UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-Q
 
 (Mark one)
 
 [X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934
 
 For the quarterly period ended June 30, 2012
 
 Or
 
 [   ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934
 
 For the transition period from _________ to _________
 
 Commission File Number: 333-125347
  
 VESTIN REALTY MORTGAGE I, INC.(Exact name of registrant as specified in its charter)
 
 
 MARYLAND

20-4028839(State or Other Jurisdiction of

(I.R.S. EmployerIncorporation or Organization)

Identification No.)
 
 8880 W. SUNSET ROAD, SUITE 200, LAS VEGAS, NEVADA 89148
 (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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
 Yes  [   ]    No   [   ]
 
 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
 Large accelerated filer [   ]
Accelerated filer [   ]Non-accelerated filer [   ]

(Do not check if a smaller reporting company)
Smaller reporting company [X]
 
 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
 Yes  [   ]    No   [X]
 
 As of August 14, 2012, there were 6,340,859 shares of the Company’s Common Stock outstanding.
 
  Table of Contents
  TABLE OF CONTENTS
 
 PagePart I
FINANCIAL INFORMATIONItem 1.
Consolidated Financial Statements
1Consolidated Balance Sheets as of June 30, 2012 (unaudited) and December 31, 2011
1Consolidated Statements of Operations (unaudited) for the Three and Six Months Ended June 30, 2012 and 2011
2Consolidated Statements of Other Comprehensive Income (Loss) (unaudited) for the Three and Six Months Ended June 30, 2012 and 2011
3Consolidated Statement of Equity (unaudited) for the Six Months Ended June 30, 2012
4Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended June 30, 2012 and 2011
5Notes to Consolidated Financial Statements (unaudited)
6Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
31Item 4.
Controls and Procedures
40Part II
OTHER INFORMATIONItem 1.
Legal Proceedings
40Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
41Item 6.
Exhibits
42SIGNATURES
43Exhibit 31.1Exhibit 31.2Exhibit 32
 
 
  Table of Contents
  PART I - FINANCIAL INFORMATION
 
 ITEM 1.
CONSOLIDATED FINANCIAL STATEMENTS
 
 VESTIN REALTY MORTGAGE I, INC.CONSOLIDATED BALANCE SHEETSASSETSJune 30, 2012


December 31, 2011(Unaudited)AssetsCash and cash equivalents

$
2,294,000


$
6,758,000Investment in marketable securities - related party


631,000



651,000Interest and other receivables, net of allowance of $0 at June 30, 2012 and $228,000 at December 31, 2011


14,000



10,000Notes receivable, net of allowance of $1,865,000 at June 30, 2012 and $837,000 at December 31, 2011


--



--Real estate held for sale


1,961,000



2,409,000Other real estate owned


787,000



--Investment in real estate loans, net of allowance for loan losses of $1,629,000 at June 30, 2012 and $5,485,000 at December 31, 2011


11,739,000



10,767,000Asset held for sale


4,210,000



--Other assets


226,000



100,000Total assets

$
21,862,000


$
20,695,000LIABILITIES AND STOCKHOLDERS' EQUITYLiabilitiesAccounts payable and accrued liabilities

$
59,000


$
147,000Due to related parties


19,000



104,000Notes payable


130,000



19,000Liabilities related to asset held for sale


31,000



--Deferred gain on sale of HFS


47,000



63,000Total liabilities


286,000



333,000Commitments and contingenciesStockholders' equityPreferred stock, $0.0001 par value; 1,000,000 shares authorized; none issued


--



--Treasury stock, at cost, 534,207 shares at June 30, 2012 and December 31, 2011


(1,045,000
)


(1,045,000
)Common stock, $0.0001 par value; 25,000,000 shares authorized; 6,875,066 shares issued and 6,340,859 outstanding at June 30, 2012 and December 31, 2011


1,000



1,000Additional paid-in capital


62,262,000



62,262,000Accumulated deficit


(40,713,000
)


(40,856,000
)Accumulated other comprehensive income


(20,000
)


--Total stockholders’ equity before non-controlling interest – related party


20,485,000



20,362,000Noncontrolling interest – related party


1,091,000



--Total equity


21,576,000



20,362,000Total liabilities and stockholders' equity

$
21,862,000


$
20,695,000
 
 
  The accompanying notes are an integral part of these consolidated statements
 -1-
 Table of Contents
 VESTIN REALTY MORTGAGE I, INC.CONSOLIDATED STATEMENTS OF OPERATIONS
 (UNAUDITED)
 For The

Three Months Ended


For The

Six Months Ended6/30/2012


6/30/2011


6/30/2012


6/30/2011RevenuesInterest income from investment in real estate loans

$
210,000


$
103,000


$
352,000


$
231,000Gain related to pay off of notes receivable, including recovery of allowance for notes receivable


29,000



21,000



59,000



21,000Gain related to pay off of real estate loan, including recovery of allowance for loan loss


132,000



--



188,000



--Other income


--



--



--



2,000Total revenues


371000



317,000



599,000



254,000Operating expensesManagement fees - related party


69,000



69,000



138,000



138,000Provision for loan loss


--



--



19,000



127,000Interest expense


1,000



5,000



1,000



12,000Professional fees


213,000



81,000



388,000



273,000Insurance


55,000



62,000



111,000



120,000Consulting


20,000



29,000



38,000



47,000Other


26,000



69,000



80,000



125,000Total operating expenses


384,000



315,000



775,000



842,000Loss from operations


(13,000
)


(191,000
)


(144,000
)


(588,000
)Non-operating incomeInterest income from banking institutions


--



2,000



--



5,000Discounted professional fees


--



300,000



--



300,000Recovery from settlement with loan guarantor


711,000



--



711,000



--Settlement expense


--



--



(23,000
)


--Income from equity method investee held for sale


--



225,000



--



333,000Total non-operating income


711,000



527,000



688,000



638,000Provision for income taxes


--



--



--



--Income from continuing operations


698,000



336,000



513,000



50,000Discontinued operations, net of income taxesNet gain on sale of real estate held for sale


2,000



--



4,000



--Expenses related to real estate held for sale


(56,000
)


(53,000
)


(87,000
)


(134,000
)Income from assets held for sale, net of income taxes


39,000



--



39,000



--Write-downs on real estate held for sale


(316000
)


(132,000
)


(316,000
)


(132,000
)Total loss from discontinued operations


(331,000
)


(185,000
)


(360,000
)


(266,000
)Net income (loss)


367,000



151,000



153,000



(216,000
)Allocation to non-controlling interest – related party


10,000



--



10,000



--Net income (loss) attributable to common stockholders

$
357,000


$
151,000


$
143,000


$
(216,000
)Basic and diluted income (loss) per weighted average common shareContinuing operations

$
0.11


$
0.05


$
0.08


$
0.01Discontinued operations


(0.05
)


(0.03
)


(0.06
)


(0.04
)Total basic and diluted income (loss) per weighted average common share

$
0.06


$
0.02


$
0.02


$
(0.03
)Dividends declared per common share

$
--


$
--


$
--


$
--Weighted average common shares outstanding


6,340,859



6,382,748



6,340,859



6,401,002
  The accompanying notes are an integral part of these consolidated statements
 -2-
 Table of Contents
 VESTIN REALTY MORTGAGE I, INC.



CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME (LOSS)FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011(UNAUDITED) 
 
 For the Three Months Ended

06/30/2012


For the Three Months Ended

06/30/2011


For the Six Months Ended

06/30/2012


For the Six Months Ended

06/30/2011Net income (loss)

$
357,000


$
151,000


$
143,000


$
(216,000
)Unrealized holding gains(losses) – related party


(181,000
)


(152,000
)


(20,000
)


(126,000
)Total Other Comprehensive Income (Loss), net of tax


176,000



(1,000
)


123,000



(342,000
)Net income attributable to noncontrolling interest


10,000



--



10,000



--Comprehensive Income (Loss)

$
186,000


$
(1,000
)

$
133,000


$
(342,000
)
 
  The accompanying notes are an integral part of these consolidated statements
 -3-
 Table of Contents
  VESTIN REALTY MORTGAGE I, INC.CONSOLIDATED STATEMENT OF EQUITYFOR THE SIX MONTHS ENDED JUNE 30, 2012(UNAUDITED)
 
 Treasury Stock


Common StockShares


Amount


Shares


Amount


Additional

Paid-in-

Capital


Accumulated Deficit


Accumulated

Other Comprehensive

Loss


Noncontrolling Interest – Related Party


TotalStockholders' Equity at

December 31, 2011


534,207


$
(1,045,000
)


6,340,859


$
1,000


$
62,262,000


$
(40,856,000
)

$
--


$
--


$
20,362,000Net Income






















143,000







10,000



153,000Unrealized Gain on Marketable Securities - Related Party


























(20,000
)






(20,000
)133,000Disposition of Assets Held for Sale






























1,081,000



1,081,000Stockholders' Equity at

June 30, 2012


534,207


$
(1,045,000
)


6,340,859


$
1,000


$
62,262,000


$
(40,713,000
)

$
(20,000
)

$
1,091,000


$
21,573,000
 
  The accompanying notes are an integral part of these consolidated statements
 -4-
 Table of Contents
  
 VESTIN REALTY MORTGAGE I, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(UNAUDITED)For The Six

Months Ended06/30/2012


06/30/2011Cash flows from operating activities:Net income (loss)

$
153,000


$
(216,000
)Adjustments to reconcile net loss to net cash used in operating activities:Write-downs on real estate held for sale


316,000



132,000Recovery of allowance for doubtful notes receivable


(59,000
)


(21,000
)Gain related to recovery of allowance for loan loss


(188,000
)


--Gain on sale of real estate held for sale


(4,000
)


--Gain related to recovery from settlement with loan guarantor


(711,000
)


--Provision for loan loss


19,000



127,000Amortized interest income


--



(2,000
)Income from equity method investee held for sale


--



(333,000
)Change in operating assets and liabilities:Interest and other receivables


(5,000
)


648,000Due to/from related parties


(85,000
)


(690,000
)Asset held for sale, net of liabilities


(39,000
)


--Deferred gain on sale of HFS


(16,000
)


--Other assets


40,000



62,000Accounts payable and accrued liabilities


(86,000
)


(1,235,000
)Net cash used in operating activities


(665,000
)


(1,528,000
)Cash flows from investing activities:Investments in real estate loans


(12,163,000
)


(490,000
)Purchase of marketable securities – related party


--



(547,000
)Proceeds from loan payoffs


5,576,000



134,000Sale of investments in real estate loans to third parties


1,938,000



--Proceeds from settlement from loan guarantor


711,000



--Proceeds from notes receivable


59,000



10,000Proceeds from sale of real estate held for sale


133,000



--Proceeds related to nonrefundable extension fees on real estate held for sale


2,000



--Distributions from investment in equity method investee held for sale


--



213,000Net cash used in investing activities


(3,744,000
)


(680,000
)Cash flows from financing activities:Purchase of treasury stock at cost


--



(104,000
)Principal payments on notes payable


(55,000
)


(58,000
)Net cash used in financing activities


(55,000
)


(162,000
)NET CHANGE IN CASH


(4,464,000
)


(2,370,000
)Cash and cash equivalents, beginning of period


6,758,000



8,145,000Cash and cash equivalents, end of period

$
2,294,000


$
5,775,000Supplemental disclosures of cash flows information:Interest paid

$
1,000


$
12,000Non-cash investing and financing activities:Write-off of interest receivable and related allowance

$
229,000


$
--Other real estate owned through deed in lieu, net of prior allowance

$
786,000


$
--Note payable relating to prepaid D & O insurance

$
166,000


$
167,000Adjustment to note receivable and related allowance

$
1,057,000


$
--Asset held for sale acquired through foreclosure, net of prior allowance


(3,059,000
)


--Unrealized loss on marketable securities - related party

$
(20,000
)

$
(126,000
)
 
  The accompanying notes are an integral part of these consolidated statements
 -5-
 Table of Contents
  
 VESTIN REALTY MORTGAGE I, INC
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 JUNE 30, 2012
 
 (UNAUDITED)
 
 NOTE A — ORGANIZATION
 
 Vestin Realty Mortgage I, Inc. (“VRM I”) formerly Vestin Fund I, LLC (“Fund I”) invests in loans secured by real estate through deeds of trust or mortgages (hereafter referred to collectively as “deeds of trust” and as defined in our management agreement (“Management Agreement”) as “Mortgage Assets”).  In addition we may invest in, acquire, manage or sell real property or acquire entities involved in the ownership or management of real property.  We commenced operations in December 1999.  References in this report to the “Company,”“we,”“us,” or “our” refer to Fund I with respect to the period prior to April 1, 2006 and to VRM I with respect to the period commencing on May 1, 2006.
 
 We invest in loans secured by real estate through deeds of trust or mortgages (hereafter referred to collectively as “deeds of trust” and as defined in our management agreement (“Management Agreement”) as “Mortgage Assets”).  We commenced operations in August 2000.
 
 We operated as a real estate investment trust (“REIT”) through December 31, 2011.  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 were required to have a December 31 fiscal year end.  We announced on March 28, 2012 that we have terminated our election to be treated as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”), effective for the tax year ending December 31, 2012.  Under the Code, we will not be able to make a new election to be taxed as a REIT during the four years following December 31, 2012.  Pursuant to our charter, upon the determination by the Board of Directors that we should no longer qualify as a REIT, the restrictions on transfer and ownership of shares set forth in Article VII of our charter ceased to be in effect and, accordingly, shares of the Company’s stock will no longer be subject to such restrictions.
 
 Vestin Group, Inc. (“Vestin Group”), a Delaware corporation, owns a significant majority of Vestin Mortgage, LLC, a Nevada limited liability company, which is our manager (the “manager” or “Vestin Mortgage”). On January 7, 2011, Vestin Mortgage converted from a corporation to a limited liability company.  Michael Shustek, the CEO and managing member of our manager and CEO, President and a director of us, wholly owns Vestin Group, which is engaged in asset management, real estate lending and other financial services through its subsidiaries.  Our manager, prior to June 30, 2006, also operated as a licensed Nevada mortgage broker and was generally engaged in the business of brokerage, placement and servicing of commercial loans secured by real property.  On July 1, 2006, a mortgage broker license was issued to an affiliated company, Vestin Originations, Inc. (“Vestin Originations”), which is majority-owned by Vestin Group.  Vestin Originations continued the business of brokerage, placement and servicing of real estate loans.  Since February 14, 2011, the business of brokerage and placement of real estate loans have been performed by affiliated or non-affiliated mortgage brokers, including Vestin Originations and Advant Mortgage, LLC (“Advant”), both licensed Nevada mortgage brokers, which are indirectly majority owned or wholly owned by Mr. Shustek.
 
 Pursuant to a management agreement, our manager is responsible for managing our operations and implementing our business strategies on a day-to-day basis.  Consequently, our operating results are dependent to a significant extent upon our manager’s ability and performance in managing our operations and servicing our assets.
 
 Vestin Mortgage is also the manager of Vestin Realty Mortgage II, Inc. (“VRM II”), as the successor by merger to Vestin Fund II, LLC (“Fund II”) and Vestin Fund III, LLC (“Fund III”).  VRM II has investment objectives similar to ours, and Fund III is in the process of an orderly liquidation of its assets.
  -6-
 Table of Contents
  
 The consolidated financial statements include the accounts of us and our wholly owned subsidiary, Vestin TRS I, Inc. (“TRS I”).  All significant inter-company transactions and balances have been eliminated in consolidation.  The results of operations related to VREO XXII have been included in our Consolidated Statements of Operations under VREO XXII, net of income taxes”.
 
 During April 2009, we entered into an accounting services agreement with Strategix Solutions, LLC (“Strategix Solutions”), a Nevada limited liability company, for the provision of accounting and financial reporting services.  Strategix Solutions also provides accounting and financial reporting services to VRM II and Fund III.  Our CFO and other members of our accounting staff are employees of Strategix Solutions.  Strategix Solutions is managed by LL Bradford and Company, LLC ("LL Bradford"), a certified public accounting firm that has provided non-audit accounting services to us.  The principal manager of LL Bradford was a former officer of our manager from April 1999 through January 1, 2005.  Strategix Solutions is owned by certain partners of LL Bradford, none of whom are currently or were previously officers of our manager.  As used herein, “management” means our manager, its executive officers and the individuals at Strategix Solutions who perform accounting and financial reporting services on our behalf.
 
 NOTE B — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Basis of Presentation
 
 The consolidated financial statements of the Company have been prepared in accordance with the accounting principles generally accepted in the United States of America (“GAAP”).  In the opinion of management all normal recurring adjustments considered necessary to give a fair presentation of operating results for the periods presented have been included.  Interim results are not necessarily indicative of results for a full year.  The information included in this Form 10-Q should be read in conjunction with information included in the 2011 annual report filed on Form 10-K.
 
 Management Estimates
 
 The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.
 
 Cash and Cash Equivalents
 
 Cash and cash equivalents include interest-bearing and non-interest-bearing bank deposits, money market accounts, short-term certificates of deposit with original maturities of three months or less, and short-term instruments with a liquidation provision of one month or less.
 
 Revenue Recognition
 
 Interest is recognized as revenue on performing loans when earned according to the terms of the loans, using the effective interest method.  We do not accrue interest income on loans once they are determined to be non-performing.  A loan is non-performing 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.  Interest is fully allowed for on impaired loans and is recognized on a cash basis method.
 
  -7-
 Table of Contents
  
 Investments in Real Estate Loans
 
 We may, from time to time, acquire or sell investments in real estate loans from or to our manager or other related parties pursuant to the terms of our Management Agreement without a premium.  The primary purpose is to either free up capital to provide liquidity for various reasons, such as loan diversification, or place excess capital in investments to maximize the use of our capital.  Selling or buying loans allows us to diversify our loan portfolio within these parameters.  Due to the short-term nature of the loans we make and the similarity of interest rates in loans we normally would invest in, the fair value of a loan typically approximates its carrying value.  Accordingly, discounts or premiums typically do not apply upon sales of loans and therefore, generally no gain or loss is recorded on these transactions, regardless of whether to a related or unrelated party.
 
 Investments in real estate loans are secured by deeds of trust or mortgages.  Generally, our real estate loans require interest only payments with a balloon payment of the principal at maturity.  We have both the intent and ability to hold real estate loans until maturity and therefore, real estate loans are classified and accounted for as held for investment and are carried at amortized cost.  Loans sold to or purchased from affiliates are accounted for at the principal balance and no gain or loss is recognized by us or any affiliate.  Loan-to-value ratios are initially based on appraisals obtained at the time of loan origination and are updated when new appraisals are received or when management’s assessment of the value has changed, to reflect subsequent changes in value estimates.  Original appraisals are generally dated within 12 months of the date of loan origination and may be commissioned by the borrower.
 
 The Company considers a loan to be impaired when, based upon current information and events, it believes it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement.  The Company’s impaired loans include troubled debt restructuring, and performing and non-performing loans in which full payment of principal or interest is not expected.  The Company calculates an allowance required for impaired loans based on the present value of expected future cash flows discounted at the loan’s effective interest rate, or at the loan’s observable market price or the fair value of its collateral.
 
 Loans that have been modified from their original terms are evaluated to determine if the loan meets the definition of a Troubled Debt Restructuring (“TDR”) as defined by Accounting Standards Codification (“ASC”) 310-40.  When the Company modifies the terms of an existing loan that is considered a TDR, it is considered performing as long as it is in compliance with the modified terms of the loan agreement.  If the modification calls for deferred interest, it is recorded as interest income as cash is collected.
 
 Allowance for Loan Losses
 
 We maintain an allowance for loan losses on our investments in real estate loans for estimated credit impairment.  Our manager’s estimate of losses is based on a number of factors including the types and dollar amounts of loans in the portfolio, adverse situations that may affect the borrower’s ability to repay, prevailing economic conditions and the underlying collateral securing the loan.  Additions to the allowance are provided through a charge to earnings and are based on an assessment of certain factors, which may indicate estimated losses on the loans.  Actual losses on loans are recorded as a charge-off or a reduction to the allowance for loan losses.  Generally, subsequent recoveries of amounts previously charged off are added back to the allowance and included as income.
 
 Estimating allowances for loan losses requires significant judgment about the underlying collateral, including liquidation value, condition of the collateral, competency and cooperation of the related borrower and specific legal issues that affect loan collections or taking possession of the property.  As a commercial real estate lender willing to invest in loans to borrowers who may not meet the credit standards of other financial institutional lenders, the default rate on our loans could be higher than those generally experienced in the real estate lending industry.  We and our manager generally approve loans more quickly than other real estate lenders and, due to our expedited underwriting process; there is a risk that the credit inquiry we perform will not reveal all material facts pertaining to a borrower and the security.
 
  -8-
 Table of Contents
  
 Additional facts and circumstances may be 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 and may continue to cause significant changes in our estimated allowance include, but are not limited to:
 
 ·
Declines in real estate market conditions, which can cause a decrease in expected market value;
 
 ·
Discovery of undisclosed liens for community improvement bonds, easements and delinquent property taxes;
 
 ·
Lack of progress on real estate developments after we advance funds.  We customarily utilize disbursement agents to monitor the progress of real estate developments and approve loan advances.  After further inspection of the related property, progress on construction occasionally does not substantiate an increase in value to support the related loan advances;
 
 ·
Unanticipated legal or business issues that may arise subsequent to loan origination or upon the sale of foreclosed property; and
 
 ·
Appraisals, which are only opinions of value at the time of the appraisal, may not accurately reflect the value of the property.
 
 Discontinued Operations
 
 We have reclassified for all periods presented in the accompanying consolidated statements of operations, the amounts related to discontinued operations and real estate held for sale, in accordance with the applicable accounting criteria.  In addition, the assets and liabilities related to the discontinued operations are reported separately in the accompanying consolidated balance sheets as real estate held for sale, assets held for sale, and liabilities related to assets held for sale.
 
 Real Estate Held for Sale
 
 Real estate held for sale (“REO”) includes real estate acquired through foreclosure and will be carried at the lower of the recorded amount, inclusive of any senior indebtedness, or the property's estimated fair value, less estimated costs to sell, with fair value based on appraisals and knowledge of local market conditions.  While pursuing foreclosure actions, we seek to identify potential purchasers of such property.  We seek to sell properties acquired through foreclosure as quickly as circumstances permit, taking into account current economic conditions.  The carrying values of REO are assessed on a regular basis from updated appraisals, comparable sales values or purchase offers.
 
 Management classifies REO 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.
 
  -9-
 Table of Contents
  
 Classification of Operating Results from Real Estate Held for Sale
 
 Generally, operating results and cash flows from long-lived assets held for sale are to be classified as discontinued operations as a separately stated component of net income.  Our operations related to REO are separately identified in the accompanying consolidated statements of operations.
 
 Secured Borrowings
 
 Secured borrowings provide an additional source of capital for our lending activity.  Secured borrowings allow us to increase the diversification of our loan portfolio and to invest in loans that we might not otherwise invest in.  We do not receive any fees for entering into secured borrowing arrangements; however, we may receive revenue for any differential of the interest spread, if applicable.  Loans in which unaffiliated investors have participated through inter-creditor agreements (“Inter-creditor Agreements”) are accounted for as secured borrowings.
 
 The Inter-creditor Agreements provide us additional funding sources for real estate loans whereby an unaffiliated investor (the “Investor”) may participate on a non-pari passu basis in certain real estate loans with us and/or VRM II (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.  We do not receive any revenues for entering into secured borrowing arrangements.
 
 Investment in Marketable Securities – Related Party
 
 Investment in marketable securities – related party consists of stock in VRM II.  The securities are stated at fair value as determined by the closing market price as of June 30, 2012 and December 31, 2011.  All securities are classified as available-for-sale.
 
 We are required to evaluate our available-for-sale investment for other-than-temporary impairment charges.  We will determine when an investment is considered impaired (i.e., decline in fair value below its amortized cost), and evaluate whether the impairment is other than temporary (i.e., investment value will not be recovered over its remaining life).  If the impairment is considered other than temporary, we will recognize an impairment loss equal to the difference between the investment’s basis and its fair value.
 
 According to the SEC Staff Accounting Bulletin, Topic 5: Miscellaneous Accounting, M - Other Than Temporary Impairment of Certain Investments in Debt and Equity Securities, there are numerous factors to be considered in such an evaluation and their relative significance will vary from case to case.  The following are a few examples of the factors that, individually or in combination, indicate that a decline is other than temporary and that a write-down of the carrying value is required:
 
 ·
The length of the time and the extent to which the market value has been less than cost;
 
 ·
The financial condition and near-term prospects of the issuer, including any specific events which may influence the operations of the issuer such as changes in technology that may impair the earnings potential of the investment or the discontinuance of a segment of the business that may affect the future earnings potential; or
 
 ·
The intent and ability of the holder to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value.
 
  -10-
 Table of Contents
  
 Fair Value Disclosures
 
 Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e. “the exit price”) in an orderly transaction between market participants at the measurement date.  In determining fair value, the Company uses various valuation approaches, including quoted market prices and discounted cash flows.  The established hierarchy for inputs used, in measuring fair value, maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available.  Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from independent sources.  Unobservable inputs are inputs that reflect a company’s judgment concerning the assumptions that market participants would use in pricing the asset or liability developed based on the best information available under the circumstances.  The fair value hierarchy is broken down into three levels based on the reliability of inputs as follows:
 
 ·
Level 1 – Valuations based on quoted prices in active markets for identical instruments that the Company is able to access.  Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.
 
 ·
Level 2 – Valuations based on quoted prices in active markets for instruments that are similar, or quoted prices in markets that are not active for identical or similar instruments, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.
 
 ·
Level 3 – Valuations based on inputs that are unobservable and significant to the overall fair value measurement, which utilize the Company’s estimates and assumptions.
 
 If the volume and level of activity for an asset or liability have significantly decreased, we will still evaluate our fair value estimate as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions.  In addition, since we are a publicly traded company, we are required to make our fair value disclosures for interim reporting periods.
 
 Basic and Diluted Earnings Per Common Share
 
 Basic earnings per share (“EPS”) is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding.  Diluted EPS is similar to basic EPS except that the weighted average number of common shares outstanding is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been exercised.  We had no outstanding common share equivalents during the three months ended June 30, 2012 and 2011.
 
 Common Stock Dividends
 
 During June 2008, our Board of Directors decided to suspend the payment of dividends.  Our Board of Directors will closely monitor our operating results in order to determine when dividends should be reinstated; however, we do not expect them to be reinstating dividends in the foreseeable future.
 
 Treasury Stock
 
 On February 21, 2008, our Board of Directors authorized the repurchase of up to $5 million worth of our common stock.  Depending upon market conditions, shares may be repurchased from time to time at prevailing market prices through open market or privately negotiated transactions.  We are not obligated to purchase any shares.  Subject to applicable securities laws, including SEC Rule 10b-18, repurchases may be made at such times and in such amounts, as our management deems appropriate.  The repurchases will be funded from our available cash.
 
  -11-
 Table of Contents
  
 Segments
 
 We are currently authorized to operate two reportable segments, investments in real estate loans and investments in real property.  As of June 30, 2012, we had not commenced investing in real property.
 
 Our objective is to invest approximately 97% of our assets in real estate loans and real estate investments, while maintaining approximately 3% as a working capital cash reserve.  Current market conditions have impaired our ability to be fully invested in real estate loans and real estate investments.  As of June 30, 2012, approximately 54% of our assets, net of allowance for loan losses, are classified as investments in real estate loans.
 
 Reclassifications
 
 Certain amounts in the June 30, 2011 consolidated financial statements have been reclassified to conform to the June 30, 2012 presentation.
 
 Principles of Consolidation
 
 Our consolidated financial statements include the accounts of VRM I, TRS I, our wholly owned subsidiary, and VREO XXII, in which we have a controlling interest.  All significant intercompany balances and transactions have been eliminated in consolidation.
 
 Business Combinations
 
 In December 2007, the Financial Accounting Standards Board (FASB) revised the authoritative guidance for business combinations, establishing principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired (including goodwill), the liabilities assumed, and any noncontrolling interest in the acquiree. Subsequently, on April 1, 2009, the FASB amended and clarified certain aspects of its authoritative guidance on initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. We apply the FASB authoritative guidance to all business combinations for which the acquisition date is on or after January 1, 2009, and to certain future income tax effects related to our prior business combinations, should they arise.
 
 Noncontrolling Interests
 
 The FASB issued authoritative guidance for noncontrolling interests in December 2007, which establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. The guidance clarifies that a noncontrolling interest in a subsidiary, which is sometimes referred to as an unconsolidated investment, is an ownership interest in the consolidated entity that should be reported as a component of equity in the consolidated financial statements. Among other requirements, the guidance requires consolidated net income to be reported at amounts attributable to both the parent and the noncontrolling interest. It also requires disclosure, on the face of the consolidated income statement, of the amounts of consolidated net income attributable to the parent and to the noncontrolling interest.
 
 Income Taxes
 
 The Company accounts for its income taxes under the assets and liabilities method, which requires recognition of deferred tax assets and liabilities for future tax consequences of events that have been included in the financial statements.  Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.  The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
 
  -12-
 Table of Contents
  
 The Company records net deferred tax assets to the extent the Company believes these assets will more likely than not be realized.  In making such determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations.  A valuation allowance is established against deferred tax assets that do not meet the criteria for recognition.  In the event the Company were to determine that it would be able to realize deferred income tax assets in the future in excess of their net recorded amount, they would make an adjustment to the valuation allowance which would reduce the provision for income taxes.
 
 The Company follows the accounting guidance which provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. Income tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized initially and in subsequent periods.  Also included is guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
 
 NOTE C — FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK
 
 Financial instruments consist of cash, interest and other receivables, notes receivable, accounts payable and accrued liabilities, due to/from related parties and notes payable.  The carrying values of these instruments approximate their fair values due to their short-term nature.  Marketable securities – related party and investment in real estate loans are further described in Note K – Fair Value.
 
 Financial instruments with concentration of credit and market risk include cash, interest and other receivables, marketable securities - related party, notes receivable, accounts payable and accrued liabilities, due to/from related parties, notes payable, and loans secured by deeds of trust.
 
 We maintain cash deposit accounts and certificates of deposit which, at times, may exceed federally-insured limits.  To date, we have not experienced any losses.  As of June 30, 2012 and December 31, 2011, we had no funds in excess of the federally-insured limits.
 
 As of June 30, 2012, 66% and 13% of our loans were in Nevada and Michigan, respectively, compared to 37%, 27%, 20%, and 10% of our loans were in Nevada, Oregon, Arizona and Texas at December 31, 2011, respectively.  As a result of this geographical concentration of our real estate loans, the downturn in the local real estate markets in these states has had a material adverse effect on us.
 
 At June 30, 2012, the aggregate amount of loans to our three largest borrowers represented approximately 41% of our total investment in real estate loans.  These real estate loans consisted of commercial loans, secured by property located in Michigan and Nevada, all first lien position with interest rates between 7.75% and 9.00%, and an aggregate outstanding balance of approximately $5.5 million.  As of June 30, 2012, all three of our largest loans were considered performing.
 
 The success of a borrower’s ability to repay its real estate loan obligation in a large lump-sum payment may be dependent upon the borrower’s ability to refinance the obligation or otherwise raise a substantial amount of cash.  With the weakened economy, credit continues to be difficult to obtain and as such, many of our borrowers who develop and sell commercial real estate projects have been unable to complete their projects, obtain takeout financing or have been otherwise adversely impacted.  In addition, an increase in interest rates over the loan rate applicable at origination of the loan may have an adverse effect on our borrower’s ability to refinance.
 
 Common Guarantors
 
 As of June 30 2012 and December 31, 2011, six and seven loans, respectively, totaling approximately $5.9 million and $4.6 million, respectively, representing approximately 44.5% and 28.6%, respectively, of our portfolio’s total value, had a common guarantor.  These loans are considered performing.
 
  -13-
 Table of Contents
  
 As of June 30, 2012 four loans totaling approximately $2.8 million representing approximately 20.9% of our portfolio’s total value had a common guarantor.  As of June 30, 2012 all four loans were considered performing.
 
 For additional information regarding the above loans, see Note D – Investments In Real Estate Loans.
 
 NOTE D — INVESTMENTS IN REAL ESTATE LOANS
 
 As of June 30, 2012 and December 31, 2011, most of our loans provided for interest only payments with a “balloon” payment of principal payable and any accrued interest payable in full at the end of the term.
 
 In addition, we may invest in real estate loans that require borrowers to maintain interest reserves funded from the principal amount of the loan for a period of time.  At June 30, 2012 and December 31, 2011, we had two and no investments in real estate loans, respectively, that had interest reserves.
 
 Loan Portfolio
 
 As of June 30, 2012, we had five available real estate loan products consisting of commercial, construction, acquisition and development, land and residential.  The effective interest rates on all product categories range from 4.5% to 15% which includes performing loans that are being fully or partially accrued and will be payable at maturity.  Revenue by product will fluctuate based upon relative balances during the period.
 
 Investments in real estate loans as of June 30, 2012, were as follows:
 
 Loan Type

Number of Loans


Balance *


Weighted Average Interest Rate


Portfolio Percentage


Current Weighted Average Loan-To-Value, Net of Allowance for Loan LossesCommercial


15


$
13,274,000



8.65
%


99.30
%


68.87
%Land


1



94,000



6.00
%


0.70
%


53.81
%Total


16


$
13,368,000



8.63
%


100.00
%


68.75
%
 
 Investments in real estate loans as of December 31, 2011, were as follows:
 
 Loan Type

Number of Loans


Balance *


Weighted Average Interest Rate


Portfolio Percentage


Current Weighted Average Loan-To-Value, Net of Allowance for Loan LossesCommercial


17


$
15,855,000



10.15
%


97.55
%


70.96
%Construction


1



165,000



8.00
%


1.02
%


90.50
%Residential


1



138,000



11.69
%


0.85
%


89.73
%Land


1



94,000



6.00
%


0.58
%


53.81
%Total


20


$
16,252,000



10.09
%


100.00
%


70.86
%
 
 *
Please see Balance Sheet Reconciliation below.
 
 The “Weighted Average Interest Rate” as shown above is based on the contractual terms of the loans for the entire portfolio including non-performing loans.  The weighted average interest rate on performing loans only, as of June 30, 2012 and December 31, 2011, was 8.11% and 9.77%, respectively.  Please see “Non-Performing Loans” and “Asset Quality and Loan Reserves” below for further information regarding performing and non-performing loans.
  -14-
 Table of Contents
  
 Loan-to-value ratios are generally based on the most recent appraisals and may not reflect subsequent changes in value and include allowances for loan losses.  Recognition of allowance for loan losses will result in a maximum loan-to-value ratio of 100% per loan.
 
 The following is a schedule of priority of real estate loans as of June 30, 2012 and December 31, 2011:
 
 Loan Type

Number of Loans


June 30, 2012

Balance *


Portfolio

Percentage


Number of Loans


December 31, 2011 Balance *


Portfolio

PercentageFirst deeds of trust


13


$
11,151,000



83.42
%


13


$
10,840,000



66.70
%Second deeds of trust


3



2,217,000



16.58
%


7



5,412,000



33.30
%Total


16


$
13,368,000



100.00
%


20


$
16,252,000



100.00
%
 
 *
Please see Balance Sheet Reconciliation below.
 
 The following is a schedule of contractual maturities of investments in real estate loans as of June 30, 2012:
 
 Non-performing and past due loans (a)

$
1,000,000July 2012 –September 2012


1,994,000October 2012 –December 2012


2,464,000January 2013 – March 2013


3,260,000April 2013 – June 2013


3,433,000July 2013 – September 2013


467,000Thereafter


750,000Total

$
13,368,000
 
 (a)
Amounts include the balances of non-performing loans
 
 The following is a schedule by geographic location of investments in real estate loans as of June 30, 2012 and December 31, 2011:
 
 June 30, 2012 Balance *


Portfolio Percentage


December 31, 2011 Balance *


Portfolio PercentageArizona

$
450,000



3.37
%

$
3,282,000



20.20
%California


467,000



3.49
%


647,000



3.98
%Colorado


--



--



300,000



1.85
%Michigan


1,741,000



13.02
%


--



--Nevada


8,832,000



66.07
%


5,928,000



36.48
%Oregon


--



--



4,434,000



27.28
%Texas


1,058,000



7.91
%


1,661,000



10.21
%Utah


820,000



6.14
%


--



--Total

$
13,368,000



100.00
%

$
16,252,000



100.00
%
 
 *
Please see Balance Sheet Reconciliation below.
 
  -15-
 Table of Contents
  
 Balance Sheet Reconciliation
 
 The following table reconciles the balance of the loan portfolio to the amount shown on the accompanying Consolidated Balance Sheets.
 
 June 30, 2012 Balance


December 31, 2011 BalanceBalance per loan portfolio

$
13,368,000


$
16,252,000Less:Allowance for loan losses (a)


(1,629,000
)


(5,485,000
)Balance per consolidated balance sheets

$
11,739,000


$
10,767,000
 
 (a)
Please refer to Specific Reserve Allowance below.
 
 Non-Performing Loans
 
 As of June 30, 2012, we had one loan considered non-performing (i.e., 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).  This loan is currently carried on our books at a value of approximately $0.0 million, net of allowance for loan losses of approximately $1.0 million, which does not include the allowances of approximately $0.6 million relating to performing loans as of June 30, 2012.  Except as otherwise provided below this loans has been placed on non-accrual of interest status and may be the subject of pending foreclosure proceedings.
 
 At June 30, 2012, the following loan types were non-performing:
 
 Loan Type

Number Of Non-Performing Loans


Balance at

June 30, 2012


Allowance for Loan Losses


Net Balance at

June 30, 2012Commercial


1


$
1,000,000


$
(1,000,000
)

$
--Total


1


$
1,000,000


$
(1,000,000
)

$
--
 
 At December 31, 2011, the following loans were non-performing:
 
 Loan Type

Number Of Non-Performing Loans


Balance at

December 31, 2011


Allowance for Loan Losses


Net Balance at

December 31, 2011Commercial


4


$
7,571,000


$
(3,724,000
)

$
3,847,000Total


4


$
7,571,000


$
(3,724,000
)

$
3,847,000
 
 Asset Quality and Loan Reserves
 
 Losses may occur from investing in real estate loans.  The amount of losses will vary as the loan portfolio is affected by changing economic conditions and the financial condition of borrowers.
 
 The conclusion that a real estate loan is uncollectible or that collectability is doubtful is a matter of judgment.  On a quarterly basis, our manager evaluates our real estate loan portfolio for impairment.  The fact that a loan is temporarily past due does not necessarily mean that the loan is non-performing.  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 collectability may not be reasonably assured, considers among other matters:
 
 ·
Prevailing economic conditions;
 
 ·
Historical experience;
 
  -16-
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 ·
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 on an individual loan basis; we do not have a general allowance for loan losses.  Additions to the allowance for loan losses are made by charges to the provision for loan loss.  As of June 30, 2012, our ratio of total allowance for loan losses to total loans with an allowance for loan loss is 73%.  The following is a breakdown of allowance for loan losses related to performing and non-performing loans as of June 30, 2012 and December 31, 2011.
 
 As of June 30, 2012Balance


Allowance for loan losses *


Balance, net of allowanceNon-performing loans – no related allowance

$
--


$
--


$
--Non-performing loans – related allowance


1,000,000



(1,000,000
)


--Subtotal non-performing loans


1,000,000



(1,000,000
)


--Performing loans – no related allowance


11,151,000



--



11,151,000Performing loans – related allowance


1,217,000



(629,000
)


588,000Subtotal performing loans


12,368,000



(629,000
)


11,739,000Total

$
13,368,000


$
(1,629,000
)

$
11,739,000
 
 
 As of December 31, 2011Balance


Allowance for loan losses*


Balance, net of allowanceNon-performing loans – no related allowance

$
--


$
--


$
--Non-performing loans – related allowance


7,571,000



(3,724,000
)


3,847,000Subtotal non-performing loans


7,571,000



(3,724,000
)


3,847,000Performing loans – no related allowance


6,241,000



--



6,241,000Performing loans – related allowance


2,440,000



(1,761,000
)


678,000Subtotal performing loans


8,681,000



(1,761,000
)


6,920,000Total

$
16,252,000


$
(5,485,000
)

$
10,767,000
 
 *
Please refer to Specific Reserve Allowancesbelow.
 
 Our manager evaluated our loans and, based on current estimates with respect to the value of the underlying collateral, believes that such collateral is sufficient to protect us against further losses of principal.  However, such estimates could change or the value of the underlying real estate could decline.  Our manager will continue to evaluate our loans in order to determine if any other allowance for loan losses should be recorded.
 
  -17-
 Table of Contents
  Specific Reserve Allowances
 As of June 30, 2012, we have provided a specific reserve allowance for one non-performing loan and two performing loans based on updated appraisals of the underlying collateral and/or our evaluation of the borrower.  The following table is a roll-forward of the allowance for loan losses for the six months ended June 30, 2012 and 2011 by loan type.
 
 Loan Type

Balance at

12/31/2011


Specific Reserve Allocation


Sales


Loan Pay Downs and Settlements


Transfers to REO and Notes Receivable


Balance at

6/30/2012Commercial

$
5,412,000


$
19,000


$
--


$
(1,535,000
)

$
(2,267,000
)

$
1,629,000Construction


73,000



--



--



(73,000
)


--



--Total

$
5,485,000


$
19,000


$
--


$
(1,608,000
)

$
(2,267,000
)

$
1,629,000
 
 Loan Type

Balance at

12/31/2010


Specific Reserve Allocation


Sales


Settlements


Transfers to REO & Other Assets


Balance at

6/30/2011Commercial

$
5,708,000


$
127,000


$
--


$
(997,000
)

$
--


$
4,838,000Construction


72,000



--



--



--



--



72,000Total

$
5,780,000


$
127,000


$
--


$
(997,000
)

$
--


$
4,910,000
 
 Troubled Debt Restructuring
 
 As of June 30, 2012 and December 31, 2011 we had three and seven loans, respectively, totaling approximately $2.2 million and $4.4 million, respectively, that met the definition of a Troubled Debt Restructuring or TDR.  When the Company modifies the terms of an existing loan that is considered TDR, it is considered performing as long as it is in compliance with the modified terms of the loan agreement.  If the modification calls for deferred interest, it is recorded as interest income as cash is collected.  Impairment on these loans is generally determined by the lesser of the value of the underlying collateral or the present value of expected future cash flows.  During the previous 12 months there have been four loans that became TDR loans and all remain performing.  The following is a breakdown of our TDR loans that were considered performing and non-performing as of June 30, 2012 and December 31, 2011:
 
 As of June 30, 2012Total


Performing


Non-PerformingLoan Type

Number of Loans


Fund Balance


Number of Loans


Fund Balance


Number of Loans


Fund BalanceCommercial


4


$
2,217,000



3


$
1,217,000



1


$
1,000,000Total


4


$
2,217,000



3


$
1,217,000



1


$
1,000,000
 
 As of December 31, 2011Total


Performing


Non-PerformingLoan Type

Number of Loans


Fund Balance


Number of Loans


Fund Balance


Number of Loans


Fund BalanceCommercial


6


$
4,212,000



4


$
2,276,000



2


$
1,936,000Construction


1



165,000



1



165,000



--



--Total


7


$
4,377,000



5


$
2,441,000



2


$
1,936,000
 
  -18-
 Table of Contents
  
 ·
Commercial – As of June 30, 2012 and December 31, 2011 we had 17 commercial loans, four and three of which, respectively, were modified pursuant to TDR.  During January 2012, our one TDR construction loan was modified into a new loan which reduced the principal balance to approximately $4.0 in total, of which our portion is approximately $0.1 million.  The interest rate was changed from 3% paid and 5% accruing monthly to 7% paid monthly.  The accrued interest balance of approximately $1.0 million, of which our portion is $23,000, was reclassified as a notes receivable.  During April 2012 this loan was paid in full and the second deed of trust, which was another TDR loan, was reclassified as a notes receivable.  For additional information, see “Non-Performing” of this Note D – Investments in Real Estate Loansand Note I – “Notes Receivable”.
 
 ·
Construction – As of December 31, 2011, we had one construction loan modified pursuant to TDR.  During January 2012, we restructured the loan into a new loan which is a commercial loan.
 
 Extensions
 
 As of June 30, 2012, our manager had granted extensions on five outstanding loans, totaling approximately $8.4 million, of which our portion was approximately $3.0 million, pursuant to the terms of the original loan agreements, which permit extensions by mutual consent, or as part of a TDR.  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.  Our manager generally grants extensions when a borrower is in compliance with the material terms of the loan, including, but not limited to the borrower’s obligation to make interest payments on the loan.  In addition, if circumstances warrant, our manager may extend a loan that is in default as part of a work out plan to collect interest and/or principal.  Subsequent to their extensions, one of the six loans became non-performing.  These loans had a total principal amount at June 30, 2012, of approximately $4.3 million, of which our portion is approximately $1.0 million.
 
 NOTE E — INVESTMENT IN MARKETABLE SECURITIES – RELATED PARTY
 
 As of June 30, 2012 and December 31, 2011, we owned 537,078 shares of VRM II’s common stock, representing approximately 4.22% of the total outstanding shares.  The closing price of VRM II’s common stock on June 30, 2012, was $1.14 per share, resulting in an unrealized loss for the six months ended June 30, 2012.
 
 At December 31, 2011, our manager evaluated the near-term prospects of VRM II in relation to the severity and duration of the unrealized loss.  Based on that evaluation and current market conditions, we have determined there was an other-than-temporary impairment on our investment in VRM II as of December 31, 2011.  We reversed our unrealized other comprehensive losses and realized a loss on our investment to its fair value of $1.17 per share as of December 31, 2011, totaling approximately $0.2 million and recognizing an impairment of approximately $0.2 million.
 
 During the three months ended June 30, 2012, the trading price for VRM II’s common stock ranged from $1.10 to $1.73 per share.  We will continue to evaluate our investment in marketable securities on a quarterly basis.
 
 NOTE F — REAL ESTATE HELD FOR SALE
 
 At June 30, 2012 we held four properties with a total carrying value of approximately $2.0 million, which were acquired through foreclosure and recorded as investments in REO.  Our REO 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.  We seek to sell properties acquired through foreclosure as quickly as circumstances permit taking into account current economic conditions.
 
 During April 2012, we, VRM II and Fund III sold a property to an unrelated third party for approximately $0.5 million, of which our portion was approximately $0.1 million.  This transaction resulted in a net gain for us of approximately $2,000.  A consultation fee of approximately $17,000 was paid to our manager.
 
  -19-
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  NOTE G — ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS
 
 During May 2012, we, VRM II and Fund III foreclosed on a loan with a balance of approximately $6.0 million, of which our portion was approximately $4.4 million. The property includes 23 cottage units in a retirement community located in Eugene, Oregon. The property includes operations, which will be reported as an asset held for sale from the date of this foreclosure.
 
 Effective January 1, 2009, we adopted FASB's accounting standard related to business combination which required acquisition method of accounting to be used for all business combinations and for an acquirer to be identified for each business combination. This accounting standard requires an acquirer to recognize the assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions. It also requires the acquirer in a business combination achieved in stages (sometimes referred to as a step acquisition) to recognize the identifiable assets and liabilities, as well as the non-controlling interest in the acquiree, at the full amounts of their fair values (or other amounts determined in accordance with the standard).
 
 Our acquisition of VREO XXII was accounted for in accordance with this standard and the Company has allocated the purchase price of VREO XXII based upon the estimated fair value of the net assets acquired and liabilities assumed and the fair value of the noncontrolling interest measured at the acquisition date. The estimated fair value of VREO XXII at the time of the acquisition totaled $4.1 million.
 
 We performed an allocation as of the foreclosure date as follows:
 
 Cash

$
308,000Property and equipment


3,841,000Current assets


14,000Accounts payable and accrued liabilities


(23,000
)Net assets

$
4,140,000
 
 In addition, we estimated the fair value of the non-controlling interest at $1.1 million, which is 25% owned by Fund III and 1% by VRM II.
 
 Immediately upon foreclosure, we committed to a plan to sell all interests in VREO XXII, at which point we began classifying the related assets of VREO XXII as assets held for sale, and the related liabilities as liabilities related to assets held for sale. Additionally, we have classified VREO XXII’s results as discontinued operations.
 
 Assets and groups of assets and liabilities which comprise disposal groups are classified as “held for sale” when all of the following criteria are met: a decision has been made to sell, the assets are available for sale immediately, the assets are being actively marketed at a reasonable price in relation to the current fair value, a sale has been or is expected to be concluded within twelve months of the balance sheet date, and significant changes to the plan to sell are not expected. Assets held for sale are not depreciated.
 
 Additionally, the operating results and cash flows related to these assets and liabilities are included in discontinued operations in the consolidated statements of operations and consolidated statements of cash flows for the year ended June 30, 2012.
 
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 The following is summary of net assets held for sale through June 30, 2012:
 
 June 30, 2012Assets:Cash

$
363,000Current assets


7,000Property and equipment


3,840,000Total assets

$
4,210,000Liabilities:Accounts payable and accrued liabilities

$
31,000Total liabilities


31,000Net assets held for sale

$
4,179,000
 
 The following is summary of the results of operations related to the assets held for sale for the two months ended June 30, 2012:
 For The Two Months Ended

June 30, 2012Revenue

$
102,000Expenses


(63,000
)Net Income

$
39,000
 
 NOTE H – OTHER REAL ESTATE OWNED
 
 On February 7, 2012, we, VRM II and Fund III entered into a Deed in Lieu Agreement with a borrower resolving the foreclosure of our secured loan which had matured on December 31, 2011, with a balance of approximately $11.8 million, of which our portion was approximately $0.9 million.  Our subsidiary 1701 Commerce, LLC, pursuant to the Deed in Lieu Agreement received a deed to the property which had secured the loan.  The property, which is being operated as the Sheraton – Forth Worth, Texas, is the subject of litigation relating to the validity, priority, nature, and extent of liens claimed by other parties that may secure claims ranging from approximately $39 million to $43 million. We dispute both the validity of the claimed liens and the amount of the claimed secured debt in whole or in part and as of this time intend to pursue our objections and disputes as to such matters.  On March 26, 2012, 1701 Commerce filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the Northern District of Texas, Ft. Worth Division, to reorganize its financial affairs and to avoid a potential foreclosure of the property that had been scheduled by the lien claimants and to preserve and protect 1701 Commerce’s equity in the and the interests of the other creditors of the property.  Due to the uncertainty and dispute involving this property, we have recorded this investment as Other Real Estate Owned on the balance sheet. We will continue to pursue and protect our equity in this property and have formulated and proposed a plan of reorganization for the Debtor and the property. Such plan has not been confirmed or approved by the Bankruptcy Court as of this time and we anticipate that revisions to the plan will be required to confirm the plan. If the Bankruptcy Court confirms a plan of reorganization in which our equity in the Debtor is preserved or retained, we expect to include the operations through consolidation into our financial statements from that date. If we are not able to confirm such a plan or if the Bankruptcy Court confirms a reorganization plan that does not retain or preserve 100% of the loan, we will determine the appropriate accounting treatment as of the date of such event, if any.  We hold an interest of approximately 8%, VRM II holds an interest of approximately 90% and Fund III holds an interest of approximately 2% in 1701 Commerce.
 
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 NOTE I — RELATED PARTY TRANSACTIONS
 
 From time to time, we may acquire or sell investments in real estate loans from/to our manager or other related parties.  Pursuant to the terms of our Management Agreement, such acquisitions and sales are made without any mark up or mark down.  No gain or loss is recorded on these transactions, as it is not our intent to make a profit on the purchase or sale of such investments.  The purpose is generally to diversify our portfolio by syndicating loans, thereby providing us with additional capital to make additional loans.
 
 Transactions with the Manager
 
 Our manager is entitled to receive from us an annual management fee of up to 0.25% of our aggregate capital contributions received by us and Fund I from the sale of shares or membership units, paid monthly.  The amount of management fees paid to our manager for the three months and six months ended June 30, 2012 and 2011 was $69,000 and $138,000, respectively, for each period.
 
 As of June 30, 2012 and December 31, 2011, our manager owned 100,000 of our common shares, representing approximately 1.6% of our total outstanding common stock.  For the three and six months ended June 30, 2012 and 2011, we declared $0 in dividends payable to our manager.
 
 As of June 30, 2012 and December 31, 2011 we did not owe or have any receivables from our manager.
 
 As of March 31, 2012, we had paid our manager approximately $69,000 for services to be performed from April through June 2012.  As of June 30, 2012 there is no prepaid balance.   A discount of 7% will be applied to the July 2012 payment.
 
 During May 2012, our manager received total consultation fee of approximately $17,000, related to the sale of a VRM II, Fund III and our REO property.
 
 Transactions with Other Related Parties
 
 As of June 30, 2012 and December 31, 2011, we owned 537,078 common shares of VRM II, representing approximately 4.2%, of their total outstanding common stock.  For the three and six months ended June 30, 2012 and 2011 we recognized $0 in dividend income from VRM II.
 
 As of June 30, 2012 and December 31, 2011, VRM II owned 538,178 of our common shares, approximately 8.5%, of our total outstanding common stock.  For the three and six months ended June 30, 2012 and 2011 we declared $0 in dividends payable to VRM II.
 
 As of June 30, 2012 and December 31, 2011 we owed VRM II approximately $20,000 and approximately $0.1 million, respectively, primarily related to legal fees
 
 As of June 30, 2012 we had a receivable with Fund III of  $1,000.  As of December 31, 2011 we had no receivable or payable with Fund III.
 
 NOTE J — NOTES RECEIVABLE
 
 During January 2012 we, VRM II and Fund III rewrote one of our existing loans.  The interest rate of this loan was changed from 3% paying monthly with 5% accruing to 7% paid monthly.  The amount of the loan allowance of approximately $0.1 million and the interest currently accrued on the existing loan, which was fully allowed for, of approximately $23,000 was moved to notes receivable.  In April 2012, we received a payment on the new loan, which was less than the amount owed.  The difference of $19,000 was recorded as a loan allowance as of June 30 and was reclassified to notes receivable during April 2012.
 
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 During April 2012, we, VRM II and Fund III received a payment in full satisfaction of an investment in real estate loan secured by a first deed of trust.  The remaining balance due on the second deed of trust was previously fully allowed for, of approximately $0.2 million was moved to notes receivable and remains fully allowed for.  We receive monthly payments of approximately $11,000.  As of June 30, 2012 the balance is approximately $0.2 million.
 
 During February 2012, we, VRM II and Fund III received a payment in full satisfaction of an investment in real estate loan secured by a first deed of trust and a partial payment of an investment in real estate loan secured by a second deed of trust on the same real estate.  The remaining balance due on the second deed of trust was previously fully allowed for, of approximately $0.7 million was moved to notes receivable and remains fully allowed for.  During March 2012 a payment of approximately $30,000 was received and recognized as Gain related to pay off of notes receivable, including recovery of allowance for notes receivable.  Additionally, we receive monthly payments of approximately $1,000.  As of June 30, 2012 the balance is approximately $0.7 million.
 
 NOTE K — FAIR VALUE
 
 As of June 30, 2012, financial assets and liabilities utilizing Level 1 inputs included investment in marketable securities - related party.  We had no assets or liabilities utilizing Level 2 inputs, and assets and liabilities utilizing Level 3 inputs included investments in real estate loans.
 
 To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment.  Accordingly, our degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3.  In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy.  In such cases, an asset or liability will be classified in its entirety based on the lowest level of input that is significant to the measurement of fair value.
 
 Fair value is a market-based measure considered from the perspective of a market participant who holds the asset or owes the liability rather than an entity-specific measure.  Therefore, even when market assumptions are not readily available, our own assumptions are set to reflect those that market participants would use in pricing the asset or liability at the measurement date.  We use prices and inputs that are current as of the measurement date, including during periods of market dislocation, such as the recent illiquidity in the auction rate securities market.  In periods of market dislocation, the observability of prices and inputs may be reduced for many instruments.  This condition may cause our financial instruments to be reclassified from Level 1 to Level 2 or Level 3 and/or vice versa.
 
 Our valuation techniques will be consistent with at least one of the three possible approaches: the market approach, income approach and/or cost approach.  Our Level 1 inputs are based on the market approach and consist primarily of quoted prices for identical items on active securities exchanges.  Our Level 2 inputs are primarily based on the market approach of quoted prices in active markets or current transactions in inactive markets for the same or similar collateral that do not require significant adjustment based on unobservable inputs.  Our Level 3 inputs are primarily based on the income and cost approaches, specifically, discounted cash flow analyses, which utilize significant inputs based on our estimates and assumptions.
 
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 The following table presents the valuation of our financial assets as of June 30, 2012, measured at fair value on a recurring basis by input levels:
 
 Fair Value Measurements at Reporting Date UsingQuoted Prices in Active Markets For Identical Assets (Level 1)


Significant Other Observable Inputs (Level 2)


Significant Unobservable Inputs (Level 3)


Balance

at 6/30/2012


Carrying Value on Balance Sheet at 6/30/2012AssetsInvestment in marketable securities - related party

$
631,000


$
--


$
--


$
631,000


$
631,000Investment in real estate loans

$
--


$
--


$
11,733,000


$
11,733,000


$
11,739,000
 
 Fair Value Measurements at Reporting Date UsingQuoted Prices in Active Markets For Identical Assets (Level 1)


Significant Other Observable Inputs (Level 2)


Significant Unobservable Inputs (Level 3)


Balance at 12/31/2011


Carrying Value on Balance Sheet at 12/31/2011AssetsInvestment in marketable securities - related party

$
651,000


$
--


$
--


$
651,000


$
651,000Investment in real estate loans

$
--


$
--


$
10,827,000


$
10,827,000


$
10,802,000
 
 The following table presents the changes in our financial assets and liabilities that are measured at fair value on a recurring basis using significant unobservable inputs (Level 3) from January 1, 2012 to June 30, 2012.  There were no liabilities measured at fair value on a recurring basis using significant unobservable inputs as of January 1, 2012 to June 30, 2012.
  Investment in real estate loansBalance on January 1, 2012

$
10,827,000Change in temporary valuation adjustment included in net income (loss)Net decrease in allowance for loan losses


134,000Transfer of allowance on real estate loans converted to unsecured notes receivable


1,062,000Transfer of allowance on real estate loan to other real estate owned


150,000Transfer of allowance on real estate loan to asset held for sale


1,375,000Reduction of allowance on real estate loan following payment of loan


1,101,000Purchase and additions of assetsNew mortgage loans and mortgage loans bought


12,163,000Transfer of real estate loans to other real estate owned


(937,000
)Transfer of real estate loan to asset held for sale


(4,434,000
)Transfer of real estate loans converted to unsecured notes receivable


(989,000
)Sales, pay downs and reduction of assetsCollections of principal and sales of investment in real estate loans


(8,688,000
)Temporary change in estimated fair value based on future cash flows


(31,000
)Balance on June 30, 2012, net of temporary valuation adjustment

$
11,733,000
 
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 The following table presents the changes in our financial assets and liabilities that are measured at fair value on a recurring basis using significant unobservable inputs (Level 3) from January 1, 2011 to June 30, 2011:
 Investment in real estate loansBalance on January 1, 2011
$
6,660,000Change in temporary valuation adjustment included in net lossIncrease in allowance for loan losses

(116,000)Purchase and additions of assetsNew mortgage loans and mortgage loans bought

490,000Reduction of allowance for loan losses relative to settlement of   investment in real estate loan

986,000Sales, pay downs and reduction of assetsCollections of principal and settlements of investment in real estate loans

(1,120,000)Temporary change in estimated fair value based on future cash flows

(98,000)Balance on June 30, 2011, net of temporary valuation adjustment
$
6,802,000
 
 NOTE L — RECENT ACCOUNTING PRONOUNCEMENTS
 
 Adopted
 
 On January 1, 2012, VRM I adopted changes issued by the Financial Accounting Standards Board (FASB) to conform existing guidance regarding fair value measurement and disclosure between GAAP and International Financial Reporting Standards. These changes both clarify the FASB’s intent about the application of existing fair value measurement and disclosure requirements and amend certain principles or requirements for measuring fair value or for disclosing information about fair value measurements. The clarifying changes relate to the application of the highest and best use and valuation premise concepts, measuring the fair value of an instrument classified in a reporting entity’s shareholders’ equity, and disclosure of quantitative information about unobservable inputs used for Level 3 fair value measurements. The amendments relate to measuring the fair value of financial instruments that are managed within a portfolio; application of premiums and discounts in a fair value measurement; and additional disclosures concerning the valuation processes used and sensitivity of the fair value measurement to changes in unobservable inputs for those items categorized as Level 3, a reporting entity’s use of a nonfinancial asset in a way that differs from the asset’s highest and best use, and the categorization by level in the fair value hierarchy for items required to be measured at fair value for disclosure purposes only. Other than the additional disclosure requirements (see Note L), the adoption of these changes had no impact on the Consolidated Financial Statements.
 
 On January 1, 2012, VRM I adopted changes issued by the FASB to the presentation of comprehensive income. These changes give an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements; the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity was eliminated. The items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income were not changed. Additionally, no changes were made to the calculation and presentation of earnings per share. Management elected to present the two-statement option. Other than the change in presentation, the adoption of these changes had no impact on the Consolidated Financial Statements.
 
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 Issued
 
 In December 2011, the Financial Accounting Standards Board (“FASB”) released Accounting Standards Update No. 2011-10 (“ASU 2011-10”), Property, Plant and Equipment (Topic 360): Derecognition of in Substance Real Estate—a Scope Clarification (a consensus of the FASB Emerging Issues Task Force).ASU 2011-10 clarifies when a parent (reporting entity) ceases to have a controlling financial interest in a subsidiary that is in substance real estate as a result of default on the subsidiary’s nonrecourse debt, the reporting entity should apply the guidance for Real Estate Sale (Subtopic 360-20). The provisions of ASU 2011-10 are effective for public companies for fiscal years and interim periods within those years, beginning on or after June 15, 2012. When adopted, ASU 2011-10 is not expected to materially impact our consolidated financial statements.
 
 NOTE M — LEGAL MATTERS INVOLVING THE MANAGER
 
 The United States Securities and Exchange Commission (the “Commission”), conducted an investigation of certain matters related to us, our manager, Vestin Capital, VRM I, and Fund III.  We fully cooperated during the course of the investigation.  On September 27, 2006, the investigation was resolved through the entry of an Administrative Order by the Commission (the “Order”).  Our manager, Vestin Mortgage and its Chief Executive Officer, Michael Shustek, as well as Vestin Capital (collectively, the “Respondents”), consented to the entry of the Order without admitting or denying the findings therein.
 
 In the Order, the Commission found that the Respondents violated Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933 through the use of certain slide presentations in connection with the sale of units in Fund III and in our predecessor, Vestin Fund II, LLC.  The Respondents consented to the entry of a cease and desist order, the payment by Mr. Shustek of a fine of $100,000 and Mr. Shustek’s suspension from association with any broker or dealer for a period of six months, which expired in March 2007.  In addition, the Respondents agreed to implement certain undertakings with respect to future sales of securities.  We are not a party to the Order.
 
 The Vestin Group and Fund III were defendants in a civil action filed by Birkeland Family, LLC III and Birkeland Family, LLC V (“Plaintiffs”) in District Court for Clark County, Nevada.  The Plaintiffs alleged as causes of action against Vestin Group and Fund III:  Breach of Contract and Breach of the Implied Covenant of Good Faith and Fair Dealing regarding the sale of the office building commonly described as 8379 W. Sunset Road, Las Vegas, Nevada.  The action sought monetary, punitive and exemplary damages.  On January 18, 2011, summary judgment was granted in favor of Fund III, with the Court finding that Fund III was not part of the lease and, therefore, could not be held liable for damages.  The Manager is still involved in this civil action. Fund III is attempting to recover legal fees associated with this matter.  A judgment has been entered against Vestin Group in the amount of approximately $4.2 million.  Vestin Group has appealed this judgment.
 
 VRM II, Vestin Mortgage and Michael V. Shustek (“Defendants”) were defendants in a civil action filed by 88 sets of plaintiffs representing approximately 138 individuals (“Plaintiffs”), in District Court for Clark County, Nevada (the “Nevada Lawsuit”).  The Plaintiffs alleged, among other things, that Defendants: breached certain alleged contractual obligations owed to Plaintiffs; breached fiduciary duties supposedly owed to Plaintiffs; and misrepresented or omitted material facts regarding the conversion of Fund II into VRM II.  The action sought monetary and punitive damages.  The court dismissed the claim for punitive damages.  On September 8, 2010, the parties agreed to settle the case.  The Settlement Agreement provides for the settlement and complete release of all claims against the Defendants.  The settlement was made without admission of liability by Defendants.
 
 In addition to the matters described above, our manager is involved in a number of other legal proceedings concerning matters arising in connection with the conduct of its business activities.  Our manager believes it has meritorious defenses to each of these actions and intends to defend them vigorously.  Other than the matters described in Note N –Legal Matters Involving The Company below, our manager believes that it is not a party to any pending legal or arbitration proceedings that would have a material adverse effect on our manager’s financial condition or results of operations or cash flows, although it is possible that the outcome of any such proceedings could have a material impact on the manager’s net income in any particular period.
 
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 NOTE N — LEGAL MATTERS INVOLVING THE COMPANY
 
 In April 2006, the lenders of the loans made to RightStar, Inc. (“RightStar”) filed suit against the State of Hawaii listing 26 causes of action, including allegations that the State of Hawaii 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 attempted to force the lenders to accept liability for any statutory trust fund deficits while no such lender liability exists under the laws of the State of Hawaii.  The State of Hawaii responded by filing allegations against Vestin Mortgage and VRM II alleging that these Vestin entities improperly influenced the former RightStar trustees to transfer trust funds to VRM II.
 
 On May 9, 2007, we, VRM II, Vestin Mortgage, the State of Hawaii and Comerica Incorporated (“Comerica”) announced that an arrangement had been reached to auction the RightStar assets.  The auction was not successful. On June 12, 2007, the court approved the resolution agreement, which provides that the proceeds of the foreclosure sale would be allocated in part to VRM II, Vestin Mortgage and us and in part to fund the trust’s statutory minimum balances.  We, VRM II, Vestin Mortgage, the State of Hawaii and Comerica have pledged to cooperate to recover additional amounts owed to the trusts and the creditors from others.  Should the recovery meet or exceed $9 million, all parties have agreed that no further litigation between the state of Hawaii and Vestin will be reinstituted related to the trusts’ statutory minimum balances.  The Vestin entities and the State of Hawaii signed a new agreement that would permit the foreclosure to proceed.  On January 25, 2010, the Circuit Court of the First Circuit for the State of Hawaii confirmed the right of VRM I and its affiliates VRM II and Vestin Mortgage, to acquire through foreclosure the RightStar assets.  On June 29, 2010 the First Circuit for the State of Hawaii issued its final order allowing the foreclosure.  On July 13, 2010 we and VRM II completed our foreclosure of these properties and we classified them as Investment in Equity Method Investee Held for Sale.
 
 We, VRM II and Vestin Mortgage (“Defendants”) were defendants in a breach of contract class action filed in San Diego Superior Court by certain plaintiffs who alleged, among other things, that they were wrongfully denied roll-up rights in connection with the merger of Fund I into VRM I and Fund II into VRM II.  The court certified a class of all former Fund I unit holders and Fund II unit holders who voted against the mergers of Fund I into VRM I and Fund II into VRM II.  The trial began in December 2009 and concluded in January 2010.  On February 11, 2010, the Defendants were notified of a Tentative Statement of Decision, in their favor issued by the Superior Court for the State of California in San Diego following a trial.  In the Tentative Statement, the Court found that there was no roll-up and therefore no breach of contract.  The Court entered final judgment for the Defendants on March 18, 2010.  Defendants and Plaintiffs agreed to a post-judgment settlement by which Plaintiffs agreed not to appeal the judgment in consideration of a waiver by the Defendants of any claim to recover actual court costs from the Plaintiffs.  The Court granted final approval of this settlement of post-judgment rights on July 9, 2010.
 
 We, Vestin Mortgage and Michael V. Shustek (“Defendants”) were defendants in a civil action filed by approximately 25 separate plaintiffs (“Plaintiffs”) in District Court for Clark County, Nevada.  The Plaintiffs alleged, among other things, that Defendants: breached certain alleged contractual obligations owed to Plaintiffs; breached fiduciary duties supposedly owed to Plaintiffs; and misrepresented or omitted material facts regarding the conversion of Fund I into VRM I.  The action sought monetary and punitive damages.  On September 8, 2010, the parties agreed to settle the case.  The Settlement Agreement provides for the settlement and complete release of all claims against the Defendants.  The settlement was made without admission of liability by the Defendants.
 
 In addition to the matters described above, we are involved in a number of other legal proceedings concerning matters arising in the ordinary course of our business activities.  We believe we have meritorious defenses to each of these actions and intend to defend them vigorously.  Other than the matters described above, we believe that we are not a party to any pending legal or arbitration proceedings that would have a material adverse effect on our financial condition or results of operations or cash flows, although it is possible that the outcome of any such proceedings could have a material impact on our operations in any particular period.
 
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 In July, 2012, we along with our Manager, VRMI, Vestin Group, Vestin Originations and Michael Shustek entered into a Settlement Agreement and Mutual Release with the State of Hawaii and The Huntington National Bank as successor trustee to the Rightstar Trusts.  Under the ARRA, Vestin was entitled to receive a portion of certain net proceeds from certain claims from third parties through litigation, settlement or otherwise. The parties agreed that to mutually release each other from any claims and in lieu of such amounts due under the ARRA, within ten (10) business days after the later of (a) the Successor Trustee Huntington's receipt of the First Tranche of certain trust recovery proceeds or (b) entry of a final and non-appealable decision or order approving settlement with each of certain other persons, the sum of ONE HUNDRED FORTY-FIVE THOUSAND DOLLARS ($145,000.00) shall be disbursed from the First Tranche of TRM Proceeds to Vestin.  All other amounts payable under the ARRA were assigned to the Rightstar Trusts and the Successor Trustee Huntington all rights, obligations and claims Vestin has or ever can, shall or may have or claim to have arising out of or related to the Rightstar Trusts, or which were asserted or which could have been asserted in such cases.  Vestin also released any and all interest in the amounts set aside from the sale of the property at 485 Waiale Street, Wailuku, Hawai'i (the "Maui Property Proceeds"). Finally Vestin agreed to purchase all 447,226 shares in Vestin Fund II, LLC currently owned by the Rightstar trusts for $1.40 per share, which purchase is to be consummated within seven (7) days following Court approval of the settlement.  The settlement was approved by the Court on August 3, 2012.
 
 On February 7, 2012, we, VRM II and Fund III entered into a Deed in Lieu Agreement with a borrower resolving the foreclosure of our secured loan which had matured on December 31, 2011, with a balance of approximately $11.8 million, of which our portion was approximately $0.9 million.  Our subsidiary 1701 Commerce, LLC, pursuant to the Deed in Lieu Agreement received a deed to the property which had secured the loan.  The property, which is being operated as the Sheraton – Forth Worth, Texas, is the subject of litigation relating to the validity, priority, nature, and extent of liens claimed by other parties that may secure claims ranging from approximately $39 million to $43 million. We dispute both the validity of the claimed liens and the amount of the claimed secured debt in whole or in part and as of this time intend to pursue our objections and disputes as to such matters.  On March 26, 2012, 1701 Commerce filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the Northern District of Texas, Ft. Worth Division, to reorganize its financial affairs and to avoid a potential foreclosure of the property that had been scheduled by the lien claimants and to preserve and protect 1701 Commerce’s equity in the and the interests of the other creditors of the property.  Due to the uncertainty and dispute involving this property, we have recorded this investment as Other Real Estate Owned on the balance sheet. We will continue to pursue and protect our equity in this property and have formulated and proposed a plan of reorganization for the Debtor and the property. Such plan has not been confirmed or approved by the Bankruptcy Court as of this time and we anticipate that revisions to the plan will be required to confirm the plan. If the Bankruptcy Court confirms a plan of reorganization in which our equity in the Debtor is preserved or retained, we expect to include the operations through consolidation into our financial statements from that date. If we are not able to confirm such a plan or if the Bankruptcy Court confirms a reorganization plan that does not retain or preserve 100% of the loan, we will determine the appropriate accounting treatment as of the date of such event, if any.  We hold an interest of approximately 8%, VRM II holds an interest of approximately 90% and Fund III holds an interest of approximately 2% in 1701 Commerce.
 NOTE O — INCOME TAXES
  We operated as a REIT through December 31, 2011. We announced on March 28, 2012 that we have terminated our election to be treated as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”), effective for the tax year ending December 31, 2012.
 
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 The components of the provision for income tax benefit are as follows for the six months ended:
 
 6/30/2012


6/30/2011Current TaxesFederal


--



--State


--



--Total Current Taxes


--



--Change in Deferred Taxes


230,000



--Change in Valuation Allowance


(230,000
)


--Provision for income tax expense (benefit)


--



--
 
 The following is a summary of the significant components of the Company’s deferred tax assets and liabilities at June 30, 2012:
 
 Deferred Tax Assets:Provision for Loan Losses


554,000Write down on real estate held for sale


915,000Recovery of allowance for doubtful notes receivable


601,000Unrealized (gain) Loss on marketable securities - related party


1,017,000Net operating loss carryforward


11,493,000Total Deferred Tax Assets


14,580,000Valuation allowance


(14,580,000
)Deferred Tax Assets, net of valuation allowance


--Non-current portionCurrent portion


--
 
 The effective tax rate used for calculation of the deferred taxes as of June 30, 2012 was 34%.  The Company has established a valuation allowance against deferred tax assets of $14,579,667 due to the uncertainty regarding realization, comprised primarily of a reserve against the deferred tax assets attributable to the net operating loss carryforward timing differences.
 
 As of December 31, 2011 we were organized and conducted our operations to qualify as a REIT under Sections 856 to 860 of the Internal Revenue Code of 1986, as amended (the “Code”) and to comply with the provisions of the Internal Revenue Code with respect thereto.  A REIT is generally not subject to federal income tax on that portion of its REIT taxable income (“Taxable Income”) which is distributed to its stockholders, provided that at least 90% of Taxable Income is distributed and provided that certain other requirements are met.  Our Taxable Income may substantially exceed or be less than our net income as determined based on GAAP, because, differences in GAAP and taxable net income consist primarily of allowances for loan losses or doubtful account, write-downs on real estate held for sale, amortization of deferred financing cost, capital gains and losses, and deferred income.
 
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 NOTE P — SUBSEQUENT EVENTS
 
 In July, 2012, we along with our Manager, VRMI, Vestin Group, Vestin Originations and Michael Shustek entered into a Settlement Agreement and Mutual Release with the State of Hawaii and The Huntington National Bank as successor trustee to the Rightstar Trusts.  Under the ARRA, Vestin was entitled to receive a portion of certain net proceeds from certain claims from third parties through litigation, settlement or otherwise. The parties agreed that to mutually release each other from any claims and in lieu of such amounts due under the ARRA, within ten (10) business days after the later of (a) the Successor Trustee Huntington's receipt of the First Tranche of certain trust recovery proceeds or (b) entry of a final and non-appealable decision or order approving settlement with each of certain other persons, of approximately $0.1 milliom shall be disbursed from the First Tranche of TRM Proceeds to Vestin.  All other amounts payable under the ARRA were assigned to the Rightstar Trusts and the Successor Trustee Huntington all rights, obligations and claims Vestin has or ever can, shall or may have or claim to have arising out of or related to the Rightstar Trusts, or which were asserted or which could have been asserted in such cases.  Vestin also released any and all interest in the amounts set aside from the sale of the property at 485 Waiale Street, Wailuku, Hawai'i (the "Maui Property Proceeds"). Finally Vestin agreed to purchase all 447,226 shares in Vestin Fund II, LLC currently owned by the Rightstar trusts for $1.40 per share , which purchase is to be consummated within seven (7) days following Court approval of the settlement.  The settlement was approved by the Court on August 3, 2012.
 
 We and VRM II announced on May 30, 2012 that they, along with VRM Merger Sub, Inc. (a wholly owned subsidiary of VRM II), have entered into a definitive merger agreement pursuant to which VRM Merger Sub will merge with and into VRM I in a stock-for-stock merger, with us surviving the transaction as a wholly owned subsidiary of VRM II.  Under the terms of the transaction, which has been approved by the boards of directors of both companies, stockholders of VRM I (other than VRM II) will receive a fixed ratio of 0.82 share of VRM II common stock for each share of VRM I common stock they own.  If the transaction is approved by our shareholders and teh shareholders of VRM II upon closing, which is expected in the fourth quarter of 2012, our stockholders will own approximately 30% of VRM II common stock.  Pursuant to the terms of the agreement, one member of our Board of Directors will replace an existing Director on the VRM I Board of Directors.  A registration statement relating to the stock to be issued by VRM II in the proposed transaction will be filed with the SEC.  The transaction is subject to customary approvals and closing conditions and requires the approval of our stockholders (with respect to the merger) and the VRM II stockholders (with respect to the issuance of VRM II common stock).
 
 The VRM II board of directors has recommended that VRM II changes its manager by appointing VRM Management LLC as its new manager.  VRM Management is a newly formed Nevada limited liability company which is 90% owned by our Chairman and Chief Executive Officer, Michael Shustek and 10% by Craig Burr.  Mr. Burr is an attorney who has been engaged in the private practice of law in Las Vegas, Nevada for more than 19 years.  The current employees and officers of Vestin Mortgage would join VRM Management and would continue to render services to us through this new entity.
 
 The terms of the proposed management agreement with VRM Management are identical to VRM II’s current Management Agreement with Vestin Mortgage.  In addition, VRM Management will be subject to the continuing oversight of the VRM II board of directors to be the same extent as Vestin Mortgage.
 
  -30-
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 ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
 The following is a financial review and analysis of our financial condition and results of operations for the six months ended June 30, 2012 and 2011.  This discussion should be read in conjunction with our consolidated financial statements and accompanying notes and other detailed information regarding us appearing elsewhere in this report on Form 10-Q and our report on Form 10-K, Part II, Item 7 Management’s Discussion and Analysis of Financial Conditions and Results of Operations for the year ended December 31, 2011.
 
 FORWARD-LOOKING STATEMENTS
 
 Certain statements in this report, including, without limitation, matters discussed under this Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations, should be read in conjunction with the consolidated financial statements, related notes, and other detailed information included elsewhere in this report on Form 10-Q.  We are including this cautionary statement to make applicable and take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  Statements that are not historical fact are forward-looking statements.  Certain of these forward-looking statements can be identified by the use of words such as “believes,” “anticipates,” “expects,” “intends,” “plans,” “projects,” “estimates,” “assumes,” “may,” “should,” “will,” or other similar expressions.  Such forward-looking statements involve known and unknown risks, uncertainties and other important factors, which could cause actual results, performance or achievements to differ materially from future results, performance or achievements.  These forward-looking statements are based on our current beliefs, intentions and expectations.  These statements are not guarantees or indicative of future performance.  Important assumptions and other important factors that could cause actual results to differ materially from those forward-looking statements include, but are not limited to, those factors, risks and uncertainties of this Quarterly Report on Form 10-Q and in our other securities filings with the Securities and Exchange Commission (“SEC”).  Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and involve inherent risks and uncertainties.  Our estimates of the value of collateral securing our loans may change, or the value of the underlying property could decline subsequent to the date of our evaluation.  As a result, such estimates are not guarantees of the future value of the collateral.  The forward-looking statements contained in this report are made only as of the date hereof.  We undertake no obligation to update or revise information contained herein to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
 
 RESULTS OF OPERATIONS
 
 OVERVIEW
 
 Our primary business objective is to generate income while preserving principal by investing in real estate loans.  We believe there is a significant market opportunity to make real estate loans to owners and developers of real property whose financing needs are not met by other real estate lenders.  The loan underwriting standards utilized by our manager and the mortgage brokers we utilize are less strict than those used by many institutional real estate lenders.  In addition, one of our competitive advantages is our ability to approve loan applications more quickly than many institutional lenders.  As a result, in certain cases, we may make real estate loans that are riskier than real estate loans made by many institutional lenders such as commercial banks.  However, in return, we seek a higher 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 many institutional real estate lenders, in return, we seek to generate higher yields from our real estate loans.
 
 Our operating results are affected primarily by: (i) the amount of capital we have to invest in real estate loans, (ii) the level of real estate lending activity in the markets we service, (iii) our ability to identify and work with suitable borrowers, (iv) the interest rates we are able to charge on our loans and (v) the level of non-performing assets, foreclosures and related loan losses which we may experience.
 
  -31-
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 Our operating results have been adversely affected by increases in allowances for loan losses and increases in non-performing assets.  This negative trend accelerated sharply during the year ended December 31, 2008 and continues to affect our operations.  See Note F – Real Estate Held for Sale and “Non-performing Loans” in Note D – Investments In Real Estate Loans of the Notes to the Consolidated Financial Statements included in Part I, Item I Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
 
 We believe that the current level of our non-performing assets is a direct result of the deterioration of the economy and credit markets several years ago.  As the economy weakened and credit became more difficult to obtain, many of our borrowers who develop and sell commercial real estate projects were unable to complete their projects, obtain takeout financing or were otherwise adversely impacted.  While the general economy has improved, the commercial real estate markets in many of the areas where we make loans continue to suffer from depressed conditions.  Our exposure to the negative developments in the credit markets and general economy has likely been increased by our business strategy, which entails more lenient underwriting standards and expedited loan approval procedures.  Moreover, declining real estate values in the principal markets in which we operate has in many cases eroded the current value of the security underlying our loans.
 
 Continued weakness in the commercial real estate markets and the weakness in lending may continue to have an adverse impact upon our markets.  This may result in further defaults on our loans, and we might be required to record additional reserves based on decreases in market values, or we may be required to restructure additional loans.  This increase in loan defaults has materially affected our operating results and led to the suspension of dividends to our stockholders.  For additional information regarding our non-performing loans see “Non-Performing Loans” in Note D –Investments In Real Estate Loans of the Notes to the Consolidated Financial Statements included in Part I, Item I Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
 
 During the six months ended June 30, 2012, we funded nine loans totaling approximately $12.2 million.  During the six months ended June 30, 2011, we funded one loan totaling approximately $0.5 million.  As of June 30, 2012, our loan-to-value ratio was 69%, net of allowances for loan losses, on a weighted average basis generally using updated appraisals.  Additional increases in loan defaults accompanied by additional declines in real estate values, as evidenced by updated appraisals generally prepared on an “as-is-basis,” will have a material adverse effect on our financial condition and operating results.
 
 As of June 30 2012, we have provided a specific reserve allowance for one non-performing and two performing loans based on updated appraisals of the underlying collateral and our evaluation of the borrower for these loans, obtained by our manager.  For further information regarding allowance for loan losses, refer to Note D – Investments in Real Estate Loans of the Notes to the Consolidated Financial Statements included in Part I, Item I Consolidated Financial Statementsof this Quarterly Report on Form 10-Q.
 
 Our capital, subject to a 3% reserve, will constitute the bulk of the funds we have available for investment in real estate loans.
 
 As of June 30, 2012, our loans were in the following states: Arizona, California, Michigan, Nevada, Texas and Utah.
 
 At our annual meeting held on December 15, 2011, a majority of the shareholders voted to amend our Bylaws to expand our investment policy to include investments in and acquisition, management and sale of real property or the acquisition of entities involved in the ownership or management of real property. A majority of the shareholders also voted to amend our charter to change the terms of our existence from its expiration date of December 31, 2019 to perpetual existence. As a result we will begin to acquire, manage, renovate, reposition, sell or otherwise invest in real property or acquire entities involved in the ownership or management of real property.
 
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 We and VRM II announced on May 30, 2012 that they, along with VRM Merger Sub, Inc. (a wholly owned subsidiary of VRM II), have entered into a definitive merger agreement pursuant to which VRM Merger Sub will merge with and into VRM I in a stock-for-stock merger, with us surviving the transaction as a wholly owned subsidiary of VRM II.  Under the terms of the transaction, which has been approved by the boards of directors of both companies, stockholders of VRM I (other than VRM II) will receive a fixed ratio of 0.82 share of VRM II common stock for each share of VRM I common stock they own.  Upon closing, which is expected in the fourth quarter of 2012, our stockholders will own approximately 30% of VRM II common stock.  Pursuant to the terms of the agreement, one member of our Board of Directors will replace an existing Director on the VRM I Board of Directors.  The primary purpose of the proposed merger is the potential cost savings and operating synergies that will be achieved through a combination.  A registration statement relating to the stock to be issued by VRM II in the proposed transaction will be filed with the SEC.  The transaction is subject to customary approvals and closing conditions and requires the approval of our stockholders (with respect to the merger) and the VRM II stockholders (with respect to the issuance of VRM II common stock).
 
 SUMMARY OF FINANCIAL RESULTS
 
 Comparison of Operating Results for the three months ended June 30, 2012, to the three months ended June 30, 2011.
 
 Total Revenue:

2012


2011


$ Change


% ChangeInterest income from investment in real estate loans

$
210,000


$
103,000


$
107,000



104
%Recovery of allowance for doubtful notes receivable


29,000



21,000



8,000



38
%Gain related to pay off of real estate loan, including recovery of allowance for loan loss


132,000



--



132,000



100
%Total

$
371,000


$
124,000


$
247,000



199
%
 
 Our revenue from interest income is dependent upon the balance of our investment in real estate loans and the interest earned on these loans.  Interest income has been adversely affected by the level of modified loans and the reduction in new lending activity during the first three quarters of 2011.  We experienced an increase in new lending activity in the second half of 2011 and we anticipate that the activity in our loan portfolio will produce an overall increase in interest income for 2012.  It is premature at this time to predict whether or not the increase in lending activity in the second half of 2011 and first half of 2012 will be sustained in the future.  Scheduled payments on fully reserved notes receivable and loans resulted in an increase in gain related to payoff of real estate loan and other income.  During May 2012, we, VRM II and Fund III sold our portions of a fully reserved loan of $14.0 million, of which our portion was $1.2 million to a third party.  We received a payment of approximately $0.1 million.
 
 For additional information see Note D – Investments in Real Estate Loansand Note I -  Notes Receivableof the Notes to the Consolidated Financial Statements included in Part I, Item 1 Consolidated Financial Statementsof this Quarterly Report on Form 10-Q.
 
 Operating Expenses:

2012


2011


$ Change


% ChangeManagement fees – related party

$
69,000


$
69,000


$
--



--Interest expense


1,000



5,000



(4,000
)


(80
%)Professional fees


213,000



81,000



132,000



163
%Insurance


55,000



62,000



(7,000
)


(11
%)Consulting


20,000



29,000



(9,000
)


(31
%)Other


26,000



69,000



(43,000
)


(62
%)Total

$
384,000


$
315,000


$
69,000



22
%
 
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 Operating expenses were 22% higher during the three months ended June 30, 2012 than during the same three months in 2011.  Interest expense decreased during the three months ended June 30, 2012 due to the decreased balance of secured borrowings which were paid off in 2011.  Professional fees have increased due to payment of legal bills pertaining to the merger.
 
 Non-operating income (loss):

2012


2011


$ Change


%ChangeInterest income from banking institutions

$
--


$
2,000


$
(2,000
)


(100
%)Recovery from settlement with loan guarantor


711,000



--



711,000



100
%Income from equity investee held for sale


--



225,000



(225,000
)


(100
%)Discounted legal fees


--



300,000



(300,000
)


(100
%)Total

$
711,000


$
527,000


$
(184,000
)


(350
%)
 
 During the three months ended June 30, 2011 we received income from equity investee held for sale and did not have similar income in 2012.  In addition, we received approximately $0.3 million in discounts related to past legal bills in 2011.  There was no similar discount received in 2012.  During January 2011, we, VRM II and Fund III were awarded unsecured claims up to $3.6 million from a bankruptcy settlement with a guarantor of certain loans. Pursuant to the terms of the settlement, we received payment of approximately $0.7 million during April 2012.
 
 See Note G – Assets Held for Sale and Discontinued Operationsincluded in Part I, Item I Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
 
 Income (loss) from discontinued operations:

2012


2011


$ Change


% ChangeNet gain on sale of real estate held for sale

$
2,000


$
--


$
2,000



(100
%)Income from asset held for sale, net of income taxes


39,000



--



39,000



(100
%)Expenses related to real estate held for sale


(56,000
)


(53,000
)


(3,000
)


6
%Write-downs on real estate held for sale


(316,000
)


(132,000
)


(184,000
)


139
%Total

$
(331,000
)

$
(185,000
)

$
146,000



(126
%)
 
 During the three months ended June 30, 2012, we recorded net gains on sale of real estate held for sale for a property sold.  The overall increase in losses from discontinued operations was primarily affected by an increase in write-downs on real estate held for sale.  The increase in write-downs on real estate held for sale is mainly due to the acceptance of a purchase contract on one property.  In addition, we received income from assets held for sale during the three months ended June 30, 2012 and did not have similar income in 2011.  Expenses related to real estate held for sale increased in the three months ended June 30, 2012 due to the acquisition of two properties during the six months ended June 30, 2012.
 
 See Note F — Real Estate Held For Saleof the Notes to the Financial Statements included in Part I, Item I Consolidated Financial Statementsof this Annual Report on Form 10-Q.
 
  -34-
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 SUMMARY OF FINANCIAL RESULTS
 
 Comparison of Operating Results for the six months ended June 30, 2012 to the six months ended June 30, 2011.
 
 Total Revenue:

2012


2011


$ Change


% ChangeInterest income from investment in real estate loans

$
352,000


$
231,000


$
121,000



52
%Recovery of allowance for doubtful notes receivable


59,000



21,000



38,000



181
%Gain related to pay off of real estate loan, including recovery of allowance for loan loss


188,000



--



188,000



100
%Other income


--



2,000



(2,000
)


(100
%)Total

$
599,000


$
254,000


$
345,000



403
%
 
 Our revenue from interest income is dependent upon the balance of our investment in real estate loans and the interest earned on these loans.  Interest income has been adversely affected by the level of modified loans and the reduction in new lending activity during the first three quarters of 2011.  We experienced an increase in new lending activity in the second half of 2011 and we anticipate that the activity in our loan portfolio will produce an overall increase in interest income for 2012.  It is premature at this time to predict whether or not the increase in lending activity in the second half of 2011 and first half of 2012 will be sustained in the future.  Scheduled payments on fully reserved notes receivable and loans resulted in an increase in gain related to payoff of real estate loan and other income.  During May 2012, we, VRM II and Fund III sold our portions of a fully reserved loan of $14.0 million, of which our portion was $1.2 million to a third party.  We received a payment of approximately $0.1 million.
 
 For additional information see Note D – Investments in Real Estate Loansand Note I -  Notes Receivableof the Notes to the Consolidated Financial Statements included in Part I, Item 1 Consolidated Financial Statementsof this Quarterly Report on Form 10-Q.
 
 Operating Expenses:

2012


2011


$ Change


% ChangeManagement fees – related party

$
138,000


$
138,000


$
--



--Provision for loan losses


19,000



127,000



(108,000
)


(85
%)Interest expense


1,000



12,000



(11,000
)


(92
%)Professional fees


388,000



273,000



115,000



42
%Insurance


111,000



120,000



(9,000
)


(8
%)Consulting


38,000



47,000



(9,000
)


(19
%)Other


79,000



125,000



(46,000
)


(37
%)Total

$
774,000


$
842,000


$
(68,000
)


(8
%)
 
 Operating expenses were 8% lower during the six months ended June 30, 2012 than during the same six months in 2011.  Provision for loan losses was lower during the six months ended June 30, 2012 than the same six months in 2011 due to values of the collateral securing our loans remaining constant.  Interest expense decreased during the six months ended June 30, 2012 due to the decreased balance of secured borrowings which were paid off in 2011.  Professional fees have increased due to payment of legal bills pertaining to the merger.
 
 See “Specific Loan Allowance” in Note D – Investments in Real Estate Loansof the Notes to the Consolidated Financial Statements included in Part I, Item 1 Consolidated Financial Statementsof this Quarterly Report on Form 10-Q.
  -35-
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 Non-operating income (loss):

2012


2011


$ Change


%ChangeInterest income from banking institutions

$
--


$
5,000


$
(5,000
)


(100
%)Recovery from settlement with loan guarantor


711,000



--



711,000



100
%Income from equity investee held for sale


--



333,000



(333,000
)


(100
%)Settlement expense


(23,000
)


--



(23,000
)


(100
%)Discounted legal fees


--



300,000



(300,000
)


(100
%)Total

$
688,000


$
638,000


$
50,000



8
%
 
 During the six months ended June 30, 2012 we settled a lawsuit with an acquirer of property previously foreclosed upon and sold which resulted in an expense of approximately $23,000.  In addition, we received income from equity investee held for sale and approximately $0.3 million in discounts related to past legal bills during the six months ended June 30, 2011 and did not have similar income or discount in 2012.  During January 2011, we, VRM II and Fund III were awarded unsecured claims up to $3.6 million from a bankruptcy settlement with a guarantor of certain loans. Pursuant to the terms of the settlement, we received payment of approximately $0.7 million during April 2012.
 
 See Note G – Assets Held for Sale and Discontinued Operationsincluded in Part I, Item I Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
 
 Income (loss) from real estate held for sale:

2012


2011


$ Change


% ChangeNet gain on sale of real estate held for sale

$
4,000


$
--


$
4,000



100
%Income from assets held for sale, net of income taxes


39,000



--



39,000



(100
%)Expenses related to real estate held for sale


(87,000
)


(134,000
)


47,000



(35
%)Write-downs on real estate held for sale


(316,000
)


(132,000
)


(184,000
)


139
%Total

$
(360,000
)

$
(266,000
)

$
(94,000
)


(35
%)
 
 During six months ended June 30, 2012 we recorded net gains on sale of real estate held for sale for properties sold in current and prior periods due to payments on settlement agreements.  The overall increase in losses from discontinued operations was primarily affected by an increase in write-downs on real estate held for sale.  The increase in write-downs on real estate held for sale is mainly due to the acceptance of a purchase contract on one property.  In addition, we received income from assets held for sale during the six months ended June 30, 2012 and did not have similar income in 2011.
 
 See Note F — Real Estate Held For SaleandNote G – Assets Held for Sale and Discontinued Operations of the Notes to the Financial Statements included in Part I, Item I Consolidated Financial Statementsof this Annual Report on Form 10-Q.
 
 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% working capital reserve, we generally seek to use all of our available funds to invest in real estate loans.  Distributable cash flow generated from such loans is paid out to our stockholders, in the form of a dividend.  We do not anticipate the need for hiring any employees, acquiring fixed assets such as office equipment or furniture, or incurring material office expenses during the next twelve months.  We may pay our manager an annual management fee of up to 0.25% of our aggregate capital received by us and Fund I from the sale of shares or membership units.
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 During the six months ended June 30, 2012, net cash flows used in operating activities approximated $0.6 million.  Operating cash flows were used for the payment of normal operating expenses such as management fees, accounting fees and legal bills.  Cash flows related to investing activities consisted of cash provided by loan and notes receivable payoffs of approximately $5.6 million, proceeds from settlement from loan guarantor of approximately $0.7 million and cash used for purchases of investments in real estate loans of approximately $12.2 million.  Cash flows from financing activities consisted of cash used in payment of notes payable of approximately $55,000.
 
 At June 30, 2012, we had approximately $2.3 million in cash, $0.6 million in marketable securities – related party and approximately $22.0 million in total assets.  We intend to meet short-term working capital needs through a combination of proceeds from loan payoffs, loan sales, sales of real estate held for sale and/or borrowings.  We believe we have sufficient working capital to meet our operating needs during the next 12 months.
 
 We have no current plans to sell any new shares.  Although a small percentage of our shareholders have elected to reinvest their dividends, we suspended payment of dividends in June 2008 and at this time are not able to predict when dividend payments will resume.  Accordingly, we do not expect to issue any new shares through our dividend reinvestment program in the foreseeable future.
 
 When economic conditions permit, we may seek to expand our capital resources through borrowings from institutional lenders or through securitization of our loan portfolio or similar arrangements.  No assurance can be given that, if we should seek to borrow additional funds or to securitize our assets, we would be able to do so on commercially attractive terms.  Our ability to expand our capital resources in this manner is subject to many factors, some of which are beyond our control, including the state of the economy, the state of the capital markets and the perceived quality of our loan portfolio.
 
 On February 21, 2008, our Board of Directors authorized the repurchase of up to $5 million worth of our common stock.  Depending upon market conditions, shares may be repurchased from time to time at prevailing market prices through open market or privately negotiated transactions.  During the year ended December 31, 2011, we used approximately $104,000 to acquire 78,600 shares of our common stock.  We are not obligated to purchase any additional shares.  As of June 30, 2012 and December 31, 2011, we had a total of 534,207 shares as treasury stock carried on our books at cost totaling $1.0 million.
 
 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.  As of August 14, 2012, we have met our 3% reserve requirement.
 
 Investments in Real Estate Loans Secured by Real Estate Portfolio
 
 We offer five real estate loan products consisting of commercial property, construction, acquisition and development, land, and residential.  The effective interest rates on all product categories range from 4.5% to 15%. Revenue by product will fluctuate based upon relative balances during the period.
 
 For additional information on our investments in real estate loans, refer to Note D – Investments In Real Estate Loans of the Notes to the Consolidated Financial Statements included in Part I, Item I Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
 
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 Asset Quality and Loan Reserves
 
 As a commercial real estate lender willing to invest in riskier loans, rates of delinquencies, foreclosures and our losses on our loans could be higher than those generally experienced in the commercial mortgage lending industry during this period of economic slowdown and recession.  Problems in the sub-prime residential mortgage market have adversely affected the general economy and the availability of funds for commercial real estate developers.  We believe this lack of available funds has led to an increase in defaults on our loans.  Furthermore, problems experienced in U.S. credit markets from 2007 through 2009 reduced the availability of credit for many prospective borrowers.  While credit markets have generally improved, the commercial real estate markets in our principal areas of operation have not recovered, thereby resulting in continuing constraints on the availability of credit in these markets.  These problems have made it more difficult for our borrowers to obtain the anticipated re-financing necessary in many cases to pay back our loans.  Thus, we have had to work with some of our borrowers to either modify, restructure and/or extend their loans in order to keep or restore the loans to performing status.  Our manager will continue to evaluate our loan portfolio in order to minimize risk associated with current market conditions.
 
 OFF-BALANCE SHEET ARRANGEMENTS
 
 As of June 30, 2012, 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.
 
 RELATED PARTY TRANSACTIONS
 
 From time to time, we may acquire or sell investments in real estate loans from/to our manager or other related parties pursuant to the terms of our Management Agreement without a premium.  No gain or loss is recorded on these transactions, as it is not our intent to make a profit on the purchase or sale of such investments.  The purpose is generally to diversify our portfolio by syndicating loans, thereby providing us with additional capital to make additional loans.  For further information regarding related party transactions, refer to Note I – Related Party Transactions of the Notes to the Consolidated Financial Statements included in Part I, Item I Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
 
 CRITICAL ACCOUNTING ESTIMATES
 
 Revenue Recognition
 
 Interest income on loans is accrued by the effective interest method.  We do not accrue interest income from loans once they are determined to be non-performing.  A loan is considered non-performing when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement or when the payment of interest is 90 days past due.
 
 The following table presents a sensitivity analysis, averaging the balance of our loan portfolio at the end of the last six quarters, to show the impact on our financial condition at June 30, 2012, from fluctuations in weighted average interest rate charged on loans as a percentage of the loan portfolio:
 
 Changed Assumption

Increase (Decrease) in Interest IncomeWeighted average interest rate assumption increased by 1.0% or 100 basis points

$
140,000Weighted average interest rate assumption increased by 5.0% or 500 basis points

$
700,000Weighted average interest rate assumption increased by 10.0% or 1,000 basis points

$
1,401,000Weighted average interest rate assumption decreased by 1.0% or 100 basis points

$
(140,000
)Weighted average interest rate assumption decreased by 5.0% or 500 basis points

$
(700,000
)Weighted average interest rate assumption decreased by 10.0% or 1,000 basis points

$
(1,401,000
)
 
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 The purpose of this analysis is to provide an indication of the impact that the weighted average interest rate fluctuations would have on our financial results.  It is not intended to imply our expectation of future revenues or to estimate earnings.  We believe that the assumptions used above are appropriate to illustrate the possible material impact on the consolidated financial statements.
 
 Allowance for Loan Losses
 
 We maintain an allowance for loan losses on our investments in real estate loans for estimated credit impairment in our investment in real estate loans portfolio.  Our manager’s estimate of losses is based on a number of factors including the types and dollar amounts of loans in the portfolio, adverse situations that may affect the borrower’s ability to repay, prevailing economic conditions and the underlying collateral securing the loan.  Additions to the allowance are provided through a charge to earnings and are based on an assessment of certain factors, which may indicate estimated losses on the loans.  Actual losses on loans are recorded as a charge-off or a reduction to the allowance for loan losses.  Subsequent recoveries of amounts previously charged off are added back to the allowance or included as income.
 
 The following table presents a sensitivity analysis to show the impact on our financial condition at June 30, 2012, 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 LossesAllowance for loan losses assumption increased by 1.0% of loan portfolio

$
134,000Allowance for loan losses assumption increased by 5.0% of loan portfolio

$
668,000Allowance for loan losses assumption increased by 10.0% of loan portfolio

$
1,337,000Allowance for loan losses assumption decreased by 1.0% of loan portfolio

$
(134,000
)Allowance for loan losses assumption decreased by 5.0% of loan portfolio

$
(668,000
)Allowance for loan losses assumption decreased by 10.0% of loan portfolio

$
(1,337,000
)
 
 Estimating allowances for loan losses requires significant judgment about the underlying collateral, including liquidation value, condition of the collateral, competency and cooperation of the related borrower and specific legal issues that affect loan collections or taking possession of the property.  As a commercial real estate lender willing to invest in loans to borrowers who may not meet the credit standards of other financial institutional lenders, the default rate on our loans could be higher than those generally experienced in the mortgage lending industry.  We and our manager generally approve loans more quickly than other real estate lenders and, due to our expedited underwriting process, there is a risk that the credit inquiry we perform will not reveal all material facts pertaining to a borrower and the security.
 
 We may discover additional facts and circumstances as we continue our efforts in the collection and foreclosure processes.  This additional information often causes management to reassess its estimates.  In recent years, we have revised estimates of our allowance for loan losses.  Circumstances that may cause significant changes in our estimated allowance include, but are not limited to:
 
 ·
Declines in real estate market conditions that can cause a decrease in expected market value;
 
 ·
Discovery of undisclosed liens for community improvement bonds, easements and delinquent property taxes;
 
 ·
Lack of progress on real estate developments after we advance funds.  We customarily utilize disbursement agents to monitor the progress of real estate developments and approve loan advances.  After further inspection of the related property, progress on construction occasionally does not substantiate an increase in value to support the related loan advances;
 
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 ·
Unanticipated legal or business issues that may arise subsequent to loan origination or upon the sale of foreclosed upon property; and
 
 ·
Appraisals, which are only opinions of value at the time of the appraisal, may not accurately reflect the value of the property.
 
 Real Estate Held for Sale
 
 Real estate held for sale includes real estate acquired through foreclosure and will be carried at the lower of the recorded amount, inclusive of any senior indebtedness, or the property’s estimated fair value, less estimated costs to sell, with fair value based on appraisals and knowledge of local market conditions.  The carrying values of real estate held for sale are assessed on a regular basis from updated appraisals, comparable sales values or purchase offers.
 
 RECENT ACCOUNTING PRONOUNCEMENTS
 
 See Note L – Recent Accounting Pronouncementsof the Notes to the Consolidated Financial Statements included in Part I, Item I Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
 
 ITEM 4.
CONTROLS AND PROCEDURES
 
  (a) Evaluation of Disclosure Controls and Procedures
  The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the Company’s disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as of the end of the period covered by this report, and they have concluded that these controls and procedures are effective.
  (b) Changes in Internal Control over Financial Reporting
  There have been no changes in internal control over financial reporting during the second quarter of 2012, that have materially affected, or are reasonably likely to materially affect, the company’s internal control over financial reporting.
 
 PART II – OTHER INFORMATION
 
 ITEM 1.
LEGAL PROCEEDINGS
 
 Please refer to Note M – Legal Matters Involving the Manager and Note N – Legal Matters Involving the Company of the Notes to the Consolidated Financial Statements included in Part I, Item I Consolidated Financial Statements of this Quarterly Report on Form 10-Q for information regarding our legal proceedings, which are incorporated herein by reference.
 
  -40-
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 ITEM 2.
UNREGISTERED SALES OF EQUITY AND USE OF PROCEEDS
 
 None.
 
 The following is a summary of our stock purchases during the three months ended June 30, 2012, as required by Regulation S-K, Item 703.
 Period

(a) Total Number of Shares Purchased

(b) Average Price Paid per Share

(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs

(d) Maximum Number of (or Approximate Dollar Value) of Shares that May Yet Be Purchase Under the Plans or ProgramsApril 1, 2012 – April 30, 2012

--
$
--

--
$
4,013,475May 1, 2012 – May 31, 2012

--

--

--

4,013,475June 1, 2012 – June 30, 2012

--

--

--

4,013,475Total

--
$
--

--
$
4,013,475
 
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  ITEM 6.
EXHIBITS
 EXHIBIT INDEX
 
 Exhibit No.

Description of Exhibits2.1(1)

Agreement and Plan of Merger between Vestin Fund I, LLC and the Registrant2.2(5)

Membership Interest Purchase Agreement between VRM I, VRM II and Northstar Hawaii, LLC3.1(1)

Articles of Incorporation of the Registrant3.2(1)

Bylaws of the Registrant3.3(1)

Form of Articles Supplementary of the Registrant4.1(1)

Reference is made to Exhibits 3.1, 3.2 and 3.34.2(2)

Specimen Common Stock Certificate4.3(1)

Form of Rights Certificate10.1(1)

Form of Management Agreement between Vestin Mortgage and the Registrant10.2(1)

Form of Rights Agreement between the Registrant and the rights agent10.3 (4)

Agreement between Strategix Solutions, LLC and Vestin Realty Mortgage I, Inc. for accounting services.10.4 (6)

Died in Lieu21.1(2)

List of subsidiaries of the Registrant31.1

Section 302 Certification of Michael V. Shustek31.2

Section 302 Certification of Eric Bullinger32

Certification Pursuant to 18 U.S.C. Sec. 135099.2R(3)

Vestin Realty Mortgage I, Inc. Code of Business Conduct and Ethics
 
 (1)

Incorporated herein by reference to Post-Effective Amendment No. 3 to our Form S-4 Registration Statement filed on January 4, 2006 (File No. 333-125347)(2)

Incorporated herein by reference to Post-Effective Amendment No. 4 to our Form S-4 Registration Statement filed on January 31, 2006 (File No. 333-125347)(3)

Incorporated herein by reference to the Transition Report on Form 10-K for the ten month transition period ended April 30, 2006 filed on June 28, 2006 (File No. 000-51964)(4)

Incorporated herein by reference to the Quarterly Report on Form 10-Q filed on May 8, 2009 (File No. 000-51964)(5)

Incorporated herein by reference to the Form 8-K/A filed on November 14, 2011 (File No. 000-51964)(6)

Incorporated herein by reference to the Form 10-K filed on March 16, 2012 (File No. 000-51964)
  -42-
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 SIGNATURES
 
 
 Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 Vestin Realty Mortgage I, Inc.By:
/s/ Michael V. ShustekMichael V. ShustekPresident and Chief Executive OfficerDate:
August 14, 2012By:
/s/ Eric BullingerEric BullingerChief Financial OfficerDate:
August 14, 2012
 
 
 
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  Exhibit 31.1
 
 CERTIFICATIONS
 
 I, Michael V. Shustek, certify that:
 
 1. I have reviewed this Form 10-Q of Vestin Realty Mortgage I, Inc.;
 
 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
 3. Based on my knowledge, the consolidated financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have:
 
 (a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
 (b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles;
 
 (c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
 (d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
 
 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
 
 (a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
 
 (b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
 
 Date: August 14, 2012
 
 /s/ Michael V. ShustekMichael V. ShustekChief Executive OfficerVestin Realty Mortgage I, Inc.
  Table of Contents
  Exhibit 31.2
 
 CERTIFICATIONS
 
 I, Eric Bullinger, certify that:
 
 1. I have reviewed this Form 10-Q of Vestin Realty Mortgage I, Inc.;
 
 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
 3. Based on my knowledge, the consolidated financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have:
 
 (a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
 (b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles;
 
 (c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
 (d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
 
 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
 
 (a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
 
 (b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
 
 Date: August 14, 2012
 
 /s/ Eric BullingerEric BullingerChief Financial OfficerVestin Realty Mortgage I, Inc.
  Table of Contents
  Exhibit 32
 
 CERTIFICATION PURSUANT TO
 18 U.S.C. SECTION 1350
 
 
 Michael V. Shustek, as Chief Executive Officer of Vestin Realty Mortgage I, Inc. (the “Registrant”), and Eric Bullinger, as Chief Financial Officer of the Registrant, hereby certify, pursuant to 18 U.S.C. Sec. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
  
  (1)
The Registrant’s Report on Form 10-Q for the six months ended June 30, 2012, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
  
  (2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
  
 
 Date: August 14, 2012
 
 /s/ Michael V. ShustekMichael V. ShustekChief Executive OfficerVestin Realty Mortgage I, Inc.
 
 
 
 Date: August 14, 2012
 
 /s/ Eric BullingerEric BullingerChief Financial OfficerVestin Realty Mortgage I, Inc.