,560,000,
        respectively. The balance was primarily related to payments made on our behalf
        for maintenance expenses incurred on real estate owned properties.
 
 As
        of
        April 30, 2006 and June 30, 2005, we owed Fund III $0 and $6,000, respectively
        primarily related to payments they made on our behalf for legal expenses
        incurred.
 
 During
        the ten months ended April 30, 2006, we sold $8,800,000 in real estate loans
        to
        Fund II. In addition, we bought $500,000 in real estate loans from Fund
        II.
 
 **Transactions
        with Other Related Parties**
 
 For
        the
        ten month transition period ended April 30, 2006 and the nine month transition
        period ended June 30, 2005, we incurred $36,000 and $8,000 respectively,
        for
        legal fees to the law firm of Levine, Garfinkel & Katz in which the
        Secretary of Vestin Group has an equity ownership interest.
 
 For
        the
        ten month transition period ended April 30, 2006 and the nine month transition
        period ended June 30, 2005, we incurred $131,000 and $75,000, respectively,
        to
        L.L. Bradford & Company, LLC, a certified public accounting firm for
        accounting services. A former Director and Officer of Vestin Group is an
        equity
        owner in that firm.
  -
            57
            -
 *Table
            of Contents*
  **ITEM
        14.**  **PRINCIPAL
        ACCOUNTINGFEES AND SERVICES**
 
 During
        the ten month transition period ended April 30, 2006 and the nine month
        transition period ended June 2005, Moore Stephens Wurth Frazer and Torbet,
        LLP
        (“Moore Stephens”) provided various audit, audit related and non-audit services
        to us as follows:
 
 **April
                  30, 2006**
              
              **June
                  30, 2005**Audit
                  Fees
              
              $
              298,000
              
              $
              300,000Audit
                  Related Fees
              
              $
              --
              
              $
              --Tax
                  Fees
              
              $
              --
              
              $
              --All
                  Other Fees
              
              $
              --
              
              $
              --
 
 The
        Audit
        Committee of Vestin Group (the “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 independent auditors
        under engagements entered into on or after May 6, 2003, were approved by
        the
        Audit Committee pursuant to its pre-approval policy, and none was approved
        pursuant to the *de
        minimus* exception
        to the rules and regulations of the Securities Exchange Act of 1934, Section
        10A(i)(1)(B), on pre-approval.
 
 **PARTIV**
 
 **ITEM
        15.**  **EXHIBITS
        AND FINANCIALSTATEMENT SCHEDULES**
 (a)
        1. Financial
        Statements
 
 The
        financial statement are contained on Pages F-2 through F-27 on this Annual
        Report on Form 10-K, and the list of the financial statements contained herein
        is set forth on page F-1, which is hereby incorporated by
        reference.
 
 (a)
        2. Financial
        Statement Schedules
 
 (a)
        3. Exhibits
  -
            58
            -
 *Table
            of Contents*
  
 **EXHIBIT
        INDEX**
 
 **Exhibit
                  No.**
              
              **Description
                  of Exhibits**2.1(2)
              
              Agreement
                  and Plan of Merger between Vestin Fund I, LLC and the
                  Registrant3.1(2)
              
              Articles
                  of Incorporation of the Registrant3.2(2)
              
              Bylaws
                  of the Registrant3.3(2)
              
              Form
                  of Articles Supplementary of the Registrant4.1(2)
              
              Reference
                  is made to Exhibits 3.1, 3.2 and 3.34.2(3)
              
              Specimen
                  Common Stock Certificate4.3(2)
              
              Form
                  of Rights Certificate10.1(2)
              
              Form
                  of Management Agreement between Vestin Mortgage, Inc. and the
                  Registrant10.2(2)
              
              Form
                  of Rights Agreement between the Registrant and the rights
                  agent10.3(1)
              
              Assignment
                  Agreement, dated January 23, 2004, by and between Vestin Mortgage,
                  Inc.,
                  Vestin Fund I, LLC, Vestin Fund II, LLC, Owens Financial Group,
                  Inc. and
                  Owens Mortgage Investment Fund10.4(1)
              
              Intercreditor
                  Agreement, dated January 17, 2003, by and among Vestin Mortgage,
                  Inc.,
                  Vestin Fund I, LLC, Vestin Fund II, LLC and Western United Life
                  Assurance
                  Company10.5(1)
              
              Intercreditor
                  Agreement, dated April 22, 2004, by and between Vestin Mortgage,
                  Inc. and
                  Owens Mortgage Investment Fund10.6(1)
              
              Intercreditor
                  Agreement, dated June 24, 2004, by and between Vestin Mortgage,
                  Inc. and
                  Owens Mortgage Investment Fund10.7(1)
              
              Participation
                  Agreement, dated May 13, 2004, by and among the Registrant, Vestin
                  Fund I,
                  LLC, Vestin Fund II, LLC and Royal Bank of America21.1(3)
              
              List
                  of subsidiaries of the Registrant31.1
              
              Section
                  302 Certification of Michael V.
                  Shustek31.2
              
              Section
                  302 Certification of John
                  Alderfer32
              
              Certification
                  Pursuant to U.S.C. 18 Section
                  135099.2R
              
              Vestin
                  Realty Mortgage I, Inc. Code of Business
                  Conduct and Ethics
 
 (1)
              
              Incorporated
                  herein by reference to our Form S-4 Registration Statement filed
                  on May
                  27, 2005 (File No. 333-125347).(2)
              
              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).(3)
              
              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).
  -
            59
            -
 *Table
            of Contents*
  
 **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. (successor to Vestin Fund I,
                  LLC)**By:
              */s/
                  Michael V. Shustek*Michael
                  V. ShustekPresident
                  and Chief Executive OfficerDate:
              June
                  27, 2006
 
 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
              
              June
                  27, 2006Michael
                  V. Shustek
              
              (Principal
                  Executive Officer)*/s/
                  John W. Alderfer*
              
              Chief
                  Financial Officer and Director
              
              June
                  27, 2006John
                  W. Alderfer
              
              (Principal
                  Financial and Accounting Officer)*/s/
                  Robert J. Aalberts*
              
              Director
              
              June
                  27, 2006Robert
                  J. Aalberts*/s/
                  Fredrick J.**Zaffarese**Leavitt*
              
              Director
              
              June
                  27, 2006Fredrick
                  J.ZaffareseLeavitt*/s/
                  Roland M. Sansone*
              
              Director
              
              June
                  27, 2006Roland
                  M. Sansone
  -
            60
            -
 *Table
            of Contents*
  **INDEX
        TO** **CONSOLIDATED** **FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION**
 
 **Page**REPORT
                  OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
                  FIRM
              F-2FINANCIAL
                  STATEMENTSBalance
                  Sheets
              F-3Statements
                  of Operations
              F-4Statement
                  of Stockholders’ Equity
              F-5Statements
                  of Cash Flows
              F-6Notes
                  to Financial Statements
              F-8SUPPLEMENTARY
                  INFORMATIONInvestments
                  in Real Estate Loans:Real
                  estate loan Roll Forward
              F-29Real
                  estate loans by Type of
                  Property
              F-30Real
                  estate loans by Lien Position
              F-31Real
                  estate loans that Exceed Three Percent of the
                  Portfolio
              F-32
 
  F-1
 *Table
            of Contents*
  
 
 Report
        of
IndependentRegistered Public Accounting Firm
 
 
 To
        Board
        of Directors and Stockholders of Vestin Realty Mortgage I, Inc., successor
        to
        Vestin Fund I, LLC
 
 We
        have
        audited the accompanying balance sheets of Vestin Realty Mortgage I, Inc.,
        successor to Vestin Fund I, LLC, (“the Company”) as of April 30, 2006 and June
        30, 2005 and the related statements of operations, stockholders’ equity, and
        cash flows for the ten month transition period ended April 30, 2006 and for
        the
        nine month transition period ended June 30, 2005 and for each of the two
        years
        in the period ended September 30, 2004. These financial statements are the
        responsibility of the Company’s management. Our responsibility is to express an
        opinion on these financial statements based on our audits.
 
 We
        conducted our audits 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 the financial
        statements are free of material misstatement. An audit includes examining,
        on a
        test basis, evidence supporting the amounts and disclosures in the financial
        statements. An audit also includes assessing the accounting principles used
        and
        significant estimates made by management, as well as evaluating the overall
        financial statement presentation. We believe that our audits provide a
        reasonable basis for our opinion.
 
 In
        our
        opinion, the financial statements referred to above present fairly, in all
        material respects, the financial position of Vestin Realty Mortgage I, Inc.,
        as
        of April 30, 2006 and June 30, 2005, and the results of its operations and
        its
        cash flows for the ten month transition period ended April 30, 2006 and for
        the
        nine month transition period ended June 30, 2005 and for each of the two
        years
        in the period ended September 30, 2004 in conformity with accounting principles
        generally accepted in the United States of America. Our audits were conducted
        for the purpose of forming an opinion on the financial statements taken as
        a
        whole. The supplemental schedules are presented for purposes of additional
        analysis and are not a required part of the financial statements. Such
        information has been subjected to the auditing procedures applied in our
        audits
        of the financial statements and, in our opinion, is fairly stated in all
        material respects in relation to the financial statements taken as a
        whole.
 
 We
        also
        have audited, in accordance with the standards of the Public Company Accounting
        Oversight Board (United States), the effectiveness of Vestin Realty Mortgage
        I,
        Inc., internal control over financial reporting as of April 30, 2006, based
        on
        criteria established in *Internal
        Control - Integrated Framework* issued
        by
        the Committee of Sponsoring Organizations of the Treadway Commission (COSO),
        and
        our report dated June 27, 2006, expressed an unqualified opinion on management’s
        assessment of, and an adverse opinion on the effective operation of, internal
        control over financial reporting.
 
 /s/Moore
        Stephens Wurth Frazer and Torbet, LLP
 
 Orange,
        California
 June
        27,
        2006
  F-2
 *Table
            of Contents*
 **FINANCIAL
        STATEMENTS**
  **VESTIN
                  REALTY MORTGAGEI, INC.****(SUCCESSOR
                  TO VESTIN FUND I, LLC)****BALANCE
                  SHEETS****ASSETS****April
                  30, 2006**
              
              **June
                  30, 2005**Cash
              
              $
              10,732,000
              
              $
              2,862,000Certificates
                  of deposit
              
              
              300,000
              
              
              300,000Interest
                  and other receivables
              
              
              953,000
              
              
              682,000Note
                  receivable, net of allowance of $729,000 at April 30, 2006 and
                  $747,000 at
                  June 30, 2005
              
              
              291,000
              
              
              119,000Real
                  estate held for sale
              
              
              2,497,000
              
              
              7,757,000Real
                  estate held for sale - seller financed
              
              
              8,797,000
              
              
              10,374,000Investment
                  in real estate loans, net of allowance for loan losses of $4,801,000
                  at
                  April 30, 2006 and $1,896,000 at June 30, 2005
              
              
              39,975,000
              
              
              54,878,000Assets
                  under secured borrowings
              
              
              --
              
              
              11,391,000Total
                  assets
              
              $
              63,545,000
              
              $
              88,363,000**LIABILITIES
                  AND STOCKHOLDERS' EQUITY**LiabilitiesAccounts
                  payable and accrued liabilities
              
              $
              362,000
              
              $
              443,000Due
                  to Fund Manager
              
              
              37,000
              
              
              922,000Due
                  to Vestin Group
              
              
              --
              
              
              2,000Due
                  to Vestin Fund II
              
              
              --
              
              
              1,560,000Due
                  to Vestin Fund III
              
              
              --
              
              
              6,000Secured
                  borrowings
              
              
              --
              
              
              11,391,000Deposit
                  liability
              
              
              916,000
              
              
              768,000Total
                  liabilities
              
              
              1,315,000
              
              
              15,092,000Stockholders'
                  equityPreferred
                  stock, $0.0001 par value; 1,000,000 shares authorized; none
                  issued
              
              
              --
              
              
              --Common
                  stock, $0.0001 par value; 25,000,000 shares authorized; 6,868,740
                  shares
                  issued at April 30, 2006
              
              
              1,000
              
              
              --Capital
                  in excess of par
              
              
              62,229,000
              
              
              --Members
                  equity - Authorized 10,000,000 units at $10 per unit, 7,686,323
                  members
                  units issued and outstanding at June 30, 2005
              
              
              --
              
              
              73,271,000Total
                  equity
              
              
              62,230,000
              
              
              73,271,000Total
                  liabilities and stockholders' equity
              
              $
              63,545,000
              
              $
              88,363,000
  The
                accompanying notes are an integral part of these statements.
 F-3
 *Table
            of Contents*
 
 **VESTIN
                  REALTY MORTGAGEI, INC.****(SUCCESSOR
                  TO VESTIN FUND I, LLC)****STATEMENTS
                  OF OPERATIONS****FOR
                  THE TEN MONTH TRANSITION PERIOD ENDED**
              
              **FOR
                  THE NINE MONTH TRANSITION PERIOD ENDED**
              
              **FOR
                  THE YEAR END****April
                  30, 2006**
              
              **June
                  30, 2005**
              
              **September
                  30, 2004**
              
              **September
                  30, 2003****Revenues**Interest
                  income from investment in real estate loans
              
              $
              4,144,000
              
              $
              4,303,000
              
              $
              7,519,000
              
              $
              9,194,000Gain
                  on sale of real estate held for sale
              
              
              521,000
              
              
              1,072,000
              
              
              -
              
              
              -Gain
                  on sale of marketable securities
              
              
              47,000
              
              
              -
              
              
              -
              
              
              -Revenue
                  related to the sale of real estate
              
              
              -
              
              
              -
              
              
              4,667,000
              
              
              -Other
                  income
              
              
              472,000
              
              
              694,000
              
              
              480,000
              
              
              1,171,000Total
                  revenues
              
              
              5,184,000
              
              
              6,069,000
              
              
              12,666,000
              
              
              10,365,000**Operating
                  expenses**Management
                  fees-related party
              
              
              230,000
              
              
              201,000
              
              
              255,000
              
              
              253,000Provision
                  for loan loss
              
              
              3,000,000
              
              
              1,296,000
              
              
              100,000
              
              
              400,000Interest
                  expense
              
              
              176,000
              
              
              408,000
              
              
              1,789,000
              
              
              1,121,000Loss
                  on sale of real estate held for sale
              
              
              -
              
              
              400,000
              
              
              463,000
              
              
              -Write
                  down on real estate held for sale
              
              
              -
              
              
              1,271,000
              
              
              535,000
              
              
              3,383,000Write
                  off of deferred bond offering costs
              
              
              -
              
              
              -
              
              
              -
              
              
              204,000Expenses
                  related to real estate held for sale
              
              
              220,000
              
              
              708,000
              
              
              597,000
              
              
              467,000Professional
                  Fees
              
              
              310,000
              
              
              411,000
              
              
              225,000
              
              
              190,000Professional
                  fees - related parties
              
              
              167,000
              
              
              83,000
              
              
              5,000
              
              
              5,000Other
              
              
              31,000
              
              
              163,000
              
              
              130,000
              
              
              31,000Total
                  operating expenses
              
              
              4,134,000
              
              
              4,941,000
              
              
              4,099,000
              
              
              6,054,000**NET
                  INCOME**
              
              $
              1,050,000
              
              $
              1,128,000
              
              $
              8,567,000
              
              $
              4,311,000Net
                  income allocated to members
              
              $
              1,050,000
              
              $
              1,128,000
              
              $
              8,567,000
              
              $
              4,311,000Net
                  income allocated to members per weighted average membership
                  units
              
              $
              0.14
              
              $
              0.14
              
              $
              1.03
              
              $
              0.45Weighted
                  average membership units
              
              
              7,369,224
              
              
              7,919,354
              
              
              8,339,404
              
              
              9,668,310
  The
              accompanying notes are an integral part of these
              statements.
 F-4
 *Table
            of Contents*
 
 **VESTIN
                  REALTY MORTGAGEI, INC.****(SUCCESSOR
                  TO VESTIN FUND I, LLC)****STATEMENT
                  OF STOCKHOLDERS' EQUITY****FROM
                  SEPTEMBER 30, 2003 TO APRIL 30, 2006****Units**
              
              **Amount**Members’
                  equity at September 30, 2003
              
              
              9,124,566
              
              $
              86,515,000Distributions
              
              
              
              
              
              (5,098,000
              )Reinvestments
                  of distributions
              
              
              85,761
              
              
              857,000Members’
                  redemptions
              
              
              (856,270
              )
              
              (8,563,000
              )Net
                  income
              
              
              
              
              
              8,567,000Members’
                  equity at September 30, 2004
              
              
              8,354,057
              
              
              82,278,000Distributions
              
              
              
              
              
              (3,694,000
              )Reinvestments
                  of distributions
              
              
              48,930
              
              
              489,000Members’
                  redemptions
              
              
              (716,664
              )
              
              (6,930,000
              )Net
                  income
              
              
              
              
              
              1,128,000Members’
                  equity at June 30, 2005
              
              
              7,686,323
              
              
              73,271,000Distributions
              
              
              
              
              
              (4,128,000
              )Reinvestments
                  of distributions
              
              
              32,281
              
              
              323,000Members'
                  redemptions
              
              
              (849,864
              )
              
              (8,286,000
              )Net
                  income
              
              
              
              
              
              1,050,000Stockholders'
                  equity at April 30, 2006
              
              
              6,868,740
              
              $
              62,230,000
  The
              accompanying notes are an integral part of these
              statements.
 F-5
 *Table
            of Contents*
 
 **VESTIN
                  REALTY MORTGAGEI, INC.****(SUCCESSOR
                  TO VESTIN FUND I, LLC)****STATEMENTS
                  OF CASH FLOWS****FOR
                  THE TEN MONTH TRANSITION PERIOD ENDED**
              
              **FOR
                  THE NINE MONTH TRANSITION PERIOD ENDED**
              
              **FOR
                  THE YEAR END****April
                  30, 2006**
              
              **June
                  30, 2005**
              
              **September
                  30, 2004**
              
              **September
                  30, 2003****Cash
                  flows from operating activities:**Net
                  income
              
              $
              1,050,000
              
              $
              1,128,000
              
              $
              8,567,000
              
              $
              4,311,000Adjustments
                  to reconcile net income to net cash provided by operating
                  activities:Provision
                  of doubtful accounts related to receivable
              
              
              (17,000
              )
              
              --
              
              
              --
              
              
              --Write
                  down of real estate held for sale
              
              
              -
              
              
              1,271,000
              
              
              --
              
              
              3,259,000Write
                  off of deferred bond offering costs
              
              
              -
              
              
              -
              
              
              --
              
              
              204,000Gain
                  on sale of real estate held for sale
              
              
              (519,000
              )
              
              (1,072,000
              )
              
              --
              
              
              ---Loss
                  on sale of real estate held for sale
              
              
              -
              
              
              400,000
              
              
              998,000
              
              
              3,247,000Provision
                  for loan losses
              
              
              3,000,000
              
              
              1,296,000
              
              
              100,000
              
              
              400,000Gain
                  on sale of marketable securities
              
              
              (47,000
              )
              
              --
              
              
              --
              
              
              --Change
                  in operating assets and liabilities:Interest
                  and other receivables
              
              
              (30,000
              )
              
              612,000
              
              
              226,000
              
              
              (450,000
              )Due
                  to Manager
              
              
              (885,000
              )
              
              270,000
              
              
              260,000
              
              
              272,000Due
                  to Vestin Group
              
              
              (2,000
              )
              
              (3,000
              )
              
              (127,000
              )
              
              476,000Due
                  to Fund II
              
              
              (1,560,000
              )
              
              81,000
              
              
              4,102,000
              
              
              --Due
                  to Fund III
              
              
              (6,000
              )
              
              6,000
              
              
              --
              
              
              --Note
                  receivable form manager
              
              
              --
              
              
              --
              
              
              --
              
              
              724,000Allowance
                  for loan losses
              
              
              (95,000
              )
              
              --
              
              
              --
              
              
              --Prepaid
                  expenses
              
              
              --
              
              
              -
              
              
              8,000
              
              
              (8,000
              )Accounts
                  payable and accrued liabilities
              
              
              (81,000
              )
              
              92,000
              
              
              327,000
              
              
              23,000Net
                  cash provided by operating activities
              
              
              808,000
              
              
              4,081,000
              
              
              14,461,000
              
              
              12,458,000**Cash
                  flows from investing activities:**Investments
                  in real estate loans
              
              
              (27,830,000
              )
              
              (20,565,000
              )
              
              (39,473,000
              )
              
              (17,298,000
              )Purchase
                  of investments in real estate loans including interest receivable
                  of
                  $515,000.
              
              
              (5,408,000
              )
              
              --
              
              
              --
              
              
              --Purchase
                  of investments in real estate loans from:Fund
                  II
              
              
              (500,000
              )
              
              (600,000
              )
              
              --
              
              
              (14,470,000
              )Vestin
                  Mortgage
              
              
              --
              
              
              --
              
              
              --
              
              
              (479,000
              )Other
                  related parties
              
              
              --
              
              
              --
              
              
              (350,000
              )
              
              (6,509,000
              )Proceeds
                  from loan payoff
              
              
              36,315,000
              
              
              11,490,000
              
              
              35,011,000
              
              
              35,079,000Principal
                  payments on real estate held for sale-seller financed
              
              
              2,585,000
              
              
              --
              
              
              --
              
              
              --Sale
                  of investments in real estate loans to:Fund
                  II
              
              
              8,800,000
              
              
              --
              
              
              --
              
              
              13,112,000Vestin
                  Group
              
              
              --
              
              
              --
              
              
              --
              
              
              4,500,000Other
                  related parties
              
              
              --
              
              
              --
              
              
              --
              
              
              291,000Third
                  party
              
              
              462,000
              
              
              --
              
              
              5,528,000
              
              
              1,030,000Proceeds
                  from sale of investment in real estate
              
              
              4,227,000
              
              
              8,245,000
              
              
              --
              
              
              1,600,000Proceeds
                  from note receivable
              
              
              17,000
              
              
              --
              
              
              --
              
              
              --Purchase
                  of marketable securities
              
              
              (3,565,000
              )
              
              --
              
              
              --
              
              
              --Proceeds
                  from sale of marketable securities
              
              
              3,612,000
              
              
              --
              
              
              --
              
              
              --Cash
                  outlays for real estate held for sale
              
              
              --
              
              
              --
              
              
              (5,350,000
              )
              
              --Proceeds
                  from redemptions of certificates of deposit
              
              
              --
              
              
              --
              
              
              875,000
              
              
              --Deposit
                  liability
              
              
              438,000
              
              
              516,000
              
              
              223,000
              
              
              28,000Net
                  cash provided (used) by investing activities
              
              $
              19,153,000
              
              $
              (914,000
              )
              $
              (3,536,000
              )
              $
              16,884,000
  The
              accompanying notes are an integral part of these
              statements.
 F-6
 *Table
            of Contents*
 **VESTIN
                    REALTY MORTGAGE I, INC.****(SUCCESSOR
                    TO VESTIN FUND I, LLC)****STATEMENTS
                    OF CASH FLOWS****FOR
                    THE TEN MONTH TRANSITION PERIOD ENDED**
                
                **FOR
                    THE NINE MONTH TRANSITION PERIOD ENDED**
                
                **FOR
                    THE YEAR END****April
                    30, 2006**
                
                **June
                    30, 2005**
                
                **September
                    30, 2004**
                
                **September
                    30, 2003****Cash
                    flows from financing activities:**Payment
                    on note payable
                
                $
                (881,000
                )
                $
                --
                
                $
                (2,000,000
                )
                $
                --Proceeds
                    from issuance of note payable
                
                
                881,000
                
                
                --
                
                
                --
                
                
                --Members'
                    distributions, net of reinvestments
                
                
                (3,750,000
                )
                
                (3,159,000
                )
                
                (4,196,000
                )
                
                (7,948,000
                )Members'
                    distributions, net of reinvestments-related party
                
                
                (55,000
                )
                
                (46,000
                )
                
                (45,000
                )
                
                (101,000
                )Members'
                    redemptions
                
                
                (8,286,000
                )
                
                (6,930,000
                )
                
                (8,562,000
                )
                
                (10,348,000
                )Net
                    cash used in financing activities
                
                
                (12,091,000
                )
                
                (10,135,000
                )
                
                (14,803,000
                )
                
                (18,397,000
                )**NET
                    CHANGE IN CASH**
                
                
                7,870,000
                
                
                (6,968,000
                )
                
                (3,878,000
                )
                
                10,945,000**Cash,
                    beginning of period**
                
                
                2,862,000
                
                
                9,830,000
                
                
                13,708,000
                
                
                2,763,000**Cash,
                    end of period**
                
                $
                10,732,000
                
                $
                2,862,000
                
                $
                9,830,000
                
                $
                13,708,000**Supplemental
                    disclosures of cash flows information:**Non-cash
                    investing and financing activities:Loans
                    funded through secured borrowing
                
                $
                1,665,000
                
                $
                8,830,000
                
                $
                30,233,000
                
                $
                31,457,000Loan
                    payoffs of loans funded through secured borrowings
                
                $
                13,056,000
                
                $
                3,574,000
                
                $
                44,422,000
                
                $
                17,771,000Real
                    estate held for sale acquired through foreclosure
                
                $
                --
                
                $
                2,149,000
                
                $
                6,581,000
                
                $
                36,920,000Reduction
                    in Note Payable to Fund II due to valuation allowance on real
                    estate held
                    for sale
                
                $
                --
                
                $
                --
                
                $
                455,000
                
                $
                --Sale
                    of real estate held for sale where we provide the
                    financing
                
                $
                886,000
                
                $
                --
                
                $
                7,910,000
                
                $
                --Issuance
                    of note receivable related to sale of real estate held for
                    sale
                
                $
                171,000
                
                $
                --
                
                $
                --
                
                $
                --Investment
                    in real estate held for sale reclassified from interest
                    receivable
                
                $
                --
                
                $
                33,000
                
                $
                --
                
                $
                --Loans
                    rewritten with same or similar property as collateral
                
                $
                57,000
                
                $
                868,000
                
                $
                5,759,000
                
                $
                14,348,000Deferred
                    offering cost paid by Manager
                
                $
                --
                
                $
                --
                
                $
                --
                
                $
                125,000Investments
                    in real estate loans acquired for investments in real estate
                    held for
                    sale
                
                $
                --
                
                $
                --
                
                $
                --
                
                $
                479,000Note
                    receivable related to capital contribution by Manager
                
                $
                --
                
                $
                --
                
                $
                --
                
                $
                724,000In
                    substance payoff of payable to Manager related to capital contribution
                    by
                    Manger
                
                $
                --
                
                $
                --
                
                $
                --
                
                $
                876,000Sale
                    of right to receive proceeds of guarantee
                
                $
                --
                
                $
                --
                
                $
                --
                
                $
                3,084,000Note
                    receivable from guarantor in exchange for release of
                    guarantee
                
                $
                --
                
                $
                --
                
                $
                119,000
                
                $
                --
 The
              accompanying notes are an integral part of these
              statements.
 F-7
 *Table
            of Contents*
 
 **VESTIN
        REALTY MORTGAGEI, INC.**
 **(SUCCESSOR
        TO VESTIN FUND I, LLC)**
 
 **NOTES
        TO FINANCIAL STATEMENTS**
 
 **APRIL
        30, 2006**
 
 **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 real estate loans. Vestin
        Realty Mortgage I, Inc. (the “Registrant”) 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 the Registrant and the members of Fund I
        received one share of the Registrant’s common stock for each membership unit of
        Fund I. This report is filed by the Registrant as the successor to Fund I.
        References in this report to the “Company”, “we”, “us” or “our” refer to Fund I
        with respect to the period ending on April 30, 2006 and to the Registrant
        with
        respect to the period commencing on May 1, 2006. Because we were a limited
        liability company during the periods reflected in this report, we make reference
        to our “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 as “deeds of trust”). We commenced operations in August
        2000.
 
 We
        intend
        to 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 st year
        end.
 
 Our
        Manager is Vestin Mortgage, Inc. (the “Manager” or “Vestin Mortgage”), a Nevada
        corporation and licensed mortgage broker engaged in the business of brokerage,
        placement and servicing of commercial loans secured by real property. Our
        Manager is a wholly owned subsidiary of Vestin Group, Inc., a Delaware
        corporation (“Vestin Group”) wholly owned by Michael V. Shustek, the CEO and
        director of the Manager. Through its subsidiaries, Vestin Group is engaged
        in
        asset management, real estate lending and other financial services.
 
 Pursuant
        to a Management Agreement, the Manager controls the daily operating activities
        of the Company, including the power to assign duties, to determine how to
        invest
        our assets, to sign bills of sale, title documents, leases, notes, security
        agreements, mortgage investments and contracts, and to direct our business
        operations. As a result, our operating results are dependent upon the 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., as
        the
        successor by merger to Vestin Fund II, LLC, referred to as “Fund II”, Vestin
        Fund III, LLC (“Fund III”) and inVestin Nevada, Inc., a company wholly owned by
        our Manager’s CEO. These entities also invest in commercial real estate
        loans.
 
 **NOTE
        B — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**
 
 **Change
        in Year End**
 
 On
        May 1,
        2006, Vestin Fund I, LLC merged into Vestin Realty Mortgage I, Inc. Prior
        to the
        merger, Vestin Fund I had a June 30 fiscal year end. Accordingly, the financial
        information reflects the results for the ten month transition period ended
        April
        30, 2006.
  F-8
 *Table
            of Contents*
  The
        following table presents certain comparative transition period financial
        information for the ten months ended April 30, 2006 and 2005.
 
 **Ten
                  Months Ended April 30,****2006**
              
              **2005****(Unaudited)**Revenue
              
              $
              5,184,000
              
              $
              5,482,000Operating
                  Expenses
              
              
              4,134,000
              
              
              3,592,000Net
                  Income
              
              $
              1,050,000
              
              $
              1,890,000Net
                  Income Allocated to members per weighted average membership
                  units
              
              $
              0.14
              
              $
              0.23Weighted
                  average membership units
              
              
              7,369,217
              
              
              8,098,728
 
 **Management
        Estimates**
 
 The
        preparation of 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 financial statements and the reported amounts of revenues and expenses
        during the reporting period. Actual results could differ from those
        estimates.
 
 **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 recognize 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**
 
 The
        Company may from time to time acquire or sell investments in real estate
        loans
        from or to the Manager or other related parties pursuant to the terms of
        the
        Company's Management Agreement provided the price does not exceed the original
        cost. 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 the Company's capital. Selling or buying
        loans allows the Company to diversify its loan portfolio within these
        parameters. Due to the short term nature of the loans the Company makes and
        the
        similarity of interest rates in loans the Company 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.
  F-9
 *Table
            of Contents*
  Investments
        in real estate loans are secured by deeds of trust or mortgages (hereafter
        referred to as “deeds of trust”). 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 made. If there is less security
        and a default occurs, we may not recover the full amount of the
        loan.
 
 As
        of
        April 30, 2006, 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, with the
        exception of one of our loans which includes principal and interest payments.
        As
        of April 30, 2006, the loan had a balance of approximately $7.6 million and
        had
        a term of thirty-six months, maturing in the next 17 months. In addition,
        we
        invest in real estate loans which require borrowers to maintain interest
        reserves funded from the principal amount of the loan for a period of time.
        At
        April 30, 2006, we had $5.8 investments in real estate loans which had interest
        reserves where the total outstanding principal was approximately $29.6 million,
        including participating lenders. These loans had interest reserves of
        approximately $1.3 million, of which our portion is $0.2 million. At June
        30,
        2005, we had $13.5 million in investments in real estate loans that had interest
        reserves where the total outstanding principal was approximately $67.8 million,
        including participating lenders. These loans had interest reserves of
        approximately $3.7 million, of which our portion was $0.6 million.
 
 **Allowance
        for Loan Losses**
 
 We
        maintain an allowance for loan losses on our investments in real estate loans
        for estimated credit impairment. The 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.
 
 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 non-conventional
        lender willing to invest in loans to borrowers who may not meet the credit
        standards of conventional lenders, the default rate on our loans could be
        higher
        than those generally experienced in the real estate lending industry. We
        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 the 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 have caused significant
        changes in our estimated allowance include:
  F-10
 *Table
            of Contents*
  
 ·
            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, the Company seeks to identify
        potential purchasers of such property. It is not the Company's intent to
        invest
        in or own real estate as a long-term investment. In accordance with Statement
        of
        Financial Accounting Standards 144 - *Accounting
        for the Impairment or Disposal of Long Lived Assets* (“FAS
        144”), ** the
        Company seeks 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; 
 ·
            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**
 
 The
        Company occasionally finances sales of foreclosed properties to independent
        third parties. In order to record a sale of real estate when the seller is
        providing continued financing, Statement of Financial Accounting Standards
        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.
  F-11
 *Table
            of Contents*
  Because
        the Company occasionally forecloses on loans with raw land or developments
        in
        progress, available financing for such properties is often limited and the
        Company frequently provides financing up to 100% of the selling price on
        these
        properties. In addition, the Company 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 balance sheet.
 
 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**
 
 Statement
        of Financial Accounting Standards 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. The Company's operations involve foreclosing on real estate when
        necessary and the Company considers these operating results to be part of
        the
        Company's continuing operations. Accordingly, expenses related to real estate
        held for sale have been included on the accompanying statements of income,
        net
        of related rental income when applicable.
 
 **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 revenues for entering into secured borrowing arrangements.
        Loans
        in which third party investors have participated through inter-creditor
        agreements (“Inter-creditor Agreements”) are accounted for as secured borrowings
        in accordance with Statement of Financial Accounting Standards 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
        mortgage loans whereby a third party investor (the “Investor”) may participate
        on a senior basis in certain mortgage loans with us and/or Fund 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.
 
 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. The Company does not receive
        any
        revenues for entering into secured borrowing arrangements.
 
 **Marketable
        Securities**
 
 Investments
        in marketable securities consist of bonds secured by real estate and mortgage
        backed securities. The securities are stated at market value as determined
        by
        the most recently traded price of each security at the balance sheet date.
        All
        marketable securities are classified as available-for-sale securities under
        the
        provisions of Statement of Financial Accounting Standards 115, *Accounting
        for Certain Investments in Debt and Equity Securities* (“FAS
        115”).
  F-12
 *Table
            of Contents*
  The
        appropriate classification of investments in marketable securities is determined
        at the time of purchase and such determination is reevaluated at each balance
        sheet date. Securities that are bought and held principally for the purpose
        of
        selling them in the near term are classified as trading securities, and
        unrealized holding gains and losses are included in earnings. Debt securities
        for which the Company does not have the intent or ability to hold to maturity,
        and equity securities are classified as available-for-sale. Available-for-sale
        securities are carried at fair value, with the unrealized gains and losses
        reported in other comprehensive income.
 
 **Fair
        Value of Financial Instruments**
 
 Statement
        of Financial Accounting Standards 107, *Disclosures
        about Fair Value of Financial Instruments* (“FAS
        107”), requires the determination of fair value of the Company’s financial
        assets. The following methods and assumptions were used to estimate the fair
        value of financial statements 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
        April
        30, 2006 and June 30, 2005, the estimated fair values of the real estate
        loans
        were approximately $46.7 million and $66.2 million, respectively. At April
        30,
        2006, we had no assets under secured borrowings and at June 30, 2005, the
        estimated fair values of assets under secured borrowings were approximately
        $11.4 million. 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.
 
 **Net
        Income Allocated to Members Per Weighted Average Membership
        Unit**
 
 Net
        income allocated to members per weighted average membership unit is computed
        by
        dividing net income calculated in accordance with GAAP by the weighted average
        number of membership units outstanding for the period.
 
 **Segments**
 
 We
        operate as one business segment.
 
 **Income
        Taxes**
 
 Since
        we
        were a Limited Liability Company during the periods reflected in this report,
        the income tax effects resulting from the Company’s operations pass through to
        the members individually and, accordingly, no provision for income taxes
        is
        included in the financial statements as of April 30, 2006.
  F-13
 *Table
            of Contents*
  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, extends 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 Fund I’s taxable income attributable to its realized net
        interest income.
 
 **Reclassifications**
 
 Certain
        reclassifications have been made to the prior periods’ 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 trust deeds.
 
 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 on
        cash.
        As of April 30, 2006 and June 30, 2005, we had $11.1 million and $3.0 million,
        respectively, in excess of the federally insured limits.
 
 As
        of
        April 30, 2006, 26% of our real estate loans were in Nevada compared to 36%
        at
        June 30, 2005 and 17% of our real estate loans were in California compared
        to
        29% at June 30, 2005. Additionally, as of April 30, 2006; 17% of our loans
        were
        in Hawaii compared to 6% at June 30, 2005 and 9% of our loans were in Washington
        compared to 0% at June 30, 2005. As a result of this geographical concentration
        of our real estate loans, a downturn in the local real estate markets in
        Nevada,
        California, Hawaii and/or Washington could have a material adverse effect
        on
        us.
 
 At
        April
        30, 2006, the aggregate amount of loans to our three largest borrowers
        represented 39.77% of our total investment in real estate loans. These real
        estate loans consisted of commercial and acquisition and development loans,
        located in California, Hawaii and Nevada, with a first lien position, earning
        between 5% and 14%, with an aggregate outstanding balance of approximately
        $21.3
        million and maturing through September 2007. At June 30, 2005, the aggregate
        amount of loans to our three largest borrowers represented 30% of our total
        investment in real estate loans. These real estate loans consisted of commercial
        loans located in Arizona and Nevada, with a first lien position, earning
        between
        5% and 12%, with an aggregate outstanding balance of approximately $20.5
        million. Because we have a significant concentration of credit risk with
        our
        three largest borrowers, a default by any of such borrowers could have a
        material adverse effect on us.
 
 As
        of
        April 30, 2006, all of our real estate loans will require the borrower to
        make a
        balloon payment of the principal at maturity. 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**
 
 We
        have
        four real estate loan products, as of April 30, 2006 and June 30, 2005,
        consisting of commercial, construction, acquisition and development, and
        land.
        The effective interest rates on all product categories range from 5% to 14%.
        Revenue by product will fluctuate based upon relative balances during the
        period.
  F-14
 *Table
            of Contents*
  Investments
        in real estate loans as of April 30, 2006 are as follows:
 
 **Loan
                  Type**
              
              **Number
                  Of Loans**
              
              **Fund
                  Balance (2)**
              
              **Weighted
                  Average Interest Rate**
              
              **Portfolio
                  Percentage**
              
              **Weighted
                  Average Loan To Value (1)**Acquisition
                  and development
              
              
              3
              
              $
              6,603,000
              
              
              9.39%
              
              
              12.35%
              
              
              54.87%Commercial
              
              
              16
              
              
              35,752,000
              
              
              9.20%
              
              
              66.88%
              
              
              81.62%Construction
              
              
              3
              
              
              5,018,000
              
              
              12.00%
              
              
              9.39%
              
              
              61.31%Land
              
              
              3
              
              
              6,081,000
              
              
              12.45%
              
              
              11.38%
              
              
              48.35%25
              
              $
              53,454,000
              
              
              9.85%
              
              
              100.00%
              
              
              72.62%
 
 Investments
        in real estate loans as of June 30, 2005 are as follows:
 
 **Loan
                  Type**
              
              **Number
                  Of Loans**
              
              **Fund
                  Balance (2)**
              
              **Weighted
                  Average Interest Rate**
              
              **Portfolio
                  Percentage**
              
              **Weighted
                  Average Loan To Value (1)**Acquisition
                  and development
              
              
              4
              
              $
              7,272,000
              
              
              8.49%
              
              
              10.82%
              
              
              71.05%Commercial
              
              
              15
              
              
              38,439,000
              
              
              10.02%
              
              
              57.25%
              
              
              64.16%Construction
              
              
              3
              
              
              3,712,000
              
              
              9.40%
              
              
              5.53%
              
              
              69.94%Land
              
              
              7
              
              
              17,725,000
              
              
              12.89%
              
              
              26.40%
              
              
              61.67%29
              
              $
              67,148,000
              
              
              10.58%
              
              
              100.00%
              
              
              64.56%
 
 (1)
            Loan
                to value ratios are based on the most recent appraisals and may not
                reflect subsequent changes in value estimates. 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 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
                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 Balance Sheet. The contra accounts represent
                the
                amount of real estate held for sale sold to third parties where the
                Company provided financing. GAAP requires the borrower to have a
                certain
                percentage equity ownership (ranging from 10% to 25%) to allow the
                Company
                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.  F-15
 *Table
            of Contents*
  
 **April
                  30, 2006 Balance**
              
              **June
                  30, 2005 Balance**Balance
                  Per Loan Portfolio
              
              $53,454,000
              
              $67,148,000Less:Seller
                  Financed Loans Included in Real Estate Held for Sale
              
              
              (8,797,000
              )
              
              (10,374,000
              )Proceeds
                  of Principal on Seller Financed Loans Included in Deposit
                  Liability
              
              
              263,000
              
              
              --Unrealized
                  Gain on Seller Financed Loans
              
              
              (144,000
              )
              
              --Allowance
                  for Loan Losses
              
              
              (4,801,000
              )
              
              (1,896,000
              )Balance
                  per Balance Sheet
              
              $
              39,975,000
              
              $
              54,878,000
 
 The
        following is a schedule of priority of real estate loans as of April 30,
        2006
        and June 30, 2005:
 
 **Loan
                  Type**
              
              **Number
                  of Loans**
              
              **April
                  30, 2006**
                **Balance***
              
              **Portfolio**
                **Percentage**
              
              **Number
                  of Loans**
              
              **June
                  30, 2005**
                **Balance***
              
              **Portfolio**
                **Percentage**First
                  Deeds of Trust
              
              
              24
              
              $
              53,416,000
              
              
              99.93%
              
              
              28
              
              $
              66,645,000
              
              
              99.25%Second
                  Deeds of Trust**
              
              
              1
              
              
              38,000
              
              
              0.07%
              
              
              1
              
              
              503,000
              
              
              0.75%25
              
              $
              53,454,000
              
              
              100.00%
              
              
              29
              
              $
              67,148,000
              
              
              100.00%
 
 *
        Please
        see note (2) above
 **
        Generally, our second trust deeds are junior to a first trust deed position
        held
        by either us or our Manager.
 
 The
        following is a schedule of contractual maturities of investments in real
        estate
        loans as of April 30, 2006:
 
 May
                  - December 2006
              
              $
              33,986,000January
                  - December 2007
              
              
              19,468,000$
              53,454,000
 
 The
        following is a schedule by geographic location of investments in real estate
        loans as of April 30, 2006 and June 30, 2005:
 
 **April
                  30, 2006 Balance***
              
              **Portfolio
                  Percentage**
              
              **June
                  30, 2005 Balance***
              
              **Portfolio
                  Percentage**Arizona
              
              $
              3,530,000
              
              
              6.60%
              
              $
              13,063,000
              
              
              19.45%California
              
              
              8,924,000
              
              
              16.70%
              
              
              19,794,000
              
              
              29.48%Hawaii
              
              
              9,307,000
              
              
              17.41%
              
              
              4,139,000
              
              
              6.16%Nevada
              
              
              13,721,000
              
              
              25.67%
              
              
              24,428,000
              
              
              36.38%New
                  York
              
              
              3,249,000
              
              
              6.08%
              
              
              3,320,000
              
              
              4.94%Oklahoma
              
              
              2,636,000
              
              
              4.93%
              
              
              1,237,000
              
              
              1.84%Oregon
              
              
              3,200,000
              
              
              5.99%
              
              
              --
              
              
              --%Texas
              
              
              2,167,000
              
              
              4.05%
              
              
              1,167,000
              
              
              1.75%Washington
              
              
              4,720,000
              
              
              8.83%
              
              
              --
              
              
              --%Wisconsin
              
              
              2,000,000
              
              
              3.74%
              
              
              --
              
              
              --%Total
              
              $
              53,454,000
              
              
              100.00%
              
              $
              67,148,000
              
              
              100.00%
 
 *
        Please
        see note (2) above
  F-16
 *Table
            of Contents*
  At
        April
        30, 2006, three of our loans totaling approximately $7.8 million were
        non-performing, net of allowance for loan losses of approximately $4.8 million,
        (more than 90 days past due on interest payments or past due on principal).
        These loans have been placed on non-accrual of interest status. We commenced
        foreclosure proceedings on these loans identified as the Mid-State and RightStar
        loans. The following schedule summarizes the non-performing loans:
 
 **Description
                  of Collateral**
              
              **Balance
                  April 30, 2006**
              
              **Maturity
                  Date**
              
              **Number
                  of Months Non-Performing**
              
              **Percentage
                  of Total**
                **Loan
                  Balance**4
                  cemeteries and 8 mortuaries in Hawaii Part I***
              
              $
              4,415,000
              
              
              03/31/2004
              
              
              25
              
              
              21.00%
                  of Part I4
                  cemeteries and 8 mortuaries in Hawaii Part II***
              
              
              4,892,000
              
              
              03/31/2004
              
              
              25
              
              
              35.00%
                  of Part IIRacetrack
                  and hotel in Vernon, NY(3)
              
              
              3,249,000
              
              
              06/30/2005
              
              
              21
              
              
              12.50%$
              12,556,000
 
 (3)
            On
                May 1, 2006 the bankruptcy plan of Mid-State Raceway, Inc for Vernon
                Downs
                became effective. As a result of the bankruptcy plan, we and Fund
                II
                received the following: 
 ·
            New
                first deed of trust from the buyer, Vernon Downs Acquisition, LLC,
                approximating $22.8 million, of which our portion is approximately
                $3.2
                million. The new terms reflect a $1.2 million principal reduction,
                reducing our principal balance by approximately $171,000. The transaction
                resulted in our recording unearned revenue of approximately $171,000.
                The
                terms of the loan are 9% due in 6 months, with an option to extend
                for an
                additional 6 months for a fee. 
 ·
            The
                loan is secured by a first trust deed on Vernon Downs properties
                and a
                150% personal guarantee by the borrowers. 
 ·
            Prepayment
                of interest in the aggregate amount of $500,000, of which our portion
                is
                approximately $71,000. 
 ·
            Delay
                fees from the date of the bankruptcy confirmation until the effective
                date
                in the aggregate amount of $287,000 of which our portion is approximately
                $41,000. 
 ·
            Payment
                of past due forbearance fees of approximately $555,000 of which our
                portion is approximately $79,000. 
 ***
        Please refer to note (4) *Specific
        Reserve Allowance* below.
 
 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 April 30, 2006, we have provided a specific reserve related to the four
        cemeteries and eight mortuaries in Hawaii, of which our portion of the specific
        reserve is $4.8 million. Our Manager evaluated the 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.
 
 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 Members.
  F-17
 *Table
            of Contents*
  The
        following is a roll-forward of the allowance for loan losses for the ten
        months
        ended April 30, 2006:
 
 **Description**
              
              **Balance**
                **June
                  30, 2005**
              
              **Specific
                  Reserve Allocation**
              
              **RightStar
                  Legal Reserve**
              
              **Balance**
                **April
                  30, 2006**General
                  Valuation Allowance
              
              $
              671,000
              
              $
              (671,000
              )
              $
              --
              
              $
              --Specific
                  allowance (4)
              
              
              1,225,000
              
              
              3,671,000
              
              
              (95,000
              )
              
              4,801,000Total
              
              $
              1,896,000
              
              $
              3,000,000
              
              $
              (95,000
              )
              $
              4,801,000
 
 **(4)**
            **Specific
                Reserve Allowance** 
 *RightStar
        Loan Allowance* -RightStar, Inc. (“RightStar”) defaulted on the loan in the fall of 2004. The
        lenders commenced a judicial foreclosure on the loan which is secured by
        a lien
        on the business and virtually all of the property of RightStar, which includes
        four cemeteries and eight mortuaries in Hawaii. The aggregate principal balance
        of the loan is approximately $32 million. The loan is owned as
        follows:
 
 **Senior
                  Portion**
              
              **Junior
                  Portion**
              
              **Total**Fund
                  I
              
              $
              4,892,000
              
              $
              4,415,000
              
              $
              9,307,000Fund
                  II
              
              
              9,108,000
              
              
              8,183,000
              
              
              17,291,000Sunset
                  Financial Resources, Inc.
              
              
              --
              
              
              5,657,000
              
              
              5,657,000**Total**
              
              $
              14,000,000
              
              $
              18,255,000
              
              $
              32,255,000
 
 The
        loan
        is 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 (including default
                rate
                interest); 
 ·
            Third
                to pay past due interest on the Junior Principal (including default
                rate
                interest); 
 ·
            Fourth
                to pay Senior Principal; and 
 ·
            Fifth
                to pay Junior Principal. 
 We
        and
        Fund 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 Fund 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.
 
 Sunset
        Financial Resources, Inc. filed a complaint in the United States District
        Court
        of Nevada against Owens and Vestin Mortgage Inc. (“Vestin”) seeking a rescission
        of the buy-out alleging the buy-out leaves Sunset Financial Resources, Inc.
        as a
        non-priority lender under the intercreditor Agreement. Vestin intends to
        vigorously defend itself against this complaint and cannot predict the outcome
        at this time.
 
 RightStar
        is currently being operated by a Court appointed Receiver, installed at the
        request of the lenders. A Special Master appointed by the State of Hawaii
        is
        currently administering the pre-need and perpetual care trust
        funds.
  F-18
 *Table
            of Contents*
  Foreclosure
        proceedings are being delayed by the State of Hawaii which has refused to
        issue
        licenses to potential buyers or the lenders to: (1) operate the facility,
        (2)
        operate a pre-need program and (3) operate a perpetual care program. During
        the
        ten month transition period ended April 30, 2006, the State of Hawaii notified
        the lenders of a potential statutory trust fund deficiency, estimated between
        $20 and $30 million and claimed that this balance has priority over all lenders.
        The lenders dispute the amount and priority of this deficit. On April 20,
        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. On April 24, 2006, the State of Hawaii responded
        by
        filing allegations against Vestin Mortgage, Inc., and Fund II alleging that
        these Vestin entities improperly influenced the former RightStar trustees
        to
        transfer trust funds to Vestin. Our Manager believe these claims to be without
        merit and intend to vigorously defend those allegations. The outcome of this
        litigation is unforeseeable at this time. We cannot estimate when the
        foreclosure will ultimately be completed or when the lenders may obtain title
        to
        the underlying properties.
 
 We
        have
        evaluated the estimated value of the underlying collateral, the potential
        trust
        fund deficit, and the expected cost and length of litigation. Based on this
        estimate we increased our total specific reserve allowance for loss by
        approximately $3 million during the ten month transition period ended April
        30,
        2006 and specifically allocated our general allowance of approximately $0.7
        million to the RightStar loans, bringing our specific reserve allowance to
        a
        total of approximately $4.8 million. The increase in the reserve allowance
        includes approximately $0.5 million for estimated litigation fees and expenses
        which we anticipate incurring in enforcing our rights against the underlying
        collateral. We will continue to evaluate our position in the RightStar loan
        as
        the situation progresses.
 
 In
        addition, our Manager had granted extensions on six 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 full compliance with the 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 April 30, 2006 was approximately $9.2 million. Our Manager
        concluded that no allowance for loan loss was necessary with respect to these
        loans as of April 30, 2006.
 
 **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 quarterly basis, the 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; F-19
 *Table
                of Contents*
 
 ·
              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 April 30, 2006, our Manager had provided $4.8 million as a specific
          allowance for loan losses. At April 30, 2006, three of our loans totaling
          approximately $7.8 million were non-performing, net of allowance for loan
          losses, (more than 90 days past due on principal or interest payments.)
          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**
 
 *Mortgage
        Backed Securities - Available for Sale*
 
 During
        the ten month transition period ended April 30, 2006, we purchased and sold
        approximately $3.6 million in mortgage backed securities realizing a gain
        of
        $47,000.
 
 At
        April
        30, 2006, we had no investment in mortgage-backed securities.
 
 **NOTE
        F — REAL ESTATE HELD FOR SALE**
 
 At
        April
        30, 2006, we held one property with a total carrying value of approximately
        $2.5
        million, which was acquired through foreclosure and recorded as investments
        in
        real estate held for sale. The summary below includes our percentage ownership
        in each property. 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. 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 for
        the
        ten month transition period ended April 30, 2006:
 
 **Description**
              **Date
                  Acquired**
              **Percentage
                  of Ownership**
              
              **Balance
                  at**
                **July
                  1, 2005**
              
              **Acquisitions
                  (Reductions)**
              
              **Seller
                  Financed Sales**
              
              **Sales**
              
              **Gain
                  on Sale of Real Estate**
              
              **Balance
                  At April 30, 2006**Land
                  containing 82 residential lots in Henderson, Nevada**(1)**
              2/28/2003
              66%
              $
              5,058,000
              $
              --
              $
              --
              $
              (2,561,000)
              $
              --
              $
              2,497,000126
                  unit, (207 bed) assisted living facility in Phoenix, Arizona**(1)**
              9/08/2004
              10%
              
              886,000
              
              --
              
              (886,000)
              
              --
              
              --
              
              --460
                  acre residential sub-division in Lake Travis, Texas**(1)**
              8/03/2004
              34%
              
              1,813,000
              
              --
              
              --
              
              (1,837,000)
              
              24,000
              
              --**Total**
              
              
              $
              7,757,000
              $
              --
              $
              (886,000)
              $
              (4,398,000)
              $
              24,000
              $
              2,497,000
 
  F-20
 *Table
            of Contents*
  
 **(1)**
              **Sales
                  for the Ten Months Ended April 30,
                  2006:**
 
 During
        July 2003, we and Fund II entered into an agreement for the sale of a portion
        of
        our interest in 40 acres of land containing 354 residential lots in Henderson,
        Nevada. The agreement required the buyer to purchase 138 lots for cash and
        gave
        the buyer an option to purchase the remaining 216 lots over the next three
        years
        at a predetermined price, which may be adjusted for potential value increases.
        Through April 30, 2006, the buyer has purchased 272 of the 354 lots. We and
        Fund
        II recorded a valuation adjustment for the transition period ended June 30,
        2005
        of $354,000 and $180,000, respectively, to write down the carrying value
        of our
        respective interest in the parcel to the amount corresponding to the negotiated
        sale and option price. During July 2005, the buyer exercised its option to
        purchase an additional 82 lots for approximately $3.85 million, of which
        we
        received approximately $2.56 million, resulting in no further gain or
        loss.
 
 During
        August 2005, we and Fund II sold the 126 unit (207 bed) assisted living facility
        in Phoenix, Arizona and financed 100% of the purchase price of which the
        terms
        include the following: a 12 month, $10.5 million, interest only loan; interest
        rate of 7.5% commencing six months following the date of the loan; our portion
        is $1,030,000. This transaction resulted in a $144,000 deferred gain, which
        will
        be recognized once the equity requirement has been met. We and Fund II wrote
        down the carrying value of the property in the quarter ended March 31, 2005
        by
        approximately $6.5 million. Upon loan payment we will recover a portion of
        the
        write down and do not expect to have any further gains or losses on the sale
        of
        this property.
 
 During
        December 2005, we and Fund II sold the 460 acre residential subdivision in
        Lake
        Travis, TX for $5.5 million, of which our portion was $1.8 million. The proceeds
        included a $500,000 note receivable, with an imputed interest rate of 8%,
        due in
        May 2006. A net gain of $71,000 resulted in this transaction, of which our
        portion was $24,000.
 
 **NOTE
        G — REAL ESTATE HELD FOR SALE - SELLER FINANCED**
 
 At
        April
        30, 2006, we held an interest in two **** properties
        with a total carrying value of $8.8 million, which have been sold in
        transactions where we provided the financing to the purchaser. GAAP requires
        us
        to include these properties in real estate held for sale until the borrower
        has
        met and maintained a certain percentage of equity ownership, which ranges
        from
        10% to 25%. We may share ownership of such properties with Fund II, Fund
        III,
        the Manager, or other related and/or unrelated parties. The summary below
        includes our percentage ownership in each property. 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 seller financed real estate
        held
        for sale for the ten month transition period ended April 30,
        2006:
  F-21
 *Table
            of Contents*
  
 **Description**
              **Date
                  Acquired**
              **Percentage
                  of Ownership**
              
              **Balance
                  at**
                **July
                  1, 2005**
              
              **Acquisitions**
              
              **Adjustments**
              
              **Principal
                  Payments Received from Borrower**
              
              **Balance
                  at**
                **April
                  30, 2006**An
                  approximately 200-unit apartment complex located in Las Vegas,
                  Nevada
              1/27/2003
              5%
              $
              171,000
              $
              --
              $
              --
              $
              (171,000)
              $
              --A
                  completed golf course and raw land in Mesquite, Nevada
              11/06/2002
              55%
              
              1,475,000
              
              --
              
              --
              
              (1,475,000)
              
              --36
                  acres of raw land in Mesquite, Nevada
              11/27/2002
              48%
              
              334,000
              
              --
              
              --
              
              (334,000)
              
              --Assisted
                  living facility in Las Vegas, Nevada
              9/23/2004
              52%
              
              7,789,000
              
              --
              
              122,000
              
              --
              
              7,911,000126
                  Unit (207 bed) assisted living facility in Phoenix, AZ
              9/08/2004
              10%
              
              
              
              886,000
              
              --
              
              --
              
              886,000Raw
                  land in Mesquite, Nevada
              11/27/2002
              53%
              
              605,000
              
              --
              
              --
              
              (605,000)
              
              --$
              10,374,000
              $
              886,000
              $
              122,000
              $
              (2,585,000)
              $
              8,797,000
 
 We
        received $916,000 in payments from borrowers on the loans associated with
        the
        properties held as of April 30, 2006. These payments are recorded as a deposit
        liability. During the ten month transition period ended April 30, 2006, we
        re-classed $122,000 in principal payments received from the borrower to a
        deposit liability.
 
 During
        the ten month transition period ended April 30, 2006, we recognized $495,000
        as
        a gain on sale of real estate related to seller financed loans which were
        paid
        in full during the period.
 
 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 to FAS
        66.
 
 **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 provided the price does not exceed the original cost. 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, paid monthly. The amount of management
        fees paid to our Manager for the ten month transition period ended April
        30,
        2006 and the nine month transition period ended June 30, 2005 approximated
        $230,000 and $201,000, respectively.
 
 Additionally,
        for the ten months ended April 30, 2006, we recorded pro rata distributions
        owed
        to our Manager of approximately $55,000 and $46,000 for the same period in
        the
        prior year based upon the total of 100,000 units owned by our
        Manager.
  F-22
 *Table
            of Contents*
  As
        of
        April 30, 2006, and June 30, 2005, we owed the Manager $37,000 and $922,000,
        respectively, related to unpaid management fees, and expenses paid on our
        behalf
        related to the maintenance of real estate held for sale.
 
 **Transactions
        with the Funds**
 
 As
        of
        April 30, 2006 and June 30, 2005, we owed Fund II $0 and $1,560,000,
        respectively. The balance was primarily related to payments made on our behalf
        for maintenance expenses incurred on real estate owned properties.
 
 As
        of
        April 30, 2006 and June 30, 2005, we owed Fund III $0 and $6,000, respectively
        primarily related to payments they made on our behalf for legal expenses
        incurred.
 
 During
        the ten months ended April 30, 2006, we sold $8,800,000 in real estate loans
        to
        Fund II. In addition, we bought $500,000 in real estate loans from Fund
        II.
 
 **Transactions
        with Other Related Parties**
 
 For
        the
        ten month transition period ended April 30, 2006 and the nine month transition
        period ended June 30, 2005, we incurred $36,000 and $8,000 respectively,
        for
        legal fees to the law firm of Levine, Garfinkel & Katz in which the
        Secretary of Vestin Group has an equity ownership interest.
 
 For
        the
        ten month transition period ended April 30, 2006 and the nine month transition
        period ended June 30, 2005, we incurred $131,000 and $75,000, respectively,
        to
        L.L. Bradford & Company, LLC, a certified public accounting firm for
        accounting services. A former Director and Officer of Vestin Group is an
        equity
        owner in that firm.
 
 **NOTE
        I — NOTES RECEIVABLE**
 
 During
        October 2004, we and Fund II sold the Castaways Hotel/Casino in Las Vegas,
        Nevada of which our portion of the net cash proceeds totaled $2,118,000.
        We
        originally sold this property under a 100% seller financing arrangement.
        The
        borrowers then sold the property to an unrelated third party which resulted
        in a
        payoff of the note and also allowed us to record the sale and remove the
        asset
        from seller financed real estate held for sale. 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 do not begin for 18 months 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. Balance as of April 30, 2006 is
        $119,000.
 
 During
        March 2005, we and Fund 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 approximately
        $389,000. During
        June 2005, we and Fund 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 approximately $640,000.
        The
        balance is secured by a second trust deed and is payable in 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. The guarantors are entitled to a discount of $782,000 from the principal
        balance in the event the entire balance is paid by December 2006. The first
        installment was received and recognized as income in July 2005. Our portion
        was
        $32,000. Payments will be recognized as revenue when received.
 
 During
        November 2004, we and Fund II sold the 140 Unit/224 bed senior facility in
        Mesa,
        Arizona of which our consideration received totaled $1,009,000. We and Fund
        II
        received a promissory note from the original guarantor of $478,000 of which
        our
        share was approximately $67,000. The promissory note is payable in interest
        only
        payments of 8% on the principal balance outstanding. Commencing June 25,
        2005
        through May 25, 2006, monthly payments shall increase to $15,000 and be applied
        to principal and accrued interest. Beginning June 25, 2006 through May 25,
        2009
        payments are to increase to $20,000 monthly. Due to the uncertainty of
        collectibility, we have provided a valuation allowance for the entire balance
        of
        the promissory note. Revenue
        will be recognized when payments are received. As of April 30, 2006, the
        note
        receivable balance was $50,000. We have received principal payments totaling
        $18,000, which have been recognized to income.
  F-23
 *Table
            of Contents*
  During
        December 2005, we and Fund II sold the 460 acre residential subdivision in
        Lake
        Travis, TX for $5.5 million, of which our portion was $1.8 million. The proceeds
        included a $500,000 note receivable, of which our portion was $171,000, with
        an
        imputed interest rate of 8%, which has been extended to June 2006. A net
        gain of
        $71,000 resulted in this transaction, of which our portion was
        $24,000.
 
 **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 it might not otherwise invest in. We
        do
        not receive any revenues for entering into secured borrowing arrangements.
        Loans
        in which third party investors have participated through inter-creditor
        agreements (“Inter-creditor Agreements”) are accounted for as secured borrowings
        in accordance with 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
        mortgage loans whereby a third party investor (the “Investor”) may participate
        on a senior basis in certain mortgage loans with us and/or Fund 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.
 
 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. The Company does not receive
        any
        revenues for entering into secured borrowings arrangements.
 
 As
        of
        April 30, 2006, we did not have any funds being used under Inter-creditor
        and
        Participation Agreements where we have potential obligations as defined above
        compared to $11.4 million at June 30, 2005.
 
 **NOTE
        K — RECENT ACCOUNTING PRONOUNCEMENTS**
 
 FASB
        Staff Position (FSP) FAS 115-1/124-1, replacing Emerging Issues Task Force
        (EITF) 03-1, *The
        Meaning of Other-Than-Temporary Impairment and Its Application to Certain
        Investment* ”
-
        On
        November 3, 2005, the FASB released FSP FAS 115-1 and FAS 124-1 replacing
        EITF
        03-1. The final language on FSP FAS 115-1 / FAS 124-1 requires investors
        to
        recognize an impairment loss when the impairment is deemed other-than-temporary,
        even if a decision to sell has not been made. The FSP applies to reporting
        periods beginning after December 15, 2005. We do not expect the adoption
        of
        Staff Position (FSP) FAS 115-1/124-1 to have a material impact on our financial
        position or results of operations.
 
 On
        February 16, 2006, the FASB issued FAS 155, *Accounting
        for Certain Hybrid Financial Instrument* (“FAS
        155”), an amendment of FAS 140 and FAS 133. FAS 155 permits the Company to elect
        to measure any hybrid financial instrument at fair value (with changes in
        fair
        value recognized in earnings) if the hybrid instrument contains an embedded
        derivative that would otherwise be required to be bifurcated and accounted
        for
        separately under FAS 133. The election to measure the hybrid instrument at
        fair
        value is made on an instrument-by-instrument basis and is irreversible. The
        Statement will be effective for all instruments acquired, issued, or subject
        to
        a re-measurement event occurring after the beginning of the Company's fiscal
        year that begins after September 15, 2006, with earlier adoption permitted
        as of
        the beginning of the Company's 2006 fiscal year, provided that financial
        statements for any interim period of that fiscal year have not yet been issued.
        We do not expect the adoption of FAS 155 to have a material impact on our
        financial position or results of operations.
  F-24
 *Table
            of Contents*
  On
        March
        17, 2006, the FASB issued FAS 156 *Accounting
        for Transfers and Servicing of Financial Assets and Extinguishments of
        Liabilities* (“FAS
        156”), an amendment to portions of FAS 133, FAS 140 and FTB 87-3. FAS 156
        requires that all separately recognized servicing assets and servicing
        liabilities be initially measured at fair value, if practicable. It also
        permits, but does not require, the subsequent measurement of servicing assets
        and servicing liabilities at fair value. Derivative instruments used to mitigate
        the risks inherent in servicing assets and servicing liabilities must be
        accounted for at fair value. Under FAS 156 an election can also be made for
        subsequent fair value measurement of servicing assets and servicing liabilities
        by class, thus simplifying the accounting and provide for income statement
        recognition of potential offsetting changes in the fair value of servicing
        assets, servicing liabilities and related derivative instruments. The Statement
        will be effect beginning the first fiscal year that begins after September
        15,
        2006. We do not expect the adoption of FAS 156 to have a material impact
        on our
        financial position or results of operations.
 
 **NOTE
        L — LEGAL MATTERS INVOLVING THE MANAGER**
 
 Our
        Manager is involved in a number of legal proceedings concerning matters arising
        in connection with the conduct of its business activities. The Manager believes
        it has meritorious defenses to each of these actions and intends to defend
        them
        vigorously. The Manager believes that it is not a party to any pending legal
        or
        arbitration proceedings that would have a material adverse effect on the
        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
        M — LEGAL MATTERS INVOLVING THE COMPANY**
 
 Vestin
        Group, Vestin Mortgage, and Del Mar Mortgage, Inc., a company wholly owned
        by
        Michael V. Shustek, the sole shareholder and CEO of Vestin Group, are defendants
        in a civil action entitled Desert Land, LLC et al. v. Owens Financial Group,
        Inc. et al (the “Action”). The Action is based upon allegations that Del Mar
        Mortgage, Inc. and/or Vestin Mortgage charged unlawful fees on various loans
        arranged by them. Desert Land sought in excess of $10 million in monetary
        damages. On April 10, 2003, the United States District Court for the District
        of
        Nevada (the “Court”) entered judgment jointly and severally in favor of Desert
        Land against Vestin Group, Vestin Mortgage and Del Mar Mortgage, Inc. Judgment
        was predicated upon the Court’s finding that Del Mar Mortgage, Inc. received an
        unlawful penalty fee from the plaintiffs.
 
 The
        defendants subsequently filed a motion for reconsideration. The Court denied
        the
        motion and, on August 13, 2003, held that Vestin Group, Vestin Mortgage,
        and Del Mar Mortgage, Inc. are jointly and severally liable for the judgment
        in
        the amount of $5,683,312 (which amount includes prejudgment interest and
        attorney’s fees). On August 27, 2003, the Court stayed execution of the judgment
        against Vestin Group and Vestin Mortgage based upon the posting of a bond
        in the
        amount of $5,830,000. Mr. Shustek personally posted a cash bond without any
        cost
        or obligation to Vestin Group and Vestin Mortgage. 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 with his cash bond. On September 12, 2003, all of the defendants
        held liable to Desert Land appealed the judgment to the United States Court
        of
        Appeals for the Ninth Circuit, which heard the case on October 18, 2005.
        On
        November 15, 2005, the Ninth Circuit vacated the judgment of the District
        Court
        and dismissed the state law claims against the defendants without prejudice
        on
        the basis that the District Court lacked subject matter jurisdiction in the
        case. On November 29, 2005, Desert Land petitioned the Ninth Circuit Court
        for
        rehearing with a suggestion that the matter be heard en banc. On December
        16,
        2005, the District Court issued an Order releasing the bond, and on January
        6,
        2006, the Ninth Circuit denied Desert Land’s petition and the matter remains
        dismissed.
  F-25
 *Table
            of Contents*
  On
        November 21, 2005, Desert Land filed a complaint in the state courts of Nevada,
        which complaint is substantially similar to the original complaint previously
        filed by Desert Land in the United States District Court, with the exception
        of
        claiming Nevada State Law violations and seeking Nevada State Law remedies
        rather than claiming Federal Law violations and seeking Federal Law remedies.
        On
        March 6, 2006, Desert Land amended the state court complaint to name us as
        a
        defendant. 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 defendants have
        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 us
        for
        that purpose. The state court complaint further alleges that Desert Land
        is
        entitled to avoid 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 with his cash bond.
 
 Most
        recently, on or about April 6, 2006, Desert Land filed a Writ of Certiorari
        seeking review of the 9th Circuit’s decision by the United States Supreme Court.
        Vestin continues to believe that Desert Land’s claims are without merit and will
        vigorously oppose the Writ of Certiorari and defend against the state court
        complaint.
 
 The
        United States Securities and Exchange Commission conducted an investigation
        into
        certain matters related to us, Vestin Group, Vestin Capital, Fund II and
        Fund
        III (the “Vestin Entities”). We have fully cooperated during the course of the
        investigation.
 
 The
        SEC
        Staff has notified the Vestin Entities that they believe certain slides used
        at
        sales seminars held to promote the sale of Fund II and Fund III units included
        disclosure regarding distributions to members of Fund I and Fund II that
        were
        misleading. The Vestin Entities have engaged in discussions with the Staff
        regarding a possible resolution of this matter. Based upon these discussions,
        we
        currently believe that neither we nor Fund II and Fund III will be named
        as
        parties in any enforcement recommendation or any order entered as a result
        of a
        settlement. These settlement negotiations are ongoing and, at this time,
        we do
        not know if a mutually acceptable settlement will be reached.
 
 On
        April
        21, 2006, through our Manager, we filed a complaint in the Circuit Court
        of the
        First Circuit in Hawaii to expedite our efforts to foreclose upon first trust
        deeds secured by the assets of Rightstar International, Inc. (the “Rightstar
        Trust Deeds”). In the filing, we allege that the State of Hawaii has
        unreasonably blocked the foreclosure without any legal basis for doing so.
        On
        April 24, 2006, the State of Hawaii responded by filing allegations against
        Vestin Mortgage, Inc., and Vestin Fund II, LLC alleging that these Vestin
        entities improperly influenced the former RightStar trustees to transfer
        trust
        funds to Vestin Fund II. We believe the State’s claims to be without merit and
        intend to vigorously pursue our remedies while defending against the allegations
        made by the State. The outcome of this litigation is unforeseeable at this
        time.
 
 We
        are
        involved in a number of 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. 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
        N — REDEMPTION LIMITATION**
 
 Pursuant
        to Fund I’s Operating Agreement, it redeemed units submitted for redemption. In
        accordance with the terms of the Operating Agreement and the Internal Revenue
        Code, Fund I’s redemptions were limited to no more than 10% of the members’
capital in any calendar year. As of April 30, 2006, the total of redemptions
        made from inception was approximately $47.8 million. During the ten month
        transition period ended April 30, 2006, we redeemed approximately $8.3 million
        of Members’ capital. As a result of Fund I’s merger into the Registrant on May
        1, 2006, we will no longer redeem units since all units have been converted
        into
        shares of Vestin Realty Mortgage I, Inc.
  F-26
 *Table
            of Contents*
  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 noncash income over 5% of our REIT taxable
        income.
 
 **NOTE
        O — SUBSEQUENT EVENTS**
 
 On
        May 1,
        2006 the bankruptcy plan of Mid-State Raceway, Inc for Vernon Downs became
        effective. As a result of the bankruptcy plan, we and Fund II received the
        following:
 
 ·
            New
                first deed of trust from buyer, Vernon Downs Acquisition, LLC,
                approximating $22.8 million, of which our portion is approximately
                $3.2
                million. The new terms reflect a $1.2 million principal reduction,
                reducing our principal balance by approximately $171,000. The transaction
                resulted in our recording unearned revenue of approximately $171,000.
                The
                terms of the loan are 9% due in 6 months, with an option to extend
                for an
                additional 6 months for a fee. 
 ·
            The
                loan is secured by a first trust deed on Vernon Downs properties
                and a
                150% personal guarantee by borrowers. 
 ·
            Prepayment
                of interest in the aggregate amount of $500,000, of which our portion
                is
                approximately $71,000. 
 ·
            Delay
                fees from the date of the bankruptcy confirmation until the effective
                date
                in the aggregate amount of $287,000 of which our portion is
                approximately$41,000. 
 ·
            Payment
                of past due forbearance fees of approximately $555,000 of which our
                portion is approximately $79,000.  F-27
 *Table
            of Contents*
  **NOTE
        P — SELECTED QUARTERLY FINANCIAL DATA**
 
 The
        following schedule is a selected quarterly financial date for ten month
        transition period ended April 30, 2006:
 
 **First
                  Quarter**
              
              **Second
                  Quarter**
              
              **Third
                  Quarter**
              
              **One
                  Month Period**
              
              **Ten
                  Month Transition Period**Total
                  Revenues
              
              $
              2,214,000
              
              $
              1,444,000
              
              $
              1,165,000
              
              $
              361,000
              
              $
              5,184,000Total
                  Operating Expenses
              
              $
              305,000
              
              $
              287,000
              
              $
              3,455,000
              
              $
              87,000
              
              $
              4,134,000**NET
                  (LOSS) INCOME**
              
              $
              1,909,000
              
              $
              1,157,000
              
              $
              (2,290,000
              )
              $
              274,000
              
              $
              1,050,000Net
                  Income (Loss) Allocated to Members
              
              $
              1,909,000
              
              $
              1,157,000
              
              $
              (2,290,000
              )
              $
              274,000
              
              $
              1,050,000Net
                  Income (Loss) Allocated to Members Per Weighted Average Membership
                  Units
              
              $
              0.25
              
              $
              0.15
              
              $
              (0.33
              )
              $
              0.04
              
              $
              0.14Weighted
                  Average Membership Units
              
              
              7,667,852
              
              
              7,668,345
              
              
              6,925,788
              
              
              6,866,363
              
              
              7,369,224Annualized
                  Rate of Return to Members (a)
              
              
              9.88%
              
              
              5.99%
              
              
              (13.41)%
              
              
              4.86%
              
              
              1.71%Cash
                  Distributions
              
              $
              1,160,000
              
              $
              1,146,000
              
              $
              1,101,000
              
              $
              721,000
              
              $
              4,128,000Cash
                  Distributions Per Weighted Average Membership Units
              
              $
              0.15
              
              $
              0.15
              
              $
              0.16
              
              $
              0.11
              
              $
              0.56Weighted
                  Average Term of Outstanding Loans
              
              
              18
                  months
              
              
              18
                  months
              
              
              18
                  months
              
              
              18
                  months
              
              
              18
                  months
 
 (a)
            The
                annualized rate of return to members for the ten month transition
                period
                ended April 30, 2006, is calculated based upon the net GAAP income
                allocated to members per weighted average units, divided by the number
                of
                days during the period (92, 92, 90, 30 and 304 for the first quarter,
                second quarter, third quarter, one month period and ten month transition
                period, respectively) and multiplied by three hundred and sixty five
                (365)
                days, then divided by the cost per unit
                ($10.00). 
  F-28
 *Table
            of Contents*
  **SUPPLEMENTARY
        INFORMATION**
 
 
 **ScheduleI****VESTIN
                  REALTY MORTGAGE I, INC.****(SUCCESSOR
                  TO VESTIN FUND I, LLC)****REAL
                  ESTATE LOANS ON REAL ESTATE****REAL
                  ESTATE LOAN ROLL FORWARD****Balance,**September
                  30, 2003
              
              $52,195,000Additions
                  during the periodNew
                  real estate loans and additions
              
              
              53,535,000Real
                  estate loans bought
              
              
              2,848,000Deductions
                  during the periodCollections
                  of principal
              
              
              38,342,000Foreclosed
                  loans (Real estate held for sale)
              
              
              5,963,000Real
                  estate loans sold
              
              
              5,528,000Net
                  Change in 2003 - 2004
              
              
              6,550,000**Balance,**September
                  30, 2004
              
              $
              58,745,000Additions
                  during the periodNew
                  real estate loans and additions
              
              
              20,566,000Real
                  estate loans bought
              
              
              600,000Deductions
                  during the periodCollections
                  of principal
              
              
              11,490,000Foreclosed
                  loans (Real estate held for sale)
              
              
              1,273,000Real
                  estate loans sold
              
              
              --Net
                  Change in 2004 - 2005
              
              
              8,403,000**Balance,**June
                  30, 2005
              
              $
              67,148,000Additions
                  during the periodNew
                  real estate loans and additions
              
              
              28,105,000Real
                  estate loans bought
              
              
              6,423,000Deductions
                  during the periodCollections
                  of principal
              
              
              38,960,000Real
                  estate loans sold
              
              
              9,262,000Net
                  Change in 2005 - 2006
              
              
              (13,694,000
              )**Balance,**April
                  30, 2006
              
              $
              53,454,000
 
  F-29
 *Table
            of Contents*
  
 **ScheduleII****VESTIN
                  REALTY MORTGAGE I, INC.****(SUCCESSOR
                  TO VESTIN FUND I, LLC)****REAL
                  ESTATE LOANS ON REAL ESTATE****REAL
                  ESTATE LOANS BY TYPE OF PROPERTY****As
                  of April 30, 2006:****Type
                  of Property**
              
              **Interest
                  Rate**
              
              **Face
                  Amount of Loan**
              
              **Fund
                  Balance**
              
              **Maturity
                  Date**
              
              **Amount
                  Subject to Delinquency**Commercial
              
              
              5%
                  - 14%
              
              $
              147,065,000
              
              $
              35,752,000
              
              
              03/04
                  - 10/07
              
              $
              12,556,000Construction
              
              
              12%
              
              $
              42,050,000
              
              $
              5,018,000
              
              
              06/06
                  - 05/07
              
              $
              --Acquisition
                  and Development
              
              
              8%
                  - 12%
              
              $
              75,662,000
              
              $
              6,603,000
              
              
              05/06
                  - 07/06
              
              $
              --Land
              
              
              12%
                  - 14%
              
              $
              39,532,000
              
              $
              6,081,000
              
              
              05/06
                  - 04/07
              
              $
              --$
              53,454,000**As
                  of June 30, 2005:****Type
                  of Property**
              
              
              **Interest
                  Rate**
              
              
              **Face
                  Amount of Loan**
              
              
              **Fund
                  Balance**
              
              
              **Maturity
                  Date**
              
              
              **Amount
                  Subject to Delinquency**Commercial
              
              
              5%
                  - 14%
              
              $
              160,628,000
              
              $
              38,439,000
              
              
              03/04
                  - 10/07
              
              $
              7,576,000Construction
              
              
              8%
                  - 12%
              
              $
              25,550,000
              
              $
              3,712,000
              
              
              08/05
                  - 02/06
              
              $
              --Acquisition
                  and Development
              
              
              8%
                  - 12%
              
              $
              79,162,000
              
              $
              7,272,000
              
              
              04/05
                  - 02/06
              
              $
              503,000Land
              
              
              10%
                  - 14%
              
              $
              102,579,000
              
              $
              17,725,000
              
              
              07/05
                  - 04/06
              
              $
              --$
              67,148,000
 
  F-30
 *Table
            of Contents*
  
 **ScheduleIII****VESTIN
                  REALTY MORTGAGE I, INC.****(SUCCESSOR
                  TO VESTIN FUND I, LLC)****REAL
                  ESTATE LOANS ON REAL ESTATE****REAL
                  ESTATE LOANS BY LIEN POSITION****As
                  of April 30, 2006:****Lien
                  Position**
              
              **Face
                  Amount of Loan**
              
              **Interest
                  Rate**
              
              **Fund
                  Balance**
              
              **Maturity
                  Date**
              
              **Amount
                  Subject to Delinquency**1st
              
              $
              296,647,000
              
              
              5%
                  - 14%
              
              $
              53,416,000
              
              
              03/04
                  - 10/07
              
              $
              12,556,0002nd
              
              $
              7,662,000
              
              
              12%
              
              $
              38,000
              
              
              07/06
              
              $
              --$
              53,454,000**As
                  of June 30, 2005:****Lien
                  Position**
              
              
              **Face
                  Amount of Loan**
              
              
              **Interest
                  Rate**
              
              
              **Fund
                  Balance**
              
              
              **Maturity
                  Date**
              
              
              **Amount
                  Subject to Delinquency**1st
              
              $
              361,419,000
              
              
              5%
                  - 14%
              
              $
              66,645,000
              
              
              03/04
                  - 10/07
              
              $
              7,576,0002nd
              
              $
              6,500,000
              
              
              10%
              
              $
              503,000
              
              
              04/05
              
              $
              503,000$
              67,148,000
 
  F-31
 *Table
            of Contents*
  
 **ScheduleIV****VESTIN
                  REALTY MORTGAGE I, INC.****(SUCCESSOR
                  TO VESTIN FUND I, LLC)****REAL
                  ESTATE LOANS ON REAL ESTATE****REAL
                  ESTATE LOANS WHICH EXCEED THREE PERCENT OF THE
                  PORTFOLIO****As
                  of April 30, 2006:****Description
                  of Loan**
              
              **Interest
                  Rate**
              
              **Maturity
                  Date**
              
              **Lien
                  Position**
              
              **Face
                  Amount of Loan**
              
              **Carrying
                  Amount of Loan**
              
              **Amount
                  Subject to Delinquency**Commercial
              
              
              5.00%
              
              
              09/21/07
              
              
              1st
              
              $
              15,334,000
              
              $
              7,648,000
              
              $
              --Construction
              
              
              12.00%
              
              
              05/16/07
              
              
              1st
              
              $
              26,000,000
              
              $
              3,220,000
              
              $
              --Commercial
              
              
              6.00%
              
              
              07/15/06
              
              
              1st
              
              $
              6,500,000
              
              $
              2,000,000
              
              $
              --Commercial
              
              
              6.00%
              
              
              07/29/06
              
              
              1st
              
              $
              5,150,000
              
              $
              1,700,000
              
              $
              --Acquisition
                  & Development
              
              
              12.00%
              
              
              05/10/06
              
              
              1st
              
              $
              33,000,000
              
              $
              2,260,000
              
              $
              --Commercial
              
              
              11.50%
              
              
              10/05/07
              
              
              1st
              
              $
              18,000,000
              
              $
              2,500,000
              
              $
              --Land
              
              
              12.00%
              
              
              04/11/07
              
              
              1st
              
              $
              8,400,000
              
              $
              3,200,000
              
              $
              --Commercial
              
              
              14.00%
              
              
              03/31/04
              
              
              1st
              
              $
              34,000,000
              
              $
              9,307,000
              
              $
              9,307,000Commercial
              
              
              11.00%
              
              
              06/30/05
              
              
              1st
              
              $
              26,000,000
              
              $
              3,249,000
              
              $
              3,249,000Acquisition
                  & Development
              
              
              8.00%
              
              
              07/25/06
              
              
              1st
              
              $
              35,000,000
              
              $
              4,305,000
              
              $
              --**As
                  of June 30, 2005:****Description
                  of Loan**
              
              
              **Interest
                  Rate**
              
              
              **Maturity
                  Date**
              
              
              **Lien
                  Position**
              
              
              **Face
                  Amount of Loan**
              
              
              **Carrying
                  Amount of Loan**
              
              
              **Amount
                  Subject to Delinquency**Land
              
              
              13.00%
              
              
              08/18/05
              
              
              1st
              
              $
              7,620,000
              
              $
              2,165,000
              
              $
              --Construction
              
              
              8.00%
              
              
              08/15/05
              
              
              1st
              
              $
              9,500,000
              
              $
              2,414,000
              
              $
              --Acquisition
                  & Development
              
              
              9.00%
              
              
              07/13/05
              
              
              1st
              
              $
              30,000,000
              
              $
              2,426,000
              
              $
              --Commercial
              
              
              11.00%
              
              
              06/30/05
              
              
              1st
              
              $
              26,000,000
              
              $
              3,320,000
              
              $
              3,320,000Commercial
              
              
              11.00%
              
              
              07/14/05
              
              
              1st
              
              $
              12,500,000
              
              $
              3,324,000
              
              $
              --Land
              
              
              14.00%
              
              
              04/15/06
              
              
              1st
              
              $
              6,526,000
              
              $
              3,400,000
              
              $
              --Land
              
              
              10.00%
              
              
              03/30/06
              
              
              1st
              
              $
              35,000,000
              
              $
              3,672,000
              
              $
              --Commercial
              
              
              14.00%
              
              
              03/31/04
              
              
              1st
              
              $
              34,000,000
              
              $
              4,139,000
              
              $
              4,139,000Land
              
              
              14.00%
              
              
              02/15/06
              
              
              1st
              
              $
              21,632,000
              
              $
              4,181,000
              
              $
              --Acquisition
                  & Development
              
              
              8.00%
              
              
              01/25/06
              
              
              1st
              
              $
              35,000,000
              
              $
              4,305,000
              
              $
              --Commercial
              
              
              12.00%
              
              
              02/08/06
              
              
              1st
              
              $
              6,000,000
              
              $
              5,989,000
              
              $
              --Commercial
              
              
              10.00%
              
              
              04/30/06
              
              
              1st
              
              $
              15,000,000
              
              $
              6,684,000
              
              $
              --Commercial
              
              
              5.00%
              
              
              09/21/07
              
              
              1st
              
              $
              15,334,000
              
              $
              7,789,000
              
              $
              --






F-32
 *Table
          of Contents*