**U.S.
        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, 2006**
 
 **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
                  filler [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 May
        5, 2006, there were 6,868,996 shares of the Company’s Common Stock
        outstanding.
 *Table
            of Contents*
  **Explanatory
        Note**
 
 On
        May 1,
        2006, Vestin Fund I, LLC, a Nevada limited liability company ("Fund I"),
        merged
        into Vestin Realty Mortgage I, Inc., a Maryland corporation (the "Registrant").
        The Registrant was formed in January 2006 for the sole purpose of effecting
        the
        merger. Prior to the merger, the Registrant did not have any material assets
        or
        operations. This report is filed by the Registrant as the successor to Fund
        I
        which had a June 30 fiscal year end. Accordingly, this report has been filed
        for
        the three and nine month periods ending March 31, 2006. Due to the merger,
        the
        Registrant's fiscal year end is December 31.
 
 
 
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            -
 *Table
            of Contents*
  **TABLE
        OFCONTENTS**
 
 **PAGE**Part
                  I
              FINANCIAL
                  INFORMATIONItem
                  1.
              Financial
                  StatementsBalance
                  Sheets As of March 31, 2006 (unaudited), and June
                  30, 2005
              4Statements
                  of Operations for the Three and Nine
                  Months Ended March 31, 2006 and 2004 (unaudited)
              5Statement
                  of Members’ Equity for the Nine Months Ended March
                  31, 2006 (unaudited)
              6Statements
                  of Cash Flows for the Nine Months Ended March 31,
                  2006 and 2005 (unaudited)
              7Notes
                  to Financial Statements
                  (unaudited)
              9Item
                  2.
              Management’s
                  Discussion and Analysis of Financial
                  Condition and Results of Operations
              27Item
                  3.
              Quantitative
                  and Qualitative Disclosures About Market
                  Risk
              41Item
                  4.
              Control
                  and Procedures
              42Part
                  II
              OTHER
                  INFORMATIONItem
                  1.
              Legal
                  Proceedings
              44Item
                  1A.
              Risk
                  Factors
              46Item
                  2.
              Unregistered
                  Sales of Equity - Securities and Use of
                  Proceeds
              58Item
                  3.
              Defaults
                  Upon Senior Securities
              59Item
                  4.
              Submission
                  of Matters to a Vote of Security
                  Holders
              59Item
                  5.
              Other
                  Information
              59Item
                  6.
              Exhibits
              60SIGNATURES
              61Exhibits
                  31.1Exhibits
                  31.2Exhibits
                  32
 
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            3
            -
 *Table
            of Contents*
   **PART
        I - FINANCIALINFORMATION**
 
 **ITEM
        1.**  **FINANCIALSTATEMENTS**
 
 
 **VESTIN
                  REALTY MORTGAGEI, INC.****(SUCCESSOR
                  TO VESTIN FUND I, LLC)****BALANCE
                  SHEETS****ASSETS****(UNAUDITED)**
                **MARCH
                  31, 2006**
              
              
              **JUNE
                  30, 2005**Cash
              
              $
              4,652,000
              
              $
              2,862,000Certificates
                  of deposit
              
              
              300,000
              
              
              300,000Interest
                  and other receivables, net of allowance of $292,000 at March 31,
                  2006
              
              
              1,126,000
              
              
              682,000Note
                  receivable, net of allowance of $731,000 at March 31, 2006 and
                  $747,000 at
                  June 30, 2005
              
              
              291,000
              
              
              119,000Real
                  estate held for sale
              
              
              2,497,000
              
              
              7,757,000Real
                  estate held for sale - seller financed
              
              
              8,797,000
              
              
              10,374,000Investment
                  in real estate loans, net of allowance for loan losses of $4,604,000
                  at
                  March 31, 2006 and $1,896,000 at June 30, 2005
              
              
              46,152,000
              
              
              54,878,000Assets
                  under secured borrowings
              
              
              1,160,000
              
              
              11,391,000Total
                  assets
              
              $
              64,975,000
              
              $
              88,363,000**LIABILITIES
                  AND MEMBERS' EQUITY**LiabilitiesAccounts
                  payable and accrued liabilities
              
              $
              309,000
              
              $
              443,000Due
                  to Fund Manager
              
              
              14,000
              
              
              922,000Due
                  to Vestin Group
              
              
              --
              
              
              2,000Due
                  to Vestin Fund II
              
              
              --
              
              
              1,560,000Due
                  to Vestin Fund III
              
              
              --
              
              
              6,000Secured
                  borrowings
              
              
              1,160,000
              
              
              11,391,000Deposit
                  liability
              
              
              864,000
              
              
              768,000Total
                  liabilities
              
              
              2,347,000
              
              
              15,092,000Members'
                  equity - authorized 10,000,000 units, 6,864,477 units and 7,686,323
                  units
                  issued at $10 per unit and outstanding at March 31, 2006 and June
                  30,
                  2005, respectively
              
              
              62,628,000
              
              
              73,271,000Total
                  members' equity
              
              
              62,628,000
              
              
              73,271,000Total
                  liabilities and members' equity
              
              $
              64,975,000
              
              $
              88,363,000
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            4
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 *Table
            of Contents*
  
 **VESTIN
                  REALTY MORTGAGEI, INC.****(SUCCESSOR
                  TO VESTIN FUND I, LLC)****STATEMENTS
                  OF OPERATIONS****(UNAUDITED)****FOR
                  THE THREE**
                **MONTHS
                  ENDED**
              
              **FOR
                  THE NINE**
                **MONTHS
                  ENDED****MARCH
                  31, 2006**
              
              **MARCH
                  31, 2005**
              
              **MARCH
                  31, 2006**
              
              **MARCH
                  31, 2005****Revenues**Interest
                  income
              
              $
              1,106,000
              
              $
              1,550,000
              
              $
              3,799,000
              
              $
              4,463,000Loan
                  fees
              
              
              --
              
              
              --
              
              
              34,000
              
              
              --Gain
                  on sale of real estate held for sale
              
              
              --
              
              
              23,000
              
              
              519,000
              
              
              1,072,000Gain
                  on sale marketable securities
              
              
              1,000
              
              
              --
              
              
              47,000
              
              
              --Other
                  income
              
              
              58,000
              
              
              581,000
              
              
              424,000
              
              
              750,000Total
                  revenues
              
              
              1,165,000
              
              
              2,154,000
              
              
              4,823,000
              
              
              6,285,000**Operating
                  expenses**Management
                  fees - related parties
              
              
              69,000
              
              
              69,000
              
              
              207,000
              
              
              196,000Provision
                  for loan losses
              
              
              3,000,000
              
              
              45,000
              
              
              3,000,000
              
              
              45,000Interest
                  expense
              
              
              4,000
              
              
              --
              
              
              15,000
              
              
              --Interest
                  expense secured borrowings
              
              
              58,000
              
              
              109,000
              
              
              154,000
              
              
              549,000Loss
                  on sale of real estate held for sale
              
              
              --
              
              
              389,000
              
              
              --
              
              
              863,000Write
                  down on real estate held for sale
              
              
              --
              
              
              639,000
              
              
              --
              
              
              931,000Expenses
                  related to real estate held for sale
              
              
              117,000
              
              
              453,000
              
              
              217,000
              
              
              831,000Professional
                  fees
              
              
              163,000
              
              
              112,000
              
              
              294,000
              
              
              235,000Professional
                  fees - related parties
              
              
              44,000
              
              
              28,000
              
              
              137,000
              
              
              92,000Other
              
              
              --
              
              
              158,000
              
              
              23,000
              
              
              161,000Total
                  operating expenses
              
              
              3,455,000
              
              
              2,002,000
              
              
              4,047,000
              
              
              3,903,000**NET
                  (LOSS) INCOME**
              
              $
              (2,290,000
              )
              $
              152,000
              
              $
              776,000
              
              $
              2,382,000Net
                  (Loss) income allocated to members
              
              $
              (2,290,000
              )
              $
              152,000
              
              $
              776,000
              
              $
              2,382,000Net
                  (Loss) income allocated to members per weighted average membership
                  units
              
              $
              (0.33
              )
              $
              0.02
              
              $
              0.10
              
              $
              0.29Weighted
                  average membership units
              
              
              6,925,788
              
              
              7,188,588
              
              
              7,424,274
              
              
              8,131,854
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            5
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 *Table
            of Contents*
 
 **VESTIN
                  REALTY MORTGAGEI, INC.****(SUCCESSOR
                  TO VESTIN FUND I, LLC)****STATEMENT
                  OF MEMBERS' EQUITY****FOR
                  THE NINE MONTHS ENDED MARCH 31, 2006****(UNAUDITED)****Units**
              
              **Amount**Members'
                  equity at June 30, 2005
              
              
              7,686,323
              
              $
              73,271,000Net
                  income
              
              
              
              
              
              776,000Distributions
              
              
              
              
              
              (3,413,000
              )Reinvestments
                  of distributions
              
              
              27,323
              
              
              273,000Members'
                  redemptions
              
              
              (849,169
              )
              
              (8,279,000
              )Members'
                  equity at March 31, 2006 (Unaudited)
              
              
              6,864,477
              
              $
              62,628,000
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            -
 *Table
            of Contents*
 
 **VESTIN
                  REALTY MORTGAGEI, INC.****(SUCCESSOR
                  TO VESTIN FUND I, LLC)****STATEMENTS
                  OF CASH FLOWS****(UNAUDITED)****FOR
                  THE NINE MONTHS ENDED****MARCH
                  31, 2006**
              
              **MARCH
                  31, 2005****Cash
                  flows from operating activities:**Net
                  income
              
              $
              776,000
              
              $
              2,382,000Adjustments
                  to reconcile net income to net cash provided by operating
                  activities:Provision
                  of doubtful accounts related to receivable
              
              
              (15,000
              )
              
              --Write
                  down of real estate held for sale
              
              
              --
              
              
              931,000Gain
                  on sale of real estate held for sale
              
              
              (519,000
              )
              
              (1,072,000
              )Loss
                  on sale of real estate held for sale
              
              
              --
              
              
              863,000Provision
                  for loan losses
              
              
              3,000,000
              
              
              45,000Gain
                  on sale of marketable securities
              
              
              (47,000
              )
              
              --Change
                  in operating assets and liabilities:Interest
                  and other receivables
              
              
              (221,000
              )
              
              666,000Due
                  from Manager
              
              
              (908,000
              )
              
              417,000Due
                  to Vestin Group
              
              
              (2,000
              )
              
              (147,000
              )Due
                  to Fund II
              
              
              (1,560,000
              )
              
              2,062,000Due
                  to Fund III
              
              
              (6,000
              )
              
              --Accounts
                  payable and accrued liabilities
              
              
              (133,000
              )
              
              346,000Net
                  cash provided by operating activities
              
              
              365,000
              
              
              6,493,000**Cash
                  flows from investing activities:**Investments
                  in real estate loans
              
              
              (22,130,000
              )
              
              (21,668,000
              )Purchase
                  of investments in real estate loans
              
              
              --
              
              
              (1,459,000
              )Purchase
                  of investments in real estate loans including interest receivable
                  of
                  $515,000
              
              
              (5,408,000
              )
              
              --Purchase
                  of investments in real estate loans from related parties:Fund
                  II
              
              
              (500,000
              )
              
              --Proceeds
                  from loan payoff
              
              
              24,360,000
              
              
              19,906,000Principal
                  payments on real estate held for sale-seller financed
              
              
              2,585,000
              
              
              612,000Sale
                  of investments in real estate loans to:Fund
                  II
              
              
              8,800,000
              
              
              --Third
                  party
              
              
              462,000
              
              
              155,000Proceeds
                  from sale of investment in real estate
              
              
              4,227,000
              
              
              9,895,000Proceeds
                  from note receivable
              
              
              15,000
              
              
              --Purchase
                  of marketable securities
              
              
              (3,565,000
              )
              
              --Proceeds
                  from sale of marketable securities
              
              
              3,612,000
              
              
              --Cash
                  outlays for real estate held for sale
              
              
              --
              
              
              (2,251,000
              )Deposit
                  liability
              
              
              386,000
              
              
              420,000Net
                  cash provided by investing activities
              
              $
              12,844,000
              
              $
              5,610,000
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            7
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 *Table
            of Contents*
 
 **VESTIN
                  REALTY MORTGAGE I, INC.****(SUCCESSOR
                  TO VESTIN FUND I, LLC)****STATEMENTS
                  OF CASH FLOWS****(UNAUDITED)****FOR
                  THE NINE MONTHS ENDED****MARCH
                  31, 2006**
              
              **MARCH
                  31, 2005****Cash
                  flows from financing activities:**Payment
                  on note payable
              
              $
              (881,000
              )
              $
              (2,000,000
              )Proceeds
                  from issuance of note payable
              
              
              881,000
              
              
              --Members'
                  distributions, net of reinvestments
              
              
              (3,095,000
              )
              
              (3,202,000
              )Members’
                  distributions related party
              
              
              (45,000
              )
              
              (46,000
              )Members'
                  redemptions
              
              
              (8,279,000
              )
              
              (6,887,000
              )Net
                  cash used in financing activities
              
              
              (11,419,000
              )
              
              (12,135,000
              )**NET
                  CHANGE IN CASH**
              
              
              1,790,000
              
              
              (32,000
              )**Cash,
                  beginning of period**
              
              
              2,862,000
              
              
              6,571,000**Cash,
                  end of period**
              
              $
              4,652,000
              
              $
              6,539,000**Supplemental
                  disclosures of cash flows information:**Non-cash
                  investing and financing activities:Loans
                  funded through secured borrowing
              
              $
              1,665,000
              
              $
              9,150,000Loan
                  payoffs of loans funded through secured borrowings
              
              $
              10,337,000
              
              $
              18,095,000Real
                  estate held for sale acquired through foreclosure
              
              $
              --
              
              $
              5,458,000Reduction
                  in Note Payable to Fund II due to valuation allowance on real estate
                  held
                  for sale
              
              $
              --
              
              $
              4,278,000Transfer
                  of pro-rata interest in real property to Fund II
              
              $
              --
              
              $
              119,000Sale
                  of real estate held for sale where we provide the
                  financing
              
              $
              886,000
              
              $
              7,910,000Issuance
                  of note receivable related to sale of real estate held for
                  sale
              
              $
              171,000
              
              $
              --Investment
                  in real estate held for sale reclassified from interest
                  receivable
              
              $
              --
              
              $
              33,000Loans
                  rewritten with same or similar property as collateral
              
              $
              57,000
              
              $
              868,000
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            of Contents*
  **VESTIN
        REALTY MORTGAGEI, INC**
 **(SUCCESSOR
        TO VESTIN FUND I, LLC)**
 
 **NOTES
        TO FINANCIAL STATEMENTS**
 
 **MARCH
        31, 2006**
 
 (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. (the “Registrant”) was organized in January 2006 as a
        Maryland corporation for the purpose of effecting a merger with Fund I. On
        May
        1, 2006, Fund I merged into the Registrant and the members of Fund I received
        one share of the Registrant’s common stock for each membership unit of Fund I.
        This report is filed by the Registrant as the successor to Fund I. References
        in
        this report to the “Company”, “we”, “us” or “our” refer to Fund I with respect
        to the period ending on April 30, 2006 and to the Registrant with respect
        to the
        period commencing on May 1, 2006. Because we were a limited liabililty company
        during the periods reflected in this report, we make reference to our members
        in
        reporting our financial results.
 
 We
        invest
        in loans secured by real estate through deeds of trust or mortgages (hereafter
        referred to as “deeds of trust”). We commenced operations in August 2000. In
        July 2005, we changed our fiscal year end from September 30 th to June
        30 th ,
        we
        issued our annual report on Form 10-K for the nine-month transition period
        ended
        June 30, 2005.
 
 We
        intend
        to operate as a real estate investment trust (“REIT”); we are not a mutual fund
        or an investment company within the meaning of the Investment Company Act
        of
        1940, nor are we subject to any regulation thereunder. As a REIT we are required
        to have a December 31 st year
        end.
 
 Our
        Manager is Vestin Mortgage, Inc. (the “Manager” or “Vestin Mortgage”), a Nevada
        corporation and licensed mortgage broker engaged in the business of brokerage,
        placement and servicing of commercial loans secured by real property. Our
        Manager is a wholly owned subsidiary of Vestin Group, Inc., a Delaware
        corporation (“Vestin Group”) wholly owned by Michael V. Shustek, the CEO and
        director of the Manager. Through its subsidiaries, Vestin Group is engaged
        in
        asset management, real estate lending and other financial services.
 
 Pursuant
        to a Management Agreement, the Manager controls the daily operating activities
        of the Company, including the power to assign duties, to determine how to
        invest
        our assets, to sign bills of sale, title documents, leases, notes, security
        agreements, mortgage investments and contracts, and to assume direction of
        the
        business operations. As a result, our operating results are dependent upon
        the
        Manager’s ability and performance in managing our operations and servicing our
        assets.
 
 Vestin
        Mortgage, Inc. is also the Manager of Vestin Realty Mortgage II, Inc, as
        the
        successor by merger to Vestin Fund II, LLC, referred to as “Fund II”, Vestin
        Fund III, LLC (“Fund III”) and inVestin Nevada, Inc., a company wholly owned by
        our Manager’s CEO. These entities also invest in commercial real estate
        loans.
 
 The
        financial statements have been prepared in accordance with the United States
        Securities and Exchange Commission (SEC) requirements for interim financial
        statements. Therefore, they do not include all of the information and footnotes
        required by accounting principles generally accepted in the United States
        (“GAAP”) for complete financial statements. The financial statements should be
        read in conjunction with the financials statements and notes thereto contained
        in the Company’s annual report on Form 10-K for the nine-month transition period
        ended June 30, 2005.
 
 The
        results of operations for the interim periods shown in this report are not
        necessarily indicative of results to be expected for the full year. In the
        opinion of management, the information contained herein reflects all adjustments
        necessary to make the results of operations for the interim periods a fair
        statement of such operation. All such adjustments are of a normal recurring
        nature.
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 *Table
            of Contents*
 
 **NOTE
        B — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**
 
 **Management
        Estimates**
 
 The
        preparation of financial statements in conformity with accounting principles
        generally accepted in the United States of America (“GAAP”) requires management
        to make estimates and assumptions that affect the reported amounts of assets
        and
        liabilities and disclosure of contingent assets and liabilities at the date
        of
        the financial statements and the reported amounts of revenues and expenses
        during the reporting period. Actual results could differ from those
        estimates.
 
 **Cash
        and Cash Equivalents**
 
 Cash
        and
        cash equivalents include interest-bearing and non-interest-bearing bank
        deposits, money market accounts, short-term certificates of deposit with
        original maturities of three months or less, and short-term instruments with
        a
        liquidation provision of one month or less.
 
 **Revenue
        Recognition**
 
 Interest
        is recognized as revenue when earned according to the terms of the loans,
        using
        the effective interest method. We do not recognize interest income on loans
        once
        they are determined to be impaired. A loan is impaired when based on current
        information and events, it is probable that we will be unable to collect
        all
        amounts due according to the contractual terms of the loan agreement or when
        the
        payment of interest is 90 days past due. Cash receipts will be allocated
        to
        interest income, except when such payments are specifically designated by
        the
        terms of the loan as principal reduction or when management does not believe our
        investment in the loan is fully recoverable.
 
 **Investments
        in Real Estate Loans**
 
 The
        Company may from time to time acquire or sell investments in real estate
        loans
        from or to the Manager or other related parties pursuant to the terms of
        the
        Company's Operating Agreement provided the price does not exceed the original
        cost. The primary purpose is to either free up capital to provide liquidity
        for
        various reasons, such as loan diversification, or place excess capital in
        investments to maximize the use of the Company's capital. For example, the
        Company's Operating Agreement provides certain guidelines with respect to
        loan
        concentration by dollar amount, location and lien position. Selling or buying
        loans allows the Company to diversify its loan portfolio within these
        parameters. Due to the short term nature of the loans the Company makes and
        the
        similarity of interest rates in loans the Company normally would invest in,
        the
        fair value of a loan typically approximates its carrying value. Accordingly,
        discounts or premiums typically do not apply upon sales of loans and therefore,
        generally no gain or loss is recorded on these transactions, regardless of
        whether to a related or unrelated party.
 
 Investments
        in real estate loans are secured by deeds of trust or mortgages (hereafter
        referred to as “deeds of trust”). Generally, our real estate loans require
        interest only payments with a balloon payment of the principal at maturity.
        We
        have both the intent and ability to hold real estate loans until maturity
        and
        therefore, real estate loans are classified and accounted for as held for
        investment and are carried at amortized cost. Loans sold to or purchased
        from
        affiliates are accounted for at the principal balance and no gain or loss
        is
        recognized by us or any affiliate. Loan to value ratios are based on appraisals
        obtained at the time of loan origination and may not reflect subsequent changes
        in value estimates. Such appraisals are generally dated within 12 months
        of the
        date of loan origination and may be commissioned by the borrower. The appraisals
        may be for the current estimate of the “as-if developed” value of the property,
        which approximates the post-construction value of the collateralized property
        assuming that such property is developed. As-if developed values on raw land
        loans or acquisition and development loans often dramatically exceed the
        immediate sales value and may include anticipated zoning changes and timely
        successful development by the purchaser. As most of the appraisals will be
        prepared on an as-if developed basis, if a loan goes into default prior to
        any
        development of a project, the market value of the property may be substantially
        less than the appraised value. As a result, there may be less security than
        anticipated at the time the loan was originally made. If there is less security
        and a default occurs, we may not recover the full amount of the
        loan.
 -
            10
            -
 *Table
            of Contents*
  As
        of
        March 31, 2006, all but one of our loans provide for payments of interest
        only
        with a “balloon” payment of principal payable in full at the end of the term. As
        of March 31, 2006, one of our loans is an amortizing loan with a balance
        of
        approximately $7.7 million and a term of 36 months, maturing in the next
        18
        months. In addition, we also invest in real estate loans that have interest
        reserves. Loans with interest reserves require the borrowers to maintain
        interest reserves funded from the principal amount of the loan for a period
        of
        time. At March 31, 2006, we had $3.3 million in investments in real estate
        loans
        that had interest reserves where the total outstanding principal was
        approximately $6.2 million, including participating lenders. These loans
        had
        interest reserves of approximately $1.6 million, of which our portion is
        $0.9
        million. At June 30, 2005, we had $13.5 million in investments in real estate
        loans that had interest reserves where the total outstanding principal was
        approximately $67.8 million, including participating lenders. These loans
        had
        interest reserves of approximately $3.7 million, of which our portion was
        $0.6
        million.
 
 **Allowance
        for Loan Losses**
 
 We
        maintain an allowance for loan losses on our investments in real estate loans
        for estimated credit impairment. The Manager’s estimate of losses is based on a
        number of factors including the types and dollar amounts of loans in the
        portfolio, adverse situations that may affect the borrower’s ability to repay,
        prevailing economic conditions and the underlying collateral securing the
        loan.
        Additions to the allowance are provided through a charge to earnings and
        are
        based on an assessment of certain factors, which may indicate estimated losses
        on the loans. Actual losses on loans are recorded as a charge-off or a reduction
        to the allowance for loan losses. Subsequent recoveries of amounts previously
        charged off are added back to the allowance or included as income.
 
 Estimating
        allowances for loan losses requires significant judgment about the underlying
        collateral, including liquidation value, condition of the collateral, competency
        and cooperation of the related borrower and specific legal issues that affect
        loan collections or taking possession of the property. As a non-conventional
        lender willing to invest in loans to borrowers who may not meet the credit
        standards of conventional lenders, the default rate on our loans could be
        higher
        than those generally experienced in the real estate lending industry. We
        generally approve loans more quickly than other real estate lenders and,
        due to
        our expedited underwriting process, there is a risk that the credit inquiry
        we
        perform will not reveal the material facts pertaining to a borrower and the
        security.
 
 Additional
        facts and circumstances are discovered as we continue our efforts in the
        collection and foreclosure processes. This additional information often causes
        management to reassess its estimates. In recent years, we have revised estimates
        of our allowance for loan losses. Circumstances that have caused significant
        changes in our estimated allowance include:
 
 ·
            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. 
 ·
            Appraisals,
                which are only opinions of value at the time of the appraisal, may
                not
                accurately reflect the value of the
                property.  -
            11
            -
 *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, the Company seeks to identify
        potential purchasers of such property. It is not the Company's intent to
        invest
        in or own real estate as a long-term investment. In accordance with Statement
        of
        Financial Accounting Standards (FAS) 144, *Accounting
        for the Impairment or Disposal of Long Lived Assets* ,
        the
        Company seeks to sell properties acquired through foreclosure as quickly
        as
        circumstances permit. The carrying values of real estate held for sale are
        assessed on a regular basis from updated appraisals, comparable sales values
        or
        purchase offers.
 
 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. 
 ·
            Withdrawal
                or significant modification of the sale is not
                likely. 
 **Real
        Estate Held For Sale - Seller Financed**
 
 The
        Company occasionally finances sales of foreclosed properties to independent
        third parties. In order to record a sale of real estate when the seller is
        providing continued financing, FAS 66, *Accounting
        for Sales of Real Estate* requires
        the buyer of the real estate to make minimum and initial continuing investments.
        Minimum initial investments as defined by FAS 66 range from 10% to 25% based
        on
        the type of real estate sold. In addition, FAS 66 limits commitments and
        contingent obligations incurred by a seller in order to record a
        sale.
 
 Because
        the Company occasionally forecloses on loans with raw land or developments
        in
        progress, available financing for such properties is often limited and the
        Company frequently provides financing up to 100% of the selling price on
        these
        properties. In addition, the Company may make additional loans to the buyer
        to
        continue development of a property. Although sale agreements are consummated
        at
        closing, they lack adequate initial investment by the buyer to qualify as
        a
        sales transaction as defined in FAS 66. These sale agreements are not recorded
        as a sale until the requirements of FAS 66 are met.
 
 These
        sales agreements are recorded under the deposit method or cost recovery method
        as defined in FAS 66. Under the deposit method, no profit is recognized and
        any
        cash received from the buyer is reported as a deposit liability on the balance
        sheet. Under the cost recovery method, no profit is recognized until payments
        by
        the buyer exceed the carrying basis of the property sold. Principal payments
        received will reduce the related receivable, and interest collections will
        be
        recorded as unrecognized gross profit on the balance sheet. The carrying
        values
        of these properties are included in real estate held for sale on the
        accompanying balance sheet.
 
 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 as received.
 -
            12
            -
 *Table
            of Contents*
  **Classification
        of Operating Results from Real Estate Held for Sale**
 
 FAS
        144
        generally requires operating results from long lived assets held for sale
        to be
        classified as discontinued operations as a separately stated component of
        net
        income. The Company's operations involve foreclosing on real estate when
        necessary and the Company considers these operating results to be part of
        the
        Company's continuing operations. Accordingly, expenses related to real estate
        held for sale have been included on the accompanying statements of income,
        net
        of related rental income when applicable.
 
 **Secured
        Borrowings**
 
 Secured
        borrowings provide an additional source of capital for our lending activity.
        Secured borrowings allow us to increase the diversification of our loan
        portfolio and to invest in loans that we might not otherwise invest in. We
        do
        not receive any revenues for entering into secured borrowing arrangements.
        Loans
        in which third party investors have participated through inter-creditor
        agreements (“Inter-creditor Agreements”) are accounted for as secured borrowings
        in accordance with FAS 140, *Accounting
        for Transfers and Servicing of Financial Assets and Extinguishments of
        Liabilitie* s
        (“FAS
        140”). The Inter-creditor Agreements provide us additional funding sources for
        mortgage loans whereby a third party investor (the “Investor”) may participate
        on a senior basis in certain mortgage loans with us and/or Fund II and/or
        Fund
        III (collectively, the “Lead Lenders”). In the event of borrower
        non-performance, the Inter-creditor Agreements generally provide that the
        Lead
        Lenders must repay the Investor’s loan amount either by (i) continuing to remit
        to the Investor the interest due on the participated loan amount; (ii)
        substituting an alternative loan acceptable to the Investor; or (iii)
        repurchasing the participation from the Investor for the outstanding balance
        plus accrued interest.
 
 Additionally,
        an Investor may participate in certain loans with the Lead Lenders through
        Participation Agreements. In the event of borrower non-performance, the
        Participation Agreement may allow the Investor to be repaid up to the amount
        of
        the Investor’s investment prior to the Lead Lender being repaid. Real estate
        loan financing under the Participation Agreements are also accounted for
        as a
        secured borrowing in accordance with FAS 140. The Company does not receive
        any
        revenues for entering into secured borrowings arrangements.
 
 **Marketable
        Securities**
 
 Investments
        in marketable securities consist of bonds secured by real estate and mortgage
        backed securities. The securities are stated at market value as determined
        by
        the most recently traded price of each security at the balance sheet date.
        All
        marketable securities are classified as available-for-sale securities under
        the
        provisions of FAS 115, *Accounting
        for Certain Investments in Debt and Equity Securities* .
 
 The
        appropriate classification of investments in marketable securities is determined
        at the time of purchase and such determination is reevaluated at each balance
        sheet date. Securities that are bought and held principally for the purpose
        of
        selling them in the near term are classified as trading securities, and
        unrealized holding gains and losses are included in earnings. Debt securities
        for which the Company does not have the intent or ability to hold to maturity,
        and equity securities are classified as available-for-sale. Available-for-sale
        securities are carried at fair value, with the unrealized gains and losses
        reported in other comprehensive income.
 
 **Fair
        Value of Financial Instruments**
 
 FAS
        107, *Disclosures
        about Fair Value of Financial Instrument* s,
        requires the determination of fair value of the Company’s financial assets. The
        following methods and assumptions were used to estimate the fair value of
        financial statements included in the following categories:
 
 (a)
            Certificate
                of Deposits and Short-Term Investments: The carrying amounts of these
                instruments are at amortized cost, which approximates fair
                value.  -
            13
            -
 *Table
            of Contents*
  
 (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 indeterminable at this time as no ready market
                exists
                for these loans, but fair value may be significantly below the current
                carrying value. 
 (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, 2006 and June 30, 2005, the estimated fair values of the real estate
        loans
        including seller financed loans were approximately $53.5 million and $66.2
        million, respectively. At March 31, 2006 and June 30, 2005, the estimated
        fair
        values of assets under secured borrowings were approximately $1.2 million
        and
        $11.4 million, respectively. These estimates were based upon the present
        value
        of expected cash flows discounted at rates currently available for similar
        loans. Fair value estimates are made at a specific point in time; based on
        relevant market information; are subjective in nature; and involve uncertainties
        and matters of significant judgment. Accordingly, the estimates presented
        herein
        are not necessarily indicative of the amounts that would be collected upon
        maturity or disposition of the loans.
 
 **Net
        Income Allocated to Members Per Weighted Average Membership
        Unit**
 
 Net
        income allocated to members per weighted average membership unit is computed
        by
        dividing net income calculated in accordance with GAAP, by the weighted average
        number of membership units outstanding for the period.
 
 **Segments**
 
 We
        operate as one business segment.
 
 **Income
        Taxes**
 
 Income
        tax effects resulting from the Company’s operations pass through to the members
        individually and, accordingly, no provision for income taxes is included
        in the
        financial statements.
 
 **Reclassifications**
 
 Certain
        reclassifications have been made to the prior year’s financial statements to
        conform with the current year presentation.
  **NOTE
        C — FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT
        RISK**
 
 Financial
        instruments with concentration of credit and market risk include cash and
        loans
        secured by trust deeds.
 
 We
        maintain cash deposit accounts and certificates of deposit that, at times,
        may
        exceed federally insured limits. We have not experienced any losses in such
        accounts and believe we are not exposed to any significant credit risk on
        cash.
        As of March 31, 2006 and June 30, 2005, we have $4.7 million and $3.0 million,
        respectively, in excess of the federally insured limits.
 
 As
        of
        March 31, 2006, the majority of our loans are concentrated in the following
        state; Nevada, California, Arizona and Hawaii. As of March 31, 2006, 23%
        of our
        real estate loans were in Nevada compared to 36% at June 30, 2005, and 15%
        of
        our real estate loans in California compared to 29% at June 30, 2005.
        Additionally, as of March 31, 2006, 14% of our real estate loans were in
        Arizona
        compared to 19% at June 30, 2005 and 15% of our real estate loans were in
        Hawaii
        compared to 6% at June 30, 2005. As a result of this geographical concentration
        of our real estate loans, a downturn in the local real estate markets in
        Nevada,
        California, Arizona and/or Hawaii could have a material adverse effect on
        us.
 -
            14
            -
 *Table
            of Contents*
 
 At
        March
        31, 2006, the aggregate amount of loans to our three largest borrowers
        represented 39% of our total investment in real estate loans. These real
        estate
        loans consisted of commercial loans, located in Arizona, Nevada and Hawaii
        with
        a first lien position, with stated interest rates between 5% and 14%, with
        an
        aggregate outstanding balance of approximately $23.4 million. At June 30,
        2005,
        the aggregate amount of loans to our three largest borrowers represented
        30% of
        our total investment in real estate loans. These real estate loans consisted
        of
        commercial loans located in Arizona and Nevada, with a first lien position,
        with
        stated interest rates between 5% and 12%, with an aggregate outstanding balance
        of approximately $20.5 million. Because we have a significant concentration
        of
        credit risk with our three largest borrowers, a default by any of such borrowers
        could have a material adverse effect on us.
 
 Most
        of
        our real estate loans will require the borrower to make a balloon payment
        of the
        principal at maturity. The success of a borrower’s ability to repay our real
        estate loan obligation in a large lump-sum payment may be dependent upon
        the
        borrower’s ability to refinance the obligation or otherwise raise a substantial
        amount of cash. An increase in interest rates over the loan rate applicable
        at
        origination of the loan may have an adverse effect on the borrower’s ability to
        refinance.
 
 **NOTE
        D — INVESTMENTS IN REAL ESTATE LOANS**
 
 We
        have
        four real estate loan products consisting of commercial, construction,
        acquisition and development, and land. The effective interest rates on all
        product categories range from 5% to 14%. Revenue by product will fluctuate
        based
        upon relative balances during the period.
 
 Investments
        in real estate loans as of March 31, 2006 are summarized below:
 
 **Loan
                  Type**
              
              **Number
                  of Loans**
              
              **Balance
                  (3)**
              
              **Weighted
                  Average Interest Rate**
              
              **Portfolio
                  Percentage**
              
              **Loan
                  To Value(2)**Acquisition
                  and development
              
              
              3
              
              $
              6,603,000
              
              
              9.39%
              
              
              11.11%
              
              
              55.03%Commercial
                  (1)
              
              
              17
              
              
              40,675,000
              
              
              9.07%
              
              
              68.42%
              
              
              76.58%Construction
              
              
              3
              
              
              5,018,000
              
              
              12.00%
              
              
              8.44%
              
              
              61.71%Land
              
              
              4
              
              
              7,153,000
              
              
              13.09%
              
              
              12.03%
              
              
              62.37%27
              
              $
              59,449,000
              
              
              9.84%
              
              
              100.00%
              
              
              71.17%
 
 
 Investments
        in real estate loans as of June 30, 2005 are summarized below:
 
 **Loan
                  Type**
              
              **Number
                  of Loans**
              
              **Balance
                  (3)**
              
              **Weighted
                  Average Interest Rate**
              
              **Portfolio
                  Percentage**
              
              **Loan
                  To Value(2)**Acquisition
                  and development
              
              
              4
              
              $
              7,272,000
              
              
              8.49%
              
              
              10.82%
              
              
              71.05%Commercial
                  (1)
              
              
              15
              
              
              38,439,000
              
              
              10.02%
              
              
              57.25%
              
              
              64.16%Construction
              
              
              3
              
              
              3,712,000
              
              
              9.40%
              
              
              5.53%
              
              
              69.94%Land
              
              
              7
              
              
              17,725,000
              
              
              12.89%
              
              
              26.40%
              
              
              61.67%29
              
              $
              67,148,000
              
              
              10.58%
              
              
              100.00%
              
              
              64.56%
 
 (1)
            Bridge
                loans are a subcategory of commercial loans in which we provide interim
                financing for borrowers seeking long-term, permanent financing.  -
            15
            -
 *Table
            of Contents*
 
 (2)
            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 no greater than 12 months prior
                to the
                date of loan origination and may have been commissioned by the borrower,
                and also may precede the placement of the loan with us. The appraisals
                may
                be for the current estimate of the “as-if developed” value of the
                property, and which approximates the post-construction value of the
                collateralized property assuming that such property is developed.
                As-if
                developed values on raw land loans or acquisition and development
                loans
                often dramatically exceed the immediate sales value and may include
                anticipated zoning changes, and successful development by the purchaser;
                upon which development is dependent on availability of financing.
                As most
                of the appraisals will be prepared on an as-if developed basis, if
                a loan
                goes into default prior to any development of a project, the market
                value
                of the property may be substantially less than the appraised value.
                As a
                result, there may be less security than anticipated at the time the
                loan
                was originally made. If there is less security and a default occurs,
                we
                may not recover the full amount of the
                loan. 
 (3)
            The
                following table reconciles the balance of the loan portfolio to the
                amount
                shown on the accompanying Balance Sheet. The contra accounts represent
                the
                amount of real estate held for sale sold to third parties where the
                Company provided financing. GAAP requires the borrower to have a
                certain
                percentage equity ownership (ranging from 10% to 25%) to allow the
                Company
                to record the sale of a property. In addition, the borrower must
                maintain
                a minimum commitment in the property on a continuing basis. Therefore,
                until the borrower meets this requirement, the investment in the
                new loan
                is reduced by the amount originally invested in the real estate held
                for
                sale. 
 **March
                  31, 2006 Balance**
              
              **June
                  30, 2005 Balance**Balance
                  Per Loan Portfolio
              
              $
              59,449,000
              
              $
              67,148,000Less:Seller
                  Financed Loans Included in Real Estate Held for Sale
              
              
              (8,797,000
              )
              
              (10,374,000
              )Proceeds
                  of Principal on Seller Financed Loans Included in Deposit
                  Liability
              
              
              248,000
              
              
              --Unrecognized
                  Gain on Seller Financed Loans
              
              
              (144,000
              )
              
              --Allowance
                  for Loan Losses
              
              
              (4,604,000
              )
              
              (1,896,000
              )Balance
                  per Balance Sheet
              
              $
              46,152,000
              
              $
              54,878,000
 
 
 The
        following is a schedule of priority of real estate loans as of March 31,
        2006
        and June 30, 2005:
 
 **Loan
                  Type**
              
              **March
                  31, 2006 Balance***
              
              **Portfolio**
                **Percentage**
              
              **June
                  30, 2005 Balance***
              
              **Portfolio**
                **Percentage**First
                  Trust Deeds
              
              $
              59,411,000
              
              
              99.94%
              
              $
              66,645,000
              
              
              99.25%Second
                  Trust Deeds**
              
              
              38,000
              
              
              0.06%
              
              
              503,000
              
              
              0.75%$
              59,449,000
              
              
              100.00%
              
              $
              67,148,000
              
              
              100.00%
 
 *
        Please
        see note (3) above
 **Generally,
        our second trust deeds are junior to a first trust deed position held by
        either
        us or our Manager.
 
 The
        following is a schedule of contractual maturities of investments in real
        estate
        loans as of March 31, 2006:
 
 April
                  - December 2006
              
              $
              45,666,000January
                  - December 2007
              
              
              13,783,000$
              59,449,000
 
 -
            16
            -
 *Table
            of Contents*
  The
        following is a schedule by geographic location of investments in real estate
        loans as of March 31, 2006 and June 30, 2005:
 
 **March
                  31, 2006 Balance***
              
              **Portfolio**
                **Percentage**
              
              **June
                  30, 2005 Balance***
              
              **Portfolio**
                **Percentage**Arizona
              
              $
              8,586,000
              
              
              14.44%
              
              $
              13,063,000
              
              
              19.45%California
              
              
              9,124,000
              
              
              15.35%
              
              
              19,794,000
              
              
              29.48%Hawaii
              
              
              9,031,000
              
              
              15.19%
              
              
              4,139,000
              
              
              6.16%Nevada
              
              
              13,735,000
              
              
              23.10%
              
              
              24,428,000
              
              
              36.38%New
                  York
              
              
              3,249,000
              
              
              5.46%
              
              
              3,320,000
              
              
              4.94%North
                  Carolina
              
              
              1,000,000
              
              
              1.68%
              
              
              --
              
              
              --%Oklahoma
              
              
              2,637,000
              
              
              4.44%
              
              
              1,237,000
              
              
              1.84%Oregon
              
              
              3,200,000
              
              
              5.38%
              
              
              --
              
              
              --%Texas
              
              
              2,167,000
              
              
              3.65%
              
              
              1,167,000
              
              
              1.75%Washington
              
              
              4,720,000
              
              
              7.94%
              
              
              --
              
              
              --%Wisconsin
              
              
              2,000,000
              
              
              3.37%
              
              
              --
              
              
              --%Total
              
              $
              59,449,000
              
              
              100.00%
              
              $
              67,148,000
              
              
              100.00%
 
 *
        Please
        see note (3) above
 
 At
        March
        31, 2006, three of our loans totaling approximately $12.3 million were
        non-performing (more than 90 days past due on interest payments or past due
        on
        principal). These loans have been placed on non-accrual of interest status.
        We
        have commenced foreclosure proceedings on these loans. The following schedule
        summarizes the non-performing loans:
 
 **Description
                  of Collateral**
              
              **March
                  31, 2006**
                **Balance**
              
              **Maturity
                  Date**
              
              **Number
                  of Months**
                **Non-Performing**
              
              **Percentage
                  of**
                **Total
                  Loan Balance**4
                  cemeteries and 8 mortuaries in Hawaii Part I***
              
              $
              4,139,000
              
              
              03/31/2004
              
              
              24
              
              
              21.00%
                  of Part I4
                  cemeteries and 8 mortuaries in Hawaii Part II***
              
              
              4,892,000
              
              
              03/31/2004
              
              
              24
              
              
              35.00%
                  of Part IIRacetrack
                  and hotel in Vernon, NY*
              
              
              3,249,000
              
              
              06/30/2005
              
              
              20
              
              
              12.50%$
              12,280,000
 
 *
        On May
        1, 2006 the bankruptcy plan of Mid-State Raceway, Inc for Vernon Downs became
        effective. As a result of the bankruptcy plan, we and Fund II received the
        following:
 
 ·
            New
                first deeds of trust were received from the buyer, Vernon Downs
                Acquisition, LLC, approximating $22.8 million, of which our portion
                is
                $3.2 million. The new terms reflect a $1.2 million principal reduction,
                reducing our principal balance by $171,000. The transaction resulted
                in
                our recording a deferred gain of $171,000. The terms of the loan
                are 9%
                due in 6 months, with an option to extend for an additional 6 months
                for a
                fee. 
 ·
            The
                loan is secured by a first trust deed on Vernon Downs properties
                and a
                150% personal guarantee by the borrowers. 
 ·
            Prepayment
                of interest in the aggregate amount of $500,000, of which our portion
                is
                approximately $71,000. 
 ·
            Delay
                fees from the date of the bankruptcy confirmation until the effective
                date
                in the aggregate amount of $287,000 of which our portion is approximately
                $41,000. 
 ·
            Payment
                of past due forbearance fees approximately $555,000 of which our
                portion
                is approximately $79,000. -
            17
            -
 *Table
            of Contents*
  ***
        Please refer to note (1) *Rightstar
        Loan 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, 2006, we have provided a general allowance for loan losses of
        approximately $379,000. Additionally, our Manager recognized a specific reserve
        related to the four cemeteries and eight mortuaries in Hawaii, of which our
        portion of the specific reserve is $4,225,000. Our Manager evaluated the
        loans
        and concluded that the remaining underlying collateral was sufficient to
        protect
        us against further losses of principal or interest. Our Manager will continue
        to
        evaluate these loans in order to determine if any other allowance for loan
        losses should be recorded.
 
 Because
        any decision regarding the allowance for loan losses reflects a judgment
        about
        the probability of future events, there is an inherent risk that such judgments
        will prove incorrect. In such event, actual losses may exceed (or be less
        than)
        the amount of any reserve. To the extent that we experience losses greater
        than
        the amount of our reserves, we may incur a charge to our earnings that will
        adversely affect our operating results and the amount of any distributions
        payable to our Members.
 
 The
        following is a roll-forward of the allowance for loan losses for the nine
        months
        ended March 31, 2006:
 
 **Description**
              
              **Balance**
                **June
                  30, 2005**
              
              **Specific
                  Reserve Allocation**
              
              **Reallocation**
                **Deductions(2)**
              
              **Balance**
                **March
                  31, 2006**General
                  Valuation Allowance
              
              $
              671,000
              
              $
              --
              
              $
              292,000
              
              $
              379,000Specific
                  allowance
              
              
              1,225,000
              
              
              3,000,000
              
              
              --
              
              
              4,225,000Total
                  (1)
              
              $
              1,896,000
              
              $
              3,000,000
              
              $
              292,000
              
              $
              4,604,000
 
 (1)
            *Rightstar
                Loan Allowance*-Rightstar, Inc. (“Rightstar”) defaulted on the loan in the fall of 2004.
                The lenders commenced a judicial foreclosure on the loan which is
                secured
                by a lien on the business and virtually all of the property of Rightstar,
                which includes four cemeteries and eight mortuaries in Hawaii. The
                aggregate principal balance of the loan is $31,543,000. The loan
                is owned
                as follows: 
 **Senior
                  Portion**
              
              **Junior
                  Portion**
              
              **Total**Fund
                  I
              
              $
              4,892,000
              
              $
              4,139,000
              
              $
              9,031,000Fund
                  II
              
              
              9,108,000
              
              
              7,704,000
              
              
              16,812,000Sunset
                  Financial Resources, Inc.
              
              
              --
              
              
              5,700,000
              
              
              5,700,000**Total**
              
              $
              14,000,000
              
              $
              17,543,000
              
              $
              31,543,000
 
 The
        loan
        is subject to an inter-creditor agreement which states the order of priority
        for
        any payments received are disbursed as follows:
 
 ·
            First
                to reimburse collection and foreclosure expenses advanced by the
                lenders; 
 ·
            Second
                to pay past due interest on the Senior Principal (including default
                rate
                interest); 
 ·
            Third
                to pay past due interest on the Junior Principal (including default
                rate
                interest); 
 ·
            Fourth
                to pay Senior Principal; and 
 ·
            Fifth
                to pay Junior Principal.  -
            18
            -
 *Table
            of Contents*
  We
        and
        Fund II acquired the senior portion of the loan on July 14, 2005 for
        approximately $15.5 million of which our portion was approximately $5.3 million
        (including accrued interest of approximately $0.5 million). We and Fund II
        acquired this balance to expedite the foreclosure process and remove the
        prior
        senior lender from its priority position, which had the potential to impair
        the
        value we may receive at the time the property is sold. In exchange for
        assistance in expediting the foreclosure process, the lenders jointly agreed
        to
        release the guarantors from their guaranty of the loan.
 
 Rightstar
        is currently being operated by a Court appointed Receiver, installed at the
        request of the lenders. A Special Master appointed by the State of Hawaii
        is
        currently administering the pre-need and perpetual care trust
        funds.
 
 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
        nine month transition period ended June 30, 2005, the State of Hawaii notified
        the lenders of a potential statutory trust fund deficiency, estimated between
        $20 and $30 million and claimed that this balance has priority over all lenders.
        The lenders dispute the amount and priority of this deficit. Lengthy settlement
        discussions ended on April 7, 2006. On April 20, 2006, the lenders filed
        suit
        against the State of Hawaii listing 26 causes of action, including allegations
        that the State of Hawaii has illegally blocked the lender’s right to foreclose
        and take title to its collateral by inappropriately attaching conditions
        to the
        granting of licenses needed to operate the business, the pre-need trust funds
        and the perpetual care trust funds and that the State of Hawaii has attempted
        to
        force the lenders to accept liability for any statutory trust fund deficits
        while no such lender liability exists under the laws of the State of Hawaii.
        On
        April 24, 2006, the State of Hawaii responded by filing allegations against
        Vestin Mortgage, Inc., and Fund II alleging that these Vestin entities
        improperly influenced the former RightStar trustees to transfer trust funds
        to
        Vestin. We believe these claims to be without merit and intend to vigorously
        defend those allegations. The outcome of this litigation is unforeseeable
        at
        this time. We cannot estimate when the foreclosure will ultimately be completed
        or when the lenders may obtain title to the underlying properties.
 
 We
        have
        evaluated the estimated value of the underlying collateral, the potential
        trust
        fund deficit, and the expected cost and length of litigation. Based on this
        estimate we increased our total specific reserve allowance for loss by
        $3,000,000 during the quarter ended March 31, 2006, bringing our total specific
        reserve allowance to a total of $4,225,000. The $3,000,000 increase in the
        reserve allowance includes $500,000 for estimated litigation fees and expenses
        which we anticipate incurring in enforcing our rights against the underlying
        collateral. We will continue to evaluate our position in the Rightstar loan
        as
        the situation progresses.
 
 (2)
            Amount
                was re-classed to the allowance for accounts receivable relating
                to real
                estate loans. 
 In
        addition, our Manager had granted extensions on eight loans pursuant to the
        terms of the original loan agreements, which permit extensions by mutual
        consent. Such extensions are generally provided on loans where the original
        term
        was 12 months or less and where a borrower requires additional time to complete
        a construction project or negotiate take-out financing. However, our Manager
        only grants extensions when a borrower is in full compliance with the terms
        of
        the loan, including, but not limited to the borrower’s obligation to make
        interest payments on the loan. The aggregate amount due from borrowers whose
        loans had been extended as of March 31, 2006 was approximately $16.8 million.
        Our Manager concluded that no allowance for loan loss was necessary with
        respect
        to these loans as of March 31, 2006.
 
 **Asset
        Quality and Loan Reserves**
 
 Losses
        may occur from investing in real estate loans. The amounts of losses will
        vary
        as the loan portfolio is affected by changing economic conditions and the
        financial condition of borrowers.
 -
            19
            -
 *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, the Manager evaluates
        our real estate loan portfolio for impairment. The fact that a loan is
        temporarily past due does not necessarily mean that the loan is impaired.
        Rather, all relevant circumstances are considered by our Manager to determine
        impairment and the need for specific reserves. Such evaluation, which includes
        a
        review of all loans on which full collectibility may not be reasonably assured,
        considers among other matters:
 
 ·
            Prevailing
                economic conditions; 
 ·
            Historical
                experience; 
 ·
            The
                nature and volume of the loan portfolio; 
 ·
            The
                borrowers’ financial condition and adverse situations that may affect the
                borrowers’ ability to pay; 
 ·
            Evaluation
                of industry trends; and 
 ·
            Estimated
                net realizable value of any underlying collateral in relation to
                the loan
                amount. 
 Based
        upon this evaluation, a determination is made as to whether the allowance
        for
        loan losses is adequate to cover any potential losses. Additions to the
        allowance for loan losses are made by charges to the provision for loan losses.
        Recoveries of previously charged off amounts are credited to the allowance
        for
        loan losses. As of March 31, 2006, our Manager had provided for $379,000
        as a
        general allowance for loan losses and a specific allowance of $4.2 million.
        At
        March 31, 2006, three of our loans totaling approximately $12.3 million were
        non-performing. Our Manager evaluated the loans and concluded that the
        underlying collateral was sufficient to protect us against further losses
        of
        principal or interest. Our Manager will continue to evaluate these loans
        in
        order to determine if any other allowance for loan losses should be
        recorded.
 
 **NOTE
        E — INVESTMENT IN MARKETABLE SECURITIES**
 
 *Mortgage
        Backed Securities - Available for Sale*
 
 During
        the nine months ended March 31, 2006, we purchased and sold $3.6 million
        in
        mortgage backed securities, realizing a gain of $47,000.
 
 At
        March
        31, 2006, we had no investment in mortgage-backed securities.
 
 **NOTE
        F — REAL ESTATE HELD FOR SALE**
 
 At
        March
        31, 2006, we held one property with a total carrying value of $2.5 million,
        which was acquired through foreclosure and recorded as investments in real
        estate held for sale. The summary below includes our percentage ownership
        in
        each property. These investments in real estate held for sale are accounted
        for
        at the lower of cost or fair value less costs to sell with fair value based
        on
        appraisals or knowledge of local market conditions. It is not our intent
        to
        invest in or own real estate as a long-term investment. We seek to sell
        properties acquired through foreclosure as quickly as circumstances permit.
        The
        following is a roll-forward of investments in real estate held for sale for
        the
        nine months ended March 31, 2006:
 -
            20
            -
 *Table
            of Contents*
 
 **Description**
              
              **Date
                  Acquired**
              
              **Percentage
                  of Ownership**
              
              **Balance
                  at**
                **July
                  1, 2005**
              
              **Acquisitions
                  (Reductions)**
              
              **Seller
                  Financed Sales**
              
              **Sales**
              
              **Gain
                  on Sale of Real Estate**
              
              **Balance
                  at**
                **March
                  31, 2006**Land
                  containing 82 residential lots in Henderson, Nevada**(1)**
              
              2/28/2003
              
              66%
              $
              5,058,000
              $
              --
              $
              --
              $
              (2,561,000)
              $
              --
              $
              2,497,000126
                  unit, (207 bed) assisted living facility in Phoenix, Arizona**(1)**
              
              9/08/2004
              
              10%
              
              886,000
              
              --
              
              (886,000)
              
              --
              
              --
              
              --460
                  acre residential sub-division in Lake Travis, Texas
                  **(1)**
              
              8/03/2004
              
              34%
              
              1,813,000
              
              --
              
              --
              
              (1,837,000)
              
              24,000
              
              --**Total**
              
              
              
              
              $
              7,757,000
              $
              --
              $
              (886,000)
              $
              (4,398,000)
              $
              24,000
              $
              2,497,000
 
 **(1)**
              **Sales
                  of Real Estate Held for Sale for the Nine Months Ended March 31,
                  2006:**
 
 During
        July 2003, we and Fund II entered into an agreement for the sale of a portion
        of
        our interest in 40 acres of land containing 354 residential lots in Henderson,
        Nevada. The agreement required the buyer to purchase 138 lots for cash and
        gave
        the buyer an option to purchase the remaining 216 lots over the next three
        years
        at a predetermined price, which may be adjusted for potential value increases.
        Through March 31, 2006, the buyer has purchased 272 of the 354 lots. We and
        Fund
        II recorded a valuation adjustment for the transition period ended June 30,
        2005
        of $354,000 and $180,000, respectively, to write down the carrying value
        of our
        respective interest in the parcel to the amount corresponding to the negotiated
        sale and option price. During July 2005, the buyer exercised its option to
        purchase an additional 82 lots for approximately $3.85 million, of which
        we
        received approximately $2.56 million, resulting in no further gain or
        loss.
 
 During
        August 2005, we and Fund II sold the 126 unit (207 bed) assisted living facility
        in Phoenix, Arizona and financed 100% of the purchase price of which the
        terms
        include the following: a 12 month, $10.5 million, interest only loan; interest
        rate of 7.5% commencing six months following the date of the loan; our portion
        is $1,030,000. This transaction resulted in a $144,000 deferred gain, which
        will
        be recognized once the equity requirement has been met. We and Fund II wrote
        down the carrying value of the property in the quarter ended March 31, 2005
        by
        approximately $6.5 million. Upon loan payment we will recover a portion of
        the
        write down and do not expect to have any further gains or losses on the sale
        of
        this property.
 
 During
        December 2005, we and Fund II sold the 460 acre residential subdivision in
        Lake
        Travis, TX for $5.5 million, of which our portion was $1.8 million. The proceeds
        included a $500,000 note receivable, with an imputed interest rate of 8%,
        due in
        May 2006. A net gain of $71,000 resulted in this transaction, of which our
        portion was $24,000.
 
 **NOTE
        G — REAL ESTATE HELD FOR SALE - SELLER FINANCED**
 
 At
        March
        31, 2006, we held an interest in two properties with a total carrying value
        of
        $8.8 million, which have been sold in transactions where we or an affiliate
        provided the financing to the purchaser. GAAP requires us to include these
        properties in real estate held for sale until the borrower has met and
        maintained a certain percentage of equity ownership, which ranges from 10%
        to
        25%. We may share ownership of such properties with Fund II, Fund III, the
        Manager, related, or other unrelated parties. The summary below includes
        our
        percentage ownership in each property. These investments in real estate held
        for
        sale are accounted for at the lower of cost or fair value less costs to sell
        with fair value based on appraisals and knowledge of local market conditions.
        The following is a roll-forward of seller financed real estate held for sale
        for
        the nine months ended March 31, 2006:
 -
            21
            -
 *Table
            of Contents*
  
 **Description**
              
              **Date
                  Acquired**
              
              **Percentage
                  of Ownership**
              
              **Balance
                  at**
                **July
                  1, 2005**
              
              **Acquisitions**
              
              **Adjustments**
              
              **Principal
                  Payments Received from Borrower**
              
              **Balance
                  at**
                **March
                  31, 2006**An
                  approximately 200-unit apartment complex located in Las Vegas,
                  Nevada
              
              1/27/2003
              
              5%
              $
              171,000
              $
              --
              $
              --
              $
              (171,000)
              $
              --A
                  completed golf course and raw land in Mesquite, Nevada
              
              11/06/2002
              
              55%
              
              1,475,000
              
              --
              
              --
              
              (1,475,000)
              
              --36
                  acres of raw land in Mesquite, Nevada
              
              11/27/2002
              
              48%
              
              334,000
              
              --
              
              --
              
              (334,000)
              
              --Assisted
                  living facility in Las Vegas, Nevada
              
              9/23/2004
              
              52%
              
              7,789,000
              
              --
              
              122,000
              
              --
              
              7,911,000126
                  Unit (207 bed) assisted living facility in Phoenix, AZ
              
              9/08/2004
              
              10%
              
              
              
              886,000
              
              --
              
              --
              
              886,000Raw
                  land in Mesquite, Nevada
              
              11/27/2002
              
              53%
              
              605,000
              
              --
              
              --
              
              (605,000)
              
              --$
              10,374,000
              $
              886,000
              $
              122,000
              $
              (2,585,000)
              $
              8,797,000
  We
        received $864,000 in payments from borrowers on the loans associated with
        the
        sale of the above properties, held as of March 31, 2006. These payments are
        recorded as a deposit liability. For the three months ended September 30,
        2005,
        we recognized $495,000 in interest income relating to loans that were paid
        off
        during the nine month period ending March 31, 2006.
 
 Until
        borrowers have met the minimum equity ownership required to allow us to record
        a
        sale, we will record payments received under the deposit method or cost recovery
        method, which ever is applicable in accordance to FAS 66.
 
 **NOTE
        H — RELATED PARTY TRANSACTIONS**
  From
        time
        to time we may acquire or sell investments in real estate loans from/to our
        Manager or other related parties provided the price does not exceed the original
        cost. No gain or loss is recorded on these transactions, as it is not our
        intent
        to make a profit on the purchase or sale of such investments. The purpose
        is
        generally to diversify our loan portfolio by spreading our investments among
        a
        broader pool of loans. Such interests are generally bought and sold at par
        value. We do not seek to profit from a sale to a related party nor do we
        purchase loan interests at a mark-up from related parties.
 
 **Transactions
        with the Manager**
 
 Our
        Manager is entitled to receive from us an annual management fee of up to
        0.25%
        of our aggregate capital contributions, paid quarterly in arrears. For the
        nine
        months ended March 31, 2006 and 2005, we recorded management fees to our
        Manager
        of approximately $207,000 and $196,000, respectively.
 
 Additionally,
        for the nine months ended March 31, 2006, we recorded pro rata distributions
        owed to our Manager of approximately $45,000 and $46,000 for the same period
        in
        the prior year based upon the total of 100,000 units owned by our
        Manager.  -
              22
              -
 *Table
              of Contents*
 
 As
        of
        March 31, 2006, and June 30, 2005, we owed the Manager $14,000 and $922,000,
        respectively, related to unpaid management fees, our Manager’s pro-rata share of
        distributions, and expenses paid on our behalf related to the maintenance
        of
        real estate held for sale.
 
 **Transactions
        with the Funds**
 
 As
        of
        March 31, 2006 and June 30, 2005, we owed Fund II $0 and $1,560,000,
        respectively. The balance was primarily related to payments made on our behalf
        for maintenance expenses incurred on real estate owned properties.
 
 As
        of
        March 31, 2006 and June 30, 2005, we owed Fund III $0 and $6,000, respectively
        primarily related to payments they made on our behalf for legal expenses
        incurred.
 
 During
        the nine months ended March 31, 2006, we sold $8.8 million in real estate
        loans
        to Fund II. In addition, we bought $0.5 million in real estate loans from
        Fund
        II.
 
 **Transactions
        with Other Related Parties**
 
 For
        the
        nine months ended March 31, 2006 and 2005, we incurred $31,000 and $33,000
        respectively, for legal fees to the law firm of Levine, Garfinkel & Katz in
        which the Secretary of Vestin Group has an equity ownership
        interest.
 
 For
        the
        nine months ended March 31, 2006 and 2005, we incurred $106,000 and $59,000,
        respectively, to L.L. Bradford & Company, LLC, a certified public accounting
        firm for accounting services. A former Director and Officer of Vestin Group
        is
        an equity owner in that firm
 
 **NOTE
        I — NOTES RECEIVABLE**
 
 During
        October 2004, we and Fund II sold the Castaways Hotel/Casino in Las Vegas,
        Nevada of which our portion of the net cash proceeds totaled $2,118,000.
        We
        originally sold this property under a 100% seller financing arrangement.
        The
        borrowers then sold the property to an unrelated third party which resulted
        in a
        payoff of the note and also allowed us to record the sale and remove the
        asset
        from seller financed real estate held for sale.  In addition, during
        September 2004, we received a promissory note from the guarantors of the
        loan in
        the amount of $160,000 in exchange for a release of their personal guarantees.
        Since payments on the note do not begin for 18 months from the date of the
        note,
        we discounted the face value of the note to $119,000, which is based on a
        discount rate of 8% as of that date. Balance as of March 31, 2006 is
        $119,000.
 
 During
        March 2005, we and Fund II sold the
        126
        unit hotel in Mesquite, Nevada for $5,473,000 of which our share of the proceeds
        were approximately $1.8 million which resulted in a loss of approximately
        $389,000. During
        June 2005, we and Fund II entered into a settlement agreement with the
        guarantors of the loan in the amount of $2,000,000 in exchange for a release
        of
        their personal guarantees of which our share was approximately $640,000.
        The
        balance is secured by a second trust deed and is payable in a first installment
        of $100,000 due in July 2005 and monthly interest only payments of 5% on
        $1,100,000 from July 2005 through July 2008, at which time the entire balance
        is
        due. The guarantors are entitled to a discount of $782,000 from the principal
        balance in the event the entire balance is paid by December 2006. The first
        installment was received and recognized as income in July 2005. Our portion
        was
        $32,000. Payments will be recognized as revenue when received.
 -
            23
            -
 *Table
            of Contents*
  During
        November 2004, we and Fund II sold the 140 Unit/224 bed senior facility in
        Mesa,
        Arizona of which our consideration received totaled $1,009,000. We and Fund
        II
        received a promissory note from the original guarantor of $478,000 of which
        our
        share was $69,000. The promissory note is payable in interest only payments
        of
        8% on the principal balance outstanding. Commencing June 25, 2005 through
        May
        25, 2006, monthly payments shall increase to $15,000 and be applied to principal
        and accrued interest. Beginning June 25, 2006 through May 25, 2009 payments
        are
        to increase to $20,000 monthly. Due to the uncertainty of collectibility,
        we
        have provided a valuation allowance for the entire balance of the promissory
        note. Revenue
        will be recognized when payments are received. As of March 31, 2006, the
        note
        receivable balance was $52,000. We have received principal payments totaling
        $17,000, which have been recognized to income.
 
 During
        December 2005, we and Fund II sold the 460 acre residential subdivision in
        Lake
        Travis, TX for $5.5 million, of which our portion was $1.8 million. The proceeds
        included a $500,000 note receivable, of which our portion was $171,000, with
        an
        imputed interest rate of 8%, due in May 2006. A net gain of $71,000 resulted
        in
        this transaction, of which our portion was $24,000.
 
 **NOTE
        J— SECURED BORROWINGS**
 
 Loans
        in
        which third party investors have participated through inter-creditor agreements
        (“Inter-creditor Agreements”) are accounted for as secured borrowings in
        accordance with FAS 140, *Accounting
        for Transfers and Servicing of Financial Assets and Extinguishments of
        Liabilities* (“FAS
        140”). The Inter-creditor Agreements provide us additional funding sources for
        real estate loans whereby a third party investor (the “Investor”) may
        participate on a senior basis in certain real estate loans with us and/or
        Fund
        II and/or Fund III (collectively, the “Lead Lenders”). In the event of borrower
        non-performance, the Inter-creditor Agreements generally provide that the
        Lead
        Lenders must repay the Investor’s loan amount either by (i) continuing to remit
        to the Investor the interest due on the participated loan amount; (ii)
        substituting an alternative loan acceptable to the Investor; or (iii)
        repurchasing the participation from the Investor for the outstanding balance
        plus accrued interest.
 
 Additionally,
        an Investor may participate in certain loans with the Lead Lenders through
        Participation Agreements. In the event of borrower non-performance, the
        Participation Agreement may allow the Investor to be repaid up to the amount
        of
        the Investor’s investment prior to the Lead Lender being repaid. Real estate
        loan financing under the Participation Agreements are also accounted for
        as a
        secured borrowing in accordance with FAS 140.
 
 As
        of
        March 31, 2006 and June 30, 2005, funds being used under Inter-creditor and
        Participation Agreements, where we have potential obligations as defined
        above
        totaled $1.2 million and $11.4 million, respectively.
 
 **NOTE
        K — RECENT ACCOUNTING PRONOUNCEMENTS**
 
 FASB
        Staff Position (FSP) FAS 115-1/124-1, replacing Emerging Issues Task Force
        (EITF) 03-1, *The
        Meaning of Other-Than-Temporary Impairment and Its Application to Certain
        Investment* ”
-
        On
        November 3, 2005, the FASB released FSP FAS 115-1 and FAS 124-1 replacing
        EITF
        03-1. The final language on FSP FAS 115-1 / FAS 124-1 requires investors
        to
        recognize an impairment loss when the impairment is deemed other-than-temporary,
        even if a decision to sell has not been made. The FSP applies to reporting
        periods beginning after December 15, 2005. We do not expect the adoption
        of
        Staff Position (FSP) FAS 115-1/124-1 to have a material impact on our financial
        position or results of operations.
 
 On
        February 16, 2006, the FASB issued FAS 155, *Accounting
        for Certain Hybrid Financial Instrument* "
        (FAS
        155), an amendment of FAS 140 and FAS 133. FAS 155 permits the Company to
        elect
        to measure any hybrid financial instrument at fair value (with changes in
        fair
        value recognized in earnings) if the hybrid instrument contains an embedded
        derivative that would otherwise be required to be bifurcated and accounted
        for
        separately under FAS 133. The election to measure the hybrid instrument at
        fair
        value is made on an instrument-by-instrument basis and is irreversible. The
        Statement will be effective for all instruments acquired, issued, or subject
        to
        a re-measurement event occurring after the beginning of the Company's fiscal
        year that begins after September 15, 2006, with earlier adoption permitted
        as of
        the beginning of the Company's 2006 fiscal year, provided that financial
        statements for any interim period of that fiscal year have not yet been issued.
        We do not expect the adoption of FAS 155 to have a material impact on our
        financial position or results of operations.
 -
            24
            -
 *Table
            of Contents*
  On
        March
        17, 2006, the FASB issued FAS 156 *Accounting
        for Transfers and Servicing of Financial Assets and Extinguishments of
        Liabilities* (FAS
        156), an amendment to portions of FAS 133, FAS 140 and FTB 87-3. FAS 156
        requires that all separately recognized servicing assets and servicing
        liabilities be initially measured at fair value, if practicable. It also
        permits, but does not require, the subsequent measurement of servicing assets
        and servicing liabilities at fair value. Derivative instruments used to mitigate
        the risks inherent in servicing assets and servicing liabilities must be
        accounted for at fair value. Under FAS 156 an election can also be made for
        subsequent fair value measurement of servicing assets and servicing liabilities
        by class, thus simplifying the accounting and provide for income statement
        recognition of potential offsetting changes in the fair value of servicing
        assets, servicing liabilities and related derivative instruments. The Statement
        will be effect beginning the first fiscal year that begins after September
        15,
        2006. We do not expect the adoption of FAS 156 to have a material impact
        on our
        financial position or results of operations.
 
 **NOTE
        L — LEGAL MATTERS INVOLVING THE MANAGER**
 
 Our
        Manager is involved in a number of legal proceedings concerning matters arising
        in connection with the conduct of its business activities. The Manager believes
        it has meritorious defenses to each of these actions and intends to defend
        them
        vigorously. The Manager believes that it is not a party to any pending legal
        or
        arbitration proceedings that would have a material adverse effect on the
        Manager’s financial condition or results of operations or cash flows, although
        it is possible that the outcome of any such proceedings could have a material
        impact on the Manager’s net income in any particular period.
 
 **NOTE
        M — LEGAL MATTERS INVOLVING THE COMPANY**
 
 Vestin
        Group, Vestin Mortgage, and Del Mar Mortgage, Inc., a company wholly owned
        by
        Michael V. Shustek, the sole shareholder and CEO of Vestin Group, are defendants
        in a civil action entitled Desert Land, LLC et al. v. Owens Financial Group,
        Inc. et al (the “Action”). The Action is based upon allegations that Del Mar
        Mortgage, Inc. and/or Vestin Mortgage charged unlawful fees on various loans
        arranged by them. Desert Land sought in excess of $10 million in monetary
        damages. On April 10, 2003, the United States District Court for the District
        of
        Nevada (the “Court”) entered judgment jointly and severally in favor of Desert
        Land against Vestin Group, Vestin Mortgage and Del Mar Mortgage, Inc. Judgment
        was predicated upon the Court’s finding that Del Mar Mortgage, Inc. received an
        unlawful penalty fee from the plaintiffs.
 
 The
        defendants subsequently filed a motion for reconsideration. The Court denied
        the
        motion and, on August 13, 2003, held that Vestin Group, Vestin Mortgage,
        and Del Mar Mortgage, Inc. are jointly and severally liable for the judgment
        in
        the amount of $5,683,312 (which amount includes prejudgment interest and
        attorney’s fees). On August 27, 2003, the Court stayed execution of the judgment
        against Vestin Group and Vestin Mortgage based upon the posting of a bond
        in the
        amount of $5,830,000. Mr. Shustek personally posted a cash bond without any
        cost
        or obligation to Vestin Group and Vestin Mortgage. Additionally, Del Mar
        Mortgage, Inc. has indemnified Vestin Group and Vestin Mortgage for any losses
        and expenses in connection with the Action, and Mr. Shustek has guaranteed
        the
        indemnification with his cash bond. On September 12, 2003, all of the defendants
        held liable to Desert Land appealed the judgment to the United States Court
        of
        Appeals for the Ninth Circuit, which heard the case on October 18, 2005.
        On
        November 15, 2005, the Ninth Circuit vacated the judgment of the District
        Court
        and dismissed the state law claims against the defendants without prejudice
        on
        the basis that the District Court lacked subject matter jurisdiction in the
        case. On November 29, 2005, Desert Land petitioned the Ninth Circuit Court
        for
        rehearing with a suggestion that the matter be heard en banc. On December
        16,
        2005, the District Court issued an Order releasing the bond, and on January
        6,
        2006, the Ninth Circuit denied Desert Land’s petition and the matter remains
        dismissed.
 -
            25
            -
 *Table
            of Contents*
  On
        November 21, 2005, Desert Land filed a complaint in the state courts of Nevada,
        which complaint is substantially similar to the original complaint previously
        filed by Desert Land in the United States District Court, with the exception
        of
        claiming Nevada State Law violations and seeking Nevada State Law remedies
        rather than claiming Federal Law violations and seeking Federal Law remedies.
        On
        March 6, 2006, Desert Land amended the state court complaint to name us as
        a
        defendant. Desert Land alleges that one or more of the defendants have
        transferred assets to other entities without receiving reasonable value
        therefore; alleges plaintiffs are informed and believe that defendants have
        made
        such transfers with the actual intent to hinder, delay or defraud Desert
        Land;
        that such transfers made the transferor insolvent and that sometime between
        February 27 and April 1, 2003, Vestin Group transferred $1.6 million to us
        for
        that very 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.
 
 Most
        recently, on or about April 6, 2006, Desert Land filed a Writ of Certiorari
        seeking review of the 9th Circuit’s decision by the United States Supreme Court.
        Vestin continues to believe that Desert Land’s claims are without merit and will
        vigorously oppose the Writ of Certiorari and defend against the state court
        complaint.
 
 The
        staff
        of the Pacific Regional Office of the United States Securities and Exchange
        Commission (SEC) conducted an investigation into certain matters related
        to us,
        Vestin Group, Vestin Capital, Fund II and Fund III. We have fully cooperated
        during the course of the investigation.
 
 The
        Staff
        has notified us, Fund II, Fund III, our Manager, Vestin Capital and Michael
        V.
        Shustek, the Principal Executive Officer of our Manager and Vestin Capital,
        or
        collectively the Vestin Entities, that they intend to seek authority to bring
        an
        enforcement proceeding against the Vestin Entities alleging violations of
        Section 17 (a) of the Securities Act of 1933, Section 10 (b) of the Securities
        Exchange Act of 1934 and Rule 10b-5 thereunder based upon certain sales
        practices employed for a period of time by the Vestin Entities. Specifically,
        the SEC Staff has advised that they believe certain slides used at sales
        seminars held to promote the sale of Fund II and Fund III units included
        disclosure regarding distributions to members of Fund I and Fund II that
        were
        misleading. The Vestin Entities are engaged in discussions with the Staff
        regarding the proposed recommendation and any remedies, which might be sought
        by
        the SEC Staff. Based upon these discussions, we currently believe that neither
        we nor Fund II and Fund III will be named as parties in the enforcement
        recommendation. These settlement negotiations are ongoing and, at this time,
        we
        do not know if a mutually acceptable settlement will be reached.
 
 On
        April
        21, 2006, through our Manager, we filed a complaint in the Circuit Court
        of the
        First Circuit in Hawaii to expedite our efforts to foreclose upon first trust
        deeds secured by the assets of Rightstar International, Inc. (the “Rightstar
        Trust Deeds”). In the filing, we allege that the State of Hawaii has
        unreasonably blocked the foreclosure without any legal basis for doing so.
        On
        April 24, 2006, the State of Hawaii responded by filing allegations against
        Vestin Mortgage, Inc., and Vestin Fund II, LLC alleging that these Vestin
        entities improperly influenced the former RightStar trustees to transfer
        trust
        funds to Vestin. We believe these claims to be without merit and intend to
        vigorously defend those allegations. The outcome of this litigation is
        unforeseeable at this time.
 
 We
        are
        involved in a number of legal proceedings concerning matters arising in
        connection with the conduct of our business activities. We believe we have
        meritorious defenses to each of these actions and intend to defend them
        vigorously. We believe that we are not a party to any pending legal or
        arbitration proceedings that would have a material adverse effect on our
        financial condition or results of operations or cash flows, although it is
        possible that the outcome of any such proceedings could have a material impact
        on our net income in any particular period.
 
 **NOTE
        N — REDEMPTION LIMITATION**
 
 Pursuant
        to Fund I’s Operating Agreement, it redeemed units submitted for redemption. In
        accordance with the terms of the Operating Agreement and the Internal Revenue
        Code, Fund I’s redemptions were limited to no more than 10% of the members’
capital in any calendar year. As of March 31, 2006, the total of redemptions
        made from inception was $45.9 million. In January 2006, we redeemed
        approximately $6.4 million of Members’ capital. As a result of Fund I’s merger
        into the Registrant on May 1, 2006, we will no longer redeem units since
        all
        units have been converted into shares of Vestin Realty Mortgage I,
        Inc.
 -
            26
            -
 *Table
            of Contents*
 
 To
        maintain our status as a REIT, we are required to make distributions, other
        than
        capital gain dividends, to our stockholders each year in an amount at least
        equal to (1) the sum of (a) 90% of our taxable income, computed without regards
        to the dividends paid deduction and our net capital gain, and (b) 90% of
        the net
        income, after tax, from foreclosure property, minus (2) the sum of certain
        specified items of noncash income over 5% of our REIT taxable
        income.
 
 **NOTE
        O — SUBSEQUENT EVENTS**
 
 Following
        a periodic review by our Manager as required pursuant to the Operating Agreement
        as a result of write downs in the carrying value of real estate held for
        sale,
        effective April 1, 2006, we adjusted the stated unit value of each unit to
        $9.14
        to reflect the estimated net value of each unit at that date.
 
 On
        April
        21, 2006, we filed a complaint in the Circuit Court of the First Circuit
        in
        Hawaii to expedite our efforts to foreclose upon first trust deeds secured
        by
        the assets of Rightstar International, Inc. (the “Rightstar Trust Deeds”). In
        the filing, we allege that the State of Hawaii has unreasonably blocked the
        foreclosure without any legal basis for doing so. On April 24, 2006, the
        State
        of Hawaii responded by filing allegations against Vestin Mortgage, Inc.,
        and
        Vestin Fund II, LLC alleging that these Vestin entities improperly influenced
        the former RightStar trustees to transfer trust funds to Vestin.
 
 On
        May 1,
        2006, the merger between Fund I and Registrant became effective.
 
 On
        May 1,
        2006 the bankruptcy plan of Mid-State Raceway, Inc for Vernon Downs became
        effective. As a result of the bankruptcy plan, we and Fund II received the
        following:
 
 ·
            New
                first deeds of trust from buyer, Vernon Downs Acquisition, LLC,
                approximating $22.8 million, of which our portion is $3.2 million.
                The new
                terms reflect a $1.2 million principal reduction, reducing our principal
                balance by $171,000. The transaction resulted in our recording a
                deferred
                gain of $171,000. The terms of the loan are 9% due in 6 months, with
                an
                option to extend for an additional 6 months for a fee. 
 ·
            The
                loan is secured by a first trust deed on Vernon Downs properties
                and a
                150% personal guarantee by borrowers. 
 ·
            Prepayment
                of interest in the aggregate amount of $500,000, of which our portion
                is
                approximately $71,000. 
 ·
            Delay
                fees from the date of the bankruptcy confirmation until the effective
                date
                in the aggregate amount of $287,000 of which our portion is
                approximately$41,000. 
 ·
            Payment
                of past due forbearance fees approximately $555,000 of which our
                portion
                is approximately $79,000. 
 **ITEM
        2.**  **MANAGEMENT’SDISCUSSION
        AND ANALYSIS OF FINANCIAL CONDITION
        AND** **RESULTS
        OF OPERATIONS**
 
 The
        following is a financial review and analysis of our financial condition and
        results of operations for the three months and nine months ended March 31,
        2006.
        This discussion should be read in conjunction with our financial statements
        and
        accompanying notes and other detailed information regarding us appearing
        elsewhere in this Form 10-Q and our report on Form 10-K for the nine month
        transition period ended June 30, 2005.
 -
            27
            -
 *Table
            of Contents*
  **Background**
 
 Vestin
        Fund I, LLC (“Fund I”) was organized in December 1999 as a Nevada limited
        liability company for the purpose of investing in real estate loans. Vestin
        Realty Mortgage I, Inc. (the “Registrant”) was organized in January 2006 as a
        Maryland corporation for the purpose of effecting a merger with Fund I. On
        May
        1, 2006, Fund I merged into the Registrant and the members of Fund I received
        one share of the Registrant’s common stock for each membership unit of Fund I.
        This report is filed by the Registrant as the successor to Fund I. References
        in
        this report to the “Company”, “we”, “us” or “our” refer to Fund I with respect
        to the period ending on April 30, 2006 and to the Registrant with respect
        to the
        period commencing on May 1, 2006. Because we were a limited liabililty company
        during the periods reflected in this report, we make reference to our members
        in
        reporting our financial results.
 
 We
        invest
        in loans secured by real estate through deeds of trust or mortgages (hereafter
        referred to as “deeds of trust”). We commenced operations in August 2000. In
        July 2005, we changed our fiscal year end from September 30 th to June
        30 th ,
        we
        issued our annual report on Form 10-K for the nine-month transition period
        ended
        June 30, 2005.
 
 We
        intend
        to operate as a real estate investment trust (“REIT”); we are not a mutual fund
        or an investment company within the meaning of the Investment Company Act
        of
        1940, nor are we subject to any regulation thereunder. As a REIT we are required
        to have a December 31 st year
        end.
 
 Our
        Manager is Vestin Mortgage, Inc. (the “Manager” or “Vestin Mortgage”), a Nevada
        corporation and licensed mortgage broker engaged in the business of brokerage,
        placement and servicing of commercial loans secured by real property. Our
        Manager is a wholly owned subsidiary of Vestin Group, Inc., a Delaware
        corporation (“Vestin Group”) wholly owned by Michael V. Shustek, the CEO and
        director of the Manager. Through its subsidiaries, Vestin Group is engaged
        in
        asset management, real estate lending and other financial services.
 
 Pursuant
        to a Management Agreement, the Manager controls the daily operating activities
        of the Company, including the power to assign duties, to determine how to
        invest
        our assets, to sign bills of sale, title documents, leases, notes, security
        agreements, mortgage investments and contracts, and to assume direction of
        the
        business operations. As a result, our operating results are dependent upon
        the
        Manager’s ability and performance in managing our operations and servicing our
        assets.
 
 Vestin
        Mortgage, Inc. is also the Manager of Vestin Realty Mortgage II, Inc, as
        the
        successor by merger to Vestin Fund II, LLC, referred to as “Fund II”, Vestin
        Fund III, LLC (“Fund III”) and inVestin Nevada, Inc., a company wholly owned by
        our Manager’s CEO. These entities also invest in commercial real estate
        loans.
 
 As
        a
        non-conventional lender, we are more willing to invest in real estate loans
        to
        borrowers that conventional lenders would not deem to be creditworthy. Because
        of our increased willingness to fund riskier loans, borrowers are willing
        to pay
        us an interest rate that is two to five points above the rates generally
        charged
        by conventional lenders. We invest a significant amount of our funds in loans
        in
        which the real property being developed is not generating any income to the
        borrower. The “balloon payment” loans and bridge loans in which we invest are
        riskier because the borrower’s repayment depends on its ability to refinance the
        loan or develop the property so it can refinance the loan.
 
 Our
        principal investment objectives are to:
 
 ·
            Produce
                revenues from the interest income on our real estate
                loans; 
 ·
            Provide
                cash distributions from the revenues generated by our real estate
                loans; 
 ·
            Preserve
                our shareholders’ equity; and 
 ·
            Reinvest,
                to the extent permissible, payments of principal and sales (net of
                expenses).  -
            28
            -
 *Table
            of Contents*
  **Overview**
 
 Our
        primary business objective is to generate income by investing in real estate
        loans. We believe there is a significant market opportunity to make real
        estate
        loans to owners and developers of real property whose financing needs are
        not
        met by traditional real estate lenders. The loan underwriting standards our
        Manager utilizes are less strict than traditional real estate lenders. In
        addition, one of our competitive advantages is our ability to approve loan
        applications more quickly than traditional lenders. As a result, in certain
        cases, we may make real estate loans that are riskier than real estate loans
        made by commercial banks. However, in return we seek a higher interest rate
        and
        our Manager takes steps to mitigate the lending risks such as imposing a
        lower
        loan to value ratio. While we may assume more risk than traditional real
        estate
        lenders, in return, we seek to generate higher yields from our real estate
        loans.
 
 Our
        operating results are affected primarily by: (i) the amount of capital we
        have to invest in real estate loans, (ii) the level of real estate lending
        activity in the markets we service, (iii) our ability to identify and work
        with suitable borrowers, (iv) the interest rates we are able to charge on
        our loans and (v) the level of nonperforming assets, foreclosures and
        related loan losses which we may experience. Our capital, subject to a 3%
        reserve, will constitute the bulk of the funds we have available for investment
        in real estate loans. We do not have any arrangements in place to materially
        increase the funds we will have available to invest from any other sources.
        See
        discussion under - “Capital and Liquidity.”
 
 Our
        operating results have been adversely affected by the amount of our
        non-performing assets. Non-performing assets include the following:
 
 **Balance
                  As of**
                **March
                  31, 2006**
              
              **%
                  of Total Assets**
              
              **Balance
                  as of**
                **June
                  30, 2005**
              
              **%
                  of Total Assets**Real
                  Estate held for sale
              
              $
              2,497,000
              
              
              3.84%
              
              $
              7,757,000
              
              
              8.78%Non-performing
                  Loans
              
              
              12,280,000
              
              
              18.90%
              
              
              8,079,000
              
              
              9.14%Total
              
              $
              14,777,000
              
              
              22.74%
              
              $
              15,836,000
              
              
              17.92%
 
 Additionally,
        our results of operations have been adversely affected by allowances for
        non-performing loans. As of March 31, 2006, we have provided a general allowance
        for loan losses of approximately $379,000 and a specific allowance of
        approximately $4,225,000 on a loan secured by 4 cemeteries and 8 mortuaries
        in
        Hawaii, (see “Rightstar Loan Allowance”).
 
 The
        level
        of non-performing assets may reflect 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 for
        distribution to our members. Such conditions may also require us to restructure
        loans. The weighted average term of our outstanding loans as of March 31,
        2006
        was 18 months and as of June 30, 2005 was 19 months. While there has been
        some
        movement in the economy towards higher interest rates, it is not clear if
        or
        when any such rate increases will impact our business. The weighted average
        interest rate on our loans as of March 31, 2006 was 9.84% as compared to
        10.58%
        at June 30, 2005. Our annualized rate of return to members for the nine months
        ended March 31, 2006 was 1.39% and for the transition period ended June 30,
        2005
        was 1.9%. The decline in our annualized rate of return to members for the
        transition period was due primarily to the increase in non-performing loans,
        the
        lower interest rate we are able to charge on our loans described above and
        a
        change to allowance for loan losses of $3 million for the nine months ended
        March 31, 2006.
 
 Adverse
        economic conditions during the next year could have a material impact on
        the
        collectibility of our loans. Recognizing the risk, we seek to maintain an
        adequate loan-to-value ratio, which as of March 31, 2006, was 71.17% on a
        weighted average basis, generally using appraisals prepared on an as-if
        developed basis in connection with the loan origination. In this manner,
        we hope
        to retain sufficient cushion in the underlying equity position to protect
        the
        value of our loan in the event of a default. Nevertheless, a marked increase
        in
        loan defaults accompanied by a rapid decline in real estate values could
        result
        in losses on defaulted loans that would have a material adverse effect upon
        our
        financial condition and operating results.
 -
            29
            -
 *Table
            of Contents*
  We
        invest
        in real estate loans throughout the areas in which Vestin Mortgage and its
        correspondents have experience. As of March 31, 2006, our loans are in the
        following states; Arizona, California, Hawaii, Nevada, New York, North Carolina,
        Oklahoma, Oregon, Texas, Washington and Wisconsin. As of March 31, 2006,
        23% of
        the principal amount of our loans was secured by real estate in Nevada, while
        15%, 14% and 15% were secured by real estate in California, Arizona, and
        Hawaii,
        respectively. Such geographical concentration creates greater risk that any
        downturn in such local real estate markets could have a significant adverse
        effect upon our results of operations. If we enter into another recession,
        particularly in any of the identified states, our operating results could
        be
        adversely affected.
 
 **Summarization
        of Financial Results**
 
 **FOR
                  THE THREE MONTHS ENDED**
              
              **FOR
                  THE NINE MONTHS ENDED****MARCH
                  31, 2006**
              
              **MARCH
                  31, 2005**
              
              **MARCH
                  31, 2006**
              
              **MARCH
                  31, 2005**Total
                  Revenues
              
              $
              1,165,000
              
              $
              2,154,000
              
              $
              4,823,000
              
              $
              6,285,000Total
                  Operating Expenses
              
              $
              3,455,000
              
              $
              2,002,000
              
              $
              4,047,000
              
              $
              3,903,000**NET
                  INCOME**
              
              $
              (2,290,000
              )
              $
              152,000
              
              $
              776,000
              
              $
              2,382,000Net
                  Income Allocated to Members
              
              $
              (2,290,000
              )
              $
              152,000
              
              $
              776,000
              
              $
              2,382,000Net
                  Income Allocated to Members Per Weighted Average Membership
                  Units
              
              $
              (0.33
              )
              $
              0.02
              
              $
              0.10
              
              $
              0.29Weighted
                  Average Membership Units
              
              
              6,925,788
              
              
              7,188,588
              
              
              7,424,274
              
              
              8,131,854Annualized
                  Rate of Return to Members
              
              
              (13.41
              )%
              
              0.86
              %
              
              1.39
              %
              
              3.90
              %Cash
                  Distributions
              
              $
              1,101,000
              
              $
              1,188,000
              
              $
              3,413,000
              
              $
              3,801,000Cash
                  Distributions Per Weighted Average Membership Units
              
              $
              0.16
              
              $
              0.17
              
              $
              0.46
              
              $
              0.47Weighted
                  Average Term of Outstanding Loans
              
              
              18
                  months
              
              
              23
                  months
              
              
              18
                  months
              
              
              23
                  months
 
 (a)
            The
                annualized rate of return to members is calculated based upon the
                net GAAP
                income allocated to members per weighted average units as of March
                31,
                2006 and 2005 divided by the number of days during the period (90
                days for
                the three months ended March 31, 2006 and 2005 and 274 days for the
                nine
                months ended March 31, 2006 and 2005) and multiplied by three hundred
                sixty five (365) days, then divided by ten (the cost per
                unit). 
 *Total
        Revenues* :
        Revenue
        for the three months ended March 31, 2006 decreased compared to the same
        period
        in 2005, by approximately $989,000 or 45.91% primarily due to the following
        factors:
 
 ·
            Our
                interest income decreased approximately $505,000 as a result of a
                decrease
                in investments in real estate loans, an increase in non-performing
                loans
                and a decline in the weighted average interest rate on our loans.
                Investment in real estate loans declined by $4.3 million from $63.7
                million at March 31, 2005 to $59.4 million at March 31, 2006. In
                addition,
                there was an increase in non-performing loans of $4.3 million from
                March
                31, 2005 to March 31, 2006 and the weighted average interest rate
                on our
                loans dropped from 10.39% to 9.84%.  -
            30
            -
 *Table
            of Contents*
 
 ·
            For
                the three months ended March 31, 2005, we recorded $581,000 in other
                income, primarily from approximately $400,000 in late fees received
                from
                borrowers as compared to other income of $58,000 for the three months
                ended March 31, 2006. 
 ·
            For
                the three months ended March 31, 2005 we recorded proceeds from sale
                of
                real estate held for sale of approximately $174,000 to other income
                and a
                gain on sale of real estate held for sale of approximately $23,000,
                we had
                no such income during the three months ended March 31,
                2006 
 These
        decreases were partially offset by the following factors:
 
 ·
            An
                increase in interest income from marketable securities of approximately
                $61,000. 
 Revenues
        for the nine months ended March 31, 2006 decreased compared to the same period
        in 2005 by approximately $1,462,000 or 23.26% primarily due to the following
        factors:
 
 ·
            Our
                interest income declined approximately $838,000 as a result of a
                decrease
                in investments in real estate loans and an increase in non-performing
                loans. 
 ·
            During
                the nine months ended March 31, 2005, we recorded a gain on the sale
                of
                real estate owned of approximately $1 million relating to the sale
                of land
                in Mesquite, Nevada. There was no comparable gain during the nine
                months
                ended March 31, 2006. 
 ·
            For
                the nine months ended March 31, 2005, we recorded commission income
                of
                approximately $49,000 in addition to late fees received from borrowers
                of
                approximately $400,000. There was no comparable income in the nine
                months
                ended March 31, 2006. 
 These
        decreases were partially offset by the following factors:
 
 ·
            We
                recorded a gain on the sale of real estate held for sale related
                to seller
                financed loans, which were paid during the nine months ended March
                31,
                2006 of approximately $495,000 and a $24,000 gain on sale of real
                estate
                held for sale on a residential sub-division in Lake Travis,
                Texas. 
 ·
            We
                recorded a gain on sale of marketable securities during the nine
                months
                ended March 31, 2006 of approximately
                $47,000. 
 ·
            We
                received interest income from marketable securities of approximately
                $174,000 during the nine months ended March 31,
                2006. 
 ·
            During
                the nine months ended March 31, 2006 we received $272,000 as a result
                of
                the settlement of a claim against a title insurance company. In addition,
                we received $32,000 in income relating to a settlement agreement
                with the
                guarantors relating to the 126-unit hotel in Mesquite, Nevada property
                that was sold in March 2005. 
 Revenues
        are affected by non-performing assets including loans in non-accrual status
        of
        approximately $12.3 million as of March 31, 2006 compared to approximately
        $8.0
        million as of March 31, 2005 and real estate held for sale of approximately
        $2.5
        million as of March 31, 2006 compared to approximately $8.1 million as of
        March
        31, 2005.
 -
            31
            -
 *Table
            of Contents*
  As
        of
        March 31, 2006 and 2005, we had $8.8 million and $10.6 million, respectively,
        in
        real estate held for sale-seller financed. Upon the sale of real estate held
        for
        sale where we provided the financing, U.S. GAAP requires the new borrower
        to
        have a certain percentage equity ownership (ranging from 10% to 25%) to allow
        us
        to record the sale of a property. In addition, the borrower must maintain
        a
        minimum commitment in the property on a continuing basis. Therefore, until
        the
        borrower meets these requirements, the proceeds received from the borrower
        are
        recorded as a deposit liability or applied to the balance in the real estate
        held for sale-seller finance, depending on the guidelines established by
        U.S.
        GAAP. Our revenues will continue to be impacted until we are able to convert
        these assets into investment in real estate loans or the loans are paid off
        and
        we reinvest the proceeds into new loans. As of March 31, 2006 and 2005, we
        had
        approximately $0.9 million and $0 million, respectively, in deposit
        liability.
 
 *Total
        Expenses:*  For
        the
        three months ended March 31, 2006, total expenses were approximately $3,455,000
        compared to $2,002,000 for the three months ending March 31, 2005, an increase
        of $1,453,000 or 72.58%. Expenses were primarily affected by the following
        factors:
 
 ·
            We
                recognized an additional allowance for loan loss of approximately
                $3,000,000 during the three months ended March 31, 2006, related
                to the
                loans secured by 4 cemeteries and 8 mortuaries in Hawaii (see Rightstar
                Loan Allowance). 
 ·
            During
                the three months ended March 31, 2005, we recorded a charge of
                approximately $639,000 in connection with the write down of real
                estate
                held for sale related to a 126 unit assisted living facility in Phoenix,
                Arizona. There were no write downs on real estate held for sale during
                the
                three months ended March 31, 2006 
 ·
            We
                recognized a loss of approximately $400,000 during the three months
                ended
                March 31, 2005 resulting from the sale of a 126 unit Hotel in Mesquite,
                Nevada. In addition, we wrote off a receivable balance relating to
                the
                property of approximately $146,000 to bad
                debt. 
 ·
            Expenses
                related to real estate held for sale decreased by approximately $370,000
                or 82% primarily due to the decrease in the balance of real estate
                held
                for sale from $8.1 million at March 31, 2005 to $2.5 million at March
                31,
                2006, a decrease of $5.6 million or 69%. In addition, during the
                three
                months ended March 31, 2005, we recognized property tax expense of
                approximately $160,000 relating to a 460 acre residential sub-division
                in
                Lake Travis, Texas. 
 For
        the
        nine months ended March 31, 2006 and 2005, total expenses were approximately
        $4,047,000 and $3,903,000, respectively. Expenses were affected by the following
        factors:
 
 ·
            During
                the nine month ended March 31, 2005 we recognized $45,000 in allowance
                for
                loan loss reserve compared to $3,000,000 during the nine months ended
                March 31, 2006. 
 ·
            Interest
                expense related to secured borrowings decreased by approximately
                $395,000
                or 97.27% primarily due to the decrease in secured borrowings from
                $10.1
                million at March 31, 2005 to $1.2 million at March 31,
                2006. 
 ·
            During
                the nine months ended March 31, 2005, we recorded a charge of
                approximately $278,000 in connection with the write down of real
                estate
                held for sale related to a custom residential property located in
                Santa
                Fe, New Mexico, in addition to the $639,000 write down on real estate
                held
                for sale related to a 126 unit assisted living facility in Phoenix,
                AZ.
                There were no write downs on real estate held for sale during the
                nine
                months ended March 31, 2006 
 ·
            During
                the nine months ended March 31, 2005, we incurred losses on sale
                of real
                estate held for sale of approximately $863,000. No losses on sale
                of real
                estate were incurred during the nine months ended March 31,
                2006. 
 ·
            Expenses
                related to real estate held for sale decreased by approximately $648,000
                due to the decrease in the balance of real estate held for
                sale.  -
            32
            -
 *Table
            of Contents*
  *Net
        Income (Loss)* .
        Overall, net income (loss) for the three and nine months ended March 31,
        2006
        totaled approximately $(2,290,000) and $776,000, respectively, compared to
        $152,000 and $2,382,000 for the same periods in 2005.
 
 *Annualized
        Rate of Return to Members* .
        For the
        three months ended March 31, 2006 and 2005, the annualized rate of return
        to
        members, as calculated in accordance with GAAP, was (13.41)% and 0.86%,
        respectively. For the nine months ended March 31, 2006 and 2005, the annualized
        rate of return to members, as calculated in accordance with GAAP, was 1.39%
        and
        3.90%, respectively.
 
 *Distributions
        to Members* .
        The
        following is a schedule of distributions made to members for the nine months
        ended March 31, 2006 and 2005.
  **For
                    the Nine****Months
                    Ended**
                  **March
                    31, 2006**
                
                **For
                    the Nine****Months
                    Ended**
                  **March
                    31, 2005****(Unaudited)**
                
                **(Unaudited)**Distributions
                    of Net Income Available for Distribution
                
                $
                3,413,000
                
                $
                3,358,000Distributions
                    in Excess of Net Income Available for a Distribution Generated
                    During the
                    Period
                
                
                --
                
                
                443,000Total
                    Distributions
                
                $
                3,413,000
                
                $
                3,801,000
  Net
        Income Available for Distributions is a non-GAAP financial measure that is
        defined in Fund I’s Operating Agreement as cash flows from operations, less
        certain reserves, and may exceed net income as calculated in accordance with
        GAAP. We have presented net income available for distribution because management
        believes this financial measure is useful and important to members as net
        income
        available for distribution is the minimum amount required to be distributed
        to
        members pursuant to our operating agreement. Although we generally do not
        plan
        to make distributions in excess of net income available for distribution,
        we may
        do so from time to time. Any such distribution will be treated as a return
        of
        capital for income tax purposes. In addition, cash flows from operations,
        which
        are the significant component of net income available for distribution, affect
        the capital available for investment in new loans. This non-GAAP financial
        measure should not be considered in isolation or as a substitute for measures
        of
        performance prepared in accordance with GAAP or as an alternative to cash
        flows
        from operating activities as a measure of our liquidity. We compensate for
        these
        limitations by relying primarily on our GAAP results and using net income
        available for distribution only supplementally.
 
 The
        most
        directly comparable GAAP measure to net income available for distribution
        is
        cash flows from operating activities. The following table reconciles net
        income
        available for distribution to cash flows from operating activities and presents
        the two other major categories of our statement of cash flows:
 -
            33
            -
 *Table
            of Contents*
  **For
                    the Nine****Months
                    Ended March 31, 2006**
                
                **For
                    the Nine****Months
                    Ended**
                  **March
                    31, 2005****(Unaudited)**
                
                **(Unaudited)**Distribution
                    of Net Income Available for Distribution
                
                $
                3,413,000
                
                $
                3,358,000Additions
                    to Working Capital Reserves (Amount Not Distributed)
                
                
                363,000
                
                
                --Collection
                    of doubtful accounts related to receivable
                
                
                (15,000
                )
                
                --Gain
                    on sale of real estate held for sale
                
                
                (519,000
                )
                
                (1,072,000
                )Loss
                    on sale of real estate held for sale
                
                
                --
                
                
                863,000Gain
                    on sale of marketable securities
                
                
                (47,000
                )
                
                --Change
                    in Operating Assets and Liabilities:Interest
                    and other receivables
                
                
                (221,000
                )
                
                666,000Due
                    to Manager
                
                
                (908,000
                )
                
                417,000Due
                    to Vestin Group
                
                
                (2,000
                )
                
                (147,000
                )Due
                    to Fund II
                
                
                (1,560,000
                )
                
                2,062,000Due
                    to Fund III
                
                
                (6,000
                )
                
                --Accounts
                    payable and accrued liabilities
                
                
                (133,000
                )
                
                346,000Net
                    cash provided by operating activities
                
                $
                365,000
                
                $
                6,493,000Net
                    cash provided by investing
                
                $
                12,844,000
                
                $
                5,610,000Net
                    cash (used) by financing
                
                $
                (11,419,000
                )
                $
                (12,135,000
                )
 
 *Stated
        Unit Value Adjustment.* Following
        a periodic review by our Manager as required pursuant to Fund I’s Operating
        Agreement as a result of write downs in the carrying value of real estate
        held
        for sale, effective April 1, 2006, we adjusted the stated unit value of each
        unit to $9.14 to reflect the estimated net value of each unit at that date.
        The
        periodic review of the estimated net unit value includes an analysis of
        unrealized gains that our Manager reasonably believes exist at the time of
        the
        review, but that cannot be added to net asset value under GAAP. To the extent
        that we are unable to fully recover a loan from sale of the underlying
        collateral, our Manager is pursuing remedies it deems appropriate for collection
        of loan losses, including litigation to enforce guarantees of the borrowers.
        We
        cannot predict the eventual outcome of any remedies our Manager may pursue
        for
        the collection of such losses.
 
 *Redemptions* .
        Pursuant to Fund I’s Operating Agreement, it redeemed units submitted for
        redemption. In accordance with the terms of the Operating Agreement and the
        Internal Revenue Code, Fund I’s redemptions were limited to no more than 10% of
        the members’ capital in any calendar year. As of March 31, 2006, the total of
        redemptions made from inception was $45.9 million. In January 2006, we redeemed
        approximately $6.4 million of Members’ capital. As a result of Fund I’s merger
        into the Registrant on May 1, 2006, we will no longer redeem units since
        all
        units have been converted into shares of Vestin Realty Mortgage I,
        Inc.
 
 To
        maintain our status as a REIT, we are required to make distributions, other
        than
        capital gain dividends, to our stockholders each year in an amount at least
        equal to (1) the sum of (a) 90% of our taxable income, computed without regards
        to the dividends paid deduction and our net capital gain, and (b) 90% of
        the net
        income, after tax, from foreclosure property, minus (2) the sum of certain
        specified items of noncash income over 5% of our REIT taxable
        income.
 
 **INVESTMENTS
        IN REAL ESTATE LOANS SECURED BY REAL ESTATE PORTFOLIO**
 
 As
        of
        March 31, 2006, we had investments in real estate loans secured by real property
        totaling $59.4 million including 26 loans with an aggregate principal value
        of
        approximately $59,411,000 secured by first deeds of trust and one loan secured
        by a second deed of trust totaling approximately $38,000.
 
 As
        of
        March 31, 2006, the weighted average contractual interest rate on our
        investments in mortgage loans was 9.84%. These mortgage loans have contractual
        maturities within the next 18 months.
 -
            34
            -
 *Table
            of Contents*
  **Asset
        Quality and Loan Reserves**
 
 Losses
        may occur from investing in real estate loans. The amounts of losses will
        vary
        as the loan portfolio is affected by changing economic conditions and the
        financial condition of borrowers.
 
 The
        conclusion that a real estate loan is uncollectible or that collectibility
        is
        doubtful is a matter of judgment. On a quarterly basis, the Manager evaluates
        our real estate loan portfolio for impairment. The fact that a loan is
        temporarily past due does not necessarily mean that the loan is impaired.
        Rather, all relevant circumstances are considered by our Manager to determine
        impairment and the need for specific reserves. Such evaluation, which includes
        a
        review of all loans on which full collectibility may not be reasonably assured,
        considers among other matters:
 
 ·
            Prevailing
                economic conditions; 
 ·
            Historical
                experience; 
 ·
            The
                nature and volume of the loan portfolio; 
 ·
            The
                borrowers’ financial condition and adverse situations that may affect the
                borrowers’ ability to pay; 
 ·
            Evaluation
                of industry trends; 
 ·
            Review
                and evaluation of loans identified as having loss potentials;
                and 
 ·
            Estimated
                net realizable value of any underlying collateral in relation to
                the loan
                amount. 
 Based
        upon this evaluation, a determination is made as to whether the allowance
        for
        loan losses is adequate to cover any potential losses. Additions to the
        allowance for loan losses are made by charges to the provision for loan losses.
        Recoveries of previously charged off amounts are credited to the allowance
        for
        loan losses. As of March 31, 2006, our Manager had provided for $0.4 million
        as
        a general allowance for loan losses and a specific allowance of $4.2 million.
        At
        March 31, 2006, three **** of
        our
        loans were non-performing of approximately $12.3 million as summarized
        previously. 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.
 
 **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, 2006:
 
 **Contractual
                  Obligation**
              
              **Total**
              
              **Less
                  Than 1 Year**
              
              **1-3
                  Years**
              
              **3-5
                  Years**
              
              **More
                  Than****5
                  Years**Secured
                  borrowings
              
              $
              1,160,000
              
              $
              1,160,000
              
              $
              --
              
              $
              --
              
              $
              --
  -
            35
            -
 *Table
            of Contents*
  **CRITICAL
        ACCOUNTING ESTIMATES**
 
 **Revenue
        Recognition**
 
 Interest
        income on loans is accrued by the effective interest method. We do not recognize
        interest income from loans once they are determined to be impaired. A loan
        is
        impaired when, based on current information and events, it is probable that
        we
        will be unable to collect all amounts due according to the contractual terms
        of
        the loan agreement or when the payment of interest is 90 days past
        due.
 
 The
        following table presents a sensitivity analysis to show the impact on our
        financial condition at March 31, 2006 from fluctuations in weighted average
        interest rate charged on loans as a percentage of the loan
        portfolio:
 
 **Changed
                  Assumption**
              
              **Increase
                  (Decrease)****in**
                **Interest
                  Income**Weighted
                  average interest rate assumption increased by 1% or 100 basis
                  points
              
              $
              614,000Weighted
                  average interest rate assumption increased by 5% or 500 basis
                  points
              
              $
              3,072,000Weighted
                  average interest rate assumption decreased by 1% or 100 basis
                  points
              
              $
              (614,000
              )Weighted
                  average interest rate assumption decreased by 5% or 500 basis
                  points
              
              $
              (3,072,000
              )
 
 The
        purpose of this analysis is to provide an indication of the impact that the
        weighted average interest rate fluctuations would have on our financial results.
        It is not intended to imply our expectation of future revenues or to estimate
        earnings. We believe that the assumptions used above are appropriate to
        illustrate the possible material impact on the financial
        statements.
 
 **Investments
        in Real Estate Loans**
 
 The
        Company may from time to time acquire or sell investments in real estate
        loans
        from or to the Manager or other related parties pursuant to the terms of
        the
        Company's Operating Agreement provided the price does not exceed the original
        cost. The primary purpose is to either free up capital to provide liquidity
        for
        various reasons, such as loan diversification, or place excess capital in
        investments to maximize the use of the Company's capital. For example, the
        Company's Operating Agreement provides certain guidelines with respect to
        loan
        concentration by dollar amount, location and lien position. Selling or buying
        loans allows the Company to diversify its loan portfolio within these
        parameters. Due to the short term nature of the loans the Company makes and
        the
        similarity of interest rates in loans the Company normally would invest in,
        the
        fair value of a loan typically approximates its carrying value. Accordingly,
        discounts or premiums typically do not apply upon sales of loans and therefore,
        generally no gain or loss is recorded on these transactions, regardless of
        whether to a related or unrelated party.
 
 Investments
        in real estate loans are secured by trust deeds. 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.
 -
            36
            -
 *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. The Manager’s estimate of losses is based on a
        number of factors including the types and dollar amounts of loans in the
        portfolio, adverse situations that may affect the borrower’s ability to repay,
        prevailing economic conditions and the underlying collateral securing the
        loan.
        Additions to the allowance are provided through a charge to earnings and
        are
        based on an assessment of certain factors, which may indicate estimated losses
        on the loans. Actual losses on loans are recorded as a charge-off or a reduction
        to the allowance for loan losses. Subsequent recoveries of amounts previously
        charged off are added back to the allowance or included as income.
 
 The
        following table presents a sensitivity analysis to show the impact on our
        financial condition at March 31, 2006 from increases and decreases to our
        allowance for loan losses as a percentage of the loan portfolio:
 
 **Changed
                  Assumption**
              
              **Increase
                  (Decrease) in**
                **Allowance
                  for Loan Losses**Allowance
                  for loan losses assumption increased by 1.0% of loan
                  portfolio
              
              $
              594,000Allowance
                  for loan losses assumption increased by 5.0% of loan
                  portfolio
              
              $
              2,972,000Allowance
                  for loan losses assumption decreased by 1.0% of loan
                  portfolio
              
              $
              (594,000
              )Allowance
                  for loan losses assumption decreased by 5.0% of loan
                  portfolio
              
              $
              (2,972,000
              )
 
 Estimating
        allowances for loan losses requires significant judgment about the underlying
        collateral, including liquidation value, condition of the collateral, competency
        and cooperation of the related borrower and specific legal issues that affect
        loan collections or taking possession of the property. As a non-conventional
        lender willing to invest in loans to borrowers who may not meet the credit
        standards of conventional lenders, the default rate on our loans could be
        higher
        than those generally experienced in the mortgage lending industry. We generally
        approve loans more quickly than other real estate lenders and, due to our
        expedited underwriting process, there is a risk that the credit inquiry we
        perform will not reveal the material facts pertaining to a borrower and the
        security.
 
 Additional
        facts and circumstances are discovered as we continue our efforts in the
        collection and foreclosure processes. This additional information often causes
        management to reassess its estimates. In recent years, we have revised estimates
        of our allowance for loan losses. Circumstances that have caused significant
        changes in our estimated allowance include:
 
 ·
            Declines
                in real estate market conditions that can cause a decrease in expected
                market value. 
 ·
            Discovery
                of undisclosed liens for community improvement bonds, easements and
                delinquent property taxes. 
 ·
            Lack
                of progress on real estate developments after we advance funds. We
                customarily utilize disbursement agents to monitor the progress of
                real
                estate developments and approve loan advances. After further inspection
                of
                the related property, progress on construction occasionally does
                not
                substantiate an increase in value to support the related loan
                advances. 
 ·
            Unanticipated
                legal or business issues that may arise subsequent to loan origination
                or
                upon the sale of foreclosed upon
                property. 
 ·
            Appraisals,
                which are only opinions of value at the time of the appraisal, may
                not
                accurately reflect the value of the
                property.  -
            37
            -
 *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, the Company seeks to identify
        potential purchasers of such property. It is not the Company's intent to
        invest
        in or own real estate as a long-term investment. In accordance with FAS 144
        - *Accounting
        for the Impairment or Disposal of Long Lived Assets,* the
        Company seeks to sell properties acquired through foreclosure as quickly
        as
        circumstances permit. The carrying values of real estate held for sale are
        assessed on a regular basis from updated appraisals, comparable sales values
        or
        purchase offers.
 
 Management
        classifies real estate held for sale when the following criteria are
        met:
 
 ·
            Management
                commits to a plan to sell the properties; 
 ·
            The
                property is available for immediate sale in its present condition
                subject
                only to terms that are usual and
                customary; 
 ·
            An
                active program to locate a buyer and other actions required to complete
                a
                sale have been initiated; 
 ·
            The
                sale of the property is probable; 
 ·
            The
                property is being actively marketed for sale at a reasonable price;
                and 
 ·
            Withdrawal
                or significant modification of the sale is not
                likely. 
 **Real
        Estate Held For Sale - Seller Financed**
 
 The
        Company occasionally finances sales of foreclosed properties to independent
        third parties. In order to record a sale of real estate when the seller is
        providing continued financing, FAS 66 requires the buyer of the real estate
        to
        make minimum and initial continuing investments. Minimum initial investments
        as
        defined by FAS 66 range from 10% to 25% based on the type of real estate
        sold.
        In addition, FAS 66 limits commitments and contingent obligations incurred
        by a
        seller in order to record a sale.
 
 Because
        the Company occasionally forecloses on loans with raw land or developments
        in
        progress, available financing for such properties is often limited and the
        Company frequently provides financing up to 100% of the selling price on
        these
        properties. In addition, the Company may make additional loans to the buyer
        to
        continue development of a property. Although sale agreements are consummated
        at
        closing, they lack adequate initial investment by the buyer to qualify as
        a
        sales transaction as defined in FAS 66. These sale agreements are not recorded
        as a sale until the requirements of FAS 66 are met.
 
 These
        sales agreements are recorded under the deposit method or cost recovery method
        as defined in FAS 66. Under the deposit method, no profit is recognized and
        any
        cash received from the buyer is reported as a deposit liability on the balance
        sheet. Under the cost recovery method, no profit is recognized until payments
        by
        the buyer exceed the carrying basis of the property sold. Principal payments
        received will reduce the related receivable, and interest collections will
        be
        recorded as unrecognized gross profit on the balance sheet. The carrying
        values
        of these properties are included in real estate held for sale on the
        accompanying balance sheet.
 
 **Classification
        of Operating Results from Real Estate Held for Sale**
 
 FAS
        144
        generally requires operating results from long lived assets held for sale
        to be
        classified as discontinued operations as a separately stated component of
        net
        income. The Company's operations involve foreclosing on real estate when
        necessary and the Company considers these operating results to be part of
        the
        Company's continuing operations. Accordingly, expenses related to real estate
        held for sale have been included on the accompanying statements of income,
        net
        of related rental income when applicable.
 -
            38
            -
 *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 it might not otherwise invest in. We
        do
        not receive any revenues for entering into secured borrowing arrangements.
        Loans
        in which third party investors have participated through inter-creditor
        agreements (“Inter-creditor Agreements”) are accounted for as secured borrowings
        in accordance with FAS 140, *Accounting
        for Transfers and Servicing of Financial Assets and Extinguishments of
        Liabilities* (“FAS
        140”). The Inter-creditor Agreements provide us additional funding sources for
        real estate loans whereby a third party investor (the “Investor”) may
        participate on a senior basis in certain real estate loans with us and/or
        Fund
        II and/or Fund III (collectively, the “Lead Lenders”). In the event of borrower
        non-performance, the Inter-creditor Agreements generally provide that the
        Lead
        Lenders must repay the Investor’s loan amount either by (i) continuing to remit
        to the Investor the interest due on the participated loan amount; (ii)
        substituting an alternative loan acceptable to the Investor; or (iii)
        repurchasing the participation from the Investor for the outstanding balance
        plus accrued interest.
 
 Additionally,
        an Investor may participate in certain loans with the Lead Lenders through
        Participation Agreements. In the event of borrower non-performance, the
        Participation Agreement may allow the Investor to be repaid up to the amount
        of
        the Investor’s investment prior to the Lead Lender being repaid. Real estate
        loan financing under the Participation Agreements are also accounted for
        as a
        secured borrowing in accordance with FAS 140. The Company does not receive
        any
        revenues for entering into secured borrowings arrangements.
 
 **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 provided the price does not exceed the original
        cost. No gain or loss is recorded on these transactions, as it is not our
        intent
        to make a profit on the purchase or sale of such investments. The purpose
        is
        generally to diversify our loan portfolio by spreading our investments among
        a
        broader pool of loans. Such interests are generally bought and sold at par
        value. We do not seek to profit from a sale to a related party nor do we
        purchase loan interests at a mark-up from related parties.
 
 **Transactions
        with the Manager**
 
 Our
        Manager is entitled to receive from us an annual management fee of up to
        0.25%
        of our aggregate capital contributions, paid quarterly in arrears. For the
        nine
        months ended March 31, 2006 and 2005, we recorded management fees to our
        Manager
        of approximately $207,000 and $196,000, respectively.
 
 Additionally,
        for the nine months ended March 31, 2006, we recorded pro rata distributions
        owed to our Manager of approximately $45,000 and $46,000 for the same period
        in
        the prior year based upon the total of 100,000 units owned by our
        Manager.
 
 As
        of
        March 31, 2006, and June 30, 2005, we owed the Manager $14,000 and $922,000,
        respectively, related to unpaid management fees, our Manager’s pro-rata share of
        distributions, and expenses paid on our behalf related to the maintenance
        of
        real estate held for sale.
 
 **Transactions
        with the Funds**
 
 As
        of
        March 31, 2006 and June 30, 2005, we owed Fund II $0 and $1,560,000,
        respectively. The balance was primarily related to payments made on our behalf
        for maintenance expenses incurred on real estate owned properties.
 
 As
        of
        March 31, 2006 and June 30, 2005, we owed Fund III $0 and $6,000, respectively
        primarily related to payments they made on our behalf for legal expenses
        incurred.
 
 During
        the nine months ended March 31, 2006, we sold $8.8 million in real estate
        loans
        to Fund II. In addition, we bought $0.5 million in real estate loans from
        Fund
        II.
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  **Transactions
        with Other Related Parties**
 
 For
        the
        nine months ended March 31, 2006 and 2005, we incurred $31,000 and $33,000
        respectively, for legal fees to the law firm of Levine, Garfinkel & Katz in
        which the Secretary of Vestin Group has an equity ownership
        interest.
 
 For
        the
        nine months ended March 31, 2006 and 2005, we incurred $106,000 and $59,000,
        respectively, to L.L. Bradford & Company, LLC, a certified public accounting
        firm for accounting services. A former Director and Officer of Vestin Group
        is
        an equity owner in that firm
 
 **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 or satisfy redemption requests. Distributable
        cash flow generated from such loans is paid out to our members unless they
        have
        elected to reinvest their dividends. We do not anticipate the need for hiring
        any employees, acquiring fixed assets such as office equipment or furniture,
        or
        incurring material office expenses during the next twelve months because
        Vestin
        Mortgage will manage our affairs. We may pay Vestin Mortgage an annual
        management fee of up to 0.25% of our aggregate capital
        contributions.
 
 During
        the nine months ended March 31, 2006, cash flows provided by operating
        activities approximated $0.4 million. Investing activities consisted of cash
        provided by loan payoffs of approximately $24.4 million, cash proceeds from
        sale
        of investments in real estate loans $9.3 million. Cash used for new investments
        and purchases of real estate loans of approximately $28.0 million, and proceeds
        from the sale of real estate held for sale of approximately $4.2 million.
        Financing activities consisted of members’ redemptions in the amount of $8.3
        million, distributions of $3.1 million (net of reinvestments).
 
 At
        March
        31, 2006, we had $4.6 million in cash, $0.3 million in certificates of deposit,
        and $65.0 million in total assets. We intend to meet short-term working capital
        needs through a combination of proceeds from loan payoffs, loan sales and/or
        borrowings. We believe we have sufficient working capital to meet our operating
        needs in the near term.
 
 Since
        we
        distribute most or all of our distributable cash generated by operations,
        our
        sources of liquidity include: repayments of outstanding loans, distribution
        reinvestments by our members and arrangements with third parties to participate
        in our loans and proceeds from issuance of note payable and secured borrowings.
 
 As
        of
        March 31, 2006, members holding less than 15% of our outstanding units have
        elected to reinvest their distributions. We have no current plans to sell
        any
        new shares. The level of dividend reinvestment in the future will depend
        upon
        our performance, as well as, the number of our members who prefer to reinvest
        rather than receive current dividends.
 
 We
        rely
        primarily upon repayment of outstanding loans to provide capital for investment
        in new loans. Any significant level of defaults on outstanding loans could
        reduce the funds we have available for investment in new loans. Resulting
        foreclosure proceedings may not generate full repayment of our loans and
        may
        result in significant delays in the return of invested funds. This would
        diminish our capital resources and would impair our ability to invest in
        new
        loans. Non-performing assets include loans in non-accrual status and real
        estate
        held for sale totaling $12.3 million and $2.5 million, respectively, as of
        March
        31, 2006 compared to $8.1 million and $7.8 million, respectively, as of June
        30,
        2005. It is possible that no earnings will be recognized from these assets
        until
        they are disposed of, or that no earnings will be recognized at all, and
        the
        time it will take to dispose of these assets cannot be predicted. Our Manager
        believes that non-performing assets exist as a result of factors unique to
        specific borrowers and properties. Because of the estimated value of the
        underlying properties, we do not 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.
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  Historically,
        redemptions by our members reduced the capital we had available for investment.
        As of March 31, 2006, the total of redemptions made from inception was $45.9
        million. In January 2006, we redeemed approximately $6.4 million of Members’
capital. Due to Fund I’s subsequent merger into Vestin Realty Mortgage I, Inc.
        as of May 1, 2006, we will no longer redeem units since all units have been
        converted into shares of Vestin Realty Mortgage I, Inc.
 
 To
        maintain our status as a REIT, we will be required to make distributions,
        other
        than capital gain dividends, to our stockholders each year in an amount at
        least
        equal to (1) the sum of (a) 90% of our taxable income, computed without regards
        to the dividends paid deduction and our net capital gain, and (b) 90% of
        the net
        income, after tax, from foreclosure property, minus (2) the sum of certain
        specified items of noncash income over 5% of our REIT taxable
        income.
 
 Loans
        in
        which third party investors have participated through inter-creditor agreements
        (“Inter-creditor Agreements”) are accounted for as secured borrowings in
        accordance with FAS 140, Accounting for Transfers and Servicing of Financial
        Assets and Extinguishments of Liabilities (“FAS 140”). The Inter-creditor
        Agreements provide us additional funding sources for real estate loans whereby
        a
        third party investor (the “Investor”) may participate on a senior basis in
        certain real estate loans with us and/or Fund II and/or Fund III (collectively,
        the “Lead Lenders”). In the event of borrower non-performance, the
        Inter-creditor Agreements generally provide that the Lead Lenders must repay
        the
        Investor’s loan amount either by (i) continuing to remit to the Investor the
        interest due on the participated loan amount; (ii) substituting an alternative
        loan acceptable to the Investor; or (iii) repurchasing the participation
        from
        the Investor for the outstanding balance plus accrued interest.
 
 Additionally,
        an Investor may participate in certain loans with the Lead Lenders through
        Participation Agreements. In the event of borrower non-performance, the
        Participation Agreement may allow the Investor to be repaid up to the amount
        of
        the Investor’s investment prior to the Lead Lender being repaid. Real estate
        loan financing under the Participation Agreements are also accounted for
        as a
        secured borrowing in accordance with FAS 140.
 
 As
        of
        March 31, 2006, funds being used under Inter-creditor and Participation
        Agreements where we have potential obligations as defined above totaled $1.2
        million compared to $11.4 million at June 30, 2005.
 
 We
        maintain working capital reserves of approximately 3% in cash and cash
        equivalents, certificates of deposits and short-term investments or liquid
        marketable securities. This reserve is available to pay expenses in excess
        of
        revenues, satisfy obligations of underlying properties, expend money to satisfy
        our unforeseen obligations and for other permitted uses of working
        capital.
 
 **FORWARD
        LOOKING STATEMENTS**
 
 When
        used
        in this Quarterly Report on Form 10-Q the words or phrases “will likely result,”
“are expected to,” “is anticipated,” or similar expressions are intended to
        identify “forward looking statements” within the meaning of the Private
        Securities Litigation Reform Act of 1995. Such statements are subject to
        certain
        risks and uncertainties, including but not limited to changes in interest
        rates,
        and fluctuations in operating results. Such factors which are discussed under
        Risk Factors in Part II, Item 1A, could affect our financial performance
        and
        could cause our actual results for future periods to differ materially from
        any
        opinion or statements expressed herein with respect to future periods. As
        a
        result, we wish to caution readers not to place undue reliance on any such
        forward looking statements, which speak only as of the date made.
 
 **ITEM
        3.**  **QUANTITATIVEAND
        QUALITATIVE DISCLOSURES ABOUT MARKET RISK**
 
 We
        are
        exposed to market risk, primarily from changes in interest rates. We do not
        deal
        in any foreign currencies and do not own any options, futures or other
        derivative instruments. We do not have a significant amount of
        debt.
 
 Most
        of
        our assets consist of real estate loans, including those that are financed
        under
        Inter-creditor Agreements. At March 31, 2006, our aggregate net investment
        in
        real estate loans was $46.2 million with a weighted average interest rate
        of
        9.84% . Loans
        financed under Inter-creditor Agreements totaled $1.2 million at March 31,
        2006
        and are classified as assets under secured borrowings. Such financing is
        at a
        weighted average interest rate of 11%. These real estate loans mature within
        the
        next three months. Most of the real estate loans have a term of 12
        months.
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  The
        weighted average term of outstanding loans at March 31, 2006 was 18 months.
        All
        of the outstanding real estate loans at March 31, 2006 are fixed rate loans.
        All
        of the real estate loans are held for investment purposes; none are held
        for
        sale. We intend to hold such real estate loans to maturity. None of the real
        estate loans have prepayment penalties.
 
 Market
        fluctuations in interest rates generally do not affect the carrying value
        of our
        investment in real estate loans. However, significant and sustained changes
        in
        interest rates could affect our operating results. If interest rates decline
        significantly, some of the borrowers could prepay their loans with the proceeds
        of a refinancing at lower interest rates. This would reduce our earnings
        and
        funds available for distribution to Members. On the other hand, a significant
        increase in interest rates could result in a slowdown in real estate development
        activity, which would reduce the demand for commercial real estate loans.
        As a
        result, we might encounter greater difficulty in identifying appropriate
        borrowers. We are not in a position to quantify the potential impact on our
        operating results from a material change in interest rates.
 
 The
        following table contains information about the investment in mortgage loans
        held
        in our portfolio as of March 31, 2006. The presentation aggregates the
        investment in mortgage loans by their maturity dates for maturities occurring
        in
        each of the years 2006 through 2009 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, 2006:
 
 **Interest
                  Earning Assets**
                **Aggregated
                  by Maturity At March 31, 2006****Interest
                  Earning Assets**
              
              **2006**
              
              **2007**
              
              **2008**
              
              **2009**
              
              **Thereafter**
              
              **Total**Investments
                  In Real Estate Loans
              
              $
              45,666,000
              
              $
              13,783,000
              
              $
              --
              
              $
              --
              
              $
              --
              
              $
              59,449,000Weighted
                  Average Interest Rates
              
              
              10.55%
              
              
              7.50%
              
              
              --%
              
              
              --%
              
              
              --%
              
              
              9.84%
 
 As
        of
        March 31, 2006, we had cash and investments in certificates of deposit and
        other
        short-term deposit accounts totaling $5 million. We anticipate that
        approximately 3% of our assets will be held in such accounts as cash reserves.
        Additional deposits in such accounts will be made as funds are received from
        the
        repayment of loans pending the reinvestment of such funds in new real estate
        loans or held for member redemptions. We believe that these financial assets
        do
        not give rise to significant interest rate risk due to their short-term
        nature.
  **ITEM
        4.**  **CONTROLSAND
        PROCEDURES**
 
 **Disclosure
        Controls and Procedures**
 
 Our
        Chief
        Executive Officer and Chief Financial Officer have reviewed and evaluated
        the
        effectiveness of the design and operation of our disclosure controls and
        procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e)
        and 15d-15(e)) as of March 31, 2006.
 
 Our
        Chief
        Executive Officer and Chief Financial Officer concluded that our disclosure
        controls and procedures as of the end of the period covered by this report
        were
        not effective as a result of material weaknesses in internal controls as
        of
        March 31, 2006 as discussed below.
 
 **Management’s
        Report on Internal Control Over Financial Reporting**
 
 Management
        is responsible for establishing and maintaining adequate internal control
        over
        financial reporting of our Company. Internal control over financial reporting
        is
        a process designed to provide reasonable assurance regarding the reliability
        of
        financial reporting and the preparation of financial statements for external
        purposes in accordance with accounting principles generally accepted in the
        United States of America.
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  Our
        Company’s internal control over financial reporting includes those policies and
        procedures that (i) pertain to the maintenance of records that, in reasonable
        detail, accurately and fairly reflect the transactions and dispositions of
        the
        assets of the Company; (ii) provide reasonable assurance that transactions
        are
        recorded as necessary to permit preparation of financial statements in
        accordance with accounting principles generally accepted in the United States
        of
        America, and that receipts and expenditures of our Company are being made
        only
        in accordance with authorizations of Management and Directors of our Company;
        and (iii) provide reasonable assurance regarding prevention or timely detection
        of unauthorized acquisition, use or disposition of our Company’s assets that
        could have a material effect on the financial statements.
 
 As
        defined by the Public Company Accounting Oversight Board’s Auditing Standard No.
        2, a material weakness is defined as a significant deficiency or combination
        of
        significant deficiencies, that results in more than a remote likelihood that
        a
        material misstatement of the annual or interim financial statements will
        not be
        prevented or detected. Management’s preliminary assessment concluded that we did
        not maintain effective internal control over financial reporting as of March
        31,
        2006. As a result of the assessment, we identified the following material
        weaknesses:
 
 ·
            The
                first material weakness identified insufficient resources of technical
                accounting and reporting expertise. This weakness relates to the
                oversight
                and review of financial transactions, which affects our ability to
                prepare
                and properly review financial statements and accompanying footnote
                disclosures in accordance with United States generally accepted accounting
                principles and the rules and regulations of the
                SEC. 
 ·
            As
                a result of the foregoing material weakness, there has been ineffective
                oversight of documentation of authorizations to ensure that procedures
                are
                properly executed. Specifically, we did not have backup documentation
                for
                some authorized payments made by our
                Company. 
 The
        foregoing material weaknesses resulted in revisions to the draft financial
        statement disclosures, but we believe our final financial statements and
        related
        disclosures were accurate in all material respects. In addition, our Manager
        and
        independent auditors together have determined that the identified material
        weaknesses did not result in inadequate or deficient financial reporting
        for
        prior periods and will not result in a restatement of any of our prior financial
        statements.
 
 **Remediation
        Plan**
 
 In
        addition to controls and procedures consistent with prior practices, our
        Manager
        is in the process of developing and implementing remediation plans. In order
        to
        remediate the aforementioned material weaknesses, our Manager has:
 
 ·
            Hired
                a Corporate Controller with the requisite experience to assist and
                work
                directly with our Manager’s Chief Financial
                Officer; 
 ·
            Hired
                an Accounting Manager with the requisite experience to assist and
                work
                directly with our Manager’s Corporate
                Controller; 
 ·
            Hired
                a Financial Reporting Analyst to assist with the financial reporting
                process and work directly with our Manager’s Corporate
                Controller; 
 ·
            Implemented
                a mandatory weekly management meeting for all key personnel. This
                allows
                for financial reporting personnel to be consistently updated on
                significant matters affecting the Company;
                and 
 ·
            Implemented
                a Financial Reporting Review Committee, which reviews all periodic
                financial reporting documents prior to
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  We
        believe that, for the reasons described above, we are continuing to improve
        our
        disclosure controls and procedures and remedy the identified material
        weaknesses. Because of the inherent limitations in all control systems, no
        evaluation of controls can provide absolute assurance that all control issues
        and instances of fraud, if any, will be or have been detected. These inherent
        limitations include the realities that judgments in decision-making can be
        faulty, and that breakdowns can occur because of simple error or mistake.
        Additionally, controls can be circumvented by the individual acts of some
        persons, by collusion of two or more people, or by management override of
        the
        control. The design of any system of controls also is based in part upon
        certain
        assumptions about the likelihood of future conditions; over time, control
        may
        become inadequate because of changes in conditions, or the degree of compliance
        with the policies or procedures may deteriorate. Because of the inherent
        limitation in a cost-effective control system, misstatements due to error
        or
        fraud may occur and not be detected.
 
 **Changes
        in Internal Control Over Financial Reporting**
 
 Except
        for our remediation changes to address the material weaknesses discussed
        above,
        no change in our internal control over financial reporting identified in
        connection with the evaluation required by paragraph (d) of Securities Exchange
        Act Rules 13a-15(f) or 15d-15(f) that occurred has materially affected, or
        is
        reasonably likely to materially affect, our internal control over financial
        reporting.
 
 **PART
        II - OTHER INFORMATION**
 
 **ITEM
        1.**  **LEGAL
        PROCEEDINGS**
 
 **Legal
        Matters Involving Our Manager**
 
 Our
        Manager is involved in a number of legal proceedings concerning matters arising
        in connection with the conduct of its business activities. The Manager believes
        it has meritorious defenses to each of these actions and intends to defend
        them
        vigorously. The Manager believes that it is not a party to any pending legal
        or
        arbitration proceedings that would have a material adverse effect on the
        Manager’s financial condition or results of operations or cash flows, although
        it is possible that the outcome of any such proceedings could have a material
        impact on the Manager’s net income in any particular period.
 
 **Legal
        Matters Involving the Company**
 
 Vestin
        Group, Vestin Mortgage, and Del Mar Mortgage, Inc., a company wholly owned
        by
        Michael V. Shustek, the sole shareholder and CEO of Vestin Group, are defendants
        in a civil action entitled Desert Land, LLC et al. v. Owens Financial Group,
        Inc. et al (the “Action”). The Action is based upon allegations that Del Mar
        Mortgage, Inc. and/or Vestin Mortgage charged unlawful fees on various loans
        arranged by them. Desert Land sought in excess of $10 million in monetary
        damages. On April 10, 2003, the United States District Court for the District
        of
        Nevada (the “Court”) entered judgment jointly and severally in favor of Desert
        Land against Vestin Group, Vestin Mortgage and Del Mar Mortgage, Inc. Judgment
        was predicated upon the Court’s finding that Del Mar Mortgage, Inc. received an
        unlawful penalty fee from the plaintiffs.
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  The
        defendants subsequently filed a motion for reconsideration. The Court denied
        the
        motion and, on August 13, 2003, held that Vestin Group, Vestin Mortgage,
        and Del Mar Mortgage, Inc. are jointly and severally liable for the judgment
        in
        the amount of $5,683,312 (which amount includes prejudgment interest and
        attorney’s fees). On August 27, 2003, the Court stayed execution of the judgment
        against Vestin Group and Vestin Mortgage based upon the posting of a bond
        in the
        amount of $5,830,000. Mr. Shustek personally posted a cash bond without any
        cost
        or obligation to Vestin Group and Vestin Mortgage. Additionally, Del Mar
        Mortgage, Inc. has indemnified Vestin Group and Vestin Mortgage for any losses
        and expenses in connection with the Action, and Mr. Shustek has guaranteed
        the
        indemnification with his cash bond. On September 12, 2003, all of the defendants
        held liable to Desert Land appealed the judgment to the United States Court
        of
        Appeals for the Ninth Circuit, which heard the case on October 18, 2005.
        On
        November 15, 2005, the Ninth Circuit vacated the judgment of the District
        Court
        and dismissed the state law claims against the defendants without prejudice
        on
        the basis that the District Court lacked subject matter jurisdiction in the
        case. On November 29, 2005, Desert Land petitioned the Ninth Circuit Court
        for
        rehearing with a suggestion that the matter be heard en banc. On December
        16,
        2005, the District Court issued an Order releasing the bond, and on January
        6,
        2006, the Ninth Circuit denied Desert Land’s petition and the matter remains
        dismissed.
 
 On
        November 21, 2005, Desert Land filed a complaint in the state courts of Nevada,
        which complaint is substantially similar to the original complaint previously
        filed by Desert Land in the United States District Court, with the exception
        of
        claiming Nevada State Law violations and seeking Nevada State Law remedies
        rather than claiming Federal Law violations and seeking Federal Law remedies.
        On
        March 6, 2006, Desert Land amended the state court complaint to name us as
        a
        defendant. Desert Land alleges that one or more of the defendants have
        transferred assets to other entities without receiving reasonable value
        therefore; alleges plaintiffs are informed and believe that defendants have
        made
        such transfers with the actual intent to hinder, delay or defraud Desert
        Land;
        that such transfers made the transferor insolvent and that sometime between
        February 27 and April 1, 2003, Vestin Group transferred $1.6 million to us
        for
        that very 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.
 
 Most
        recently, on or about April 6, 2006, Desert Land filed a Writ of Certiorari
        seeking review of the 9th Circuit’s decision by the United States Supreme Court.
        Vestin continues to believe that Desert Land’s claims are without merit and will
        vigorously oppose the Writ of Certiorari and defend against the state court
        complaint.
 
 The
        staff
        of the Pacific Regional Office of the United States Securities and Exchange
        Commission (SEC) conducted an investigation into certain matters related
        to us,
        Vestin Group, Vestin Capital, Fund II and Fund III. We have fully cooperated
        during the course of the investigation.
 
 The
        Staff
        has notified us, Fund II, Fund III, our Manager, Vestin Capital and Michael
        V.
        Shustek, the Principal Executive Officer of our Manager and Vestin Capital,
        or
        collectively the Vestin Entities, that they intend to seek authority to bring
        an
        enforcement proceeding against the Vestin Entities alleging violations of
        Section 17 (a) of the Securities Act of 1933, Section 10 (b) of the Securities
        Exchange Act of 1934 and Rule 10b-5 thereunder based upon certain sales
        practices employed for a period of time by the Vestin Entities. Specifically,
        the SEC Staff has advised that they believe certain slides used at sales
        seminars held to promote the sale of Fund II and Fund III units included
        disclosure regarding distributions to members of Fund I and Fund II that
        were
        misleading. The Vestin Entities are engaged in discussions with the Staff
        regarding the proposed recommendation and any remedies, which might be sought
        by
        the SEC Staff. Based upon these discussions, we currently believe that neither
        we nor Fund II and Fund III will be named as parties in the enforcement
        recommendation. These settlement negotiations are ongoing and, at this time,
        we
        do not know if a mutually acceptable settlement will be reached.
 
 On
        April
        21, 2006, through our Manager, we filed a complaint in the Circuit Court
        of the
        First Circuit in Hawaii to expedite our efforts to foreclose upon first trust
        deeds secured by the assets of Rightstar International, Inc. (the “Rightstar
        Trust Deeds”). In the filing, we allege that the State of Hawaii has
        unreasonably blocked the foreclosure without any legal basis for doing so.
        On
        April 24, 2006, the State of Hawaii responded by filing allegations against
        Vestin Mortgage, Inc., and Vestin Fund II, LLC alleging that these Vestin
        entities improperly influenced the former RightStar trustees to transfer
        trust
        funds to Vestin. We believes these claims to be without merit and intend
        to
        vigorously defend those allegations. The outcome of this litigation is
        unforeseeable at this time.
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  We
        are
        involved in a number of legal proceedings concerning matters arising in
        connection with the conduct of our business activities. We believe we have
        meritorious defenses to each of these actions and intend to defend them
        vigorously. We believe that we are not a party to any pending legal or
        arbitration proceedings that would have a material adverse effect on our
        financial condition or results of operations or cash flows, although it is
        possible that the outcome of any such proceedings could have a material impact
        on our net income in any particular period.
 
 **ITEM
        1A.**  **RISK
        FACTORS**
 
 In
        considering our future performance and any forward looking statements made
        in
        this report, the material risks described below should consider carefully.
        These
        factors should be considered in conjunction with the other information included
        elsewhere in this report.
 
 **RISKS
        RELATED TO OUR BUSINESS**
 
 **We
        will rely on our manager to manage our day-to-day operations and select our
        loans for investment.**
 
 Our
        ability to achieve our investment objectives and to make distributions depends
        upon our manager’s performance in obtaining, processing, making and brokering
        loans for us to invest in and determining the financing arrangements for
        borrowers. Shareholders have no opportunity to evaluate the financial
        information or creditworthiness of borrowers, the terms of mortgages, the
        real
        property that is our collateral or other economic or financial data concerning
        our loans. We pay our manager an annual management fee of up
 
 to
        0.25%
        based on total capital contributions made to us. This fee is payable regardless
        of the performance of our loan portfolio. Our manager has no fiduciary
        obligations to our stockholders, is not required to devote its employees
        full
        time to our business and may devote time to business interests competitive
        to
        our business.
 
 **Our
        manager’s lack of experience with certain real estate markets could impact its
        ability to make prudent investments on our behalf.**
 
 We
        invest
        in real estate loans throughout the areas in which our manager and its
        correspondents have experience, primarily Arizona, California, Hawaii, Nevada,
        New York and Texas. Depending on the market and on our company’s performance, we
        plan to expand our investments throughout the United States. However, our
        manager has limited experience outside of the Southwest. Real estate markets
        vary greatly from location to location and the rights of secured real estate
        lenders vary considerably from state to state. Our manager’s limited experience
        in most U.S. real estate markets may impact its ability to make prudent
        investment decisions on our behalf. Accordingly, where our manager deems
        it
        necessary, it plans to utilize independent real estate advisors and local
        legal
        counsel located in markets where it lacks experience for consultation prior
        to
        making investment decisions. Shareholders will not have an opportunity to
        evaluate the qualifications of such advisors and no assurance can be given
        that
        they will render prudent advice to our manager.
 
 **Our
        success depends on key personnel of our manager, the loss of whom could
        adversely affect our operating results, and on our manager’s ability to attract
        and retain qualified personnel.**
 
 Our
        success depends in part upon the continued contributions of certain key
        personnel of our manager, including Michael V. Shustek (Chief Executive Officer
        and President), John W. Alderfer (Chief Financial Officer) and Daniel B.
        Stubbs
        (Senior Vice President, Underwriting), some of whom would be difficult to
        replace because of their extensive experience in the field, extensive market
        contacts and familiarity with our company. If any of these key employees
        were to
        cease employment, our operating results could suffer. None of these individuals
        is subject to an employment, non-competition or confidentiality agreement
        with
        us or our manager, and we do not maintain “key man” life insurance policies on
        any of them. Our future success also depends in large part upon our manager’s
        ability to hire and retain additional highly skilled managerial, operational
        and
        marketing personnel. Our manager may require additional operations and marketing
        people who are experienced in obtaining, processing, making and brokering
        loans
        and who also have contacts in the relevant markets. Competition for personnel
        is
        intense, and we cannot be assured that we will be successful in attracting
        and
        retaining skilled personnel. If our manager were unable to attract and retain
        key personnel, the ability of our manager to make prudent investment decisions
        on our behalf may be impaired.
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  **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.
 
 We
        may
        borrow funds from several sources, and the terms of any indebtedness we incur
        may vary. However, some lenders may require as a condition of making a loan
        to
        us that the lender will receive a priority on loan repayments received by
        us. As
        a result, if we do not collect 100% on our investments, the first dollars
        may go
        to our lenders and we may incur a loss which will result in a decrease of
        the
        amount available for distribution. In addition, we may enter into securitization
        arrangements in order to raise additional funds. Such arrangements could
        increase our leverage and adversely affect our cash flow and our ability
        to make
        distributions.
 
 We
        may
        need cash to meet our minimum REIT distribution requirements and limit U.S.
        federal income taxation. Because we are required to distribute annually to
        our
        stockholders at least 90% of our REIT taxable income (determined without
        regard
        to the dividends paid deduction and by excluding net capital gains) to qualify
        as a REIT and because we intend to distribute substantially all of our REIT
        taxable income and net capital gain, our ability to expand our loan portfolio
        will depend in large part on external sources of capital. In addition, if
        our
        minimum distribution requirements to maintain our REIT status and minimize
        U.S.
        federal income taxation become large relative to our cash flow as a result
        of
        our taxable income exceeding our cash flow from operations, then we may be
        required to borrow funds or raise capital by selling assets to meet those
        distribution requirements. Any equity financing may result in substantial
        dilution to our stockholders, and any debt financing may include restrictive
        covenants. We may not be able to raise capital on reasonable terms, if at
        all.
 
 **Defaults
        on our real estate loans will decrease our revenues and distributions.**
 
 We
        are in
        the business of investing in real estate loans and, as such, we are subject
        to
        risk of defaults by borrowers. Our performance will be directly impacted
        by any
        defaults on the loans in our portfolio. As a non-conventional lender willing
        to
        invest in loans to borrowers who may not meet the credit standards of
        conventional lenders, the rate of default on our loans could be higher than
        those generally experienced in the real estate lending industry. Any sustained
        period of increased defaults could adversely affect our business, financial
        condition, liquidity and the results of our operations. We seek to mitigate
        the
        risk by estimating the value of the underlying collateral and insisting on
        low
        loan-to-value ratios. However, we cannot be assured that these efforts will
        fully protect us against losses on defaulted loans. Any subsequent decline
        in
        real estate values on defaulted loans could result in less security than
        anticipated at the time the loan was originally made, which may result in
        our
        not recovering the full amount of the loan. Any failure of a borrower to
        repay
        loans or interest on loans will reduce our revenues and distributions and
        the
        value of common stock. Our weighted average loan-to-value ratio as of March
        31,
        2006 was 71%. Our weighted average loan-to-value ratio for the nine month
        transition period ended June 30, 2005 and for the fiscal years ended September
        30, 2004, 2003 and 2002 was 64.6%, 68%, 60.6% and 54%, respectively. Our
        appraisals are generally dated within 12 months of the date of loan origination
        and may not reflect a decrease in the value of the real estate due to events
        subsequent to the date of the appraisals.
 
 As
        of
        March 31, 2006, we had in our portfolio approximately $12.3 million in
        delinquent loans, which includes loans in non-accrual status, and $2.5 million
        of real estate held for sale for a total of $14.8 million in non-performing
        assets, which represented approximately 22.7% of our total capital. As of
        March
        31, 2006, we also had $8.8 million of seller financed real estate held for
        sale
        and had received approximately $0.9 million in payments from borrowers on
        the
        loans associated with these properties. We had as of March 31, 2006 and 2005,
        delinquent loans of $12.3 million, $8.0 million, respectively, which represented
        approximately 19.0%, 9.0, respectively, of our total capital. We do not believe
        that a rising interest rate environment will increase or accelerate our
        delinquency rate because all of our loans are short term, with fixed interest
        rates.
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  **Our
        underwriting standards and procedures are more lenient than conventional
        lenders, which may result in a higher level of non-performing assets and
        less
        amounts available for distribution.**
 
 Our
        underwriting standards and procedures are more lenient than conventional
        lenders
        in that we will invest in loans to borrowers who may not be required to meet
        the
        credit standards of conventional real estate lenders, which may lead to greater
        non-performing assets in our loan portfolio and create additional risks of
        return. We approve real estate loans more quickly than other lenders. We
        rely
        heavily on third-party reports and information such as appraisals and
        environmental reports. Because of our accelerated due diligence process,
        we may
        accept documentation that was not specifically prepared for us or commissioned
        by us. This creates a greater risk of the information contained therein being
        out of date or incorrect. Generally, we will not spend more than 20 days
        assessing the character and credit history of our borrowers. Due to the nature
        of loan approvals, there is a risk that the credit inquiry we perform will
        not
        reveal all material facts pertaining to the borrower and the security. There
        may
        be a greater risk of default by our borrowers, which may impair our ability
        to
        make timely distributions and which may reduce the amount we have available
        to
        distribute.
 
 **We
        depend upon our real estate security to secure our real estate loans, and
        we may
        suffer a loss if the value of the underlying property
        declines.**
 
 We
        depend
        upon our real estate security to protect us on the loans that we make. We
        depend
        upon the skill of independent appraisers to value the security underlying
        our
        loans. However, notwithstanding the experience of the appraisers, they may
        make
        mistakes, or the value of the real estate may decrease due to subsequent
        events.
        Our appraisals are generally dated within 12 months of the date of loan
        origination and may have been commissioned by the borrower. Therefore, the
        appraisals may not reflect a decrease in the value of the real estate due
        to
        events subsequent to the date of the appraisals. In addition, most of the
        appraisals are prepared on an as-if developed basis, which approximates the
        post-construction value of the collateralized property assuming such property
        is
        developed. As-if developed values on raw land loans or acquisition and
        development loans often dramatically exceed the immediate sales value and
        may
        include anticipated zoning changes, selection by a purchaser against multiple
        alternatives and successful development by the purchaser, upon which development
        is dependent on availability of financing. As most of the appraisals will
        be
        prepared on an as-if developed basis, if 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, 2006, all but one of our loans required balloon payments
        at the
        end of their terms. Loans with balloon payments are riskier than loans with
        even
        payments of principal over an extended time period like 15 or 30 years because
        the borrower’s repayment depends on its ability to sell the property profitably,
        obtain suitable refinancing or otherwise raise a substantial amount of cash
        when
        the loan comes due. There are no specific criteria used in evaluating the
        credit
        quality of borrowers for loans requiring balloon payments. Furthermore, a
        substantial period of time may elapse between the review of the financial
        statements of the borrower and the date when the balloon payment is due.
        As a
        result, there is no assurance that a borrower will have sufficient resources
        to
        make a balloon payment when due.
 
 **Our
        loans are not guaranteed by any governmental agency.**
 
 Our
        loans
        are not insured or guaranteed by a federally owned or guaranteed mortgage
        agency. Consequently, our recourse if there is a default may only be to
        foreclose upon the real property securing a loan. The value of the foreclosed
        property may have decreased and may not be equal to the amount outstanding
        under
        the corresponding loan, resulting in a decrease of the amount available to
        distribute.
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  **Our
        real estate loans will not be marketable, and we expect no secondary market
        to
        develop.**
 
 We
        do not
        expect our real estate loans to be marketable, and we do not expect a secondary
        market to develop for them. As a result, we will generally bear all the risk
        of
        our investment until the loans mature. This will limit our ability to hedge
        our
        risk in changing real estate markets and may result in reduced returns to
        our
        investors.
 
 **We
        may have difficulty protecting our rights as a secured lender.**
 
 We
        believe that our loan documents will enable us to enforce our commercial
        arrangements with borrowers. However, the rights of borrowers and other secured
        lenders may limit our practical realization of those benefits. For
        example:
 
 ·
            Judicial
                foreclosure is subject to the delays of protracted litigation. Although
                we
                expect non-judicial foreclosure to be quicker, our collateral may
                deteriorate and decrease in value during any delay in foreclosing
                on
                it; 
 ·
            The
                borrower’s right of redemption during foreclosure proceedings can deter
                the sale of our collateral and can for practical purposes require
                us to
                manage the property; 
 ·
            Unforeseen
                environmental hazards may subject us to unexpected liability and
                procedural delays in exercising our
                rights; 
 ·
            The
                rights of senior or junior secured parties in the same property can
                create
                procedural hurdles for us when we foreclose on
                collateral; 
 ·
            We
                may not be able to pursue deficiency judgments after we foreclose
                on
                collateral; and 
 ·
            State
                and federal bankruptcy laws can prevent us from pursuing any actions,
                regardless of the progress in any of these suits or
                proceedings. 
 **By
        becoming the owner of property, we may incur additional obligations, which
        may
        reduce the amount of funds available for distribution.**
 
 We
        intend
        to own real property only if we foreclose on a defaulted loan and purchase
        the
        property at the foreclosure sale. Acquiring a property at a foreclosure sale
        may
        involve significant costs. If we foreclose on the security property, we expect
        to obtain the services of a real estate broker and pay the broker’s commission
        in connection with the sale of the property. We may incur substantial legal
        fees
        and court costs in acquiring a property through contested foreclosure and/or
        bankruptcy proceedings. In addition, significant expenditures, including
        property taxes, maintenance costs, mortgage payments, insurance costs and
        related charges, must be made on any property we own regardless of whether
        the
        property is producing any income.
 
 Under
        applicable environmental laws, any owner of real property may be fully liable
        for the costs involved in cleaning up any contamination by materials hazardous
        to the environment. Even though we might be entitled to indemnification from
        the
        person that caused the contamination, there is no assurance that the responsible
        person would be able to indemnify us to the full extent of our liability.
        Furthermore, we would still have court and administrative expenses for which
        we
        may not be entitled to indemnification.
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  **We
        have identified material weaknesses in internal control over our financial
        reporting, primarily related to the lack of technical accounting and reporting
        expertise. Our inability to provide such expertise may result in inadequate
        or
        deficient financial reporting.**
 
 We
        are
        responsible for establishing and maintaining adequate internal control over
        financial reporting of our company. Internal control over financial reporting
        is
        a process designed to provide reasonable assurance regarding the reliability
        of
        financial reporting and the preparation of financial statements for external
        purposes in accordance with generally accepted accounting principles. Our
        internal control over financial reporting includes those policies and procedures
        that (i) pertain to the maintenance of records that, in reasonable detail,
        accurately and fairly reflect the transactions and dispositions of our assets;
        (ii) provide reasonable assurance that transactions are recorded as necessary
        to
        permit preparation of financial statements in accordance with generally accepted
        accounting principles, and that receipts and expenditures of our company
        are
        being made only in accordance with authorizations of management and directors
        of
        our company; and (iii) provide reasonable assurance regarding prevention
        or
        timely detection of unauthorized acquisition, use or disposition of our
        company’s assets that could have a material effect on our financial
        statements.
 
 We
        conducted an evaluation of the design and effectiveness of internal control
        over
        financial reporting using the criteria established in Internal Control —
Integrated Framework issued by the Committee of Sponsoring Organizations
        of the
        Treadway Commission. Based on this evaluation, we concluded that our internal
        control over financial reporting was not effective as of March 31, 2006.
        We
        identified internal control deficiencies that represented material weaknesses
        in
        internal control over the financial statement close process. The control
        deficiencies related to our manager’s limited resources and internal level of
        technical accounting and reporting expertise. These deficiencies have resulted
        in ineffective oversight of documentation of authorizations to ensure that
        procedures are properly executed. Specifically, we did not have backup
        documentation for some authorized payments made by our company. These material
        weaknesses affect our ability to prepare and properly review interim and
        annual
        financial statements and accompanying footnote disclosures in accordance
        with
        generally accepted accounting principles and the rules and regulations of
        the
        SEC. A material weakness in internal controls is a significant deficiency,
        or
        combination of significant deficiencies, that results in more than a remote
        likelihood that a material misstatement of the financial statements would
        not be
        prevented or detected on a timely basis. The foregoing material weaknesses
        resulted in revisions to our draft financial statements, but we believe our
        final financial statements and related disclosures were accurate in all material
        respects. Our manager and independent auditors together have determined that
        the
        identified material weaknesses in internal controls did not result in inadequate
        or deficient financial reporting for prior periods and will not result in
        a
        restatement of any of our prior financial statements. As we have not completed
        the testing and evaluation of our internal control over financial reporting,
        it
        is possible that additional deficiencies could be determined to be individually
        or in aggregate a material weakness.
 
 In
        order
        to address and correct the deficiencies identified above, our corrective
        actions
        include: (i) pursue and hire the appropriate amount of highly qualified
        personnel to perform the internal function of the preparation and review
        of our
        interim and annual reports; (ii) increase training and strengthen the expertise
        in accounting, internal controls over financial reporting for employees in
        critical accounting and financial reporting positions; (iii) where appropriate,
        replacing and/or adding experienced personnel to the accounting and financial
        reporting functions to review and monitor transactions, accounting processes
        and
        control activities more effectively; and (iv) implemented a financial reporting
        review committee, which meets prior to filing any periodic financial reporting
        document. Any additional employees will be hired by, and be employees of,
        our
        manager. While our manager is recruiting experienced, skilled finance
        professionals, we cannot anticipate when our staffing initiative will be
        completed and therefore cannot anticipate when the material weaknesses relating
        to our financial close process will be remediated. Our manager’s inability to
        hire skilled finance professionals may result in inadequate or deficient
        financial reporting.
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  **A
        prolonged economic slowdown, lengthy or severe recession or significant increase
        in interest rates could harm our business.**
 
 The
        risks
        associated with our business are more acute during periods of economic slowdown
        or recession because these periods can be accompanied by decreased demand
        for
        consumer credit and declining real estate values. As a non-conventional lender
        willing to invest riskier loans, rates of delinquencies, foreclosures and
        losses
        on our loans could be higher than those generally experienced in the mortgage
        lending industry during periods of economic slowdown or recession. In addition,
        declining real estate values negatively affect loan-to-value ratios of home
        equity collateral, which reduces the ability for borrowers to use home equity
        to
        support borrowings and is likely to result in a decrease in our level of
        new
        loan originations. 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 nine months ended March 31, 2006, loan originations accounted
        for all but one loan funded during that period as there was one loan refinance
        during the period. For the nine month transition period ended June 30, 2005,
        loan originations and loan refinances accounted for approximately 96% and
        4%,
        respectively, of all loans funded during that period. For the fiscal year
        ended
        September 30, 2004, loan originations and loan refinances accounted for
        approximately 87% and 13%, respectively, of all loans funded during that
        period.
        Any sustained period of increased delinquencies, foreclosures or losses or
        a
        significant increase in interest rates could adversely affect our ability
        to
        originate, purchase and securitize loans, which could significantly harm
        our
        business, financial condition, liquidity and results of operations.
 
 **Our
        results are subject to fluctuations in interest rates and other economic
        conditions.**
 
 As
        of
        March 31, 2006, none of our loans had a prepayment penalty and only one loan
        had
        an exit fee. Based on our manager’s historical experience, we expect that at
        least 90% of our loans will continue to not have a prepayment penalty. Should
        interest rates decrease, our borrowers may prepay their outstanding loans
        with
        us in order to receive a more favorable rate. This may reduce the amount
        of
        funds we have available to distribute.
 
 Our
        results of operations will vary with changes in interest rates and with the
        performance of the relevant real estate markets. If the economy is healthy,
        we
        expect that more people will be borrowing money to acquire, develop or renovate
        real property. However, if the economy grows too fast, interest rates may
        increase too much and the cost of borrowing may become too expensive.
        Alternatively, if the economy enters a recession, real estate development
        may
        slow. A slowdown in real estate lending may mean we will have fewer loans
        to
        acquire, thus reducing our revenues and the distributions.
 
 One
        of
        the results of interest rate fluctuations is that borrowers may seek to extend
        their low-interest-rate loans after market interest rates have increased.
        This
        creates two risks for us:
 
 ·
            There
                is no assurance that this permitted rate increase will be adequate
                if
                interest rates have increased beyond the range contemplated by our
                loan
                documents. If interest rates rise, borrowers under loans with monthly
                or
                quarterly principal payments may be compelled to extend their loans
                to
                decrease the principal paid with each payment because the interest
                component has increased. If this happens, we are likely to be at
                a greater
                risk of the borrower defaulting on the extended loan, and the increase
                in
                the interest rate on our loan may not be adequate compensation for
                the
                increased risk. Additionally, any fees paid to extend the loan are
                paid to
                our manager, not to us . Our revenues and distributions will decline
                if we
                are unable to reinvest at higher rates or if an increasing number
                of
                borrowers default on their loans; and 
 ·
            If,
                at a time of relatively low interest rates, a borrower should prepay
                obligations that have a higher interest rate from an earlier period,
                we
                will likely not be able to reinvest the funds in mortgage loans earning
                that higher rate of interest. In the absence of a prepayment fee,
                we will
                receive neither the anticipated revenue stream at the higher rate
                nor any
                compensation for its loss. This is a risk if the loans we invest
                in do not
                have prepayment penalties or exit fees. 
 Our
        results will also reflect other economic conditions, such as a particular
        industry migrating to or from one of the states into which we make
        loans.
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  **We
        face competition for real estate loans that may reduce available yields and
        fees
        available.**
 
 Our
        competitors consist primarily of conventional real estate lenders and real
        estate loan investors, including commercial banks, insurance companies, mortgage
        brokers, pension funds and other institutional lenders. Many of the companies
        against which we and our manager compete have substantially greater financial,
        technical and other resources than either our company or our manager. If
        our
        competition decreases interest rates on their loans or makes funds more easily
        accessible, yields on our loans could decrease and the costs associated with
        making loans could increase, both of which would reduce our revenues and
        the
        distributions.
 
 **Vestin
        Mortgage serves as our manager pursuant to a long-term management agreement
        that
        may be difficult to terminate and may not reflect arm’s length
        negotiations.**
 
 We
        have
        entered into a long-term management agreement with Vestin Mortgage to act
        as our
        manager. The management agreement will continue in force for the duration
        of our
        existence. The management agreement may only be terminated upon the affirmative
        vote of a majority in interest of stockholders entitled to vote on the matter
        or
        by our board of directors for cause upon 90 days’ written notice of termination.
        Consequently, it may be difficult to terminate our management agreement and
        replace our manager in the event that our performance does not meet expectations
        or for other reasons unless the conditions for termination of the management
        agreement are satisfied. The management agreement was negotiated by related
        parties and may not reflect terms as favorable as those subject to arm’s length
        bargaining.
 
 **Our
        manager will face conflicts of interest concerning the allocation of its
        personnel’s time.**
 
 Our
        manager is also the manager of Fund II, Fund III and inVestin Nevada, funds
        with
        investment objectives similar to ours. Our manager and Mr. Shustek, who
        indirectly owns 100% of our manager, anticipate that they will also sponsor
        other real estate programs having investment objectives similar to ours.
        As a
        result, our manager and Mr. Shustek may have conflicts of interest in allocating
        their time and resources between our business and other activities. During
        times
        of intense activity in other programs and ventures, our manager and its key
        people will likely devote less time and resources to our business than they
        ordinarily would. Our management agreement with our manager does not specify
        a
        minimum amount of time and attention that our manager and its key people
        are
        required to devote to our company. Thus, our manager may not spend sufficient
        time managing our operations, which could result in our not meeting our
        investment objectives.
 
 **Our
        manager will face conflicts of interest arising from our fee
        structure.**
 
 Our
        manager will receive substantial fees from borrowers for transactions involving
        real estate loans. Many of these fees are paid on an up-front basis. In some
        cases, our manager is entitled to additional fees for loan extensions or
        modifications and loan assumptions and reconveyances. These and other fees
        are
        quantified and described in greater detail under “Management Agreement —
Compensation.” Our manager’s compensation is based on the volume and size of the
        real estate loans selected for us, regardless of their performance, which
        could
        create an incentive to make or extend riskier loans. Our interests may diverge
        from those of our manager and Mr. Shustek to the extent that our manager
        benefits from up-front fees which are not shared with us.
 
 Our
        manager will be receiving fees from borrowers that would otherwise increase
        our
        returns. Because our manager receives all of these fees, our interests will
        diverge from those of our manager and Mr. Shustek when our manager decides
        whether we should charge the borrower higher interest rates or our manager
        should receive higher fees from borrowers.
 
 Fund
        I
        paid Vestin Mortgage a total of approximately $207,000 for the nine months
        ended
        March 31, 2006 and approximately $201,000 and $255,000 for the nine month
        transition period ended June 30, 2005 and the year ended September 30, 2004,
        respectively, for managing Fund I. In addition, Vestin Mortgage was paid
        a total
        of approximately $3.0 million, $14.3 million and $19.5million in fees directly
        from borrowers for the three months ended March 31, 2006 and the years ended
        December 31, 2005 and 2004, respectively. The total amount paid to Vestin
        Mortgage represents fees earned by Vestin Mortgage for loans originated for
        all
        of its managed funds, including Fund I, Fund II, Fund III and inVestin Nevada.
        Fund I represented approximately 14.9% of the funds managed by Vestin Mortgage
        as of March 31, 2006.
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  **Our
        manager will face conflicts of interest relating to other investments in
        real
        estate loans.**
 
 We
        expect
        to invest in real estate loans when one or more other companies managed by
        our
        manager are also investing in real estate loans. There is a risk that our
        manager may select for us a real estate loan investment that provides lower
        returns than a real estate loan investment purchased by another program or
        entity managed by our manager. Our manager also serves as the manager for
        Fund
        II, Fund III and inVestin Nevada, which has the same investment objectives
        as
        our company. There are no restrictions or guidelines on how our manager will
        determine which loans are appropriate for us and which are appropriate for
        Fund
        II, Fund III, inVestin Nevada or another company which our manager manages.
        Moreover, our manager has no obligation to provide us with any particular
        opportunities or even a pro rata share of opportunities afforded to other
        companies it manages.
 
 **UNITED
        STATES FEDERAL INCOME TAX RISKS RELATING TO OUR REIT
        QUALIFICATION**
 
 **Our
        failure to qualify as a REIT would subject us to U.S. federal income tax,
        which
        would reduce amounts available for distribution our to 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 capital gain for individuals was reduced to 15% until 2008. However,
        this
        reduced rate of tax on distributions generally will not apply to Vestin Realty
        Mortgage’s distributions (except those distributions identified by the company
        as “capital gain dividends” which are taxable as long-term capital gain) and
        therefore such distributions generally will be taxed as ordinary income.
        Ordinary income generally is subject to U.S. federal income tax rate of 35%
        for
        individuals. The higher tax rate on distributions of Vestin Realty Mortgage
        I
        may cause the market to devalue Vestin Realty Mortgage I common stock relative
        to stock of those corporations whose distributions qualify for the lower
        rate of
        taxation. Please note that, as a general matter, distributions from a REIT
        will
        be taxed at the same rate as shareholders’ share of Fund I’s taxable income
        attributable to its realized net interest income.
 
 **A
        portion of our business is potentially subject to prohibited transactions
        tax.**
 
 As
        a
        REIT, we are subject to a 100% tax on our net income from “prohibited
        transactions.” In general, prohibited transactions are sales or other
        dispositions of property to customers in the ordinary course of business.
        Sales
        by us of property in the course of our business will generally constitute
        prohibited transactions.
 
 We
        intend
        to avoid the 100% prohibited transactions tax on property foreclosed upon
        by
        Fund I prior to the REIT conversion by holding and selling such properties
        through one or more wholly-owned taxable REIT subsidiaries. However, under
        the
        Code, no more than 20% of the value of the assets of a REIT may be represented
        by securities of one or more taxable REIT subsidiaries and a taxable REIT
        subsidiary generally cannot operate a lodging or health care
        facility.
 -
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  As
        of
        March 31, 2006, we held one property with a total carrying value of
        approximately $2.5 million, which was acquired through foreclosure and recorded
        as investments in real estate held for sale. As of March 31, 2006, we also
        held
        interests in two properties with a total carrying value of approximately
        $8.8
        million, which were sold in transactions in which we or an affiliate provided
        the financing and which were recorded as seller financed real estate held
        for
        sale. GAAP requires us to include these properties in real estate held for
        sale
        until the borrower has met and maintained a certain percentage of equity
        ownership. The real estate held for sale and the seller financed real estate
        held for sale collectively constituted approximately 17.4% of our assets
        as of
        March 31, 2006. In addition, both of the seller financed real estate held
        for
        sale properties are assisted living facilities, which cannot be operated
        by a
        taxable REIT subsidiary.
 
 **Taxable
        REIT subsidiaries are subject to corporate-level tax, which may devalue Vestin
        Realty Mortgage I’s common stock relative to other companies.**
 
 Taxable
        REIT subsidiaries are corporations subject to corporate-level tax. Vestin
        Realty
        Mortgage I’s use of taxable REIT subsidiaries may cause the market to value its
        common stock lower than the stock of other publicly traded REITs which may
        not
        use taxable REIT subsidiaries and lower than the equity of mortgage pools
        taxable as non-publicly traded partnerships such as Fund I’s intended
        qualification prior to the REIT conversion, which generally are not subject
        to
        any U.S. federal income taxation on their income and gain.
 
 **Our
        use of taxable REIT subsidiaries may have adverse U.S. federal income tax
        consequences.**
 
 We
        must
        comply with various tests to continue to qualify as a REIT for U.S. federal
        income tax purposes, and our income from and investments in taxable REIT
        subsidiaries generally do not constitute permissible income and investments
        for
        purposes of the REIT qualification tests. While we will attempt to ensure
        that
        our dealings with our taxable REIT subsidiaries will not adversely affect
        our
        REIT qualification, we cannot be assured that we will successfully achieve
        that
        result. Furthermore, we may be subject to a 100% penalty tax, or our taxable
        REIT subsidiaries may be denied deductions, to the extent our dealings with
        our
        taxable REIT subsidiaries are not deemed to be arm’s length in
        nature.
 
 **We
        may endanger our REIT status if the distributions we receive from our taxable
        REIT subsidiaries exceed applicable REIT gross income
        tests.**
 
 The
        annual gross income tests that must be satisfied to ensure REIT qualification
        may limit the amount of distributions that we can receive from our taxable
        REIT
        subsidiaries and still maintain our REIT status. Generally, not more than
        25% of
        our gross income can be derived from non-real estate related sources, such
        as
        distributions from a taxable REIT subsidiary. If, for any taxable year, the
        distributions we received from our taxable REIT subsidiaries, when added
        to our
        other items of non-real estate related income, represent more than 25% of
        our
        total gross income for the year, we could be denied REIT status, unless we
        were
        able to demonstrate, among other things, that our failure of the gross income
        test was due to reasonable cause and not willful neglect.
 
 **We
        may lose our REIT status if we issue shares under our stockholders’ rights
        plan.**
 
 Under
        Section 562(c) of the Code, a REIT generally cannot make a distribution unless
        the distribution is pro rata, with no preference to any share of stock as
        compared to other shares of the same class of stock. A REIT that is not in
        compliance with this requirement may lose its REIT status. Under our
        stockholders’ rights plan, upon certain events, some holders of our common stock
        and not others will have the right to acquire shares of Series A preferred
        stock. When effective, this right could be treated as a deemed distribution
        to
        those holders of our common stock entitled to the right with no distribution
        to
        other such holders. Thus, this right, when effective, could be treated as
        a
        distribution which is not consistent with the requirements of Section 562(c)
        of
        the Code, which could result in the loss of our REIT qualification.
 -
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  **RISK
        OF OWNERSHIP OF OUR COMMON STOCK**
 
 **The
        market price and trading volume of our common stock may be volatile following
        commencement of trading.**
 
 The
        market price of our common stock may be highly volatile and be subject to
        wide
        fluctuations. In addition, the trading volume in our common stock may fluctuate
        and cause significant price variations to occur. Given the fact that Fund
        I
        currently has fully-subscribed redemption obligations through 2018, there
        may be
        significant initial downward pressure on the market price of our common stock
        after trading commences as stockholders liquidate their investment in our
        company. As of March 31, 2006, approximately 573 unitholders, representing
        approximately 52.0% of all unitholders, had requested redemption and requests
        to
        redeem units totaling approximately $49 million, representing approximately
        78.3% of Fund I’s total capital, were outstanding. 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
        distribution yield on our common stock (as a percentage of the price of our
        common stock) relative to market interest rates. Thus, an increase in market
        interest rates may lead prospective purchasers of our common stock to expect
        a
        higher distribution yield, which would adversely affect the market price
        of our
        common stock.
 
 **We
        are the subject of a pending SEC investigation which may depress the price
        of
        our stock.**
 
 The
        Staff
        of the SEC conducted an investigation of Fund I as well as Fund II, Fund
        III,
        Vestin Mortgage, Vestin Capital and Vestin Group. The Staff has notified
        us,
        Fund II, Fund III, our manager, Vestin Capital and Michael Shustek, the
        principal executive officer of our manager and Vestin Capital, or collectively
        the Vestin Entities, that they intend to seek authority to bring an enforcement
        proceeding against the Vestin Entities alleging violations of Section 17(a)
        of
        the Securities Act of 1933, Section 10(b) of the Securities Exchange Act
        of 1934
        and Rule 10b-5 thereunder based upon certain sales practices employed for
        a
        period of time by the Vestin Entities. Specifically, the Staff has advised
        that
        they believe certain slides used at sales seminars held to promote the sale
        of
        Fund II and Fund III units included disclosure regarding distributions to
        shareholders of Fund I and Fund II that were misleading. The Vestin Entities
        are
        engaged in discussions with the Staff regarding the proposed recommendation
        and
        any remedies that might be sought by the Staff. Based upon these discussions,
        we
        currently believe that neither we nor Fund II nor Fund III will be named
        as
        parties in any enforcement recommendation. These settlement negotiations
        are
        ongoing and, at this time, we do not know if a mutually acceptable settlement
        will be reached.
 -
            55
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  We
        believe that this investigation has harmed our business by causing certain
        potential borrowers, co-lenders and others to decline to do business with
        us. As
        a result, our operating results have suffered and may continue to suffer
        in the
        future. Moreover, the terms of any settlement or any allegations of misconduct
        which might be filed if a settlement cannot be reached could further impair
        our
        ability to conduct our business. Any remedies that the SEC may seek could
        prove
        disruptive to our business. Concerns regarding these uncertainties may depress
        our stock price while this matter is pending. The nature of any charges made
        by
        the SEC or remedies sought by the SEC may cause further harm to the market’s
        perception of our future performance and could cause our stock price to
        decline.
 
 **Our
        charter documents and Maryland law contain provisions that may delay, defer
        or
        prevent a change of control transaction.**
 
 Our
        charter and bylaws and Maryland corporate law contain a number of provisions
        (as
        further described under “Material Provisions of Maryland Law and of our Charter
        and Bylaws” and “Comparison of Rights of Unitholders of Fund I and Stockholders
        of Vestin Realty Trust”) 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 specified percentage
                of the
                number or value, whichever is more restrictive, of the outstanding
                shares
                of our stock. In particular, no person may 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.  -
            56
            -
 *Table
            of Contents*
 
 ·
            *Duties
                of directors with respect to unsolicited takeovers*.
                Under Maryland law, a director is required to perform his or her
                duties
                (a) in good faith, (b) in a manner he or she believes to be in the
                best
                interests of the corporation and (c) with the care that an ordinarily
                prudent person in a like position would use under similar circumstances.
                Maryland law provides protection for Maryland corporations against
                unsolicited takeovers by, among other things, retaining the same
                standard
                of care in the performance of the duties of directors in unsolicited
                takeover situations. The duties of directors of Maryland corporations
                do
                not require them to (a) accept, recommend or respond to any proposal
                by a
                person seeking to acquire control of the corporation, (b) authorize
                the
                corporation to redeem any rights under, or modify or render inapplicable,
                any stockholders rights plan, (c) make a determination under Maryland
                Business Combination Act or Maryland Control Share Acquisition Act
                or (d)
                act or fail to act solely because of the effect of the act or failure
                to
                act may have on an acquisition or potential acquisition of control
                of the
                corporation or the amount or type of consideration that may be offered
                or
                paid to the stockholders in an acquisition. Moreover, under Maryland
                law
                the act of the directors of a Maryland corporation relating to or
                affecting an acquisition or potential acquisition of control is not
                subject to any higher duty or greater scrutiny than is applied to
                any
                other act of a director. Maryland law also contains a statutory
                presumption that an act of a director of a Maryland corporation satisfies
                the applicable standards of conduct for directors under Maryland
                law. 
 ·
            *Maryland
                General Corporation Law*.
                Certain provisions of the MGCL may have the effect of inhibiting
                a third
                party from making a proposal to acquire us or of impeding a change
                of
                control under circumstances that otherwise could provide the holders
                of
                shares of our common stock with the opportunity to realize a premium
                over
                the then-prevailing market price of such shares, including: 
 ·
            “business
                combination” provisions that, subject to limitations, prohibit certain
                business combinations between us and an “interested stockholder” (defined
                generally as any person who beneficially owns 10% or more of the
                voting
                power of our shares or an affiliate or associate of ours who, at
                any time
                within the two-year period prior to the date in question, was the
                beneficial owner of 10% or more of our then outstanding voting shares)
                or
                an affiliate thereof for five years after the most recent date on
                which
                the stockholder becomes an interested stockholder, and thereafter
                imposes
                special appraisal rights and special stockholder voting requirements
                on
                these combinations; and 
 ·
            “control
                share” provisions that provide that “control shares” of our company
                (defined as shares which, when aggregated with other shares controlled
                by
                the stockholder, entitle the stockholder to exercise one of three
                increasing ranges of voting power in electing directors) acquired
                in a
                “control share acquisition” (defined as the direct or indirect acquisition
                of ownership or control of “control shares”) have no voting rights except
                to the extent approved by our stockholders by the affirmative vote
                of at
                least two-thirds of all the votes entitled to be cast on the matter,
                excluding all interested shares. 
 We
        have
        opted out of the control share provisions of the MGCL pursuant to a provision
        in
        our bylaws. However, our board of directors may by amendment to our bylaws
        opt
        in to the control share provisions of the MGCL in the future.
 
 ·
            *Advance
                notice of director nominations and stockholder proposals*.
                Our bylaws impose certain advance notice requirements that must be
                met for
                nominations of persons for election to the board of directors and
                the
                proposal of business to be considered by
                stockholders. 
 **Our
        rights and the rights of our stockholders to take action against our directors
        and officers are limited.**
 
 Maryland
        law provides that a director has no liability in that capacity if he or she
        performs his or her duties in good faith, in a manner he or she reasonably
        believes to be in our best interests and with the care that an ordinarily
        prudent person in a like position would use under similar circumstances.
        Our
        charter limits the liability of our directors and officers to us and our
        stockholders for money damages, except for liability resulting
        from:
 -
            57
            -
 *Table
            of Contents*
 
 ·
            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, shareholders’
ability to recover damages from such director or officer will be
        limited.
 
 **ITEM
        2.**  **UNREGISTEREDSALES
        OF EQUITY AND USE OF
        PROCEEDS**
 
 **Market
        Information**
 
 There
        was
        no established public trading market for the trading of Fund I Units. The
        Registrant’s shares have been approved for listing on the Nasdaq National Market
        under the symbol VRTA. Trading on Nasdaq is expected to commence on or about
        June 1, 2006.
 
 **Holders**
 
 As
        of
        March 31, 2006, 1,101 accounts held 6,864,477 Units of interest in the Company.
 
 **Distribution
        Policy**
 
 Fund
        I
        generally distributed to Unit holders on a monthly basis most of its Net
        Income
        Available for Distribution (as defined in its Operating Agreement). Net Income
        Available for Distribution is based upon cash flow from operations, less
        certain
        reserves, and may exceed net income as calculated in accordance with accounting
        principles generally accepted in the United States (“GAAP”). Fund I’s Operating
        Agreement also permitted distributions of capital. Fund I made distributions
        of
        approximately $3,413,000 (prior to reinvested distributions) during the nine
        months ended March 31, 2006, all of which were paid from Net Income Available
        for Distribution.
 
 In
        order
        to maintain its qualification as a REIT under the Code, we are required to
        distribute (within a certain period after the end of each year) at least
        90% of
        our REIT taxable income for such year (determined without regard to the
        distributions made deduction and by excluding net capital gain). We currently
        intend, to the extent practicable, to distribute substantially all of our
        REIT
        taxable income and net capital gain each year, consistent with Fund I’s practice
        of distributing all of its net income available for distribution. We may
        distribute an amount in excess of our REIT taxable income, which amount will
        be
        treated as a return of capital to the shareholder. We anticipate that
        distributions will be paid during January, April, July and October of each
        year
        for the preceding quarter. We anticipate that distributions generally will
        be
        paid from cash available for distribution (generally equal to cash from
        operations (other than repayments of mortgage loan principal) less an amount
        set
        aside for creation or restoration of reserves during the quarter). However,
        the
        actual amount and timing of the dividends will be as determined and declared
        by
        our board of directors of and will depend on our financial condition, earnings
        and other factors.
 
 **Recent
        Sales of Unregistered Securities**
 
 None.
 
 **Equity
        Compensation Plan Information**
 
 None.
  -
            58
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 *Table
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  **Purchases
        of Equity Securities by the Issuer and Affiliated
        Purchasers**
 
 **Period**
              
              **Total
                  Number of Units Purchased (1)**
              
              **Average
                  Price Paid per Unit**
              
              **Total
                  Number of Units Purchased as Part of Publicly Announced Plans or
                  Programs**
              
              **Maximum
                  Number (or Approximate Dollar Value) of Units that May Yet be Purchased
                  under the Plans or Programs**January
                  2006
              
              
              849,234
              
              $
              9.75
              
              
              None
              
              
              NoneFebruary
                  2006
              
              
              --
              
              
              --
              
              
              None
              
              
              NoneMarch
                  2006
              
              
              --
              
              
              --
              
              
              None
              
              
              None
 
 (1)
            In
                January 2006, we redeemed approximately $6.4 million of Shareholders’
                capital. Due to our subsequent merger into Vestin Realty Mortgage
                I, Inc.
                on May 1, 2006, we will no longer redeem units since all units have
                been
                converted into shares of Vestin Realty Mortgage I,
                Inc. 
 **ITEM
        3.**  **DEFAULTSUPON
        SENIOR SECURITIES**
 
 None.
 
 **ITEM
        4.**  **SUBMISSIONOF
        MATTERS TO A VOTE OF SECURITY
        HOLDERS**
 
 None.
 
 **ITEM
        5.**  **OTHERINFORMATION**
 
 None.
  -
            59
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  **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
                  Registrant.3.1(2)
              
              Articles
                  of Incorporation of the Registrant.3.2(2)
              
              Bylaws
                  of the Registrant.3.3(2)
              
              Form
                  of Articles Supplementary of the Registrant.4.1(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
                  Registrant.10.2(2)
              
              Form
                  of Rights Agreement between the Registrant and the rights
                  agent10.3(1)
              
              Assignment
                  Agreement, dated January 23, 2004, by and between Vestin Mortgage,
                  Inc.,
                  Vestin Fund I, LLC, Vestin Fund II, LLC, Owens Financial Group, Inc.
                  and Owens Mortgage Investment Fund10.4(1)
              
              Intercreditor
                  Agreement, dated January 17, 2003, by and among Vestin Mortgage,
                  Inc.,
                  Vestin Fund I, LLC, Vestin Fund II, LLC and Western United Life
                  Assurance
                  Company10.5(1)
              
              Intercreditor
                  Agreement, dated April 22, 2004, by and between Vestin Mortgage,
                  Inc. and
                  Owens Mortgage Investment Fund10.6(1)
              
              Intercreditor
                  Agreement, dated June 24, 2004, by and between Vestin Mortgage,
                  Inc. and
                  Owens Mortgage Investment Fund10.7(1)
              
              Participation
                  Agreement, dated May 13, 2004, by and among the Registrant, Vestin
                  Fund I,
                  LLC, Vestin Fund II, LLC and Royal Bank of America21.1(3)
              
              List
                  of subsidiaries of the Registrant31.1
              
              Section
                  302 Certification of Michael V.
                  Shustek31.2
              
              Section
                  302 Certification of John
                  Alderfer32
              
              Certification
                  Pursuant to U.S.C. 18 Section
                  1350
 
 (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).
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 **EXHIBIT
        INDEX**
 
 **SIGNATURES**
 
 Pursuant
        to the requirements of Section 13 or 15(d) of the Securities Exchange Act
        of
        1934, the Registrant has duly caused this report to be signed on its behalf
        by
        the undersigned thereunto duly authorized.
 
 Vestin
                  Realty Mortgage I, Inc. (successor to Vestin Fund I,
                  LLC)By:
              /s/
                  Michael V. ShustekMichael
                  V. ShustekChief
                  Executive Office and DirectorBy:
              /s/
                  John AlderferJohn
                  AlderferChief
                  Financial Officer
 
 Dated:
        May 8, 2006
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            61
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