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U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
 FORM 10-QSB/A (MARK ONE) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
JUNE 30, 2004 [  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 000-24803 VESTIN GROUP, INC. (EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
 DELAWARE
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
    
    52-2102142
(I.R.S. EMPLOYER
IDENTIFICATION NO.)
 8379 WEST SUNSET ROAD, LAS VEGAS, NEVADA 89113 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (702) 227-0965 (ISSUERS TELEPHONE NUMBER) 2901 EL CAMINO AVENUE, SUITE 206, LAS VEGAS, NEVADA 89102 (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [  ] Number of shares outstanding of each of the issuers classes of common equity
as of March 10, 2005: 2,128,835
Post-Split Shares of Common Stock Transitional Small Business Disclosure Format (Check one): Yes [  ] No [X] This amendment to Form 10-QSB for the period ended June 30, 2004 is filed to correct a
mathematical error in the calculation for the six month period ended June 30, 2004 of Net income
(loss) applicable to common shareholders, Earnings (loss) per common shareBasic and Earnings
(loss) per common shareDiluted as well as related textual discussion. On March 21, 2005, the Company
discovered that a computational error had occurred when Preferred Stock dividends were added to, rather
than subtracted from, Net Income. The error only occurred in the calculation of income for the six
month period; there was no error in the calculation of income for the three month period. Accordingly, the
financial statements previously issued by the Company for the six month period ended June 30,
2004 should not be relied upon. The Audit Committee of the Companys Board of Directors will be
discussing this matter with the Companys independent accountants.




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VESTIN GROUP, INC. AND SUBSIDIARIES
 INDEX  
 PagePART I
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsConsolidated Balance Sheet (unaudited)
    
    
    3Consolidated Statements of Operations (unaudited)
    
    
    4Consolidated Statement of Stockholders' Equity (unaudited)
    
    
    5Consolidated Statements of Cash Flows (unaudited)
    
    
    6Condensed Notes to Consolidated Financial Statements (unaudited)
    
    
    8Item 2.
    
    Management's Discussion and Analysis
    
    
    17Item 3.
    
    Controls and Procedures
    
    
    26PART II
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    27Item 2.
    
    Changes in Securities
    
    
    27Item 3.
    
    Defaults Upon Senior Securities
    
    
    27Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    27Item 5.
    
    Other Information
    
    
    27Item 6.
    
    Exhibits and Reports on Form 8-K
    
    
    28SIGNATURES
    
    
    
    
    30Exhibit 31.1Exhibit 31.2Exhibit 32
  2




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Vestin Group, Inc. and Subsidiaries 
 CONSOLIDATED BALANCE SHEET June 30, 2004 (Unaudited) ASSETSCash
    
    $
    3,954,712Accounts receivable
    
    
    1,806,657Interest receivable
    
    
    7,645Due from related parties
    
    
    2,966,079Note receivable
    
    
    400,000Notes receivable  related party
    
    
    57,964Investments in real estate held for sale
    
    
    7,078,754Investments in mortgage loans on real estate,
net of allowance of $110,000
    
    
    218,035Other investments  related parties
    
    
    3,403,215Deferred tax asset
    
    
    1,337,144Property and equipment, net
    
    
    1,330,043Other assets
    
    
    206,792Total assets
    
    $
    22,767,040LIABILITIES AND STOCKHOLDERS EQUITYAccounts payable and accrued expenses
    
    $
    1,964,813Due to related parties
    
    
    655,555Dividend payable
    
    
    53,983Deferred income
    
    
    2,012,500Income taxes payable
    
    
    2,314,569Notes payable  related party
    
    
    2,335,518Notes payable
    
    
    374,654Capital leases payable
    
    
    126,740Total liabilities
    
    
    9,838,332Commitments and contingencies
    
    
    Stockholders equityPreferred stock, $.0001 par value; 20 million shares
authorized; 647,800 shares issued and outstanding
    
    
    65Common stock, $.0001 par value; 100 million shares
authorized 4,853,590 shares issued and outstanding
    
    
    485Additional paid-in capital
    
    
    7,646,740Retained earnings
    
    
    5,281,418Total stockholders equity
    
    
    12,928,708Total liabilities and stockholders equity
    
    $
    22,767,040
 The accompanying notes are an integral part of these statements. 3




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Vestin Group, Inc. and Subsidiaries 
 CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) For the Three Months Ended
    
    For the Six Months EndedJune 30, 2004
    
    June 30, 2003
    
    June 30, 2004
    
    June 30, 2003RevenuesLoan placement and related fees
    
    $
    4,875,818
    
    
    $
    6,636,766
    
    
    $
    13,028,844
    
    
    $
    12,396,512Interest income
    
    
    37,688
    
    
    
    183,737
    
    
    
    81,177
    
    
    
    367,598Gain from settlement of lawsuit
    
    
    
    
    
    
    
    
    
    
    5,850,000
    
    
    
    Other revenues
    
    
    477,935
    
    
    
    372,730
    
    
    
    886,133
    
    
    
    798,850Total revenues
    
    
    5,391,441
    
    
    
    7,193,233
    
    
    
    19,846,154
    
    
    
    13,562,960ExpensesSales and marketing expenses
    
    
    857,610
    
    
    
    2,815,242
    
    
    
    3,725,947
    
    
    
    5,634,781General and administrative expenses
    
    
    3,002,864
    
    
    
    3,376,849
    
    
    
    6,870,574
    
    
    
    6,934,332Valuation losses on real estate held for sale
    
    
    945,860
    
    
    
    1,287,883
    
    
    
    1,545,860
    
    
    
    1,287,883Bad debt expense
    
    
    81,591
    
    
    
    715,301
    
    
    
    81,591
    
    
    
    715,301Capital contribution to Fund I
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,600,000Interest expense
    
    
    4,223
    
    
    
    104,591
    
    
    
    17,148
    
    
    
    199,950Total expenses
    
    
    4,892,148
    
    
    
    8,299,866
    
    
    
    12,241,120
    
    
    
    16,372,247Income (loss) from operations before
provision (benefit) for income taxes
    
    
    499,293
    
    
    
    (1,106,633
    )
    
    
    7,605,034
    
    
    
    (2,809,287
    )Provision (benefit) for income taxes
    
    
    172,796
    
    
    
    (376,255
    )
    
    
    2,598,060
    
    
    
    (955,157
    )NET INCOME (LOSS)
    
    
    326,497
    
    
    
    (730,378
    )
    
    
    5,006,974
    
    
    
    (1,854,130
    )Preferred stock dividends
    
    
    (180,061
    )
    
    
    (225,228
    )
    
    
    (404,511
    )
    
    
    (452,178
    )Net income (loss) applicable to common shareholders
    
    $
    146,436
    
    
    $
    (955,606
    )
    
    $
    4,602,463
    
    
    $
    (2,306,308
    )Earnings (loss) per common share  Basic
    
    $
    0.03
    
    
    $
    (0.18
    )
    
    $
    0.90
    
    
    $
    (0.43
    )Earnings (loss) per common share  Diluted
    
    $
    0.02
    
    
    $
    (0.18
    )
    
    $
    0.66
    
    
    $
    (0.43
    )Weighted average number of common shares
outstanding  Basic
    
    
    5,022,781
    
    
    
    5,328,340
    
    
    
    5,086,560
    
    
    
    5,328,031Weighted average number of common shares
outstanding  Diluted
    
    
    6,895,625
    
    
    
    5,328,340
    
    
    
    6,948,047
    
    
    
    5,328,031
 The accompanying notes are an integral part of these statements. 4




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Vestin Group, Inc. and Subsidiaries 
 CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY For the Six Months Ended June 30, 2004 (Unaudited) Preferred Stock
    
    Common Stock
    
    Treasury Stock
    
    AdditionalPaid-in
    
    RetainedShares
    
    Amount
    
    Shares
    
    Amount
    
    Shares
    
    Amount
    
    Capital
    
    Earnings
    
    TotalBalance at January 1, 2004
    
    
    897,800
    
    
    $
    90
    
    
    
    5,328,340
    
    
    $
    532
    
    
    
    (178,000
    )
    
    $
    (544,305
    )
    
    $
    9,767,187
    
    
    $
    678,955
    
    
    $
    9,902,459Expenses related to issuance of
warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,856,604
    
    
    
    
    
    
    
    1,856,604Dividends paid on preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (404,511
    )
    
    
    (404,511
    )Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (296,750
    )
    
    
    (682,818
    )
    
    
    
    
    
    
    
    
    
    
    (682,818
    )Redemption of preferred stock
    
    
    (250,000
    )
    
    
    (25
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,749,975
    )
    
    
    
    
    
    
    (2,750,000
    )Retirement of treasury stock
    
    
    
    
    
    
    
    
    
    
    (474,750
    )
    
    
    (47
    )
    
    
    474,750
    
    
    
    1,227,123
    
    
    
    (1,227,076
    )
    
    
    
    
    
    
    Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,006,974
    
    
    
    5,006,974Balance at June 30, 2004
    
    
    647,800
    
    
    $
    65
    
    
    
    4,853,590
    
    
    $
    485
    
    
    
    
    
    
    $
    
    
    
    $
    7,646,740
    
    
    $
    5,281,418
    
    
    $
    12,928,708
 The accompanying notes are an integral part of these statements. 5




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Vestin Group, Inc. and Subsidiaries 
 CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For the Six Months EndedJune 30, 2004
    
    June 30, 2003Cash flow from operating activities:Net income (loss)
    
    $
    5,006,974
    
    
    $
    (1,854,130
    )Adjustments to reconcile net income (loss) from operations
to net cash provided by operating activities:Depreciation
    
    
    118,748
    
    
    
    62,079Bad debt
    
    
    81,591
    
    
    
    Stock based compensation
    
    
    1,856,604
    
    
    
    464,151Capital contribution to Fund I
    
    
    
    
    
    
    1,600,000Gain from settlement of lawsuit
    
    
    (3,600,000
    )
    
    
    Provision for loan losses
    
    
    
    
    
    
    110,000Valuation loss on real estate held for sale
    
    
    1,545,860
    
    
    
    1,287,883Changes in operating assets and liabilities:
    
    
    
    
    
    
    Accounts receivable
    
    
    478,288
    
    
    
    278,041Interest receivable
    
    
    3,004
    
    
    
    101,836Due from related parties
    
    
    (783,877
    )
    
    
    (2,052,708
    )Other assets
    
    
    (62,587
    )
    
    
    102,381Deferred tax asset
    
    
    542,384
    
    
    
    Accounts payable and accrued expenses
    
    
    (1,738,400
    )
    
    
    1,273,004Dividend payable
    
    
    (20,834
    )
    
    
    (833
    )Due to related party
    
    
    325,191
    
    
    
    Deferred income
    
    
    (862,500
    )
    
    
    Income taxes payable
    
    
    2,055,675
    
    
    
    (955,158
    )Net cash provided by operating activities
    
    
    4,946,121
    
    
    
    416,546Cash flows from investing activities:Purchase of property and equipment
    
    
    (551,571
    )
    
    
    (74,824
    )Purchase of investment in real estate held for sale
    
    
    
    
    
    
    (1,100,000
    )Proceeds from sale of investment in real estate held for sale
    
    
    2,011,589
    
    
    
    Proceeds from payoff on note receivable  related party
    
    
    30,000
    
    
    
    Purchase of other investments  related party
    
    
    295,000
    
    
    
    (1,449
    )Proceeds from other investments  related party
    
    
    (266,453
    )
    
    
    Proceeds from loan payoff
    
    
    330,000
    
    
    
    Proceeds from sale of investments in mortgage loans
on real estate
    
    
    
    
    
    
    8,058,939Net cash provided by investing activities
    
    
    1,848,565
    
    
    
    6,882,666
 The accompanying notes are an integral part of these statements. 6




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Vestin Group, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS  CONTINUED (Unaudited) For the Six Months EndedJune 30, 2004
    
    June 30, 2003Cash flows from financing activities:Payments on lines of credit
    
    
    
    
    
    
    (7,000,000
    )Proceeds from notes payable
    
    
    
    
    
    
    1,078,997Payment on
notes payable - related party
    
    
    
    
    
    
    (140,415
    )Payments on notes payable
    
    
    (1,100,000
    )
    
    
    Payments on capital leases
    
    
    (33,700
    )
    
    
    Common stock options exercised
    
    
    
    
    
    
    15,999Redemption of preferred stock
    
    
    (2,750,000
    )
    
    
    (100,000
    )Payment of dividend on preferred stock
    
    
    (404,511
    )
    
    
    (452,178
    )Purchase of treasury stock
    
    
    (682,818
    )
    
    
    Payment of dividend on common stock
    
    
    
    
    
    
    (639,372
    )Net cash used in financing activities
    
    
    (4,971,029
    )
    
    
    (7,236,969
    )NET CHANGE IN CASH
    
    
    1,823,657
    
    
    
    62,243Cash at beginning of period
    
    
    2,131,055
    
    
    
    2,523,017Cash at end of period
    
    $
    3,954,712
    
    
    $
    2,585,260Supplemental cash flow information:Cash paid for federal income taxes
    
    $
    
    
    
    $
    Cash paid for interest
    
    $
    12,925
    
    
    $
    199,950Non-cash investing and financing activities:Dividends declared on preferred stock
    
    $
    74,817
    
    
    $
    75,650Notes payable assumed through foreclosure
    
    $
    
    
    
    $
    244,654Notes payable  related parties assumed through foreclosure
    
    $
    
    
    
    $
    802,363Note payable related to capital contribution to Fund I
    
    $
    
    
    
    $
    723,763In substance receipt of amounts due from Fund I related to
capital contribution in Fund I
    
    $
    
    
    
    $
    876,237Investments in real estate held for sale acquired through foreclosure
    
    $
    
    
    
    $
    1,094,914Investment in real estate held for sale acquired for
investments in mortgage loans on real estate
    
    $
    
    
    
    $
    478,829
 The accompanying notes are an integral part of these statements. 7




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VESTIN GROUP, INC.
AND SUBSIDIARIES 
 CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 NOTE 1  BASIS OF PRESENTATION Vestin Group, Inc. (Vestin or the Company) conducts its operations
primarily through Vestin Mortgage, Inc., a wholly owned subsidiary (Vestin
Mortgage). Vestin Mortgage operates as a mortgage broker licensed in the state
of Nevada. Vestin Mortgage is engaged in the brokerage and placement of
commercial loans secured by real property. Vestin Mortgages primary operations
consist of the brokerage and placement of commercial, construction, acquisition
and development, land, and residential mortgage loans secured by real property
as well as managing three publicly held funds, Vestin Fund I, LLC (Fund I),
Vestin Fund II, LLC (Fund II), and Vestin Fund III, LLC (Fund III),
(collectively referred to as (the Funds) and an entity owned by the Companys
Chief Executive Officer, inVestin Nevada, Inc. (inVestin
Nevada), all of which
invest in mortgage loans. Fund III will also invest in real estate. Vestin
Mortgage, as manager of the Funds and inVestin Nevada, will be referred to as
Manager. Vestin
Capital, Inc., a wholly owned subsidiary of the Company (Vestin
Capital), serves as the
lead broker dealer on the sale of units for the Funds and also provides
administrative services. Vestin Capital does not receive any commissions from
the sale of units for the Funds. Rather, Vestin Capital receives an
administrative fee from Vestin Mortgage related to the maintenance of investor
files and general investor services. Vestin Advisors, Inc., a wholly owned subsidiary of the Company, is a licensed
trust company in the state of Nevada that serves as a custodian for individual
retirement accounts of investors in Vestin products. JLS Advertising, a wholly owned subsidiary of the Company, is an advertising
company formed solely for the purposes of providing advertising buying power
for the Companys marketing efforts. There was no specific operating activity
in this company during the three months ended June 30, 2004 and 2003. The Company operates in one business segment. The interim consolidated financial statements present the balance sheet,
statements of operations, stockholders equity and cash flows of Vestin Group,
Inc. and its subsidiaries. The interim consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries. All
significant inter-company transactions and balances have been eliminated in
consolidation. The interim consolidated financial information is unaudited. In the opinion of
management, all adjustments necessary to present fairly the financial position
as of June 30, 2004 and the results of operations and cash flows presented
herein have been included in the consolidated financial statements. Interim
results are not necessarily indicative of results of operations for the full
year. The accompanying consolidated financial statements have been prepared in
accordance with Securities and Exchange Commission requirements for interim
financial statements. Therefore, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements. The financial statements
should be read in conjunction with the Companys Form 10-KSB/A and Form
10-KSB/A-2 for the year ended December 31, 2003. The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates. Significant estimates include expected useful lives of
property and equipment, allowance for accounts receivable, allowances for
investments in mortgage loans on real estate, and valuations of real estate
held for sale. Changes in facts and circumstances may result in revised
estimates, which are recorded in the period in which they become known. 8




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NOTE 2  SIGNIFICANT ACCOUNTING POLICIES Revenue Recognition The Company recognizes revenue primarily from loan placement fees, loan
servicing fees and extension fees. Loan placement fees are generally recorded
as revenue at the close of escrow and reduced by direct loan placement costs on
loans which the Company has not recorded as investments in mortgage loans on
its financial statements. Typically, deeds of trust related to loans placed are initially in the
Companys name to facilitate the loan placement process. Upon arranging a
funding source for such loans, the deeds of trust are assigned to the
respective investor (i.e., the Funds). Loan servicing fees are recorded as
revenue when such services are rendered. Servicing fees represent the interest
spread between what is paid to the investor and what the borrower pays for the
use of the money, which can vary from loan to loan. Servicing costs approximate
servicing fees and therefore, the Company has not recognized a servicing asset
or liability. Extension fees are generally recorded as revenue at the extension
grant date. Interest income on investments in mortgage loans on real estate is recorded
when earned. The Company does 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 the Company 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. Investments in Real Estate Held for Sale Real estate held for sale includes real estate acquired through foreclosure and
is carried at the lower of cost or the propertys estimated fair value, less
estimated costs to sell. The Company seeks to sell properties acquired through
foreclosure as quickly as circumstances permit. Investments in Mortgage Loans on Real Estate Investments in mortgage loans are secured by trust deeds and mortgages.
Generally, the Companys mortgage loans require interest only payments, either
through payments or decrease of an interest reserve, with a balloon payment of
the principal at maturity. The Company has both the intent and ability to hold
mortgage loans until maturity and therefore, mortgage loans are classified and
accounted for as held for investment and are carried at cost. 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, which may
be commissioned by the borrower, are generally dated within 12 months of 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 drastically exceed the immediate sales value and
may include anticipated zoning changes, selection by a purchaser against
multiple alternatives, 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, the Company may not recover the
full amount of the loan. Allowance for Loan Losses The Company maintains an allowance for loan losses on its investment in
mortgage loans for estimated credit impairment in the Companys investment in
mortgage loans portfolio. The Company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 including, but not limited to, 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 in income
when the property is sold. 9




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Income taxes The Company accounts for its income taxes using the liability method, which
requires recognition of deferred tax assets and liabilities for the future tax
consequences attributable to differences between carrying amounts of existing
assets and liabilities and their respective tax bases and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. NOTE 3  STOCK-BASED COMPENSATION The Company has stock-based compensation plans covering the majority of its
employees, a plan covering the Companys Board of Directors, and plans related
to employment contracts with certain executive officers of the Company. The
Company accounts for stock-based compensation utilizing the intrinsic value
method in accordance with the provisions of Accounting Principles Board Opinion
No. 25 (APB 25), Accounting for Stock Issued to Employees and related
Interpretations. Accordingly, no compensation expense is recognized for fixed
option plans because the exercise prices of employee stock options equal or
exceed the market prices of the underlying stock on the dates of grant. Under APB 25, compensation cost is recognized for stock options granted to
employees when the option is less than the market price of the underlying
common stock on the date of grant. SFAS No. 123 (SFAS 123), Accounting for
Stock-Based Compensation and SFAS No. 148 (SFAS 148), Accounting for
Stock-Based Compensation  Transition and Disclosure  an amendment of FASB
Statement No. 123 require disclosures as if the Company had applied the fair
value method to employee awards rather than the intrinsic value method. The
Company has determined that it will not adopt SFAS 123 to account for
employee stock options using the fair value method. The fair value of
stock-based awards to employees is calculated through the use of option pricing
models, even though such models were developed to estimate the fair value of
freely tradable, fully transferable options without vesting restrictions, which
differ significantly from the Companys stock option awards. These models also
require subjective assumptions, including future stock price volatility and
expected time to exercise, which greatly affect the calculated values. The
Companys fair value calculations for awards from stock option plans were made
using the Black-Scholes option pricing model. The following table represents the effect on net income (loss) and income
(loss) per share if the Company had applied the fair value based method and
recognition provisions SFAS 123 to stock-based employee compensation: For the six months endedJune 30,
    
    June 30,2004
    
    2003Net income (loss), as reported
    
    $
    5,006,974
    
    
    $
    (1,854,130
    )Add: Stock-based compensation
expense included in reported income (loss),
net of related tax effects
    
    
    
    
    
    
    Deduct: Total stock-based
compensation expense determined under
fair value based methods for all awards,
net of related tax effects
    
    
    (169,000
    )
    
    
    (1,181,661
    )Pro forma net income (loss)
    
    $
    4,837,974
    
    
    $
    (3,035,791
    )Net income (loss) per common shareBasic income (loss), as reported
    
    $
    0.90
    
    
    $
    (0.43
    )Basic income (loss), pro forma
    
    $
    0.87
    
    
    $
    (0.65
    )Diluted income (loss), as reported
    
    $
    0.66
    
    
    $
    (0.43
    )Diluted income (loss), pro forma
    
    $
    0.64
    
    
    $
    (0.65
    )
 10




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##### Table of Contents



As required, the pro forma disclosures above include options granted since
January 1, 1995. Consequently, the effects of applying SFAS 123 for providing
pro forma disclosures may not be representative of the effects on reported net
income for future years until all options outstanding are included in the pro
forma disclosures. For purposes of pro forma disclosures, the estimated fair
value of stock-based compensation plans and other options is amortized to
expense primarily over the vesting period. NOTE 4  RELATED PARTY TRANSACTIONS Notes receivable  In 2000, the Company loaned a former employee approximately
$251,000 to enable him to operate, develop and grow a California real estate
loan fund. The Company does not have any affiliations with the California real
estate loan fund. The loan is unsecured but is a full recourse loan. The
interest rate of 10% is payable on a semi-annual basis and the loan matures
September 30, 2004. As of June 30, 2004, the principal balance on this loan was
$57,964. Due from related parties totaling $2,966,079 as of June 30, 2004 are comprised
of the following: Amounts due from Fund I totaling $654,558 relate to management fees, earnings
on units in Fund I, and reimbursable expenses. Amounts due from Fund I bear
no interest and are due on demand. Amounts due from Fund II totaling $1,920,055 relate to management fees,
earnings on units in Fund II, and reimbursable expenses. Amounts due from
Fund II bear no interest and are due on demand. Amounts due from Fund III totaling $53,107 relate to management fees
and earnings on the Companys investment in Fund III. Amounts due from Fund
III bear no interest and are due on demand. Advances to C-5, LLC totaling $198,620 relate to various expenses paid for
travel related to an aircraft usage agreement as discussed below. Amounts to be reimbursed pursuant to an indemnification agreement by the
majority stockholder and Chief Executive Officer of the Company totaling
$81,836 relate to various advances and legal costs paid by Vestin Mortgage. Amounts due from inVestin Nevada, Inc. totaling $57,903
relate to management fees earned by Vestin Mortgage. Such amounts bear no
interest and are due on demand. In October 2002, inVestin Nevada, a
corporation wholly-owned by the Chief Executive Officer of the
Company, was
created as an additional funding source for the Company to raise $100,000,000
through the sale of subordinated notes to Nevada residents. Vestin Mortgage
has entered into an agreement to provide management services to inVestin
Nevada whereby Vestin Mortgage will receive a monthly management fee equal to
the first four percent (4%) of revenues earned by the Company above the
average aggregate interest paid to the debenture holders. For the three and
six months ended June 30, 2004, Vestin Mortgage earned $36,423 and $52,057,
respectively, related to the agreement. Other
investments  related parties totaling $3,403,215 as of
June 30, 2004 are comprised of the
following: The Companys investments in units of the Funds totaling $2,968,840. Investments in collateralized mortgage obligations which are controlled by a
company wholly owned by the Companys Chief Executive Officer totaling
$434,375. During the three-month periods ended June 30, 2004 and 2003, the Company paid
$362,415 and $283,102, respectively, for legal fees to a law firm in which the
Secretary of the Company has an equity ownership interest. During the six-month
periods ended June 30, 2004 and 2003, the Company paid $478,179 and $528,863,
respectively, for legal fees to a law firm in which the Secretary of the
Company has an equity ownership interest. 11




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##### Table of Contents



The Companys former Chief Financial Officer and Tax Manager are equity owners in L.L.
Bradford & Company, LLC, a Certified Public Accounting firm (L.L. Bradford).
For the three-month periods ended June 30, 2004 and 2003, approximately
$243,583 and $54,955, respectively, was paid to L.L. Bradford for accounting
and consulting services provided to the Company. For the six-month periods
ended June 30, 2004 and 2003, approximately $268,583 and $92,455, respectively,
was paid to L.L. Bradford for accounting and consulting services provided to
the Company. For the three-month periods ended June 30, 2004 and 2003, the Company recorded
revenues of approximately $15,000 and $25,000, respectively, from its
investment in Fund I as a result of distributions declared during those
periods. For the six-month periods ended June 30, 2004 and 2003, the Company
recorded revenues of approximately $28,000 and $52,000, respectively, from its
investment in Fund I as a result of distributions declared during those
periods. Vestin Mortgage, as the manager, is entitled to a monthly management
fee of up to 0.25% of the aggregate capital contributions to Fund I.
During each of the
three month periods ended June 30, 2004 and 2003, Vestin Mortgage recorded
management fees from Fund I of approximately $64,000. During the six-month
periods ended June 30, 2004 and 2003, Vestin Mortgage recorded management fees
from Fund I of approximately $128,000 and $126,000, respectively. For the three month periods ended June 30, 2004 and 2003, the Company recorded
revenues of approximately $18,000 and $28,000, respectively, from its
investment in Fund II as a result of distributions declared during those
periods. For the six month periods ended June 30, 2004 and 2003, the Company
recorded revenues of approximately $36,000 and $69,000, respectively, from its
investment in Fund II as a result of distributions declared during those
periods. Vestin Mortgage, as the manager, is entitled to a monthly management fee
of up to 0.25% of the aggregate capital contributions to Fund II. During the
three month periods ended June 30, 2004 and 2003, Vestin Mortgage recorded
management fees from Fund II approximating $258,000 and $234,000, respectively.
During the six-month periods ended June 30, 2004 and 2003, Vestin Mortgage
recorded management fees from Fund II approximating $515,000 and $443,000,
respectively. Vestin Mortgage, as the manager of Fund III, is entitled to a monthly
management fee of up to 0.25% of the aggregate capital contributions to Fund
III. During the three and six months ended June 30, 2004, Vestin Mortgage
recorded management fees from Fund III of approximately $8,700 and $11,000,
respectively. For the three and six month periods ended June 30, 2004, the
Company recorded revenues of approximately $22,000 and $37,000, respectively,
from its investment in Fund III as a result of distributions declared during
those periods. During the three month period ended June 30, 2004, the Company sold $0.3
million in loans to an entity wholly owned by the Companys Chief Executive
Officer. The Company relies primarily on Fund I and Fund II as funding sources for
mortgage loans brokered. The Company placed approximately $77.8 million and
$97.1 million in mortgage loans in the three month periods ended June 30, 2004,
and 2003, respectively. The Company placed approximately $220.1 million and
$152.6 million in mortgage loans in the six-month periods ended June 30, 2004,
and 2003, respectively. These loans were primarily funded by Fund I and Fund
II. During the three and six months ended June 30, 2004, the Company paid
approximately $172,000 and $438,000 to C5, LLC, a company wholly owned by the
Companys Chief Executive Officer pursuant to an Aircraft Usage Agreement. The
agreement allows the Company to use an airplane on a preferred basis over any
other proposed user. The Company used the airplane primarily for marketing and
lending activities. The Company is required to pay a monthly fee based on an
hourly rate of $3,000 per hour for the first 10 hours and $2,500 per hour for
each hour thereafter. The Company is required to make a minimum monthly payment
equivalent to 16 hours of usage ($45,000). The terms of the agreement were
approved by the Companys Board of Directors. The Company believes based upon a
review of aircraft rental rates that the terms of the Aircraft Usage Agreement
are fair and reasonable to the Company. On August 21, 2002, the Companys Board of Directors determined to seek new
premises for the offices of the Company. The Board of Directors determined
that the Company was not interested in purchasing a building. The Chief
Executive Officer (CEO) of the Company advised the Board of Directors that he
would be interested in acquiring a property which might be suitable to lease to
the Company as its new premises. The Board of Directors 12




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##### Table of Contents



agreed that the CEO could pursue such an opportunity providing that lease rates
and other terms of the lease agreement were at market standards. On March 15,
2003, the CEO, through a wholly owned company, acquired unimproved real estate
located in Las Vegas, Nevada. On March 31, 2003, the CEO sold the company,
which owned the real estate in Las Vegas. The CEO has
advised the Company that he made a profit of approximately $1.0 million in
connection with the sale. The unrelated party proceeded to build an
approximately 41,000 square foot office
building on the site. On March 31, 2003, the Company entered
into a ten year triple net
lease, to take effect August 1, 2004. The lease rate is $1.75 per
square foot, or an aggregate monthly rental of $71,645. In
May 2004, Fund III entered into an agreement to purchase the building. Accordingly, Fund III
will be the Companys landlord. Vestin Mortgage obtained a review of the
lease terms by an independent third party which concluded that the
lease rate represents a reasonable market rate reasonable to both parties. NOTE 5  INVESTMENTS IN MORTGAGE LOANS ON REAL ESTATE As of June 30, 2004, all outstanding mortgage loans were current and performing
according to their terms. No outstanding mortgage loans were past due with
respect to payment of interest at June 30, 2004. See Note 6 for information
with respect to properties acquired through foreclosure on certain defaulted
mortgage loans. Management has evaluated the collectibility of the loans in
foreclosure in light of the category and dollar amounts of such loans, adverse
situations that may affect the borrowers ability to repay, prevailing economic
conditions and the underlying collateral securing the loan. Due to economic
uncertainties and historical loss experience, the Companys management has
established a reserve for inherent losses in the portfolio totaling $110,000
based on the Companys policies and procedures regarding the valuation of its
investments in mortgage loans on real estate as a long-term investment. 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. 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, selection by a purchaser against multiple alternatives, 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, the Company may not recover the full amount of the loan. NOTE 6  INVESTMENTS IN REAL ESTATE HELD FOR SALE At June 30, 2004, the Company had various properties with a carrying value
totaling $7,078,754, which were acquired through foreclosure and recorded as
investments in real estate held for sale and secure specific payables as
discussed in Notes 7 and 8. Such investments in real estate held for sale are
accounted for at the lower of cost or fair value less costs to sell, based on
appraisals and knowledge of local market conditions. It is not the Companys
intent to invest in or own real estate acquired through foreclosure. The
Company seeks to sell properties acquired through foreclosure as quickly as
circumstances permit. % of
    
    AdjustedDescription
    
    ownership
    
    Carrying valueRaw land in Utah*
    
    
    100
    %
    
    $
    1,650,000Raw land in Las Vegas, Nevada
    
    
    100
    %
    
    
    500,000Raw land in Las Vegas, Nevada
    
    
    100
    %
    
    
    343,84030-unit condominium project in Las Vegas, Nevada
    
    
    83
    %
    
    
    1,084,914Raw land in Mesquite, Nevada
    
    
    100
    %
    
    
    3,500,000Total
    
    
    
    
    
    $
    7,078,754
 13




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##### Table of Contents



*This property is subject to a lien related to a Special Improvement District
(SID) which is not due and payable until such time as the Company sells the
property to a third party. If the Company begins development on the property,
the costs related to the SID will be assessed to the buyers of each individual
parcel resulting in no gain or loss to the Company. The carrying values of real estate held for sale are assessed on a regular
basis from updated appraisals, comparable sales values or purchase offers.
Based on current information available, the Company has provided valuation
allowances on real estate held for sale totaling $945,000 during the three
months ended June 30, 2004. Below is a rollforward of investments in real
estate held for sale for the three months ended June 30, 2004: Balance at
    
    
    
    
    
    
    
    
    
    Valuation
    
    Balance atDescription
    
    April 1, 2004
    
    Acquisitions
    
    Sales
    
    Adjustments
    
    June 30, 2004Raw land in Utah
    
    $
    2,400,000
    
    
    $
    
    
    
    $
    
    
    
    $
    (750,000
    )
    
    $
    1,650,000Raw land in Las Vegas, Nevada
    
    
    595,860
    
    
    
    
    
    
    
    
    
    
    
    (95,860
    )
    
    
    500,000Raw land in Las Vegas, Nevada
    
    
    343,840
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    343,84030-unit condominium project
in Las Vegas, Nevada
    
    
    1,084,914
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,084,914Raw land in Mesquite, Nevada
    
    
    3,600,000
    
    
    
    
    
    
    
    
    
    
    
    (100,000
    )
    
    
    3,500,000Total
    
    $
    8,024,614
    
    
    $
    
    
    
    $
    
    
    
    $
    (945,860
    )
    
    $
    7,078,754
 NOTE 7  NOTES PAYABLE Notes payable as of June 30, 2004, consists of promissory notes totaling
$374,654 to various parties related to foreclosed real estate properties. The
related properties were formerly collateral for loans placed by the Company.
Through foreclosure, the Company acquired the properties subject to the debt
owed to the existing trust deed holders. The Company is not required and does
not intend to pay interest on these notes. NOTE 8  NOTES PAYABLE  RELATED PARTY Notes payable  related party totaling $2,335,518 as of June 30, 2004, consists
of the following: Note payable to a company solely owned by the Companys Chief Executive
Officer totaling $158,000 related to developed parcels of land. Since the
Company acquired the properties through foreclosure, it is not required and
does not intend to pay interest on this note. Note payable to an entity controlled by the Companys Chief Executive Officer
totaling $569,061 related to vacant land. Since the Company acquired the
properties through foreclosure, it is not required and does not intend to pay
interest on this note. Note payable to entities controlled by the Companys Chief Executive Officer
totaling $806,094 related to vacant land. Since the Company acquired the
properties through foreclosure, it is not required and does not intend to pay
interest on this note. Notes payable to entities controlled by the Companys Chief Executive Officer
totaling $541,901 related to an apartment complex. Since the Company acquired
the properties through foreclosure, it is not required and does not intend to
pay interest on this note. Notes payable to entities controlled by the Companys former Chief Financial Officer
totaling $260,462 related to an apartment complex. Since the Company acquired
the properties through foreclosure, it is not required and does not intend to
pay interest on this note. NOTE 9  DIVIDENDS PAYABLE In June 2004, the Company declared a cash dividend to preferred stockholders of
approximately $0.08 per share that was paid in July 2004. 14




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##### Table of Contents



NOTE 10  PREFERRED STOCK During the three months ended June 2004, the Company redeemed 250,000 shares of
its Series A convertible preferred stock for $2,750,000 or $11 per share. NOTE 11  TREASURY STOCK During the six months ended June 30, 2004, the Company purchased 296,750 shares
of its common stock for $682,818. Additionally, the Company retired all
474,750 common shares held in treasury on June 30, 2004. NOTE 12  EARNINGS (LOSS) PER SHARE Basic earnings (loss) per share exclude the effects of dilution and are
computed by dividing net income (loss) available to common stockholders
adjusted for dividends to preferred stockholders by the weighted average amount
of common stock outstanding for the periods. Diluted earnings (loss) per share
reflect the potential dilution that may occur if options, convertible preferred
stock or other contracts to issue stock were exercised or converted into common
stock. During the six months ended June 30, 2004 and 2003, basic and diluted earnings per share included
adjustments for dividends to preferred shareholders of $404,511 and $452,178, respectively. During the three months ended June 30, 2004 and 2003, basic and diluted
earnings per share included adjustments for dividends to preferred shareholders
of $180,061 and $225,228, respectively. For the three and six months ended June
30, 2004, options and warrants to purchase 3,534,279 and 3,545,637 shares,
respectively, of common stock were excluded from the computation of diluted
earnings per share because their effect would be antidilutive. For the three and six months ended June 30, 2003 the company sustained a loss. Therefore, no options or
warrants were deemed dilutive and were excluded from the computation of diluted earnings per share. NOTE 13  RECENT ACCOUNTING PRONOUNCEMENTS In
January 2003, the Financial Accounting Standards Board
(FASB) issued Interpretation No. 46,
Consolidation of Variable Interest Entities
(FIN 46), in an effort to expand upon and strengthen
existing accounting guidance that addresses when a company should
include in its financial statements the assets, liabilities and
activities of another entity. In December 2003, the FASB revised
Interpretation No. 46, also referred to as
Interpretation 46(R) (FIN 46(R)). The objective
of this interpretation is not to restrict the use of variable
interest entities but to improve financial reporting by companies
involved with variable interest entities. Until now, one company
generally has included another entity in its consolidated financial
statements only if it controlled the entity through voting interests.
This interpretation changes that, by requiring a variable interest
entity to be consolidated by a company only if that company is
subject to a majority of the risk of loss from the variable interest
entitys activities or entitled to receive a majority of the
entitys residual returns or both. The Company is required to
apply FIN 46, as revised, to all entities subject to it no later
than the end of the first reporting period ending after
March 15, 2004. However, prior to the required application of
FIN 46, as revised, the Company shall apply FIN 46 or
FIN 46(R) to those entities that are considered to be
special-purpose entities as of the end of the first fiscal year or
interim period ending after December 15, 2003. The adoption of
this interpretation did not have a material effect on the
Companys consolidated financial statements. In October 2003, the American Institute of Certified Public Accountants issued
SOP 03-3 Accounting for Loans or Certain Debt Securities Acquired in a
Transfer. SOP 03-3 applies to a loan with the evidence of deterioration of
credit quality since origination acquired by completion of a transfer for which
it is probable at acquisition that the Company will be unable to collect all
contractually required payments receivable. SOP 03-3 is effective for loans
acquired in fiscal years beginning after December 31, 2004. The Company does
not expect SOP 03-3 to have a material impact on its consolidated financial
position or results of operations. NOTE 14  LEGAL MATTERS Vestin Group, Vestin Mortgage, and Del Mar Mortgage, Inc., a company wholly
owned by Michael Shustek, the largest stockholder and CEO of Vestin
Group, are
defendants in a civil action entitled Desert Land, L.L.C. et al. v. Owens
Financial Group, Inc. et al (the Action). The Action was initiated by Desert
Land, L.L.C. (Desert Land) on various loans arranged by Del Mar Mortgage,
Inc. and/or Vestin Mortgage. 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. 15




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##### Table of Contents



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 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. The staff of the Pacific Regional Office of the Securities and Exchange
Commission (SEC) has been conducting an informal inquiry into certain matters
related to the Company, Fund I, Fund II and Fund III. The staff of the SEC has
not identified the reasons for its inquiry, which remains ongoing as of August
16, 2004. We believe that we have complied with SEC disclosure requirements and
are fully cooperating with the inquiry. We cannot at this time predict the
outcome of the inquiry. On
May 30, 2003, Vestin Mortgage filed a civil action for damages
in the amount of approximately $2,000,000 against
First American Title Company in the Utah Third District Court (Case No.
030912242) for various causes of action in connection with First American Title
Companys alleged failure to note in its title report a bond assessment on
certain foreclosed land in Utah. First American Title Company subsequently
filed for dismissal and the case was dismissed on November 5, 2003. On March 2,
2004, Vestin Mortgage appealed the judgment to the Utah Court of Appeals. The Company and its subsidiaries are involved in a number of legal proceedings
concerning matters arising in connection with the conduct of their business
activities. The Company believes it has meritorious defenses to each of these
actions and intends to defend them vigorously. The Company believes that it is
not a party to, nor are any of its subsidiaries the subject of, any pending
legal or arbitration proceedings that would have a material adverse effect on
the Company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 Companys net income in any particular period. NOTE 15  SUBSEQUENT EVENTS During July 2004, the Company announced a 2-for-1 reverse stock split which
became effective July 23, 2004. During August 2004, the Company redeemed 147,800 shares of its Series A
convertible preferred stock for $1,625,800 or $11 per share. During
July and August 2004, the Company purchased and retired 264,769
pre-split shares
of its Common Stock for $573,380. 16




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS The following financial review and analysis concerns the financial condition
and results of operations of the Company for the three months ended June 30,
2004 and 2003. This information should be read in conjunction with the
Companys unaudited Consolidated Financial Statements and accompanying notes
and other detailed information regarding the Company appearing elsewhere in
this Form 10-QSB/A and in the Companys annual report on Form 10-KSB/A and Form
10-KSB/A-2 for the year ended December 31, 2003. BACKGROUND Vestin Group, Inc. (Vestin Group) was incorporated in Delaware on June 2,
1998 under the name Sunderland Acquisition Corporation. Vestin Group is a
holding company that conducts all of its operations through its wholly owned
subsidiaries. Vestin Groups stock is traded on the Nasdaq SmallCap Market
under the ticker symbol VSTN. OVERVIEW The Company is primarily engaged in the commercial mortgage brokerage business.
The Company arranges loans to owners and developers of real property whose
financing needs are not being met by traditional mortgage lenders. The
underwriting standards and length of time required by traditional mortgage
lenders, such as commercial banks, result in certain potential borrowers who
are unable to or unwilling to go through the process required by traditional
lenders. As a non-conventional lender, the Company focuses on the needs of
borrowers unable or unwilling to meet the more restrictive requirements of
traditional lenders. When evaluating prospective borrowers, the Company
typically focuses on the value of the collateral, which reduces the paperwork
and time needed to evaluate other factors. Vestin Mortgage, Inc., our wholly-owned subsidiary(Vestin Mortgage), operates
as a mortgage broker licensed in the state of Nevada. Vestin Mortgages primary
operations consist of the brokerage and placement of commercial, construction,
acquisition and development, land and residential mortgage loans secured by
real property as well as managing Vestin Fund I, LLC (Fund I), Vestin Fund
II, LLC (Fund II), Vestin Fund III, LLC (Fund III) (collectively, the
Funds) and inVestin Nevada, Inc. (inVestin Nevada), a company wholly-owned
by the Companys Chief Executive Officer. The Funds and inVestin Nevada invest
in mortgage loans. Fund III also invests in real property. The Funds are the main funding sources for Vestin Mortgages commercial
mortgage brokerage activities. As manager of the Funds, Vestin Mortgage
evaluates prospective investments, selects the mortgages in which the Funds
will invest and makes all investment decisions for the Funds. Additionally,
Vestin Mortgage is responsible for all administrative matters such as
accounting, tax and legal requirements for the Funds. RESULTS OF OPERATIONS COMPARISON OF THE THREE AND SIX MONTHS ENDED JUNE 30, 2004 AND 2003 Revenue The Company reported total revenues of approximately $5.4 million and $7.2
million for the three months ended June 30, 2004 and 2003, respectively, a
decrease of $1.8 million or 25%. For the six months ended June 30, 2004 and
2003, total revenues approximated $19.8 million and $13.6 million,
respectively, an increase of $6.2 million or 46%. The decrease for the three
months ended June 30, 2004 is primarily attributable to a $19.3 million
decrease in the dollar amount of loans originated for the period. The increase
in revenue for the six months ended June 30, 2004 is primarily attributable to
income related to a legal settlement with the guarantors of a defaulted loan as
more fully discussed herein. The total dollar amount of loans placed for the three months ended June 30,
2004 and 2003 was $77.8 million and $97.1 million, respectively, a decrease of
$19.3 million or 20%. For the six months ended June 30, 2004 and 2003, 17




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##### Table of Contents



the
total dollar amount of loans placed approximated $220.1 million
and $152.6 million, respectively, an increase of $67.5 million or 44%. These fluctuations are not uncommon given the nature of the industry in which the Company operates, which entails the arrangement of fewer loans with high loan amounts. The Company reported total loan placement fees of approximately $3.3 million
and $4.1 million for the three months ended June 30, 2004 and 2003,
respectively, a decrease of $0.8 million or 20%. For the six months ended June
30, 2004 and 2003, loan placement fees approximated $9.3 million and $8.6
million, respectively, an increase of $0.7 million or 8%. Although the dollar
amount of loans originated increased by $67.5 million, the average fees as a
percentage of loan amount decreased from 5.7% to 4.2%. Loan placement and related fees revenues for the three months ended June 30,
2004 and 2003 approximated 91% and 92% of total revenues, respectively. Loan
placement and related fees revenues for the six months ended June 30, 2004 and
2003 approximated 66% and 91% of total revenues, respectively. Loan placement fees as a percentage of dollar amount of loans placed averaged
6.3% and 4.2% for the three months ended June 30, 2004 and 2003, respectively.
Loan placement fees as a percentage of dollar amount of loans placed for the six months
ended June 30, 2004 and 2003 averaged 4.2% and 5.6%, respectively. The 6.3%
average placement fee in the second quarter of 2004 and the 5.6% average
placement fee in the six months ended June 30, 2003 resulted from above average
loan charges for those periods due to higher loan fees charged on specific
loans and are not indicative of a trend. Other fees related to loan placement and servicing totaled $0.4 million for the
three months ended June 30, 2004, as compared to $1.1 million for the same
period in 2003, a decrease of $0.7 million or 63%. Other fees related to loan
placement and servicing totaled $1.2 million for the six months ended June 30,
2004, compared to $2.6 million for the same period in 2003, a
decrease of $1.4 million or 54%. The decrease of $0.7 million and $1.4 million is primarily
related to a decrease in the dollar amount of loans being serviced during the
periods of 2004 compared to the prior year. Extension fees for the three months ended June 30, 2004 and 2003 totaled $1.2
million and $1.4 million, respectively, a decrease of $0.2 million or 14%. For
the six months ended June 30, 2004 and 2003, extension fees totaled $2.5
million for both periods. During the six months ended June 30, 2004, the Company entered into a legal
settlement with the guarantors of a loan to recover shortfalls resulting from
the sale of related real estate acquired through foreclosure. The settlement
resulted in revenue of approximately $5.9 million which came in the form of
cash totaling $2.3 million and land valued at $3.6 million. During the three
months ended June 30, 2004, the land was re-valued at $3.5 million based on an
offer received on the property less costs related to the sale. Geographical Expansion Although the Company has historically focused its operations in certain Western
states, the Company has commenced expansion of its operations throughout the
U.S. The Company has developed a significant degree of knowledge with respect
to the real estate markets in the Western states. Such knowledge is critical to
the Companys business as it enables the Company to process loan applications
more quickly than many conventional lenders. The Company is able to rapidly
process loan applications in large part because the Companys underwriting
standards focus heavily on the value of the underlying property rather than the
creditworthiness of the borrower. The Companys ability to quickly assess the
underlying value of real estate when it arranges the terms of a mortgage loan
is therefore essential to its strategy of providing fast turnaround for loan
applications. Real estate markets are significantly influenced by local conditions as well as
by national economic conditions. Thus, real estate markets vary greatly from
place to place and local knowledge of a real estate market is essential to
prudent lending. In order to obtain such local knowledge, the Company intends
to engage the services of local real estate brokers and real estate lawyers who
are believed to be familiar with the markets into which the Company may expand.
No assurances can be given that the Company will be successful in any
geographical expansion of its operations or that it will be able to mitigate
the risk of such expansion by working with local brokers and lawyers. Any
difficulties encountered by the Company in this regard could adversely affect
the Companys results of operations, slow down its expansion plans or result in
a reduction of loan placement fees. 18




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Sales and Marketing Expenses Sales and marketing expenses primarily consist of advertising costs, public
relations expenses, commissions and travel expenses. Sales and marketing
expenses for the three months ended June 30, 2004 and 2003 were approximately
$0.9 million and $2.8 million, respectively, a decrease of $1.9 million or 68%.
For the six months ended June 30, 2004 and 2003, sales and marketing expenses
were approximately $3.7 million and $5.6 million, respectively, a decrease of
$1.9 million or 34%. The changes are primarily related to the following:  
    
    Commissions expense decreased by $0.5 million and $1.5 million for
the three and six months ended June 30, 2004, respectively compared to
the same periods in the prior year. The majority of loans placed
during those periods were not referred to the Company by brokers or
other outside sources. The decrease is not indicative of a trend as
the Company is actively pursuing outside sources such a brokers as
sources of loans to be originated.
    
    Public relations expenses decreased by $0.5 million for the three
months ended June 30, 2004, compared to the same period in the prior
year. Since the Company cancelled its contract with Planned Licensing,
Inc., there will no longer be any expenses associated with cash paid
under the agreement or amortization of the common stock warrants issued
in conjunction with the agreement. For the six months ended June 30,
2004, public relations expense increased by approximately $1.0 million
compared to the same period in the prior year. On March 15, 2004, the
Company notified Planned Licensing, Inc., the public relations firm for
Joe Namath, that it is terminating its License Agreement with Mr.
Namath. As a result, the Company fully expensed the remaining portion
of the compensatory stock warrants issued to Mr. Namath which were
being amortized over the term of his contract. The unamortized portion
of the stock warrant compensation totaled approximately $1.9 million
were fully expensed to public relations expense during the six months
ended June 30, 2004.
    
    As part of the Companys program of rightsizing and strategic cost
controls, advertising expenses decreased by $0.6 million and $0.9
million for the three and six months ended June 30, 2004,
respectively,
compared to the same periods in the prior year.
    
    For the six months ended June 30, 2004, travel expenses decreased
by $0.3 million due to a reduction in the number of seminars held to
attract investors to invest in the Funds. General and Administrative Expenses General and administrative expenses included payroll and related expenses,
consultation fees, professional fees, and general corporate expenses. General
and administrative expenses of the Company were $3.0 million for the three
months ended June 30, 2004, as compared to $3.4 million for same period in
2003, a decrease of $0.4 million or 12%, which is primarily related to
decreases in payroll due to cost cutting measures taken during February 2004.
Expenses totaled $6.9 million for both six month periods ended June 30, 2004
and 2003. Although payroll expenses decreased as a result of the cost cutting
measures, there was a corresponding increase in legal, accounting, and
consulting fees related to the informal inquiry by the Securities and Exchange
Commission. During February 2004, the Company performed an extensive review of the economic
environment and the status of its business and concluded that in order to
provide the best possible opportunity for success in meeting its strategic and
financial objectives, a change in operating strategy is required. To that end
the Company initiated a program of rightsizing and strategic cost controls
which involves the reduction of various costs including payroll, marketing and
sales expenses to a level that is more suitable to its current business
strategy. As a result, the Company expects general and administrative expenses
to significantly decrease for the remaining part of 2004, specifically as it
relates to payroll and related expenses. Other Expenses The Company periodically assesses the value of real estate held for sale
acquired through foreclosure by various methods including obtaining updated
appraisals when deemed necessary, reviewing recent market activity or any 19




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other method available to properly assess such values. As a result of such
assessments, the Company recorded valuation losses of $0.9 million for the
three months ended June 30, 2004. The following is a rollforward of the
carrying value of real estate held for sale for the quarter ended June 30,
2004: Carrying ValueBefore
    
    Valuation
    
    AdjustedAdjustment
    
    Loss
    
    Carrying valueRaw land in Utah
    
    $
    2,400,000
    
    
    $
    750,000
    
    
    $
    1,650,000Raw land in Las Vegas, Nevada
    
    
    595,860
    
    
    
    95,860
    
    
    
    500,000Raw land in Las Vegas, Nevada
    
    
    343,840
    
    
    
    
    
    
    
    343,84030-unit condominium project in
Las Vegas, Nevada
    
    
    1,084,914
    
    
    
    
    
    
    
    1,084,914Raw land in Mesquite, Nevada
    
    
    3,600,000
    
    
    
    100,000
    
    
    
    3,500,000Total
    
    $
    8,024,614
    
    
    $
    945,860
    
    
    $
    7,078,754
 Income (Loss) Before Income Taxes As a result of the foregoing factors, results from operations before provision
(benefit) for income taxes generated income of $0.5 million and $7.6 million,
respectively, for the three and six months ended June 30, 2004 compared to
losses of $1.1 million and $2.8 million, respectively, for the same periods in
2003. Net Income (Loss) For the three and six months ended June 30, 2004, net income was approximately
$0.3 million and $5.0 million, respectively, compared to a net loss of $0.7
million and $1.8 million, respectively, for the same periods in 2003. Earnings (Loss) Per Share For the three months ended June 30, 2004 basic earnings per share totaled $0.03
and diluted earnings per share totaled $0.02 per share, compared to a loss of
$0.18 per basic and diluted share for the three months ended June 30, 2003.
For the six months ended June 30, 2004 basic earnings per share totaled $0.90
per share and diluted earnings per share totaled $0.66 per share compared to a
loss of $0.43 per basic and diluted share for the six months ended June 30,
2003. Earnings per diluted share considers the dilutive effect of stock
options and warrants. CRITICAL ACCOUNTING ESTIMATES Revenue Recognition The Company recognizes revenue primarily from loan placement fees, loan
servicing fees and extension fees. Loan placement fees are generally recorded
as revenue at the close of escrow and reduced by direct loan placement costs on
loans which the Company has not recorded as investments in mortgage loans on
its financial statements. Typically, deeds of trust related to loans placed are initially in the
Companys name to facilitate the loan placement process. Upon arranging a
funding source for such loans, the deeds of trust are assigned to the
respective investor (i.e., the Funds). Loan servicing fees are recorded as
revenue when such services are rendered. Servicing fees represent the interest
spread between what is paid to the investor and what the borrower pays for the
use of the money, which can vary from loan to loan. Servicing costs approximate
servicing fees and therefore, the Company has not recognized a servicing asset
or liability. Extension fees are generally recorded as revenue at the extension
grant date. Interest income on investments in mortgage loans on real estate is recorded
when earned. The Company does not recognize interest income from loans once
they are determined to be impaired. A loan is impaired when, based on 20




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current information and events, it is probable that the Company 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. Investments in Real Estate Held for Sale Real estate held for sale includes real estate acquired through foreclosure and
is carried at the lower of cost or the propertys estimated fair value, less
estimated costs to sell. The Company seeks to sell properties acquired through
foreclosure as quickly as circumstances permit. Investments in Mortgage Loans Investments in mortgage loans are secured by trust deeds and mortgages.
Generally, the Companys mortgage loans require interest only payments, either
through payments or decrease of an interest reserve, with a balloon payment of
the principal at maturity. The Company has both the intent and ability to hold
mortgage loans until maturity and therefore, mortgage loans are classified and
accounted for as held for investment and are carried at cost. 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, which may
be commissioned by the borrower, are generally dated within 12 months of 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 drastically exceed the immediate sales value and
may include anticipated zoning changes, selection by a purchaser against
multiple alternatives, 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, the Company may not recover the
full amount of the loan. Allowance for Loan Losses The Company maintains an allowance for loan losses on its investment in
mortgage loans for estimated credit impairment in the Companys investment in
mortgage loans portfolio. The Company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 including, but not limited to, 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 in income
when the property is sold. Income taxes The Company accounts for its income taxes using the liability method, which
requires recognition of deferred tax assets and liabilities for the future tax
consequences attributable to differences between carrying amounts of existing
assets and liabilities and their respective tax bases and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. LIQUIDITY AND CAPITAL RESOURCES Liquidity is a measure of the Companys ability to meet potential cash
requirements, including ongoing commitments to fund lending activities. The
Company has historically met its capital requirements through cash flows from
operations and its ability to access individual investors, as well as the
Funds, who acquire interests in mortgage loans. For the six months ended June 30, 2004, the cash flows provided by operating
activities of the Company were approximately $4.9 million, compared to cash
used by operating activities of $0.4 million during the six months 21




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ended June 30, 2004. Cash provided by investing activities were approximately
$1.8 million during the six months ended June 30, 2003, compared to $6.9
million during the same period of the prior year. Financing activities used
$5.0 million for the six months ended June 30, 2004 compared to $7.2 million
for the same six month period in 2003. The Company has historically relied upon cash flow from operations to provide
for its capital requirements. During the six months ended June 30, 2004, the
Company generated positive cash flow of $1.8 million from investing activities
and believes that cash generated from operations will be sufficient to provide
for its capital requirements to sustain currently expected loan volumes for at
least the next 12 months. The Company is also exploring additional sources of financing including new
and/or expanded credit facilities. There can be no assurance that the Company
will be able to obtain any additional financing. Funding Sources In order to maintain and expand its business, the Company must have access to
funding sources that are prepared to invest in mortgage loans which it brokers.
Historically, the Company has relied primarily upon individual investors and
participating lenders for this purpose. However, in order to expand its
business, the Company organized Fund I and Fund II upon which it now depends as
its principal funding sources. At June 30, 2004, Fund I had capital of
approximately $82.4 million and Fund II had capital of approximately $360.5
million. Both Fund I and Fund II have completed the public offering of their
units and are not expected to raise significant amounts of additional capital.
The Companys wholly-owned subsidiary, Vestin Mortgage, is the manager of both
Funds. On November 7, 2003, the SEC declared the registration statement (Form S-11) of
Fund III to be effective and the marketing of $100 million of Fund III units
commenced. Fund III will invest in and operate multifamily, assisted living,
office, industrial and retail property, and other income producing properties
as well as invest in mortgage loans where the collateral is real property.
Vestin Mortgage is the manager of Fund III. Vestin Mortgage will earn real
estate commissions, advisory fees, and property management fees as well as loan
brokerage, evaluation, administration and extension, or modification fees.
Vestin Capital, Inc., the Companys wholly-owned subsidiary, is the
dealer-manager for the sale of Fund III units. As of June 30, 2004, Fund III
has raised approximately $15.6 million. The Companys ability to attract investors to acquire interests in mortgage
loans, either directly or through the Funds or other means, depends upon a
number of factors, some of which are beyond its control. The key factors in
this regard include general economic conditions, the condition of real estate
markets, the availability of alternative investment opportunities, and the
Companys business reputation. The yields generated by loans the Company
originates may prove more attractive in the near term if equity markets are
perceived as being risky or volatile and if most fixed rate investments do not
offer comparable yields. On the other hand, when equity markets are doing well,
it is generally harder to attract investors to the Funds. Notwithstanding the high historical yields generated by the Companys mortgage
loans compared to conventional mortgage lenders, the Company believes its
ability to attract investors may be impaired by its small size and limited
operating history. In addition, the mortgage loan investments the Company
offers are not federally insured as are certain bank deposits and the mortgage
loan interests are generally illiquid as compared to government or corporate
bonds. Thus, the Companys ability to place loans with high yields is critical
to offsetting some of the disadvantages of investments in mortgage loans. The
Companys ability to attract investors has suffered because the rate of return
paid to members of the Funds has declined over the past year and a half. If
this decline continues, the Company will find it increasingly difficult to
attract investors and the Funds may shrink as members exercise their redemption
rights. Any significant level of redemptions by the Funds members would reduce the
capital available by the Funds for investment, and accordingly, reduce the fees
paid to Vestin Mortgage. In order to comply with the operating agreements of
the Funds and the Internal Revenue Code, the Funds may redeem no more than 10%
of the aggregate members capital in any calendar year. As of June 30, 2004,
the total of redemptions made from inception was $25.7 million for Fund I and
$64.4 million for Fund II. Balances in members capital accounts for Fund I as
of January 1, 2004 was $89.5 million, which would limit redemptions to $9.0
million for calendar 2004. Balances in members capital accounts for Fund II
as of January 1, 2004 was $394.0 million, which would limit redemptions to 22




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$39.4 million for calendar 2004. As of June 30, 2004, Fund I had paid
approximately $8.3 million in redemptions and Fund II had paid approximately
$30.3 million in redemptions in 2004, Fund II has $9.1 million in redemptions
that remain to be fulfilled in 2004 and Fund I had $0.7 million in
redemptions that remain to be fulfilled in 2004. As of June 30, 2004, requests to redeem approximately
$8.1 million in 2005, $7.2 million in 2006, $6.5 million in 2007, $5.9 million
in 2008, $5.3 million in 2009, $4.8 million in 2010, and $0.6 million in 2011
had been logged for Fund I. As of June 30, 2004, remaining requests to redeem
approximately $35.5 million in 2005, $31.9 million s in 2006, $28.7 million in
2007, $29.9 million in 2008, $23.3 million in 2009, $20.9 million in 2010,
and $18.8 million in 2011 had been logged for Fund II. Intercreditor agreements provide the Company additional funding sources for
mortgage loans whereby a third party investor (the Investor) may participate
in certain mortgage loans with the Company and/or the Funds (collectively the
Lead Lenders). In the event of borrower non-performance, the intercreditor
agreements require that the Lead Lenders to protect 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 participated loan amount from the Investor for the outstanding
balance plus accrued interest. Additionally, an Investor may participate in
certain loans with Lead Lenders through participation agreements. Pursuant to
the participation agreements, the Investor may invest in certain loan or loans
with the Lead Lenders. In the event of borrower non-performance, the
participation agreement allows the Investor to be repaid up to the amount of
the Investors investment prior to the Lead Lenders being repaid. As of June 30, 2004, funds being used under intercreditor and participation
agreements where the Company has potential obligations as defined above totaled
$91.1 million. FACTORS AFFECTING THE COMPANYS OPERATING RESULTS This quarterly report and other written reports and oral statements made from
time to time by the Company 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 the Companys business strategy, future operating
results, future sources of funding for mortgage loans brokered by the Company,
future economic conditions and pending litigation involving the Company. As a
result, investors should carefully consider any forward looking statements in
light of the various factors which could affect future results. Some of these
factors are discussed below. The Companys business is subject to numerous factors affecting its operating
results. In addition to the factors discussed above, the Companys operating
results may be affected by: Limited Experience in Certain Real Estate Markets Currently, the Company brokers mortgage loans or works with mortgage brokers
primarily in areas in which the Company and Vestin Mortgage have substantial
experience such as Arizona, California, Nevada, Texas, and Hawaii. Depending on
the market and on the Companys performance, the Company plans to expand its
operations throughout the United States. However, the Company has limited
experience outside of certain Western States. Real estate markets vary greatly
from location to location. The Companys limited experience in most U.S. real
estate markets may impact its ability to make prudent investment decisions and
may delay the loan approval process. This delay could have a material impact on
the Companys competitive advantage of providing fast loan approvals.
Accordingly, the Company plans to utilize independent real estate advisors
located in markets where the Company lacks experience for consultation prior to
making investment decisions. No assurance can be given that such advisors will
provide the Company effective assistance. Dependence on Key Personnel The Companys success depends upon the continued contributions of certain key
personnel, including Michael V. Shustek and Lance Bradford, each of whom would
be difficult to replace because of his extensive experience in his field,
extensive market contacts and familiarity with the Companys activities. If any
of these key employees were to cease employment, the Companys operating
results could suffer. The Companys future success also depends in 23




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large part upon its ability to hire and retain additional highly skilled
managerial, operational and marketing personnel. Should the Company be unable
to attract and retain skilled personnel, the Companys performance may suffer. Risks of Underwriting Standards and Procedures The Companys underwriting standards and procedures are more lenient than
conventional lenders in that it invests in loans to borrowers who will not be
required to meet the credit standards of conventional mortgage lenders. The Company approves mortgage loans more quickly than other mortgage lenders.
Due to the nature of such loan approvals, there may be a risk that the credit
inquiry the Company performs may not reveal all material facts pertaining to
the borrower and the security. As a result, the loans the Company arranges and
loans in which the Company may invest may suffer from a higher rate of defaults
as compared to loans arranged by more conventional lenders. The Company
attempts to mitigate this risk by insisting upon lower loan-to-value ratios.
Nonetheless, the Companys future results of operations may be adversely
affected by defaulting borrowers and the attendant risk and expense of
foreclosure proceedings. Additionally, loan-to-value ratios on some
construction and development loans may be calculated using an as-if completed
appraisal, the values of which can dramatically change. Risks of Interest Rate Changes The Companys 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, the Company expects 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. This could result in a slowdown in real
estate lending which may mean the Company will have fewer loans to acquire,
thus reducing its revenues and the distributions to stockholders. One of the results of interest rate fluctuations is that borrowers may seek to
extend their low-interest-rate mortgage loans after market interest rates have
increased. Generally, the Companys loan documents permit it to raise the
interest rate it charges on extended loans anywhere from between 3/4% to 3%
from the then-current rate on the loan. This creates three risks for the
Company: (i) There can be no assurance that this permitted rate increase will be
adequate if interest rates have increased beyond the range contemplated by the
Companys loan documents. (ii) 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, there is a higher risk that the borrower may default on the
extended loan, and the increase in the interest rate on the loan may not be
adequate compensation for the increased risk. Distributions on mortgage loans
the Company places may decline if lenders are unable to reinvest at higher
rates or if an increasing number of borrowers default on their loans. (iii) If, at a time of relatively low interest rates, a borrower prepays
obligations that have a higher interest rate from an earlier period, investors
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, the investors will
receive neither the anticipated revenue stream at the higher rate nor
compensation for their loss. This in turn could harm the Companys business
reputation and may make it more difficult for the Company to attract investors
willing to acquire interests in mortgage loans. Competition For Funds The Companys ability to access funds for mortgage loans depends upon the
perceived attractiveness of yields on loans the Company places, the safety of
the underlying investment, the Companys business reputation, general economic
conditions and real estate market conditions. The Companys principal advantage
in attracting investors is the high historical yields generated by loans the
Company brokers. The Company is at a disadvantage compared to alternative
investment vehicles to the extent that an investment in mortgage loans lacks
liquidity and is not guaranteed or insured by a governmental agency. In
addition, the fact that the Company is smaller than many of the 24




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full service financial firms offering alternative investment vehicles and has a
more limited operating history may be disadvantages in seeking to attract
investors. Furthermore, the increase in non-performing loans in the Funds has
adversely affected the Companys ability to compete for new investors. Competition For Borrowers The Company considers its competitors for borrowers to be the providers of
non-conventional mortgage loans, that is, lenders who offer short-term,
equity-based loans on an expedited basis for slightly higher fees and rates
than those charged by conventional lenders. To a lesser extent, the Company
also competes with conventional mortgage lenders and mortgage loan investors,
such as commercial banks, thrifts, conduit lenders, insurance companies,
mortgage brokers, pension funds and other financial institutions that offer
conventional mortgage loans. Many of the companies against which the Company
competes have substantially greater financial, technical and other resources
than the Company does. Competition in the Companys 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. 25




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ITEM 3. CONTROLS AND PROCEDURES. The Company has evaluated the effectiveness of the design and operation of its
disclosure controls and procedures as of a date within 90 days prior to the
filing of this report on Form 10-QSB/A (the Evaluation Date). Such evaluation
was conducted under the supervision and with the participation of the Companys
Chief Executive Officer (CEO) and the Chief Financial Officer (CFO). Based
upon such evaluation, the Companys CEO and CFO have concluded that, as of the
Evaluation Date, the Companys disclosure controls and procedures were
effective. There has been no change in the Companys internal control over
financial reporting during the Companys second quarter of fiscal 2004 that has
materially affected, or is reasonably likely to materially affect, the
Companys internal control over financial reporting. 26




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PART II. OTHER INFORMATION 
 ITEM 1. LEGAL PROCEEDINGS Vestin Group, Vestin Mortgage, and Del Mar Mortgage, Inc., a company wholly
owned by Michael Shustek, the largest stockholder and CEO of Vestin
Group, are
defendants in a civil action entitled Desert Land, L.L.C. et al. v. Owens
Financial Group, Inc. et al (the Action). The Action was initiated by Desert
Land, L.L.C. (Desert Land) on various loans arranged by Del Mar Mortgage,
Inc. and/or Vestin Mortgage. 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. 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 $5,683,312.19 (which amount includes prejudgment interest and
attorney 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. The staff of the Pacific Regional Office of the Securities and Exchange
Commission (SEC) has been conducting an informal inquiry into certain matters
related to the Company, Fund I, Fund II and Fund III. The staff of the SEC has
not identified the reasons for its inquiry, which remains ongoing as of August
16, 2004. The Company believes that it has complied with SEC disclosure
requirements and are fully cooperating with the inquiry. The Company cannot at
this time predict the outcome of the inquiry. On
May 30, 2003, Vestin Mortgage filed a civil action for damages
in the amount of approximately $2,000,000 against First American
Title Company in the Utah Third District Court (Case No. 030912242) for various
causes of action in connection with First American Title Companys alleged
failure to note in its title report a bond assessment on certain foreclosed
land in Utah. First American Title Company subsequently filed for dismissal and
the case was dismissed on November 5, 2003. On March 2, 2004, Vestin Mortgage
appealed the judgment to the Utah Court of Appeals. The Company and its subsidiaries are involved in a number of legal proceedings
concerning matters arising in connection with the conduct of their business
activities. The Company believes it has meritorious defenses to each of these
actions and intends to defend them vigorously. The Company believes that it is
not a party to, nor are any of its subsidiaries the subject of, any pending
legal or arbitration proceedings that would have a material adverse effect on
the Company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 Companys net income in any particular period. 
 ITEM 2. CHANGES IN SECURITIES Not applicable 
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable 
 ITEM 5. OTHER INFORMATION Not applicable 27




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##### Table of Contents



ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits EXHIBIT INDEX Exhibit
    
    
    
    Page Number/Number
    
    Description
    
    Filing Method2.1
    
    Agreement and Plan of Reorganization among the Company, Capsource, Inc.
and Stephen J. Byrne, dated as of April 9, 1999
    
    
    (1
    )2.2
    
    Asset Acquisition Agreement between the Company and Del Mar Holdings,
Inc., dated as of April 9, 1999
    
    
    (1
    )2.3
    
    Asset Acquisition Agreement between the Company and Del Mar Mortgage,
Inc., dated as of April 9, 1999
    
    
    (1
    )2.4
    
    Agreement and Plan of Reorganization among the Company, L. L. Bradford
& Company and the Shareholders of L. L. Bradford & Company, dated June
30, 2000
    
    
    (2
    )3.1
    
    Certificate of Incorporation
    
    
    (3
    )3.2
    
    By-laws
    
    
    (3
    )3.3
    
    Certificate of Amendment of
Certificate of Designations of Rights, Preferences, Privileges and
Restrictions of Series A Convertible Preferred Stock
    
    
    (15
    )3.4
    
    Certificate of Amendment to
Certificate of Incorporation
    
    
    (15
    )4.1
    
    See Exhibits 3.1, 3.2, 3.3
and 3.4 for provisions of the Certificate of
Incorporation, Certificate of Designations and By-laws of the Registrant defining the rights of
holders of Common Stock and Series A Preferred Stock of the Registrant
    
    
    (3
    )4.2
    
    See Exhibit 10.9 for Certificate of Designations authorizing the issuance of Series A
Convertible Preferred Stock
    
    
    (6
    )10.1
    
    Employment Agreement between Del Mar Mortgage, Inc. and Steve Byrne,
dated November 3, 1998
    
    
    (4
    )10.2
    
    Transition Agreement between Del Mar Mortgage, Inc. and Capsource,
Inc., dated April 27, 1999 and First Amendment thereto, dated April 27,
1999
    
    
    (4
    )10.3
    
    Employment Agreement between Del Mar Mortgage and Mike Whiteaker, dated
May 3, 1999
    
    
    (4
    )10.4
    
    The 2000 Stock Option Plan of Sunderland Corporation
    
    
    (4
    )10.5
    
    Employment Agreement between the Company and Michael V. Shustek, dated
December 1, 1999
    
    
    (4
    )10.6
    
    Employment Agreement by and between the Company and Peggy May (now
known as Peggy Shustek), dated September 1, 2001
    
    
    (14
    )10.7
    
    Totally Restated and Amended Employment Agreement by and between the
Company and Lance Bradford, dated as of January 1, 2003
    
    
    (14
    )10.8
    
    Third Amended and Restated
Operating Agreement of DM Mortgage Investors, LLC (now known as Vestin
Fund I, LLC), dated as of November 2,
2000
    
    
    (5
    )10.9
    
    Certificate of Designations authorizing the issuance of Series A
Convertible Preferred Stock
    
    
    (6
    )10.10
    
    Operating Agreement of Vestin Fund II, LLC, dated as of December 7, 2001
    
    
    (7
    )10.11
    
    License Agreement by and between the Company and Planned Licensing,
Inc., dated as of January 2001
    
    
    (8
    )10.12
    
    Amended and Restated Intercreditor Agreement by and between Vestin
Mortgage, Inc., Vestin Fund I, LLC, Vestin Fund II, LLC and Owens
Financial Group, Inc., dated as of September 25, 2002
    
    
    (14
    )10.13
    
    Amended and Restated Operating Agreement of Vestin Fund III, LLC
    
    
    (13
    )
 28




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##### Table of Contents



Exhibit
    
    
    
    Page Number/Number
    
    Description
    
    Filing Method10.14
    
    Office Lease Agreement between the Company and The Wildwood Hills
Development, Corporation, dated January 5, 2001
    
    
    (14
    )10.15
    
    Employment Agreement by and between the Company and Daniel Stubbs,
dated January 1, 2003
    
    
    (11
    )10.16
    
    Office Lease by and between Luke Properties, LLC and the Company, dated
March 31, 2003
    
    
    (15
    )10.17
    
    Separation Agreement and Release of All Claims by and between Steve
Byrne and the Company, dated as of October 14, 2003
    
    
    (11
    )10.18
    
    Amended and Restated Intercreditor Agreement by and among Vestin
Mortgage, Inc., Vestin Fund I, LLC, Vestin Fund II, LLC, Owens
Financial Group, Inc., and Owens Mortgage Investment Fund, dated April
18, 2003
    
    
    (9
    )10.19
    
    Aircraft Usage Agreement by and between the Company and C5, LLC, dated
September 1, 2002
    
    
    (9
    )10.20
    
    Indemnity Agreement by and between the Company and Del Mar Mortgage,
Inc., dated April 15, 2003
    
    
    (10
    )10.21
    
    Guaranty by and among the Company, Michael V. Shustek, and Del Mar
Mortgage, Inc., dated April 15, 2003
    
    
    (10
    )10.22
    
    Office Lease Agreement by and between The Wildwood Hills Development,
Corporation and the Company, dated January 5, 2001
    
    
    (12
    )10.23
    
    Office Lease by and between 2901 El Camino, Las Vegas, NV, LLC and the
Company, dated August 1, 2002
    
    
    (12
    )10.24
    
    Office Lease Agreement by and between The Wildwood Hills Development,
Corporation and the Company, dated January 5, 2001
    
    
    (12
    )10.25
    
    Office Lease Agreement by and between 2901 El Camino, Las Vegas, NV,
LLC and the Company, dated August 1, 2002
    
    
    (14
    )31.1
    
    Section 302 Certification of Michael V. Shustek31.2
    
    Section 302 Certification of
Lance K. Bradford32
    
    Certification Pursuant to 18 U.S.C. Section 1350
   (1)
    
    Previously filed on Form 8-K (File No. 000-24803) on May 4, 1999.(2)
    
    Previously filed on Form 8-K (File No. 000-24803) on April 14, 2000.(3)
    
    Previously filed on Form 10-KSB/A (File No. 000-24803) on August
13, 1998.(4)
    
    Previously filed on Form 10-KSB (File No. 000-24803) on March 31,
2000.(5)
    
    Previously filed on Form 424B5 (File No. 333-32800) on November 15,
2000.(6)
    
    Previously filed on Form 8-K (File No. 000-24803) on December 7,
2001.(7)
    
    Previously filed on Form S-11 (File No. 793646) on December 21, 2000.(8)
    
    Previously filed on Form 8-K (File No. 000-24803) on January 25,
2001.(9)
    
    Previously filed on Form SB-2/A (File No. 333-104109) on June 4,
2003.(10)
    
    Previously filed on Form SB-2/A (File No. 333-104109) on October 15,
2003.(11)
    
    Previously filed on Form 10-KSB (File No. 000-24803) on March 30,
2004.(12)
    
    Previously filed on Form 10-KSB/A (File No. 000-24803) on April 14,
2004.(13)
    
    Previously filed on Form S-11/A (File No. 333-105017) on April 29,
2004.(14)
    
    Previously filed on Form 10-KSB/A-2 (File No. 000-24803) on August 4,
2004. (b) Reports on Form 8-K None. 29




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##### Table of Contents



SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized. VESTIN GROUP, INC. By:
    
    /s/ Michael V. ShustekMichael V. Shustek, Chief Executive OfficerDate: March 24, 2005By:
    
    /s/ Lance K. BradfordLance K. Bradford, Chief Financial OfficerDate: March 24, 2005
 30




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##### Table of Contents



EXHIBIT INDEX Exhibit
    
    
    
    Page Number/Number
    
    Description
    
    Filing Method2.1
    
    Agreement and Plan of Reorganization among the Company, Capsource, Inc.
and Stephen J. Byrne, dated as of April 9, 1999
    
    
    (1
    )2.2
    
    Asset Acquisition Agreement between the Company and Del Mar Holdings,
Inc., dated as of April 9, 1999
    
    
    (1
    )2.3
    
    Asset Acquisition Agreement between the Company and Del Mar Mortgage,
Inc., dated as of April 9, 1999
    
    
    (1
    )2.4
    
    Agreement and Plan of Reorganization among the Company, L. L. Bradford
& Company and the Shareholders of L. L. Bradford & Company, dated June
30, 2000
    
    
    (2
    )3.1
    
    Certificate of Incorporation
    
    
    (3
    )3.2
    
    By-laws
    
    
    (3
    )3.3
    
    Certificate of Amendment of
Certificate of Designations of Rights, Preferences, Privileges and
Restrictions of Series A Convertible Preferred Stock
    
    
    (15
    )3.4
    
    Certificate of Amendment to
Certificate of Incorporation
    
    
    (15
    )4.1
    
    See Exhibits 3.1, 3.2, 3.3 and 3.4 for provisions of the Certificate of
Incorporation, Certificate of Designations and By-laws of the Registrant defining the rights of
holders of Common Stock and Series A Preferred Stock of the Registrant
    
    
    (3
    )4.2
    
    See Exhibit 10.9 for Certificate of Designations authorizing the issuance of Series A
Convertible Preferred Stock
    
    
    (6
    )10.1
    
    Employment Agreement between Del Mar Mortgage, Inc. and Steve Byrne,
dated November 3, 1998
    
    
    (4
    )10.2
    
    Transition Agreement between Del Mar Mortgage, Inc. and Capsource,
Inc., dated April 27, 1999 and First Amendment thereto, dated April 27,
1999
    
    
    (4
    )10.3
    
    Employment Agreement between Del Mar Mortgage and Mike Whiteaker, dated
May 3, 1999
    
    
    (4
    )10.4
    
    The 2000 Stock Option Plan of Sunderland Corporation
    
    
    (4
    )10.5
    
    Employment Agreement between the Company and Michael V. Shustek, dated
December 1, 1999
    
    
    (4
    )10.6
    
    Employment Agreement by and between the Company and Peggy May (now
known as Peggy Shustek), dated September 1, 2001
    
    
    (14
    )10.7
    
    Totally Restated and Amended Employment Agreement by and between the
Company and Lance Bradford, dated as of January 1, 2003
    
    
    (14
    )10.8
    
    Third Amended and Restated
Operating Agreement of DM Mortgage Investors, LLC
(now known as Vestin Fund I, LLC), dated as of November 2,
2000
    
    
    (5
    )10.9
    
    Certificate of Designations authorizing the issuance of Series A
Convertible Preferred Stock
    
    
    (6
    )10.10
    
    Operating Agreement of Vestin Fund II, LLC, dated as of December 7, 2001
    
    
    (7
    )10.11
    
    License Agreement by and between the Company and Planned Licensing,
Inc., dated as of January 2001
    
    
    (8
    )10.12
    
    Amended and Restated Intercreditor Agreement by and between Vestin
Mortgage, Inc., Vestin Fund I, LLC, Vestin Fund II, LLC and Owens
Financial Group, Inc., dated as of September 25, 2002
    
    
    (14
    )10.13
    
    Amended and Restated Operating Agreement of Vestin Fund III, LLC
    
    
    (13
    )10.14
    
    Office Lease Agreement between the Company and The Wildwood Hills
Development, Corporation, dated January 5, 2001
    
    
    (14
    )
 31




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##### Table of Contents



Exhibit
    
    
    
    Page Number/Number
    
    Description
    
    Filing Method10.15
    
    Employment Agreement by and between the Company and Daniel Stubbs,
dated January 1, 2003
    
    
    (11
    )10.16
    
    Office Lease by and between Luke Properties, LLC and the Company, dated
March 31, 2003
    
    
    (15
    )10.17
    
    Separation Agreement and Release of All Claims by and between Steve
Byrne and the Company, dated as of October 14, 2003
    
    
    (11
    )10.18
    
    Amended and Restated Intercreditor Agreement by and among Vestin
Mortgage, Inc., Vestin Fund I, LLC, Vestin Fund II, LLC, Owens
Financial Group, Inc., and Owens Mortgage Investment Fund, dated April
18, 2003
    
    
    (9
    )10.19
    
    Aircraft Usage Agreement by and between the Company and C5, LLC, dated
September 1, 2002
    
    
    (9
    )10.20
    
    Indemnity Agreement by and between the Company and Del Mar Mortgage,
Inc., dated April 15, 2003
    
    
    (10
    )10.21
    
    Guaranty by and among the Company, Michael V. Shustek, and Del Mar
Mortgage, Inc., dated April 15, 2003
    
    
    (10
    )10.22
    
    Office Lease Agreement by and between The Wildwood Hills Development,
Corporation and the Company, dated January 5, 2001
    
    
    (12
    )10.23
    
    Office Lease by and between 2901 El Camino, Las Vegas, NV, LLC and the
Company, dated August 1, 2002
    
    
    (12
    )10.24
    
    Office Lease Agreement by and between The Wildwood Hills Development,
Corporation and the Company, dated January 5, 2001
    
    
    (12
    )10.25
    
    Office Lease Agreement by and between 2901 El Camino, Las Vegas, NV,
LLC and the Company, dated August 1, 2002
    
    
    (14
    )31.1
    
    Section 302 Certification of Michael V. Shustek31.2
    
    Section 302 Certification of Lance K. Bradford32
    
    Certification Pursuant to 18 U.S.C. Section 1350
   (1)
    
    Previously filed on Form 8-K (File No. 000-24803) on May 4, 1999.(2)
    
    Previously filed on Form 8-K (File No. 000-24803) on April 14, 2000.(3)
    
    Previously filed on Form 10-KSB/A (File No. 000-24803) on August
13, 1998.(4)
    
    Previously filed on Form 10-KSB (File No. 000-24803) on March 31,
2000.(5)
    
    Previously filed on Form 424B5 (File No. 333-32800) on November 15,
2000.(6)
    
    Previously filed on Form 8-K (File No. 000-24803) on December 7,
2001.(7)
    
    Previously filed on Form S-11 (File No. 793646) on December 21, 2000.(8)
    
    Previously filed on Form 8-K (File No. 000-24803) on January 25,
2001.(9)
    
    Previously filed on Form SB-2/A (File No. 333-104109) on June 4,
2003.(10)
    
    Previously filed on Form SB-2/A (File No. 333-104109) on October 15,
2003.(11)
    
    Previously filed on Form 10-KSB (File No. 000-24803) on March 30,
2004.(12)
    
    Previously filed on Form 10-KSB/A (File No. 000-24803) on April 14,
2004.(13)
    
    Previously filed on Form S-11/A (File No. 333-105017) on April 29,
2004.(14)
    
    Previously filed on Form 10-KSB/A-2 (File No. 000-24803) on August 4,
2004.(15)
    
    Previously filed on Form 10-QSB (File No. 000-24803) on August 16,
2004. 32