**U.S.
      SECURITIES AND EXCHANGE COMMISSION**


WASHINGTON,
      D.C. 20549





**FORM
      10-Q**





(MARK
      ONE)





**[X]
                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                THE****SECURITIES
                EXCHANGE ACT OF 1934**





**FOR
      THE QUARTERLY PERIOD ENDED** **DECEMBER
      31, 2005**





**Or**





**[   ]
                TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                THE****SECURITIES
                EXCHANGE ACT OF 1934**





**Transition
      Period From ______________ To ______________**





*COMMISSION
      FILE NUMBER 333-32800*





**VESTIN
      FUND I, LLC**


(Exact
      Name of Registrant as Specified in Its Charter)








NEVADA
            88-0446244(State
                or Other Jurisdiction of
            (I.R.S.
                EmployerIncorporation
                or Organization)
            Identification
                No.)





**8379
      WEST SUNSET ROAD, LAS VEGAS, NEVADA 89113**


(Address
      of Principal Executive Offices) (Zip Code)





Registrant’s
      Telephone Number: 702.227.0965





Indicate
      by check mark whether the registrant: (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.





Yes
      [X]
      No [   ]





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one):





Large
                accelerated filer [   ]
            Accelerated
                filler [X]
            Non-accelerated
                filer [   ]





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Securities Exchange Act).





Yes
      [   ] No [ X]





As
      of
      February 8, 2006, 6,861,986 Units of interest in the Company were outstanding.


*Table
          of Contents*


**TABLE
      OF CONTENTS**





**PAGE**PART
                I FINANCIAL INFORMATIONItem
                1. Financial StatementsBalance
                Sheets as of December 31, 2005 (unaudited), and June
                30, 2005
            3Statements
                of Income for the Three and Six Months Ended December 31, 2005 and
                2004(unaudited)
            4Statement
                of Members’ Equity for the Six Months Ended December
                31, 2005 (unaudited)
            5Statements
                of Cash Flows for the Six Months Ended December
                31, 2005 and 2004 (unaudited)
            6Notes
                to Financial Statements (unaudited)
            8Item
                2. Management’s Discussion and Analysis of Financial
                Condition and Results of Operations
            25Item
                3. Quantitative and Qualitative Disclosures About
                Market Risk
            41Item
                4. Control and Procedures
            42PART
                II OTHER INFORMATIONItem
                1. Legal Proceedings
            44Item
                2. Unregistered Sales of Equity - Securities and Use
                of Proceeds
            45Item
                3. Defaults Upon Senior
                Securities
            46Item
                4. Submission of Matters to a Vote of Security
                Holders
            46Item
                5. Other Information
            46Item
                6. Exhibits
            46SIGNATURES
            47Exhibits
                31.1Exhibits
                31.2Exhibits
                32


*Table
          of Contents*


**PART
      I - FINANCIALINFORMATION**





**ITEM
      1.**  **FINANCIALSTATEMENTS**








**VESTINFUND
                I, LLC****BALANCE
                SHEETS****ASSETS****(UNAUDITED)**
              **DECEMBER
                31, 2005**
            
            **JUNE
                30, 2005**Cash
            
            $
            7,884,000
            
            $
            2,862,000Certificates
                of deposit
            
            
            300,000
            
            
            300,000Investment
                in marketable securities
            
            
            1,720,000
            
            
            -Interest
                and other receivables
            
            
            959,000
            
            
            682,000Due
                from Fund Manager
            
            
            248,000
            
            
            -Note
                receivable, net of allowance of $738,000 at December 31, 2005 and
                $747,000
                at June 30, 2005
            
            
            291,000
            
            
            119,000Real
                estate held for sale
            
            
            2,497,000
            
            
            7,757,000Real
                estate held for sale - seller financed
            
            
            8,797,000
            
            
            10,374,000Investment
                in real estate loans, net of allowance for loan losses of $1,604,000
                at
                December 31, 2005 and $1,896,000 at June 30, 2005
            
            
            51,309,000
            
            
            54,878,000Assets
                under secured borrowings
            
            
            2,719,000
            
            
            11,391,000Total
                assets
            
            $
            76,724,000
            
            $
            88,363,000**LIABILITIES
                AND MEMBERS' EQUITY**LiabilitiesAccounts
                payable and accrued liabilities
            
            $
            104,000
            
            $
            443,000Due
                to Fund Manager
            
            
            -
            
            
            922,000Due
                to Vestin Group
            
            
            -
            
            
            2,000Due
                to Vestin Fund II
            
            
            -
            
            
            1,560,000Due
                to Vestin Fund III
            
            
            -
            
            
            6,000Secured
                borrowings
            
            
            2,719,000
            
            
            11,391,000Note
                Payable
            
            
            881,000
            
            
            -Deposit
                liability
            
            
            700,000
            
            
            768,000Total
                liabilities
            
            
            4,404,000
            
            
            15,092,000Members'
                equity - authorized 10,000,000 units, 7,509,984 units and 7,686,323
                units
                issued at $10 per unit and outstanding at December 31, 2005 and June
                30,
                2005, respectively
            
            
            72,320,000
            
            
            73,271,000Total
                members' equity
            
            
            72,320,000
            
            
            73,271,000Total
                liabilities and members' equity
            
            $
            76,724,000
            
            $
            88,363,000


The
      accompanying notes are an integral part of these statements.


-
          3
          -
 *Table
          of Contents*





**VESTIN
                FUNDI, LLC****STATEMENTS
                OF INCOME****(UNAUDITED)****FOR
                THE THREE MONTHS ENDED**
            
            **FOR
                THE SIX MONTHS ENDED****DECEMBER
                31, 2005**
            
            **DECEMBER
                31, 2004**
            
            **DECEMBER
                31, 2005**
            
            **DECEMBER
                31, 2004****Revenues**Interest
                income from investment in real estate loans
            
            $
            1,335,000
            
            $
            1,175,000
            
            $
            2,693,000
            
            $
            2,913,000Loan
                fees
            
            
            9,000
            
            
            -
            
            
            34,000
            
            
            72,000Gain
                on sale of real estate held for sale
            
            
            24,000
            
            
            1,049,000
            
            
            519,000
            
            
            1,049,000Gain
                on sale marketable securities
            
            
            46,000
            
            
            -
            
            
            46,000
            
            
            -Other
                income
            
            
            30,000
            
            
            86,000
            
            
            366,000
            
            
            97,000Total
                revenues
            
            
            1,444,000
            
            
            2,310,000
            
            
            3,658,000
            
            
            4,131,000**Operating
                expenses**Management
                fees
            
            
            69,000
            
            
            64,000
            
            
            138,000
            
            
            128,000Interest
                expense
            
            
            57,000
            
            
            132,000
            
            
            107,000
            
            
            440,000Loss
                on sale of real estate held for sale
            
            
            -
            
            
            11,000
            
            
            -
            
            
            474,000Write
                down on real estate held for sale
            
            
            -
            
            
            278,000
            
            
            -
            
            
            292,000Expenses
                related to real estate held for sale
            
            
            25,000
            
            
            149,000
            
            
            100,000
            
            
            378,000Professional
                Fees
            
            
            114,000
            
            
            101,000
            
            
            224,000
            
            
            187,000Other
            
            
            22,000
            
            
            1,000
            
            
            23,000
            
            
            3,000Total
                operating expenses
            
            
            287,000
            
            
            736,000
            
            
            592,000
            
            
            1,902,000**NET
                INCOME**
            
            $
            1,157,000
            
            $
            1,574,000
            
            $
            3,066,000
            
            $
            2,229,000Net
                income allocated to members
            
            $
            1,157,000
            
            $
            1,574,000
            
            $
            3,066,000
            
            $
            2,229,000Net
                income allocated to members perweighted
                average membership units
            
            $
            0.15
            
            $
            0.19
            
            $
            0.40
            
            $
            0.27Weighted
                average membership units
            
            
            7,668,345
            
            
            8,332,817
            
            
            7,668,098
            
            
            8,334,776
































The
      accompanying notes are an integral part of these statements.


-
          4
          -
 *Table
          of Contents*





**VESTINFUND
                I, LLC****STATEMENT
                OF MEMBERS' EQUITY****FOR
                THE SIX MONTHS ENDED DECEMBER 31, 2005****Units**
            
            **Amount**Members'
                equity at June 30, 2005
            
            
            7,686,323
            
            $
            73,271,000Net
                income
            
            
            
            
            
            3,066,000Comprehensive
                Income:Unrealized
                gain on marketable securities available for sale
            
            
            
            
            
            4,000Total
                comprehensive income
            
            
            
            
            
            3,070,000Distributions
            
            
            
            
            
            (2,306,000
            )Reinvestments
                of distributions
            
            
            19,435
            
            
            194,000Members'
                redemptions
            
            
            (195,774
            )
            
            (1,909,000
            )Members'
                equity at December 31, 2005 (Unaudited)
            
            
            7,509,984
            
            $
            72,320,000



























































The
      accompanying notes are an integral part of these statements.


-
          5
          -
 *Table
          of Contents*





**VESTINFUND
                I, LLC****STATEMENTS
                OF CASH FLOWS****(UNAUDITED)****FOR
                THE SIX MONTHS ENDED****DECEMBER
                31, 2005**
            
            **DECEMBER
                31, 2004****Cash
                flows from operating activities:**Net
                income
            
            $
            3,066,000
            
            $
            2,229,000Adjustments
                to reconcile net income to netcash
                provided by operating activities:Provision
                of doubtful accounts related to receivable
            
            
            (8,000
            )
            
            -Write
                down of real estate held for sale
            
            
            -
            
            
            292,000Gain
                on sale of real estate held for sale
            
            
            (519,000
            )
            
            (1,049,000
            )Loss
                on sale of real estate held for sale
            
            
            -
            
            
            474,000Gain
                on sale of marketable securities
            
            
            (46,000
            )
            
            -Change
                in operating assets and liabilities:Interest
                and other receivables
            
            
            (54,000
            )
            
            664,000Due
                to Manager
            
            
            (1,170,000
            )
            
            288,000Due
                to Vestin Group
            
            
            (2,000
            )
            
            (170,000
            )Due
                to Fund II
            
            
            (1,560,000
            )
            
            2,062,000Due
                to Fund III
            
            
            (6,000
            )
            
            -Accounts
                payable and accrued liabilities
            
            
            (339,000
            )
            
            (7,000
            )Net
                cash provided (used) by operating activities
            
            
            (638,000
            )
            
            4,783,000**Cash
                flows from investing activities:**Investments
                in real estate loans
            
            
            (17,009,000
            )
            
            (5,627,000
            )Purchase
                of investments in real estate loans
            
            
            -
            
            
            (1,459,000
            )Purchase
                of investments in real estate loans including interest receivable
                of $
                515,000.
            
            
            (5,408,000
            )
            
            -Proceeds
                from loan payoff
            
            
            17,908,000
            
            
            15,259,000Principal
                payments on real estate held for sale-seller financed
            
            
            2,585,000
            
            
            507,000Sale
                of investments in real estate loans to:Vestin
                Fund II, LLC
            
            
            7,600,000
            
            
            -Third
                party
            
            
            337,000
            
            
            155,000Proceeds
                from sale of investment in real estate
            
            
            4,227,000
            
            
            7,333,000Proceeds
                from note receivable
            
            
            8,000
            
            
            -Purchase
                of marketable securities
            
            
            (3,565,000
            )
            
            -Proceeds
                from sale of marketable securities
            
            
            1,895,000
            
            
            -Cash
                outlays for real estate held for sale
            
            
            -
            
            
            (2,251,000
            )Deposit
                liability
            
            
            222,000
            
            
            247,000Net
                cash provided by investing activities
            
            
            8,800,000
            
            
            14,164,000

















The
      accompanying notes are an integral part of these statements.


-
          6
          -
 *Table
          of Contents*





**VESTIN
                FUND I, LLC****STATEMENTS
                OF CASH FLOWS****(UNAUDITED)****FOR
                THE SIX MONTHS ENDED****DECEMBER
                31, 2005**
            
            **DECEMBER
                31, 2004****Cash
                flows from financing activities:**Payment
                on note payable
            
            $
            -
            
            $
            (2,000,000
            )Proceeds
                from issuance of note payable
            
            
            881,000
            
            
            -Members'
                distributions, net of reinvestments
            
            
            (2,112,000
            )
            
            (2,253,000
            )Members'
                redemptions
            
            
            (1,909,000
            )
            
            (1,055,000
            )Net
                cash used in financing activities
            
            
            (3,140,000
            )
            
            (5,308,000
            )**NET
                CHANGE IN CASH**
            
            
            5,022,000
            
            
            13,639,000**Cash,
                beginning of period**
            
            
            2,862,000
            
            
            6,571,000**Cash,
                end of period**
            
            $
            7,884,000
            
            $
            20,210,000**Supplemental
                disclosures of cash flows information:**Non-cash
                investing and financing activities:Loans
                funded through secured borrowing
            
            $
            1,665,000
            
            $
            2,084,000Loan
                payoffs of loans funded through secured borrowings
            
            $
            10,337,000
            
            $
            18,000,000Real
                estate held for sale acquired through foreclosure
            
            $
            -
            
            $
            5,458,000Transfer
                of pro-rata interest in real property to Fund II
            
            $
            -
            
            $
            4,278,000Note
                receivable from guarantor in exchange for release of
                guarantee
            
            $
            -
            
            
            119,000Sale
                of real estate held for sale where we provide the
                financing
            
            $
            886,000
            
            $
            7,910,000Issuance
                of note receivable related to sale of real estate held for
                sale
            
            $
            171,000
            
            $
            -Loans
                rewritten with same or similar property as collateral
            
            $
            -
            
            $
            868,000



































The
      accompanying notes are an integral part of these statements.


-
          7
          -
 *Table
          of Contents*





**VESTINFUND
      I, LLC**





**NOTES
      TO FINANCIAL STATEMENTS**





**DECEMBER
      31, 2005**





(UNAUDITED)


**NOTE
      A — ORGANIZATION**





Vestin
      Fund I, LLC was organized in December 1999 as a Nevada limited liability company
      for the purpose of investing in real estate loans. In this report we refer
      to
      Vestin Fund I, LLC as the “Company”, “we”, “us” or “our”. We invest in loans
      secured by real estate through deeds of trust or mortgages (hereafter referred
      to as “deeds of trust”). We commenced operations in August 2000. We will
      continue our operations until December 2019 unless dissolved prior thereto
      or
      extended by vote of the members under the provisions of our operating
      agreement.





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
      company investing in real estate loans and raising funds through our
      Distribution Reinvestment Plan, we are subject to the North American Securities
      Administration Act Mortgage Program Guidelines (the “NASAA Guidelines”)
      promulgated by the state securities administrators.





By
      June
      2001, we had sold all of the 10,000,000 membership units (“Unit”) offered
      pursuant to our registration statement. Since then, a number of Units have
      been
      redeemed and, as of December 31, 2005, a total of 7,509,984 Units were
      outstanding. No additional Units will be sold to new investors; however, current
      members may elect to participate in our Distribution Reinvestment Plan, whereby
      the members’ distributions may be used to purchase additional Units at $10 per
      Unit.





In
      July
      2005, we changed our fiscal year end from September 30 to June 30, we issued
      our
      annual report on Form 10-K for the nine-month transition period ended June
      30,
      2005.





Our
      Manager is Vestin Mortgage, Inc. (the “Manager” or “Vestin Mortgage”), a Nevada
      corporation and licensed mortgage broker engaged in the business of brokerage,
      placement and servicing of commercial loans secured by real property. Our
      Manager is a wholly owned subsidiary of Vestin Group, Inc., a Delaware
      corporation (“Vestin Group”) wholly owned by Michael V. Shustek, the CEO and
      director of the Manager. Through its subsidiaries, Vestin Group is engaged
      in
      asset management, real estate lending and other financial services.





Our
      Operating Agreement provides that the Manager controls the daily operating
      activities of the Company, including the power to assign duties, to determine
      how to invest our assets, to sign bills of sale, title documents, leases, notes,
      security agreements, mortgage investments and contracts, and to assume direction
      of the business operations. As a result, our operating results are dependent
      upon the Manager’s ability and performance in managing our operations and
      servicing our assets. The Operating Agreement also provides our members with
      limited voting rights, which includes the right to terminate the Manager subject
      to a majority vote of the members.





Vestin
      Mortgage, Inc. is also the Manager of Vestin Fund II, LLC (“Fund II”), Vestin
      Fund III, LLC (“Fund III”) and InVestin Nevada, Inc., a company wholly owned by
      our Manager’s CEO. These entities also invest in commercial real estate
      loans.


-
          8
          -
 *Table
          of Contents*


We
      invest
      in real estate loans throughout the areas in which Vestin Mortgage and its
      correspondents have experience. As of December 31, 2005, our loans are in the
      following states; our loans are in the following state; Arizona, California,
      Hawaii, Nevada, New York, North Carolina, Oklahoma, Oregon, Texas, Washington
      and Wisconsin. The loans we invest in are selected for us by Vestin Mortgage
      from among loans originated by Vestin Mortgage or non-affiliated mortgage
      brokers. When Vestin Mortgage or a non-affiliated mortgage broker originates
      a
      loan for us, that entity identifies the borrower, processes the loan
      application, makes or invests in the loan, and brokers or sells the loan to
      us.
      We believe that our loans are attractive to borrowers because of the expediency
      of Vestin Mortgage’s loan approval process, which takes about ten to twenty
      days.





The
      financial statements have been prepared in accordance with the United States
      Securities and Exchange Commission (SEC) requirements for interim financial
      statements. Therefore, they do not include all of the information and footnotes
      required by accounting principles generally accepted in the United States
      (“GAAP”) for complete financial statements. The financial statements should be
      read in conjunction with the financials statements and notes thereto contained
      in the Company’s annual report on Form 10-K for the nine-month transition period
      ended June 30, 2005.





The
      results of operations for the interim periods shown in this report are not
      necessarily indicative of results to be expected for the full year. In the
      opinion of management, the information contained herein reflects all adjustments
      necessary to make the results of operations for the interim periods a fair
      statement of such operation. All such adjustments are of a normal recurring
      nature.





**NOTE
      B — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**





**Management
      Estimates**





The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America (“GAAP”) requires management
      to make estimates and assumptions that affect the reported amounts of assets
      and
      liabilities and disclosure of contingent assets and liabilities at the date
      of
      the financial statements and the reported amounts of revenues and expenses
      during the reporting period. Actual results could differ from those
      estimates.





**Cash
      and Cash Equivalents**





Cash
      and
      cash equivalents include interest-bearing and non-interest-bearing bank
      deposits, money market accounts, short-term certificates of deposit with
      original maturities of three months or less, and short-term instruments with
      a
      liquidation provision of one month or less.





**Revenue
      Recognition**





Interest
      is recognized as revenue when earned according to the terms of the loans, using
      the effective interest method. We do not recognize interest income on loans
      once
      they are determined to be impaired. A loan is impaired when based on current
      information and events, it is probable that we will be unable to collect all
      amounts due according to the contractual terms of the loan agreement. Cash
      receipts will be allocated to interest income, except when such payments are
      specifically designated by the terms of the loan as principal reduction or
      when
      management does not believe our investment in the loan is fully
      recoverable.





**Investments
      in Real Estate Loans**





The
      Company may from time to time acquire or sell investments in real estate loans
      from or to the Manager or other related parties pursuant to the terms of the
      Company's Operating Agreement provided the price does not exceed the original
      cost. The primary purpose is to either free up capital to provide liquidity
      for
      various reasons, such as loan diversification, or place excess capital in
      investments to maximize the use of the Company's capital. For example, the
      Company's Operating Agreement provides certain guidelines with respect to loan
      concentration by dollar amount, location and lien position. Selling or buying
      loans allows the Company to diversify its loan portfolio within these
      parameters. Due to the short term nature of the loans the Company makes and
      the
similarity
      of interest rates in loans the Company normally would invest in, the fair value
      of a loan typically approximates its carrying value. Accordingly, discounts
      or
      premiums typically do not apply upon sales of loans and therefore, generally
      no
      gain or loss is recorded on these transactions, regardless of whether to a
      related or unrelated party.


-
          9
          -
 *Table
          of Contents*


Investments
      in real estate loans are secured by trust deeds. Generally, our real estate
      loans require interest only payments with a balloon payment of the principal
      at
      maturity. We have both the intent and ability to hold real estate loans until
      maturity and therefore, real estate loans are classified and accounted for
      as
      held for investment and are carried at amortized cost. Loans sold to or
      purchased from affiliates are accounted for at the principal balance and no
      gain
      or loss is recognized by us or any affiliate. Loan to value ratios are based
      on
      appraisals obtained at the time of loan origination and may not reflect
      subsequent changes in value estimates. Such appraisals are generally dated
      within 12 months of the date of loan origination and may be commissioned by
      the
      borrower. The appraisals may be for the current estimate of the “as-if
      developed” value of the property, which approximates the post-construction value
      of the collateralized property assuming that such property is developed. As-if
      developed values on raw land loans or acquisition and development loans often
      dramatically exceed the immediate sales value and may include anticipated zoning
      changes and timely successful development by the purchaser. As most of the
      appraisals will be prepared on an as-if developed basis, if a loan goes into
      default prior to any development of a project, the market value of the property
      may be substantially less than the appraised value. As a result, there may
      be
      less security than anticipated at the time the loan was originally made. If
      there is less security and a default occurs, we may not recover the full amount
      of the loan.





As
      of
      December 31, 2005, all but one of our loans provide for payments of interest
      only with a “balloon” payment of principal payable in full at the end of the
      term. As of December 31, 2005, one of our loans is an amortizing loan with
      a
      balance of approximately $7.8 million and a term of 36 months. In addition,
      we
      also invest in real estate loans that have interest reserves. Loans with
      interest reserves require the borrowers to maintain interest reserves funded
      from the principal amount of the loan for a period of time. At December 31,
      2005, we had $3.4 million in investments in real estate loans that had interest
      reserves where the total outstanding principal was approximately $25.1 million,
      including participating lenders. These loans had interest reserves of
      approximately $2.4 million, of which our portion is $0.3 million. At June 30,
      2005, we had $13.5 million in investments in real estate loans that had interest
      reserves where the total outstanding principal was approximately $67.8 million,
      including participating lenders. These loans had interest reserves of
      approximately $3.7 million, of which our portion was $0.6 million.





**Allowance
      for Loan Losses**





We
      maintain an allowance for loan losses on our investments in real estate loans
      for estimated credit impairment. The Manager’s estimate of losses is based on a
      number of factors including the types and dollar amounts of loans in the
      portfolio, adverse situations that may affect the borrower’s ability to repay,
      prevailing economic conditions and the underlying collateral securing the loan.
      Additions to the allowance are provided through a charge to earnings and are
      based on an assessment of certain factors, which may indicate estimated losses
      on the loans. Actual losses on loans are recorded as a charge-off or a reduction
      to the allowance for loan losses. Subsequent recoveries of amounts previously
      charged off are added back to the allowance or included as income.





Estimating
      allowances for loan losses requires significant judgment about the underlying
      collateral, including liquidation value, condition of the collateral, competency
      and cooperation of the related borrower and specific legal issues that affect
      loan collections or taking possession of the property. As a non-conventional
      lender willing to invest in loans to borrowers who may not meet the credit
      standards of conventional lenders, the default rate on our loans could be higher
      than those generally experienced in the real estate lending industry. We
      generally approve loans more quickly than other real estate lenders and, due
      to
      our expedited underwriting process, there is a risk that the credit inquiry
      we
      perform will not reveal the material facts pertaining to a borrower and the
      security.





-
          10
          -
 *Table
          of Contents*


Additional
      facts and circumstances are discovered as we continue our efforts in the
      collection and foreclosure processes. This additional information often causes
      management to reassess its estimates. In recent years, we have revised estimates
      of our allowance for loan losses. Circumstances that have caused significant
      changes in our estimated allowance include:





·
            Declines
                in real estate market conditions, which can cause a decrease in expected
                market value.





·
            Discovery
                of undisclosed liens for community improvement bonds, easements and
                delinquent property taxes.





·
            Lack
                of progress on real estate developments after we advance funds. We
                customarily utilize disbursement agents to monitor the progress of
                real
                estate developments and approve loan advances. After further inspection
                of
                the related property, progress on construction occasionally does
                not
                substantiate an increase in value to support the related loan
                advances.





·
            Unanticipated
                legal or business issues that may arise subsequent to loan origination
                or
                upon the sale of foreclosed upon
                property.





·
            Appraisals,
                which are only opinions of value at the time of the appraisal, may
                not
                accurately reflect the value of the
                property.





**Real
      Estate Held For Sale**





Real
      estate held for sale includes real estate acquired through foreclosure and
      will
      be carried at the lower of the recorded amount, inclusive of any senior
      indebtedness, or the property's estimated fair value, less estimated costs
      to
      sell, with fair value based on appraisals and knowledge of local market
      conditions. While pursuing foreclosure actions, the Company seeks to identify
      potential purchasers of such property. It is not the Company's intent to invest
      in or own real estate as a long-term investment. In accordance with Statement
      of
      Financial Accounting Standards (FAS) No. 144, *Accounting
      for the Impairment or Disposal of Long Lived Assets* ,
      the
      Company seeks to sell properties acquired through foreclosure as quickly as
      circumstances permit. The carrying values of real estate held for sale are
      assessed on a regular basis from updated appraisals, comparable sales values
      or
      purchase offers.





Management
      classifies real estate held for sale when the following criteria are
      met;





·
            Management
                commits to a plan to sell the
                properties.





·
            The
                property is available for immediate sale in its present condition
                subject
                only to terms that are usual and
                customary.





·
            An
                active program to locate a buyer and other actions required to complete
                a
                sale have been initiated.





·
            The
                sale of the property is probable.





·
            The
                property is being actively marketed for sale at a reasonable
                price.





·
            Withdrawal
                or significant modification of the sale is not
                likely.





**Real
      Estate Held For Sale - Seller Financed**





The
      Company occasionally finances sales of foreclosed properties to independent
      third parties. In order to record a sale of real estate when the seller is
      providing continued financing, FAS 66, *Accounting
      for Sales of Real Estate* requires
      the buyer of the real estate to make minimum and initial continuing investments.
      Minimum initial investments as defined by FAS 66 range from 10% to 25% based
      on
      the type of real estate sold. In addition, FAS 66 limits commitments and
      contingent obligations incurred by a seller in order to record a
      sale.


-
          11
          -
 *Table
          of Contents*


Because
      the Company occasionally forecloses on loans with raw land or developments
      in
      progress, available financing for such properties is often limited and the
      Company frequently provides financing up to 100% of the selling price on these
      properties. In addition, the Company may make additional loans to the buyer
      to
      continue development of a property. Although sale agreements are consummated
      at
      closing, they lack adequate initial investment by the buyer to qualify as a
      sales transaction as defined in FAS 66. These sale agreements are not recorded
      as a sale until the requirements of FAS 66 are met.





These
      sales agreements are recorded under the deposit method or cost recovery method
      as defined in FAS 66. Under the deposit method, no profit is recognized and
      any
      cash received from the buyer is reported as a deposit liability on the balance
      sheet. Under the cost recovery method, no profit is recognized until payments
      by
      the buyer exceed the carrying basis of the property sold. Principal payments
      received will reduce the related receivable, and interest collections will
      be
      recorded as unrecognized gross profit on the balance sheet. The carrying values
      of these properties are included in real estate held for sale on the
      accompanying balance sheet.





In
      cases
      where the investment by the buyer is significant (generally 20% or more) and
      the
      buyer has an adequate continuing investment, the purchase money debt is not
      subject to future subordination, and a full transfer of risks and rewards has
      occurred, we will use the full accrual method. Under the full accrual method
      a
      sale is recorded and the balance remaining to be paid is recorded as a normal
      note. Interest is recorded as income as received





**Classification
      of Operating Results from Real Estate Held for Sale**





FAS
      144
      generally requires operating results from long lived assets held for sale to
      be
      classified as discontinued operations as a separately stated component of net
      income. The Company's operations involve foreclosing on real estate when
      necessary and the Company considers these operating results to be part of the
      Company's continuing operations. Accordingly, expenses related to real estate
      held for sale have been included on the accompanying statements of income,
      net
      of related rental income when applicable.





**Secured
      Borrowings**





Secured
      borrowings provide an additional source of capital for our lending activity.
      Secured borrowings allow us to increase the diversification of our loan
      portfolio and to invest in loans that we might not otherwise invest in. We
      do
      not receive any revenues for entering into secured borrowing arrangements.
      Loans
      in which third party investors have participated through inter-creditor
      agreements (“Inter-creditor Agreements”) are accounted for as secured borrowings
      in accordance with FAS No. 140, *Accounting
      for Transfers and Servicing of Financial Assets and Extinguishments of
      Liabilitie* s
      (“FAS
      No. 140”). The Inter-creditor Agreements provide us additional funding sources
      for mortgage loans whereby a third party investor (the “Investor”) may
      participate on a senior basis in certain mortgage loans with us and/or Fund
      II
      and/or Fund III (collectively, the “Lead Lenders”). In the event of borrower
      non-performance, the Inter-creditor Agreements generally provide that the Lead
      Lenders must repay the Investor’s loan amount either by (i) continuing to remit
      to the Investor the interest due on the participated loan amount; (ii)
      substituting an alternative loan acceptable to the Investor; or (iii)
      repurchasing the participation from the Investor for the outstanding balance
      plus accrued interest.





Additionally,
      an Investor may participate in certain loans with the Lead Lenders through
      Participation Agreements. In the event of borrower non-performance, the
      Participation Agreement may allow the Investor to be repaid up to the amount
      of
      the Investor’s investment prior to the Lead Lender being repaid. Real estate
      loan financing under the Participation Agreements are also accounted for as
      a
      secured borrowing in accordance with FAS No. 140. The Company does not receive
      any revenues for entering into secured borrowings arrangements.





**Marketable
      Securities**





Investments
      in marketable securities consist of bonds secured by real estate and mortgage
      backed securities. The securities are stated at market value as determined
      by
      the most recently traded price of each security at the balance sheet date.
      All
      marketable securities are classified as available-for-sale securities under
      the
      provisions of FAS No. 115, *Accounting
      for Certain Investments in Debt and Equity Securities* .


-
          12
          -
 *Table
          of Contents*


The
      appropriate classification of investments in marketable securities is determined
      at the time of purchase and such determination is reevaluated at each balance
      sheet date. Securities that are bought and held principally for the purpose
      of
      selling them in the near term are classified as trading securities, and
      unrealized holding gains and losses are included in earnings. Debt securities
      for which the Company does not have the intent or ability to hold to maturity,
      and equity securities are classified as available-for-sale. Available-for-sale
      securities are carried at fair value, with the unrealized gains and losses
      reported in other comprehensive income.





**Fair
      Value of Financial Instruments**





FAS
      107, *Disclosures
      about Fair Value of Financial Instrument* s,
      requires the determination of fair value of the Company’s financial assets. The
      following methods and assumptions were used to estimate the fair value of
      financial statements included in the following categories:





(a)
            Certificate
                of Deposits and Short-Term Investments: The carrying amounts of these
                instruments are at amortized cost, which approximates fair
                value.





(b)
            Investment
                in Real Estate Loans: The carrying value of these instruments, net
                of the
                allowance for loan losses, approximates the fair value due to their
                short-term maturities. Fair values for loans, which are delinquent
                and/or
                in foreclosure are indeterminable at this time as no ready market
                exists
                for these loans, but fair value may be significantly below the current
                carrying value.





(c)
            Assets
                Under Secured Borrowing: The carrying amount of these instruments
                approximate fair value. The fair value is estimated based upon projected
                cash flows discounted at the estimated current interest rates at
                which
                similar loans would be made.





At
      December 31, 2005 and June 30, 2005, the estimated fair values of the real
      estate loans were approximately $57.4 million and $66.2 million, respectively.
      At December 31, 2005 and June 30, 2005, the estimated fair values of assets
      under secured borrowings were approximately $2.7 million and $11.4 million,
      respectively. These estimates were based upon the present value of expected
      cash
      flows discounted at rates currently available for similar loans. Fair value
      estimates are made at a specific point in time; based on relevant market
      information; are subjective in nature; and involve uncertainties and matters
      of
      significant judgment. Accordingly, the estimates presented herein are not
      necessarily indicative of the amounts that would be collected upon maturity
      or
      disposition of the loans.





**Net
      Income Allocated to Members Per Weighted Average Membership
      Unit**





Net
      income allocated to members per weighted average membership unit is computed
      by
      dividing net income calculated in accordance with GAAP by the weighted average
      number of membership units outstanding for the period.





**Segments**





We
      operate as one business segment.





**Income
      Taxes**





Income
      tax effects resulting from the Company’s operations pass through to the members
      individually and, accordingly, no provision for income taxes is included in
      the
      financial statements.





**Reclassifications**





Certain
      reclassifications have been made to the prior year’s financial statements to
      conform with the current year presentation.


-
          13
          -
 *Table
          of Contents*


**NOTE
      C — FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT
      RISK**





Financial
      instruments with concentration of credit and market risk include cash and loans
      secured by trust deeds.





We
      maintain cash deposit accounts and certificates of deposit that, at times,
      may
      exceed federally insured limits. We have not experienced any losses in such
      accounts and believe we are not exposed to any significant credit risk on cash.
      As of December 31, 2005 and June 30, 2005, we have $7.7 million and $3.0
      million, respectively, in excess of the federally insured limits.





As
      of
      December 31, 2005, 25% of our real estate loans were in Nevada compared to
      36%
      at June 30, 2005, and 15% of our real estate loans were in Hawaii compared
      to 6%
      at June 30, 2005. Additionally, as of December 31, 2005, 14% of our real estate
      loans were in Arizona compared to 19% at June 30, 2005 and 17% of our real
      estate loans in California compared to 29% at June 30, 2005. As a result of
      this
      geographical concentration of our real estate loans, a downturn in the local
      real estate markets in Nevada, Arizona, Hawaii and/or California could have
      a
      material adverse effect on us.





At
      December 31, 2005, the aggregate amount of loans to our three largest borrowers
      represented 38% of our total investment in real estate loans. These real estate
      loans consisted of commercial loans, located in Arizona, Nevada and Hawaii
      with
      a first lien position, with stated interest rates between 5% and 14%, with
      an
      aggregate outstanding balance of approximately $23.4 million. At June 30, 2005,
      the aggregate amount of loans to our three largest borrowers represented 30%
      of
      our total investment in real estate loans. These real estate loans consisted
      of
      commercial loans located in Arizona and Nevada, with a first lien position,
      earning between 5% and 12%, with an aggregate outstanding balances of
      approximately $20.5 million. Because we have a significant concentration of
      credit risk with our three largest borrowers, a default by any of such borrowers
      could have a material adverse effect on us.





Most
      of
      our real estate loans will require the borrower to make a balloon payment of
      the
      principal at maturity. The success of a borrower’s ability to repay our real
      estate loan obligation in a large lump-sum payment may be dependent upon the
      borrower’s ability to refinance the obligation or otherwise raise a substantial
      amount of cash. An increase in interest rates over the loan rate applicable
      at
      origination of the loan may have an adverse effect on the borrower’s ability to
      refinance.





**NOTE
      D — INVESTMENTS IN REAL ESTATE LOANS**





We
      have
      four real estate loan products consisting of commercial, construction,
      acquisition and development, and land. The effective interest rates on all
      product categories range from 5% to 14%. Revenue by product will fluctuate
      based
      upon relative balances during the period.





Investments
      in real estate loans as of December 31, 2005 are summarized below:





**Loan
                Type**
            
            **Number**
              **of**
              **Loans**
            
            **Balance
                (3)**
            
            **Weighted**
              **Average**
              **Interest
                Rate**
            
            **Portfolio**
              **Percentage**
            
            **Loan**
              **To
                Value(2)**Acquisition
                and Development
            
            
            3
            
            $
            6,603,000
            
            
            9.39
            %
            
            10.71
            %
            
            55.03
            %Commercial
                (1)
            
            
            18
            
            
            47,094,000
            
            
            9.63
            %
            
            76.39
            %
            
            69.17
            %Construction
            
            
            3
            
            
            2,298,000
            
            
            12.00
            %
            
            3.73
            %
            
            62.32
            %Land
            
            
            3
            
            
            5,653,000
            
            
            13.38
            %
            
            9.17
            %
            
            61.01
            %27
            
            $
            61,648,000
            
            
            10.04
            %
            
            100.00
            %
            
            66.65
            %





-
          14
          -
 *Table
          of Contents*


Investments
      in real estate loans as of June 30, 2005 are summarized below:





**Loan
                Type**
            
            **Number**
              **of**
              **Loans**
            
            **Balance
                (3)**
            
            **Weighted**
              **Average**
              **Interest
                Rate**
            
            **Portfolio**
              **Percentage**
            
            **Loan**
              **To
                Value(2)**Acquisition
                and Development
            
            
            4
            
            $
            7,272,000
            
            
            8.49
            %
            
            10.82
            %
            
            71.05
            %Commercial
                (1)
            
            
            15
            
            
            38,439,000
            
            
            10.02
            %
            
            57.25
            %
            
            64.16
            %Construction
            
            
            3
            
            
            3,712,000
            
            
            9.40
            %
            
            5.53
            %
            
            69.94
            %Land
            
            
            7
            
            
            17,725,000
            
            
            12.89
            %
            
            26.40
            %
            
            61.67
            %29
            
            $
            67,148,000
            
            
            10.58
            %
            
            100.00
            %
            
            64.56
            %





(1)
            Bridge
                loans are a subcategory of commercial loans in which we provide interim
                financing for borrowers seeking long-term, permanent financing.





(2)
            Loan
                to value ratios are based on appraisals obtained at the time of loan
                origination and may not reflect subsequent changes in value estimates.
                Such appraisals are generally dated no greater than 12 months prior
                to the
                date of loan origination and may have been commissioned by the borrower,
                and also may precede the placement of the loan with us. The appraisals
                may
                be for the current estimate of the “as-if developed” value of the
                property, and which approximates the post-construction value of the
                collateralized property assuming that such property is developed.
                As-if
                developed values on raw land loans or acquisition and development
                loans
                often dramatically exceed the immediate sales value and may include
                anticipated zoning changes, and successful development by the purchaser;
                upon which development is dependent on availability of financing.
                As most
                of the appraisals will be prepared on an as-if developed basis, if
                a loan
                goes into default prior to any development of a project, the market
                value
                of the property may be substantially less than the appraised value.
                As a
                result, there may be less security than anticipated at the time the
                loan
                was originally made. If there is less security and a default occurs,
                we
                may not recover the full amount of the
                loan.





(3)
            The
                following table reconciles the balance of the loan portfolio to the
                amount
                shown on the accompanying Balance Sheet. The contra accounts represent
                the
                amount of real estate held for sale sold to third parties where the
                Company provided financing. GAAP requires the borrower to have a
                certain
                percentage equity ownership (ranging from 10% to 25%) to allow the
                Company
                to record the sale of a property. In addition, the borrower must
                maintain
                a minimum commitment in the property on a continuing basis. Therefore,
                until the borrower meets this requirement, the investment in the
                new loan
                is reduced by the amount originally invested in the real estate held
                for
                sale.





**December
                31, 2005**
              **Balance**
            
            **June
                30, 2005**
              **Balance**Balance
                Per Loan Portfolio
            
            $
            61,648,000
            
            $
            67,148,000Less:Seller
                Financed Loans Included in Real Estate Held for Sale
            
            
            (8,797,000
            )
            
            (10,374,000
            )Proceeds
                of Principal on Seller Financed Loans Included in Deposit
                Liability
            
            
            206,000
            
            
            --Unrecognized
                Gain on Seller Financed Loans
            
            
            (144,000
            )
            
            --Allowance
                for Loan Losses
            
            
            (1,604,000
            )
            
            (1,896,000
            )Balance
                per Balance Sheet
            
            $
            51,309,000
            
            $
            54,878,000





-
          15
          -
 *Table
          of Contents*


The
      following is a schedule of priority of real estate loans as of December 31,
      2005
      and June 30, 2005:





**Loan
                Type**
            
            **December
                31, 2005**
              **Balance***
            
            **Portfolio**
              **Percentage**
            
            **June
                30, 2005**
              **Balance***
            
            **Portfolio**
              **Percentage**First
                Trust Deeds
            
            $
            61,610,000
            
            
            99.94
            %
            $
            66,645,000
            
            
            99.25
            %Second
                Trust Deeds**
            
            
            38,000
            
            
            0.06
            %
            
            503,000
            
            
            0.75
            %$
            61,648,000
            
            
            100.00
            %
            $
            67,148,000
            
            
            100.00
            %





*
      Please
      see note (3) above


**Generally,
      our second trust deeds are junior to a first trust deed position held by either
      us or our Manager.





The
      following is a schedule of contractual maturities of investments in real estate
      loans as of December 31, 2005:





January
                - December 2006
            
            $
            52,943,000January
                - December 2007
            
            
            8,705,000$
            61,648,000





The
      following is a schedule by geographic location of investments in real estate
      loans as of December 31, 2005 and June 30, 2005:





**December
                31, 2005**
              **Balance***
            
            **Portfolio**
              **Percentage**
            
            **June
                30, 2005**
              **Balance***
            
            **Portfolio**
              **Percentage**Arizona
            
            $
            8,586,000
            
            
            13.93
            %
            $
            13,063,000
            
            
            19.45
            %California
            
            
            10,774,000
            
            
            17.48
            %
            
            19,794,000
            
            
            29.48
            %Hawaii
            
            
            9,031,000
            
            
            14.65
            %
            
            4,139,000
            
            
            6.16
            %Nevada
            
            
            15,504,000
            
            
            25.15
            %
            
            24,428,000
            
            
            36.38
            %New
                York
            
            
            3,249,000
            
            
            5.27
            %
            
            3,320,000
            
            
            4.94
            %North
                Carolina 1
            
            
            1,000,000
            
            
            1.62
            %
            
            --
            
            
            --
            %Oklahoma
            
            
            1,237,000
            
            
            2.01
            %
            
            1,237,000
            
            
            1.84
            %Oregon
            
            
            3,200,000
            
            
            5.19
            %
            
            --
            
            
            --
            %Texas
            
            
            4,567,000
            
            
            7.41
            %
            
            1,167,000
            
            
            1.75
            %Washington
            
            
            2,500,000
            
            
            4.05
            %
            
            --
            
            
            --
            %Wisconsin
            
            
            2,000,000
            
            
            3.24
            %
            
            --
            
            
            --
            %Total
            
            $
            61,648,000
            
            
            100.00
            %
            $
            67,148,000
            
            
            100.00
            %





*
      Please
      see note (3) above





At
      December 31, 2005, three of our loans totaling approximately $12.3 million
      were
      non-performing (more than 90 days past due on interest payments or past due
      on
      principal). These loans have been placed on non-accrual of interest status.
      We
      have commenced foreclosure proceedings on these loans. The following schedule
      summarizes the non-performing loans:





**Description
                of Collateral**
            
            **Balance**
              **December
                31, 2005**
            
            **Maturity
                Date**
            
            **Number
                of Months Non-Performing**
            
            **Percentage
                of Total Loan Balance**4
                cemeteries and 8 mortuaries in Hawaii Part I***
            
            $
            4,139,000
            
            
            03/31/2004
            
            
            21
            
            
            21.00%
                of Part I4
                cemeteries and 8 mortuaries in Hawaii Part II***
            
            
            4,892,000
            
            
            03/31/2004
            
            
            21
            
            
            35.00%
                of Part IIRacetrack
                and hotel in Vernon, NY
            
            
            3,249,000
            
            
            06/30/2005
            
            
            17
            
            
            12.50
            %$
            12,280,000





-
          16
          -
 *Table
          of Contents*


Our
      Manager periodically reviews and makes a determination as to whether the
      allowance for loan losses is adequate to cover any potential losses. Additions
      to the allowance for loan losses are made by charges to the provision for loan
      losses. Recoveries of previously charged off amounts are credited to the
      allowance for loan losses or included as income when the asset is disposed.
      As
      of December 31, 2005, we have provided a general allowance for loan losses
      of
      approximately $379,000. Additionally, our Manager recognized a specific reserve
      related to the four cemeteries and eight mortuaries in Hawaii, of which our
      portion of the specific reserve is $1,225,000. Our Manager evaluated the loans
      and concluded that the remaining underlying collateral was sufficient to protect
      us against further losses of principal or interest. Our Manager will continue
      to
      evaluate these loans in order to determine if any other allowance for loan
      losses should be recorded.





Because
      any decision regarding the allowance for loan losses reflects a judgment about
      the probability of future events, there is an inherent risk that such judgments
      will prove incorrect. In such event, actual losses may exceed (or be less than)
      the amount of any reserve. To the extent that we experience losses greater
      than
      the amount of our reserves, we may incur a charge to our earnings that will
      adversely affect our operating results and the amount of any distributions
      payable to our Members.





The
      following is a roll-forward of the allowance for loan losses for the three
      months ended December 31, 2005:





**Description**
            
            **Balance**
              **June
                30, 2005**
            
            **Specific
                Reserve Allocation**
            
            **Reallocation**
              **Deductions(2)**
            
            **Balance**
              **December
                31, 2005**General
                Valuation Allowance
            
            $
            671,000
            
            $
            --
            
            $
            292,000
            
            $
            379,000Specific
                Allowance
            
            
            1,225,000
            
            
            --
            
            
            --
            
            
            1,225,000Total
                (1)
            
            $
            1,896,000
            
            $
            --
            
            $
            292,000
            
            $
            1,604,000





*(1)*
            *Rightstar
                Loan Allowance*-
                As of December 31, 2005, we had commenced a judicial foreclosure
                on a loan
                secured by four cemeteries and eight mortuaries in Hawaii. The aggregate
                amount of the loan is approximately $32 million. The loan includes
                two
                levels of priority upon payment of the outstanding balance pursuant
                to an
                Inter-creditor Agreement. The balance of the first and second position
                of
                the loan is approximately $14 million and $18 million, respectively.
                Of
                the lenders included in this loan, we and Fund II acquired the position,
                which held priority over the remaining lenders, by acquiring its
                balance
                of the loan for approximately $15.5 million, including accrued interest
                of
                approximately $1.5 million of which our portion is approximately
                $5.4
                million, including accrued interest of approximately $0.5 million.
                We
                acquired this balance to expedite the foreclosure process and remove
                the
                lender from its priority position, which had the potential to impair
                the
                value we may receive at the time the property is sold.The portion acquired net of accrued interest is referred to as “4
                cemeteries and 8 mortuaries in Hawaii Part II”, with a balance of
                approximately $4.9 million. The balance of the second position loan
                is
                referred to as “4 cemeteries and 8 mortuaries in Hawaii Part I” is
                approximately $4.1 million. In exchange for expediting the foreclosure
                process, the lenders jointly agreed to release the guarantors from
                their
                guaranty of the loan. Foreclosure proceedings are being delayed due
                to
                issues encountered in obtaining a license to operate the facilities.
                We
                cannot estimate when the foreclosure will be completed or when we
                may
                obtain title to the underlying properties. The cemeteries and mortuaries
                are operating businesses and after obtaining title and pending disposition
                of these properties, we may have to include the operating results
                of these
                businesses in our financial statements on a consolidated basis. All
                significant intercompany balances and transactions will be eliminated
                in
                the consolidation. During the year ended June 30, 2005, the State
                of
                Hawaii notified the lenders of a potential trust deficit estimated
                at
                $19.5 million and claimed this balance has priority over all lenders.
                The
                lenders dispute the amount and priority of this deficit. However,
                we
                re-evaluated the underlying value of the collateral including this
                estimated trust fund deficit. Based on this estimate, we calculated
                our
                total specific reserve allowance for loss of approximately
                $1,225,000.





(2)
            Amount
                was re-classed to the allowance for accounts receivable relating
                to real
                estate loans.


-
          17
          -
 *Table
          of Contents*


In
      addition, our Manager had granted extensions on six loans pursuant to the terms
      of the original loan agreements, which permit extensions by mutual consent.
      Such
      extensions are generally provided on loans where the original term was 12 months
      or less and where a borrower requires additional time to complete a construction
      project or negotiate take-out financing. However, our Manager only grants
      extensions when a borrower is in full compliance with the terms of the loan,
      including, but not limited to the borrower’s obligation to make interest
      payments on the loan. The aggregate amount due from borrowers whose loans had
      been extended as of December 31, 2005 was approximately $7.5 million. Our
      Manager concluded that no allowance for loan loss was necessary with respect
      to
      these loans as of December 31, 2005.





**Asset
      Quality and Loan Reserves**





Losses
      may occur from investing in real estate loans. The amounts of losses will vary
      as the loan portfolio is affected by changing economic conditions and the
      financial condition of borrowers.





The
      conclusion that a real estate loan is uncollectible or that collectibility
      is
      doubtful is a matter of judgment. On a quarterly basis, the Manager evaluates
      our real estate loan portfolio for impairment. The fact that a loan is
      temporarily past due does not necessarily mean that the loan is impaired.
      Rather, all relevant circumstances are considered by our Manager to determine
      impairment and the need for specific reserves. Such evaluation, which includes
      a
      review of all loans on which full collectibility may not be reasonably assured,
      considers among other matters:





·
            Prevailing
                economic conditions;





·
            Historical
                experience;





·
            The
                nature and volume of the loan portfolio;





·
            The
                borrowers’ financial condition and adverse situations that may affect the
                borrowers’ ability to pay;





·
            Evaluation
                of industry trends; and





·
            Estimated
                net realizable value of any underlying collateral in relation to
                the loan
                amount.





Based
      upon this evaluation, a determination is made as to whether the allowance for
      loan losses is adequate to cover any potential losses. Additions to the
      allowance for loan losses are made by charges to the provision for loan losses.
      Recoveries of previously charged off amounts are credited to the allowance
      for
      loan losses. As of December 31, 2005, our Manager had provided for $0.4 million
      as a general allowance for loan losses and a specific allowance of $1.2 million.
      At December 31, 2005, three of our loans totaling approximately $12.3 million
      were non-performing (more than 90 days past due on principal or interest
      payments). Our Manager evaluated the loans and concluded that the underlying
      collateral was sufficient to protect us against further losses of principal
      or
      interest. Our Manager will continue to evaluate these loans in order to
      determine if any other allowance for loan losses should be
      recorded.





-
          18
          -
 *Table
          of Contents*


**NOTE
      E — INVESTMENT IN MARKETABLE SECURITIES**





*Mortgage
      Backed Securities - Available for Sale*


During
      the three months ended December 31, 2005, we purchased $3.6 million in mortgage
      backed securities of which we sold $1.9 million, realizing a gain of $46,000.





The
      following is a summary of our investment in mortgage-back securities as of
      December 31, 2005.





**Cost**
            
            **Unrealized
                Gain**
            
            **Market
                or Fair Value**Mortgage-back
                Securities
            
            $
            1,716,000
            
            $
            4,000
            
            $
            1,720,000





At
      December 31, 2005, we had an investment in mortgage-backed securities with
      an
      unrealized gain of $4,000. In January 2006, we sold this investment resulting
      in
      a realized gain of $1,000.





**NOTE
      F — REAL ESTATE HELD FOR SALE**





At
      December 31, 2005, we held one property with a total carrying value of $2.5
      million, which was acquired through foreclosure and recorded as investments
      in
      real estate held for sale. The summary below includes our percentage ownership
      in each property. These investments in real estate held for sale are accounted
      for at the lower of cost or fair value less costs to sell with fair value based
      on appraisals or knowledge of local market conditions. It is not our intent
      to
      invest in or own real estate as a long-term investment. We seek to sell
      properties acquired through foreclosure as quickly as circumstances permit.
      The
      following is a roll-forward of investments in real estate held for sale for
      the
      three months ended December 31, 2005:





**Description**
            
            **Date
                Acquired**
            
            **Percentage
                of Ownership**
            
            **Balance
                July 1, 2005**
            
            **Acquisitions
                (Reductions)**
            
            **Seller
                Financed Sales**
            
            **Sales**
            
            **Gain
                on Sale of Real Estate**
            
            **Balance
                at December 31, 2005**Land
                containing 82 residential lots in Henderson, Nevada**(1)**
            
            
            2/28/2003
            
            
            66
            %
            $
            5,058,000
            
            $
            --
            
            $
            --
            
            $
            (2,561,000
            )
            $
            --
            
            $
            2,497,000126
                unit, (207 bed) assisted living facility in Phoenix, Arizona**(1)**
            
            
            9/08/2004
            
            
            10
            %
            
            886,000
            
            
            --
            
            
            (886,000
            )
            
            --
            
            
            --
            
            
            --460
                acre residential sub-division in Lake Travis, Texas
            
            
            8/03/2004
            
            
            34
            %
            
            1,813,000
            
            
            --
            
            
            --
            
            
            (1,837,000
            )
            
            24,000
            
            
            --**Total**
            
            
            
            
            
            
            
            $
            7,757,000
            
            $
            --
            
            $
            (886,000
            )
            $
            (4,398,000
            )
            $
            24,000
            
            $
            2,497,000





**(1)**
            **Sales
                of Real Estate Held for Sale for the Six Months Ended December 31,
                2005:**





During
      July 2003, we and Fund II entered into an agreement for the sale of a portion
      of
      our interest in 40 acres of land containing 354 residential lots in Henderson,
      Nevada. The agreement required the buyer to purchase 138 lots for cash and
      gave
      the buyer an option to purchase the remaining 216 lots over the next three
      years
      at a predetermined price, which may be adjusted for potential value increases.
      Through December 31, 2005, the buyer has purchased 272 of the 354 lots. We
      and
      Fund II recorded a valuation adjustment for the transition period ended June
      30,
      2005 of $354,000 and $180,000, respectively, to write down the carrying value
      of
      our respective interest in the parcel to the amount corresponding to the
      negotiated sale and option price. During July 2005, the buyer exercised its
      option to purchase an additional 82 lots for approximately $3.85 million, of
      which we received approximately $2.56 million, resulting in no further gain
      or
      loss.





During
      August 2005, we and Fund II sold the 126 unit (207 bed) assisted living facility
      in Phoenix, Arizona and financed 100% of the purchase price of which the terms
      include the following: a 12 month, $10.5 million, interest only loan; interest
      rate of 7.5% commencing six months following the date of the loan; our portion
      is $1 million. This transaction resulted in a $144,000 deferred gain, which
      will
      be recognized once the equity requirement has been met. The borrower agreed
      to
      reduce the principal balance of the loan by $2 million within six months (which
      may be extended) following the closing of the loan. We and Fund II wrote down
      the carrying value of the property in the quarter ended March 31, 2005 by
      approximately $6.5 million. Upon loan payment we will recover a portion of
      the
      write down and do not expect to have any further gains or losses on the sale
      of
      this property.





During
      December 2005, we and Fund II sold the 460 acre residential subdivision in
      Lake
      Travis, TX for $5.5 million, of which our portion was $1.8 million. The proceeds
      included a $500,000 note receivable, with an imputed interest rate of 8%, due
      in
      May 2006. A net gain of $71,000 resulted in this transaction, of which our
      portion was $24,000.





-
          19
          -
 *Table
            of Contents*


**NOTE
      G — REAL ESTATE HELD FOR SALE - SELLER FINANCED**





At
      December 31, 2005, we held an interest in two properties with a total carrying
      value of $8.8 million, which have been sold in transactions where we, or an
      affiliate provided the financing to the purchaser. GAAP requires us to include
      these properties in real estate held for sale until the borrower has met and
      maintained a certain percentage of equity ownership, which ranges from 10%
      to
      25%. We may share ownership of such properties with Fund II, Fund III, the
      Manager, related, or other unrelated parties. The summary below includes our
      percentage ownership in each property. These investments in real estate held
      for
      sale are accounted for at the lower of cost or fair value less costs to sell
      with fair value based on appraisals and knowledge of local market conditions.
      The following is a roll-forward of seller financed real estate held for sale
      for
      the six months ended December 31, 2005:





**Description**
            
            **Date
                Acquired**
            
            **Percentage
                of Ownership**
            
            **Balance
                at July 1, 2005**
            
            **Acquisitions**
            
            **Adjustments**
            
            **Principal
                Payments Received from Borrower**
            
            **Balance
                at December 31, 2005**An
                approximately 200-unit apartment complex located in Las Vegas,
                Nevada
            
            
            1/27/2003
            
            
            5
            %
            $
            171,000
            
            $
            --
            
            $
            --
            
            $
            (171,000
            )
            $
            --A
                completed golf course and raw land in Mesquite, Nevada
            
            
            11/06/2002
            
            
            55
            %
            
            1,475,000
            
            
            --
            
            
            --
            
            
            (1,475,000
            )
            
            --36
                acres of raw land in Mesquite, Nevada
            
            
            11/27/2002
            
            
            48
            %
            
            334,000
            
            
            --
            
            
            --
            
            
            (334,000
            )
            
            --Assisted
                living facility in Las Vegas, Nevada
            
            
            9/23/2004
            
            
            52
            %
            
            7,789,000
            
            
            --
            
            
            122,000
            
            
            --
            
            
            7,911,000126
                Unit (207 bed) assisted living facility in Phoenix, AZ
            
            
            9/08/2004
            
            
            10
            %
            
            
            
            
            886,000
            
            
            --
            
            
            --
            
            
            886,000Raw
                land in Mesquite, Nevada
            
            
            11/27/2002
            
            
            53
            %
            
            605,000
            
            
            --
            
            
            --
            
            
            (605,000
            )
            
            --$
            10,374,000
            
            $
            886,000
            
            $
            122,000
            
            $
            (2,585,000
            )
            $
            8,797,000








We
      received $700,000 in payments from borrowers on the loans associated with the
      sale of the above properties, as of December 31, 2005. These payments are
      recorded as a deposit liability. For the three months ended September 30, 2005,
      we recognized $495,000 in interest income relating to loans that were paid
      off
      during this three month period. This amount was reclassified to gain on sale
      of
      real estate during the three months ended December 31, 2005.




Until
      borrowers have met the minimum equity ownership required to allow us to record
      a
      sale, we will record payments received under the deposit method or cost recovery
      method, which ever is applicable in accordance to FAS 66.


-
          20
          -
 *Table
          of Contents*


**NOTE
      H — RELATED PARTY TRANSACTIONS**


From
      time
      to time we may acquire or sell investments in real estate loans from/to our
      Manager or other related parties pursuant to the terms of our Operating
      Agreement provided the price does not exceed the original cost. No gain or
      loss
      is recorded on these transactions, as it is not our intent to make a profit
      on
      the purchase or sale of such investments. The purpose is generally to diversify
      our loan portfolio by spreading our investments among a broader pool of loans.
      Such interests are generally bought and sold at par value. We do not seek to
      profit from a sale to a related party nor do we purchase loan interests at
      a
      mark-up from related parties.





**Transactions
      with the Manager**





Our
      Manager is entitled to receive from us an annual management fee of up to 0.25%
      of our aggregate capital contribution, paid monthly in arrears. For the six
      months ended December 31, 2005 and 2004, we recorded management fees to our
      Manager of approximately $138,000 and $128,000, respectively.





Additionally,
      for the six months ended December 31, 2005, we recorded pro rata distributions
      owed to our Manager of approximately $30,000 and $31,000 for the same period
      in
      the prior year based upon the total of 100,000 units owned by our
      Manager.





As
      of
      December 31, 2005, our Manager owed us $248,000, primarily related to deferred
      interest from borrowers.





As
      of
      June 30, 2005, we owed the Manager $922,000 related to unpaid management fees,
      our Manager’s pro-rata share of distributions, and expenses paid on our behalf
      related to the maintenance of real estate held for sale. Amount was paid during
      the six months ending December 31, 2005.





**Transactions
      with the Funds**





As
      of
      December 31, 2005 and June 30, 2005, we owed Fund II $0 and $1,560,000,
      respectively. The balance was primarily related to payments made on our behalf
      for maintenance expenses incurred on real estate owned properties.





As
      of
      December 31, 2005 and June 30, 2005, we owed Fund III $0 and $6,000,
      respectively primarily related to payments they made on our behalf for legal
      expenses incurred.





During
      the six months ended December 31, 2005, we sold $7.6 million in real estate
      loans to Fund II.





**Transactions
      with Other Related Parties**





For
      the
      six months ended December 31, 2005 and 2004, we incurred $20,000 and $30,000
      respectively, for legal fees to the law firm of Levine, Garfinkel & Katz in
      which the Secretary of Vestin Group has an equity ownership
      interest.





For
      the
      six months ended December 31, 2005 and 2004, we incurred $73,000 and $34,000,
      respectively, to L.L. Bradford & Company, LLC, a certified public accounting
      firm for accounting services. A former Director and Officer of Vestin Group
      is
      an equity owner in that firm.


-
          21
          -
 *Table
          of Contents*


**NOTE
      I — NOTES RECEIVABLE**





During
      October 2004, we and Fund II sold the Castaways Hotel/Casino in Las Vegas,
      Nevada of which our portion of the net cash proceeds totaled $2,118, 000 .  We
      originally sold this property under a 100% seller financing arrangement. 
The borrowers then sold the property to an unrelated third party which resulted
      in a payoff of the note and also allowed us to record the sale and remove the
      asset from seller financed real estate held for sale.  In addition, during
      September 2004, we received a promissory note from the guarantors of the loan
      in
      the amount of $160,000 in exchange for a release of their personal guarantees.  Since
      payments on the note do not begin for 18 months from the date of the note,
      we
      discounted the face value of the note to $ 119,000,
      which is based
      on a discount rate of 8% as of that
      date .





During
      March 2005, we and Fund II sold the
      126
      unit hotel in Mesquite, Nevada for $5,473,000 of which our share of the proceeds
      were approximately $1.8 million which resulted in a loss of approximately
      $389,000. D uring June
      2005 ,
      we and
      Fund
      II entered into a settlement agreement  with the
      guarantor s of the
      loan in the amount of $ 2,000 ,000
      in
      exchange for a release of their personal guarantees of which
      our share was approximately $640,000 . The
      balance is secured by a second trust deed and is payable in a first installment
      of $100,000 due in July 2005 and monthly interest only payments of 5% on
      $1,100,000 from July 2005 through July 2008, at which time the entire balance
      is
      due. The guarantors are entitled to a discount of $782,000 from the principal
      balance in the event the entire balance is paid by December 2006. The first
      installment was received and recognized as income in July 2005. Our portion
      was
      $32,000. Payments will be recognized as revenue when received.





During
      November 2004, we and Fund II sold the 140 Unit/224 bed senior facility in
      Mesa,
      Arizona of which our consideration received totaled $1,009,000. We and Fund
      II
      received a promissory note from the original guarantor of $478,000 of which
      our
      share was $69,000. The promissory note is payable in interest only payments
      of
      8% on the principal balance outstanding. Commencing June 25, 2005 through May
      25, 2006, monthly payments shall increase to $15,000 and be applied to principal
      and accrued interest. Beginning June 25, 2006 through May 25, 2009 payments
      are
      to increase to $20,000 monthly. Due to the uncertainty of collectibility, we
      have provided a valuation allowance for the entire balance of the promissory
      note. Revenue
      will be recognized when payments are received.





During
      December 2005, we and Fund II sold the 460 acre residential subdivision in
      Lake
      Travis, TX for $5.5 million, of which our portion was $1.8 million. The proceeds
      included a $500,000 note receivable, with an imputed interest rate of 8%, due
      in
      May 2006. A net gain of $71,000 resulted in this transaction, of which our
      portion was $24,000.





**NOTE
      J— SECURED BORROWINGS**





Loans
      in
      which third party investors have participated through inter-creditor agreements
      (“Inter-creditor Agreements”) are accounted for as secured borrowings in
      accordance with FAS No. 140, *Accounting
      for Transfers and Servicing of Financial Assets and Extinguishments of
      Liabilities* (“FAS
      No.
      140”). The Inter-creditor Agreements provide us additional funding sources for
      real estate loans whereby a third party investor (the “Investor”) may
      participate on a senior basis in certain real estate loans with us and/or Fund
      II and/or Fund III (collectively, the “Lead Lenders”). In the event of borrower
      non-performance, the Inter-creditor Agreements generally provide that the Lead
      Lenders must repay the Investor’s loan amount either by (i) continuing to remit
      to the Investor the interest due on the participated loan amount; (ii)
      substituting an alternative loan acceptable to the Investor; or (iii)
      repurchasing the participation from the Investor for the outstanding balance
      plus accrued interest.





Additionally,
      an Investor may participate in certain loans with the Lead Lenders through
      Participation Agreements. In the event of borrower non-performance, the
      Participation Agreement may allow the Investor to be repaid up to the amount
      of
      the Investor’s investment prior to the Lead Lender being repaid. Real estate
      loan financing under the Participation Agreements are also accounted for as
      a
      secured borrowing in accordance with FAS No. 140.




As
      of
      December 31, 2005 and June 30, 2005, funds being used under Inter-creditor
      and
      Participation Agreements, where we have potential obligations as defined above
      totaled $2.7 million and $11.4 million, respectively.


-
          22
          -
 *Table
          of Contents*


**NOTE
      K — NOTE PAYABLE**


**December
                31, 2005**Borrowings
                From A Margin Account Collateralized By Securities Held At A Brokerage
                Firm
            
            $
            881,000





The
      note
      payable balance was fully paid in January 2006.





**NOTE
      L — RECENT ACCOUNTING PRONOUNCEMENTS**





In
      May
      2005, the Financial Accounting Standards Board (“FASB”) issued FAS No. 154 (“FAS
      154”), Accounting Changes and Error Corrections — a replacement of APB Opinion
      No. 20 and FAS Statement No. 3. APB No. 20, Accounting Changes, and FAS No.
      3,
      Reporting Accounting Changes in Interim Financial Statements, required the
      inclusion of the cumulative effect of changes in accounting principle in net
      income in the period of change. FAS 154 establishes, unless impracticable,
      retrospective application to prior periods’ financial statements as the required
      method for reporting a voluntary change in accounting principle in the absence
      of explicit transition requirements specific to the newly adopted accounting
      principle. This statement is effective for accounting changes and corrections
      of
      errors made in fiscal years beginning after December 15, 2005. We do not believe
      that the adoption of FAS No. 154 will have a material impact on our financial
      statements.





In
      June
      2005, the Emerging Issues Task Force (“EITF”) reached a consensus on EITF Issue
      05-6, “Determining the Amortization Period for Leasehold Improvements”. EITF
      05-6 states that the amortization period that is to be used for a leasehold
      improvement that are placed in service significantly after and not contemplated
      at the beginning of the lease term, should be the lesser of the useful life
      of
      the acquired leasehold improvement or a period that reflects renewals that
      are
      reasonably assured upon the purchase of the leasehold improvement. EITF 05-6
      is
      effective for periods beginning after June 29, 2005. We do not believe that
      adoption of EITF 05-6 will not have an impact on its financial position or
      results of operations.





**NOTE
      M — LEGAL MATTERS INVOLVING THE MANAGER**





Vestin
      Group, Vestin Mortgage, and Del Mar Mortgage, Inc., a company wholly owned
      by
      Michael V. Shustek, the sole shareholder and CEO of Vestin Group, are defendants
      in a civil action entitled Desert Land, LLC et al. v. Owens Financial Group,
      Inc. et al (the “Action”). The Action is based upon allegations that Del Mar
      Mortgage and/or Vestin Mortgage charged unlawful fees on various loans arranged
      by them. Desert Land sought in excess of $10 million in monetary damages. On
      April 10, 2003, the United States District Court for the District of Nevada
      (the
“Court”) entered judgment jointly and severally in favor of Desert Land against
      Vestin Group, Vestin Mortgage and Del Mar Mortgage, Inc. Judgment was predicated
      upon the Court’s finding that Del Mar Mortgage, Inc. received an unlawful
      penalty fee from the plaintiffs.





The
      defendants subsequently filed a motion for reconsideration. The Court denied
      the
      motion and, on August 13, 2003, held that Vestin Group, Vestin Mortgage,
      and Del Mar Mortgage, Inc. are jointly and severally liable for the judgment
      in
      the amount of $5,683,312 (which amount includes prejudgment interest and
      attorney’s fees). On August 27, 2003, the Court stayed execution of the judgment
      against Vestin Group and Vestin Mortgage based upon the posting of a bond in
      the
      amount of $5,830,000. Mr. Shustek personally posted a cash bond without any
      cost
      or obligation to Vestin Group and Vestin Mortgage. Additionally, Del Mar
      Mortgage, Inc. has indemnified Vestin Group and Vestin Mortgage for any losses
      and expenses in connection with the Action, and Mr. Shustek has guaranteed
      the
      indemnification with his cash bond. On September 12, 2003, all of the defendants
      held liable to Desert Land appealed the judgment to the United States Court
      of
      Appeals for the Ninth Circuit, which heard the case on October 18, 2005. On
      November 15, 2005, the Ninth Circuit vacated the judgment of the District Court
      and dismissed the state law claims against the defendants without prejudice
      on
      the basis that the District Court lacked subject matter jurisdiction in the
      case. On November 29, 2005, Desert Land petitioned the Ninth Circuit Court
      for
      rehearing with a suggestion that the matter be heard en banc. On December 16,
      2005, the District Court issued an Order releasing the Bond, and on January
      6,
      2006, the Ninth Circuit denied Desert Land’s petition and the matter remains
      dismissed. We were not a party to the action.


-
          23
          -
 *Table
          of Contents*


Our
      Manager is involved in a number of legal proceedings concerning matters arising
      in connection with the conduct of its business activities. The Manager believes
      it has meritorious defenses to each of these actions and intends to defend
      them
      vigorously. The Manager believes that it is not a party to any pending legal
      or
      arbitration proceedings that would have a material adverse effect on the
      Manager’s financial condition or results of operations or cash flows, although
      it is possible that the outcome of any such proceedings could have a material
      impact on the Manager’s net income in any particular period.





**NOTE
      N — LEGAL MATTERS INVOLVING THE COMPANY**





The
      staff
      of the Pacific Regional Office of the United States Securities and Exchange
      Commission (SEC) conducted an investigation into certain matters related to
      us,
      Vestin Group, Vestin Capital, Fund II and Fund III. We have fully cooperated
      during the course of the investigation.





The
      Staff
      has notified us, Fund II, Fund III, our Manager, Vestin Capital and Michael
      V.
      Shustek, the Principal Executive Officer of our Manager and Vestin Capital,
      or
      collectively the Vestin Entities, that they intend to seek authority to bring
      an
      enforcement proceeding against the Vestin Entities alleging violations of
      Section 17 (a) of the Securities Act of 1933, Section 10 (b) of the Securities
      Exchange Act of 1934 and Rule 10b-5 thereunder based upon certain sales
      practices employed for a period of time by the Vestin Entities. Specifically,
      the SEC Staff has advised that they believe certain slides used at sales
      seminars held to promote the sale of Fund II and Fund III units included
      disclosure regarding distributions to members of Fund I and Fund II that were
      misleading. The Vestin Entities are engaged in discussions with the Staff
      regarding the proposed recommendation and any remedies, which might be sought
      by
      the SEC Staff. Based upon these discussions, we currently believe that neither
      we nor Fund II and Fund III will be named as parties in the enforcement
      recommendation. These settlement negotiations are ongoing and, at this time,
      we
      do not know if a mutually acceptable settlement will be reached.





We
      are
      involved in a number of legal proceedings concerning matters arising in
      connection with the conduct of our business activities. We believe we have
      meritorious defenses to each of these actions and intend to defend them
      vigorously. We believe that we are not a party to any pending legal or
      arbitration proceedings that would have a material adverse effect on our
      financial condition or results of operations or cash flows, although it is
      possible that the outcome of any such proceedings could have a material impact
      on our net income in any particular period.





**NOTE
      O — REDEMPTION LIMITATION**





In
      order
      to comply with our Operating Agreement and Internal Revenue Code, we may redeem
      no more than 10% of the members’ capital in any calendar year. As of December
      31, 2005, the total of redemptions made from inception was $39.5 million. The
      balance in Members’ capital accounts as of January 1, 2005 was $81.7 million,
      which limited redemptions to $8.2 million for calendar 2005. As of December
      31,
      2005, remaining requests to redeem are approximately, $7.2 million in 2006,
      $6.5
      million in 2007, $5.9 million in 2008, $5.3 million in 2009, $4.7 million in
      2010, $4.3 million in 2011, $3.8 million in 2012, $3.5 million in 2013, $3.1
      million in 2014, $2.8 million in 2015, $2.5 million in 2016, $2.3 million in
      2017, $2.0 million in 2018 and $1.6 million in 2019 had been logged, without
      taking into account unit valuation adjustments. In January 2006, we redeemed
      approximately $6.4 million of Members’ capital.





In
      order
      to satisfy these redemption requests, in the past, we have accumulated by the
      end of a calendar year a cash reserve equal to approximately 10% of our total
      capital. This is in addition to the 3% reserve we maintained for working capital
      purposes. This reserve is generally accumulated by retaining funds received
      upon
      the pay-off of a loan and not reinvesting them in new loans. This has the effect
      of reducing the amount of capital we deploy in real estate loans, which in
      turn
      reduces our revenues and distributions to members.


-
          24
          -
 *Table
          of Contents*


Our
      Manager is currently pursuing a plan to convert Vestin Fund I into a Real Estate
      Investment Trust (“REIT”) whereby equity holders would be able to sell their
      interests on a national securities exchange, but would not have any withdrawal
      rights. If successfully implemented, this plan would prevent a further erosion
      of our capital through member withdrawals. Implementation of this plan would
      require resolution of various tax and structural issues, approval of a majority
      in interest of our outstanding units and approval for listing on a national
      securities exchange. None of these requirements have been met and no assurance
      can be given that any proposal to convert Vestin Fund I into a REIT will be
      successfully implemented. The SEC declared the registration statement on Form
      S-4 for Vestin Realty Trust II, Inc. effective on January 13, 2006. The Manager
      is presently engaged in the proxy solicitation process. A special meeting is
      currently scheduled for March 14, 2006, to vote on the plan to convert Vestin
      Fund I into a REIT.





**NOTE
      P — SUBSEQUENT EVENTS**





In
      January 2006, we redeemed approximately $6.4 million of Members’
capital.





During
      January 2006, the note payable relating borrowings from a margin account balance
      was fully paid.





**ITEM
      2.**  **MANAGEMENT’SDISCUSSION
      AND ANALYSIS OF FINANCIAL CONDITION
      AND**


**RESULTS
      OF OPERATIONS**





The
      following is a financial review and analysis of our financial condition and
      results of operations for the three months ended December 31, 2005. This
      discussion should be read in conjunction with our financial statements and
      accompanying notes and other detailed information regarding us appearing
      elsewhere in this Form 10-Q and our report on Form 10-K for the nine month
      transition period ended June 30, 2005.





**Background**





Vestin
      Fund I, LLC was organized in December 1999 as a Nevada limited liability company
      for the purpose of investing in real estate loans. In this report we refer
      to
      Vestin Fund I, LLC as the “Company”, “we”, “us” or “our”. We invest in loans
      secured by real estate through deeds of trust. We commenced operations on August
      2000. We will continue our operations until December 2019 unless dissolved
      prior
      thereto or extended by vote of the members under the provisions of our operating
      agreement.





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
      company investing in real estate loans and raising funds through our
      Distribution Reinvestment Plan, we are subject to the North American Securities
      Administration Act Mortgage Program Guidelines (the “NASAA Guidelines”)
      promulgated by the state securities administrators.





By
      June
      2001, we had sold all of the 10,000,000 membership units (“Unit”) offered
      pursuant to our registration statement. Since then, a number of Units have
      been
      redeemed and, as of December 31, 2005, a total of 7,509,984 Units were
      outstanding. No additional Units will be sold to new investors; however, current
      members may elect to participate in our Distribution Reinvestment Plan, whereby
      the members’ distributions may be used to purchase additional Units at $10 per
      Unit.





In
      July
      2005, we changed our fiscal year end from September 30 to June 30, we issued
      our
      annual report on Form 10-K for the nine-month transition period ended June
      30,
      2005.





Our
      Manager is Vestin Mortgage, Inc. (the “Manager” or “Vestin Mortgage”), a Nevada
      corporation and licensed mortgage broker engaged in the business of brokerage,
      placement and servicing of commercial loans secured by real property. Our
      Manager is a wholly owned subsidiary of Vestin Group, Inc., a Delaware
      corporation (“Vestin Group”) wholly owned by Michael V. Shustek, the CEO and
      director of the Manager. Through its subsidiaries, Vestin Group is engaged
      in
      asset management, real estate lending and other financial
      services.


-
          25
          -
 *Table
          of Contents*


Our
      Operating Agreement provides that the Manager controls the daily operating
      activities of the Company, including the power to assign duties, to determine
      how to invest our assets, to sign bills of sale, title documents, leases, notes,
      security agreements, mortgage investments and contracts, and to assume direction
      of the business operations. As a result, our operating results are dependent
      upon the Manager’s ability and performance in managing our operations and
      servicing our assets. The Operating Agreement also provides our members, with
      limited voting rights, which includes the right to terminate the Manager subject
      to a majority vote of the members.





Vestin
      Mortgage, Inc. is also the Manager of Vestin Fund II, LLC (“Fund II”), Vestin
      Fund III, LLC (“Fund III”) and InVestin Nevada, Inc., a company wholly owned by
      our Manager’s CEO. These entities also invest in commercial real estate
      loans.





We
      invest
      in real estate loans throughout the areas in which Vestin Mortgage and its
      correspondents have experience. As of December 31, 2005, our loans are in the
      following states; Arizona, California, Hawaii, Nevada, New York, North Carolina,
      Oklahoma, Oregon, Texas, Washington and Wisconsin. The loans we invest in are
      selected for us by Vestin Mortgage from among loans originated by Vestin
      Mortgage or non-affiliated mortgage brokers. When Vestin Mortgage or a
      non-affiliated mortgage broker originates a loan for us, that entity identifies
      the borrower, processes the loan application, makes or invests in the loan,
      and
      brokers or sells the loan to us. We believe that our loans are attractive to
      borrowers because of the expediency of Vestin Mortgage’s loan approval process,
      which takes about ten to twenty days.





As
      a
      non-conventional lender, we are more willing to invest in real estate loans
      to
      borrowers that conventional lenders would not deem to be creditworthy. Because
      of our increased willingness to fund riskier loans, borrowers are willing to
      pay
      us an interest rate that is two to five points above the rates generally charged
      by conventional lenders. We invest a significant amount of our funds in loans
      in
      which the real property being developed is not generating any income to the
      borrower. The “balloon payment” loans and bridge loans in which we invest are
      riskier because the borrower’s repayment depends on its ability to refinance the
      loan or develop the property so it can refinance the loan.





Our
      principal investment objectives are to:





·
            Produce
                revenues from the interest income on our real estate
                loans;





·
            Provide
                monthly cash distributions from the revenues generated by our real
                estate
                loans;





·
            Preserve
                capital contribution; and





·
            Reinvest,
                to the extent permissible, payments of principal and sales (net of
                expenses).





**Overview**





Our
      primary business objective is to generate monthly income by investing in real
      estate loans. We believe there is a significant market opportunity to make
      real
      estate loans to owners and developers of real property whose financing needs
      are
      not met by traditional real estate lenders. The loan underwriting standards
      our
      Manager utilizes are less strict than traditional real estate lenders. In
      addition, one of our competitive advantages is our ability to approve loan
      applications more quickly than traditional lenders. As a result, in certain
      cases, we may make real estate loans that are riskier than real estate loans
      made by commercial banks. However, in return we seek a higher interest rate
      and
      our Manager takes steps to mitigate the lending risks such as imposing a lower
      loan to value ratio. While we may assume more risk than traditional real estate
      lenders, in return, we seek to generate higher yields from our real estate
      loans.


-
          26
          -
 *Table
          of Contents*


Our
      operating results are affected primarily by: (i) the amount of capital we
      have to invest in real estate loans, (ii) the level of real estate lending
      activity in the markets we service, (iii) our ability to identify and work
      with suitable borrowers, (iv) the interest rates we are able to charge on
      our loans and (v) the level of nonperforming assets, foreclosures and
      related loan losses which we may experience. Our capital, subject to a 3%
      reserve, will constitute the bulk of the funds we have available for investment
      in real estate loans. We do not have any arrangements in place to materially
      increase the funds we will have available to invest from any other sources.
      See
      discussion under - “Capital and Liquidity.”





Our
      operating results have been adversely affected by the amount of our
      non-performing assets. Non-performing assets include the following:





**Balance
                as of December 31, 2005**
            
            **%
                of Total Assets**
            
            **Balance
                as of**
              **June
                30, 2005**
            
            **%
                of Total Assets**Real
                Estate held for sale
            
            $
            2,497,000
            
            
            3.25
            %
            $
            7,757,000
            
            
            8.78
            %Non-performing
                Loans
            
            
            12,280,000
            
            
            16.01
            %
            
            8,079,000
            
            
            9.14
            %Total
            
            $
            14,777,000
            
            
            19.26
            %
            $
            15,836,000
            
            
            17.92
            %





Additionally,
      our results of operations have been adversely affected by allowances for
      non-performing loans. As of December 31, 2005, we have provided a general
      allowance for loan losses of approximately $0.4 million and a specific allowance
      of approximately $1.2 million on a loan secured by 4 cemeteries and 8 mortuaries
      in Hawaii, (see “Rightstar Loan Allowance”).





The
      level
      of non-performing assets may reflect the continuing weakness in certain sectors
      of the economy and the risk inherent in our business strategy that entails
      more
      lenient underwriting standards and expedited loan approval procedures. If the
      economy weakens and our borrowers who develop and sell commercial real estate
      projects are unable to complete their projects or obtain takeout financing
      or
      are otherwise adversely impacted, we may experience an increase in loan defaults
      which may reduce the amount of funds we have for distribution to our members.
      Such conditions may also require us to restructure loans. The weighted average
      term of our outstanding loans as of December 31, 2005 was 18 months and June
      30,
      2005 was 19 months. While there has been some movement in the economy towards
      higher interest rates, it is not clear if or when any such rate increases will
      impact our business. The weighted average interest rate on our loans at December
      31, 2005 was 10.04% as compared to 10.58% at June 30, 2005. Our annualized
      rate
      of return to members for the six months ended December 31, 2005 was 7.93%,
      and
      for the transition period ended June 30, 2005 was 1.9%. The decline in our
      annualized rate of return to members for the transition period ended June 30,
      2005 was due primarily to the increase in non-performing loans and the lower
      interest rate we are able to charge on our loans described above. The increase
      in our annualized rate of return to members for the six months ended December
      31, 2005 compared to the year ended June 30, 2005 is primarily due to the gain
      on sale of real estate held for sale recognized in the period relating to the
      payoffs of real estate held for sale-seller financed loans and no additional
      real estate loan loss reserves or allowance to real estate held for sale was
      deemed necessary during the period





Adverse
      economic conditions during the next year could have a material impact on the
      collectibility of our loans. Recognizing the risk, we seek to maintain an
      adequate loan-to-value ratio, which as of December 31, 2005, was 66.65% on
      a
      weighted average basis, generally using appraisals prepared on an as-if
      developed basis in connection with the loan origination. In this manner, we
      hope
      to retain sufficient cushion in the underlying equity position to protect the
      value of our loan in the event of a default. Nevertheless, a marked increase
      in
      loan defaults accompanied by a rapid decline in real estate values could result
      in losses on defaulted loans that would have a material adverse effect upon
      our
      financial condition and operating results.


-
          27
          -
 *Table
          of Contents*


Historically,
      our Manager has focused its operations in Nevada and certain Western states.
      Because our Manager has a significant degree of knowledge with respect to the
      real estate markets in such states, it is likely most of our loans will be
      concentrated in such states. As of December 31, 2005, 25% of the principal
      amount of our loans was secured by real estate in Nevada, while 17%, 14% and
      15%
      were secured by real estate in California, Arizona, and Hawaii, respectively.
      Such geographical concentration creates greater risk that any downturn in such
      local real estate markets could have a significant adverse effect upon our
      results of operations. If we enter into another recession, particularly in
      any
      of the identified states, our operating results could be adversely affected.





**Summarization
      of Financial Results**





**FOR
                THE THREE MONTHS ENDED**
            
            **FOR
                THE SIX MONTHS ENDED****DECEMBER
                31,**
              **2005**
            
            **DECEMBER
                31,**
              **2004**
            
            **DECEMBER
                31,**
              **2005**
            
            **DECEMBER
                31,**
              **2004**Total
                Revenues
            
            $
            1,444,000
            
            $
            2,310,000
            
            $
            3,658,000
            
            $
            4,131,000Total
                Operating Expenses
            
            $
            287,000
            
            $
            736,000
            
            $
            592,000
            
            $
            1,902,000**NET
                INCOME**
            
            $
            1,157,000
            
            $
            1,574,000
            
            $
            3,066,000
            
            $
            2,229,000Net
                Income Allocated to Members
            
            $
            1,157,000
            
            $
            1,574,000
            
            $
            3,066,000
            
            $
            2,229,000Net
                Income Allocated to Members Per Weighted Average Membership
                Units
            
            $
            0.15
            
            $
            0.19
            
            $
            0.40
            
            $
            0.27Weighted
                Average Membership Units
            
            
            7,668,345
            
            
            8,332,817
            
            
            7,668,098
            
            
            8,334,766Annualized
                Rate of Return to Members
            
            
            5.99
            %
            
            7.49
            %
            
            7.93
            %
            
            5.31
            %Cash
                Distributions
            
            $
            1,146,000
            
            $
            1,250,000
            
            $
            2,306,000
            
            $
            2,643,000Cash
                Distributions Per Weighted Average Membership Units
            
            $
            0.15
            
            $
            0.15
            
            $
            0.30
            
            $
            0.32Weighted
                Average Term of Outstanding Loans
            
            
            18
                months
            
            
            26
                months
            
            
            18
                months
            
            
            26
                months





(a)
            The
                annualized rate of return to members is calculated based upon the
                net GAAP
                income allocated to members per weighted average units as of December
                31,
                2005 and 2004 divided by the number of days during the period (92
                days for
                the three months ended December 31, 2005 and 2004 and 184 days for
                the six
                months ended December 31, 2005 and 2004) and multiplied by three
                hundred
                sixty five (365) days, then divided by ten (the cost per
                unit).





*Total
      Revenues* :
      Revenue
      for the three months ended December 31, 2005 decreased compared to the same
      period in 2004, by approximately $866,000 or 37.49% primarily due to the
      following:





·
            For
                the three months ended December 31, 2004, we recorded a gain of
                approximately $1 million on the sale of raw land in Mesquite,
                Nevada.





·
            This
                decrease was partially offset by the following
                increases:





·
            Increase
                in interest income of approximately $160,000 as a result of an increase
                in
                investments in real estate loans of $9.2 million from December 31,
                2004
                with a balance of $52.4 million to December 31, 2005 with a balance
                of
                $61.6 million.


-
          28
          -
 *Table
          of Contents*




·
            Gain
                on sale of marketable securities held during the three months ended
                December 31, 2005 of approximately
                $46,000.





Revenues
      for the six months ended December 31, 2005 decreased compared to the same period
      in 2004, by approximately $473,000 or 11.45% due to the following:





·
            Gain
                on the sale of real estate owned of approximately $1 million relating
                to
                the sale of land in Mesquite, Nevada during the six months ended
                December
                31, 2004.





·
            Decrease
                in interest income of approximately $220,000 is related to the decrease
                in
                the weighted average interest rate on investments in real estate
                loans
                from 12.02% at September 30, 2004 to 10.18% at September 30, 2005.





These
      decreases were partially offset by the following increases:





·
            Gain
                on the sale of real estate held for sale related to seller financed
                loans,
                which were paid during the six months ended December 31, 2005 of
                approximately $495,000.





·
            Included
                in other income for the six months ended December 31, 2005 relates
                to a
                title insurance settlement received in the amount of $272,000. In
                addition, we received $32,000 in income relating to a settlement
                agreement
                with the guarantors relating to the 126-unit hotel in Mesquite, Nevada
                property that was sold in March 2005.





Non-performing
      assets included loans in non-accrual status of approximately $12.3 million
      as of
      December 31, 2005 compared to approximately $8.4 million as of December 31,
      2004
      and real estate held for sale of approximately $2.5 million as of December
      31,
      2005 compared to approximately $11.6 million as of December 31,
      2004.





As
      of
      December 31, 2005 and 2004, we had $8.8 million and $10.8 million, respectively,
      in real estate held for sale-seller financed. Upon the sale of real estate
      held
      for sale where we provided the financing, GAAP requires the new borrower to
      have
      a certain percentage equity ownership (ranging from 10% to 25%) to allow us
      to
      record the sale of a property. In addition, the borrower must maintain a minimum
      commitment in the property on a continuing basis. Therefore, until the borrower
      meets these requirements, the proceeds received from the borrower are recorded
      as a deposit liability or applied to the balance in the real estate held for
      sale-seller finance, depending on the guidelines established by GAAP. Our
      revenues will continue to be impacted until we are able to convert these assets
      into investment in real estate loans or the loans are paid off and we reinvest
      the proceeds into new loans. As of December 31, 2005 and 2004, we had
      approximately $0.7 million and $0.4 million, respectively, in deposit
      liability.





*Total
      Expenses:*  For
      the
      three months ended December 31, 2005, total expenses were approximately $287,000
      compared to $736,000 for the three months ending December 31, 2004, a decrease
      of $449,000 or 61.01%. Expenses were primarily affected by the
      following:





·
            Interest
                expense from secured borrowing decreased by approximately $75,000
                or
                56.82% for the three months ending December 31, 2005. The balance
                for the
                three months ended December 31, 2005 was $45,000 compared to $132,000
                for
                the same period in 2004. This corresponds with the decrease in secured
                borrowings of approximately $458,000 from December 31, 2004 to December
                31, 2005.





·
            During
                the three months ended December 31, 2004, we recorded a charge of
                approximately $278,000 in connection with the write down of real
                estate
                held for sale related to a custom residential property located in
                Santa
                Fe, New Mexico. There were no write downs on real estate held for
                sale
                during the three months ended December 31,
                2005.


-
          29
          -
 *Table
          of Contents*





·
            Expenses
                related to real estate held for sale decreased by approximately $130,000
                due to the decrease in the balance of real estate held for sale at
                December 31, 2004 of $11.6 million to $2.5 million at December 31,
                2005.





For
      the
      six months ended December 31, 2005 and 2004, total expenses were approximately
      $592,000 and $1,902,000, respectively, a decrease of $1.3 million or 68.87%.
      Expenses were affected by the following factors:





·
            Interest
                expense decreased by approximately $333,000 or 75.68% primarily due
                to the
                decrease of interest expenses related to secured borrowing that totaled
                $107,000 for the six months ending December 31, 2005 compared to
                $440,000
                for the same period in 2004. Secured borrowings decreased approximately
                $458,000 from December 31, 2004 to December 31,
                2005.





·
            During
                the six months ended December 31, 2004, we incurred losses on sale
                of real
                estate held for sale of approximately $474,000. No losses on sale
                of real
                estate were incurred during the six months ended December 31,
                2005.





·
            During
                the six months ended December 31, 2004, we wrote down real estate
                held for
                sale by approximately $292,000. We incurred no write downs on real
                estate
                held for sale during the six months ended December 31,
                2005.





·
            Expenses
                related to real estate held for sale decreased by approximately $284,000
                due to the decrease in the balance of real estate held for sale at
                December 31, 2004 of $11.6 million to $2.5 million at December 31,
                2005.





*Net
      Income* .
      Overall, net income for the three and six months ended December 31, 2005 totaled
      approximately $1.2 million and $3.1 million respectively, compared to $1.6
      million and $2.2 million for the same periods in 2004, a decrease of $0.4
      million or 26% and $0.8 million or 38%, respectively. If the proposed REIT
      conversion is not consummated, we will need to continue to set aside, and
      ultimately return, capital to satisfy redemption requests. This has the effect
      of reducing the amount of capital available for investment in real estate loans,
      which in turn reduces our revenues.





*Annualized
      Rate of Return to Members* .
      For the
      three months ended December 31, 2005 and 2004, the annualized rate of return
      to
      members, as calculated in accordance with GAAP, was 5.99% and 7.49%,
      respectively. For the six months ended December 31, 2005 and 2004, the
      annualized rate of return to members, as calculated in accordance with GAAP,
      was
      7.93% and 5.31%, respectively.





*Distributions
      to Members* .
      The
      following is a schedule of distributions made to members for the six months
      ended December 31, 2005 and 2004.





**For
                the Six**
              **Months
                Ended December 31, 2005**
            
            **For
                the Six**
              **Months
                Ended**
              **December
                31, 2004****(Unaudited)**
            
            **(Unaudited)**Distributions
                of Net Income Available for Distribution
            
            $
            2,306,000
            
            $
            2,521,000Distributions
                in Excess of Net Income Available for a Distribution Generated During
                the
                Period
            
            
            --
            
            
            122,000Total
                Distributions
            
            $
            2,306,000
            
            $
            2,643,000





-
          30
          -
 *Table
          of Contents*


Net
      Income Available for Distributions is a non-GAAP financial measure that is
      defined in our operating agreement as cash flows from operations, less certain
      reserves, and may exceed net income as calculated in accordance with GAAP.
      We
      have presented net income available for distribution because management believes
      this financial measure is useful and important to members as net income
      available for distribution is the minimum amount required to be distributed
      to
      members pursuant to our operating agreement. Although we generally do not plan
      to make distributions in excess of net income available for distribution, we
      may
      do so from time to time. Any such distribution will be treated as a return
      of
      capital for income tax purposes. In addition, cash flows from operations, which
      are the significant component of net income available for distribution, affect
      the capital available for investment in new loans. This non-GAAP financial
      measure should not be considered in isolation or as a substitute for measures
      of
      performance prepared in accordance with GAAP or as an alternative to cash flows
      from operating activities as a measure of our liquidity. We compensate for
      these
      limitations by relying primarily on our GAAP results and using net income
      available for distribution only supplementally.





The
      most
      directly comparable GAAP measure to net income available for distribution is
      cash flows from operating activities. The following table reconciles net income
      available for distribution to cash flows from operating activities and presents
      the two other major categories of our statement of cash flows:





**For
                the Six**
              **Months
                Ended December 31, 2005**
            
            **For
                the Six**
              **Months
                Ended**
              **December
                31, 2004**Distribution
                of Net Income Available for Distribution
            
            $
            2,306,000
            
            $
            2,521,000Additions
                to Working Capital Reserves (Amount Not Distributed)
            
            
            752,000
            
            
            --Gain
                on Sale of Marketable Securities
            
            
            (46,000
            )
            
            --Gain
                on Real Estate Held for Sale
            
            
            (519,000
            )
            
            (1,049,000
            )Loss
                on Sale of Real Estate Held for Sale
            
            
            --
            
            
            474,000Change
                in Operating Assets and Liabilities:Net
                Change in Amounts Due to Manager
            
            
            (1,170,000
            )
            
            288,000Net
                Change in Amounts Due to Fund II
            
            
            (1,560,000
            )
            
            2,062,000Net
                Change in Other Operating Assets
            
            
            (54,000
            )
            
            664,000Net
                Change in Accounts Payable and Accrued Liabilities
            
            
            (339,000
            )
            
            (7,000
            )Net
                Change in Amounts Due to Related Parties
            
            
            (8,000
            )
            
            (170,000
            )Net
                Cash Provided (Used) by Operating Activities
            
            $
            (638,000
            )
            $
            4,783,000Net
                Cash Provided by Investing Activities
            
            $
            8,800,000
            
            $
            14,164,000Net
                Cash Used in Financing Activities
            
            $
            (3,140,000
            )
            $
            (5,308,000
            )





*Stated
      Unit Value Adjustment.* Following
      a periodic review by our Manager as required pursuant to the Operating Agreement
      as a result of write downs in the carrying value of real estate held for sale,
      effective April 1, 2005, we adjusted the stated unit value of each unit to
      $9.75
      to reflect the estimated net value of each unit at that date. The periodic
      review of the estimated net unit value includes an analysis of unrealized gains
      that our Manager reasonably believes exist at the time of the review, but that
      cannot be added to net asset value under GAAP. To the extent that we are unable
      to fully recover a loan from sale of the underlying collateral, our Manager
      is
      pursuing remedies it deems appropriate for collection of loan losses, including
      litigation to enforce guarantees of the borrowers. We cannot predict the
      eventual outcome of any remedies our Manager may pursue for the collection
      of
      such losses.





*Redemptions* .
      In
      order to comply with our Operating Agreement and Internal Revenue Code, we
      may
      redeem no more than 10% of the members’ capital in any calendar year. As of
      December 31, 2005, the total of redemptions made from inception was $39.5
      million. The balance in Members’ capital accounts as of January 1, 2005 was
      $81.7 million, which limited redemptions to $8.2 million for calendar 2005.
      As
      of December 31, 2005, remaining requests to redeem are approximately, $7.2
      million in 2006, $6.5 million in 2007, $5.9 million in 2008, $5.3 million in
      2009, $4.7 million in 2010, $4.3 million in 2011, $3.8 million in 2012, $3.5
      million in 2013, $3.1 million in 2014, $2.8 million in 2015, $2.5 million in
      2016, $2.3 million in 2017, $2.0 million in 2018 and $1.6 million in 2019 had
      been logged, without taking into account unit valuation adjustments. In January
      2006, we redeemed approximately $6.4 million of Members’
capital.


-
          31
          -
 *Table
          of Contents*





In
      order
      to satisfy these redemption requests, in the past, we have accumulated by the
      end of a calendar year a cash reserve equal to approximately 10% of our total
      capital. This is in addition to the 3% reserve we maintained for working capital
      purposes. This reserve is generally accumulated by retaining funds received
      upon
      the pay-off of a loan and not reinvesting them in new loans. This has the effect
      of reducing the amount of capital we deploy in real estate loans, which in
      turn
      reduces our revenues and distributions to members.





Our
      Manager is currently pursuing a plan to convert Vestin Fund I into a Real Estate
      Investment Trust (“REIT”) whereby equity holders would be able to sell their
      interests on a national securities exchange, but would not have any withdrawal
      rights. If successfully implemented, this plan would prevent a further erosion
      of our capital through member withdrawals. Implementation of this plan would
      require resolution of various tax and structural issues, approval of a majority
      in interest of our outstanding units and approval for listing on a national
      securities exchange. None of these requirements have been met and no assurance
      can be given that any proposal to convert Vestin Fund I into a REIT will be
      successfully implemented. The SEC declared the registration statement on Form
      S-4 for Vestin Realty Trust II, Inc. effective on January 13, 2006. The Manager
      is presently engaged in the proxy solicitation process. A special meeting is
      currently scheduled for March 14, 2006, to vote on the plan to convert Vestin
      Fund I into a REIT.





**INVESTMENTS
      IN REAL ESTATE LOANS SECURED BY REAL ESTATE PORTFOLIO**





As
      of
      December 31, 2005, we had investments in real estate loans secured by real
      estate totaling $61,648,000 including 27 loans with an aggregate principal
      value
      of approximately $61,610,000 secured by first deeds of trust and one loan
      secured by a second deed of trust totaling approximately $38,000.





As
      of
      December 31, 2005, the weighted average contractual interest yield on our
      investments in mortgage loans was 10.04%. These mortgage loans have contractual
      maturities within the next 24 months.





**Asset
      Quality and Loan Reserves**





Losses
      may occur from investing in real estate loans. The amounts of losses will vary
      as the loan portfolio is affected by changing economic conditions and the
      financial condition of borrowers.





The
      conclusion that a real estate loan is uncollectible or that collectibility
      is
      doubtful is a matter of judgment. On a quarterly basis, the Manager evaluates
      our real estate loan portfolio for impairment. The fact that a loan is
      temporarily past due does not necessarily mean that the loan is impaired.
      Rather, all relevant circumstances are considered by our Manager to determine
      impairment and the need for specific reserves. Such evaluation, which includes
      a
      review of all loans on which full collectibility may not be reasonably assured,
      considers among other matters:





·
            Prevailing
                economic conditions;





·
            Historical
                experience;





·
            The
                nature and volume of the loan portfolio;





·
            The
                borrowers’ financial condition and adverse situations that may affect the
                borrowers’ ability to pay;





·
            Evaluation
                of industry trends;





·
            Review
                and evaluation of loans identified as having loss potentials;
                and





·
            Estimated
                net realizable value of any underlying collateral in relation to
                the loan
                amount.


-
          32
          -
 *Table
          of Contents*


Based
      upon this evaluation, a determination is made as to whether the allowance for
      loan losses is adequate to cover any potential losses. Additions to the
      allowance for loan losses are made by charges to the provision for loan losses.
      Recoveries of previously charged off amounts are credited to the allowance
      for
      loan losses. As of December 31, 2005, our Manager had provided for $0.4 million
      as a general allowance for loan losses and a specific allowance of $1.2 million.
      At December 31, 2005, three **** of
      our
      loans were non-performing (more than 90 days past due on principal or
      interest payments) of approximately $12.3 million as summarized previously.
      Our
      Manager evaluated the loans and concluded that the underlying collateral was
      sufficient to protect us against further losses of principal or interest. Our
      Manager will continue to evaluate these loans in order to determine if any
      other
      allowance for loan losses should be recorded.





**OFF-BALANCE
      SHEET ARRANGEMENTS**





We
      do not
      have any interests in off-balance sheet special purpose entities nor do we
      have
      any interests in non-exchange traded commodity contracts





**CONTRACTUAL
      OBLIGATIONS**





The
      following summarizes our contractual obligations at December 31,
      2005:





**Contractual
                Obligation**
            
            **Total**
            
            **Less
                Than 1 Year**
            
            **1-3
                Years**
            
            **3-5
                Years**
            
            **More
                Than**
              **5
                Years**Secured
                Borrowings
            
            $
            2,719,000
            
            $
            2,719,000
            
            $
            --
            
            $
            --
            
            $
            --Note
                Payable
            
            
            881,000
            
            
            881,000
            
            
            --
            
            
            --
            
            
            --Total
            
            $
            3,600,000
            
            $
            3,600,000
            
            $
            --
            
            $
            --
            
            $
            --





**CRITICAL
      ACCOUNTING ESTIMATES**





**Revenue
      Recognition**





Interest
      income on loans is accrued by the effective interest method. We do not recognize
      interest income from loans once they are determined to be impaired. A loan
      is
      impaired when, based on current information and events, it is probable that
      we
      will be unable to collect all amounts due according to the contractual terms
      of
      the loan agreement or when the payment of interest is 90 days past
      due.





The
      following table presents a sensitivity analysis to show the impact on our
      financial condition at December 31, 2005 from fluctuations in weighted average
      interest rate charged on loans as a percentage of the loan
      portfolio:





**Changed
                Assumption**
            
            **Increase
                (Decrease) in Interest Income**Weighted
                average interest rate assumption increased by 1% or 100 basis
                points
            
            $
            618,000Weighted
                average interest rate assumption increased by 5% or 500 basis
                points
            
            $
            3,089,000Weighted
                average interest rate assumption decreased by 1% or 100 basis
                points
            
            $
            (618,000
            )Weighted
                average interest rate assumption decreased by 5% or 500 basis
                points
            
            $
            (3,089,000
            )





The
      purpose of this analysis is to provide an indication of the impact that the
      weighted average interest rate fluctuations would have on our financial results.
      It is not intended to imply our expectation of future revenues or to estimate
      earnings. We believe that the assumptions used above are appropriate to
      illustrate the possible material impact on the financial
      statements.


-
          33
          -
 *Table
          of Contents*





**Investments
      in Real Estate Loans**





The
      Company may from time to time acquire or sell investments in real estate loans
      from or to the Manager or other related parties pursuant to the terms of the
      Company's Operating Agreement provided the price does not exceed the original
      cost. The primary purpose is to either free up capital to provide liquidity
      for
      various reasons, such as loan diversification, or place excess capital in
      investments to maximize the use of the Company's capital. For example, the
      Company's Operating Agreement provides certain guidelines with respect to loan
      concentration by dollar amount, location and lien position. Selling or buying
      loans allows the Company to diversify its loan portfolio within these
      parameters. Due to the short term nature of the loans the Company makes and
      the
      similarity of interest rates in loans the Company normally would invest in,
      the
      fair value of a loan typically approximates its carrying value. Accordingly,
      discounts or premiums typically do not apply upon sales of loans and therefore,
      generally no gain or loss is recorded on these transactions, regardless of
      whether to a related or unrelated party.





Investments
      in real estate loans are secured by trust deeds. Generally, our real estate
      loans require interest only payments with a balloon payment of the principal
      at
      maturity. We have both the intent and ability to hold real estate loans until
      maturity and, therefore, real estate loans are classified and accounted for
      as
      held for investment and are carried at amortized cost. Loans sold to or
      purchased from affiliates are accounted for at the principal balance and no
      gain
      or loss is recognized by us or any affiliate. Loan to value ratios are based
      on
      appraisals obtained at the time of loan origination and may not reflect
      subsequent changes in value estimates. Such appraisals are generally dated
      within 12 months of the date of loan origination and may be commissioned by
      the
      borrower. The appraisals may be for the current estimate of the “as-if
      developed” value of the property, which approximates the post-construction value
      of the collateralized property assuming that such property is developed. As-if
      developed values on raw land loans or acquisition and development loans often
      dramatically exceed the immediate sales value and may include anticipated zoning
      changes and timely successful development by the purchaser. As most of the
      appraisals will be prepared on an as-if developed basis, if a loan goes into
      default prior to any development of a project, the market value of the property
      may be substantially less than the appraised value. As a result, there may
      be
      less security than anticipated at the time the loan was originally made. If
      there is less security and a default occurs, we may not recover the full amount
      of the loan.





**Allowance
      for Loan Losses**





We
      maintain an allowance for loan losses on our investments in real estate loans
      for estimated credit impairment. The Manager’s estimate of losses is based on a
      number of factors including the types and dollar amounts of loans in the
      portfolio, adverse situations that may affect the borrower’s ability to repay,
      prevailing economic conditions and the underlying collateral securing the loan.
      Additions to the allowance are provided through a charge to earnings and are
      based on an assessment of certain factors, which may indicate estimated losses
      on the loans. Actual losses on loans are recorded as a charge-off or a reduction
      to the allowance for loan losses. Subsequent recoveries of amounts previously
      charged off are added back to the allowance or included as income.





The
      following table presents a sensitivity analysis to show the impact on our
      financial condition at December 31, 2005 from increases and decreases to our
      allowance for loan losses as a percentage of the loan portfolio:





**Changed
                Assumption**
            
            **Increase
                (Decrease) in Allowance for Loan Losses**Allowance
                for loan losses assumption increased by 1.0% of loan
                portfolio
            
            $
            616,000Allowance
                for loan losses assumption increased by 5.0% of loan
                portfolio
            
            $
            3,082,000Allowance
                for loan losses assumption decreased by 1.0% of loan
                portfolio
            
            $
            (616,000
            )Allowance
                for loan losses assumption decreased by 2.6% of loan
                portfolio
            
            $
            (1,604,000
            )





-
          34
          -
 *Table
          of Contents*





Estimating
      allowances for loan losses requires significant judgment about the underlying
      collateral, including liquidation value, condition of the collateral, competency
      and cooperation of the related borrower and specific legal issues that affect
      loan collections or taking possession of the property. As a non-conventional
      lender willing to invest in loans to borrowers who may not meet the credit
      standards of conventional lenders, the default rate on our loans could be higher
      than those generally experienced in the mortgage lending industry. We generally
      approve loans more quickly than other real estate lenders and, due to our
      expedited underwriting process, there is a risk that the credit inquiry we
      perform will not reveal the material facts pertaining to a borrower and the
      security.





Additional
      facts and circumstances are discovered as we continue our efforts in the
      collection and foreclosure processes. This additional information often causes
      management to reassess its estimates. In recent years, we have revised estimates
      of our allowance for loan losses. Circumstances that have caused significant
      changes in our estimated allowance include:





·
            Declines
                in real estate market conditions that can cause a decrease in expected
                market value.





·
            Discovery
                of undisclosed liens for community improvement bonds, easements and
                delinquent property taxes.





·
            Lack
                of progress on real estate developments after we advance funds. We
                customarily utilize disbursement agents to monitor the progress of
                real
                estate developments and approve loan advances. After further inspection
                of
                the related property, progress on construction occasionally does
                not
                substantiate an increase in value to support the related loan
                advances.





·
            Unanticipated
                legal or business issues that may arise subsequent to loan origination
                or
                upon the sale of foreclosed upon
                property.





·
            Appraisals,
                which are only opinions of value at the time of the appraisal, may
                not
                accurately reflect the value of the
                property.





**Real
      Estate Held For Sale**





Real
      estate held for sale includes real estate acquired through foreclosure and
      will
      be carried at the lower of the recorded amount, inclusive of any senior
      indebtedness, or the property's estimated fair value, less estimated costs
      to
      sell, with fair value based on appraisals and knowledge of local market
      conditions. While pursuing foreclosure actions, the Company seeks to identify
      potential purchasers of such property. It is not the Company's intent to invest
      in or own real estate as a long-term investment. In accordance with FAS No.
      144
      - *Accounting
      for the Impairment or Disposal of Long Lived Assets,* the
      Company seeks to sell properties acquired through foreclosure as quickly as
      circumstances permit. The carrying values of real estate held for sale are
      assessed on a regular basis from updated appraisals, comparable sales values
      or
      purchase offers.





Management
      classifies real estate held for sale when the following criteria are
      met:





·
            Management
                commits to a plan to sell the
                properties;





·
            The
                property is available for immediate sale in its present condition
                subject
                only to terms that are usual and
                customary;





·
            An
                active program to locate a buyer and other actions required to complete
                a
                sale have been initiated;





·
            The
                sale of the property is probable;


·
              The
                  property is being actively marketed for sale at a reasonable price;
                  and
 
 ·
              Withdrawal
                  or significant modification of the sale is not
                  likely.


-
          35
          -
 *Table
          of Contents*


**Real
      Estate Held For Sale - Seller Financed**





The
      Company occasionally finances sales of foreclosed properties to independent
      third parties. In order to record a sale of real estate when the seller is
      providing continued financing, FAS 66 requires the buyer of the real estate
      to
      make minimum and initial continuing investments. Minimum initial investments
      as
      defined by FAS 66 range from 10% to 25% based on the type of real estate sold.
      In addition, FAS 66 limits commitments and contingent obligations incurred
      by a
      seller in order to record a sale.





Because
      the Company occasionally forecloses on loans with raw land or developments
      in
      progress, available financing for such properties is often limited and the
      Company frequently provides financing up to 100% of the selling price on these
      properties. In addition, the Company may make additional loans to the buyer
      to
      continue development of a property. Although sale agreements are consummated
      at
      closing, they lack adequate initial investment by the buyer to qualify as a
      sales transaction as defined in FAS 66. These sale agreements are not recorded
      as a sale until the requirements of FAS 66 are met.





These
      sales agreements are recorded under the deposit method or cost recovery method
      as defined in FAS 66. Under the deposit method, no profit is recognized and
      any
      cash received from the buyer is reported as a deposit liability on the balance
      sheet. Under the cost recovery method, no profit is recognized until payments
      by
      the buyer exceed the carrying basis of the property sold. Principal payments
      received will reduce the related receivable, and interest collections will
      be
      recorded as unrecognized gross profit on the balance sheet. The carrying values
      of these properties are included in real estate held for sale on the
      accompanying balance sheet.





**Classification
      of Operating Results from Real Estate Held for Sale**





FAS
      144
      generally requires operating results from long lived assets held for sale to
      be
      classified as discontinued operations as a separately stated component of net
      income. The Company's operations involve foreclosing on real estate when
      necessary and the Company considers these operating results to be part of the
      Company's continuing operations. Accordingly, expenses related to real estate
      held for sale have been included on the accompanying statements of income,
      net
      of related rental income when applicable.





**Secured
      Borrowings**





Secured
      borrowings provide an additional source of capital for our lending activity.
      Secured borrowings allow us to increase the diversification of our loan
      portfolio and to invest in loans that it might not otherwise invest in. We
      do
      not receive any revenues for entering into secured borrowing arrangements.
      Loans
      in which third party investors have participated through inter-creditor
      agreements (“Inter-creditor Agreements”) are accounted for as secured borrowings
      in accordance with FAS No. 140, *Accounting
      for Transfers and Servicing of Financial Assets and Extinguishments of
      Liabilities* (“FAS
      No.
      140”). The Inter-creditor Agreements provide us additional funding sources for
      real estate loans whereby a third party investor (the “Investor”) may
      participate on a senior basis in certain real estate loans with us and/or Fund
      II and/or Fund III (collectively, the “Lead Lenders”). In the event of borrower
      non-performance, the Inter-creditor Agreements generally provide that the Lead
      Lenders must repay the Investor’s loan amount either by (i) continuing to remit
      to the Investor the interest due on the participated loan amount; (ii)
      substituting an alternative loan acceptable to the Investor; or (iii)
      repurchasing the participation from the Investor for the outstanding balance
      plus accrued interest.





Additionally,
      an Investor may participate in certain loans with the Lead Lenders through
      Participation Agreements. In the event of borrower non-performance, the
      Participation Agreement may allow the Investor to be repaid up to the amount
      of
      the Investor’s investment prior to the Lead Lender being repaid. Real estate
      loan financing under the Participation Agreements are also accounted for as
      a
      secured borrowing in accordance with FAS No. 140. The Company does not receive
      any revenues for entering into secured borrowings arrangements.


-
          36
          -
 *Table
          of Contents*


**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 Operating
      Agreement provided the price does not exceed the original cost. No gain or
      loss
      is recorded on these transactions, as it is not our intent to make a profit
      on
      the purchase or sale of such investments. The purpose is generally to diversify
      our loan portfolio by spreading our investments among a broader pool of loans.
      Such interests are generally bought and sold at par value. We do not seek to
      profit from a sale to a related party nor do we purchase loan interests at
      a
      mark-up from related parties.





**Transactions
      with the Manager**





Our
      Manager is entitled to receive from us an annual management fee of up to 0.25%
      of our aggregate capital contribution, paid monthly in arrears. For the six
      months ended December 31, 2005 and 2004, we recorded management fees to our
      Manager of approximately $138,000 and $128,000, respectively.





Additionally,
      for the six months ended December 31, 2005, we recorded pro rata distributions
      owed to our Manager of approximately $30,000 and $31,000 for the same period
      in
      the prior year based upon the total of 100,000 units owned by our
      Manager.





As
      of
      December 31, 2005, our Manager owed us $248,000, primarily related to deferred
      interest from borrowers.





As
      of
      June 30, 2005, we owed the Manager $922,000 related to unpaid management fees,
      our Manager’s pro-rata share of distributions, and expenses paid on our behalf
      related to the maintenance of real estate held for sale. Amount was paid during
      the six months ending December 31, 2005.





**Transactions
      with the Funds**





As
      of
      December 31, 2005 and June 30, 2005, we owed Fund II $0 and $1,560,000,
      respectively, the balance primarily related to payments made on our behalf
      for
      the maintenance of real estate owned.





As
      of
      December 31, 2005 and June 30, 2005, we owed Fund III $0 and $6,000,
      respectively primarily related to payments they made on our behalf for legal
      expenses incurred.





During
      the six months ended December 31, 2005, we sold $7.6 million in real estate
      loans to Fund II.





**Transactions
      with Other Related Parties**





For
      the
      six months ended December 31, 2005 and 2004, we incurred $20,000 and $30,000
      respectively, for legal fees to the law firm of Levine, Garfinkel & Katz in
      which the Secretary of Vestin Group has an equity ownership
      interest.





For
      the
      six months ended December 31, 2005 and 2004, we incurred $73,000 and $34,000,
      respectively, to L.L. Bradford & Company, LLC, a certified public accounting
      firm for accounting services. A former Director and Officer of Vestin Group
      is
      an equity owner in that firm.





-
          37
          -
 *Table
          of Contents*


**FACTORS
      AFFECTING OUR OPERATING RESULTS**





Our
      business is subject to numerous factors affecting our operating results. In
      addition to the factors discussed above, our operating results may be affected
      by:





**Risks
      of Investing in Real Estate Loans**





·
            Our
                underwriting standards and procedures are more lenient than conventional
                lenders in that we will invest in loans to borrowers who will not
                be
                required to meet the credit standards of conventional real estate
                lenders.
                This may result in a higher rate of non-performing
                loans.





·
            We
                approve real estate loans more quickly than other real estate lenders.
                Due
                to the nature of loan approvals, there is a risk that the credit
                inquiry
                our Manager performs will not reveal all material facts pertaining
                to the
                borrower and the security.





·
            Our
                results of operations will vary with changes in interest rates and
                with
                the performance of the relevant real estate markets.





·
            If
                the economy is healthy, we expect that more people will borrow money
                to
                acquire, develop or renovate real property. However, if the economy
                grows
                too fast, interest rates may increase too much and the cost of borrowing
                may become too expensive. This could result in a slowdown in real
                estate
                lending which may mean we will have fewer loans to acquire, thus
                reducing
                the revenues and the distributions to our members.





·
            If,
                at a time of relatively low interest rates, a borrower should prepay
                obligations that have a higher interest rate from an earlier period,
                investors will likely not be able to reinvest the funds in real estate
                loans earning that higher rate of interest. In the absence of a prepayment
                fee, the investors will receive neither the anticipated revenue stream
                at
                the higher rate nor any compensation for their loss. This in turn
                could
                harm our reputation and make it more difficult for us to attract
                investors
                willing to acquire an interest in real estate
                loans.





**Risk
      of Defaults**





Our
      performance will be directly impacted by any defaults on the loans in our
      portfolio. As noted above, we may experience a higher rate of defaults than
      conventional real estate lenders. We seek to mitigate the risk by estimating
      the
      value of the underlying collateral and insisting on low loan to value ratios.
      However, we cannot assure you that these efforts will fully protect us against
      losses on defaulted loans.





Our
      appraisals are generally dated within 12 months of the date of loan origination
      and may not reflect a decrease in the value of the real estate due to events
      subsequent to the date of the appraisals. In addition, appraisals are only
      opinions of the appraisers of property values at the time of appraisals. If
      real
      estate values subsequently decline and/or if the appraisers overestimate the
      property value, we could have less security than anticipated at the time the
      loan was originally made, which may result in our not recovering the full amount
      of the loan.





In
      addition, foreclosures on defaulted loans create additional risks that may
      adversely affect our operating results. These risks include:





·
            We
                may incur substantial legal fees and court costs in acquiring a mortgaged
                property through a foreclosure sale and/or bankruptcy
                proceedings.





·
            During
                the period of time when a defaulted loan is the subject of foreclosure
                proceedings, it is likely that we will earn less, if any, income
                from such
                loans, thereby reducing our
                earnings.





·
            Properties
                foreclosed upon may not generate sufficient income from operations
                to meet
                expenses, such as property taxes, maintenance costs, mortgage payments,
                insurance cost and related
                charges.


-
          38
          -
 *Table
          of Contents*





·
            Operation
                of foreclosed properties may require us to spend substantial funds
                for an
                extended period until we are able to find a suitable
                buyer.





·
            We
                incur liability risks in owning and operating real property such
                as
                possible liability for injury to persons and property or for the
                cost
                involved in cleaning up any contamination by materials hazardous
                to the
                environment.





·
            Proceeds
                from the sale of foreclosed property may not generate full repayment
                of
                our loans and, in connection with such sale, we may be required to
                provide
                seller financing and incur the risk that the buyer may default on
                such
                financing.





**Risks
      of Interest Rate Changes**





Our
      results of operations will vary with changes in interest rates and with the
      performance of the relevant real estate markets.




If
      the
      economy is healthy, we expect that more people will be borrowing money to
      acquire, develop or renovate real property. However, if the economy grows too
      fast, interest rates may increase too much and the cost of borrowing may become
      too expensive. This could result in a slowdown in real estate lending which
      may
      mean we will have fewer loans to acquire, thus reducing our revenues and the
      distributions to members.




One
      of
      the results of interest rate fluctuations is that borrowers may seek to extend
      their low-interest-rate real estate loans after market interest rates have
      increased. This creates three risks for us:




(i)
      There
      can be no assurance that permitted rate increases, if any, will be adequate
      if
      interest rates have increased beyond the range contemplated by our loan
      documents.




(ii)
      If
      interest rates rise, borrowers under loans with monthly or quarterly principal
      payments may be compelled to extend their loans to decrease the principal paid
      with each payment because the interest component has increased. If this happens,
      there is a higher risk that the borrower may default on the extended loan,
      and
      the increase in the interest rate on the loan may not be adequate compensation
      for the increased risk. Distributions from real estate loans we own may decline
      if lenders are unable to reinvest at higher rates or if an increasing number
      of
      borrowers default on their loans.




(iii)
      If,
      at a time of relatively low interest rates, a borrower prepays obligations
      that
      have a higher interest rate from an earlier period, investors will likely not
      be
      able to reinvest the funds in real estate loans earning that higher rate of
      interest. In the absence of a prepayment fee, the investors will receive neither
      the anticipated revenue stream at the higher rate nor compensation for their
      loss. This in turn could harm our business reputation.


**Competition
      for Borrowers**





We
      consider our competitors for borrowers to be the providers of non-conventional
      real estate loans, that is, lenders who offer short-term, equity-based loans
      on
      an expedited basis for higher fees and rates than those charged by conventional
      lenders and real estate loans investors, such as commercial banks, thrifts,
      conduit lenders, insurance companies, mortgage brokers, pension funds and other
      financial institutions that offer conventional real estate loans. In addition,
      there has been an increase in competition from more conventional mortgage
      lenders and mortgage loan investors, such as commercial banks, thrifts, conduit
      lenders, insurance companies, mortgage brokers, pension funds and other
      financial institutions that offer conventional mortgage loans. Many of the
      companies against which we compete have substantially greater financial,
      technical and other resources than we do. Competition in our market niche
      depends upon a number of factors including price and interest rates of the
      loan,
      speed of loan processing, cost of capital, reliability, quality of service
      and
      support services.


-
          39
          -
 *Table
          of Contents*





**Effect
      of Fluctuations in the Economy**





Our
      sole
      business, making loans secured by real estate, is particularly vulnerable to
      changes in macroeconomic conditions. Any significant decline in economic
      activity, particularly in the geographical markets in which we concentrate
      our
      loans, could result in a decline in the demand for real estate development
      loans. In order to stay fully invested during a period of declining demand
      for
      real estate loans, we may be required to make loans with terms less favorable
      to
      us or to make loans involving greater risk to us. Declines in economic activity
      are often accompanied by a decline in prevailing interest rates. Although our
      lending rates are not directly tied to the Federal Reserve Board’s discount
      rate, a sustained and widespread decline in interest rates will impact the
      interest we are able to earn on our loans. Since our loans generally do not
      have
      prepayment penalties, declining interest rates may also cause our borrowers
      to
      prepay their loans and we may not be able to reinvest the amounts prepaid in
      loans generating a comparable yield. Moreover, any significant decline in
      economic activity could adversely impact the ability of our borrowers to
      complete their projects and obtain take out financing. This in turn could
      increase the level of defaults we may experience.





**CAPITAL
      AND LIQUIDITY**





Liquidity
      is a measure of a company’s ability to meet potential cash requirements,
      including ongoing commitments to fund lending activities and general operating
      purposes. Subject to a 3% reserve, we generally use all of our available funds
      to invest in real estate loans or satisfy redemption requests. Distributable
      cash flow generated from such loans is paid out to our members unless they
      have
      elected to reinvest their dividends. We do not anticipate the need for hiring
      any employees, acquiring fixed assets such as office equipment or furniture,
      or
      incurring material office expenses during the next twelve months because Vestin
      Mortgage will manage our affairs. We may pay Vestin Mortgage an annual
      management fee of up to 0.25% of our aggregate capital contributions.





During
      the six months ended December 31, 2005, cash flows used by operating activities
      approximated $0.6 million. Investing activities consisted of cash provided
      by
      loan payoffs of approximately $17.9 million, cash proceeds from sale of
      investments in real estate loans $7.9 million. Cash used for new investments
      and
      purchases of real estate loans of approximately $22.5 million, and proceeds
      from
      the sale of real estate held for sale of approximately $4.2 million. Financing
      activities consisted of members’ redemptions in the amount of $1.9 million,
      distributions of $2.1 million (net of reinvestments) and proceeds from issuance
      of note payable $0.9 million.





At
      December 31, 2005, we had $7.9 million in cash (which we had accumulated in
      reserve to redeem $6.4 million in Members’ capital in January of 2006), $0.3
      million in certificates of deposit, and $76.7 million in total assets. We intend
      to meet short-term working capital needs through a combination of proceeds
      from
      loan payoffs, loan sales and/or borrowings. We are not obligated to satisfy
      redemption requests unless we have cash available to satisfy such requests
      nor
      are we obligated to liquidate assets to satisfy such requests. We believe we
      have sufficient working capital to meet our operating needs in the near
      term.





Since
      we
      distribute most or all of our distributable cash generated by operations, our
      sources of liquidity include: repayments of outstanding loans, distribution
      reinvestments by our members and arrangements with third parties to participate
      in our loans and proceeds from issuance of note payable and secured borrowings.





As
      of
      December 31, 2005, members holding less than 1% of our outstanding units have
      elected to reinvest their distributions. We no longer accept new members. The
      level of distribution reinvestment will depend upon our performance, as well
      as,
      the number of our members who prefer to reinvest rather than receive current
      distributions.


-
          40
          -
 *Table
          of Contents*





We
      rely
      primarily upon repayment of outstanding loans to provide capital for investment
      in new loans. Any significant level of defaults on outstanding loans could
      reduce the funds we have available for investment in new loans. Resulting
      foreclosure proceedings may not generate full repayment of our loans and may
      result in significant delays in the return of invested funds. This would
      diminish our capital resources and would impair our ability to invest in new
      loans. Non-performing assets include loans in non-accrual status and real estate
      held for sale totaling $12.3 million and $2.5 million, respectively, as of
      December 31, 2005 compared to $8.1 million and $7.8 million, respectively,
      as of
      June 30, 2005. It is possible that no earnings will be recognized from these
      assets until they are disposed of, or that no earnings will be recognized at
      all, and the time it will take to dispose of these assets cannot be predicted.
      Our Manager believes that non-performing assets exist as a result of factors
      unique to specific borrowers and properties. Because of the estimated value
      of
      the underlying properties, we do not believe that any losses beyond those
      already recognized will be incurred from these assets upon final disposition.
      However, it is possible that we will not be able to realize the full estimated
      carrying values upon disposition.





In
      addition, any significant level of redemptions by our members would reduce
      the
      capital we have available for investment. In order to comply with our Operating
      Agreement and Internal Revenue Code, we may redeem no more than 10% of the
      members’ capital in any calendar year. As of December 31, 2005, the total of
      redemptions made from inception was $39.5 million. The balance in Members’
capital accounts as of January 1, 2005 was $81.7 million, which limited
      redemptions to $8.2 million for calendar 2005. As of December 31, 2005,
      remaining requests to redeem are approximately, $7.2 million in 2006, $6.5
      million in 2007, $5.9 million in 2008, $5.3 million in 2009, $4.7 million in
      2010, $4.3 million in 2011, $3.8 million in 2012, $3.5 million in 2013, $3.1
      million in 2014, $2.8 million in 2015, $2.5 million in 2016, $2.3 million in
      2017, $2.0 million in 2018 and $1.6 million in 2019 had been logged, without
      taking into account unit valuation adjustments. In January 2006, we redeemed
      approximately $6.4 million of Members’ capital.





In
      order
      to satisfy these redemption requests, in the past, we have accumulated by the
      end of a calendar year a cash reserve equal to approximately 10% of our total
      capital. This is in addition to the 3% reserve we maintained for working capital
      purposes. This reserve is generally accumulated by retaining funds received
      upon
      the pay-off of a loan and not reinvesting them in new loans. This has the effect
      of reducing the amount of capital we deploy in real estate loans, which in
      turn
      reduces our revenues and distributions to members.





Our
      Manager is currently evaluating a plan to convert Vestin Fund I into a Real
      Estate Investment Trust (“REIT”) whereby equity holders would be able to sell
      their interests on an exchange, but would not have any withdrawal rights. If
      successfully implemented, this plan would prevent a further erosion of our
      capital through member withdrawals. Implementation of this plan would require
      resolution of various tax and structural issues, declaration of effectiveness
      by
      the SEC of a registration statement, approval of a majority in interest of
      our
      outstanding units and approval for listing on a national securities exchange.
      None of these requirements have been met and no assurance can be given that
      any
      proposal to convert Vestin Fund I into a REIT will be successfully implemented.
      The SEC declared the registration statement on Form S-4 for Vestin Realty Trust
      II, Inc. effective on January 13, 2006. The Manager is presently engaged in
      the
      proxy solicitation process. A special meeting is currently scheduled for March
      14, 2006, to vote on the plan to convert Vestin Fund I into a REIT.





Loans
      in
      which third party investors have participated through inter-creditor agreements
      (“Inter-creditor Agreements”) are accounted for as secured borrowings in
      accordance with FAS No. 140, *Accounting
      for Transfers and Servicing of Financial Assets and Extinguishments of
      Liabilities* (“FAS
      No.
      140”). The Inter-creditor Agreements provide us additional funding sources for
      real estate loans whereby a third party investor (the “Investor”) may
      participate on a senior basis in certain real estate loans with us and/or Fund
      II and/or Fund III (collectively, the “Lead Lenders”). In the event of borrower
      non-performance, the Inter-creditor Agreements generally provide that the Lead
      Lenders must repay the Investor’s loan amount either by (i) continuing to remit
      to the Investor the interest due on the participated loan amount; (ii)
      substituting an alternative loan acceptable to the Investor; or (iii)
      repurchasing the participation from the Investor for the outstanding balance
      plus accrued interest.


-
          41
          -
 *Table
          of Contents*





Additionally,
      an Investor may participate in certain loans with the Lead Lenders through
      Participation Agreements. In the event of borrower non-performance, the
      Participation Agreement may allow the Investor to be repaid up to the amount
      of
      the Investor’s investment prior to the Lead Lender being repaid. Real estate
      loan financing under the Participation Agreements are also accounted for as
      a
      secured borrowing in accordance with FAS No. 140.





As
      of
      December 31, 2005, funds being used under Inter-creditor and Participation
      Agreements where we have potential obligations as defined above totaled $2.7
      million compared to $11.4 million at June 30, 2005.





We
      maintain working capital reserves of approximately 3% of aggregate members’
capital accounts in cash and cash equivalents, certificates of deposits and
      short-term investments or liquid marketable securities. This reserve is
      available to pay expenses in excess of revenues, satisfy obligations of
      underlying properties, expend money to satisfy our unforeseen obligations and
      for other permitted uses of working capital.





**FORWARD
      LOOKING STATEMENT**





When
      used
      in this Quarterly Report on Form 10-Q the words or phrases “will likely result,”
“are expected to,” “is anticipated,” or similar expressions are intended to
      identify “forward looking statements” within the meaning of the Private
      Securities Litigation Reform Act of 1995. Such statements are subject to certain
      risks and uncertainties, including but not limited to changes in interest rates,
      and fluctuations in operating results. Such factors which are discussed in
      Management’s Discussion and Analysis of Financial Condition and Results of
      Operations, could affect our financial performance and could cause our actual
      results for future periods to differ materially from any opinion or statements
      expressed herein with respect to future periods. As a result, we wish to caution
      readers not to place undue reliance on any such forward looking statements,
      which speak only as of the date made.





**ITEM
      3.**  **QUANTITATIVEAND
      QUALITATIVE DISCLOSURES ABOUT MARKET RISK**





We
      are
      exposed to market risk, primarily from changes in interest rates. We do not
      deal
      in any foreign currencies and do not own any options, futures or other
      derivative instruments. We do not have a significant amount of
      debt.





Most
      of
      our assets consist of real estate loans, including those that are financed
      under
      Inter-creditor Agreements. At December 31, 2005, our aggregate net investment
      in
      real estate loans was $51.3 million with a weighted average yield of
      10% . Loans
      financed under Inter-creditor Agreements totaled $2.7 million at December 31,
      2005 and are classified as assets under secured borrowings. Such financing
      is at
      a weighted average interest rate of 11%. These real estate loans mature within
      the next 12 months. Most of the real estate loans have a term of
      12 months.





The
      weighted average term of outstanding loans at December 31, 2005 was 18 months.
      All of the outstanding real estate loans at December 31, 2005 are fixed rate
      loans. All of the real estate loans are held for investment purposes and are
      held for investment purposes; none are held for sale. We intend to hold such
      real estate loans to maturity. None of the real estate loans have prepayment
      penalties.





Market
      fluctuations in interest rates generally do not affect the carrying value of
      our
      investment in real estate loans. However, significant and sustained changes
      in
      interest rates could affect our operating results. If interest rates decline
      significantly, some of the borrowers could prepay their loans with the proceeds
      of a refinancing at lower interest rates. This would reduce our earnings and
      funds available for distribution to Members. On the other hand, a significant
      increase in interest rates could result in a slowdown in real estate development
      activity, which would reduce the demand for commercial real estate loans. As
      a
      result, we might encounter greater difficulty in identifying appropriate
      borrowers. We are not in a position to quantify the potential impact on our
      operating results from a material change in interest rates.


-
          42
          -
 *Table
          of Contents*





The
      following table contains information about the investment in mortgage loans
      held
      in our portfolio as of December 31, 2005. The presentation aggregates the
      investment in mortgage loans by their maturity dates for maturities occurring
      in
      each of the years 2005 through 2009 and separately aggregates the information
      for all maturities arising after 2010. The carrying values of these assets
      approximate their fair value as of December 31, 2005:





**Interest
                Earning Assets**
              **Aggregated
                by Maturity at December 31, 2005****Interest
                Earning Assets**
            
            **2006**
            
            **2007**
            
            **2008**
            
            **2009**
            
            **Thereafter**
            
            **Total**Investments
                In Real Estate Loans
            
            $
            52,943,000
            
            $
            8,705,000
            
            $
            --
            
            $
            --
            
            $
            --
            
            $
            61,648,000Weighted
                Average Interest Rates
            
            
            10.73
            %
            
            5.80
            %
            
            --
            %
            
            --
            %
            
            --
            %
            
            10.04
            %





As
      of
      December 31, 2005, we had cash and investments in certificates of deposit and
      other short-term deposit accounts totaling $8.2 million. We anticipate that
      approximately 3% of our assets will be held in such accounts as cash reserves.
      Additional deposits in such accounts will be made as funds are received from
      the
      repayment of loans pending the reinvestment of such funds in new real estate
      loans or held for member redemptions. We believe that these financial assets
      do
      not give rise to significant interest rate risk due to their short-term
      nature.




**ITEM
      4.**  **CONTROLSAND
      PROCEDURES**





**Disclosure
      Controls and Procedures**





Our
      Manager’s Chief Executive Officer and Chief Financial Officer have reviewed and
      evaluated the effectiveness of the design and operation of our Company’s
      disclosure controls and procedures (as defined in the Securities Exchange Act
      of
      1934 Rules 13a-15(e) and 15d-15(e)) as of December 31, 2005.





Our
      Manager’s Chief Executive Officer and Chief Financial Officer concluded that our
      Company’s disclosure controls and procedures as of the end of the period covered
      by this report were not effective as a result of material weaknesses in internal
      controls as of December 31, 2005 as discussed below.





**Management’s
      Report on Internal Control Over Financial Reporting**





Management
      is responsible for establishing and maintaining adequate internal control over
      financial reporting of our Company. Internal control over financial reporting
      is
      a process designed to provide reasonable assurance regarding the reliability
      of
      financial reporting and the preparation of financial statements for external
      purposes in accordance with accounting principles generally accepted in the
      United States of America.





Our
      Company’s internal control over financial reporting includes those policies and
      procedures that (i) pertain to the maintenance of records that, in reasonable
      detail, accurately and fairly reflect the transactions and dispositions of
      the
      assets of the Company; (ii) provide reasonable assurance that transactions
      are
      recorded as necessary to permit preparation of financial statements in
      accordance with accounting principles generally accepted in the United States
      of
      America, and that receipts and expenditures of our Company are being made only
      in accordance with authorizations of Management and Directors of our Company;
      and (iii) provide reasonable assurance regarding prevention or timely detection
      of unauthorized acquisition, use or disposition of our Company’s assets that
      could have a material effect on the financial statements.


-
          43
          -
 *Table
          of Contents*





As
      defined by the Public Company Accounting Oversight Board’s Auditing Standard No.
      2, a material weakness is defined as a significant deficiency or combination
      of
      significant deficiencies, that results in more than a remote likelihood that
      a
      material misstatement of the annual or interim financial statements will not
      be
      prevented or detected. Management’s preliminary assessment concluded that we did
      not maintain effective internal control over financial reporting as of December
      31, 2005. As a result of the assessment, we identified the following material
      weaknesses:





·
            The
                first material weakness identified insufficient resources of technical
                accounting and reporting expertise. This weakness relates to the
                oversight
                and review of financial transactions, which affects our ability to
                prepare
                and properly review financial statements and accompanying footnote
                disclosures in accordance with United States generally accepted accounting
                principles and the rules and regulations of the
                SEC.





·
            As
                a result of the foregoing material weakness, there has been ineffective
                oversight of documentation of authorizations to ensure that procedures
                are
                properly executed. Specifically, we did not have backup documentation
                for
                some authorized payments made by our
                Company.





The
      foregoing material weaknesses resulted in revisions to the draft financial
      statement disclosures, but we believe our final financial statements and related
      disclosures were accurate in all material respects. In addition, our Manager
      and
      independent auditors together have determined that the identified material
      weaknesses did not result in inadequate or deficient financial reporting for
      prior periods and will not result in a restatement of any of our prior financial
      statements.





**Remediation
      Plan**





In
      addition to controls and procedures consistent with prior practices, our Manager
      is in the process of developing and implementing remediation plans. In order
      to
      remediate the aforementioned material weaknesses, our Manager has:





·
            Hired
                a Corporate Controller with the requisite experience to assist and
                work
                directly with our Manager’s Chief Financial
                Officer;





·
            Hired
                an Accounting Manager with the requisite experience to assist and
                work
                directly with our Manager’s Corporate
                Controller;





·
            Hired
                a Financial Reporting Analyst to assist with the financial reporting
                process and work directly with our Manager’s Corporate
                Controller;





·
            Implemented
                a mandatory weekly management meeting for all key personnel. This
                allows
                for financial reporting personnel to be consistently updated on
                significant matters affecting the Company;
                and





·
            Implemented
                a Financial Reporting Review Committee, which reviews all periodic
                financial reporting documents prior to
                filing.





We
      believe that, for the reasons described above, we are continuing to improve
      our
      disclosure controls and procedures and remedy the identified material
      weaknesses. Because of the inherent limitations in all control systems, no
      evaluation of controls can provide absolute assurance that all control issues
      and instances of fraud, if any, will be or have been detected. These inherent
      limitations include the realities that judgments in decision-making can be
      faulty, and that breakdowns can occur because of simple error or mistake.
      Additionally, controls can be circumvented by the individual acts of some
      persons, by collusion of two or more people, or by management override of the
      control. The design of any system of controls also is based in part upon certain
      assumptions about the likelihood of future conditions; over time, control may
      become inadequate because of changes in conditions, or the degree of compliance
      with the policies or procedures may deteriorate. Because of the inherent
      limitation in a cost-effective control system, misstatements due to error or
      fraud may occur and not be detected.


-
          44
          -
 *Table
          of Contents*





**Changes
      in Internal Control Over Financial Reporting**





Except
      for our remediation changes to address the material weaknesses discussed above,
      no change in our internal control over financial reporting identified in
      connection with the evaluation required by paragraph (d) of Securities Exchange
      Act Rules 13a-15(f) or 15d-15(f) that occurred has materially affected, or
      is
      reasonably likely to materially affect, our internal control over financial
      reporting.





**PART
      II - OTHERINFORMATION**





**ITEM
      1.**  **LEGALPROCEEDINGS**





**Legal
      Matters Involving Our Manager**





Vestin
      Group, Vestin Mortgage, and Del Mar Mortgage, Inc., a company wholly owned
      by
      Michael V. Shustek, the sole shareholder and CEO of Vestin Group, are defendants
      in a civil action entitled Desert Land, LLC et al. v. Owens Financial Group,
      Inc. et al (the “Action”). The Action is based upon allegations that Del Mar
      Mortgage and/or Vestin Mortgage charged unlawful fees on various loans arranged
      by them. Desert Land sought in excess of $10 million in monetary damages. On
      April 10, 2003, the United States District Court for the District of Nevada
      (the
“Court”) entered judgment jointly and severally in favor of Desert Land against
      Vestin Group, Vestin Mortgage and Del Mar Mortgage, Inc. Judgment was predicated
      upon the Court’s finding that Del Mar Mortgage, Inc. received an unlawful
      penalty fee from the plaintiffs.





The
      defendants subsequently filed a motion for reconsideration. The Court denied
      the
      motion and, on August 13, 2003, held that Vestin Group, Vestin Mortgage,
      and Del Mar Mortgage, Inc. are jointly and severally liable for the judgment
      in
      the amount of $5,683,312 (which amount includes prejudgment interest and
      attorney’s fees). On August 27, 2003, the Court stayed execution of the judgment
      against Vestin Group and Vestin Mortgage based upon the posting of a bond in
      the
      amount of $5,830,000. Mr. Shustek personally posted a cash bond without any
      cost
      or obligation to Vestin Group and Vestin Mortgage. Additionally, Del Mar
      Mortgage, Inc. has indemnified Vestin Group and Vestin Mortgage for any losses
      and expenses in connection with the Action, and Mr. Shustek has guaranteed
      the
      indemnification with his cash bond. On September 12, 2003, all of the defendants
      held liable to Desert Land appealed the judgment to the United States Court
      of
      Appeals for the Ninth Circuit, which heard the case on October 18, 2005. On
      November 15, 2005, the Ninth Circuit vacated the judgment of the District Court
      and dismissed the state law claims against the defendants without prejudice
      on
      the basis that the District Court lacked subject matter jurisdiction in the
      case. On November 29, 2005, Desert Land petitioned the Ninth Circuit Court
      for
      rehearing with a suggestion that the matter be heard en banc. On December 16,
      2005, the District Court issued an Order releasing the Bond, and on January
      6,
      2006, the Ninth Circuit denied Desert Land’s petition and the matter remains
      dismissed. We were not a party to the action.





Our
      Manager is involved in a number of legal proceedings concerning matters arising
      in connection with the conduct of its business activities. The Manager believes
      it has meritorious defenses to each of these actions and intends to defend
      them
      vigorously. The Manager believes that it is not a party to any pending legal
      or
      arbitration proceedings that would have a material adverse effect on the
      Manager’s financial condition or results of operations or cash flows, although
      it is possible that the outcome of any such proceedings could have a material
      impact on the Manager’s net income in any particular period.





**Legal
      Matters Involving the Company**





The
      staff
      of the Pacific Regional Office of the United States Securities and Exchange
      Commission (SEC) conducted an investigation into certain matters related to
      us,
      Vestin Group, Vestin Capital, Fund II and Fund III. We have fully cooperated
      during the course of the investigation.


-
          45
          -
 *Table
          of Contents*





The
      Staff
      has notified us, Fund II, Fund III, our Manager, Vestin Capital and Michael
      V.
      Shustek, the Principal Executive Officer of our Manager and Vestin Capital,
      or
      collectively the Vestin Entities, that they intend to seek authority to bring
      an
      enforcement proceeding against the Vestin Entities alleging violations of
      Section 17 (a) of the Securities Act of 1933, Section 10 (b) of the Securities
      Exchange Act of 1934 and Rule 10b-5 thereunder based upon certain sales
      practices employed for a period of time by the Vestin Entities. Specifically,
      the SEC Staff has advised that they believe certain slides used at sales
      seminars held to promote the sale of Fund II and Fund III units included
      disclosure regarding distributions to members of Fund I and Fund II that were
      misleading. The Vestin Entities are engaged in discussions with the Staff
      regarding the proposed recommendation and any remedies, which might be sought
      by
      the SEC Staff. Based upon these discussions, we currently believe that neither
      we nor Fund II and Fund III will be named as parties in the enforcement
      recommendation. These settlement negotiations are ongoing and, at this time,
      we
      do not know if a mutually acceptable settlement will be reached.





We
      are
      involved in a number of legal proceedings concerning matters arising in
      connection with the conduct of our business activities. We believe we have
      meritorious defenses to each of these actions and intend to defend them
      vigorously. We believe that we are not a party to any pending legal or
      arbitration proceedings that would have a material adverse effect on our
      financial condition or results of operations or cash flows, although it is
      possible that the outcome of any such proceedings could have a material impact
      on our net income in any particular period.





**ITEM
      2.**  **UNREGISTEREDSALES
      OF EQUITY AND USE OF
      PROCEEDS**





**Market
      Information**





There
      is
      no established public trading market for the trading of Units.





**Holders**





As
      of
      December 31, 2005, 1,212 accounts held 7,509,984 Units of interest in the
      Company.





**Distribution
      Policy**





We
      generally distribute to Unit holders on a monthly basis most of our Net Income
      Available for Distribution (as defined in our Operating Agreement). Net Income
      Available for Distribution is based upon cash flow from operations, less certain
      reserves, and may exceed net income as calculated in accordance with accounting
      principles generally accepted in the United States (“GAAP”). Our Operating
      Agreement also permits distributions of capital. We made distributions of
      approximately $2,306,000 (prior to reinvested distributions) during the six
      months ended December 31, 2005, all of which were paid from Net Income Available
      for Distribution. It is our intention to continue to distribute our Net Income
      Available for Distribution to our Unit holders.





**Recent
      Sales of Unregistered Securities**





None.





**Equity
      Compensation Plan Information**





None.


-
          46
          -
 *Table
          of Contents*





**Purchases
      of Equity Securities by the Issuer and Affiliated
      Purchasers**








**Period**
            
            **Total
                Number of Units Purchased (1)**
            
            **Average
                Price Paid per Unit**
            
            **Total
                Number of Units Purchased as Part of Publicly Announced Plans or
                Programs**
            
            **Maximum
                Number (or Approximate Dollar Value) of Units that May Yet be Purchased
                under the Plans or Programs**October
                2005
            
            
            75
            
            $
            9.75
            
            
            None
            
            
            NoneNovember
                2005
            
            
            4,183
            
            $
            9.75
            
            
            None
            
            
            NoneDecember
                2005
            
            
            163,630
            
            $
            9.75
            
            
            None
            
            
            None





(1)
            Pursuant
                to our Operating Agreement, members may request to have their units
                redeemed. However, in order to comply with our Operating Agreement
                and
                Internal Revenue Code, we may redeem no more than 10% of the aggregate
                Members’ capital in any calendar year. Balances in Members’ capital
                accounts as of January 1, 2005 were approximately $81.7 million,
                which
                limited redemptions to approximately $8.2 million for calendar year
                2005.





**ITEM
      3.**  **DEFAULTSUPON
      SENIOR SECURITIES**





None.





**ITEM
      4.**  **SUBMISSIONOF
      MATTERS TO A VOTE OF SECURITY
      HOLDERS**


None.





**ITEM
      5.**  **OTHERINFORMATION**





None.





**ITEM
      6.**  **EXHIBITS**





**EXHIBIT
      INDEX**





**Exhibit
                No.**
            
            **Description
                of Exhibits**3.1(1)
            
            Articles
                of Organization3.2(2)
            
            Amended
                and Restated Operating Agreement (included as Exhibit A to the Company’s
                prospectus)31.1
            
            Section
                302 Certification of Michael V. Shustek31.2
            
            Section
                302 Certification of John Alderfer32
            
            Certification
                Pursuant to U.S.C. 18 Section 1350





(1)
            
            Incorporated
                herein by reference to our Form S-11 Registration Statement filed
                on
                December 21, 2000 (File No. 333-52484).(2)
            
            Incorporated
                herein by reference to Post-Effective Amendment No. 4 to our Form
                S-11
                Registration Statement filed on October 23, 2003 (File No. 333-52484).





-
          47
          -
 *Table
          of Contents*





**SIGNATURES**





Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act
      of 1934, the Registrant has duly caused this report to be signed on its behalf
      by the undersigned thereunto duly authorized.


Vestin
                Fund I, LLCBy:
            Vestin
                Mortgage, Inc., its Sole ManagerBy:
            /s/
                Michael V. ShustekMichael
                V. ShustekChief
                Executive Office and Director of the Manager(Principal
                Executive Officer of the Manager)By:
            /s/
                John AlderferJohn
                AlderferChief
                Financial Officer of the Manager





Dated:
      February 8, 2006 -
            48
            -