**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 WASHINGTON,
        D.C. 20549
 
 **FORM
        10-Q**
 
 (MARK
        ONE)
 
 **[X]
                  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                  THE****SECURITIES
                  EXCHANGE ACT OF 1934**
 
 For
        the
        quarterly period ended March
        31, 2007
 
 **Or**
 
 **[   ]
                  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                  THE****SECURITIES
                  EXCHANGE ACT OF 1934**
 
 Transition
        Period From _______ To ________
 
 *COMMISSION
        FILE NUMBER 333-125347*
 
 **VESTIN
                  REALTY MORTGAGE I, INC.**(Exact
                  name of registrant as specified in its
                  charter)
 
 
 MARYLAND
              
              20-4028839(State
                  or Other Jurisdiction of
              
              (I.R.S.
                  EmployerIncorporation
                  or Organization)
              
              Identification
                  No.)
 
 **8379
        WEST SUNSET ROAD, LAS VEGAS, NEVADA 89113**
 (Address
        of Principal Executive Offices) **** (Zip
        Code)
 
 Registrant’s
        Telephone Number: 702.227.0965
 
 Indicate
        by check mark whether the registrant: (1) has filed all reports required
        to be
        filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
        the
        preceding 12 months (or for such shorter period that the registrant was required
        to file such reports), and (2) has been subject to such filing requirements
        for
        the past 90 days.
 
 Yes
        [X]
        No [   ]
 
 Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, or a non-accelerated filer. See definition of “accelerated
        filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
        one):
 
 Large
                  accelerated filer [   ]
              Accelerated
                  filer [X]
              Non-accelerated
                  filer [   ]
 
 Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Securities Exchange Act).
 
 Yes
        [   ] No [X]
 
 As
        of
        April 26, 2007, there were 6,871,376 shares of the Company’s Common Stock
        outstanding.
  
   **TABLE
        OF CONTENTS**
 
 **Page**Part
                  I
              FINANCIAL
                  INFORMATIONItem
                  1.
              Consolidated
                  Financial StatementsConsolidated
                  Balance Sheets as of March 31, 2007 (unaudited)
                  and December 31, 2006
              1Consolidated
                  Statements of Operations (unaudited) for the Three
                  Months Ended March 31, 2007 and 2006
              2Consolidated
                  Statements of Equity and Other Comprehensive
                  Income (unaudited) for the Three Months Ended March 31,
                  2007
              3Consolidated
                  Statements of Cash Flows (unaudited) for the Three
                  Months Ended March 31, 2007 and 2006
              4Notes
                  to Consolidated Financial Statements
                  (unaudited)
              6Report
                  of Independent Registered Public Accounting
                  Firm
              26Item
                  2.
              Management’s
                  Discussion and Analysis of Financial
                  Condition and Results of Operations
              27Item
                  3.
              Quantitative
                  and Qualitative Disclosures About Market
                  Risk
              35Item
                  4.
              Control
                  and Procedures
              36Item
                  4T
              Controls
                  and Procedures
              37Part
                  II
              OTHER
                  INFORMATIONItem
                  1.
              Legal
                  Proceedings
              37Item
                  1A.
              Risk
                  Factors
              37Item
                  2.
              Unregistered
                  Sales of Equity - Securities and Use of
                  Proceeds
              48Item
                  3.
              Defaults
                  Upon Senior Securities
              48Item
                  4.
              Submission
                  of Matters to a Vote of Security
                  Holders
              48Item
                  5.
              Other
                  Information
              49Item
                  6.
              Exhibits
              50SIGNATURES
              51Exhibit
                  31.1Exhibit
                  31.2Exhibit
                  32
   *Table
            of Contents*
  **PART
        I - FINANCIAL INFORMATION**
 
 **ITEM
        1.**  **CONSOLIDATED
        FINANCIAL STATEMENTS**
 
 **VESTIN
                  REALTY MORTGAGEI, INC.****CONSOLIDATED
                  BALANCE SHEETS****ASSETS****March
                  31, 2007**
              
              **December
                  31, 2006****(Unaudited)**AssetsCash
              
              $
              1,454,000
              
              $
              1,523,000Certificates
                  of deposit
              
              
              150,000
              
              
              150,000Investment
                  in marketable securities - related party
              
              
              1,960,000
              
              
              1,953,000Interest
                  and other receivables
              
              
              878,000
              
              
              938,000Notes
                  receivable, net of allowance of $755,000 at March 31, 2007 and
                  $885,000 at
                  December 31, 2006
              
              
              102,000
              
              
              102,000Real
                  estate held for sale
              
              
              3,689,000
              
              
              3,689,000Real
                  estate held for sale - seller financed
              
              
              7,911,000
              
              
              7,911,000Investment
                  in real estate loans, net of allowance for loan losses of $4,411,000
                  at
                  March 31, 2007 and $4,534,000 at December 31, 2006
              
              
              48,836,000
              
              
              48,631,000Assets
                  under secured borrowings
              
              
              154,000
              
              
              310,000Due
                  from related party
              
              
              --
              
              
              1,000Other
                  assets
              
              
              71,000
              
              
              124,000Total
                  assets
              
              $
              65,205,000
              
              $
              65,332,000**LIABILITIES
                  AND STOCKHOLDERS' EQUITY**LiabilitiesAccounts
                  payable and accrued liabilities
              
              $
              242,000
              
              $
              307,000Due
                  to related parties
              
              
              22,000
              
              
              --Secured
                  borrowings
              
              
              154,000
              
              
              310,000Notes
                  payable
              
              
              --
              
              
              22,000Deposit
                  liability
              
              
              1,394,000
              
              
              1,255,000Unearned
                  revenue
              
              
              --
              
              
              69,000Dividend
                  payable
              
              
              996,000
              
              
              1,030,000Total
                  liabilities
              
              
              2,808,000
              
              
              2,993,000Commitments
                  and ContingenciesStockholders'
                  equityPreferred
                  stock, $0.0001 par value; 1,000,000 shares authorized; none
                  issued
              
              
              --
              
              
              --Common
                  stock, $0.0001 par value; 25,000,000 shares authorized; 6,870,581
                  shares
                  issued and outstanding at March 31, 2007 and 6,869,790 shares issued
                  and
                  outstanding at December 31, 2006
              
              
              1,000
              
              
              1,000Additional
                  paid in capital
              
              
              62,240,000
              
              
              62,235,000Retained
                  earnings
              
              
              39,000
              
              
              (7,000
              )Accumulated
                  other comprehensive income
              
              
              117,000
              
              
              110,000Total
                  stockholders' equity
              
              
              62,397,000
              
              
              62,339,000Total
                  liabilities and stockholders' equity
              
              $
              65,205,000
              
              $
              65,332,000
 
  See
            review report of Independent Registered Public Accounting Firm.
 The
            accompanying notes are an integral part of these consolidated
            statements.
 -
            1
            -
 *Table
            of Contents*
  
 **VESTIN
                  REALTY MORTGAGEI, INC.****CONSOLIDATED
                  STATEMENTS OF OPERATIONS****(UNAUDITED)****For
                  The Three Months Ended**
              
              **For
                  The Three Months Ended****3/31/2007**
              
              **3/31/2006****Revenues**Interest
                  income from investment in real estate loans
              
              $
              1,178,000
              
              $
              1,106,000Dividend
                  income - related party
              
              
              37,000
              
              
              -Other
                  income
              
              
              123,000
              
              
              59,000Total
                  revenues
              
              
              1,338,000
              
              
              1,165,000**Operating
                  expenses**Management
                  fees-related party
              
              
              69,000
              
              
              69,000Provision
                  for loan loss
              
              
              -
              
              
              3,000,000Interest
                  expense
              
              
              6,000
              
              
              61,000Professional
                  fees
              
              
              128,000
              
              
              196,000Professional
                  fees - related party
              
              
              9,000
              
              
              11,000Other
              
              
              119,000
              
              
              103,000Total
                  operating expenses
              
              
              331,000
              
              
              3,440,000**Income
                  from operations**
              
              
              1,007,000
              
              
              (2,275,000
              )**Income
                  from real estate held for sale**Income
                  (expenses) related to real estate held for sale
              
              
              35,000
              
              
              (15,000
              )Income
                  (loss) before provision for income taxes
              
              
              1,042,000
              
              
              (2,290,000
              )Provision
                  for income taxes
              
              
              -
              
              
              -**NET
                  INCOME (LOSS)**
              
              $
              1,042,000
              
              $
              (2,290,000
              )Basic
                  and diluted earnings (loss) per weighted average common share /
                  membership
                  unit
              
              $
              0.15
              
              $
              (0.33
              )Dividends
                  declared per common share / cash distribution to members per membership
                  unit
              
              $
              0.15
              
              $
              0.16Weighted
                  average common shares / membership units
              
              
              6,870,361
              
              
              6,925,788
 
 
 
  See
            review report of Independent Registered Public Accounting Firm.
 The
            accompanying notes are an integral part of these consolidated
            statements.
 -
            2
            -
 *Table
            of Contents*
  
 **VESTIN
                  REALTY MORTGAGEI, INC.****CONSOLIDATED
                  STATEMENTS OF EQUITY AND OTHER COMPREHENSIVE
                  INCOME****FOR
                  THE THREE MONTHS ENDED MARCH 31, 2007****Common
                  Stock****Number
                  of Shares**
              
              **Amount**
              
              **Additional
                  Paid-in-Capital**
              
              **Retained
                  Earnings**
              
              **Accumulated
                  Other Comprehensive**
                **Income**
              
              **Total**Stockholders'
                  Equity at December 31, 2006
              
              
              6,869,790
              
              $
              1,000
              
              $
              62,235,000
              
              $
              (7,000
              )
              $
              110,000
              
              $
              62,339,000Comprehensive
                  Income:Net
                  Income
              
              
              
              
              
              
              
              
              
              
              
              1,042,000
              
              
              
              
              
              1,042,000Unrealized
                  Gain on Marketable Securities - Related Party
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              7,000
              
              
              7,000Comprehensive
                  Income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,049,000Dividends
                  Declared to Stockholders
              
              
              
              
              
              
              
              
              
              
              
              (996,000
              )
              
              
              
              
              (996,000
              )Reinvestment
                  of Dividends
              
              
              791
              
              
              --
              
              
              5,000
              
              
              
              
              
              
              
              
              5,000Stockholders'
                  Equity at March 31, 2007**(Unaudited)**
              
              
              6,870,581
              
              $
              1,000
              
              $
              62,240,000
              
              $
              39,000
              
              $
              117,000
              
              $
              62,397,000
 
 
  See
            review report of Independent Registered Public Accounting Firm.
 The
            accompanying notes are an integral part of these consolidated
            statements.
 -
            3
            -
 *Table
            of Contents*
  
 **VESTIN
                  REALTY MORTGAGEI, INC.****CONSOLIDATED
                  STATEMENTS OF CASH FLOWS****(UNAUDITED)****For
                  The Three**
                **Months
                  Ended**
              
              **For
                  The Three**
                **Months
                  Ended****March
                  31, 2007**
              
              **March
                  31, 2006****Cash
                  flows from operating activities:**Net
                  income (loss)
              
              $
              1,042,000
              
              $
              (2,290,000
              )Adjustments
                  to reconcile net income (loss) to net cash provided by operating
                  activities:Recovery
                  of allowance for doubtful notes receivable included in other
                  income
              
              
              (98,000
              )
              
              (15,000
              )Provision
                  for loan loss
              
              
              --
              
              
              3,000,000Gain
                  on sale of marketable securities
              
              
              --
              
              
              (1,000
              )Amortized
                  interest income
              
              
              (69,000
              )
              
              --Change
                  in operating assets and liabilities:Interest
                  and other receivables
              
              
              60,000
              
              
              (167,000
              )Due
                  to/from related parties
              
              
              23,000
              
              
              262,000Other
                  assets
              
              
              53,000
              
              
              --Accounts
                  payable and accrued liabilities
              
              
              (65,000
              )
              
              206,000Net
                  cash provided by operating activities
              
              
              946,000
              
              
              995,000**Cash
                  flows from investing activities:**Investments
                  in real estate loans
              
              
              (3,100,000
              )
              
              (5,121,000
              )Purchase
                  of investments in real estate loans from:VRM
                  II
              
              
              --
              
              
              (500,000
              )Proceeds
                  from loan payoff
              
              
              3,018,000
              
              
              6,452,000Sale
                  of investments in real estate loans to:VRM
                  II
              
              
              --
              
              
              1,200,000Third
                  parties
              
              
              --
              
              
              125,000Legal
                  expenses paid and applied against loan allowance
              
              
              (123,000
              )
              
              --Proceeds
                  from note receivable
              
              
              98,000
              
              
              15,000Proceeds
                  from sale of marketable securities
              
              
              --
              
              
              1,717,000Deposit
                  liability
              
              
              139,000
              
              
              164,000Net
                  cash provided by investing activities
              
              $
              32,000
              
              $
              4,052,000
 
  See
            review report of Independent Registered Public Accounting Firm.
 The
            accompanying notes are an integral part of these consolidated
            statements.
 -
            4
            -
 *Table
            of Contents*
  
 **VESTIN
                  REALTY MORTGAGE I, INC.****CONSOLIDATED
                  STATEMENTS OF CASH FLOWS****(UNAUDITED)****For
                  The Three**
                **Months
                  Ended**
              
              **For
                  The Three**
                **Months
                  Ended****March
                  31, 2007**
              
              **March
                  31, 2006****Cash
                  flows from financing activities:**Principal
                  payment on note payable
              
              $
              (22,000
              )
              $
              (881,000
              )Dividends
                  paid to stockholders, net of reinvestments
              
              
              (949,000
              )
              
              --Dividends
                  paid to stockholders - related party
              
              
              (76,000
              )
              
              --Members'
                  distributions, net of reinvestments
              
              
              --
              
              
              (1,013,000
              )Members'
                  distributions - related party
              
              
              --
              
              
              (15,000
              )Members'
                  redemptions
              
              
              --
              
              
              (6,370,000
              )Net
                  cash used in financing activities
              
              
              (1,047,000
              )
              
              (8,279,000
              )**NET
                  CHANGE IN CASH**
              
              
              (69,000
              )
              
              (3,232,000
              )**Cash,
                  beginning of period**
              
              
              1,523,000
              
              
              7,884,000**Cash,
                  end of period**
              
              $
              1,454,000
              
              $
              4,652,000**Supplemental
                  disclosures of cash flows information:**Income
                  taxes paid
              
              $
              --
              
              $
              --Interest
                  paid
              
              $
              6,000
              
              $
              62,000Non-cash
                  investing and financing activities:Dividend
                  payable
              
              $
              996,000
              
              $
              --Adjustment
                  to note receivable and related allowance
              
              $
              32,000
              
              $
              --Loan
                  payoffs of loans funded through secured borrowings
              
              $
              156,000
              
              $
              --Loan
                  rewritten with same or similar collateral
              
              $
              300,000
              
              $
              --Reinvestment
                  of dividends
              
              $
              5,000
              
              $
              --Reinvestment
                  of member distributions
              
              $
              --
              
              $
              (194,000
              )Unearned
                  revenue from loans rewritten with same or similar property as
                  collateral
              
              $
              69,000
              
              $
              57,000Unrealized
                  gain on marketable securities - related party
              
              $
              7,000
              
              $
              --
 
 
 
 
  See
            review report of Independent Registered Public Accounting Firm.
 The
            accompanying notes are an integral part of these consolidated
            statements.
 -
            5
            -
 *Table
            of Contents*
   
 **VESTIN
        REALTY MORTGAGEI, INC**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **MARCH
        31, 2007**
 
 **(UNAUDITED)**
 
 **NOTE
        A — ORGANIZATION**
 
 Vestin
        Fund I, LLC (“Fund I”) was organized in December 1999 as a Nevada limited
        liability company for the purpose of investing in real estate loans. Vestin
        Realty Mortgage I, Inc. (“VRM I”) was organized in January 2006 as a Maryland
        corporation for the sole purpose of effecting a merger with Fund I. On May
        1,
        2006, Fund I merged into VRM I and the members of Fund I received one share
        of
        VRM I’s common stock for each membership unit of Fund I. References in this
        report to the “Company”, “we”, “us” or “our” refer to Fund I with respect to the
        period prior to May 1, 2006 and to VRM I with respect to the period commencing
        on May 1, 2006. Because we were a limited liability company (“LLC”) during the
        prior periods reflected in this report, we make reference to Fund I’s “members”
rather than “stockholders” in reporting our financial results.
 
 We
        invest
        in loans secured by real estate through deeds of trust or mortgages (hereafter
        referred to collectively as “deeds of trust” and as defined in our Management
        Agreement as “Mortgage Assets”). We commenced operations in August
        2000.
 
 We
        operate as a real estate investment trust (“REIT”). We are not a mutual fund or
        an investment company within the meaning of the Investment Company Act of
        1940,
        nor are we subject to any regulation thereunder. As a REIT, we are required
        to
        have a December 31 fiscal year end.
 
 Our
        manager is Vestin Mortgage, Inc. (the “manager” or “Vestin Mortgage”), a Nevada
        corporation, which is a wholly owned subsidiary of Vestin Group, Inc. (“Vestin
        Group”), a Delaware corporation. Michael Shustek, the CEO and director of our
        manager and CEO, President and a director of us, wholly owns Vestin Group,
        Inc.,
        which is engaged in asset management, real estate lending and other financial
        services though its subsidiaries. Our manager, prior to June 30, 2006, also
        operated as a licensed Nevada mortgage broker and was engaged in the business
        of
        brokerage, placement and servicing of commercial loans secured by real property.
        On July 1, 2006, the mortgage broker license was issued to an affiliated
        company, Vestin Originations, Inc. that has continued the business of brokerage,
        placement and servicing of commercial real estate loans. Vestin Originations,
        Inc. is a wholly owned subsidiary of Vestin Group.
 
 Pursuant
        to our management agreement, our manager shall implement our business strategies
        on a day-to-day basis, manage and provide services to us, and shall provide
        similar services to any of our subsidiaries. Without limiting the foregoing,
        our
        manager shall perform other services as may be required from time to time
        for
        management and other activities relating to our assets, as our manager shall
        deem appropriate under the particular circumstances. Consequently, our operating
        results are dependent upon our manager’s ability and performance in managing our
        operations and servicing our assets.
 
 Vestin
        Mortgage, Inc. is also the manager of Vestin Realty Mortgage II, Inc., as
        the
        successor by merger to Vestin Fund II, LLC (“Fund II”), referred to as (“VRM
        II”), Vestin Fund III, LLC (“Fund III”) and inVestin Nevada, Inc., a company
        wholly owned by our manager’s CEO. These entities also invest in real estate
        loans.
 
 The
        consolidated financial statements include the accounts of us and our wholly
        owned taxable REIT subsidiary, TRS I, Inc. All significant inter-company
        transactions and balances have been eliminated in consolidation.
  See
            review report of Independent Registered Public Accounting Firm.
 -
            6
            -
 *Table
            of Contents*
  **NOTE
        B — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**
 
 **Management
        Estimates**
 
 The
        preparation of consolidated financial statements in conformity with accounting
        principles generally accepted in the United States of America (“GAAP”) requires
        management to make estimates and assumptions that affect the reported amounts
        of
        assets and liabilities and disclosure of contingent assets and liabilities
        at
        the date of the consolidated financial statements and the reported amounts
        of
        revenues and expenses during the reporting period. Actual results could differ
        from those estimates.
 
 **Cash
        and Cash Equivalents**
 
 Cash
        and
        cash equivalents include interest-bearing and non-interest-bearing bank
        deposits, money market accounts, short-term certificates of deposit with
        original maturities of three months or less, and short-term instruments with
        a
        liquidation provision of one month or less.
 
 **Revenue
        Recognition**
 
 Interest
        is recognized as revenue when earned according to the terms of the loans,
        using
        the effective interest method. We do not accrue interest income on loans
        once
        they are determined to be impaired. A loan is impaired when based on current
        information and events, it is probable that we will be unable to collect
        all
        amounts due according to the contractual terms of the loan agreement or when
        the
        payment of interest is 90 days past due. Cash receipts will be allocated
        to
        interest income, except when such payments are specifically designated by
        the
        terms of the loan as principal reduction or when management does not believe
        our
        investment in the loan is fully recoverable.
 
 **Investments
        in Real Estate Loans**
 
 We
        may
        from time to time acquire or sell investments in real estate loans from or
        to
        our manager or other related parties pursuant to the terms of our Management
        Agreement provided the price does not exceed the par value of the loan. The
        primary purpose is to either free up capital to provide liquidity for various
        reasons, such as loan diversification, or place excess capital in investments
        to
        maximize the use of our capital. Selling or buying loans allows us to diversify
        our loan portfolio within these parameters. Due to the short-term nature
        of the
        loans we make and the similarity of interest rates in loans we normally would
        invest in, the fair value of a loan typically approximates its carrying value.
        Accordingly, discounts or premiums typically do not apply upon sales of loans
        and therefore, generally no gain or loss is recorded on these transactions,
        regardless of whether to a related or unrelated party.
 
 Investments
        in real estate loans are secured by deeds of trust or mortgages. Generally,
        our
        real estate loans require interest only payments with a balloon payment of
        the
        principal at maturity. We have both the intent and ability to hold real estate
        loans until maturity and therefore, real estate loans are classified and
        accounted for as held for investment and are carried at amortized cost. Loans
        sold to or purchased from affiliates are accounted for at the principal balance
        and no gain or loss is recognized by us or any affiliate. Loan to value ratios
        are based on appraisals obtained at the time of loan origination and may
        not
        reflect subsequent changes in value estimates. Such appraisals are generally
        dated within 12 months of the date of loan origination and may be commissioned
        by the borrower. The appraisals may be for the current estimate of the “as-if
        developed” value of the property, which approximates the post-construction value
        of the collateralized property assuming that such property is developed.
        As-if
        developed values on raw land loans or acquisition and development loans often
        dramatically exceed the immediate sales value and may include anticipated
        zoning
        changes and timely successful development by the purchaser. As most of the
        appraisals will be prepared on an as-if developed basis, if a loan goes into
        default prior to any development of a project, the market value of the property
        may be substantially less than the appraised value. As a result, there may
        be
        less security than anticipated at the time the loan was originally made.
        If
        there is less security and a default occurs, we may not recover the full
        amount
        of the loan.
  See
            review report of Independent Registered Public Accounting Firm.
 -
            7
            -
 *Table
            of Contents*
  **Allowance
        for Loan Losses**
 
 We
        maintain an allowance for loan losses on our investments in real estate loans
        for estimated credit impairment. Our manager’s estimate of losses is based on a
        number of factors including the types and dollar amounts of loans in the
        portfolio, adverse situations that may affect the borrower’s ability to repay,
        prevailing economic conditions and the underlying collateral securing the
        loan.
        Additions to the allowance are provided through a charge to earnings and
        are
        based on an assessment of certain factors, which may indicate estimated losses
        on the loans. Actual losses on loans are recorded as a charge-off or a reduction
        to the allowance for loan losses. Subsequent recoveries of amounts previously
        charged off are added back to the allowance or included as income.
 
 Estimating
        allowances for loan losses requires significant judgment about the underlying
        collateral, including liquidation value, condition of the collateral, competency
        and cooperation of the related borrower and specific legal issues that affect
        loan collections or taking possession of the property. As a commercial real
        estate lender willing to invest in loans to borrowers who may not meet the
        credit standards of other financial institutional lenders, the default rate
        on
        our loans could be higher than those generally experienced in the real estate
        lending industry. We, our manager and Vestin Originations generally approves
        loans more quickly than other real estate lenders and, due to our expedited
        underwriting process, there is a risk that the credit inquiry we perform
        will
        not reveal all material facts pertaining to a borrower and the
        security.
 
 Additional
        facts and circumstances are discovered as we continue our efforts in the
        collection and foreclosure processes. This additional information often causes
        management to reassess its estimates. In recent years, we have revised estimates
        of our allowance for loan losses. Circumstances that may cause significant
        changes in our estimated allowance include, but are not limited to:
 
 ·
            Declines
                in real estate market conditions, which can cause a decrease in expected
                market value; 
 ·
            Discovery
                of undisclosed liens for community improvement bonds, easements and
                delinquent property taxes; 
 ·
            Lack
                of progress on real estate developments after we advance funds. We
                customarily utilize disbursement agents to monitor the progress of
                real
                estate developments and approve loan advances. After further inspection
                of
                the related property, progress on construction occasionally does
                not
                substantiate an increase in value to support the related loan
                advances; 
 ·
            Unanticipated
                legal or business issues that may arise subsequent to loan origination
                or
                upon the sale of foreclosed upon property;
                and 
 ·
            Appraisals,
                which are only opinions of value at the time of the appraisal, may
                not
                accurately reflect the value of the
                property. 
 **Real
        Estate Held For Sale**
 
 Real
        estate held for sale includes real estate acquired through foreclosure and
        will
        be carried at the lower of the recorded amount, inclusive of any senior
        indebtedness, or the property's estimated fair value, less estimated costs
        to
        sell, with fair value based on appraisals and knowledge of local market
        conditions. While pursuing foreclosure actions, we seek to identify potential
        purchasers of such property. It is not our intent to invest in or own real
        estate as a long-term investment. In accordance with Statement of Financial
        Accounting Standards (“FAS”) 144 - *Accounting
        for the Impairment or Disposal of Long Lived Assets* (“FAS
        144”), we seek to sell properties acquired through foreclosure as quickly as
        circumstances permit. The carrying values of real estate held for sale are
        assessed on a regular basis from updated appraisals, comparable sales values
        or
        purchase offers.
  See
            review report of Independent Registered Public Accounting Firm.
 -
            8
            -
 *Table
            of Contents*
  Management
        classifies real estate held for sale when the following criteria are
        met:
 
 ·
            Management
                commits to a plan to sell the properties; 
 ·
            The
                property is available for immediate sale in its present condition
                subject
                only to terms that are usual and
                customary; 
 ·
            An
                active program to locate a buyer and other actions required to complete
                a
                sale have been initiated; 
 ·
            The
                sale of the property is probable; 
 ·
            The
                property is being actively marketed for sale at a reasonable price;
                and 
 ·
            Withdrawal
                or significant modification of the sale is not
                likely. 
 **Real
        Estate Held For Sale - Seller Financed**
 
 We
        occasionally finance sales of foreclosed properties to independent third
        parties. In order to record a sale of real estate when the seller is providing
        continued financing, FAS 66 - *Accounting
        for Sales of Real Estate* ("FAS
        66'') requires the buyer of the real estate to make minimum initial and
        continuing investments. Minimum initial investments as defined by FAS 66
        range
        from 10% to 25% based on the type of real estate sold. In addition, FAS 66
        limits commitments and contingent obligations incurred by a seller in order
        to
        record a sale.
 
 Because
        we occasionally foreclose on loans with raw land or developments in progress,
        available financing for such properties is often limited and we frequently
        provide financing up to 100% of the selling price on these properties. In
        addition, we may make additional loans to the buyer to continue development
        of a
        property. Although sale agreements are consummated at closing, they lack
        adequate initial investment by the buyer to qualify as a sales transaction
        as
        defined in FAS 66. These sale agreements are not recorded as a sale until
        the
        requirements of FAS 66 are met.
 
 These
        sale agreements are recorded under the deposit method or cost recovery method
        as
        defined in FAS 66. Under the deposit method, no profit is recognized and
        any
        cash received from the buyer is reported as a deposit liability on the balance
        sheet. Under the cost recovery method, no profit is recognized until payments
        by
        the buyer exceed the carrying basis of the property sold. Principal payments
        received will reduce the related receivable, and interest collections will
        be
        recorded as unrecognized gross profit on the balance sheet. The carrying
        values
        of these properties are included in real estate held for sale on the
        accompanying consolidated balance sheets.
 
 In
        cases
        where the investment by the buyer is significant (generally 20% or more)
        and the
        buyer has an adequate continuing investment, the purchase money debt is not
        subject to future subordination, and a full transfer of risks and rewards
        has
        occurred, we will use the full accrual method. Under the full accrual method,
        a
        sale is recorded and the balance remaining to be paid is recorded as a normal
        note. Interest is recorded as income when received.
 
 **Classification
        of Operating Results from Real Estate Held for Sale**
 
 FAS
        144 - *Accounting
        for the Impairment or Disposal of Long-Lived Assets* ("FAS
        144'') generally requires operating results from long lived assets held for
        sale
        to be classified as discontinued operations as a separately stated component
        of
        net income. Our operations related to real estate held for sale are separately
        identified in the accompanying consolidated statements of income.
  See
            review report of Independent Registered Public Accounting Firm.
 -
            9
            -
 *Table
            of Contents*
  **Secured
        Borrowings**
 
 Secured
        borrowings provide an additional source of capital for our lending activity.
        Secured borrowings allow us to increase the diversification of our loan
        portfolio and to invest in loans that we might not otherwise invest in. We
        do
        not receive any fees for entering into secured borrowing arrangements; however,
        we may receive revenue in any differential of the interest spread, if
        applicable. Loans in which unaffiliated investors have participated through
        inter-creditor agreements (“Inter-creditor Agreements”) are accounted for as
        secured borrowings in accordance with Statement of Financial Accounting
        Standards (“FAS”) 140 - *Accounting
        for Transfers and Servicing of Financial Assets and Extinguishments of
        Liabilities* (“FAS
        140”). The Inter-creditor Agreements provide us additional funding sources for
        real estate loans whereby an unaffiliated investor (the “Investor”) may
        participate on a non-pari passu basis in certain real estate loans with us
        and/or VRM II and/or Fund III (collectively, the “Lead Lenders”). In the event
        of borrower non- performance, the Inter-creditor Agreements generally provide
        that the Lead Lenders must repay the Investor’s loan amount either by (i)
        continuing to remit to the Investor the interest due on the participated
        loan
        amount; (ii) substituting an alternative loan acceptable to the Investor;
        or
        (iii) repurchasing the participation from the Investor for the outstanding
        balance plus accrued interest.
 
 Additionally,
        an Investor may participate in certain loans with the Lead Lenders through
        Participation Agreements. In the event of borrower non-performance, the
        Participation Agreement may allow the Investor to be repaid up to the amount
        of
        the Investor’s investment prior to the Lead Lender being repaid. Real estate
        loan financing under the Participation Agreements are also accounted for
        as a
        secured borrowing in accordance with FAS 140. We do not receive any revenues
        for
        entering into secured borrowing arrangements.
 
 **Investment
        in Marketable Securities - Related Party**
 
 Investment
        in marketable securities - related party consists of stock in VRM II. The
        securities are stated at fair value as determined by the market price as
        of
        March 31, 2007. All securities are classified as available-for-sale under
        the
        provisions of FAS 115 - *Accounting
        for Certain Investments in Debt and Equity Securities* .
 
 **Fair
        Value of Financial Instruments**
 
 FAS
        107 - *Disclosures
        about Fair Value of Financial Instruments* (“FAS
        107”), requires the determination of fair value of our financial assets. The
        following methods and assumptions were used to estimate the fair value of
        financial instruments included in the following categories:
 
 (a)
            Certificate
                of Deposits and Short-Term Investments: The carrying amounts of these
                instruments are at amortized cost, which approximates fair
                value. 
 (b)
            Investment
                in Real Estate Loans: The carrying value of these instruments, net
                of the
                allowance for loan losses, approximates the fair value due to their
                short-term maturities. Fair values for loans, which are delinquent
                and/or
                in foreclosure are determined by underlying collateral securing the
                loans. 
 (c)
            Assets
                under Secured Borrowing: The carrying amount of these instruments
                approximate fair value. The fair value is estimated based upon projected
                cash flows discounted at the estimated current interest rates at
                which
                similar loans would be made. 
 At
        March
        31, 2007 and December 31, 2006, the estimated fair values of the real estate
        loans, including seller financed loans, was approximately $54.2 million.
        These
        estimates were based upon the present value of expected cash flows discounted
        at
        rates currently available for similar loans. Fair value estimates are made
        at a
        specific point in time; based on relevant market information; are subjective
        in
        nature; and involve uncertainties and matters of significant judgment.
        Accordingly, the estimates presented herein are not necessarily indicative
        of
        the amounts that would be collected upon maturity or disposition of the
        loans.
  See
            review report of Independent Registered Public Accounting Firm.
 -
            10
            -
 *Table
            of Contents*
  **Basic
        and Diluted Earnings Per Common Share**
 
 Basic
        earnings per share (“EPS”) is computed, in accordance with FAS 128 - *Earnings
        per Share* (“FAS
        128”), by dividing net income available to common stockholders by the weighted
        average number of common shares outstanding. Diluted EPS is similar to basic
        EPS
        except that the weighted average number of common shares outstanding is
        increased to include the number of additional common shares that would have
        been
        outstanding if the dilutive potential common shares had been exercised. We
        had
        no outstanding common share equivalents during the three months ended March
        31,
        2007. The following is a computation of the EPS data for the three months
        ended
        March 31, 2007:
 
 **For
                  the Three Months Ended**
                **March
                  31, 2007**Net
                  income available to common stockholders
              
              $
              1,042,000Weighted
                  average number of common shares outstanding during the
                  period
              
              
              6,870,361Basic
                  and diluted earnings per common share
              
              $
              0.15
 
 **Net
        Income Allocated to Members Per Weighted Average Membership
        Unit**
 
 Because
        Fund I was an LLC prior to the merger, it stated net income allocated to
        members
        per weighted average membership unit, which is computed by dividing net income
        calculated in accordance with GAAP by the weighted average number of membership
        units outstanding for the period. The following is a computation of the net
        income per weighted average unit for the three months ended March 31,
        2006:
 
 **For
                  the Three Months Ended**
                **March
                  31, 2006**Net
                  loss available to members
              
              $
              (2,290,000
              )Weighted
                  average number of membership units outstanding during the
                  period
              
              
              6,925,788Net
                  loss per weighted average membership unit
              
              $
              (0.33
              )
 
 **Common
        Stock Dividends**
 
 Cash
        dividends declared during the three months ended March 31, 2007, were $0.145
        per
        common share.
 
 The
        Board
        of Directors declared a monthly cash dividend of $0.045 per share for the
        one
        month ended April 30, 2007 on April 19, 2007 that will be paid on May 30,
        2007
        to the stockholders of record as of May 9, 2007.
 
 **Segments**
 
 We
        operate as one business segment.
  See
            review report of Independent Registered Public Accounting Firm.
 -
            11
            -
 *Table
            of Contents*
  **Income
        Taxes**
 
 We
        are
        organized and conduct our operations to qualify as a real estate investment
        trust (“REIT”) under Sections 856 to 860 of the Internal Revenue Code of 1986,
        as amended (the “Code”) and to comply with the provisions of the Internal
        Revenue Code with respect thereto. A REIT is generally not subject to federal
        income tax on that portion of its REIT taxable income (“Taxable Income”) which
        is distributed to its stockholders, provided that at least 90% of Taxable
        Income
        is distributed and provided that certain other requirements are met.
 
 Certain
        assets of us are held in a taxable REIT subsidiary (“TRS”). The income of a TRS
        is subject to federal and state income taxes. The net income tax provision
        after
        net loss carryfowards for the three months ended March 31, 2007, was
        approximately zero.
 
 **Reclassifications**
 
 Certain
        reclassifications have been made to the prior periods’ consolidated financial
        statements to conform to the current period presentation.
  **NOTE
        C — FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT
        RISK**
 
 Financial
        instruments with concentration of credit and market risk include cash and
        loans
        secured by deeds of trust.
 
 We
        maintain cash deposit accounts and certificates of deposit, which at times
        may
        exceed federally insured limits. We have not experienced any losses in such
        accounts and believe we are not exposed to any significant credit risk related
        to cash deposits. As of March 31, 2007 and December 31, 2006, we had
        approximately $1.3 million and $1.5 million, respectively, in excess of the
        federally insured limits.
 
 As
        of
        March 31, 2007, 39%, 15%, 9% and 9% of our loans were in Nevada, Hawaii,
        Arizona
        and Oregon, respectively, compared to 35%, 15%, 9% and 9%, at December 31,
        2006,
        respectively. As a result of this geographical concentration of our real
        estate
        loans, a downturn in the local real estate markets in these states could
        have a
        material adverse effect on us.
 
 At
        March
        31, 2007, the aggregate amount of loans to our four largest borrowers
        represented 33.27% of our total investment in real estate loans, including
        loans
        related to seller financed real estate held for sale. These real estate loans
        consisted of commercial and land loans, located in Nevada and Hawaii with
        a
        first lien position, interest rates between 5% and 14%, with an aggregate
        outstanding balance of approximately $20.2 million and maturing through
        September 2007. At December 31, 2006, the aggregate amount of loans to our
        four
        largest borrowers represented 33.37% of our total investment in real estate
        loans including loans related to seller financed real estate held for sale.
        These real estate loans consisted of commercial and land located in Hawaii
        and
        Nevada, with a first lien position, interest rates between 5% and 14%, with
        an
        aggregate outstanding balance of approximately $20.3 million and maturing
        through September 2007. The loans in Hawaii described above referred to the
        RighStar loans discussed in Note D - *Investments
        in Real Estate Loans* .
        Because
        we have a significant concentration of credit risk with our four largest
        borrowers, a default by any of such borrowers could have a material adverse
        effect on us.
 
 The
        success of a borrower’s ability to repay its real estate loan obligation in a
        large lump-sum payment may be dependent upon the borrower’s ability to refinance
        the obligation or otherwise raise a substantial amount of cash. An increase
        in
        interest rates over the loan rate applicable at origination of the loan may
        have
        an adverse effect on the borrower’s ability to refinance.
  See
            review report of Independent Registered Public Accounting Firm.
 -
            12
            -
 *Table
            of Contents*
  **NOTE
        D — INVESTMENTS IN REAL ESTATE LOANS**
 
 As
        of
        March 31, 2007, all of our loans provided for payments of interest only with
        a
“balloon” payment of principal payable in full at the end of the term, with the
        exception of one of our loans that has both principal and interest payments
        along with a “balloon” payment at the end of the term. As of March 31, 2007, the
        loan had a balance of approximately $7.5 million and had an original term
        of
        thirty-six months, maturing in the next six months. In addition, we invest
        in
        real estate loans that require borrowers to maintain interest reserves funded
        from the principal amount of the loan for a period of time. At March 31,
        2007,
        we had approximately $9.7 million in investments in real estate loans that
        had
        interest reserves where the total outstanding principal due to our co-lenders
        and us was approximately $81.3 million. These loans had interest reserves
        of
        approximately $3.2 million, of which our portion was approximately $0.3 million.
        At December 31, 2006, we had approximately $17.1 million in investments in
        real
        estate loans that had interest reserves where the total outstanding principal
        due to our co-lenders and us was approximately $120.3 million. These loans
        had
        interest reserves of approximately $5.6 million, of which our portion was
        approximately $0.7 million.
 
 As
        of
        March 31, 2007, we had five real estate loan products consisting of commercial,
        construction, acquisition and development, land and residential. The effective
        interest rates on all product categories range from 5% to 14%. Revenue by
        product will fluctuate based upon relative balances during the
        period.
 
 Investments
        in real estate loans including loans related to seller financed real estate
        held
        for sale as of March 31, 2007, were as follows:
 
 **Loan
                  Type**
              
              **Number
                  Of Loans**
              
              **Balance
                  (2)**
              
              **Weighted
                  Average Interest Rate**
              
              **Portfolio
                  Percentage**
              
              **Weighted
                  Average Loan To Value (1)**Acquisition
                  and development
              
              
              4
              
              $
              3,450,000
              
              
              11.90%
              
              
              5.68%
              
              
              65.96%Commercial
              
              
              14
              
              
              35,600,000
              
              
              10.10%
              
              
              58.61%
              
              
              82.39%Construction
              
              
              7
              
              
              6,365,000
              
              
              11.73%
              
              
              10.48%
              
              
              65.58%Land
              
              
              8
              
              
              14,319,000
              
              
              12.40%
              
              
              23.58%
              
              
              56.96%Residential
              
              
              1
              
              
              1,000,000
              
              
              12.00%
              
              
              1.65%
              
              
              80.00%34
              
              $
              60,734,000
              
              
              10.95%
              
              
              100.00%
              
              
              73.66%
 
 Investments
        in real estate loans including loans related to seller financed real estate
        held
        for sale as of December 31, 2006 were as follows:
 
 **Loan
                  Type**
              
              **Number
                  Of Loans**
              
              **Balance
                  (2)**
              
              **Weighted
                  Average Interest Rate**
              
              **Portfolio
                  Percentage**
              
              **Weighted
                  Average Loan To Value (1)**Acquisition
                  and development
              
              
              4
              
              $
              2,788,000
              
              
              12.01%
              
              
              4.60%
              
              
              64.20%Commercial
              
              
              14
              
              
              36,072,000
              
              
              9.99%
              
              
              59.43%
              
              
              81.44%Construction
              
              
              6
              
              
              5,994,000
              
              
              11.68%
              
              
              9.87%
              
              
              64.66%Land
              
              
              9
              
              
              15,843,000
              
              
              12.31%
              
              
              26.10%
              
              
              52.16%33
              
              $
              60,697,000
              
              
              10.85%
              
              
              100.00%
              
              
              71.35%
 
 (1)
            Loan
                to value ratios are based on the most recent appraisals and may not
                reflect subsequent changes in value. Such appraisals, which may be
                commissioned by the borrower, are generally dated no greater than
                12
                months prior to the date of loan origination. The appraisals may
                be for
                the current estimate of the “as-if developed” value of the property, which
                approximates the post-construction value of the collateralized property
                assuming that such property is developed. “As-if developed” values on raw
                land loans or acquisition and development loans often dramatically
                exceed
                the immediate sales value and may include anticipated zoning changes,
                and
                successful development by the purchaser; upon which development is
                dependent on availability of financing. As most of the appraisals
                will be
                prepared on an “as-if developed” basis, if a loan goes into default prior
                to completion of the development of the project, the market value
                of the
                property may be substantially less than the appraised value. As a
                result,
                there may be less security than anticipated at the time the loan
                was
                originally made. If there is less security and a default occurs,
                we may
                not recover the full amount of the loan. 
  See
            review report of Independent Registered Public Accounting Firm.
 -
            13
            -
 *Table
            of Contents*
  
 (2)
            The
                following table reconciles the balance of the loan portfolio to the
                amount
                shown on the accompanying Consolidated Balance Sheets. The contra
                accounts
                represent the amount of real estate held for sale sold to third parties
                where we provided financing. GAAP requires the borrower to have a
                certain
                percentage equity ownership (ranging from 10% to 25%) to allow us
                to
                record the sale of a property. In addition, the borrower must maintain
                a
                minimum commitment in the property on a continuing basis. Therefore,
                until
                the borrower meets this requirement, the investment in the new loan
                is
                reduced by the amount originally invested in the real estate held
                for
                sale. 
 **March
                  31, 2007**
                **Balance**
              
              **December
                  31, 2006**
                **Balance**Balance
                  Per Loan Portfolio
              
              $
              60,734,000
              
              $
              60,697,000Less:Seller
                  Financed Loans Included in Real Estate Held for Sale
              
              
              (7,911,000
              )
              
              (7,911,000
              )Proceeds
                  of Principal on Seller Financed Loans Included in Deposit
                  Liability
              
              
              424,000
              
              
              379,000Allowance
                  for Loan Losses
              
              
              (4,411,000
              )
              
              (4,534,000
              )Balance
                  per Consolidated Balance Sheet
              
              $
              48,836,000
              
              $
              48,631,000
 
 The
        following is a schedule of priority of real estate loans, including loans
        related to seller financed real estate held for sale as of March 31, 2007
        and
        December 31, 2006:
 
 **Loan
                  Type**
              
              **Number
                  of Loans**
              
              **March
                  31, 2007 Balance***
              
              **Portfolio**
                **Percentage**
              
              **Number
                  of Loans**
              
              **December
                  31, 2006**
                **Balance***
              
              **Portfolio**
                **Percentage**First
                  Deeds of Trust
              
              
              33
              
              $
              60,434,000
              
              
              99.51%
              
              
              31
              
              $
              60,359,000
              
              
              99.44%Second
                  Deeds of Trust**
              
              
              1
              
              
              300,000
              
              
              0.49%
              
              
              2
              
              
              338,000
              
              
              0.56%34
              
              $
              60,734,000
              
              
              100.00%
              
              
              33
              
              $
              60,697,000
              
              
              100.00%
 
 *
        Please
        see (2) above
 **
        Generally, our second deeds of trust are junior to first deeds of trust
        positions held by either us or our manager.
 
 The
        following is a schedule of contractual maturities of investments in real
        estate
        loans, including loans related to seller financed real estate held for sale,
        as
        of March 31, 2007:
 
 April
                  2007 - June 2007
              
              $
              29,106,000July
                  2007 - September 2007
              
              
              17,655,000October
                  2007 - December 2007
              
              
              7,754,000January
                  2008 - March 2008
              
              
              6,219,000Thereafter
              
              
              --Total
              
              $
              60,734,000
 
  See
            review report of Independent Registered Public Accounting Firm.
 -
            14
            -
 *Table
            of Contents*
  The
        following is a schedule by geographic location of investments in real estate
        loans, including loans related to seller financed real estate held for sale,
        as
        of March 31, 2007 and December 31, 2006:
 
 **March
                  31, 2007**
                **Balance***
              
              **Portfolio
                  Percentage**
              
              **December
                  31, 2006**
                **Balance***
              
              **Portfolio
                  Percentage**Arizona
              
              $
              5,504,000
              
              
              9.06%
              
              $
              5,509,000
              
              
              9.08%California
              
              
              4,865,000
              
              
              8.01%
              
              
              6,988,000
              
              
              11.51%Hawaii
              
              
              9,307,000
              
              
              15.33%
              
              
              9,307,000
              
              
              15.33%Nevada
              
              
              23,503,000
              
              
              38.70%
              
              
              21,310,000
              
              
              35.11%New
                  York
              
              
              2,819,000
              
              
              4.64%
              
              
              3,246,000
              
              
              5.35%Oklahoma
              
              
              1,937,000
              
              
              3.19%
              
              
              1,937,000
              
              
              3.19%Oregon
              
              
              5,200,000
              
              
              8.56%
              
              
              5,200,000
              
              
              8.57%Texas
              
              
              4,167,000
              
              
              6.86%
              
              
              4,168,000
              
              
              6.87%Washington
              
              
              3,432,000
              
              
              5.65%
              
              
              3,032,000
              
              
              4.99%Total
              
              $
              60,734,000
              
              
              100.00%
              
              $
              60,697,000
              
              
              100.00%
 
 *
        Please
        see (2) above
 
 At
        March
        31, 2007, the following loans were non-performing (based on current information
        and events, it is probable that we will be unable to collect all amounts
        due
        according to the contractual terms of the loan agreement or when the payment
        of
        interest is 90 days past due); RightStar (Part I & Part II), Monterrey
        Associates LP, Forest Development LLC and Babuski LLC. These loans are currently
        carried on our books at a value of approximately $8.3 million, net of allowance
        for loan losses of approximately $4.4 million for the RightStar loans. These
        loans have been placed on non-accrual of interest status and are the subject
        of
        pending foreclosure proceedings.
 
 ·
            RightStar
                (Part I & Part II) are loans secured by a lien on the business and
                virtually all of the property of RightStar, which includes 4 cemeteries
                and 8 mortuaries in Hawaii with an outstanding balance of approximately
                $32.3 million of which our portion is approximately $9.3 million
                ($4.4
                million for Part I and $4.9 million for Part II). The lenders have
                commenced a judicial foreclosure on the loans, Part I and Part
                II. 
 ·
            Monterrey
                Associates, L.P., is a loan secured by a 248 Unit apartment complex
                in
                Oklahoma City, OK, along with other real estate collateral, with
                an
                outstanding balance of approximately $4.4 million of which our portion
                is
                approximately $1.2 million. The loan is seven months in arrears in
                payments of interest. Our manager has commenced foreclosure proceedings
                and is filing litigation to enforce the personal guarantee on the
                loan.
                Our manager has evaluated this loan and concluded that the value
                of the
                underlying collateral is sufficient to protect us from loss of principal.
                No specific allowance was deemed necessary. In addition, our manager
                completed foreclosure proceedings on a second mortgage on a 233 unit
                apartment complex during the three months ended March 31, 2007. We
                obtained title to the property subject to a non-recourse first mortgage,
                which was held by an unrelated third party. During the three months
                ended
                March 31, 2007, we sold this property to an unrelated third party
                who will
                assume the non-recourse first mortgage. This transaction did not
                result in
                any gain or loss.  See
            review report of Independent Registered Public Accounting Firm.
 -
            15
            -
 *Table
            of Contents*
 
 ·
            Forest
                Development, LLC, is a loan secured by two 4,000 square foot single
                family
                residences, together with the four remaining lots in the subdivision,
                located on Mt. Charleston, NV with an outstanding balance of approximately
                $2.6 million of which our portion is approximately $0.6 million.
                The loan
                isfive
                monthsin
                arrears in payment of interest. Our manager has commenced foreclosure
                proceedings and has filed litigation to enforce the personal guarantee
                on
                the loan. Forest Development subsequently counterclaimed and also
                filed a
                separate lawsuit against us, VRM II, Fund I, Fund II, Fund III, Vestin
                Mortgage, Inc. and Vestin Originations, Inc (the “Defendants”) alleging
                that the Defendants breached the construction loan agreement and
                thus
                jeopardized the completion of the project alleging actions for fraud,
                breach of fiduciary duty, breach of Construction Loan Agreement,
                negligence, intentional interference with contractual relations,
                bad faith
                breach of contract, conversion, undue and improper control and
                interference over borrower’s business, joint venture or de facto
                partnership, and injunctive relief. The lawsuit seeks monetary damages,
                punitive damages, and seeks an injunction to stop the foreclosure.
                The
                Defendants believe that the allegations are without merit and that
                they
                have adequate defenses. The Defendants intend to undertake a vigorous
                defense. In April 2007, the borrower filed for protection under Chapter
                11
                of the United State Bankruptcy Code. Our manager has evaluated this
                loan
                and concluded that the value of the underlying collateral is sufficient
                to
                protect us from loss of principal. No specific allowance was deemed
                necessary. 
 ·
            Babuski,
                LLC, is a loan secured by approximately 9.23 acres of land at the
                northeast corner of the I-215 and Russell Road in Las Vegas, NV,
                with an
                outstanding balance of approximately $9.5 million of which our portion
                is
                approximately $1.5 million. The loan is four months in arrears in
                payments
                of interest. Our manager has commenced foreclosure proceedings and
                is
                filing litigation to enforce the personal guarantee on the loan.
                Our
                manager has evaluated this loan and concluded that the value of the
                underlying collateral is sufficient to protect us from loss of principal.
                No specific allowance was deemed
                necessary. 
 The
        following schedule summarizes the non-performing loans as of March 31,
        2007:
 
 **Description
                  of Collateral**
              
              **Balance
                  at**
                **March
                  31, 2007**
              
              **Maturity
                  Date**
              
              **Number
                  of Months Non-Performing**
              
              **Percentage
                  of Total Loan Balance**4
                  cemeteries and 8 mortuaries in Hawaii Part I***
              
              $
              4,415,000
              
              
              3/31/2004
              
              
              36
              
              
              24%
                  of Part I4
                  cemeteries and 8 mortuaries in Hawaii Part II***
              
              
              4,892,000
              
              
              3/31/2004
              
              
              36
              
              
              35%
                  of Part II248-unit
                  apartment complex in Oklahoma City, OK
              
              
              1,237,000
              
              
              9/1/2006
              
              
              7
              
              
              28%2
                  single family residences, with 4 remaining lots in the subdivision
                  on Mt.
                  Charleston, NV
              
              
              631,000
              
              
              10/27/2006
              
              
              5
              
              
              24%9.23
                  acres of land in Las Vegas, NV
              
              
              1,500,000
              
              
              3/17/2007
              
              
              4
              
              
              16%$
              12,675,000
 
 ***
        Please refer to (3) *Specific
        Reserve Allowance* below.
 
 Our
        manager periodically reviews and makes a determination as to whether the
        allowance for loan losses is adequate to cover any potential losses. Additions
        to the allowance for loan losses are made by charges to the provision for
        loan
        losses. Recoveries of previously charged off amounts are credited to the
        allowance for loan losses or included as income when the asset is disposed.
        As
        of March 31, 2007, we have provided a specific reserve related to the two
        loans
        secured by 4 cemeteries and 8 mortuaries in Hawaii (“RightStar loans”), of which
        our portion of the specific reserve is approximately $4.4 million. Our manager
        evaluated the loans and concluded that the remaining underlying collateral
        was
        sufficient to protect us against further losses of principal. Our manager
        will
        continue to evaluate these loans in order to determine if any other allowance
        for loan losses should be recorded.
  See
            review report of Independent Registered Public Accounting Firm.
 -
            16
            -
 *Table
            of Contents*
  Because
        any decision regarding the allowance for loan losses reflects a judgment
        about
        the probability of future events, there is an inherent risk that such judgments
        will prove incorrect. In such event, actual losses may exceed (or be less
        than)
        the amount of any reserve. To the extent that we experience losses greater
        than
        the amount of our reserves, we may incur a charge to our earnings that will
        adversely affect our operating results and the amount of any distributions
        payable to our stockholders.
 
 The
        following is a roll-forward of the allowance for loan losses for the three
        months ended March 31, 2007
 
 **Description**
              
              **Balance
                  at**
                **December
                  31, 2006**
              
              **Specific
                  Reserve Allocation**
              
              **RightStar
                  Legal Reserve**
              
              **Balance
                  at**
                **March
                  31, 2007**Specific
                  allowance (3)
              
              $
              4,534,000
              
              $
              --
              
              $
              (123,000
              )
              $
              4,411,000Total
              
              $
              4,534,000
              
              $
              --
              
              $
              (123,000
              )
              $
              4,411,000
 
 **(3)**
            **Specific
                Reserve Allowance** 
 *RightStar
        Loan Allowance* -RightStar, Inc. (“RightStar”) defaulted on our loans in the fall of 2004. The
        lenders commenced a judicial foreclosure on the loans, part I and part II,
        which
        is secured by a lien on the business and virtually all of the property of
        RightStar, which includes 4 cemeteries and 8 mortuaries in Hawaii. The aggregate
        principal balance of the loan is approximately $32.3 million. The loans,
        part I
        and part II, are owned as follows:
 
 **Senior
                  Principal Amount (Part II)**
              
              **Junior
                  Principal Amount (Part I)**
              
              **Total**VRM
                  I
              
              $
              4,892,000
              
              $
              4,415,000
              
              $
              9,307,000VRM
                  II
              
              
              9,108,000
              
              
              8,183,000
              
              
              17,291,000Vestin
                  Mortgage
              
              
              --
              
              
              5,657,000
              
              
              5,657,000**Total**
              
              $
              14,000,000
              
              $
              18,255,000
              
              $
              32,255,000
 
 The
        loans
        are subject to an inter-creditor agreement which states the order of priority
        for any payments received are disbursed as follows:
 
 ·
            First
                to reimburse collection and foreclosure expenses advanced by the
                lenders; 
 ·
            Second
                to pay past due interest on the Senior Principal Amount (Part II)
                (including default rate interest); 
 ·
            Third
                to pay past due interest on the Junior Principal Amount (Part I)
                (including default rate interest); 
 ·
            Fourth
                to pay Senior Principal; and 
 ·
            Fifth
                to pay Junior Principal. 
 We
        and
        VRM II acquired the senior portion of the loan on July 14, 2005 for
        approximately $15.5 million of which our portion was approximately $5.4 million
        (including accrued interest of approximately $0.5 million). We and VRM II
        acquired this balance to expedite the foreclosure process and remove the
        prior
        senior lender from its priority position, which had the potential to impair
        the
        value we may receive at the time the property is sold. In exchange for
        assistance in expediting the foreclosure process, the lenders jointly agreed
        to
        release the guarantors from their guaranty of the loan. In March 2007, Vestin
        Mortgage, Inc. purchased the junior principal amount owned by the unrelated
        third party for $500,000 cash. Vestin Mortgage, Inc. has agreed that any
        monies
        it receives as a result of payment of the notes or proceeds from a foreclosure
        sale are limited to its $500,000 investment in the notes plus
        expenses.
  See
            review report of Independent Registered Public Accounting Firm.
 -
            17
            -
 *Table
            of Contents*
  RightStar
        is currently being operated by a court appointed receiver.
 
 Foreclosure
        proceedings are being delayed by the State of Hawaii which has refused to
        issue
        licenses to potential buyers or the lenders to: (1) operate the facility,
        (2)
        operate a pre-need program and (3) operate a perpetual care program. During
        the
        three months ended March 31, 2006, the State of Hawaii notified the lenders
        of a
        potential statutory trust fund deficiency, estimated to be between $20 million
        and $30 million and claimed that this balance has priority over all lenders.
        The
        lenders dispute the amount and priority of this deficit.
 
 In
        April
        2006, the lenders filed suit against the State of Hawaii listing 26 causes
        of
        action, including allegations that the State of Hawaii has illegally blocked
        the
        lender’s right to foreclose and take title to its collateral by inappropriately
        attaching conditions to the granting of licenses needed to operate the business,
        the pre-need trust funds and the perpetual care trust funds and that the
        State
        of Hawaii has attempted to force the lenders to accept liability for any
        statutory trust fund deficits while no such lender liability exists under
        the
        laws of the State of Hawaii. The State of Hawaii responded by filing allegations
        against Vestin Mortgage, Inc. and VRM II alleging that these Vestin entities
        improperly influenced the former RightStar trustees to transfer trust funds
        to
        VRM II. We believe the State’s claims to be without merit and intend to
        vigorously pursue our remedies while defending against any allegations made
        by
        the State.
 
 In
        October 2006, a Judge for the Circuit Court of the First Circuit in Hawaii
        imposed new restrictions upon our right to foreclose and denied any subsequent
        owner the licensing necessary to operate the funeral service until the alleged
        pre-need and perpetual care trust funds shortages are cured. We believe these
        restrictions are both unauthorized under state law and unconstitutional under
        federal law. In January 2007, the Lenders filed a petition with the Supreme
        Court of Hawaii seeking mandamus relief from that ruling. As of April 26,
        2007,
        the Supreme Court of Hawaii has not ruled on the Lender’s petition, but has
        requested briefing from the State of Hawaii regarding the petition. The outcome
        of this litigation is unforeseeable at this time. We cannot estimate when
        the
        foreclosure will ultimately be completed or when the lenders may obtain title
        to
        the underlying properties.
 
 We
        have
        evaluated the estimated value of the underlying collateral, the potential
        trust
        fund deficit, and the expected cost and length of litigation. Based on this
        estimate we increased our total specific reserve allowance for loss by
        approximately $3.0 million during the twelve months ended December 31, 2006
        and
        specifically allocated our general allowance of approximately $0.4 million
        to
        the RightStar loans. The increase in the reserve allowance included
        approximately $0.5 million for estimated litigation fees and expenses, which
        we
        have incurred in enforcing our rights against the underlying collateral.
        We will
        continue to evaluate our position in the RightStar loan as the situation
        progresses. As of March 31, 2007, our specific reserve allowance on the
        RightStar loans totaled approximately $4.4 million.
 
 In
        addition, our manager granted extensions on six loans pursuant to the terms
        of
        the original loan agreements, which permit extensions by mutual consent.
        Such
        extensions are generally provided on loans where the original term was 12
        months
        or less and where a borrower requires additional time to complete a construction
        project or negotiate take-out financing. However, our manager only grants
        extensions when a borrower is in full compliance with the terms of the loan,
        including, but not limited to the borrower’s obligation to make interest
        payments on the loan. Included in the six extended loans was the Mid-State
        Raceway loan, which was extended from March 31, 2007 to March 31, 2008. As
        part
        of the extension agreement the borrower made a principal payment of
        approximately $3.0 million, of which our portion was approximately $0.4 million,
        and the loan interest rate increased from 9% to 12%. The aggregate amount
        due to
        us from borrowers whose loans had been extended as of March 31, 2007 was
        approximately $2.8 million. Our manager concluded that no allowance for loan
        loss was necessary with respect to these loans as of March 31,
        2007.
 
 **Asset
        Quality and Loan Reserves**
 
 Losses
        may occur from investing in real estate loans. The amount of losses will
        vary as
        the loan portfolio is affected by changing economic conditions and the financial
        condition of borrowers.
  See
            review report of Independent Registered Public Accounting Firm.
 -
            18
            -
 *Table
            of Contents*
  The
        conclusion that a real estate loan is uncollectible or that collectibility
        is
        doubtful is a matter of judgment. On a quarterly basis, our manager evaluates
        our real estate loan portfolio for impairment. The fact that a loan is
        temporarily past due does not necessarily mean that the loan is impaired.
        Rather, all relevant circumstances are considered by our manager to determine
        impairment and the need for specific reserves. Such evaluation, which includes
        a
        review of all loans on which full collectibility may not be reasonably assured,
        considers among other matters:
 
 ·
            Prevailing
                economic conditions; 
 ·
            Historical
                experience; 
 ·
            The
                nature and volume of the loan portfolio; 
 ·
            The
                borrowers’ financial condition and adverse situations that may affect the
                borrowers’ ability to pay; 
 ·
            Evaluation
                of industry trends; and 
 ·
            Estimated
                net realizable value of any underlying collateral in relation to
                the loan
                amount. 
 Based
        upon this evaluation, a determination is made as to whether the allowance
        for
        loan losses is adequate to cover any potential losses. Additions to the
        allowance for loan losses are made by charges to the provision for loan losses.
        As of March 31, 2007 and December 31, 2006 approximately $3.4 million, in
        non-performing loans had no specific allowance for loan losses. As of March
        31,
        2007 and December 31, 2006, approximately $9.3 million, in non-performing
        loans
        had a specific allowance for loan losses of approximately $4.4 million and
        $4.5
        million, respectively. At March 31, 2007, the following loans were
        non-performing (based on current information and events, it is probable that
        we
        will be unable to collect all amounts due according to the contractual terms
        of
        the loan agreement or when the payment of interest is 90 days past due);
        RightStar (Part I & Part II), Monterrey Associates LP, Forest Development
        LLC and Babuski LLC. These loans are currently carried on our books at a
        value
        of approximately $8.3 million, net of allowance for loan losses of approximately
        $4.4 million for the RightStar loans. These loans have been placed on
        non-accrual of interest status and are the subject of pending foreclosure
        proceedings. Our manager evaluated the loans and concluded that the underlying
        collateral was sufficient to protect us against further losses of principal
        or
        interest. Our manager will continue to evaluate these loans in order to
        determine if any other allowance for loan losses should be
        recorded.
 
 **NOTE
        E — INVESTMENT IN MARKETABLE SECURITIES - RELATED PARTY**
 
 As
        of
        March 31, 2007, we owned 372,655 shares of VRM II’s common stock, representing
        approximately 0.96% of their total outstanding common stock.
 
 **NOTE
        F — REAL ESTATE HELD FOR SALE**
 
 At
        March
        31, 2007, we
        held
        one property with a total carrying value of approximately $3.7 million, which
        was acquired through foreclosure and recorded as investments in real estate
        held
        for sale. The
        summary below includes our percentage ownership in the property. Our investments
        in real estate held for sale are accounted for at the lower of cost or fair
        value less costs to sell with fair value based on appraisals and knowledge
        of
        local market conditions. It is not our intent to invest in or own real estate
        as
        a long-term investment. We seek to sell properties acquired through foreclosure
        as quickly as circumstances permit. The following is a roll-forward of
        investments in real estate held for sale during the three months ended March
        31,
        2007:
  See
            review report of Independent Registered Public Accounting Firm.
 -
            19
            -
 *Table
            of Contents*
 
 **Description**
              **Date
                  Acquired**
              **Percentage
                  of Ownership**
              
              **Balance
                  at**
                **December
                  31, 2006**
              
              **Acquisitions
                  (Reductions)**
              
              **Seller
                  Financed Sales**
              
              **Proceeds
                  from Sales**
              
              **Gain
                  on Sale of Real Estate**
              
              **Balance
                  at**
                **March
                  31, 2007**480
                  residential building lots & 2 family dwellings in Cathedral City, CA**(1)**
              12/21/2006
              12%
              $
              3,689,000
              $
              --
              $
              --
              $
              --
              $
              --
              $
              3,689,000**Total**
              
              
              $
              3,689,000
              $
              --
              $
              --
              $
              --
              $
              --
              $
              3,689,000
 
 (1)
            During
                November 2006, we, VRM II and Fund III acquired through foreclosure
                proceedings 480 residential building lots and two single family dwellings
                in Rio Vista Village Subdivision in Cathedral City, CA. Our manager
                has
                evaluated the carrying value of the acquired properties and based
                on its
                estimate, no valuation allowance was deemed necessary as of March
                31,
                2007. We have entered into a purchase agreement to sell the properties
                for
                a total sales price of approximately $29.9 million, of which our
                portion
                would be approximately $3.7 million; however, at this time we cannot
                be
                certain that the sale will be completed. 
 **NOTE
        G — REAL ESTATE HELD FOR SALE - SELLER FINANCED**
 
 At
        March
        31, 2007, we held an interest in one **** property
        with a total carrying value of approximately $7.9 million, which had been
        sold
        in a transaction where we provided the financing to the purchaser. GAAP requires
        us to include these properties in real estate held for sale until the borrower
        has met and maintained certain requirements. We may share ownership of such
        properties with VRM II, Fund III, our manager, or other related and/or unrelated
        parties. The summary below includes our percentage of ownership in the property
        held during the three months ended March 31, 2007. These investments in real
        estate held for sale are accounted for at the lower of cost or fair value
        less
        costs to sell with fair value based on appraisals and knowledge of local
        market
        conditions. The following is a roll-forward of seller financed real estate
        held
        for sale for the three months ended March 31, 2007:
 
 **Description**
              **Date
                  Acquired**
              **Percentage
                  of Ownership**
              
              **Balance
                  at**
                **December
                  31, 2006**
              
              **Acquisitions**
              
              **Sales**
              
              **Gain
                  (Loss) on Sale**
              
              **Balance
                  at**
                **March
                  31, 2007**Assisted
                  living facility in Las Vegas, Nevada**(1)**
              9/23/2004
              52%
              $
              7,911,000
              $
              --
              $
              --
              $
              --
              $
              7,911,000$
              7,911,000
              $
              --
              $
              --
              $
              --
              $
              7,911,000
 
 **(1)**
            During
                September 2004, we and VRM II sold an assisted living facility in
                Las
                Vegas, NV and financed 100% of the purchase price of approximately
                $15.3
                million maturing in September 2007. The transaction resulted in no
                gain or
                loss. As of March 31, 2007, we had received approximately $1.4 million
                in
                payments from the borrower. These payments are recorded as a deposit
                liability and will be recognized as income once the equity requirement
                has
                been met or the loan is paid in full. 
 Until
        borrowers have met the minimum equity ownership requirement to allow us to
        record a sale, we will record payments received under the deposit method
        or the
        cost recovery method, which ever is applicable in accordance with FAS
        66.
 
 **NOTE
        H — RELATED PARTY TRANSACTIONS**
 From
        time
        to time, we may acquire or sell investments in real estate loans from/to
        our
        manager or other related parties pursuant to the terms of our Management
        Agreement provided the price does not exceed the par value of the loan. No
        gain
        or loss is recorded on these transactions, as it is not our intent to make
        a
        profit on the purchase or sale of such investments. The purpose is generally
        to
        diversify our portfolio by syndicating loans, thereby providing us with
        additional capital to make additional loans.
  See
            review report of Independent Registered Public Accounting Firm.
 -
            20
            -
 *Table
            of Contents*
  **Transactions
        with the Manager**
 
 Our
        manager is entitled to receive from us an annual management fee of up to
        0.25%
        of our aggregate capital contributions received by us and Fund I from the
        sale
        of shares or membership units, paid monthly. The amount of management fees
        paid
        to our manager for the three months ended March 31, 2007 and 2006 was $69,000
        for each period.
 
 As
        of
        March 31, 2007, our manager owned 100,000 of our common shares. For the three
        months ended March 31, 2007, we declared approximately $15,000 in dividends
        payable to our manager based on the number of shares they held on the dividend
        record dates. For the three months ended March 31, 2006, we recorded pro-rata
        distributions owed to our manager of $15,000.
 
 **Transactions
        with Other Related Parties**
 
 As
        of
        March 31, 2007, we owned 372,655 common shares of VRM II, representing
        approximately 0.96% of their total outstanding common stock. For the three
        months ended March 31, 2007, we recognized $37,000 in dividend income from
        VRM
        II based on the number of shares we held on the dividend record
        dates.
 
 As
        of
        March 31, 2007, VRM II owned 407,485 of our common shares, representing
        approximately 5.93% of our total outstanding common stock.
 
 During
        the three months ended March 31, 2006, we sold $1.2 million in real estate
        loans
        to VRM II and bought $0.5 million in real estate loans from VRM II. No gain
        or
        loss resulted from these transactions.
 
 As
        of
        March 31, 2007, we owed to related parties, under common management, $22,000
        and
        as of December 31, 2006, we had receivables from a related party, under common
        management, of $1,000.
 
 During
        the three months ended March 31, 2007 and 2006, we incurred $9,000 and $11,000,
        respectively, for legal fees to the law firm of Levine, Garfinkel & Katz in
        which the Secretary of Vestin Group has an equity ownership interest in the
        law
        firm.
 
 **NOTE
        I — NOTES RECEIVABLE**
 
 During
        October 2004, we and VRM II sold the Castaways Hotel/Casino in Las Vegas,
        Nevada
        of which our portion of the net cash proceeds was $2,118,000. We originally
        sold
        this property under a 100% seller financing arrangement. The borrowers then
        sold
        the property to an unrelated third party that resulted in a payoff of the
        note
        and also allowed us to record the sale and remove the asset from seller financed
        real estate held for sale. In addition, during September 2004, we received
        a
        promissory note from the guarantors of the loan in the amount of $160,000
        in
        exchange for a release of their personal guarantees. Since payments on the
        note
        did not begin for 18 months from the date of the note, we discounted the
        face
        value of the note to $119,000, which is based on a discount rate of 8% as
        of
        that date. The outstanding balance as of March 31, 2007, was $102,000, net
        of
        allowance.
 
 During
        March 2005, we and VRM II sold the
        126
        unit hotel in Mesquite, Nevada for $5,473,000 of which our share of the proceeds
        were approximately $1.8 million, which resulted in a loss of
        $389,000. In
        addition, during June 2005, we and VRM II entered into a settlement agreement
        with the guarantors of the loan in the amount of $2,000,000 in exchange for
        a
        release of their personal guarantees of which our share was $640,000. The
        balance is secured by a second deed of trust and is payable in a first
        installment of $100,000 due in July 2005 and monthly interest only payments
        of
        5% on $1,100,000 from July 2005 through July 2008, at which time the entire
        balance is due. As of March 31, 2007, we have received $128,000 in principal
        payments. Payments will be recognized as income when received. The balance
        of
        $511,000 is fully reserved as of March 31, 2007.
  See
            review report of Independent Registered Public Accounting Firm.
 -
            21
            -
 *Table
            of Contents*
  During
        November 2004, we and VRM II sold the 140 Unit/224 beds senior facility in
        Mesa,
        Arizona of which our portion of the consideration received totaled $1,009,000.
        We and VRM II received a promissory note from the original guarantor in the
        amount of $478,000 of which our portion was $67,000. The promissory note
        is
        payable in interest only payments of 8% on the principal balance outstanding.
        From June 25, 2005 through May 25, 2006, monthly payments increased to $15,000
        and were applied to principal and accrued interest. Beginning June 25, 2006
        through May 25, 2009 payments are to increase to $20,000 monthly. Due to
        the
        uncertainty of collectibility, we have provided a valuation allowance for
        the
        entire remaining balance of the promissory note. Income
        will be recognized when payments are received. As
        of
        March 31, 2007, we received $28,000 in payments. The balance of $31,000 is
        fully
        reserved as of March 31, 2007.
 
 During
        December 2005, we and VRM II sold the 460 acre residential subdivision in
        Lake
        Travis, TX for approximately $5.5 million, of which our portion was
        approximately $1.8 million. The purchase price included cash proceeds of
        $5
        million and a $500,000 note receivable with an imputed interest rate of 8%
        in
        July 2006. A net gain of $71,000 resulted in this transaction, of which our
        portion was $24,000. The purchaser has defaulted on the note and our manager
        is
        pursuing litigation. The balance of $171,000 is fully reserved as of March
        31,
        2007.
 
 **NOTE
        J— SECURED BORROWINGS**
 
 Secured
        borrowings provide an additional source of capital for our lending activity.
        Secured borrowings allow us to increase the diversification of our loan
        portfolio and to invest in loans that we might not otherwise invest in. We
        do
        not receive any fees for entering into secured borrowing arrangements; however,
        we may receive revenue in any differential of the interest spread, if
        applicable. Loans in which unaffiliated investors have participated through
        inter-creditor agreements (“Inter-creditor Agreements”) are accounted for as
        secured borrowings in accordance with Statement of Financial Accounting
        Standards (“FAS”) 140 - *Accounting
        for Transfers and Servicing of Financial Assets and Extinguishments of
        Liabilities* (“FAS
        140”). The Inter-creditor Agreements provide us additional funding sources for
        real estate loans whereby an unaffiliated investor (the “Investor”) may
        participate on a non-pari passu basis in certain real estate loans with us
        and/or VRM II and/or Fund III (collectively, the “Lead Lenders”). In the event
        of borrower non-performance, the Inter-creditor Agreements generally provide
        that the Lead Lenders must repay the Investor’s loan amount either by (i)
        continuing to remit to the Investor the interest due on the participated
        loan
        amount; (ii) substituting an alternative loan acceptable to the Investor;
        or
        (iii) repurchasing the participation from the Investor for the outstanding
        balance plus accrued interest.
 
 Additionally,
        an Investor may participate in certain loans with the Lead Lenders through
        Participation Agreements. In the event of borrower non-performance, the
        Participation Agreement may allow the Investor to be repaid up to the amount
        of
        the Investor’s investment prior to the Lead Lender being repaid. Real estate
        loan financing under the Participation Agreements are also accounted for
        as a
        secured borrowing in accordance with FAS 140. We do not receive any revenues
        for
        entering into secured borrowings arrangements.
 
 During
        October 2006, we, our manager, Vestin Origination, Inc., VRM II and Fund
        III
        entered into an intercreditor agreement with an unrelated third party related
        to
        the funding of a construction real estate loan. (See exhibit 10.8 Intercreditor
        Agreement under the Exhibit Index included in Part II - Other Information,
        Item
        6 Exhibits of this Report Form 10-Q). The secured borrowing will be recognized
        pro rata between us, VRM II and Fund III for the amount each entity has funded
        for the loan.  As
        of
        March 31, 2007, approximately $18.8 million has been funded on this loan,
        of
        which our portion was $68,000. As of March 31, 2007, this secured borrowing
        totaled approximately $13.0 million, of which our portion was $154,000. In
        the
        event VRM II and Fund III were unable to pay their pro rata share of the
        secured
        borrowing, we would be liable for the full outstanding balance. As of December
        31, 2006, we had $310,000 in funds being used under Inter-creditor
        Agreements.
 
 **NOTE
        K — NOTE PAYABLE**
 
 During
        the three months ended March 31, 2007, our note payable totaling $22,000
        was
        paid in full.
  See
            review report of Independent Registered Public Accounting Firm.
 -
            22
            -
 *Table
            of Contents*
  **NOTE
        L — RECENT ACCOUNTING PRONOUNCEMENTS**
 
 In
        February 2007, the Financial Accounting Standards Board (FASB) issued FAS
        159, *The
        Fair Value Option for Financial Assets and Financial
        Liabilities* .
        FAS 159
        permits entities to choose to measure financial assets and liabilities (except
        for those that are specifically scoped out of the Statement) at fair value.
        The
        election to measure a financial asset or liability at fair value can be made
        on
        an instrument-by-instrument basis and is irrevocable. The difference between
        carrying value and fair value at the election date is recorded as a transition
        adjustment to opening retained earnings. Subsequent changes in fair value
        are
        recognized in earnings. The effective date for FAS 159 is as of the beginning
        of
        an entity's first fiscal year that begins after November 15, 2007. We are
        evaluating FAS 159 and have not yet determined the impact the adoption will
        have
        on our consolidated financial statements, but it is not expected to be
        significant.
 
 **NOTE
        M — LEGAL MATTERS INVOLVING THE MANAGER**
 
 The
        United States Securities and Exchange Commission (the “Commission”), conducted
        an investigation of certain matters related to us, our manager, Vestin Capital,
        VRM II and Fund III. We fully cooperated during the course of the investigation.
        On September 27, 2006, the investigation was resolved through the entry of
        an
        Administrative Order by the Commission (the “Order”). Our manager, Vestin
        Mortgage and its Chief Executive Officer, Michael Shustek, as well as Vestin
        Capital (collectively, the “Respondents”), consented to the entry of the Order
        without admitting or denying the findings therein. In the Order, the Commission
        finds that the Respondents violated Sections 17(a)(2) and 17(a)(3) of the
        Securities Act of 1933 through the use of certain slide presentations in
        connection with the sale of units in Fund III and in Fund II, the predecessor
        to
        VRM II. The Respondents consented to the entry of a cease and desist order,
        the
        payment by Mr. Shustek of a fine of $100,000 and Mr. Shustek’s suspension from
        association with any broker or dealer for a period of six months, which expired
        in March 2007. In addition, the Respondents agreed to implement certain
        undertakings with respect to future sales of securities. We are not a party
        to
        the Order and we do not expect that the sanctions imposed upon the Respondents
        will have any material affect upon our operations.
 
 VRM
        II
        and Vestin Mortgage, Inc. (“Defendants”) are defendants in a breach of contract
        action filed in San Diego Superior Court by certain plaintiffs who allege,
        among
        other things, that they were wrongfully denied appraisal rights in connection
        with the merger of Fund II into Vestin Realty Mortgage II, Inc. The action
        is
        being brought as a purported class action on behalf of all members of Vestin
        Fund II who did not vote in favor of the merger.  The Defendants believe
        that the allegations are without merit and that they have adequate defenses.
        The
        Defendants intend to undertake a vigorous defense.  The terms of our
        management agreement and Fund II’s Operating Agreement contain indemnity
        provisions whereby, Vestin Mortgage and Michael V. Shustek may be eligible
        for
        indemnification by VRM II with respect to the above actions.
 
 VRM
        II,
        Vestin Mortgage, Inc. and Michael V. Shustek (“Defendants”) are defendants in a
        civil action filed by 88 separate plaintiffs (“Plaintiffs”) in District Court
        for Clark County, Nevada. The Plaintiffs allege, among other things, that
        Defendants: breached certain alleged contractual obligations owed to Plaintiffs;
        breached fiduciary duties supposedly owed to Plaintiffs; and misrepresented
        or
        omitted material facts regarding the conversion of Fund II into VRM II. The
        Action seeks monetary damages and a rescission of the REIT conversion. The
        Defendants believe that the allegations are without merit and that they have
        adequate defenses. The Defendants intend to undertake a vigorous defense.
        The
        terms of VRM II’s management agreement and Fund II’s operating agreement contain
        indemnity provisions whereby, Vestin Mortgage and Michael V. Shustek may
        be
        eligible for indemnification by VRM II with respect to the above
        actions.
 
 In
        addition to the matters described above, our manager is involved in a number
        of
        other legal proceedings concerning matters arising in connection with the
        conduct of its business activities. Our manager believes it has meritorious
        defenses to each of these actions and intends to defend them vigorously.
        Other
        than the pending state court litigation involving Desert Land as further
        described below and the matters described in Note N - *Legal
        Matters Involving the Company* below,
        our manager believes that it is not a party to any pending legal or arbitration
        proceedings that would have a material adverse effect on our manager’s financial
        condition or results of operations or cash flows, although it is possible
        that
        the outcome of any such proceedings could have a material impact on the
        manager’s net income in any particular period.
  See
            review report of Independent Registered Public Accounting Firm.
 -
            23
            -
 *Table
            of Contents*
 
 **NOTE
        N — LEGAL MATTERS INVOLVING THE COMPANY**
 
 On
        November 21, 2005, Desert Land filed a complaint in the state courts of Nevada
        against Vestin Group, Vestin Mortgage and Del Mar Mortgage, Inc. which complaint
        is substantially similar to a complaint previously filed by Desert Land in
        the
        United States District Court, which complaint was dismissed by the Ninth
        Circuit
        United Court of Appeals, which dismissal was upheld when the United States
        Supreme Court denied Desert Land’s Writ of Certiorari. The action is based upon
        allegations that Del Mar Mortgage, Inc and/or Vestin Mortgage charged unlawful
        fees on various loans arranged by them in 1999. On March 6, 2006, Desert
        Land
        amended the state court complaint to name us. Desert Land alleges that one
        or
        more of the defendants have transferred assets to other entities without
        receiving reasonable value therefore; alleges plaintiffs are informed and
        believe that defendants have made such transfers with the actual intent to
        hinder, delay or defraud Desert Land; that such transfers made the transferor
        insolvent and that sometime between February 27 and April 1, 2003, Vestin
        Group
        transferred $1.6 million to VRM I for that purpose. The state court complaint
        further alleges that Desert Land is entitled to avoid such transfers and
        that
        pursuant to NRS 112.20, Desert Land is entitled to an injunction to enjoin
        defendants from further disposition of assets. Additionally, Del Mar Mortgage,
        Inc. has indemnified Vestin Group and Vestin Mortgage for any losses and
        expenses in connection with the Action, and Mr. Shustek has guaranteed the
        indemnification. The Defendants believe that the allegations are without
        merit
        and that they have adequate defenses. The Defendants intend to undertake
        a
        vigorous defense.
 
 In
        April
        2006, the lenders filed suit against the State of Hawaii listing 26 causes
        of
        action, including allegations that the State of Hawaii has illegally blocked
        the
        lender’s right to foreclose and take title to its collateral by inappropriately
        attaching conditions to the granting of licenses needed to operate the business,
        the pre-need trust funds and the perpetual care trust funds and that the
        State
        of Hawaii has attempted to force the lenders to accept liability for any
        statutory trust fund deficits while no such lender liability exists under
        the
        laws of the State of Hawaii. The State of Hawaii responded by filing allegations
        against Vestin Mortgage, Inc. and VRM II alleging that these Vestin entities
        improperly influenced the former RightStar trustees to transfer trust funds
        to
        VRM II. We believe the State’s claims to be without merit and intend to
        vigorously pursue our remedies while defending against any allegations made
        by
        the State.
 
 In
        October 2006, a Judge for the Circuit Court of the First Circuit in Hawaii
        imposed new restrictions upon our right to foreclose and denied any subsequent
        owner the licensing necessary to operate the funeral service until the alleged
        pre-need and perpetual care trust funds shortages are cured. We believe these
        restrictions are both unauthorized under state law and unconstitutional under
        federal law. In January 2007, the Lenders filed a petition with the Supreme
        Court of Hawaii seeking mandamus relief from that ruling. As of April 26,
        2007,
        the Supreme Court of Hawaii has not ruled on the Lender’s petition, but has
        requested briefing from the State of Hawaii regarding the petition. The outcome
        of this litigation is unforeseeable at this time. We cannot estimate when
        the
        foreclosure will ultimately be completed or when the lenders may obtain title
        to
        the underlying properties.
 
 We
        and
        Vestin Mortgage, Inc. (“Defendants”) are defendants in a breach of contract
        action filed in San Diego Superior Court by certain plaintiffs who allege,
        among
        other things, that they were wrongfully denied appraisal rights in connection
        with the merger of Fund I into Vestin Realty Mortgage I, Inc. The action
        is
        being brought as a purported class action on behalf of all members of Vestin
        Fund I who did not vote in favor of the merger. The Defendants believe that
        the
        allegations are without merit and that they have adequate defenses. The
        Defendants intend to undertake a vigorous defense. The terms of our management
        agreement and Fund I’s Operating Agreement contain indemnity provisions whereby,
        Vestin Mortgage and Michael V. Shustek may be eligible for indemnification
        by us
        with respect to the above actions.
  See
            review report of Independent Registered Public Accounting Firm.
 -
            24
            -
 *Table
            of Contents*
  We,
        Michael V. Shustek and Vestin Mortgage, Inc. (“Defendants”) are defendants in a
        civil action filed by 25 separate plaintiffs (“Plaintiffs”) in District Court
        for Clark County, Nevada. The Plaintiffs allege, among other things, that
        Defendants: breached certain alleged contractual obligations owed to Plaintiffs;
        breached fiduciary duties supposedly owed to Plaintiffs; and misrepresented
        or
        omitted material facts regarding the conversion of Fund I into VRM I. The
        action
        seeks monetary damages, punitive damages and a rescission of the REIT
        conversion. The Defendants believe that the allegations are without merit
        and
        that they have adequate defenses. The Defendants intend to undertake a vigorous
        defense. The terms of VRM I’s management agreement and Fund I’s operating
        agreement contain indemnity provisions whereby, Vestin Mortgage and Michael
        V.
        Shustek may be eligible for indemnification by us with respect to the above
        actions.
 
 In
        addition to the matters described above, we are involved in a number of other
        legal proceedings concerning matters arising in connection with the conduct
        of
        our business activities. We believe we have meritorious defenses to each
        of
        these actions and intend to defend them vigorously. Other than the matters
        described above, we believe that we are not a party to any pending legal
        or
        arbitration proceedings that would have a material adverse effect on our
        financial condition or results of operations or cash flows, although it is
        possible that the outcome of any such proceedings could have a material impact
        on our net income in any particular period.
 
 **NOTE
        O — DIVIDEND REQUIREMENT**
 
 To
        maintain our status as a REIT, we are required to make dividend distributions,
        other than capital gain dividends, to our stockholders each year in an amount
        at
        least equal to (1) the sum of (a) 90% of our taxable income, computed without
        regards to the dividends paid deduction and our net capital gain, and (b)
        90% of
        the net income, after tax, from foreclosure property, minus (2) the sum of
        certain specified items of non-cash income over 5% of our REIT taxable income.
        All dividend distributions will be made at the discretion of our Board of
        Directors and will depend on our earnings, both tax and GAAP, financial
        condition, maintenance of REIT status and such other factors as the Board
        of
        Directors deems relevant.
 
 **NOTE
        P — SUBSEQUENT EVENTS**
 
 In
        April
        2007, the borrower for the Forest Development, LLC, loan secured by two 4,000
        square foot single family residences, together with the four remaining lots
        in
        the subdivision, located on Mt. Charleston, NV, filed for protection under
        Chapter 11 of the United State Bankruptcy Code.
 
 The
        Board
        of Directors declared a monthly cash dividend of $0.045 per share for the
        one
        month ended April 30, 2007 on April 19, 2007 that will be paid on May 30,
        2007
        to the stockholders of record as of May 9, 2007.
  See
            review report of Independent Registered Public Accounting Firm.
 -
            25
            -
 *Table
            of Contents*
 
 REPORT
        OF
        INDEPENDENT REGISTEREDPUBLIC ACCOUNTING FIRM
 
 
 To
        the
        Board of Directors and Stockholders of Vestin Realty Mortgage I,
        Inc.:
 
 We
        have
        reviewed the accompanying consolidated balance sheet of Vestin Realty Mortgage
        I, Inc. and its subsidiary as of March 31, 2007, and the related consolidated
        statements of operations for the three-month periods ended March 31, 2007
        and
        2006, and stockholders’ equity and other comprehensive income for the
        three-month period ended March 31, 2007, and cash flows for the three-month
        periods ended March 31, 2007 and 2006. All information included in these
        consolidated financial statements is the representation of the management
        of
        Vestin Realty Mortgage I, Inc.
 
 We
        conducted our review in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). A review of interim financial
        information consists principally of applying analytical procedures and making
        inquiries of persons responsible for financial and accounting matters. It
        is
        substantially less in scope than an audit conducted in accordance with the
        standards of the Public Company Accounting Oversight Board, the objective
        of
        which is the expression of an opinion regarding the consolidated financial
        statements taken as a whole. Accordingly, we do not express such an
        opinion.
 
 Based
        on
        our review, we are not aware of any material modifications that should be
        made
        to the accompanying consolidated financial statements referred to above for
        them
        to be in conformity with accounting principles generally accepted in the
        United
        States of America.
 
 We
        have
        previously audited, in accordance with the standards of the Public Company
        Accounting Oversight Board (United States), the consolidated balance sheet
        of
        Vestin Realty Mortgage I, Inc. as of December 31, 2006 and the related
        consolidated statements of operations, stockholders’ equity and other
        comprehensive income and cash flows for the twelve months ended December
        31,
        2006, management’s assessment of the effectiveness of the internal control over
        financial reporting as of December 31, 2006 and the effectiveness of the
        internal control over financial reporting as of December 31, 2006, and in
        our
        report dated March 12, 2007, we expressed an unqualified opinion on those
        consolidated financial statements; an unqualified opinion on management’s
        assessment of, and an unqualified opinion on the effective operation of internal
        control over financial reporting. The consolidated financial statements and
        management’s assessment of the effectiveness of internal control over financial
        reporting referred to above are not presented herein. In our opinion, the
        information set forth in the accompanying consolidated balance sheet as of
        December 31, 2006, is fairly stated, in all material respects, in relation
        to
        the consolidated balance sheet from which it has been derived.
 
 
 
 /s/Moore
        Stephens Wurth Frazer and Torbet, LLP
 
 
 Orange,
        California
 April
        26,
        2007
   -
            26
            -
 *Table
            of Contents*
  **ITEM
        2.**  **MANAGEMENT’S
        DISCUSSIONAND ANALYSIS OF FINANCIAL CONDITION
        AND
        RESULTS OF OPERATIONS**
 
 The
        following is a financial review and analysis of our financial condition and
        results of operations for the three months ended March 31, 2007 and 2006.
        This
        discussion should be read in conjunction with our consolidated financial
        statements and accompanying notes and other detailed information regarding
        us
        appearing elsewhere in this report on Form 10-Q.
 
 **FORWARD
        LOOKING STATEMENTS**
 
 Certain
        statements in this report, including, without limitation, matters discussed
        under this Item 2, “Management’s Discussion and Analysis of Financial Condition
        and Results of Operations,” should be read in conjunction with the consolidated
        financial statements, related notes, and other detailed information included
        elsewhere in this report on Form 10-Q. We are including this cautionary
        statement to make applicable and take advantage of the safe harbor provisions
        of
        the Private Securities Litigation Reform Act of 1995. Statements that are
        not
        historical fact are forward-looking statements. Certain of these forward-looking
        statements can be identified by the use of words such as “believes,”
“anticipates,” “expects,” “intends,” “plans,” “projects,” “estimates,”
“assumes,” “may,” “should,” “will,” or other similar expressions. Such
        forward-looking statements involve known and unknown risks, uncertainties
        and
        other important factors, which could cause actual results, performance or
        achievements to differ materially from future results, performance or
        achievements. These forward-looking statements are based on our current beliefs,
        intentions and expectations. These statements are not guarantees or indicative
        of future performance. Important assumptions and other important factors
        that
        could cause actual results to differ materially from those forward-looking
        statements include, but are not limited to, those factors, risks and
        uncertainties described in Item 1A of this report on Form 10-Q for the three
        months ended March 31, 2007 and in our other securities filings with the
        Securities and Exchange Commission. Our future financial condition and results
        of operations, as well as any forward-looking statements, are subject to change
        and involve inherent risks and uncertainties. The forward-looking statements
        contained in this report are made only as of the date hereof. We undertake
        no
        obligation to update or revise information contained herein to reflect events
        or
        circumstances after the date hereof or to reflect the occurrence of
        unanticipated events.
 
 **RESULTS
        OF OPERATIONS**
 
 **OVERVIEW**
 
 Our
        primary business objective is to generate income by investing in real estate
        loans. We believe there is a significant market opportunity to make real
        estate
        loans to owners and developers of real property whose financing needs are
        not
        met by other financial institutional real estate lenders. The loan underwriting
        standards utilized by our manager and Vestin Originations are less strict
        than
        other financial institutional real estate lenders. In addition, one of our
        competitive advantages is our ability to approve loan applications more quickly
        than other financial institutional lenders. As a result, in certain cases,
        we
        may make real estate loans that are riskier than real estate loans made by
        other
        financial institutional lenders such as commercial banks. However, in return,
        we
        seek a higher interest rate and our manager takes steps to mitigate the lending
        risks such as imposing a lower loan to value ratio. While we may assume more
        risk than other financial institutional real estate lenders, in return, we
        seek
        to generate higher yields from our real estate loans.
 
 Our
        operating results are affected primarily by: (i) the amount of capital we
        have
        to invest in real estate loans, (ii) the level of real estate lending activity
        in the markets we service, (iii) our ability to identify and work with suitable
        borrowers, (iv) the interest rates we are able to charge on our loans and
        (v)
        the level of non-performing assets, foreclosures and related loan losses
        which
        we may experience. Our capital, subject to a 3% reserve, will constitute
        the
        bulk of the funds we have available for investment in real estate loans.
        We do
        not have any arrangements in place to materially increase the funds we will
        have
        available to invest from any other sources. See discussion under - “Capital and
        Liquidity.”
  -
            27
            -
 *Table
            of Contents*
  Our
        operating results during the past several years have been adversely affected
        by
        allowances for non-performing loans. At March 31, 2007, the following loans
        were
        non-performing (based on current information and events, it is probable that
        we
        will be unable to collect all amounts due according to the contractual terms
        of
        the loan agreement or when the payment of interest is 90 days past due);
        RightStar (Part I & Part II), Monterrey Associates LP, Forest Development
        LLC and Babuski LLC. These loans are currently carried on our books at a
        value
        of approximately $8.3 million, net of allowance for loan losses of approximately
        $4.4 million for the RightStar loans. These loans have been placed on
        non-accrual of interest status and are the subject of pending foreclosure
        proceedings. For additional information see “Specific Loan Allowance” in Note D
        - *Investments
        In Real Estate Loans* of the
        Notes to the Consolidated Financial Statements included in Item 1 *Consolidated
        Financial Statements* of this
        report Form 10-Q. Non-performing
        assets ,
        net of
        allowance for loan losses, totaled approximately $12.0 million or 18% of
        our
        total assets as of March 31, 2007 as compared to approximately $11.8 million
        or
        18% of our total assets as of December 31, 2006. At March 31, 2007,
        non-performing assets consisted of approximately $3.7 million of real estate
        held for sale not sold through seller financing and approximately $8.3 million
        of non-performing loans, net of allowance for loan losses. During the three
        months ended March 31, 2007, no transactions were completed related to our
        real
        estate held for sale.
 
 The
        level
        of non-performing assets may reflect the continuing weakness in certain sectors
        of the economy and the risk inherent in our business strategy that entails
        more
        lenient underwriting standards and expedited loan approval procedures. If
        the
        economy weakens and our borrowers who develop and sell commercial real estate
        projects are unable to complete their projects or obtain takeout financing
        or
        are otherwise adversely impacted, we may experience an increase in loan
        defaults, which may reduce the amount of funds we have to pay dividends to
        our
        stockholders. Such conditions may also require us to restructure loans. The
        weighted average term of our outstanding loans, including extensions and
        loans
        related to seller financed real estate held for sale, as of March 31, 2007
        and
        December 31, 2006 was 19 months.
 
 Uncertain
        economic conditions during the next year could have a material impact on
        the
        collectibility of our loans. A downturn in the real estate markets where
        we
        conduct business might increase defaults on our loans and might require us
        to
        record additional reserves with respect to non-performing loans. To date,
        the
        problems experienced by some lenders in the sub-prime residential mortgage
        market have not had any material adverse affect upon the commercial mortgage
        markets in which we operate. Nonetheless, we are aware that weakness in
        residential lending could at some point have an adverse impact upon our markets.
        Recognizing the risk, we seek to maintain an adequate loan-to-value ratio,
        including loans related to seller financed real estate held for sale, which,
        as
        of March 31, 2007, was 73.66% on a weighted average basis, generally using
        appraisals prepared on an “as-if developed basis” in connection with the loan
        origination. The increase in the weighted average loan to value ratio from
        71.35%, as of December 31, 2006, to 73.66%, as of March 31, 2007, is primarily
        due to four loans that were funded during the three-month period, totaling
        $3.4
        million, with loan to value ratios ranging from 71.79% to 80.00%. The majority
        of these loans were to repeat borrowers with a history of good standing with
        us.
        In addition, the original terms of these loans were 12 months or less. We
        hope
        to retain sufficient cushion in the underlying equity position to protect
        the
        value of our loans in the event of a default. Nevertheless, no assurances
        can be
        given that a marked increase in loan defaults accompanied by a rapid decline
        in
        real estate values will not have a material adverse effect upon our financial
        condition and operating results.
 
 From
        time
        to time, we may acquire or sell investments in real estate loans from/to
        our
        manager or other related parties pursuant to the terms of our Management
        Agreement provided the price does not exceed the par value of the loan. No
        gain
        or loss is recorded on these transactions, as it is not our intent to make
        a
        profit on the purchase or sale of such investments. The purpose is generally
        to
        diversify our portfolio by syndicating loans, thereby providing us with
        additional capital to make additional loans. For further information regarding
        related party transactions, refer to Note H - Related Party Transactions
        in the
        notes to our consolidated financials statements in Item 1 *Consolidated
        Financial Statements* in Part
        I of this report Form 10-Q.
 
 As
        of
        March 31, 2007, our loans were in the following states: Arizona, California,
        Hawaii, Nevada, New York, Oklahoma, Oregon, Texas and Washington.
  -
            28
            -
 *Table
            of Contents*
  **Comparison
        of Operating Results for the three months ended March 31, 2007 to the three
        months ended March 31, 2006.**
 
 **For
                  the Three**
                **Months
                  Ended March 31,****2007**
              
              **2006**Revenues
              
              $
              1,338,000
              
              $
              1,165,000Operating
                  expenses
              
              
              331,000
              
              
              3,440,000Income
                  (loss) from real estate held for sale
              
              
              35,000
              
              
              (15,000
              )Income
                  (loss) before provision for income taxes
              
              
              1,042,000
              
              
              (2,290,000
              )Provision
                  for income taxes
              
              
              --
              
              
              --Net
                  income (loss)
              
              $
              1,042,000
              
              $
              (2,290,000
              )Basic
                  and diluted earnings per common share
              
              $
              0.15
              
              $Net
                  loss allocated to members per weighted average membership units
              
              
              
              
              $
              (0.33
              )Dividends
                  declared per common share / cash distributions per membership
                  unit
              
              $
              0.15
              
              $
              0.16Cash
                  distributions to members
              
              
              
              
              $
              1,101,000Weighted
                  average common shares / membership units
              
              
              6,870,361
              
              
              6,925,788
 
 *Total
        Revenues* :
        For the
        three months ended March 31, 2007 total revenues increased by approximately
        $173,000 or 14.85% compared to the same period in 2006 due in significant
        part
        to the following factors:
 
 ·
            Interest
                income from investments in real estate loans increased to approximately
                $1.2 million during the three months ended March 31, 2007 compared
                to
                approximately $1.1 million during the same period in 2006, largely
                as a
                result of higher interest rates. Our revenue is dependent upon the
                balance
                of our investment in real estate loans and the interest earned on
                these
                loans. As of March 31, 2007, our investment in real estate loans,
                including loans related to seller financed real estate held for sale,
                was
                approximately $60.7 million with a weighted average interest rate
                of
                10.95%. As of March 31, 2006, our investment in real estate loans,
                including loans related to seller financed real estate held for sale,
                was
                approximately $59.4 million with a weighted average interest rate
                of
                9.84%. 
 ·
            During
                the three months ended March 31, 2007, we earned approximately $96,000
                in
                other income from a principal payment on a note receivable which
                was fully
                reserved. 
 *Total
        Operating Expenses* :
        For the
        three months ended March 31, 2007, total operating expenses were $331,000
        compared to approximately $3.4 million during the three months ended March
        31,
        2006, a decrease of approximately $3.1 million or 90.38%. Expenses were
        primarily affected by the following factors:
 
 ·
            During
                the 2006 period, we recognized a provision for loan loss of $3 million
                related to the loans secured by 4 cemeteries and 8 mortuaries in
                Hawaii.
                See “Specific Loan Allowance” in Note D -*Investments
                In Real Estate Loans*of
                the Notes to the Consolidated Financial Statements included in Part
                I,
                Item 1*Consolidated Financial Statements*of
                this Interim Report Form 10-Q. There was no comparable loan loss
                provision
                in the three months ended March 31, 2007 
 ·
            Interest
                expense decreased approximately $55,000 during the three months ended
                March 31, 2007 compared to the same period in 2006, primarily due
                to the
                decrease in secured borrowings of approximately $1
                million. 
 ·
            Professional
                fees decreased approximately $70,000 comparing the three months ended
                March 31, 2007 to 2006 partly due to audit fees incurred as the result
                of
                the REIT conversion in 2006.  -
            29
            -
 *Table
            of Contents*
  *Total
        Income(Loss) from Real Estate Held for Sale* : For
        the
        three months ended March 31, 2007, total income from real estate held for
        sale
        was $35,000 compared to a loss of $15,000 during the same period in 2006.
        See
        Note F - *Real
        Estate Held for Sale* in the
        notes of Part I, Item 1 - *Consolidated
        Financial Statements* to this
        interim report Form 10-Q.
 
 *Dividends* :
        To
        maintain our status as a REIT, we are required to make distributions, other
        than
        capital gain dividends, to our stockholders each year in an amount at least
        equal to (1) the sum of (a) 90% of our taxable income, computed without regards
        to the dividends paid deduction and our net capital gain, and (b) 90% of
        the net
        income, after tax, from foreclosure property, minus (2) the sum of certain
        specified items of non-cash income over 5% of our REIT taxable income. From
        January 1, 2007 through March 31, 2007, we declared dividends to our
        shareholders of approximately $1 million.
 
 *Distributions
        to Members:* During
        the three months ended March 31, 2006, we distributed approximately $1.1
        million
        to Fund I’s members.
 
 **CAPITAL
        AND LIQUIDITY**
 
 Liquidity
        is a measure of a company’s ability to meet potential cash requirements,
        including ongoing commitments to fund lending activities and general operating
        purposes. Subject to a 3% reserve, we generally use all of our available
        funds
        to invest in real estate loans. Distributable cash flow generated from such
        loans is paid out to our stockholders, in the form of a dividend. We do not
        anticipate the need for hiring any employees, acquiring fixed assets such
        as
        office equipment or furniture, or incurring material office expenses during
        the
        next twelve months because our manager will manage our affairs. We may pay
        our
        manager an annual management fee of up to 0.25% of our aggregate capital
        received by us and Fund II from the sale of shares or membership
        units.
 
 During
        the three months ended March 31, 2007, cash flows provided by operating
        activities approximated $0.9 million. Investing activities consisted of cash
        provided by loan payoffs of approximately $3.0 million. Cash used for new
        investments and purchases of real estate loans totaled approximately $3.1
        million. Financing activities mainly consisted of dividends to stockholders,
        net
        of reinvestment, of approximately $1.0 million.
 
 At
        March
        31, 2007, we had approximately $1.4 million in cash, $150,000 in certificates
        of
        deposit, $2.0 million in marketable securities - related party and approximately
        $65.2 million in total assets. We intend to meet short-term working capital
        needs through a combination of proceeds from loan payoffs, loan sales and/or
        borrowings. We believe we have sufficient working capital to meet our operating
        needs in the near term.
 
 Since
        we
        distribute most or all of our distributable cash generated by operations,
        our
        sources of liquidity include repayments of outstanding loans, dividend
        reinvestments by our stockholders, arrangements with third parties to
        participate in our loans and proceeds from issuance of note payable and secured
        borrowings.
 
 We
        have
        no current plans to sell any new shares except through our dividend reinvestment
        program. As of April 26 2007, approximately 3% of our shareholders owning
        less
        than 1% our outstanding shares have elected to reinvest their dividends.
        The
        level of dividend reinvestment in the future will depend upon our performance,
        as well as the number of our stockholders who prefer to reinvest rather than
        receive current dividends.
 
 We
        rely
        primarily upon repayment of outstanding loans to provide capital for investment
        in new loans. Any significant level of defaults on outstanding loans could
        reduce the funds we have available for investment in new loans. Resulting
        foreclosure proceedings may not generate full repayment of our loans and
        may
        result in significant delays in the return of invested funds. This would
        diminish our capital resources and would impair our ability to invest in
        new
        loans. Non-performing assets included loans in non-accrual status, net of
        allowance for loan losses, and real estate held for sale not sold through
        seller
        financing totaling approximately $8.3 million and $3.7 million, respectively,
        as
        of March 31, 2007 compared to approximately $8.1 million and $3.7 million,
        respectively, as of December 31, 2006. It is possible that no earnings will
        be
        recognized from these assets until they are disposed of, or that no earnings
        will be recognized at all, and the time it will take to dispose of these
        assets
        cannot be predicted. Our manager believes that these non-performing assets
        are a
        result of factors unique to specific borrowers and properties. Because of
        the
        estimated value of the underlying properties, we do not currently believe
        that
        any losses beyond those already recognized will be incurred from these assets
        upon final disposition. However, it is possible that we will not be able
        to
        realize the full estimated carrying values upon disposition.
  -
            30
            -
 *Table
            of Contents*
  To
        maintain our status as a REIT, we will be required to make distributions,
        other
        than capital gain dividends, to our stockholders each year in an amount at
        least
        equal to (1) the sum of (a) 90% of our taxable income, computed without regards
        to the dividends paid deduction and our net capital gain, and (b) 90% of
        the net
        income, after tax, from foreclosure property, minus (2) the sum of certain
        specified items of noncash income over 5% of our REIT taxable
        income.
 
 Loans
        in
        which unaffiliated investors have participated through inter-creditor agreements
        (“Inter-creditor Agreements”) are accounted for as secured borrowings in
        accordance with Statement of Financial Accounting Standards (“FAS”) 140 - *Accounting
        for Transfers and Servicing of Financial Assets and Extinguishments of
        Liabilities* (“FAS
        140”). The Inter-creditor Agreements provide us additional funding sources for
        real estate loans whereby an unaffiliated investor (the “Investor”) may
        participate on a non-pari passu basis in certain real estate loans with us
        and/or VRM II and/or Fund III (collectively, the “Lead Lenders”). In the event
        of borrower non- performance, the Inter-creditor Agreements generally provide
        that the Lead Lenders must repay the Investor’s loan amount either by (i)
        continuing to remit to the Investor the interest due on the participated
        loan
        amount; (ii) substituting an alternative loan acceptable to the Investor;
        or
        (iii) repurchasing the participation from the Investor for the outstanding
        balance plus accrued interest.
 
 During
        October 2006, we, our manager, Vestin Origination, Inc., VRM II and Fund
        III
        entered into an intercreditor agreement with an unrelated third party related
        to
        the funding of a construction real estate loan. (See exhibit 10.8 Intercreditor
        Agreement under the Exhibit Index included in Part II, Item 6 Exhibits of
        this
        Interim Report Form 10-Q). The secured borrowing will be recognized pro rata
        between us, VRM II and Fund III for the amount each entity has funded for
        the
        loan. As of March 31, 2007, approximately $18.8 million has been funded on
        this
        loan, of which our portion was $68,000. As of March 31, 2007, this secured
        borrowing totaled approximately $13.0 million, of which our portion was
        $154,000. In the event VRM II and Fund III were unable to pay their pro rata
        share of the secured borrowing, we would be liable for the full outstanding
        balance. As of December 31, 2006, we had $310,000 in funds being used under
        Inter-creditor Agreements.
 
 We
        maintain working capital reserves of approximately 3% in cash and cash
        equivalents, certificates of deposits and short-term investments or liquid
        marketable securities. This reserve is available to pay expenses in excess
        of
        revenues, satisfy obligations of underlying properties, expend money to satisfy
        our unforeseen obligations and for other permitted uses of working
        capital.
 
 **Investments
        in Real Estate Loans Secured by Real Estate Portfolio**
 
 We
        offer
        five real estate loan products consisting of commercial, construction,
        acquisition and development, land, and residential loans. The effective interest
        rates on all product categories range from 5% to 14%. Revenue by product
        will
        fluctuate based upon relative balances during the period. We had investments
        in
        34 real estate loans, including loans related to seller financed real estate
        held for sale, as of March 31, 2007, with a balance of approximately $60.7
        million as compared to investments in 33 real estate loans, including loans
        related to seller financed real estate held for sale, as of December 31,
        2006,
        with a balance of approximately $60.7 million.
 
 At
        March
        31, 2007, the following loans were non-performing (based on current information
        and events, it is probable that we will be unable to collect all amounts
        due
        according to the contractual terms of the loan agreement or when the payment
        of
        interest is 90 days past due); RightStar (Part I & Part II), Monterrey
        Associates LP, Forest Development LLC and Babuski LLC. These loans are currently
        carried on our books at a value of approximately $8.3 million, net of allowance
        for loan losses of approximately $4.4 million for the RightStar loans. These
        loans have been placed on non-accrual of interest status and are the subject
        of
        pending foreclosure proceedings.
 
 During
        March 2007, our manager extended the Mid-State Raceway loan from March 31,
        2007
        to March 31, 2008. As part of the extension agreement the borrower made a
        principal payment of approximately $3.0 million, of which our portion was
        approximately $0.4 million, and the loan interest rate increased from 9%
        to
        12%.
  -
            31
            -
 *Table
            of Contents*
  Our
        manager periodically reviews and makes a determination as to whether the
        allowance for loan losses is adequate to cover any potential losses. Additions
        to the allowance for loan losses are made by charges to the provision for
        loan
        losses. Recoveries of previously charged off amounts are credited to the
        allowance for loan losses or included as income when the asset is disposed.
        As
        of March 31, 2007, we have provided a specific reserve related to the 4
        cemeteries and 8 mortuaries in Hawaii, of which our portion of the specific
        reserve is approximately $4.4 million. Our manager evaluated the loans and
        concluded that the remaining underlying collateral was sufficient to protect
        us
        against further losses of principal or interest. Our manager will continue
        to
        evaluate these loans in order to determine if any other allowance for loan
        losses should be recorded. For additional information on our investments
        in real
        estate loans, refer to Note D - *Investments
        In Real Estate Loans* of the
        Notes to the Consolidated Financial Statements included in Part I, Item
        1 *Consolidated Financial Statements* of
        this
        Interim Report Form 10-Q.
 
 **Asset
        Quality and Loan Reserves**
 
 Losses
        may occur from investing in real estate loans. The amounts of losses will
        vary
        as the loan portfolio is affected by changing economic conditions and the
        financial condition of borrowers.
 
 The
        conclusion that a real estate loan is uncollectible or that collectibility
        is
        doubtful is a matter of judgment. On a quarterly basis, our manager evaluates
        our real estate loan portfolio for impairment. The fact that a loan is
        temporarily past due does not necessarily mean that the loan is impaired.
        Rather, all relevant circumstances are considered by our manager to determine
        impairment and the need for specific reserves. Such evaluation, which includes
        a
        review of all loans on which full collectibility may not be reasonably assured,
        considers among other matters:
 
 ·
            Prevailing
                economic conditions; 
 ·
            Historical
                experience; 
 ·
            The
                nature and volume of the loan portfolio; 
 ·
            The
                borrowers’ financial condition and adverse situations that may affect the
                borrowers’ ability to pay; 
 ·
            Evaluation
                of industry trends; and 
 ·
            Estimated
                net realizable value of any underlying collateral in relation to
                the real
                estate loan amount. 
 Based
        upon this evaluation, a determination is made as to whether the allowance
        for
        loan losses is adequate to cover any potential losses. Additions to the
        allowance for loan losses are made by charges to the provision for loan losses.
        Recoveries of previously charged off amounts are credited to the allowance
        for
        loan losses. For additional information regarding the roll-forward of the
        allowance for loan losses for the three months ended March 31, 2007, refer
        to
        Note D - Investments In Real Estate Loans of the Notes to the Consolidated
        Financial Statements included in Part I, Item 1 *Consolidated Financial Statements* of
        this
        Interim Report Form 10-Q.
 
 **Investments
        in Real Estate Held for Sale**
 
 At
        March
        31, 2007, we
        held
        one property with a total carrying value of approximately $3.7 million, which
        was acquired through foreclosure and recorded as investments in real estate
        held
        for sale. Our
        investments in real estate held for sale are accounted for at the lower of
        cost
        or fair value less costs to sell with fair value based on appraisals and
        knowledge of local market conditions. It is not our intent to invest in or
        own
        real estate as a long-term investment. We seek to sell properties acquired
        through foreclosure as quickly as circumstances permit. During the three
        months
        ended March 31, 2007, there were no transactions related to our real estate
        held
        for sale.
 
 For
        additional information on our investments in real estate held for sale, refer
        to
        Note F - *Real
        Estate Held for Sale*  of
        the
        Notes to the Consolidated Financial Statements included in Part I, Item
        1 *Consolidated Financial Statements* of
        this
        Interim Report Form 10-Q.
  -
            32
            -
 *Table
            of Contents*
  **Investments
        in Real Estate Held for Sale — Seller Financed**
 
 At
        March
        31, 2007, we held an interest in one **** property
        with a total carrying value of approximately $7.9 million, which was sold
        in a
        transaction where we provided the financing to the purchaser. GAAP requires
        us
        to include these properties in real estate held for sale until the borrower
        has
        met and maintained certain requirements. We may share ownership of such
        properties with VRM II, Fund III, our manager, or other related and/or unrelated
        parties. These investments in real estate held for sale are accounted for
        at the
        lower of cost or fair value less costs to sell with fair value based on
        appraisals and knowledge of local market conditions For additional information
        on our investments in real estate loans, refer to Note G - *Real
        Estate Held for Sale-Seller Financed* of the
        Notes to the Consolidated Financial Statements included in Part I, Item
        1 *Consolidated Financial Statements* of
        this
        Interim Report Form 10-Q.
 
 **OFF-BALANCE
        SHEET ARRANGEMENTS**
 
 We
        do not
        have any interests in off-balance sheet special purpose entities nor do we
        have
        any interests in non-exchange traded commodity contracts.
 
 **CONTRACTUAL
        OBLIGATIONS**
 
 The
        following summarizes our contractual obligations at March 31, 2007:
 
 **Contractual
                  Obligation**
              
              **Total**
              
              **Less
                  Than 1 Year**
              
              **1-3
                  Years**
              
              **3-5
                  Years**
              
              **More
                  Than**
                **5
                  Years**Secured
                  borrowings (1)
              
              $
              154,000
              
              $
              154,000
              
              $
              --
              
              $
              --
              
              $
              --Total
              
              $
              154,000
              
              $
              154,000
              
              $
              --
              
              $
              --
              
              $
              --
 
 (1)
            In
                the event VRM II and Fund III were unable to pay their pro rata share
                of
                the secured borrowings, we would be liable for the full outstanding
                balance, which was approximately $13.0 million as of March 31,
                2007. 
 **CRITICAL
        ACCOUNTING ESTIMATES**
 
 **Revenue
        Recognition**
 
 Interest
        income on loans is accrued by the effective interest method. We do not accrue
        interest income from loans once they are determined to be impaired. A loan
        is
        impaired when, based on current information and events, it is probable that
        we
        will be unable to collect all amounts due according to the contractual terms
        of
        the loan agreement or when the payment of interest is 90 days past
        due.
 
 The
        following table presents a sensitivity analysis to show the impact on our
        financial condition at March 31, 2007, from fluctuations in weighted average
        interest rate charged on loans as a percentage of the loan
        portfolio:
 
 **Changed
                  Assumption**
              
              **Increase
                  (Decrease) in Interest Income**Weighted
                  average interest rate assumption increased by 1.0% or 100 basis
                  points
              
              $
              607,000Weighted
                  average interest rate assumption increased by 5.0% or 500 basis
                  points
              
              $
              3,034,000Weighted
                  average interest rate assumption decreased by 1.0% or 100 basis
                  points
              
              $
              (607,000
              )Weighted
                  average interest rate assumption decreased by 5.0% or 500 basis
                  points
              
              $
              (3,034,000
              )
 
 The
        purpose of this analysis is to provide an indication of the impact that the
        weighted average interest rate fluctuations would have on our financial results.
        It is not intended to imply our expectation of future revenues or to estimate
        earnings. We believe that the assumptions used above are appropriate to
        illustrate the possible material impact on the consolidated financial
        statements.
  -
            33
            -
 *Table
            of Contents*
  **Allowance
        for Loan Losses**
 
 We
        maintain an allowance for loan losses on our investments in real estate loans
        for estimated credit impairment in our investment in real estate loans
        portfolio. Our manager’s estimate of losses is based on a number of factors
        including the types and dollar amounts of loans in the portfolio, adverse
        situations that may affect the borrower’s ability to repay, prevailing economic
        conditions and the underlying collateral securing the loan. Additions to
        the
        allowance are provided through a charge to earnings and are based on an
        assessment of certain factors, which may indicate estimated losses on the
        loans.
        Actual losses on loans are recorded as a charge-off or a reduction to the
        allowance for loan losses. Subsequent recoveries of amounts previously charged
        off are added back to the allowance or included as income.
 
 The
        following table presents a sensitivity analysis to show the impact on our
        financial condition at March 31, 2007, from increases and decreases to our
        allowance for loan losses as a percentage of the loan portfolio:
 
 **Changed
                  Assumption**
              
              **Increase
                  (Decrease) in Allowance for Loan Losses**Allowance
                  for loan losses assumption increased by 1.0% of loan
                  portfolio
              
              $
              607,000Allowance
                  for loan losses assumption increased by 5.0% of loan
                  portfolio
              
              $
              3,037,000Allowance
                  for loan losses assumption decreased by 1.0% of loan
                  portfolio
              
              $
              (607,000
              )Allowance
                  for loan losses assumption decreased by 5.0% of loan
                  portfolio
              
              $
              (3,037,000
              )
 
 Estimating
        allowances for loan losses requires significant judgment about the underlying
        collateral, including liquidation value, condition of the collateral, competency
        and cooperation of the related borrower and specific legal issues that affect
        loan collections or taking possession of the property. As a commercial real
        estate lender willing to invest in loans to borrowers who may not meet the
        credit standards of other financial institutional lenders, the default rate
        on
        our loans could be higher than those generally experienced in the mortgage
        lending industry. We, our manager and Vestin Originations generally approves
        loans more quickly than other real estate lenders and, due to our expedited
        underwriting process, there is a risk that the credit inquiry we perform
        will
        not reveal all material facts pertaining to a borrower and the
        security.
 
 We
        may
        discover additional facts and circumstances as we continue our efforts in
        the
        collection and foreclosure processes. This additional information often causes
        management to reassess its estimates. In recent years, we have revised estimates
        of our allowance for loan losses. Circumstances that may cause significant
        changes in our estimated allowance include, but not limited to:
 
 ·
            Declines
                in real estate market conditions that can cause a decrease in expected
                market value; 
 ·
            Discovery
                of undisclosed liens for community improvement bonds, easements and
                delinquent property taxes; 
 ·
            Lack
                of progress on real estate developments after we advance funds. We
                customarily utilize disbursement agents to monitor the progress of
                real
                estate developments and approve loan advances. After further inspection
                of
                the related property, progress on construction occasionally does
                not
                substantiate an increase in value to support the related loan
                advances; 
 ·
            Unanticipated
                legal or business issues that may arise subsequent to loan origination
                or
                upon the sale of foreclosed upon property;
                and 
 ·
            Appraisals,
                which are only opinions of value at the time of the appraisal, may
                not
                accurately reflect the value of the
                property.  -
            34
            -
 *Table
            of Contents*
  **Real
        Estate Held For Sale**
 
 Real
        estate held for sale includes real estate acquired through foreclosure and
        will
        be carried at the lower of the recorded amount, inclusive of any senior
        indebtedness, or the property's estimated fair value, less estimated costs
        to
        sell, with fair value based on appraisals and knowledge of local market
        conditions. While pursuing foreclosure actions, we seek to identify potential
        purchasers of such property. It is not our intent to invest in or own real
        estate as a long-term investment. In accordance with FAS 144 - *Accounting
        for the Impairment or Disposal of Long Lived Assets,* we
        seek
        to sell properties acquired through foreclosure as quickly as circumstances
        permit. The carrying values of real estate held for sale are assessed on
        a
        regular basis from updated appraisals, comparable sales values or purchase
        offers.
 
 Management
        classifies real estate held for sale when the following criteria are
        met:
 
 ·
            Management
                commits to a plan to sell the properties; 
 ·
            The
                property is available for immediate sale in its present condition
                subject
                only to terms that are usual and
                customary; 
 ·
            An
                active program to locate a buyer and other actions required to complete
                a
                sale have been initiated; 
 ·
            The
                sale of the property is probable; 
 ·
            The
                property is being actively marketed for sale at a reasonable price;
                and 
 ·
            Withdrawal
                or significant modification of the sale is not
                likely. 
 **Real
        Estate Held For Sale - Seller Financed**
 
 We
        occasionally finance sales of foreclosed properties to independent third
        parties. In order to record a sale of real estate when the seller is providing
        continued financing, FAS 66 - *Accounting
        for Sales of Real Estate* ("FAS
        66'') requires the buyer of the real estate to make minimum and initial
        continuing investments. Minimum initial investments as defined by FAS 66
        range
        from 10% to 25% based on the type of real estate sold. In addition, FAS 66
        limits commitments and contingent obligations incurred by a seller in order
        to
        record a sale.
 
 Because
        we occasionally foreclose on loans with raw land or developments in progress,
        available financing for such properties is often limited and we frequently
        provide financing up to 100% of the selling price on these properties. In
        addition, we may make additional loans to the buyer to continue development
        of a
        property. Although sale agreements are consummated at closing, they lack
        adequate initial investment by the buyer to qualify as a sales transaction
        as
        defined in FAS 66. These sale agreements are not recorded as a sale until
        the
        requirements of FAS 66 are met.
 
 These
        sales agreements are recorded under the deposit method or cost recovery method
        as defined in FAS 66. Under the deposit method, no profit is recognized and
        any
        cash received from the buyer is reported as a deposit liability on the balance
        sheet. Under the cost recovery method, no profit is recognized until payments
        by
        the buyer exceed the carrying basis of the property sold. Principal payments
        received will reduce the related receivable, and interest collections will
        be
        recorded as unrecognized gross profit on the balance sheet. The carrying
        values
        of these properties are included in real estate held for sale on the
        accompanying consolidated balance sheets.
 
 **ITEM
        3.**  **QUANTITATIVE
        AND QUALITATIVE DISCLOSURES ABOUT MARKETRISK**
 
 We
        are
        exposed to market risk, primarily from changes in interest rates. We do not
        deal
        in any foreign currencies and do not own any options, futures or other
        derivative instruments. We do not have a significant amount of
        debt.
  -
            35
            -
 *Table
            of Contents*
  Most
        of
        our assets consisted of investments in real estate loans, which from time
        to
        time include those that are financed under Inter-creditor Agreements. At
        March
        31, 2007, our aggregate investment in real estate loans was approximately
        $48.8
        million, net of allowance, with a weighted average effective interest rate
        of
        10.95%. We had one loan financed under an Inter-creditor Agreement at March
        31,
        2007, which was classified as assets under secured borrowing totaling $154,000.
        Most of the real estate loans had an initial term of 12 months. The weighted
        average term of outstanding loans, including extensions and loans related
        to
        seller financed real estate held for sale, at March 31, 2007, was 19 months.
        All
        but one of the outstanding real estate loans at March 31, 2007, were fixed
        rate
        loans. All of the real estate loans are held for investment purposes; none
        are
        held for sale. We intend to hold such real estate loans to maturity. None
        of the
        real estate loans had prepayment penalties and 13 had an exit fee.
 
 Market
        fluctuations in interest rates generally do not affect the carrying value
        of our
        investment in real estate loans. However, significant and sustained changes
        in
        interest rates could affect our operating results. If interest rates decline
        significantly, some of the borrowers could prepay their loans with the proceeds
        of a refinancing at lower interest rates. This would reduce our earnings
        and
        funds available for dividend distribution to stockholders. On the other hand,
        a
        significant increase in interest rates could result in a slowdown in real
        estate
        development activity that would reduce the demand for commercial real estate
        loans. As a result, we might encounter greater difficulty in identifying
        appropriate borrowers. We are not in a position to quantify the potential
        impact
        on our operating results from a material change in interest rates.
 
 The
        following table contains information about the investment in real estate
        loans,
        including loans related to seller financed real estate held for sale held,
        in
        our portfolio as of March 31, 2007. The presentation aggregates the investment
        in real estate loans by their maturity dates for maturities occurring in
        each of
        the years 2007 through 2010 and thereafter and separately aggregates the
        information for all maturities arising after 2010. The carrying values of
        these
        assets approximate their fair value as of March 31, 2007.
 
 **Interest
                  Earning Assets**
                **Aggregated
                  by Maturity at March 31, 2007****Interest
                  Earning Assets**
              
              **2007**
              
              **2008**
              
              **2009**
              
              **2010**
              
              **Thereafter**
              
              **Total**Investments
                  In Real Estate Loans
              
              $
              54,515,000
              
              $
              6,219,000
              
              $
              --
              
              $
              --
              
              $
              --
              
              $
              60,734,000Weighted
                  Average Interest Rates
              
              
              10.99%
              
              
              10.54%
              
              
              --%
              
              
              --%
              
              
              --%
              
              
              10.95%
 
 At
        March
        31, 2007, we also had approximately $3.5 million invested in cash, cash
        equivalents, certificates of deposit and marketable securities - related
        party
        (VRM II). Approximately 3% of our assets will be held in such accounts as
        a cash
        reserve; additional deposits in such accounts will be made as funds are received
        from investors and repayment of loans pending the deployment of such funds
        in
        new real estate loans. We believe that these financial assets do not give
        rise
        to significant interest rate risk due to their short-term nature.
 
 **ITEM
        4.**  **CONTROLS
        AND PROCEDURES**
 
 **Evaluation
        of Disclosure Controls and Procedures**
 
 We
        maintain disclosure controls and procedures that are designed to ensure that
        information required to be disclosed in our reports under the Exchange Act
        is
        recorded, processed, summarized and reported within the time periods specified
        in the SEC's rules and forms, and that such information is accumulated and
        communicated to our management, including our Chief Executive Officer (“CEO”)
        and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions
        regarding required financial disclosure. In connection with the preparation
        of
        this Report on Form 10-K, our management carried out an evaluation, under
        the
        supervision and with the participation of the our management, including the
        CEO
        and CFO, as of March 31, 2007, of the effectiveness of the design and operation
        of our disclosure controls and procedures, as such term is defined under
        Rule
        13a-15(e) under the Exchange Act. Based upon this evaluation, our CEO and
        CFO
        believe that these controls and procedures are adequate to ensure we are
        able to
        collect, process and disclose the information we are required to disclose
        in the
        reports it files with the SEC within the required time periods.
  -
            36
            -
 *Table
            of Contents*
 
 The
        certifications of the our Chief Executive Officer and Chief Financial Officer
        required under Section 302 of the Sarbanes-Oxley Act have been filed as Exhibits
        31.1 and 31.2 to this report.
 
 **Changes
        in Internal Control Over Financial Reporting**
 
 Our
        management has identified the following change in our internal controls over
        financial reporting during the Quarter ended March 31, 2007. On
        March
        21, 2007, John W. Alderfer resigned as our
        Chief
        Financial Officer and as a member of our Board of Directors. T he
        Board
        of Directors appointed Rocio
        Revollo as our Chief Financial Officer. Ms. Revollo will also serve as the
        Chief
        Financial Officer of Vestin Realty Mortgage II, Inc. and the Chief Financial
        Officer of Vestin Group. During April 2007, our manager appointed a Corporate
        Controller with the requisite experience to assist and work directly with
        our
        Chief Financial Officer.
 
 Because
        of the inherent limitations in all control systems, no evaluation of controls
        can provide absolute assurance that all control issues within our company
        have
        been or will be detected. Even effective internal control over financial
        reporting can only provide reasonable assurance with respect to financial
        statement preparation. Furthermore, because of changes in conditions, the
        effectiveness of internal control over financial reporting may vary over
        time.
        Our management, including our Chief Executive Officer and Chief Financial
        Officer, does not expect that our controls and procedures will prevent all
        errors.
 
 **ITEM
        4T.**  **CONTROLS
        AND PROCEDURES**
 
 Not
        applicable
 
 **PART
        II - OTHER INFORMATION**
 
 **ITEM
        1.**  **LEGAL
        PROCEEDINGS**
 
 Please
        refer to Note M *Legal
        Matters Involving the Manager* and Note
        N *Legal
        Matters Involving the Company* in Part
        I Item 1 *Financial
        Statements* of this
        Form 10-Q for information regarding our legal proceedings, which are
        incorporated herein by reference.
 
 **ITEM
        1A.**  **RISK
        FACTORS**
 
 In
        considering our future performance and any forward-looking statements made
        in
        this report, the material risks described below should be considered carefully.
        These factors should be considered in conjunction with the other information
        included elsewhere in this report.
 
 **RISKS
        RELATED TO OUR BUSINESS**
 
 **Defaults
        on our real estate loans will decrease our revenues and
        distributions.**
 
 We
        are in
        the business of investing in real estate loans and, as such, we are subject
        to
        risk of defaults by borrowers. Our performance will be directly impacted
        by any
        defaults on the loans in our portfolio. As a commercial real estate lender
        willing to invest in loans to borrowers who may not meet the credit standards
        of
        other financial institutional lenders, the rate of default on our loans could
        be
        higher than those generally experienced in the real estate lending industry.
        Any
        sustained period of increased defaults could adversely affect our business,
        financial condition, liquidity and the results of our operations. We seek
        to
        mitigate the risk by estimating the value of the underlying collateral and
        insisting on adequate loan-to-value ratios. However, we cannot be assured
        that
        these efforts will fully protect us against losses on defaulted loans. Any
        subsequent decline in real estate values on defaulted loans could result
        in less
        security than anticipated at the time the loan was originally made, which
        may
        result in our not recovering the full amount of the loan. Any failure of
        a
        borrower to repay loans or interest on loans will reduce our revenues and
        distributions and the value of common stock. Our weighted average loan-to-value
        ratio, including loans related to seller financed real estate held for sale,
        as
        of March 31, 2007 was 73.66% as compared to 71.35% as of December 31, 2006.
        Our
        appraisals are generally dated within 12 months of the date of loan origination
        and may not reflect a decrease in the value of the real estate due to events
        subsequent to the date of the appraisals.
  -
            37
            -
 *Table
            of Contents*
  As
        of
        March 31, 2007, we had in our portfolio approximately $8.3 million in delinquent
        loans, net of allowance for loan losses, and approximately $3.7 million of
        real
        estate held for sale not sold through seller financed for a total of
        approximately $12.0 million in non-performing assets, which represented
        approximately 19% of our stockholders’ equity. As of March 31, 2007, we also had
        approximately $7.9 million of seller financed real estate held for sale and
        had
        received approximately $1.4 million in payments from borrowers on the loans
        associated with these properties. We do not believe that a rising interest
        rate
        environment will increase or accelerate our delinquency rate because all
        of our
        loans are short term.
 
 **Our
        underwriting standards and procedures are more lenient than other financial
        institutional lenders, which may result in a higher level of non-performing
        assets and less amounts available for distribution.**
 
 Our
        underwriting standards and procedures are more lenient than other financial
        institutional lenders in that we will invest in loans to borrowers who may
        not
        be required to meet the credit standards of other financial institutional
        real
        estate lenders, which may lead to an increase in non-performing assets in
        our
        loan portfolio and create additional risks of return. We approve real estate
        loans more quickly than other lenders. We rely heavily on third-party reports
        and information such as appraisals and environmental reports. Because of
        our
        accelerated due diligence process, we may accept documentation that was not
        specifically prepared for us or commissioned by us. This creates a greater
        risk
        of the information contained therein being out of date or incorrect. Generally,
        we will not spend more than 20 days assessing the character and credit history
        of our borrowers. Due to the nature of loan approvals, there is a risk that
        the
        credit inquiry we perform will not reveal all material facts pertaining to
        the
        borrower and the security. There may be a greater risk of default by our
        borrowers, which may impair our ability to make timely distributions and
        which
        may reduce the amount we have available to distribute.
 
 **We
        depend upon our real estate security to secure our real estate loans, and
        we may
        suffer a loss if the value of the underlying property
        declines.**
 
 We
        depend
        upon our real estate security to protect us on the loans that we make. We
        depend
        upon the skill of independent appraisers to value the security underlying
        our
        loans. However, notwithstanding the experience of the appraisers, they may
        make
        mistakes, or the value of the real estate may decrease due to subsequent
        events.
        Our appraisals are generally dated within 12 months of the date of loan
        origination and may have been commissioned by the borrower. Therefore, the
        appraisals may not reflect a decrease in the value of the real estate due
        to
        events subsequent to the date of the appraisals. In addition, most of the
        appraisals are prepared on an as-if developed basis, which approximates the
        post-construction value of the collateralized property assuming such property
        is
        developed. As-if developed values on raw land loans or acquisition and
        development loans often dramatically exceed the immediate sales value and
        may
        include anticipated zoning changes and successful development by the purchaser
        upon which development is dependent on availability of financing. As most
        of the
        appraisals will be prepared on an as-if developed basis, if the loan goes
        into
        default prior to completion of the project, the market value of the property
        may
        be substantially less than the appraised value. As a result, there may be
        less
        security than anticipated at the time the loan was originally made. If there
        is
        less security and a default occurs, we may not recover the full amount of
        our
        loan, thus reducing the amount of funds available to distribute.
 
 **We
        typically make “balloon payment” loans, which are riskier than loans with
        payments of principal over an extended period of time.**
 
 The
        loans
        we invest in or purchase generally require the borrower to make a “balloon
        payment” on the principal amount upon maturity of the loan. A balloon payment is
        a large principal balance that is payable after a period of time during which
        the borrower has repaid none or only a small portion of the principal balance.
        As of March 31, 2007, all of our loans provided for payments of interest
        only
        with a “balloon” payment of principal payable in full at the end of the term,
        with the exception of one of our loans that have both principal and interest
        payments along with a “balloon” payment at the end of the term. Loans with
        balloon payments are riskier than loans with even payments of principal over
        an
        extended time period such as 15 or 30 years because the borrower’s repayment
        depends on its ability to sell the property profitably, obtain suitable
        refinancing or otherwise raise a substantial amount of cash when the loan
        comes
        due. There are no specific criteria used in evaluating the credit quality
        of
        borrowers for loans requiring balloon payments. Furthermore, a substantial
        period of time may elapse between the review of the financial statements
        of the
        borrower and the date when the balloon payment is due. As a result, there
        is no
        assurance that a borrower will have sufficient resources to make a balloon
        payment when due.
  -
            38
            -
 *Table
            of Contents*
 
 **Our
        loans are not guaranteed by any governmental agency.**
 
 Our
        loans
        are not insured or guaranteed by a federally owned or guaranteed mortgage
        agency. Consequently, our recourse, if there is a default, may be to foreclose
        upon the real property securing a loan and/or pursuing the borrower’s guarantee
        of the principal. The value of the foreclosed property may have decreased
        and
        may not be equal to the amount outstanding under the corresponding loan,
        resulting in a decrease of the amount available to distribute.
 
 **Our
        real estate loans may not be marketable, and we expect no secondary market
        to
        develop.**
 
 We
        do not
        expect our real estate loans to be marketable, and we do not expect a secondary
        market to develop for them. As a result, we will generally bear all the risk
        of
        our investment until the loans mature. This will limit our ability to hedge
        our
        risk in changing real estate markets and may result in reduced returns to
        our
        investors.
 
 **Any
        borrowing by us will increase risk and may reduce the amount we have available
        to distribute to stockholders.**
 
 We
        may
        borrow funds to expand our capacity to invest in real estate loans. We may
        borrow up to 70% of the fair market value of our outstanding real estate
        loans
        at any time. Any such borrowings will require us to carefully manage our
        cost of
        funds. No assurance can be given that we will be successful in this effort.
        Should we be unable to repay the indebtedness and make the interest payments
        on
        the loans, the lender will likely declare us in default and require that
        we
        repay all amounts owing under the loan facility. Even if we are repaying
        the
        indebtedness in a timely manner, interest payments owing on the borrowed
        funds
        may reduce our income and the distributions. As of March 31, 2007 and December
        31, 2006, we had total indebtedness of $154,000 and $310,000,
        respectively.
 
 We
        may
        borrow funds from several sources, and the terms of any indebtedness we incur
        may vary. However, some lenders may require as a condition of making a loan
        to
        us that the lender will receive a priority on loan repayments received by
        us. As
        a result, if we do not collect 100% on our investments, the first dollars
        may go
        to our lenders and we may incur a loss that will result in a decrease of
        the
        amount available for distribution. In addition, we may enter into securitization
        arrangements in order to raise additional funds. Such arrangements could
        increase our leverage and adversely affect our cash flow and our ability
        to make
        distributions. During October 2006, we, our manager, Vestin Origination,
        Inc.,
        VRM II and Fund III entered into an intercreditor agreement with an unrelated
        third party related to the funding of a construction real estate loan. The
        secured borrowing will be recognized pro rata among us, VRM II and Fund III
        for
        the amount each entity has funded for the loan. Our pro rata portion of the
        loan
        is $154,000 as of March 31, 2007. However, in the event VRM II and Fund III
        were
        unable to pay their pro rata share of the secured borrowing, we would be
        liable
        for the full outstanding balance of approximately $13.0 million, as of March
        31,
        2007.
 
 We
        may
        need cash to meet our minimum REIT distribution requirements and limit U.S.
        federal income taxation. Because we are required to distribute annually to
        our
        stockholders at least 90% of our REIT taxable income (determined without
        regard
        to the dividends paid deduction and by excluding net capital gains) to qualify
        as a REIT and because we intend to distribute substantially all of our REIT
        taxable income and net capital gain, our ability to expand our loan portfolio
        will depend in large part on external sources of capital. In addition, if
        our
        minimum distribution requirements to maintain our REIT status and minimize
        U.S.
        federal income taxation become large relative to our cash flow as a result
        of
        our taxable income exceeding our cash flow from operations, then we may be
        required to borrow funds or raise capital by selling assets to meet those
        distribution requirements. Any equity financing may result in substantial
        dilution to our stockholders, and any debt financing may include restrictive
        covenants. We may not be able to raise capital on reasonable terms, if at
        all.
 
 **We
        may have difficulty protecting our rights as a secured
        lender.**
 
 We
        believe that our loan documents will enable us to enforce our commercial
        arrangements with borrowers. However, the rights of borrowers and other secured
        lenders may limit our practical realization of those benefits. For
        example:
  -
            39
            -
 *Table
            of Contents*
 
 ·
            Judicial
                foreclosure is subject to the delays of protracted litigation. Although
                we
                expect non-judicial foreclosure to be quicker, our collateral may
                deteriorate and decrease in value during any delay in foreclosing
                on
                it; 
 ·
            The
                borrower’s right of redemption during foreclosure proceedings can deter
                the sale of our collateral and can for practical purposes require
                us to
                manage the property; 
 ·
            Unforeseen
                environmental hazards may subject us to unexpected liability and
                procedural delays in exercising our
                rights; 
 ·
            The
                rights of senior or junior secured parties in the same property can
                create
                procedural hurdles for us when we foreclose on
                collateral; 
 ·
            Required
                licensing and regulatory approvals may complicate our ability to
                foreclose
                or to sell a foreclosed property where our collateral includes an
                operating business. We have recently experienced difficulties in
                foreclosing on the RightStar loans discussed in Note N -*Legal
                Matters Involving The Company*in
                the notes to the consolidated financial statement under Part I, Item
                I.*Consolidated
                Financial Statements*to
                this Interim Report Form 10-Q, because of the need to obtain a license
                from the State of Hawaii to operate funeral homes and
                cemeteries; 
 ·
            We
                may not be able to pursue deficiency judgments after we foreclose
                on
                collateral; and 
 ·
            State
                and federal bankruptcy laws can prevent us from pursuing any actions,
                regardless of the progress in any of these suits or
                proceedings. 
 **By
        becoming the owner of property, we may incur additional obligations, which
        may
        reduce the amount of funds available for distribution.**
 
 We
        intend
        to own real property only if we foreclose on a defaulted loan and purchase
        the
        property at the foreclosure sale. Acquiring a property at a foreclosure sale
        may
        involve significant costs. If we foreclose on the security property, we expect
        to obtain the services of a real estate broker and pay the broker’s commission
        in connection with the sale of the property. We may incur substantial legal
        fees
        and court costs in acquiring a property through contested foreclosure and/or
        bankruptcy proceedings. In addition, significant expenditures, including
        property taxes, maintenance costs, mortgage payments, insurance costs and
        related charges, must be made on any property we own regardless of whether
        the
        property is producing any income.
 
 Under
        applicable environmental laws, any owner of real property may be fully liable
        for the costs involved in cleaning up any contamination by materials hazardous
        to the environment. Even though we might be entitled to indemnification from
        the
        person that caused the contamination, there is no assurance that the responsible
        person would be able to indemnify us to the full extent of our liability.
        Furthermore, we would still have court and administrative expenses for which
        we
        may not be entitled to indemnification.
  -
            40
            -
 *Table
            of Contents*
  **A
        prolonged economic slowdown, lengthy or severe recession or significant increase
        in interest rates could harm our business.**
 
 The
        risks
        associated with our business are more acute during periods of economic slowdown
        or recession because these periods can be accompanied by decreased demand
        for
        consumer credit and declining real estate values. As a commercial real estate
        lender willing to invest in riskier loans, rates of delinquencies, foreclosures
        and losses on our loans could be higher than those generally experienced
        in the
        commercial mortgage lending industry during periods of economic slowdown
        or
        recession. Problems in the sub-prime residential mortgage market could adversely
        affect the general economy or the availability of funds for commercial real
        estate developers. This in turn could lead to an increae in defaults on our
        loans. Furthermore, if interest rates were to increase significantly, the
        costs
        of borrowing may become too expensive, which may negatively impact the refinance
        market by reducing demand for real estate lending. For the three months ended
        March 31, 2007, loan originations accounted for all but one loan funded during
        that period as there was one loan refinanced during the period. Any sustained
        period of increased delinquencies, foreclosures or losses or a significant
        increase in interest rates could adversely affect our ability to originate,
        purchase and securitize loans, which could significantly harm our business,
        financial condition, liquidity and results of operations.
 
 As
        of
        March 31, 2007, none of our loans had a prepayment penalty and 13 loans had
        an
        exit fee. Based on our manager’s historical experience, we expect that our loans
        will continue to not have a prepayment penalty. Should interest rates decrease,
        our borrowers may prepay their outstanding loans with us in order to receive
        a
        more favorable rate. This may reduce the amount of funds we have available
        to
        distribute.
 
 **Our
        results are subject to fluctuations in interest rates and other economic
        conditions.**
 
 Our
        results of operations will vary with changes in interest rates and with the
        performance of the relevant real estate markets. If the economy is healthy,
        we
        expect that more people will be borrowing money to acquire, develop or renovate
        real property. However, if the economy grows too fast, interest rates may
        increase too much and the cost of borrowing may become too expensive.
        Alternatively, if the economy enters a recession, real estate development
        may
        slow. A slowdown in real estate lending may mean we will have fewer loans
        to
        acquire, thus reducing our revenues and the distributions.
 
 One
        of
        the results of interest rate fluctuations is that borrowers may seek to extend
        their low-interest-rate loans after market interest rates have increased.
        This
        creates two risks for us:
 
 ·
            If
                interest rates rise, borrowers under loans with monthly or quarterly
                principal payments may be compelled to extend their loans to decrease
                the
                principal paid with each payment because the interest component has
                increased. If this happens, we are likely to be at a greater risk
                of the
                borrower defaulting on the extended loan, and the increase in the
                interest
                rate on our loan may not be adequate compensation for the increased
                risk.
                Additionally, any fees paid to extend the loan are paid to Vestin
                Originations, not to us. Our revenues and distributions will decline
                if we
                are unable to reinvest at higher rates or if an increasing number
                of
                borrowers default on their loans; and 
 ·
            If,
                at a time of relatively low interest rates, a borrower should prepay
                obligations that have a higher interest rate from an earlier period,
                we
                will likely not be able to reinvest the funds in real estate loans
                earning
                that higher rate of interest. In the absence of a prepayment fee,
                we will
                receive neither the anticipated revenue stream at the higher rate
                nor any
                compensation for its loss. This is a risk if the loans we invest
                in do not
                have prepayment penalties or exit fees. 
 Our
        results will also reflect other economic conditions, such as a particular
        industry migrating to or from one of the states into which we make
        loans.
  -
            41
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 *Table
            of Contents*
  **Legal
        actions seeking damages and appraisal rights could harm our operating results
        and financial condition.**
 
 We
        have
        recently been named in several
        legal actions seeking damages and appraisal rights in connection with the
        REIT
        conversion .
        See
        Note M - *Legal
        Matters Involving The Manager* and Note
        N - *Legal
        Matters Involving The Company* in the
        notes to the consolidated financial statement under Part I, Item I. *Consolidated
        Financial Statements* to this
        Interim Report Form 10-Q. While we believe these actions are without merit,
        the
        defense of such actions could materially increase our legal costs and may
        require the substantial attention of our management. This in turn might
        adversely impact our operating results. Moreover, any adverse outcome in
        such
        actions could result in our having to pay substantial damages which would
        reduce
        our cash resources and harm our financial condition.
 
 **We
        face competition for real estate loans that may reduce available yields and
        fees
        available.**
 
 We
        consider our direct competitors to be the providers of real estate loans
        who
        offer short-term, equity-based loans on an expedited basis for higher fees
        and
        rates than those charged by other financial institutional lenders such as
        commercial banks, insurance companies, mortgage brokers and pension funds.
        Many
        of the companies against which we compete have substantially greater financial,
        technical and other resources than either our company or our manager.
        Competition in our market niche depends upon a number of factors, including
        price and interest rates of the loan, speed of loan processing, cost of capital,
        reliability, quality of service and support services. If our competition
        decreases interest rates on their loans or makes funds more easily accessible,
        yields on our loans could decrease and the costs associated with making loans
        could increase, both of which would reduce our revenues and the
        distributions.
 
 **MANAGEMENT
        AND CONFLICT OF INTEREST RISKS**
 
 **We
        rely on our manager to manage our day-to-day operations and select our loans
        for
        investment.**
 
 Our
        ability to achieve our investment objectives and to make distributions depends
        upon our manager’s and its affiliate’s performance in obtaining, processing,
        making and brokering loans for us to invest in and determining the financing
        arrangements for borrowers. Stockholders have no opportunity to evaluate
        the
        financial information or creditworthiness of borrowers, the terms of mortgages,
        the real property that is our collateral or other economic or financial data
        concerning our loans. We pay our manager an annual management fee of up to
        0.25%
        of our aggregate capital received by us and Fund I from the sale of shares
        or
        membership units. This fee is payable regardless of the performance of our
        loan
        portfolio. Our manager has no fiduciary obligations to our stockholders,
        is not
        required to devote its employees’ full time to our business and may devote time
        to business interests competitive to our business.
 
 **Our
        manager’s lack of experience with certain real estate markets could impact its
        ability to make prudent investments on our behalf.**
 
 As
        of
        March 31, 2007, our loans were in the following states: Arizona, California,
        Hawaii, Nevada, New York, Oklahoma, Oregon, Texas and Washington. Depending
        on
        the market and on our company’s performance, we plan to expand our investments
        throughout the United States. However, our manager has limited experience
        outside of the Western and Southern United States. Real estate markets vary
        greatly from location to location and the rights of secured real estate lenders
        vary considerably from state to state. Our manager’s limited experience in most
        U.S. real estate markets may impact its ability to make prudent investment
        decisions on our behalf. Accordingly, where our manager deems it necessary,
        it
        plans to utilize independent real estate advisors and local legal counsel
        located in markets where it lacks experience for consultation prior to making
        investment decisions. Stockholders will not have an opportunity to evaluate
        the
        qualifications of such advisors and no assurance can be given that they will
        render prudent advice to our manager.
  -
            42
            -
 *Table
            of Contents*
  **Our
        success depends on key personnel of our manager, the loss of whom could
        adversely affect our operating results, and on our manager’s ability to attract
        and retain qualified personnel.**
 
 Our
        success depends in part upon the continued contributions of certain key
        personnel of our manager, including; Michael V. Shustek (Chief Executive
        Officer
        and President), Rocio Revollo (Chief Financial Officer), James M. Townsend
        (Chief Operating Officer) and Daniel B. Stubbs (Senior Vice President,
        Underwriting) some of whom would be difficult to replace because of their
        extensive experience in the field, extensive market contacts and familiarity
        with our company. If any of these key employees were to cease employment,
        our
        operating results could suffer. None of the key personnel of our manager
        is
        subject to an employment, non-competition or confidentiality agreement with
        our
        manager, or us and we do not maintain “key man” life insurance policies on any
        of them. Our future success also depends in large part upon our manager’s
        ability to hire and retain additional highly skilled managerial, operational
        and
        marketing personnel. Our manager may require additional operations and marketing
        people who are experienced in obtaining, processing, making and brokering
        loans
        and who also have contacts in the relevant markets. Competition for personnel
        is
        intense, and we cannot be assured that we will be successful in attracting
        and
        retaining skilled personnel. If our manager were unable to attract and retain
        key personnel, the ability of our manager to make prudent investment decisions
        on our behalf may be impaired.
 
 **Vestin
        Mortgage serves as our manager pursuant to a long-term management agreement
        that
        may be difficult to terminate and does not reflect arm’s length
        negotiations.**
 
 We
        have
        entered into a long-term management agreement with Vestin Mortgage to act
        as our
        manager. The term of the management agreement is for the duration of our
        existence. The management agreement may only be terminated upon the affirmative
        vote of a majority in interest of stockholders entitled to vote on the matter
        or
        by our board of directors for cause upon 90 days’ written notice of termination.
        Consequently, it may be difficult to terminate our management agreement and
        replace our manager in the event that our performance does not meet expectations
        or for other reasons unless the conditions for termination of the management
        agreement are satisfied. The management agreement was negotiated by related
        parties and may not reflect terms as favorable as those subject to arm’s length
        bargaining.
 
 **Our
        manager will face conflicts of interest concerning the allocation of its
        personnel’s time.**
 
 Our
        manager is also the manager of VRM II, Fund III and inVestin Nevada, companies
        with investment objectives similar to ours. Our manager and Mr. Shustek,
        who
        indirectly owns 100% of our manager, anticipate that they may also sponsor
        other
        real estate programs having investment objectives similar to ours. As a result,
        our manager and Mr. Shustek may have conflicts of interest in allocating
        their
        time and resources between our business and other activities. During times
        of
        intense activity in other programs and ventures, our manager and its key
        people
        will likely devote less time and resources to our business than they ordinarily
        would. Our management agreement with our manager does not specify a minimum
        amount of time and attention that our manager and its key people are required
        to
        devote to our company. Thus, our manager may not spend sufficient time managing
        our operations, which could result in our not meeting our investment
        objectives.
 
 **Our
        manager and its affiliates will face conflicts of interest arising from our
        fee
        structure.**
 
 Vestin
        Originations, an affiliate of our manager, will receive substantial fees
        from
        borrowers for transactions involving real estate loans. Many of these fees
        are
        paid on an up-front basis. In some cases, Vestin Originations is entitled
        to
        additional fees for loan extensions or modifications and loan assumptions
        and
        reconveyances. These and other fees are quantified and described in greater
        detail under “Management Agreement — Compensation.” Vestin Originations’
compensation is based on the volume and size of the real estate loans selected
        for us, regardless of their performance, which could create an incentive
        to make
        or extend riskier loans. Our interests may diverge from those of our manager,
        Vestin Originations and Mr. Shustek to the extent that Vestin Originations
        benefits from up-front fees that are not shared with us.
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            43
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            of Contents*
  Vestin
        Originations will be receiving fees from borrowers that would otherwise increase
        our returns. Because Vestin Originations receives all of these fees, our
        interests will diverge from those of our manager, Vestin Originations and
        Mr.
        Shustek when our manager decides whether we should charge the borrower higher
        interest rates or our manager’ affiliates should receive higher fees from
        borrowers.
 
 We
        paid
        our manager a total of approximately $69,000 for the three months ended March
        31, 2007, for managing us. In
        addition, Vestin Mortgage and Vestin Originations received a total of $7,000
        and
        approximately $2.7 million, respectively in fees directly from borrowers
        for the
        three months ended March
        31,
        2007. The amounts received from borrowers represent fees earned by Vestin
        Mortgage and Vestin Originations for loans originated for all funds managed
        by
        Vestin Mortgage, including us, VRM II, Fund III and inVestin Nevada. Our
        assets
        represented approximately 16% of the assets managed by Vestin Mortgage as
        of
        March 31, 2007.
 
 **Our
        manager will face conflicts of interest relating to other investments in
        real
        estate loans.**
 
 We
        expect
        to invest in real estate loans when one or more other companies managed by
        our
        manager are also investing in real estate loans. There is a risk that our
        manager may select for us a real estate loan investment that provides lower
        returns than a real estate loan investment purchased by another program or
        entity managed by our manager. Our manager also serves as the manager for
        VRM
        II, Fund III and inVestin Nevada, which have similar investment objectives
        as
        our company. There are no restrictions or guidelines on how our manager will
        determine which loans are appropriate for us and which are appropriate for
        VRM
        II, Fund III, inVestin Nevada or another company that our manager manages.
        Moreover, our manager has no obligation to provide us with any particular
        opportunities or even a pro rata share of opportunities afforded to other
        companies it manages.
 
 **UNITED
        STATES FEDERAL INCOME TAX RISKS RELATING TO OUR REIT
        QUALIFICATION**
 
 **Our
        failure to qualify as a REIT would subject us to U.S. federal income tax,
        which
        would reduce amounts available for distribution to our
        stockholders.**
 
 We
        have
        elected to be taxed as a REIT under the Code. Our qualification as a REIT
        requires us to satisfy numerous requirements (some on an annual and quarterly
        basis) established under highly technical and complex Code provisions for
        which
        there are only limited judicial or administrative interpretations, and involves
        the determination of various factual matters and circumstances not entirely
        within our control. We intend that our organization and method of operation
will
        enable us to qualify as a REIT, but we may not so qualify or we may not be
        able
        to remain so qualified in the future. Future legislation, new regulations,
        administrative interpretations or court decisions could adversely affect
        our
        ability to qualify as a REIT or adversely affect our stockholders.
 
 If
        we
        fail to qualify as a REIT in any taxable year, we would be subject to U.S.
        federal income tax (including any applicable alternative minimum tax) on
        our
        taxable income at corporate rates, and we would not be allowed to deduct
        distributions made to our stockholders in computing our taxable income. We
        may
        also be disqualified from treatment as a REIT for the four taxable years
        following the year in which we failed to qualify. The additional tax liability
        would reduce our net earnings available for investment or distribution to
        stockholders. In addition, we would no longer be required to make distributions
        to our stockholders. Even if we continue to qualify as a REIT, we will continue
        to be subject to certain U.S. federal, state and local taxes on our income
        and
        property.
 
 **Distributions
        from a REIT are currently taxed at a higher rate than corporate
        distributions.**
 
 Under
        the
        Tax Relief and Reconciliation Act of 2003, the maximum U.S. federal income
        tax
        rate on both distributions from certain domestic and foreign corporations
        and
        net long-term capital gain for individuals was reduced to 15% until 2008.
        The
        Tax Increase Prevention and Reconciliation Act of 2005 which signed into
        law on
        May 17, 2006, extended the 15% long-term net capital gain rate to 2010. However,
        this reduced rate of tax on distributions generally will not apply to our
        distributions (except those distributions identified by the company as “capital
        gain dividends” which are taxable as long-term capital gain) and therefore such
        distributions generally will be taxed as ordinary income. Ordinary income
        generally is subject to U.S. federal income tax rate at a rate of up to 35%
        for
        individuals. The higher tax rate on our distributions may cause the market
        to
        devalue our common stock relative to stock of those corporations whose
        distributions qualify for the lower rate of taxation. Please note that, as
        a
        general matter, distributions from a REIT will be taxed at the same rate
        as
        stockholders’ share of Vestin Realty Mortgage I’s taxable income attributable to
        its realized net interest income.
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            44
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  **A
        portion of our business is potentially subject to prohibited transactions
        tax.**
 
 As
        a
        REIT, we are subject to a 100% tax on our net income from “prohibited
        transactions.” In general, prohibited transactions are sales or other
        dispositions of property to customers in the ordinary course of business.
        Sales
        by us of property in the course of our business will generally constitute
        prohibited transactions.
 
 We
        intend
        to avoid the 100% prohibited transactions tax on property foreclosed upon
        by
        Fund I prior to the REIT conversion by holding and selling such properties
        through one or more wholly-owned taxable REIT subsidiaries. However, under
        the
        Code, no more than 20% of the value of the assets of a REIT may be represented
        by securities of one or more taxable REIT subsidiaries and a taxable REIT
        subsidiary generally cannot operate a lodging or health care facility.
 
 As
        of
        March 31, 2007, we held one property with a total carrying value of
        approximately $3.7 million recorded as investments in real estate held for
        sale.
        As of March 31, 2007, we also held interests in one property with a total
        carrying value of approximately $7.9 million, which was sold in a transaction
        in
        which we or an affiliate provided the financing and recorded as seller financed
        real estate held for sale. United States generally accepted accounting
        principals (“GAAP”) requires us to include this property in real estate held for
        sale until the borrower has met and maintained certain requirements. The
        real
        estate held for sale and the seller financed real estate held for sale
        collectively constituted approximately 18% of our assets as of March 31,
        2007.
        In addition, our seller financed real estate held for sale property is an
        assisted living facility, which cannot be operated by a taxable REIT
        subsidiary.
 
 **Taxable
        REIT subsidiaries are subject to corporate-level tax, which may devalue our
        common stock relative to other companies.**
 
 Taxable
        REIT subsidiaries are corporations subject to corporate-level tax. Our use
        of
        taxable REIT subsidiaries may cause the market to value its common stock
        lower
        than the stock of other publicly traded REITs which may not use taxable REIT
        subsidiaries and lower than the equity of mortgage pools taxable as non-publicly
        traded partnerships such as Fund I’s intended qualification prior to the REIT
        conversion, which generally are not subject to any U.S. federal income taxation
        on their income and gain.
 
 **Our
        use of taxable REIT subsidiaries may have adverse U.S. federal income tax
        consequences.**
 
 We
        must
        comply with various tests to continue to qualify as a REIT for U.S. federal
        income tax purposes, and our income from and investments in taxable REIT
        subsidiaries generally do not constitute permissible income and investments
        for
        purposes of the REIT qualification tests. While we will attempt to ensure
        that
        our dealings with our taxable REIT subsidiaries will not adversely affect
        our
        REIT qualification, we cannot be assured that we will successfully achieve
        that
        result. Furthermore, we may be subject to a 100% penalty tax, or our taxable
        REIT subsidiaries may be denied deductions, to the extent our dealings with
        our
        taxable REIT subsidiaries are not deemed to be arm’s length in
        nature.
 
 **We
        may endanger our REIT status if the distributions we receive from our taxable
        REIT subsidiaries exceed applicable REIT gross income
        tests.**
 
 The
        annual gross income tests that must be satisfied to ensure REIT qualification
        may limit the amount of distributions that we can receive from our taxable
        REIT
        subsidiaries and still maintain our REIT status. Generally, not more than
        25% of
        our gross income can be derived from non-real estate related sources, such
        as
        distributions from a taxable REIT subsidiary. If, for any taxable year, the
        distributions we received from our taxable REIT subsidiaries, when added
        to our
        other items of non-real estate related income, represent more than 25% of
        our
        total gross income for the year, we could be denied REIT status, unless we
        were
        able to demonstrate, among other things, that our failure of the gross income
        test was due to reasonable cause and not willful neglect.
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            45
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            of Contents*
  **We
        may lose our REIT status if we issue shares under our stockholders’ rights
        plan.**
 
 Under
        Section 562(c) of the Code, a REIT generally cannot make a distribution unless
        the distribution is pro rata, with no preference to any share of stock as
        compared to other shares of the same class of stock. A REIT that is not in
        compliance with this requirement may lose its REIT status. Under our
        stockholders’ rights plan, upon certain events, some holders of our common stock
        and not others will have the right to acquire shares of Series A preferred
        stock. When effective, this right could be treated as a deemed distribution
        to
        those holders of our common stock entitled to the right with no distribution
        to
        other such holders. Thus, this right, when effective, could be treated as
        a
        distribution that is not consistent with the requirements of Section 562(c)
        of
        the Code, which could result in the loss of our REIT qualification.
 
 **RISK
        OF OWNERSHIP OF OUR COMMON STOCK**
 
 **The
        market price and trading volume of our common stock may be
        volatile.**
 
 The
        market price of our common stock since trading commenced on June 1, 2006
        to
        March 31, 2007, has ranged from $1.01 to $7.48. We believe the price of our
        stock has been affected by, among other things, selling pressure from
        stockholders seeking immediate liquidity and the level of non-performing
        assets
        which we own. Our stock price may be highly volatile and subject to wide
        fluctuations. In addition, the trading volume in our common stock may fluctuate
        and cause significant price variations to occur. Our Company will be dissolved
        on December 31, 2019 unless the holders of a majority of our common stock
        determine otherwise. As we move closer to the dissolution date, we expect
        to
        stop making new loans and we expect that our stock price will approach our
        book
        value per share.
 
 We
        cannot
        be assured that the market price of our common stock will not fluctuate or
        decline significantly in the future. Some of the factors, many of which are
        beyond our control, that could negatively affect our stock price or result
        in
        fluctuations in the price or trading volume of our common stock
        include:
 
 ·
            increases
                in loans defaulting or becoming non-performing or being written
                off; 
 ·
            actual
                or anticipated variations in our quarterly operating results or
                distributions; 
 ·
            publication
                of research reports about us or the real estate
                industry; 
 ·
            changes
                in market valuations of similar
                companies; 
 ·
            changes
                in tax laws affecting REITs; 
 ·
            adverse
                market reaction to any increased indebtedness we incur in the future;
                and 
 ·
            general
                market and economic conditions. 
 **Market
        interest rates could have an adverse effect on our stock
        price.**
 
 One
        of
        the factors that will influence the price of our common stock will be the
        dividend yield on our common stock (as a percentage of the price of our common
        stock) relative to market interest rates. Thus, an increase in market interest
        rates may lead prospective purchasers of our common stock to expect a higher
        dividend yield, a lack of which could adversely affect the market price of
        our
        common stock.
 
 **We
        are the subject of shareholder litigation which may depress the price of
        our
        stock.**
 
 A
        number
        of lawsuits have been filed against us by shareholders who claim, among other
        things, that they were improperly denied dissenter’s rights in connection with
        the conversion of Fund I into a REIT. We believe the suits are without merit
        and
        we intend to vigorously defend against such claims. Nonetheless, the outcome
        of
        the lawsuits cannot be predicted at this time, nor can a meaningful evaluation
        be made of the potential impact upon us if the plaintiffs were to prevail
        in
        their claims. The resulting uncertainty may depress the price of our stock.
        Moreover, concerns about the potential diversion of our manager’s time to deal
        with these lawsuits may have an adverse effect upon the price of our
        stock.
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            46
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            of Contents*
  **Our
        charter documents and Maryland law contain provisions that may delay, defer
        or
        prevent a change of control transaction.**
 
 Our
        charter and bylaws and Maryland corporate law contain a number of provisions
        (as
        further described in exhibit 3.2 *Bylaws
        of the Registrant* under
        the Exhibit Index included in Part IV, Item 15 *Exhibits
        and Financial Statement Schedules* of this
        Report Form 10-K) that could delay, defer or prevent a transaction or a change
        in control of us that might involve a premium price for holders of our common
        stock or otherwise be in their best interests, including:
 
 ·
            *Ownership
                Limit*.
                Our articles of incorporation, subject to certain exceptions, authorizes
                our board of directors to take such actions as are necessary and
                desirable
                to preserve our qualification as a REIT and to limit any person to
                actual
                or constructive ownership of no more than a 9.8% of the number or
                value,
                whichever is more restrictive, of the outstanding shares of our stock,
                unless our board of directors waives this ownership limit. However,
                our
                board of directors may not grant a waiver of the ownership limit
                that
                would permit a person to acquire more than 15% of our stock without
                exception. The ownership limit may have the effect of precluding
                a change
                in control of us by a third party, even if such change in control
                would be
                in the interest of the our stockholders (and even if such change
                in
                control would not reasonably jeopardize our REIT
                status). 
 ·
            *Staggered
                Board*.
                Our board of directors is divided into three classes, with each class
                serving staggered three-year terms. This classification of our board
                of
                directors may have the effect of delaying or preventing changes in
                our
                control or management. 
 ·
            *Removal
                of Directors.*Directors may be removed only for cause and only by the affirmative
                vote
                of stockholders holding at least a majority of the shares then outstanding
                and entitled to be cast for the election of
                directors. 
 ·
            *Stockholders’
                Rights Plan*.
                We have a stockholders’ rights plan that enables our board of directors to
                deter coercive or unfair takeover tactics and to prevent a person
                or a
                group from gaining control of us without offering a fair price to
                all
                stockholders. Unless our board of directors approves the person’s or
                group’s purchase, after that person gains control of us, all other
                stockholders will have the right to purchase securities from us at
                a price
                that is less than their then fair market value. Purchases by other
                stockholders would substantially reduce the value and influence of
                the
                shares of our common stock owned by the acquiring person or group.
                Our
                board of directors, however, can prevent the stockholders’ rights plan
                from operating in this manner. This gives our board of directors’
                significant discretion to approve or disapprove a person’s or group’s
                efforts to acquire a large interest in
                us. 
 ·
            *Duties
                of Directors with Respect to Unsolicited Takeovers*.
                Under Maryland law, a director is required to perform his or her
                duties
                (a) in good faith, (b) in a manner he or she believes to be in the
                best
                interests of the corporation and (c) with the care that an ordinarily
                prudent person in a like position would use under similar circumstances.
                Maryland law provides protection for Maryland corporations against
                unsolicited takeovers by, among other things, retaining the same
                standard
                of care in the performance of the duties of directors in unsolicited
                takeover situations. The duties of directors of Maryland corporations
                do
                not require them to (a) accept, recommend or respond to any proposal
                by a
                person seeking to acquire control of the corporation, (b) authorize
                the
                corporation to redeem any rights under, or modify or render inapplicable,
                any stockholders rights plan, (c) make a determination under Maryland
                Business Combination Act or Maryland Control Share Acquisition Act
                or (d)
                act or fail to act solely because of the effect of the act or failure
                to
                act may have on an acquisition or potential acquisition of control
                of the
                corporation or the amount or type of consideration that may be offered
                or
                paid to the stockholders in an acquisition. Moreover, under Maryland
                law
                the act of the directors of a Maryland corporation relating to or
                affecting an acquisition or potential acquisition of control is not
                subject to any higher duty or greater scrutiny than is applied to
                any
                other act of a director. Maryland law also contains a statutory
                presumption that an act of a director of a Maryland corporation satisfies
                the applicable standards of conduct for directors under Maryland
                law. 
 ·
            *Maryland
                General Corporation Law*.
                Certain provisions of the MGCL may have the effect of inhibiting
                a third
                party from making a proposal to acquire us or of impeding a change
                of
                control under circumstances that otherwise could provide the holders
                of
                shares of our common stock with the opportunity to realize a premium
                over
                the then-prevailing market price of such shares,
                including:  -
            47
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 *Table
            of Contents*
 
 ·
            “business
                combination” provisions that, subject to limitations, prohibit certain
                business combinations between us and an “interested stockholder” (defined
                generally as any person who beneficially owns 10% or more of the
                voting
                power of our shares or an affiliate or associate of ours who, at
                any time
                within the two-year period prior to the date in question, was the
                beneficial owner of 10% or more of our then outstanding voting shares)
                or
                an affiliate thereof for five years after the most recent date on
                which
                the stockholder becomes an interested stockholder, and thereafter
                imposes
                special appraisal rights and special stockholder voting requirements
                on
                these combinations; and 
 ·
            “control
                share” provisions that provide that “control shares” of our company
                (defined as shares which, when aggregated with other shares controlled
                by
                the stockholder, entitle the stockholder to exercise one of three
                increasing ranges of voting power in electing directors) acquired
                in a
                “control share acquisition” (defined as the direct or indirect acquisition
                of ownership or control of “control shares”) have no voting rights except
                to the extent approved by our stockholders by the affirmative vote
                of at
                least two-thirds of all the votes entitled to be cast on the matter,
                excluding all interested shares. 
 ·
            We
                have opted out of the control share provisions of the MGCL pursuant
                to a
                provision in our bylaws. However, our board of directors may by amendment
                to our bylaws opt in to the control share provisions of the MGCL
                in the
                future. 
 ·
            *Advance
                Notice of Director Nominations and Stockholder Proposals*.
                Our bylaws impose certain advance notice requirements that must be
                met for
                nominations of persons for election to the board of directors and
                the
                proposal of business to be considered by
                stockholders. 
 **Our
        rights and the rights of our stockholders to take action against our directors
        and officers are limited.**
 
 Maryland
        law provides that a director has no liability in that capacity if he or she
        performs his or her duties in good faith, in a manner he or she reasonably
        believes to be in our best interests and with the care that an ordinarily
        prudent person in a like position would use under similar circumstances.
        Our
        charter limits the liability of our directors and officers to us and our
        stockholders for money damages, except for liability resulting
        from:
 
 ·
            actual
                receipt of an improper benefit or profit in money, property or services;
                or 
 ·
            a
                final judgment based upon a finding of active and deliberate dishonesty
                by
                the director or officer that was material to the cause of action
                adjudicated. 
 In
        addition, our articles of incorporation authorize us to obligate our company,
        and our bylaws require us, to indemnify our directors and officers for actions
        taken by them in those capacities to the maximum extent permitted by Maryland
        law. As a result, we and our stockholders may have more limited rights against
        our directors and officers than might otherwise exist under common law.
        Accordingly, in the event that actions taken in good faith by any of our
        directors or officers impede the performance of our company, stockholders’
ability to recover damages from such director or officer will be
        limited.
 
 **ITEM
        2.**  **UNREGISTERED
        SALES OF EQUITY AND USE OF PROCEEDS**
 
 None.
 
 **ITEM
        3.**  **DEFAULTS
        UPON SENIOR SECURITIES**
 
 None.
 
 **ITEM
        4.**  **SUBMISSION
        OF MATTERS TO A VOTE OF SECURITY HOLDERS**
 
 None.
  -
            48
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            of Contents*
  **ITEM
        5.**  **OTHER
        INFORMATION**
 
 On
        March
        21, 2007, John W. Alderfer resigned as our
        Chief
        Financial Officer and as a member of our Board of Directors. He also resigned
        as
        a Director and the Chief Financial Officer of Vestin Realty Mortgage II,
        Inc.
        and the Chief Financial Officer of Vestin Group Inc. (Vestin Group), the
        parent company of our manager . Mr.
        Alderfer is a party to an employment, non-competition and confidentiality
        contract with Vestin Group through December 31, 2008.
 
 On
        March
        21, 2007, the Board of Directors appointed Rocio
        Revollo as our Chief Financial Officer. Ms. Revollo will also serve as the
        Chief
        Financial Officer of Vestin Realty Mortgage II, Inc. and the Chief Financial
        Officer of Vestin Group. Ms. Revollo was the Corporate Controller of Vestin
        Group from June 2005 to March 2007.
 
 On
        March
        21, 2007, our Board of Directors elected John E. Dawson to fill the vacancy
        on
        the Board created by Mr. Alderfer’s resignation. Mr. Dawson has been a partner
        at the Las Vegas law firm, Lionel Sawyer and Collins. Mr. Dawson will serve
        Mr.
        Alderfer’s remaining term on our Board of Directors as a class II director,
        which term will expire at the 2008 annual meeting of stockholders.
 
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            49
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            of Contents*
 
 **ITEM
        6.**  **EXHIBITS**
 
 **EXHIBIT
        INDEX**
 
 **Exhibit
                  No.**
              
              **Description
                  of Exhibits**2.1(2)
              
              Agreement
                  and Plan of Merger between Vestin Fund I, LLC and the
                  Registrant3.1(2)
              
              Articles
                  of Incorporation of the Registrant3.2(2)
              
              Bylaws
                  of the Registrant3.3(2)
              
              Form
                  of Articles Supplementary of the Registrant4.1(2)
              
              Reference
                  is made to Exhibits 3.1, 3.2 and 3.34.2(3)
              
              Specimen
                  Common Stock Certificate4.3(2)
              
              Form
                  of Rights Certificate10.1(2)
              
              Form
                  of Management Agreement between Vestin Mortgage, Inc. and the
                  Registrant10.2(2)
              
              Form
                  of Rights Agreement between the Registrant and the rights
                  agent10.3(1)
              
              Assignment
                  Agreement, dated January 23, 2004, by and between Vestin Mortgage,
                  Inc.,
                  Vestin Fund I, LLC, Vestin Fund II, LLC, Owens Financial Group,
                  Inc. and
                  Owens Mortgage Investment Fund10.4(1)
              
              Intercreditor
                  Agreement, dated January 17, 2003, by and among Vestin Mortgage,
                  Inc.,
                  Vestin Fund I, LLC, Vestin Fund II, LLC and Western United Life
                  Assurance
                  Company10.5(1)
              
              Intercreditor
                  Agreement, dated April 22, 2004, by and between Vestin Mortgage,
                  Inc. and
                  Owens Mortgage Investment Fund10.6(1)
              
              Intercreditor
                  Agreement, dated June 24, 2004, by and between Vestin Mortgage,
                  Inc. and
                  Owens Mortgage Investment Fund10.7(1)
              
              Participation
                  Agreement, dated May 13, 2004, by and among the Registrant, Vestin
                  Fund I,
                  LLC, Vestin Fund II, LLC and Royal Bank of America10.8(5)
              
              Intercreditor
                  Agreement, dated October 13, 2006, by and between Vestin Originations,
                  Inc., Vestin Mortgage, Inc. Vestin Realty Mortgage I, Inc., Vestin
                  Realty
                  Mortgage II, Inc., Vestin Fund III, LLC, Owens Financial Group,
                  Inc. and
                  Owens Mortgage Investment Fund21.1(3)
              
              List
                  of subsidiaries of the Registrant31.1
              
              Section
                  302 Certification of Michael V.
                  Shustek31.2
              
              Section
                  302 Certification of Rocio
                  Revollo32
              
              Certification
                  Pursuant to U.S.C. 18 Section
                  135099.2R(4)
              
              Vestin
                  Realty Mortgage I, Inc. Code of Business Conduct and
                  Ethics
 
 (1)
              
              Incorporated
                  herein by reference to our Form S-4 Registration Statement filed
                  on May
                  27, 2005 (File No. 333-125347).(2)
              
              Incorporated
                  herein by reference to Post-Effective Amendment No. 3 to our Form
                  S-4
                  Registration Statement filed on January 4, 2006 (File No.
                  333-125347).(3)
              
              Incorporated
                  herein by reference to Post-Effective Amendment No. 4 to our Form
                  S-4
                  Registration Statement filed on January 31, 2006 (File No.
                  333-125347).(4)
              
              Incorporated
                  herein by reference to the Transition Report on Form 10-K for the
                  ten
                  month transition period ended April 30, 2006 filed on June 28,
                  2006 (File
                  No. 000-51964)(5)
              
              Incorporated
                  herein by reference to the Quarterly Report on Form 10-Q for the
                  three
                  months ended September 30, 2006 filed on October 26, 2006 (File
                  No.
                  000-51964)
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 *Table
            of Contents*
  
 ****
 
 Pursuant
        to the requirements of Section 13 or 15(d) of the Securities Exchange Act
        of
        1934, the registrant has duly caused this report to be signed on its behalf
        by
        the undersigned thereunto duly authorized.
 
 **Vestin
                  Realty Mortgage I, Inc.**By:
              */s/
                  Michael V. Shustek*Michael
                  V. ShustekPresident
                  and Chief Executive OfficerDate:
              April
                  27, 2007
 
 Pursuant
        to the requirements of the Securities Exchange Act of 1934, this report has
        been
        signed below by the following persons on behalf of the registrant and in
        the
        capacities and on the dates indicated.
 
 **Signature**
              
              **Capacity**
              
              **Date***/s/
                  Michael V. Shustek*
              
              President
                  and Chief Executive Officer and Director
              
              April
                  27, 2007Michael
                  V. Shustek
              
              (Principal
                  Executive Officer)*/s/
                  Rocio Revollo*
              
              Chief
                  Financial Officer
              
              April
                  27, 2007Rocio
                  Revollo
              
              (Principal
                  Financial and Accounting Officer)*/s/
                  John E. Dawson*
              
              Director
              
              April
                  27, 2007John
                  E. Dawson*/s/
                  Robert J. Aalberts*
              
              Director
              
              April
                  27, 2007Robert
                  J. Aalberts*/s/
                  Fredrick J.**Zaffarese**Leavitt*
              
              Director
              
              April
                  27, 2007Fredrick
                  J.ZaffareseLeavitt*/s/
                  Roland M. Sansone*
              
              Director
              
              April
                  27, 2007Roland
                  M. Sansone
 
 
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