##### Table of Contents



U.S. SECURITIES AND EXCHANGE COMMISSION  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 JUNE 30, 2004 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  NEVADA
(State or Other Jurisdiction of
Incorporation or Organization)
    
    88-0446244
(I.R.S. Employer
Identification No.)
 2901 EL CAMINO AVENUE, SUITE 206, LAS VEGAS, NEVADA 89102
(Address of Principal Executive Offices) (Zip Code) Registrants Telephone Number: 702.227.0965 Indicate by check 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 whether the registrant is an accelerated filer (as defined in
Rule 12b-2 of the Exchange Act.) Yes   [X]  No   [  ] As of June 30, 2004, the Issuer had 8,234,742 of its Units outstanding.




---



TABLE OF CONTENTS PAGEPART I
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsBalance sheets as of June 30, 2004 (unaudited), and September 30, 2003
    
    
    3Statements of
operations for the three and nine months ended June 30, 2004 and 2003 (unaudited)
    
    
    4Statement of members equity for the nine months ended June 30, 2004 (unaudited)
    
    
    5Statements of cash flows for the nine months ended June 30, 2004 and 2003 (unaudited)
    
    
    6Notes to financial statements (unaudited)
    
    
    7Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    22Item 4.
    
    Controls and Procedures
    
    
    23PART II
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    24Item 2.
    
    Changes in Securities and Use of Proceeds
    
    
    24Item 3.
    
    Defaults Upon Senior Securities
    
    
    24Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    24Item 5.
    
    Other Information
    
    
    24Item 6.
    
    Exhibits and Reports on Form 8-K
    
    
    24SIGNATURES
    
    
    25EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1
 2




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Vestin Fund I, LLC 
 BALANCE SHEETS JUNE 30, 2004
    
    SEPTEMBER 30, 2003ASSETS
    
    (UNAUDITED)Cash
    
    $
    6,571,314
    
    
    $
    13,707,547Certificates of deposit
    
    
    300,000
    
    
    
    1,175,000Interest and other receivables
    
    
    1,325,681
    
    
    
    1,632,327Real estate held for sale
    
    
    31,138,656
    
    
    
    26,523,340Investment in mortgage loans, net of allowance for loan losses
of $600,000 and $500,000 at June 30, 2004, and
September 30, 2003, respectively
    
    
    53,877,833
    
    
    
    51,694,617Assets under secured borrowings
    
    
    19,092,921
    
    
    
    20,323,719Prepaid expenses
    
    
    
    
    
    
    7,650Total assets
    
    $
    112,306,405
    
    
    $
    115,064,200LIABILITIES AND MEMBERS EQUITYLiabilitiesAccounts payable
    
    $
    7,049
    
    
    $
    22,955Due to Manager
    
    
    490,748
    
    
    
    361,607Due to Vestin Group
    
    
    196,076
    
    
    
    131,560Due to Vestin Fund II
    
    
    2,987,340
    
    
    
    947,863Note payable
    
    
    2,000,000
    
    
    
    2,000,000Note payable
to Vestin Fund II
    
    
    4,278,322
    
    
    
    4,733,311Secured borrowings
    
    
    19,092,921
    
    
    
    20,323,719Deferred income
    
    
    180,144
    
    
    
    28,117Total liabilities
    
    
    29,232,600
    
    
    
    28,549,132Members equity - authorized 10,000,000 units, 8,335,950 units and 9,124,566
units issued at $10 per unit and outstanding at June 30, 2004, and September 30, 2003 respectively
    
    
    83,073,805
    
    
    
    86,515,068Total members equity
    
    
    83,073,805
    
    
    
    86,515,068Total liabilities and members equity
    
    $
    112,306,405
    
    
    $
    115,064,200
 The accompanying notes are
an integral part of these statements. 3




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##### Table of Contents



Vestin Fund I, LLC 
 STATEMENTS OF OPERATIONS (unaudited) FOR THE
    
    FOR THE
    
    FOR THE
    
    FOR THETHREE MONTHS
    
    THREE MONTHS
    
    NINE MONTHS
    
    NINE MONTHSENDED
    
    ENDED
    
    ENDED
    
    ENDEDJUNE 30, 2004
    
    JUNE 30, 2003
    
    JUNE 30, 2004
    
    JUNE 30, 2003RevenuesInterest income from investment in
mortgage loans
    
    $
    1,825,121
    
    
    $
    2,135,694
    
    
    $
    5,781,095
    
    
    $
    7,127,622Revenue related to sale of real estate
    
    
    
    
    
    
    
    
    
    
    4,666,667
    
    
    
    Other income
    
    
    140,198
    
    
    
    506,542
    
    
    
    397,029
    
    
    
    683,005Total revenues
    
    
    1,965,319
    
    
    
    2,642,236
    
    
    
    10,844,791
    
    
    
    7,810,627Operating expensesManagement fees
    
    
    63,796
    
    
    
    63,796
    
    
    
    191,388
    
    
    
    189,304Provision for loan losses
    
    
    
    
    
    
    100,000
    
    
    
    100,000
    
    
    
    300,000Interest expense
    
    
    451,180
    
    
    
    150,444
    
    
    
    1,480,860
    
    
    
    508,658Valuation allowances on real estate held for sale
    
    
    
    
    
    
    3,312,370
    
    
    
    521,378
    
    
    
    3,312,370Write off of deferred bond offering cost
    
    
    
    
    
    
    223,394
    
    
    
    
    
    
    
    223,394Expenses related to real estate held for sale
    
    
    111,694
    
    
    
    
    
    
    
    368,197
    
    
    
    Legal expenses
    
    
    66,931
    
    
    
    
    
    
    
    143,796
    
    
    
    Other
    
    
    25,223
    
    
    
    213,823
    
    
    
    127,673
    
    
    
    294,718Total operating expenses
    
    
    718,824
    
    
    
    4,063,827
    
    
    
    2,933,292
    
    
    
    4,828,444NET INCOME (LOSS)
    
    $
    1,246,495
    
    
    $
    (1,421,591
    )
    
    $
    7,911,499
    
    
    $
    2,982,183Net income (loss) allocated to members
    
    $
    1,246,495
    
    
    $
    (1,421,591
    )
    
    $
    7,911,499
    
    
    $
    2,982,183Net income (loss) allocated to members per
weighted average membership units
    
    $
    0.15
    
    
    $
    (0.15
    )
    
    $
    0.94
    
    
    $
    0.30Weighted average membership units
    
    
    8,311,724
    
    
    
    9,553,031
    
    
    
    8,398,813
    
    
    
    9,802,259
 The accompanying notes are
an integral part of these statements. 4




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##### Table of Contents



Vestin Fund I, LLC 
 STATEMENT OF MEMBERS EQUITY FOR THE NINE MONTHS ENDED JUNE 30, 2004 (unaudited) Units
    
    AmountMembers equity at September 30, 2003
    
    
    9,124,566
    
    
    $
    86,515,068Distributions
    
    
    
    
    
    
    (3,705,097
    )Reinvestments of distributions
    
    
    64,784
    
    
    
    647,837Members withdrawals
    
    
    (853,400
    )
    
    
    (8,295,502
    )Net income
    
    
    
    
    
    
    7,911,499Members equity at June 30, 2004
    
    
    8,335,950
    
    
    $
    83,073,805
 The accompanying notes are
an integral part of these statements. 5




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##### Table of Contents



Vestin Fund I, LLC 
 STATEMENTS OF CASH FLOWS (unaudited) FOR THE NINE
    
    FOR THE NINEMONTHS ENDED
    
    MONTHS ENDEDJUNE 30, 2004
    
    JUNE 30, 2003Cash flows from operating activities:Net income
    
    $
    7,911,499
    
    
    $
    2,982,183Adjustments to reconcile net income to net
cash provided by operating activities:Valuation allowances on real estate held for sale
    
    
    521,378
    
    
    
    3,312,370Write-off of deferred bond offering costs
    
    

    
    
    
    
    223,394Provision for loan losses
    
    
    100,000
    
    
    
    300,000Change in operating assets and liabilities:Interest and other receivables
    
    
    286,536
    
    
    
    183,113Deferred bond offering costs
    
    
    
    
    
    
    (139,763
    )Due to Manager
    
    
    98,110
    
    
    
    2,001Due to Vestin Group
    
    
    64,516
    
    
    
    16,316Due to Vestin Fund II
    
    
    2,039,477
    
    
    
    284,635Accounts payable
    
    
    (15,906
    )
    
    
    Prepaid Expenses
    
    
    7,650
    
    
    
    Deferred income
    
    
    152,027
    
    
    
    Net cash provided by operating activities
    
    
    11,165,287
    
    
    
    7,164,249Cash flows from investing activities:Investments in mortgage loans on real estate
    
    
    (37,106,398
    )
    
    
    (25,921,730
    )Purchase of investments in mortgage loans from:Vestin Fund II
    
    
    
    
    
    
    (14,249,950
    )Vestin Group
    
    
    
    
    
    
    (3,700,000
    )Other related party
    
    
    (350,000
    )
    
    
    (809,307
    )Private investor
    
    
    (1,498,464
    )
    
    
    (380,403
    )Proceeds received from sale of mortgage loans to:Vestin Fund II, LLC
    
    
    
    
    
    
    17,460,213Vestin Group, Inc.
    
    
    
    
    
    
    4,500,000Other related party
    
    
    
    
    
    
    290,938Private investor
    
    
    5,373,138
    
    
    
    150,000Proceeds from loan payoff
    
    
    28,857,265
    
    
    
    25,373,417Proceeds from sale of investment in real estate
held for sale from Manager
    
    
    
    
    
    
    1,100,000Cash outlays for real estate held for sale
    
    
    (3,099,299
    )
    
    
    Proceeds from certificates of deposit
    
    
    875,000
    
    
    
    1,275,000Net cash provided (used) by investing activities
    
    
    (6,948,758
    )
    
    
    5,088,178Cash flows from financing activities:Members distributions, net of reinvestments
    
    
    (3,057,260
    )
    
    
    (6,963,341
    )Members withdrawals
    
    
    (8,295,502
    )
    
    
    (6,347,158)Net cash used in financing activities
    
    
    (11,352,762
    )
    
    
    (13,310,499
    )NET DECREASE IN CASH
    
    
    (7,136,233
    )
    
    
    (1,058,072
    )Cash, beginning of period
    
    
    13,707,547
    
    
    
    2,762,334Cash, ending of period
    
    $
    6,571,314
    
    
    $
    1,704,262Supplemental disclosures of cash flows information:Non-cash investing and financing activities:Change in loans funded through secured borrowing
    
    $
    1,318,764
    
    
    $
    4,507,009Real estate held for sale acquired through foreclosure
    
    $
    3,271,141
    
    
    $
    19,930,526Reduction in Note Payable to Fund II due to valuation
allowance on real estate held for sale
    
    $
    454,989
    
    
    $
    Investment in mortgage loans on real estate acquired for
investments in real estate held for sale
    
    $
    
    
    
    $
    478,829Note receivable related to capital contribution by Manager
    
    $
    
    
    
    $
    723,763In substance payoff of payable to Manager related to
capital contribution by Manager
    
    $
    
    
    
    $
    876,237Sale of rights to receive proceeds of guarantee
    
    $
    
    
    
    $
    3,084,000Loans
rewritten with the same or similar property as collateral
    
    $
    5,578,755
    
    
    $
    
 The accompanying notes are
an integral part of these statements. 6




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##### Table of Contents



VESTIN FUND I, LLC 
 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2004 (Unaudited) NOTE A  ORGANIZATION Vestin Fund I, LLC, a Nevada limited liability company, (the Company) is
primarily engaged in the business of mortgage lending, where the collateral is
real property. The Company invests in loans secured by real estate through
deeds of trust and mortgages. The Company was organized in December 1999 and
will continue until December 31, 2019 unless dissolved prior thereto or
extended by vote of the members under the provisions of the Companys operating
agreement. The Company does not operate as an investment company within the
meaning of the Investment Company Act of 1940. As a company investing in
mortgage loans and raising funds through a public offering, the Company is
subject to the North American Securities Administration Act Mortgage Program
Guidelines (the NASAA Guidelines) promulgated by the state securities
administrators. The manager of the Company is Vestin Mortgage, Inc. (the Manager), a Nevada
corporation engaged in the business of brokerage, placement and servicing of
commercial loans secured by real property. The Manager is a wholly owned
subsidiary of Vestin Group, Inc. (Vestin Group), a Delaware corporation,
whose common stock is publicly held and traded on the Nasdaq Small Cap Market
under the symbol VSTN. Vestin Group is engaged in asset management, real
estate lending and other financial services through its subsidiaries and has
originated over $1.8 billion in real estate loans. The 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 the
Companys 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, the operating results of
the Company are dependent on the Managers ability and intent to continue to
service the Companys assets. The operating agreement also provides that the
members have certain rights, including 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 (Vestin Fund II),
Vestin Fund III, LLC (Vestin Fund III) and inVestin Nevada, Inc., entities in
similar businesses as the Company. The financial statements have been prepared in accordance with Securities and
Exchange Commission requirements for interim financial statements. Therefore,
they do not include all of the information and footnotes required by accounting
principles generally accepted in the United States of America (GAAP) for
complete financial statements. The financial statements should be read in
conjunction with the financial statements and notes thereto contained in the
Companys annual report on Form 10-K for the year ended September 30, 2003. 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 1. MANAGEMENT ESTIMATES The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Balances subject to
significant estimate include allowance for loan losses and valuation of real
estate held for sale. Actual results could differ from those estimates. 7




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2. INVESTMENTS IN MORTGAGE LOANS Investments in mortgage loans are secured by trust deeds and mortgages.
Generally, all of the Companys mortgage loans require interest only payments
with a balloon payment of the principal at maturity. The Company has both the
intent and ability to hold mortgage loans until maturity and therefore,
mortgage loans are classified and accounted for as held for investment and are
carried at amortized cost. Loans sold to or purchased from affiliates are
accounted for at the principal balance and no gain or loss is recognized by the
Company 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, which may be commissioned by the
borrower, are generally dated within 12 months of the date of loan origination.
The appraisals may be for the current estimate of the as-if developed value
of the property, which approximates the post-construction value of the
collateralized property assuming that such property is developed. As-if
developed values on raw land loans or acquisition and development loans often
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, the Company may not
recover the full amount of the loan. 3. ALLOWANCE FOR LOAN LOSSES The Company maintains an allowance for loan losses on its investment in
mortgage loans for estimated credit losses in the Companys investment in
mortgage loans portfolio. 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 in income when the property is
sold. 4. REAL ESTATE HELD FOR SALE Real estate held for sale includes real estate acquired through foreclosure and
is 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. 5. SECURED BORROWINGS As of June 30, 2004, the Company had secured borrowings of $19.1 million
related to intercreditor and certain participation agreements with various loan participants
(Investors). Pursuant to the intercreditor agreements, the Investor may
invest in certain loans with Vestin Mortgage, Vestin Fund II, Vestin Fund III
and the Company (collectively, the Lead Lenders). In the event of borrower
non-performance, the intercreditor agreements gives the Lead Lenders the right
to either (i) continue to remit to the investor the interest due on the
participation amount; (ii) substitute an alternative loan acceptable to the
investor; or (iii) repurchase the participation from the investor for the
outstanding balance of the participation plus accrued interest. Additionally, an Investor may participate in certain loans with Lead Lenders
through participation agreements. Pursuant to the participation agreements,
the Investor may invest in certain loan or loans with the Lead Lenders. In the
event of borrower non-performance, the participation agreement allows the
Investor to be repaid up to the amount of the Investors investment prior to
the Lead Lenders being repaid. Mortgage loan financing under the intercreditor and participation agreements
are accounted for as a secured borrowing in accordance with SFAS No. 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities. 8




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NOTE C  INVESTMENTS IN MORTGAGE LOANS Investments in mortgage loans as of June 30, 2004 are as follows: Number
    
    
    
    
    
    WeightedLoan
    
    Of
    
    
    
    
    
    Average
    
    Portfolio
    
    LoanType
    
    Loans
    
    Balance
    
    Interest Rate
    
    Percentage
    
    To Value*Acquisition and development
    
    
    13
    
    
    $
    19,864,775
    
    
    
    10.57
    %
    
    
    34.32
    %
    
    
    61.81
    %Bridge
    
    
    19
    
    
    
    23,838,210
    
    
    
    10.92
    %
    
    
    41.19
    %
    
    
    60.39
    %Commercial
    
    
    5
    
    
    
    2,473,454
    
    
    
    12.34
    %
    
    
    4.28
    %
    
    
    58.29
    %Construction
    
    
    4
    
    
    
    10,373,504
    
    
    
    13.29
    %
    
    
    17.92
    %
    
    
    57.43
    %Land
    
    
    1
    
    
    
    1,325,780
    
    
    
    12.00
    %
    
    
    2.29
    %
    
    
    72.34
    %42
    
    
    $
    57,875,723
    
    
    
    11.31
    %
    
    
    100.00
    %
    
    
    60.58
    %
 Investment in mortgage loans as of September 30, 2003 are as follows: Number
    
    
    
    
    
    WeightedLoan
    
    of
    
    
    
    
    
    Average
    
    Portfolio
    
    LoanType
    
    Loans
    
    Balance
    
    Interest Rate
    
    Percentage
    
    To Value*Acquisition and development
    
    
    4
    
    
    $
    7,430,353
    
    
    
    13.70
    %
    
    
    14.24
    %
    
    
    46.46
    %Bridge
    
    
    7
    
    
    
    8,035,547
    
    
    
    12.14
    %
    
    
    15.40
    %
    
    
    60.50
    %Commercial
    
    
    22
    
    
    
    23,210,297
    
    
    
    11.82
    %
    
    
    44.47
    %
    
    
    67.52
    %Construction
    
    
    6
    
    
    
    11,510,498
    
    
    
    12.66
    %
    
    
    22.05
    %
    
    
    56.77
    %Land
    
    
    5
    
    
    
    1,839,922
    
    
    
    11.84
    %
    
    
    3.52
    %
    
    
    53.62
    %Residential
    
    
    1
    
    
    
    168,000
    
    
    
    12.50
    %
    
    
    0.32
    %
    
    
    70.00
    %45
    
    
    $
    52,194,617
    
    
    
    12.32
    %
    
    
    100.00
    %
    
    
    60.59
    %
 *Loan to value ratios are based on appraisals obtained at the time of loan
origination and may not reflect subsequent changes in value estimates. Such
appraisals, which may be commissioned by the borrower, are generally dated no
greater than 12 months prior to the date of loan origination. The appraisals
may be for the current estimate of the as-if developed value of the property,
which approximates the post-construction value of the collateralized property
assuming that such property is developed. As-if developed values on raw land
loans or acquisition and development loans often dramatically exceed the
immediate sales value and may include anticipated zoning changes, selection by
a purchaser against multiple alternatives, and successful development by the
purchaser; upon which development is dependent on availability of financing.
As most of the appraisals will be prepared on an as-if developed basis, if a
loan goes into default prior to any development of a project, the market value
of the property may be substantially less than the appraised value. As a
result, there may be less security than anticipated at the time the loan was
originally made. If there is less security and a default occurs, the Company
may not recover the full amount of the loan. June 30, 2004
    
    Portfolio
    
    September 30, 2003
    
    PortfolioLoan Type
    
    Balance**
    
    Percentage
    
    Balance
    
    PercentageFirst mortgages
    
    $
    56,960,685
    
    
    
    98.42
    %
    
    $
    52,194,617
    
    
    
    100.00
    %Second mortgages***
    
    
    915,038
    
    
    
    1.58
    %
    
    
    
    
    
    
    0.00
    %$
    57,875,723
    
    
    
    100.00
    %
    
    $
    52,194,617
    
    
    
    100.00
    %
 ***All of the Companys second mortgages are junior to a first trust deed
position held by either the Company or the Companys Manager. 9




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##### Table of Contents



The following is a schedule of contractual maturities of investments in
mortgage loans as of June 30, 2004: 2004
    
    $
    25,472,9642005
    
    
    21,852,3842006
    
    
    10,550,375$
    57,875,723
 The following is a schedule by geographic location of investments in mortgage
loans as of: September 30,June 30, 2004
    
    Portfolio
    
    2003
    
    PortfolioBalance**
    
    Percentage
    
    Balance
    
    PercentageArizona
    
    $
    13,295,592
    
    
    
    22.97
    %
    
    $
    4,887,202
    
    
    
    9.36
    %California
    
    
    8,444,988
    
    
    
    14.59
    %
    
    
    5,751,298
    
    
    
    11.02
    %Colorado
    
    
    
    
    
    
    
    %
    
    
    163,333
    
    
    
    0.31
    %Florida
    
    
    115,450
    
    
    
    0.20
    %
    
    
    115,450
    
    
    
    0.22
    %Hawaii
    
    
    6,368,014
    
    
    
    11.00
    %
    
    
    10,992,254
    
    
    
    21.06
    %Nevada
    
    
    20,110,156
    
    
    
    34.75
    %
    
    
    17,691,975
    
    
    
    33.90
    %New Mexico
    
    
    
    
    
    
    
    %
    
    
    168,000
    
    
    
    0.32
    %New York
    
    
    3,320,000
    
    
    
    5.73
    %
    
    
    2,000,000
    
    
    
    3.83
    %North Carolina
    
    
    89,942
    
    
    
    0.16
    %
    
    
    
    
    
    
    
    %Ohio
    
    
    
    
    
    
    
    %
    
    
    400,000
    
    
    
    0.77
    %Texas
    
    
    3,491,887
    
    
    
    6.03
    %
    
    
    6,080,095
    
    
    
    11.65
    %Utah
    
    
    2,063,694
    
    
    
    3.57
    %
    
    
    3,369,010
    
    
    
    6.46
    %Washington
    
    
    576,000
    
    
    
    1.00
    %
    
    
    576,000
    
    
    
    1.10
    %$
    57,875,723
    
    
    
    100.00
    %
    
    $
    52,194,617
    
    
    
    100.00
    %
 ** 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 (typically 20%) 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. June 30, 2004BalanceBalance per Loan Portfolio
    
    $
    57,875,723Less:Seller
financed loans included in real estate held for sale
    
    
    (3,397,890
    )Allowance for Loan Losses
    
    
    (600,000
    )Balance per Balance Sheet
    
    $
    53,877,833
 The Company has six mortgage loan products consisting of bridge, commercial,
construction, acquisition and development, land, and residential loans. The
effective interest rates on all product categories range from 5.5% to 14.5%.
Revenue by product will fluctuate based upon relative balances during the
period. At June 30, 2004, five of the Companys loans totaling $7.5 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.
The Company has commenced foreclosure proceedings on these loans. The
Companys Manager evaluated all of these loans and concluded that the
underlying collateral is sufficient to protect the Company against a loss of
principal or interest. Accordingly, no specific allowance for loan losses was
deemed necessary for these loans which are summarized below: 10




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##### Table of Contents



Balance at June 30,
    
    
    
    
    
    Number of MonthsDescription of Collateral
    
    2004
    
    Maturity Date
    
    Non-Performing473 acres of residential and commercial land in Utah
    
    $
    2,029,957
    
    
    
    11/02/2001
    
    
    
    18126 unit Best Western Hotel in Mesquite, NV
    
    
    2,140,267
    
    
    
    06/18/2003
    
    
    
    12460 acre subdivision on Lake Travis in Texas
    
    
    1,764,295
    
    
    
    06/08/2003
    
    
    
    144 commercial parcels in California
    
    
    68,113
    
    
    
    12/16/2003
    
    
    
    1126 unit/207 bed assisted living facility in Arizona
    
    
    1,485,812
    
    
    
    6/25/2005
    
    
    
    2$
    7,488,444
 As of June 30, 2004, the Company had investments in 13 loans that have been
granted extensions by the Companys Manager 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. The aggregate amount due
to the Company from borrowers whose loans had been extended as of June 30, 2004
was approximately $14.6 million. The Companys Manager concluded that no
allowance for loan loss was necessary with respect to these loans as of that
date. The Companys Manager has evaluated the collectibility of the loans in light of
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. The Companys Manager believes
that the allowance for loan losses totaling $600,000 included in the
accompanying balance sheet as of June 30, 2004 is adequate to address estimated
credit losses in the Companys investment in mortgage loan portfolio as of that
date. The following is a rollforward of the allowance for loan losses for the nine
months ended June 30, 2004: Balance at October
    
    
    
    
    
    Balance at June 30,Description
    
    1, 2003
    
    Provisions
    
    2004General Valuation
Allowance
    
    $
    500,000
    
    
    $
    100,000
    
    
    $
    600,000
 Decisions regarding an allowance for loan losses require managements judgment.
As a result, there is an inherent risk that such judgment will prove incorrect.
In such event, actual losses may exceed (or be less than) the amount of any
allowance. To the extent that the Company experiences losses greater than the
amount of its allowance, the Company may incur a charge to its earnings that
will adversely affect its operating results and the amount of any distributions
payable to its members. On June 25, 2003, the Companys Manager restructured a $15.2 million note due
on August 19, 2003 as a new note with the interest rate reduced from 11.0% to
5.5%. The Companys investment in this loan was approximately $1.5 million as
of June 30, 2004. No specific reserve has been provided for this loan based on
managements estimate of the underlying collateral value. The new loan has a
term of 24 months. Interest income not recognized during the period as a
result of the restructure was $20,430. This loan went into foreclosure in June
of 2004. NOTE D  RELATED PARTY TRANSACTIONS For the three months ended June 30, 2004 and 2003, the Company recorded
management fees to the Companys Manager of approximately $64,000.
Additionally, for the three months ended June 30, 2004, the Company recorded
pro rata distributions owed to the Companys Manager of approximately $15,000
based upon the total of 100,000 units owned by the Companys Manager. As
of June 30, 2004, the Company had a note payable owed to Vestin
Fund II in the
amount of $4,278,000 related to a property owned by the Company through foreclosure. 11




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##### Table of Contents



As
of June 30, 2004 the Company owed Vestin Fund II approximately $2,987,000 primarily
related to payments made on behalf of the Company for the maintenance of real
estate owned. As of June 30, 2004, the Company owed Vestin Group approximately $196,000
related to certain legal and accounting fees paid by Vestin Group on behalf of
the Company. As of June 30, 2004, the Company owed the Manager approximately $491,000
related to unpaid management fees and the Managers pro-rata share of
distributions. During the nine months ended June 30, 2004, the Company purchased a mortgage
loan in the amount of $350,000 from a related party wholly-owned by Vestin
Groups Chief Executive Officer. NOTE E  REAL ESTATE HELD FOR SALE At June 30, 2004, the Company held 10 properties with a total carrying value of
$31.1 million, which were acquired through foreclosure and recorded as
investments in real estate held for sale. Included in this balance were 4
properties with a total carrying value of $3.4 million the company has sold.
GAAP requires the Company to include these properties in real estate held for
sale until the borrower has met and maintained an equity investment requirement, which is
typically 20%. The Company may share ownership of such properties
with Vestin Fund II, the Manager, or other unrelated parties. The summary below includes the
Companys 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. It is not the Companys intent to invest in or own real estate as
a long-term investment. The Company seeks to sell properties acquired through
foreclosure as quickly as circumstances permit. The following is a rollforward
of investments in real estate held for sale for the three months ended June 30,
2004: Percentageof
    
    Balance at
    
    
    
    
    
    
    
    
    
    Balance atDescription
    
    Date Acquired
    
    Ownership
    
    April 1, 2004
    
    Acquisitions
    
    Sales
    
    June 30, 2004Custom residential property
located in Santa Fe, New Mexico
    
    
    3/4/2003
    
    
    
    93
    %
    
    $
    1,052,263
    
    
    $
    
    
    
    $
    
    
    
    $
    1,052,26340 acres of land containing 354
residential lots in Henderson,
Nevada
    
    
    2/28/2003
    
    
    
    66
    %
    
    
    6,917,600
    
    
    
    
    
    
    
    
    
    
    
    6,917,600An approximate 200-unit
apartment complex located in Las
Vegas, Nevada (1)
    
    
    1/27/2003
    
    
    
    2
    %
    
    
    170,566
    
    
    
    
    
    
    
    
    
    
    
    170,566An uncompleted 162-bed assisted
living facility in Las Vegas,
Nevada
    
    
    7/25/2003
    
    
    
    100
    %
    
    
    12,410,568
    
    
    
    1,569,631
    
    
    
    
    
    
    
    13,980,199A 30-unit condominium complex in
Las Vegas, Nevada
    
    
    2/4/2003
    
    
    
    17
    %
    
    
    215,431
    
    
    
    
    
    
    
    
    
    
    
    215,431An uncompleted golf course in
Mesquite, Nevada (1)
    
    
    11/6/2002
    
    
    
    64
    %
    
    
    1,749,625
    
    
    
    
    
    
    
    
    
    
    
    1,749,625140 Unit/224 bed senior facility
in Mesa, Arizona (3)
    
    
    05/26/04
    
    
    
    14
    %
    
    
    
    
    
    
    1,020,110
    
    
    
    
    
    
    
    1,020,11065 acres of raw land in
Mesquite, Nevada (2)
    
    
    11/27/2002
    
    
    
    58
    %
    
    
    2,700,494
    
    
    
    
    
    
    
    
    
    
    
    2,700,494Hotel/Casino in Las Vegas, Nevada
    
    
    02/02/2004
    
    
    
    10
    %
    
    
    2,251,032
    
    
    
    
    
    
    
    
    
    
    
    2,251,032Raw land in Mesquite, Nevada (1)
    
    
    11/27/2002
    
    
    
    59
    %
    
    
    1,081,336
    
    
    
    
    
    
    
    
    
    
    
    1,081,336Total
    
    
    
    
    
    
    
    
    
    $
    28,548,915
    
    
    $
    2,589,741
    
    
    $
    
    
    
    $
    31,138,656
 (1)These properties have been sold to independent third parties and the
Company has provided the financing. GAAP requires the borrower to have a
certain percentage equity ownership (typically 20%) to allow the Company to
record the sale of a property and remove it from inventory. In
addition, the borrower must maintain a minimum commitment in the
property on a continuing basis. (2)This property includes 37 acres of land, which has been sold to an
independent third party, and the Company has provided the financing. GAAP
requires the borrower to have a certain percentage equity ownership (typically
20%) to allow the Company to record the sale of a property and remove it from
inventory. 12




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##### Table of Contents



(3)Third Quarter Foreclosures - Through foreclosure proceedings in April 2004,
the Company assumed ownership of a 140 Unit/224 bed senior facility in Mesa,
Arizona. A receiver has been appointed and the business has continued
operations. The property has been listed for sale and based on its estimated
value and the underlying personal guarantee from the borrower, no valuation
allowance was deemed necessary as of June 30, 2004. NOTE F  SECURED BORROWINGS As of June 30, 2004, the Company had $19.1 million in secured borrowings
pursuant to intercreditor and certain participation agreements with the related
amounts included in assets under secured borrowings. For the three and nine
months ended June 30, 2004 the Company recorded interest expense related to
secured borrowings of approximately $451,000 and $1,481,000, respectively
compared to $139,000 and $487,000 for the same periods in 2003. NOTE G  REVENUE RELATED TO THE SALE OF REAL ESTATE The Company received a promissory note from an unaffiliated party in the amount
of $4.7 million in connection with the sale of real estate located in the City
of Mesquite, Nevada. The note reflected a finders fee by the Company; the
Company did not loan any money to the unaffiliated party with respect to the
$4.7 million. The note required monthly interest payments at a rate of 8.5%
per annum and was payable in full on June 13, 2005. In addition, the Company
loaned $0.9 million to the unaffiliated party and received a mortgage note due
June 13, 2004 in connection with the same sale of real estate. The Company was
using the cost recovery method of accounting for the transaction. Accordingly,
the Company did not recognize any income on the notes until the principal
balance of both notes were paid in full. Under the cost recovery method,
interest payments received by the Company in excess of the principal balance
are not recorded as income until such time as the note is paid off. In
February 2004, the notes were paid off and the Company recorded the $4.7
million as revenue related to the sale of real estate and $0.3 million as
interest income related to interest payments received prior to loan payoff. NOTE H  RECENT ACCOUNTING PRONOUNCEMENTS In December 2003, the FASB revised Interpretation No. 46, Consolidation of
Variable Interest Entities (FIN 46). The Company has evaluated its
relationships and interest in entities that might be considered VIEs and
concluded that no prerequisite conditions exist. Accordingly, the adoption of
FIN 46 did not have an effect on the Companys financial statements. NOTE I  LITIGATION INVOLVING THE MANAGER Vestin Group, Vestin Mortgage, and Del Mar Mortgage, Inc., a company wholly
owned by Michael Shustek, the largest shareholder and CEO of Vestin Group are
defendants in a civil action entitled Desert Land, L.L.C. et al. v. Owens
Financial Group, Inc. et al (the Action). The Action was initiated by Desert
Land, L.L.C. (Desert Land) on various loans arranged by Del Mar Mortgage,
Inc. and/or Vestin Mortgage. On April 10, 2003, the United States District
Court for the District of Nevada (the Court) entered judgment jointly and
severally in favor of Desert Land against Vestin Group, Vestin Mortgage and Del
Mar Mortgage, Inc. Judgment was predicated upon the Courts finding that Del
Mar Mortgage, Inc. received an unlawful penalty fee from the plaintiffs. Defendants subsequently filed a motion for reconsideration. The Court denied
the motion and, on August 13, 2003, held that Vestin Group, Vestin Mortgage,
and Del Mar Mortgage, Inc. are jointly and severally liable for the judgment in
the amount of $5,683,312 (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. The bond was arranged by Michael Shustek and
was posted 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. On September 12, 2003, all of the
defendants held liable to Desert Land appealed the judgment to the Ninth
Circuit United States Court of Appeals. The Company is not a party to the
Action. The Companys 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. 13




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##### Table of Contents



NOTE J  LITIGATION INVOLVING THE COMPANY The staff of the Pacific Regional Office of the Securities and Exchange
Commission (SEC) has been conducting an informal inquiry into certain matters
related to the Company, Vestin Group, Vestin Fund II and Vestin Fund III. The
staff of the SEC has not identified the reasons for its inquiry, which remains
ongoing as of July 31, 2004. The Company believes that it has complied with SEC
disclosure requirements and is fully cooperating with the inquiry. The Company
cannot at this time predict the outcome of the inquiry. The Company is involved in a number of legal proceedings concerning matters
arising in connection with the conduct of their business activities. The
Company believes it has meritorious defenses to each of these actions and
intends to defend them vigorously. The Company believes that it is not a party
to any pending legal or arbitration proceedings that would have a material
adverse effect on the Companys financial condition or results of operations or
cash flows, although it is possible that the outcome of any such proceedings
could have a material impact on the Companys net income in any particular
period. NOTE K  REDEMPTION LIMITATION In order to comply with the Companys operating agreement and Internal Revenue
Code, the Company may redeem no more than 10% of the aggregate members capital
in any calendar year. As of June 30, 2004, the total of redemptions made from
inception was $25.7 million. Balances in Members capital accounts as of
January 1, 2004 was $89.5 million, which would limit redemptions to $9.0
million for calendar 2004. As of June 30, 2004, we had paid $8.3 million in
redemptions for 2004. As of June 30, 2004, remaining requests to redeem
approximately $8.1 million in 2005, $7.2 million in 2006, $6.5 million in 2007,
$5.9 million in 2008, $5.3 million in 2009, $4.8 million in 2010, and $0.6
million in 2011 had been logged. 14




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS BACKGROUND Vestin Fund I, LLC (the Company) was organized in December 1999 as a Nevada
limited liability company, for the purpose of investing in mortgage loans
originated by the Companys manager, Vestin Mortgage, Inc. (the
Manager), a
licensed mortgage company in the State of Nevada. Vestin Mortgage is a
wholly-owned subsidiary of Vestin Group, Inc., a Delaware corporation (Vestin
Group), whose common stock is traded on the Nasdaq Small Cap Market under the
ticker symbol VSTN. Vestin Mortgage, Inc. is also the manager of Vestin Fund
II, LLC (Vestin Fund II), Vestin Fund III, LLC
(Vestin Fund III) and inVestin Nevada, Inc.
which are entities in similar businesses to Vestin Fund I, LLC. The loans are
secured by real estate through deeds of trust and mortgages. The following is a financial review and analysis of the Companys financial
condition and results of operations for the three and nine-month periods ended
June 30, 2004 and 2003. This discussion should be read in conjunction with the
Companys financial statements and accompanying notes and other detailed
information regarding the Company appearing elsewhere in this Form 10-Q and the
Companys report on Form 10-K for the year ended September 30, 2003. OVERVIEW Our operating results are affected primarily by (i) the amount of capital we
have to invest in mortgage loans, (ii) the level of real estate lending
activity in the markets we service, (iii) our ability to identify and work with
suitable borrowers, (iv) the interest rates we are able to charge on our loans
and (v) the level of non-performing assets and loan losses which we experience. SUMMARY OF FINANCIAL RESULTS Three months ended June 30,
    
    Nine months ended June 30,2004
    
    2003
    
    2004
    
    2003Total revenues
    
    $
    1,965,319
    
    
    $
    2,642,236
    
    
    $
    10,844,791
    
    
    $
    7,810,627Total expenses
    
    
    718,824
    
    
    
    4,063,827
    
    
    
    2,933,292
    
    
    
    4,828,444Net income
    
    $
    1,246,495
    
    
    $
    (1,421,591
    )
    
    $
    7,911,499
    
    
    $
    2,982,183Net income allocated to members per
weighted average membership units
    
    $
    0.15
    
    
    $
    (0.15
    )
    
    $
    0.94
    
    
    $
    0.30Annualized rate of return to members (a)
    
    
    6.0
    %
    
    
    (5.9%
    )
    
    
    12.6
    %
    
    
    4.0
    %Weighted average membership units
    
    
    8,311,724
    
    
    
    9,553,031
    
    
    
    8,398,813
    
    
    
    9,802,259
  (a)
    
    The annualized rate of return to members is calculated based upon the net
income allocated to members per weighted average units as of June 30, 2004
and 2003 divided by the number of months during the period and multiplied
by twelve (12) months, then divided by ten (the $10 cost per unit). Three and Nine Months Ended June 30, 2004 Compared To Three and Nine Months
Ended June 30, 2003 Total Revenues.For the three months ended June 30, 2004 and 2003, revenues
totaled $2.0 million and $2.6 million, respectively, a decrease of $0.6 million
or 23%. The decrease was primarily due to a reduction in the dollar amount
invested in mortgage loans as a result of member redemptions. For the nine
months ended June 30, 2004 and 2003, revenues totaled $10.9 million and $7.8
million, respectively, an increase of $3.1 million or 40%. The increase was
primarily due to $4.7 million in revenue related to the sale of real estate
recorded in February of 2004 and a decrease in interest income on investments
in mortgage loans generally due to a reduction in members capital. Approximately $0.5 million
and $1.4 million of the Companys interest revenue for the three and nine
months ended June 30, 2004 was derived from interest reserves compared to
approximately $0.1 million and $0.8 million for the same periods in 2003. 15




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##### Table of Contents



Non-performing assets totaled $35.2 million at June 30, 2004 compared to the
same amount at March 31, 2004. These assets are comprised of non-performing
loans totaling $7.5 million and real estate held for sale totaling $27.7
million. The non-performing assets may reflect the continuing weakness in the
economy and the risks inherent in the Companys business strategy which entails
more lenient underwriting standards and expedited loan approval procedures.
The Companys revenues will continue to be impacted until the Company is able
to convert these non-performing assets into interest paying mortgage loans. The
Company will attempt to accomplish this by working with the borrower where
possible and by foreclosing on the underlying property where necessary. The
Company intends to sell properties acquired through foreclosure as soon as
practicable, consistent with its objective of avoiding a loss of principal on
its loans. However, the Company cannot predict how quickly it will be able to
sell foreclosed properties. As of June 30, 2004, the Company had investments in 13 loans that have been
granted extensions by the Companys Manager 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. The aggregate amount due
to the Company from borrowers whose loans had been extended as of June 30, 2004
was approximately $14.6 million. The Companys Manager concluded that no
allowance for loan loss was necessary with respect to these loans as of that
date. The overall decline in interest rates over the past several years may have
diminished the interest rates the Company can charge in its loans. The
weighted average interest rate on the Companys loans at June 30, 2004 was
11.31%, as compared to 12.32% at September 30, 2003. In addition, there has
been an increase in competition from more conventional mortgage lenders and
mortgage loan investors, such as commercial banks, thrifts, and mortgage
brokers, due to the overall decline in interest rates. Total Expenses.For the three months ended June 30, 2004, expenses totaled
$0.7 million compared to $4.1 million for the same period in 2003, a decrease
of $3.4 million which is primarily related to valuation adjustments on certain
real estate held for sale of $3.3 million during the three months ended June
30, 2003. For the nine months ended June 30, 2004, expenses totaled $2.9
million compared to $4.8 million for the same period in 2003, a decrease of
$1.9 million which is primarily related to valuation adjustments on certain
real estate held for sale of $3.3 million during the nine months ended June 30,
2003, and increases in interest expense related to secured borrowing of $1.0
million and $0.4 million in expenses related to real estate held for sale for
the nine months ended June 30, 2004. Expenses may not continue at this lower
level in the immediate future if non-performing assets increase and the Company
is required to incur additional reserves against possible losses as well as
additional expenses related to the foreclosure process and the maintenance and
sale of foreclosed properties. Net Income.Overall, the net income for the three months ended June 30, 2004
totaled $1.2 million compared to a net loss of $1.4 million for the same period
in 2003, an increase of $2.6 million or 186%. Overall, the net income for the
nine months ended June 30, 2004 totaled $7.9 million compared to $3.0 million
for the same period in 2003, an increase of $4.9 million or 163%. Annualized Rate of Return to Members.For the three months ended June 30,
2004, annualized rate of return to members totaled 6.0% as compared to (5.9)%
for the same period in 2003. For the nine months ended June 30, 2004,
annualized rate of return to members totaled 12.6% as compared to 4.0% for the
same period in 2003. The increase in annualized rate of return for the nine
months ended June 30, 2004 to members was primarily the result of the
recognition of $4.7 million in other income related to the sale of real estate.
The increase is not indicative of future results. Distributions to Members. For the three month period ended June 30, 2004,
members received distributions totaling $1,244,793, as compared to
distributions totaling $2,454,342 for the three months ended June 30, 2003.
For the nine-month period ended June 30, 2004, members received distributions
totaling $3,705,090, as compared to distributions totaling of $8,165,520 for
the nine months ended June 30, 2003. The foregoing distributions for the three
and nine months ended June 30, 2004 were paid entirely from Net Income
Available for Distribution as defined in the Companys Operating Agreement. Of
the foregoing distributions, $3,875,933 paid for the three months ended June
30, 2003 and $5,183,737 paid for the nine months ended June 30, 2003
represented a return of capital and the balance of the distributions were paid
from Net Income Available for Distribution as defined in the 16




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Companys 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 GAAP. Therefore, since net income for
the three and nine month periods ended June 30, 2003 included a significant
amount of non-cash expenses related to valuation allowances on real estate held
for sale, the amounts representing a return of capital for those periods
exceeded net income. Redemptions. In order to comply with the Companys Operating Agreement and
Internal Revenue Code, the Company may redeem no more than 10% of the members
capital in any calendar year. As of June 30, 2004, the total of redemptions
made from inception was $25.7 million. Balances in Members capital accounts
as of January 1, 2004 was $89.5 million, which would limit redemptions to $9.0
million for calendar 2004. As of June 30, 2004, we had paid $8.3 million in
redemptions for 2004. As of June 30, 2004, remaining requests to redeem
approximately $8.1 million in 2005, $7.2 million in 2006, $6.5 million in 2007,
$5.9 million in 2008, $5.3 million in 2009, $4.8 million in 2010, and $0.6
million in 2011 had been logged. INVESTMENTS IN MORTGAGE LOANS SECURED BY REAL ESTATE PORTFOLIO As of June 30, 2004, the Company had investments in mortgage loans secured by
real estate totaling $57,875,723, including 42 loans of which 40 were secured
by the first deed of trust totaling $56,960,685, and 2 were secured by second
deeds of trust totaling $915,038. If the Company holds a second mortgage, it
is junior to a first trust deed position also held by the Company or the
Companys Manager. As of June 30, 2004, the weighted average interest rate on the Companys
investment in mortgage loans is 11.31%. These mortgage loans have contractual
maturities within the next 24 months. Losses may occur from investing in mortgage loans. The amount of losses will
vary as the loan portfolio is affected by changing economic conditions, the
financial position of borrowers, and changes in collateral values from time of
loan origination. The conclusion that a mortgage loan is uncollectible or that collectibility is
doubtful is a matter of judgment. On a quarterly basis, the Manager evaluates
the Companys mortgage 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 the Manager to determine
impairment and the need for specific reserves. This evaluation 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 potential; and  
    
    estimated fair value of any underlying collateral. Based upon this evaluation the Companys Manager believes that the allowance
for loan losses totaling $600,000 included in the accompanying balance sheet as
of June 30, 2004 is adequate to meet estimated credit losses. Decisions regarding an allowance for loan losses require judgment about the
probability of future events. As a result, there is an inherent risk that such
judgment will prove incorrect. In such event, actual losses may exceed (or be
less than) the amount of any allowance. To the extent that the Company
experiences losses greater than the amount of its allowance, the Company may
incur a charge to its earnings that will adversely affect its operating results
and the amount of any distributions payable to its members. 17




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CRITICAL ACCOUNTING ESTIMATES Revenue Recognition Interest income on loans is accrued by the effective interest method. The
Company does not recognize interest income from loans once they are determined
to be impaired. A loan is impaired when, based on current information and
events, it is probable that the Company will be unable to collect all amounts
due according to the contractual terms of the loan agreement or when the
payment of interest is 90 days past due. Real Estate Held For Sale Real estate held for sale includes real estate acquired through foreclosure and
is carried at the lower of cost or the propertys estimated fair value, less
estimated costs to sell. The Company seeks to sell properties acquired through
foreclosure as quickly as circumstances permit. The carrying values of real
estate held for sale are assessed on a regular basis from updated appraisals,
comparable sales values or purchase offers. Investments in Mortgage Loans Investments in mortgage loans are secured by trust deeds and mortgages.
Generally, all of the Companys mortgage loans require interest only payments
with a balloon payment of the principal at maturity. The Company has both the
intent and ability to hold mortgage loans until maturity and therefore,
mortgage loans are classified and accounted for as held for investment and are
carried at amortized cost. Loans sold to or purchased from affiliates are
accounted for at the principal balance and no gain or loss is recognized by the
Company 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, the Company may not
recover the full amount of the loan. Allowance for Loan Losses The Company maintains an allowance for loan losses on its investment in
mortgage loans for estimated credit impairment in the Companys investment in
mortgage loans portfolio. The 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. Secured Borrowing Loans that have been participated to third party investors through
intercreditor agreements (Agreements) are accounted for as secured borrowings
in accordance with SFAS No. 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities(SFAS No. 140). The
Agreements provide the Company additional funding sources for mortgage loans
whereby a third party investor (the Investor) may participate in certain
mortgage loans with the Company and/or Vestin Fund II, and/or Vestin Fund III
(collectively, the Lead Lenders). In the event of borrower non-performance,
the intercreditor agreements 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 18




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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. Pursuant to the participation
agreements, the Investor may invest in certain loan or loans with the Lead
Lenders. In the event of borrower non-performance, the participation agreement
allows the Investor to be repaid up to the amount of the Investors investment
prior to the lead lender being repaid. Mortgage loan financing under the intercreditor and participation agreements
are accounted for as a secured borrowing in accordance with SFAS
No. 140. 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 for
general operational purposes. The Company does not have any significant capital
expenditures. Accordingly, the Company believes that cash held at bank
institutions will be sufficient to meet the Companys capital requirements in
the next twelve months. The Company does 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 the
Manager will continue to manage the Companys affairs. The Company is charged
by the Manager a monthly management fee of up to 0.25% of the Companys
aggregate capital contributions. Pursuant to the Companys Operating Agreement,
the Company recorded management fees to the Manager during the three months
ended June 30, 2004 of approximately $64,000. During the three months ended June 30, 2004, cash flows provided by operating
activities approximated $11.2 million. Investing activities consisted of cash
provided by loan sales and payoffs of approximately $34.2 million, cash used in
purchases of investments in mortgage loans approximating $37.1 million, and
cash outlays related to the maintenance of real estate held for sale of
approximately $3.1 million. Financing activities consisted of members
redemptions in the amount of $8.3 million and distributions of $3.1 million
(net of reinvestments). Members holding approximately 21% of our outstanding units have elected to
reinvest their dividends. The Company no longer accepts new
investments. Only
members who have previously reinvested their dividends are permitted to
reinvest. The level of dividend reinvestment will depend upon our performance
as well as the number of our members who prefer to reinvest rather than receive
current distributions of their income. Any significant level of defaults on our outstanding loans could reduce the
funds we have available for investment in new loans. 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. In addition,
any significant level of redemptions by our members would reduce the capital we
have available for investment. In order to comply with the Companys operating
agreement and Internal Revenue Code, the Company may redeem no more than 10% of
aggregate members capital in any calendar year. As of June 30, 2004, total
redemptions made from inception was $25.7 million. Balances in members
capital accounts as of January 1, 2004 was $89.5 million, which would limit
redemptions to $9.0 million for calendar 2004. As of June 30, 2004, we had
paid $8.3 million in redemptions for 2004. As of June 30, 2004, remaining
requests to redeem approximately $8.1 million in 2005, $7.2 million in 2006,
$6.5 million in 2007, $5.9 million in 2008, $5.3 million in 2009, $4.8 million
in 2010, and $0.6 million in 2011 had been logged. Non-performing assets include loans in non-accrual status totaling $7.5 million
(discussed in Note C) and real estate held for sale totaling $27.7 million
(discussed in Note E), respectively at June 30, 2004. 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. The Companys Manager believes that total non-performing assets at June 30,
2004 have decreased since the Companys year ended September 30, 2003,
primarily as a result of factors unique to specific borrowers. However, during
the three months ended June 30, 2004, the total amount of non-performing assets
has decreased by approximately $4.3 million. Because of the estimated value of
the underlying properties, the Company does not 19




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believe that any losses beyond those already recognized will be incurred from
these assets upon final disposition. However, it is possible that the Company
will not be able to realize the full estimated carrying values upon
disposition, particularly if continuing economic weakness results in declining
real estate values. On June 25, 2003, the Company refinanced a $15.2 million note due on August 19,
2003 as a new note with the interest rate reduced from 11.0% to 5.5% as a debt
restructuring. The new loan has a term of 24 months. Interest income not
recognized by the Company during the period as a result of the restructuring
was $20,430. This loan went into foreclosure in June of 2004. At June 30, 2004, the Company had $6.6 million in cash, $0.3 million in
certificates of deposit, and $112.3 million in total assets. It appears the
Company has sufficient working capital to meet its operating needs in the near
term. As of June 30, 2004, the Company had secured borrowings of $19.1 million
related to intercreditor and certain participation agreements with various loan participants
(Investors). Pursuant to the intercreditor agreements, the Investor may
invest in certain loans with Vestin Mortgage, Vestin Fund II, Vestin Fund III
and the Company (collectively, the Lead Lenders). In the event of borrower
non-performance, the intercreditor agreements gives the Lead Lenders the right
to either (i) continue to remit to the investor the interest due on the
participation amount; (ii) substitute an alternative loan acceptable to the
investor; or (iii) repurchase the participation from the investor for the
outstanding balance of the participation plus accrued interest. Additionally, an Investor may participate in certain loans with Lead Lenders
through participation agreements. Pursuant to the participation agreements,
the Investor may invest in certain loan or loans with the Lead Lenders. In the
event of borrower non-performance, the participation agreement allows the
Investor to be repaid up to the amount of the Investors investment prior to
the Lead Lenders being repaid. Mortgage loan financing under the intercreditor and participation agreements
are accounted for as a secured borrowing in accordance with SFAS No. 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities. The Company maintains working capital reserves of approximately 3% of aggregate
members capital accounts in cash and cash equivalents, and certificates of
deposit. This reserve is available to pay expenses in excess of revenues,
satisfy obligations of underlying security properties, expend money to satisfy
unforeseen obligations and for other permitted uses of the working capital.
Working capital reserves of up to 3% are included in the funds committed to
loan investments in determining what proportion of the offering proceeds and
reinvested distributions have been invested in mortgage loans. RELATED PARTY TRANSACTIONS For the three months ended June 30, 2004 and 2003, the Company recorded
management fees to the Companys Manager of approximately $64,000.
Additionally, for the three months ended June 30, 2004, the Company recorded
pro rata distributions owed to the Companys Manager of approximately $15,000
based upon the total of 100,000 units owned by the Companys Manager. During the nine months ended June 30, 2004, the Company purchased a mortgage
loan in the amount of $350,000 from a related party wholly-owned by Vestin
Group, Inc.s Chief Executive Officer. FACTORS AFFECTING THE COMPANYS OPERATING RESULTS The Companys business is subject to numerous factors affecting its operating
results. In addition to the factors discussed above, the Companys operating
results may be affected by: Risks of Investing in Mortgage Loans  
    
    The Companys underwriting standards and procedures are more lenient
than conventional lenders in that the Company will invest in loans to
borrowers who will not be required to meet the credit standards of
conventional mortgage lenders. 20




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
    
    The Company approves mortgage loans more quickly then other mortgage
lenders. Due to the nature of loan approvals, there is a risk that the
credit inquiry the Companys Manager performs will not reveal all
material facts pertaining to the borrower and the security.  
    
    Appraisals may be performed on an as-if developed basis, if a loan
goes into default prior to development of a project, the market value of
the property may be substantially less than the appraised value. As a
result, there may be less security than anticipated at the time the loan
was originally made. If there is less security and a default occurs,
the Company may not recover the full amount of the loan.  
    
    The Companys results of operations will vary with changes in
interest rates and with the performance of the relevant real estate
markets.  
    
    If the economy is healthy, the Company expects that more people will
be borrowing money to acquire, develop or renovate real property.
However, if the economy grows too fast, interest rates may increase too
much and the cost of borrowing may become too expensive. This could
result in a slowdown in real estate lending which may mean the Company
will have fewer loans to acquire, thus reducing the Companys revenues
and the distributions to 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
mortgage loans earning that higher rate of interest. In the absence of a
prepayment fee, the investors will receive neither the anticipated
revenue stream at the higher rate nor any compensation for their loss.
This in turn could harm the Companys reputation and make it more
difficult for the Company to attract investors willing to acquire
interest in mortgage loans. Risk of Defaults The Companys performance will be directly impacted by any defaults on the
loans in its portfolio. As noted above, the Company may experience a higher
rate of defaults than conventional mortgage lenders. The Company seeks to
mitigate the risk by estimating the value of the underlying collateral and
insisting on low loan to value ratios. However, no assurance can be given that
these efforts will fully protect the Company against losses on defaulted loans.
Moreover, during the period of time when a defaulted loan is the subject of
foreclosure proceedings, it is likely that the Company will earn less (if any)
income from such loans, thereby reducing the Companys earnings. Competition for Borrowers The Company considers its competitors for borrowers to be the providers of
non-conventional mortgage loans, that is, lenders who offer short-term,
equity-based loans on an expedited basis for higher fees and rates than those
charged by conventional lenders and mortgage loans investors, such as
commercial banks, thrifts, conduit lenders, insurance companies, mortgage
brokers, pension funds and other financial institutions that offer conventional
mortgage loans. Many of the companies against which the Company competes have
substantially greater financial, technical and other resources than the Company
does. Competition in the Companys market niche depends upon a number of
factors including price and interest rates of the loan, speed of loan
processing, cost of capital, reliability, quality of service and support
services. Effect of Fluctuations in the Economy The Companys 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
the Company concentrates its 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, the Company may be required to make
loans on terms less favorable to the Company or to make loans involving greater
risk to the Company. Declines in economic activity are often accompanied by a
decline in prevailing interest rates. Although the Companys 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 the Company is
able to earn on its loans. Since the 21




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Companys loans generally do not have prepayment penalties, declining interest
rates may also cause the Companys borrowers to prepay their loans and the
Company 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 the Companys borrowers to complete their
projects and obtain take out financing. This in turn could increase the level
of defaults the Company may experience. FORWARD LOOKING STATEMENTS When used in this Quarterly Report on Form 10-Q the words or phrases will
likely result, are expected to, is anticipated, or similar expressions are
intended to identify forward looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements are subject
to certain risks and uncertainties, including but not limited to changes in
interest rates, and fluctuations in operating results. Such factors which are
discussed in Managements Discussion and Analysis of Financial Condition and
Results of Operations, could affect the Companys financial performance and
could cause the Companys actual results for future periods to differ
materially from any opinion or statements expressed herein with respect to
future periods. As a result, the Company wishes to caution readers not to place
undue reliance on any such forward looking statements, which speak only as of
the date made. 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to market risk, primarily from changes in interest
rates. The Company does not have any assets or liabilities denominated in
foreign currencies nor does it own any options, futures or other derivative
instruments. Most of the Companys assets consist of mortgage loans, including those that
are financed under intercreditor agreements. At June 30, 2004, the Companys
aggregate investment in mortgage loans was $56,970,720 with a weighted average
yield of 11.68%. Loans financed under intercreditor and certain
participation agreements totaled
$19,004,955 at June 30, 2004 and are classified as assets under secured
borrowing. Such financing is at a weighted average interest rate of 11.45%.
These mortgage loans mature within the next 24 months. All of the outstanding
mortgage loans at June 30, 2004 are fixed rate loans. All of the mortgage loans
are held for investment purposes and are held to their maturity date. None of
the mortgage loans have prepayment penalties. As of June 30, 2004, the Company had cash and investments in certificates of
deposit and other short-term deposit accounts totaling $6.9 million. The
Company anticipates that approximately 3% of its assets will be held in such
accounts as a cash reserves. Additional deposits in such accounts will be made
as funds are received by the Company from new investors and repayment of loans
pending the deployment of such funds in new mortgage loans. The Company
believes that these financial assets do not give rise to significant interest
rate risk due to their short-term nature. 22




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ITEM 4. CONTROLS AND PROCEDURES. The Company has evaluated the effectiveness of the design and operation of its
disclosure controls and procedures as of June 30, 2004 (the Evaluation Date).
Such evaluation was conducted under the supervision and with the participation
of the Chief Executive Officer (CEO) and the Chief Financial Officer (CFO)
of Vestin Mortgage, Inc., the Companys Manager, who function as the equivalent
of the CEO and CFO of the Company. Based upon such evaluation, the
Managers CEO and CFO
have concluded that, as of the Evaluation Date, the Companys disclosure
controls and procedures were effective. There have been no significant changes
in the Companys internal controls over financial reporting that occurred
during the Companys most recent fiscal quarter, that have materially affected,
or are reasonable likely to materially affect, the Companys internal controls
over financial reporting. 23




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PART II OTHER INFORMATION 
 ITEM 1. LEGAL PROCEEDINGS The staff of the Pacific Regional Office of the Securities and Exchange
Commission (SEC) has been conducting an informal inquiry into certain matters
related to the Company, Vestin Group, Vestin Fund II and Vestin Fund III. The
staff of the SEC has not identified the reasons for its inquiry, which remains
ongoing as of August 9, 2004. The Company believes that it has complied with SEC
disclosure requirements and is fully cooperating with the inquiry. The Company
cannot at this time predict the outcome of the inquiry. The Company is involved in a number of legal proceedings concerning matters
arising in connection with the conduct of their business activities. The
Company believes it has meritorious defenses to each of these actions and
intends to defend them vigorously. The Company believes that it is not a party
to any pending legal or arbitration proceedings that would have a material
adverse effect on the Companys financial condition or results of operations
or cash flows, although it is possible that the outcome of any such proceedings
could have a material impact on the Companys net income in any particular
period. 
 ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS Not Applicable. 
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not Applicable. 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders, through the solicitation
of proxies or otherwise, during the third quarter ended June 30, 2004. 
 ITEM 5. OTHER INFORMATION None. 
 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 3.1(1) Articles of Organization, as amended 4.1(2) Third Amended and Restated Operating Agreement
(included as Exhibit A to the prospectus) 4.2(2) Subscription Agreement and Power of Attorney
(included as Exhibit B to the prospectus) 31.1 Section 302 Certification of Michael V. Shustek 31.2 Section 302 Certification of Lance K. Bradford 32 Certification Pursuant to U.S.C. 18 Section 1350  (1)
    
    Incorporated herein by reference to our Form S-11 Registration Statement filed on March 17, 2000.(2)
    
    Incorporated herein by reference to Post-Effective Amendment No. 2 to our Form S-11 Registration
Statement filed on April 16, 2001. (b) Reports on Form 8-K None 24




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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. VESTIN FUND I, LLC By: Vestin Mortgage, Inc., its sole manager By:
    
    /s/ Lance K. BradfordLance K. BradfordDirector, Secretary and Treasurer(Chief Financial Officer of the Managerand Duly Authorized Officer)
 Dated: August 9, 2004 25




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VESTIN FUND I, LLC A Nevada Limited Liability Company INDEX TO EXHIBITS Exhibit No.
    
    Description of Exhibits3.1(1)
    
    Articles of Organization, as amended4.1(2)
    
    Third Amended and Restated Operating Agreement
(included as Exhibit A to the prospectus)4.2(2)
    
    Subscription Agreement and Power of Attorney
(included as Exhibit B to the prospectus)31.1
    
    Section 302 Certification of Michael V. Shustek31.2
    
    Section 302 Certification of Lance K. Bradford32
    
    Certification Pursuant to U.S.C. 18 Section 1350
  (1)
    
    Incorporated herein by reference to our Form S-11 Registration Statement filed on March 17, 2000.(2)
    
    Incorporated herein by reference to Post-Effective Amendment No. 2 to our Form S-11 Registration
Statement filed on April 16, 2001. 26