##### Table of Contents



U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
 FORM 10-Q (MARK ONE) þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005 Or o 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
    
    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 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 þ No o Indicate by check whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the
Exchange Act.) Yes þ No o As of April 30, 2005, the Issuer had 7,602,594 of its Units outstanding.




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TABLE OF CONTENTS PAGEPART I
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsBalance sheets as of March 31, 2005 (unaudited), and September 30, 2004
    
    
    3Statements of income for the three and six months ended March 31, 2005 and 2004 (unaudited)
    
    
    4Statement of members equity for the six months ended March 31, 2005 (unaudited)
    
    
    5Statements of cash flows for the six months ended March 31, 2005 and 2004 (unaudited)
    
    
    6Notes to financial statements (unaudited)
    
    
    7Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    17Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    26Item 4.
    
    Controls and Procedures
    
    
    26PART II
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    29Item 2.
    
    Changes in Securities and Use of Proceeds
    
    
    29Item 3.
    
    Defaults Upon Senior Securities
    
    
    29Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    29Item 5.
    
    Other Information
    
    
    29Item 6.
    
    Exhibits
    
    
    29SIGNATURES
    
    
    30EX-31.1EX-31.2EX-32
  2




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VESTIN FUND I, LLC 
 BALANCE SHEETS (UNAUDITED)MARCH 31, 2005
    
    
    SEPTEMBER 30, 2004ASSETSCash
    
    $
    6,539,080
    
    
    $
    9,829,496Certificates of deposit
    
    
    300,000
    
    
    
    300,000Interest and other receivables
    
    
    567,479
    
    
    
    1,327,089Note receivable
    
    
    119,299
    
    
    
    119,299Real estate held for sale
    
    
    8,111,297
    
    
    
    15,286,848Real estate held for sale  seller financed
    
    
    10,696,376
    
    
    
    10,801,448Investment in mortgage loans, net of allowance for loan losses
of $644,565 at March 31, 2005, and
$600,000 at September 30, 2004
    
    
    52,376,113
    
    
    
    47,344,198Assets under secured borrowings
    
    
    10,147,880
    
    
    
    6,134,410Total assets
    
    $
    88,857,524
    
    
    $
    91,142,788LIABILITIES AND MEMBERS EQUITYLiabilitiesAccounts payable and accrued liabilities
    
    $
    353,715
    
    
    $
    351,205Due to Manager
    
    
    907,902
    
    
    
    652,312Due to Vestin Group
    
    
    2,095
    
    
    
    4,822Due to Vestin Fund II
    
    
    1,525,250
    
    
    
    1,469,743Secured borrowings
    
    
    10,147,880
    
    
    
    6,134,410Deferred income
    
    
    599,826
    
    
    
    251,742Total liabilities
    
    
    13,536,668
    
    
    
    8,864,234Members equity  authorized 10,000,000 units, 7,726,401 units
and 8,354,057 units issued at $10 per unit and outstanding at
March 31, 2005 and September 30, 2004, respectively
    
    
    75,320,856
    
    
    
    82,278,554Total members equity
    
    
    75,320,856
    
    
    
    82,278,554Total liabilities and members equity
    
    $
    88,857,524
    
    
    $
    91,142,788
 The accompanying notes are an integral part of these statements. 3




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VESTIN FUND I, LLC 
 STATEMENTS OF INCOME (UNAUDITED) FOR THE THREE MONTHS ENDED
    
    
    FOR THE SIX MONTHS ENDEDMARCH 31, 2005
    
    
    MARCH 31, 2004
    
    
    MARCH 31, 2005
    
    
    MARCH 31, 2004RevenuesInterest income from investment in
mortgage loans
    
    $
    1,550,247
    
    
    $
    2,137,083
    
    
    $
    2,725,155
    
    
    $
    3,955,973Gain on sale of real estate held for sale
    
    
    23,390
    
    
    
    
    
    
    
    1,072,421
    
    
    
    Revenue related to the sale of real estate
    
    
    
    
    
    
    4,666,667
    
    
    
    
    
    
    
    4,666,667Other income
    
    
    580,601
    
    
    
    27,573
    
    
    
    666,697
    
    
    
    256,831Total revenues
    
    
    2,154,238
    
    
    
    6,831,323
    
    
    
    4,464,273
    
    
    
    8,879,471Operating expensesManagement fees
    
    
    68,684
    
    
    
    63,796
    
    
    
    132,480
    
    
    
    127,592Provision for loan losses
    
    
    44,565
    
    
    
    
    
    
    
    44,565
    
    
    
    100,000Interest expense
    
    
    108,814
    
    
    
    534,608
    
    
    
    240,553
    
    
    
    1,029,680Loss on sale of real estate held for sale
    
    
    388,901
    
    
    
    
    
    
    
    400,022
    
    
    
    Write down on real estate held for sale
    
    
    639,138
    
    
    
    
    
    
    
    917,130
    
    
    
    521,378Expenses related to real estate held for sale
    
    
    452,776
    
    
    
    198,778
    
    
    
    602,248
    
    
    
    256,503Professional fees
    
    
    140,321
    
    
    
    55,649
    
    
    
    241,275
    
    
    
    76,865Other
    
    
    158,413
    
    
    
    101,095
    
    
    
    159,120
    
    
    
    102,449Total operating expenses
    
    
    2,001,612
    
    
    
    953,926
    
    
    
    2,737,393
    
    
    
    2,214,467NET INCOME
    
    $
    152,626
    
    
    $
    5,877,397
    
    
    $
    1,726,880
    
    
    $
    6,665,004Net income allocated to members
    
    $
    152,626
    
    
    $
    5,877,397
    
    
    $
    1,726,880
    
    
    $
    6,665,004Net income allocated to members per
weighted average membership units
    
    $
    0.02
    
    
    $
    0.68
    
    
    $
    0.21
    
    
    $
    0.75Weighted average membership units
    
    
    7,738,967
    
    
    
    8,664,702
    
    
    
    8,049,013
    
    
    
    8,888,926
 The accompanying notes are an integral part of these statements. 4




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VESTIN FUND I, LLC 
 STATEMENT OF MEMBERS EQUITY FOR THE SIX MONTHS ENDED MARCH 31, 2005 (UNAUDITED) Units
    
    
    AmountMembers equity at September 30, 2004
    
    
    8,354,057
    
    
    $
    82,278,554Distributions
    
    
    
    
    
    
    (2,408,013
    )Reinvestments of distributions
    
    
    34,379
    
    
    
    343,788Members redemptions
    
    
    (662,035
    )
    
    
    (6,620,353
    )Net income
    
    
    
    
    
    
    1,726,880Members equity at March 31, 2005
    
    
    7,726,401
    
    
    $
    75,320,856
 The accompanying notes are an integral part of these statements. 5




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VESTIN FUND I, LLC 
 STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE SIX MONTHS ENDEDMARCH 31, 2005
    
    
    MARCH 31, 2004Cash flows from operating activities:Net income
    
    $
    1,726,880
    
    
    $
    6,665,004Adjustments to reconcile net income to net
cash provided by operating activities:Write down of real estate held for sale
    
    
    917,130
    
    
    
    521,378Loss on sale of real estate held for sale
    
    
    400,022
    
    
    
    Gain on sale of real estate held for sale
    
    
    (1,072,421
    )
    
    
    Provision for loan losses
    
    
    44,565
    
    
    
    100,000Change in operating assets and liabilities:Interest and other receivables
    
    
    726,690
    
    
    
    310,238Due to Manager
    
    
    255,590
    
    
    
    (27,280
    )Due to related parties
    
    
    43,821
    
    
    
    399,463Accounts payable and accrued liabilities
    
    
    2,511
    
    
    
    (5,757
    )Deferred income
    
    
    348,084
    
    
    
    94,371Net cash provided by operating activities
    
    
    3,392,872
    
    
    
    8,057,417Cash flows from investing activities:Purchase of investments in mortgage loans
    
    
    (16,500,448
    )
    
    
    (24,405,404
    )Purchase of investments in mortgage loans
from other related party
    
    
    
    
    
    
    (350,000
    )private investor
    
    
    
    
    
    
    (1,498,464
    )Proceeds from loan payoff
    
    
    10,256,452
    
    
    
    27,629,367Proceeds from sale of investment in real estate
    
    
    8,245,286
    
    
    
    Cash outlays for real estate held for sale
    
    
    
    
    
    
    (1,529,668
    )Purchase of certificates of deposit
    
    
    
    
    
    
    165,289Net cash provided by investing activities
    
    
    2,001,290
    
    
    
    11,120Cash flows from financing activities:Members distributions, net of reinvestments
    
    
    (2,064,225
    )
    
    
    (2,006,632
    )Members withdrawals
    
    
    (6,620,353
    )
    
    
    (5,523,042
    )Net cash used in financing activities
    
    
    (8,684,578
    )
    
    
    (7,529,674
    )NET CHANGE IN CASH
    
    
    (3,290,416
    )
    
    
    538,863Cash, beginning of period
    
    
    9,829,496
    
    
    
    13,707,547Cash, end of period
    
    $
    6,539,080
    
    
    $
    14,246,410Supplemental disclosures of cash flows information:Non-cash investing and financing activities:Change in loans funded through secured borrowing
    
    $
    2,957,602
    
    
    $
    5,247,559Real estate held for sale acquired through foreclosure
    
    $
    2,149,226
    
    
    $
    2,251,031Loans rewritten with same or similar property as collateral
    
    $
    867,680
    
    
    $
    Reduction in Note Payable to Fund II due to valuation
allowance on real estate held for sale
    
    $
    
    
    
    $
    454,989Investment in real estate held for sale reclassified
from interest receivable
    
    $
    32,920
    
    
    $
    
 The accompanying notes are an integral part of these statements. 6




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VESTIN FUND I, LLC 
 NOTES TO FINANCIAL STATEMENTS March 31, 2005 (Unaudited) NOTE A  ORGANIZATION We were organized in December 1999 as a Nevada limited liability company for the purpose of
investing in mortgage loans. We invest in loans secured by real estate through deeds of trust and
mortgages. We commenced our business 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. During June 2004 we discontinued the offering of our Units.
Our manager is Vestin Mortgage, Inc., a licensed mortgage broker in the State of Nevada (Vestin
Mortgage, or Manager). Vestin Mortgage is a wholly-owned subsidiary of Vestin Group, Inc., a
Delaware corporation (Vestin Group). Vestin Groups common stock currently trades in the pink
sheets published by Pink Sheets, LLC. On April 5, 2005, Vestin Groups majority shareholder,
Michael V. Shustek commenced a tender offer to acquire any and all of the outstanding shares of
Vestin Group common stock which he does not currently own. As a result, Vestin Group may become a
privately held company in the near future. Through its subsidiaries, Vestin Group is engaged in
asset management, real estate lending and other financial services. In this quarterly report, from
time to time, we will refer to our company, Vestin Fund II, LLC, as the Company. We invest in mortgage loans throughout the areas in which Vestin Mortgage and its correspondents
have experience, primarily Arizona, California, Hawaii, New York, and Nevada. 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. Vestin Mortgage, Inc. is also the manager of Vestin Fund II, LLC, (Fund II), Vestin Fund III, LLC
(Fund III) and inVestin Nevada, Inc., entities that are in a business similar to us. 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 our annual report on Form
10-K for the year ended September 30, 2004.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.
Certain reclassifications have been made to the prior years financial statements to conform with
the current year presentation. 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 7




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liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ
materially from those estimates. 2. INVESTMENTS IN MORTGAGE LOANS Investments in mortgage loans are secured by trust deeds and mortgages. Generally, all of our
mortgage loans require interest only payments with a balloon payment of the principal at maturity.
We have 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 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. 3. ALLOWANCE FOR LOAN LOSSES We maintain an allowance for loan losses on our investments in mortgage loans for estimated credit
impairment inherent to our loan 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 asset is disposed. 4. 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. We seek to
sell properties acquired through foreclosure as quickly as circumstances permit. The carrying
values of real estate held for sale are assessed on a regular basis from updated appraisals,
comparable sales values or purchase offers. 5. REAL ESTATE HELD FOR SALE  SELLER FINANCED Seller financed real estate held for sale includes real estate acquired through foreclosure and
resold to independent third parties where we have provided the financing and the borrower has not
met certain criteria in accordance with Statement of Financial Accounting Standards (FAS) No. 66.
FAS 66 requires the borrower to have a certain percentage equity ownership (typically 20%) 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
real estate is retained as real estate held for sale. 6. 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 SFAS No.
140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
(SFAS No. 140). The Inter-creditor Agreements provide us additional funding sources for mortgage
loans whereby a third party investor (the Investor) may participate 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 Intercreditor Agreements generally provide that the Lead Lenders 8




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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
Lenders being repaid. Mortgage loan financing under the participation agreements are also
accounted for as a secured borrowing in accordance with SFAS No. 140. NOTE C  INVESTMENTS IN MORTGAGE LOANS Investments in mortgage loans as of March 31, 2005 are summarized below: Number
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    LoanLoan
    
    Of
    
    
    
    
    
    
    Average
    
    
    Portfolio
    
    
    ToType
    
    Loans
    
    
    Balance(1)
    
    
    Interest Rate
    
    
    Percentage
    
    
    Value(2)Acquisition and development
    
    
    4
    
    
    $
    6,879,118
    
    
    
    8.49
    %
    
    
    10.80
    %
    
    
    70.99
    %Bridge
    
    
    5
    
    
    
    7,062,823
    
    
    
    10.16
    %
    
    
    11.08
    %
    
    
    50.78
    %Commercial
    
    
    11
    
    
    
    30,990,117
    
    
    
    9.94
    %
    
    
    48.64
    %
    
    
    66.84
    %Construction
    
    
    3
    
    
    
    3,917,342
    
    
    
    9.25
    %
    
    
    6.15
    %
    
    
    70.28
    %Land
    
    
    7
    
    
    
    14,867,654
    
    
    
    12.61
    %
    
    
    23.33
    %
    
    
    60.97
    %30
    
    
    
    63,717,054
    
    
    
    10.39
    %
    
    
    100.00
    %
    
    
    64.35
    %
 Investment in mortgage loans as of September 30, 2004 are summarized below: Number
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    LoanLoan
    
    of
    
    
    
    
    
    
    Average
    
    
    Portfolio
    
    
    ToType
    
    Loans
    
    
    Balance(1)
    
    
    Interest Rate
    
    
    Percentage
    
    
    Value(2)Acquisition and development
    
    
    10
    
    
    $
    18,810,500
    
    
    
    9.71
    %
    
    
    32.02
    %
    
    
    63.01
    %Bridge
    
    
    9
    
    
    
    8,687,165
    
    
    
    10.65
    %
    
    
    14.79
    %
    
    
    49.98
    %Commercial
    
    
    8
    
    
    
    12,932,116
    
    
    
    12.22
    %
    
    
    22.01
    %
    
    
    77.19
    %Construction
    
    
    4
    
    
    
    12,181,975
    
    
    
    7.64
    %
    
    
    20.74
    %
    
    
    76.81
    %Land
    
    
    4
    
    
    
    6,133,890
    
    
    
    12.65
    %
    
    
    10.44
    %
    
    
    71.42
    %35
    
    
    $
    58,745,646
    
    
    
    10.28
    %
    
    
    100.00
    %
    
    
    67.49
    %
   (1)  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 we provided financing. GAAP requires the borrower to have a certain
percentage equity ownership (typically 20%) 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 investment in the new loan is reduced
by the amount originally invested in the real estate held for sale. 9




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September 30,March 31, 2005
    
    
    2004Balance
    
    
    BalanceBalance per loan portfolio
    
    $
    63,717,054
    
    
    $
    58,745,646Less:Seller financed loans included in real
estate held for sale
    
    
    (10,696,376
    )
    
    
    (10,801,448
    )Allowance for loan losses
    
    
    (644,565
    )
    
    
    (600,000
    )Balance per accompanying Balance Sheet
    
    $
    52,376,113
    
    
    $
    47,344,198
   (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, 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, we may not recover the full
amount of the loan. September 30,March 31, 2005
    
    
    Portfolio
    
    
    2004
    
    
    PortfolioLoan Type
    
    Balance*
    
    
    Percentage
    
    
    Balance*
    
    
    PercentageFirst mortgages
    
    $
    63,559,204
    
    
    
    99.75
    %
    
    $
    57,830,608
    
    
    
    98.44
    %Second mortgages**
    
    
    157,850
    
    
    
    0.25
    %
    
    
    915,038
    
    
    
    1.56
    %$
    63,717,054
    
    
    
    100.00
    %
    
    $
    58,745,646
    
    
    
    100.00
    %
   **Generally, our second mortgages 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 mortgage loans as of March
31, 2005*: 2005
    
    $
    27,746,2552006
    
    
    27,331,0122007
    
    
    8,639,787$
    63,717,054
 The following is a schedule by geographic location of investments in mortgage loans: September 30,March 31, 2005
    
    
    Portfolio
    
    
    2004
    
    
    PortfolioBalance*
    
    
    Percentage
    
    
    Balance*
    
    
    PercentageArizona
    
    $
    12,491,742
    
    
    
    19.61
    %
    
    $
    11,681,908
    
    
    
    19.89
    %California
    
    
    15,820,212
    
    
    
    24.83
    %
    
    
    11,475,286
    
    
    
    19.53
    %Hawaii
    
    
    4,138,662
    
    
    
    6.50
    %
    
    
    4,138,662
    
    
    
    7.05
    %Nevada
    
    
    25,496,768
    
    
    
    40.02
    %
    
    
    23,236,940
    
    
    
    39.56
    %New York
    
    
    3,320,000
    
    
    
    5.21
    %
    
    
    3,320,000
    
    
    
    5.65
    %North Carolina
    
    
    
    
    
    
    0.00
    %
    
    
    89,942
    
    
    
    0.15Oklahoma
    
    
    1,236,701
    
    
    
    1.94
    %
    
    
    996,000
    
    
    
    1.70
    %
 10




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##### Table of Contents



September 30,March 31, 2005
    
    
    Portfolio
    
    
    2004
    
    
    PortfolioBalance*
    
    
    Percentage
    
    
    Balance*
    
    
    PercentageTexas
    
    
    1,212,969
    
    
    
    1.89
    %
    
    
    1,727,592
    
    
    
    2.94
    %Utah
    
    
    
    
    
    
    
    
    
    
    1,503,316
    
    
    
    2.56
    %Washington
    
    
    
    
    
    
    0
    %
    
    
    576,000
    
    
    
    0.97$
    63,717,054
    
    
    
    100.00
    %
    
    $
    58,745,646
    
    
    
    100.00
    %
   *
    
    Refer to footnote (1) above We have 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% to 14%. Revenue by product will fluctuate based upon relative balances during the
period. At March 31, 2005, four of our loans totaling $8.0 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. Our
Manager evaluated all of these loans and concluded that the underlying collateral is sufficient to
protect us against a loss of principal or interest. Accordingly, no specific allowance for loan
losses was deemed necessary for these loans which are summarized below: Number ofBalance
    
    
    
    
    
    
    Months Non-Description of Collateral
    
    March 31, 2005
    
    
    Maturity Date
    
    
    Performing4 cemeteries and 8 mortuaries in Hawaii
    
    $
    4,138,662
    
    
    
    03/31/2004
    
    
    
    12Racetrack and hotel in Vernon, NY
    
    
    3,320,000
    
    
    
    06/30/2005
    
    
    
    725 acres tentatively mapped for 104
single family residential lots in Palm
Springs, California
    
    
    66,375
    
    
    
    01/23/2006
    
    
    
    5Development of 400 single and
multi-family residential lots in
Cathedral City, California
    
    
    503,333
    
    
    
    04/20/2005
    
    
    
    5$
    8,028,370
 Our Manager periodically reviews and makes a determination as to whether the allowance for loan
losses is adequate to cover any potential losses. Additions to the allowance for loan losses are
made by charges to the provision for loan losses. Recoveries of previously charged off amounts are
credited to the allowance for loan losses or included as income when the asset is disposed. As of
March 31, 2005, we have provided a general allowance for loan losses of approximately $644,565. 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. 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 six months ended March 31,
2005: BalanceSeptember 30,
    
    
    
    
    
    
    
    
    
    
    BalanceDescription
    
    2004
    
    
    Provisions
    
    
    Deductions
    
    
    March 31, 2005General Valuation
Allowance
    
    $
    600,000
    
    
    $
    44,565
    
    
    $
    
    
    
    $
    644,565Specific allowance
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    600,000
    
    
    $
    44,565
    
    
    $
    
    
    
    $
    644,565
 11




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##### Table of Contents



As of March 31, 2005, we have commenced a judicial foreclosure on a loan secured by 4 cemeteries and 8 mortuaries in Hawaii. The aggregate amount of the loan is approximately $32 million, of which our balance totals
$4,138,662. Of the 4 lenders included in this loan, 1 lender has priority over the remaining 3 lenders in the
approximate amount of $14 million pursuant to an Inter-creditor Agreement. Accordingly, our total exposure on this
loan is approximately $18.1 million. In exchange for expediting the foreclosure process, the lenders jointly agreed
to release the guarantors from their guaranty of the loan. We anticipate obtaining title to the underlying property
during 2005. The cemeteries and mortuaries are operating businesses and, after obtaining title and pending
disposition of these properties we expect 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. Our Manager evaluated the underlying collateral and determined it was sufficient to protect us against
losses of principal and interest. Our Manager will continue to evaluate this loan in order to determine if any
allowance for the loan should be recorded. In addition, our Manager had granted extensions on 6 loans pursuant to the terms of the original
loan agreements, which permit extensions by mutual consent. Such extensions are generally provided
on loans where the original term was 12 months or less and where a borrower requires additional
time to complete a construction project or negotiate take-out financing. However, our Manager only
grants extensions when a borrower is in full compliance with the terms of the loan, including, but
not limited to the borrowers obligation to make interest payments on the loan. The aggregate
amount due from borrowers whose loans had been extended as of March 31, 2005 was approximately $4.9
million. Our Manager concluded that no allowance for loan loss was necessary with respect to these
loans as of that date. NOTE D  RELATED PARTY TRANSACTIONS For the three and six months ended March 31, 2005, we recorded management fees to our Manager of
approximately $69,000 and $132,000, respectively compared to $64,000 and $128,000 for same periods
in prior year. Additionally, for the three and six months ended March 31, 2005, we recorded pro
rata distributions owed to our Manager of approximately $15,000 and $30,000 respectively, compared
to $13,000 and $26,000 for the same periods in prior year based upon the total of 100,000 units
owned by our Manager. During the three months ended
March 31, 2005 we incurred $5,142 for legal fees to a law firm in
which the Secretary of Vestin Group has an equity ownership interest.
No such amounts were incurred during the first three months of the
six months ended March 31, 2005. During the three months ended
March 31, 2005, the Company paid $37,500 to L.L. Bradford &
Company, LLC, a certified public accounting firm for accounting services and a former director is
an equity owner in that firm. No such amounts were incurred during the first three months of the
six months ended March 31, 2005. As of March 31, 2005 we owed Fund II approximately $1,525,000 primarily related to payments made on
our behalf for the maintenance of real estate owned. As of March 31, 2005, we owed the Manager approximately $908,000 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. From time to time we may acquire or sell investments in mortgage loans from/to the 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 to either free up
capital to make new investments or place excess capital in investments to maximize the use of our
capital. NOTE E  REAL ESTATE HELD FOR SALE At March 31, 2005, we held 3 properties with a total carrying value of $8.1 million, which were
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 March 31, 2005: 12




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##### Table of Contents



Write downPercentage
    
    
    Balance
    
    
    
    
    
    
    
    
    
    
    Gain (Loss)
    
    
    on real
    
    
    BalanceDate
    
    
    of
    
    
    December
    
    
    
    
    
    
    Proceed
    
    
    on sale of
    
    
    estate held
    
    
    March 31,Description
    
    Acquired
    
    
    Ownership
    
    
    31, 2004
    
    
    Acquisitions
    
    
    from Sales
    
    
    real estate
    
    
    for sale
    
    
    2005Custom residential
property located in
Santa Fe, New
Mexico(1)
    
    
    3/4/2003
    
    
    
    93
    %
    
    $
    774,271
    
    
    $
    
    
    
    $
    (797,661
    )
    
    $
    23,390
    
    
    $
    
    
    
    $
    40 acres of land
containing 354
residential lots in
Henderson, Nevada
    
    
    2/28/2003
    
    
    
    66
    %
    
    
    5,412,303
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,412,303126 unit
(207 Bed) assisted
living facility in
Phoenix, Arizona
    
    
    9/8/2004
    
    
    
    10
    %
    
    
    1,525,340
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (639,138
    )
    
    
    886,202460 acre
residential
sub-division in
Lake Travis, Texas
    
    
    8/3/2004
    
    
    
    34
    %
    
    
    1,784,041
    
    
    
    28,751
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,812,792126 unit Hotel in
Mesquite, Nevada(1)
    
    
    10/04/2004
    
    
    
    32
    %
    
    
    2,149,226
    
    
    
    4,169
    
    
    
    (1,764,494
    )
    
    
    (388,901
    )
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    
    
    
    $
    11,645,181
    
    
    $
    32,920
    
    
    $
    (2,562,155
    )
    
    $
    (365,511
    )
    
    $
    (639,138
    )
    
    $
    8,111,297
   (1)
    
    Sales of real estate held for sale for the three months ended March 31, 2005:During March 2005, the custom residential property located in Santa Fe, New Mexico was sold for
$860,000 of which our proceeds were approximately $800,000. During the quarter ended December
31, 2004, we wrote down the carrying value of this property by approximately $278,000 based on
our estimate of the net realizable value of the property. Consequently, as a result of
completion of the sale we recorded a gain of $23,390.During March 2005, the 126 unit hotel in Mesquite, Nevada was sold for $5,473,028 of which our
share of the proceeds were approximately $1.7 million which resulted in a loss upon sale of
approximately $389,000. NOTE F  REAL ESTATE HELD FOR SALE  SELLER FINANCED At March 31, 2005, we held 5 properties with a total carrying value of $10,700,000 which have been
sold in transactions where we provided the financing to the purchaser. GAAP requires us to include
these properties in real estate held for sale until the borrower has met and maintained a certain
percentage of equity ownership, which is typically 20%. We may share ownership of such properties
with Fund II, the Manager, 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 March 31, 2005: 13




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##### Table of Contents



PrincipalPercentage
    
    
    Balance at
    
    
    
    
    
    
    Payments
    
    
    Valuation/
    
    
    Balance atDate
    
    
    of
    
    
    September
    
    
    
    
    
    
    Received from
    
    
    Other
    
    
    March 31,Description
    
    Acquired
    
    
    Ownership
    
    
    30, 2004
    
    
    Acquisitions
    
    
    Borrower
    
    
    Adjustments
    
    
    2005An approximate 200-unit
apartment complex located
in Las Vegas, Nevada
    
    
    1/27/2003
    
    
    
    5
    %
    
    $
    170,565
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    170,565An uncompleted golf course
in Mesquite, Nevada
    
    
    11/6/2002
    
    
    
    55
    %
    
    
    1,474,817
    
    
    
    
    
    
    
    (24,535
    )
    
    
    
    
    
    
    1,450,28236 acres of raw land in
Mesquite, Nevada
    
    
    11/27/2002
    
    
    
    48
    %
    
    
    334,112
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    334,112Assisted living facility in
Las Vegas, Nevada
    
    
    9/23/2004
    
    
    
    52
    %
    
    
    7,910,491
    
    
    
    
    
    
    
    (80,536
    )
    
    
    
    
    
    
    7,829,955Raw land in Mesquite, Nevada
    
    
    11/27/2002
    
    
    
    50
    %
    
    
    911,462
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    911,462$
    10,801,447
    
    
    $
    
    
    
    $
    (105,071
    )
    
    $
    
    
    
    $
    10,696,376
 As of March 31, 2005, we received $599,826 in interest payments from borrowers on the loans
associated with the sale of the above properties. Until the borrowers have met the minimum equity
ownership requirement to allow us to record the sale, all interest payments received are recorded
as deferred income. Once the equity requirement has been met, we will record these amounts as
interest income from investments in mortgage loans. NOTE G  NOTE RECEIVABLE During October 2004, we and Fund I sold the Castaways Hotel/Casino in Las Vegas, Nevada of which
our portion of the net cash proceeds totaled $5,825,132. 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 $119,299 which is based on a
discount rate of 8% as of March 31, 2005. NOTE H  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 SFAS No.
140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
(SFAS No. 140). The Inter-creditor Agreements provide us additional funding sources for mortgage
loans whereby a third party investor (the Investor) may participate 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 Intercreditor 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
Lenders being repaid. Mortgage loan financing under the participation agreements are also
accounted for as a secured borrowing in accordance with SFAS No. 140. As of March 31, 2005, funds being used under inter-creditor and participation agreements, where we
have potential 14




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##### Table of Contents



obligations as defined above, totaled approximately $10,100,000. NOTE I  RECENT ACCOUNTING PRONOUNCEMENTS In November 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4.
SFAS No. 151 clarifies the accounting for abnormal amounts of idle facility expense, freight,
handling costs and wasted material and requires that such items be recognized as current-period
charges regardless of whether they meet the so abnormal criterion outlined in ARB No. 43. SFAS
No. 151 also introduces the concept of normal capacity and requires the allocation of fixed
production overheads to inventory based on the normal capacity of the production facilities.
Unallocated overheads must be recognized as an expense in the period incurred. SFAS No. 151 is
effective for inventory costs incurred during fiscal years beginning after June 15, 2005. We do
not currently believe it will have a material impact on our financial statements. In December 2004, the FASB issued Staff Position No. FAS 109-2, Accounting and Disclosure Guidance
for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004
(FAS 109-2). The American Jobs Creation Act of 2004 introduces a special one-time dividends
received deduction on the repatriation of certain foreign earnings to a U.S. taxpayer, provided
certain criteria are met. FAS 109-2 provides accounting and disclosure guidance for the
repatriation provision, and was effective immediately upon issuance. We do not believe that the
adoption of FAS 109-2 will have a material effect on our financial statements. In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-based Payment which replaces
the prior SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No.
25, Accounting for Stock Issued to Employees. SFAS 123 (revised 2004) requires compensation
costs related to share-based payment transactions to be recognized in the financial statements.
With limited exceptions, the amount of compensation cost will be measured based on the grant-date
fair value of the equity or liability instruments issued. In addition, liability awards will be
re-measured each reporting period. Compensation cost will be recognized over the period that an
employee provides services in exchange for the award. This new standard will become effective for
us July 8, 2005, and we are still evaluating the impact of this statement. We do not currently
believe it will have a material impact on our financial statements. In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets, an amendment of
APB Opinion No. 29, Accounting for Nonmonetary Transactions (SFAS No. 153). SFAS No. 153
eliminates the exception from fair value measurement for nonmonetary exchanges of similar
productive assets in paragraph 21 (b) of APB Opinion No. 29, Accounting for Nonmonetary
Transactions, and replaces it with an exception for exchanges that do not have commercial
substance. SFAS No. 153 specifies that a nonmonetary exchange has commercial substance if the
future cash flows of the entity are expected to change significantly as a result of the exchange.
SFAS No. 153 is effective for periods beginning after June 15, 2005. The Company does not expect
that adoption of SFAS No. 153 will have a material effect on its financial position, consolidated
results of operations, or liquidity. We do not currently believe it will have a material impact on
our financial statements. NOTE J  LEGAL MATTERS 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 15




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##### Table of Contents



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. We are 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 their 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 K  LEGAL MATTERS 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 us, Vestin Group, Fund II and Fund
III. We have fully cooperated during the course of the informal inquiry. On January 6, 2005, we
received from the SEC an Order Directing Private Investigation and Designating Officers to Take
Testimony which appears to focus on the financial reporting of us, Fund II and Fund III. We
intend to cooperate fully in this matter and believe that we have complied with SEC disclosure
requirements. We cannot at this time predict the outcome of this matter. 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 the 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 L  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 March 31, 2005, the total of
redemptions made from inception was $37.0 million. Balances 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 March 31, 2005, remaining requests to redeem are approximately $2.3 million in 2005, $7.4
million in 2006, $6.6 million in 2007, $6.0 million in 2008, $5.4 million in 2009, $4.8 million in
2010, $4.3 million in 2011, $3.9 million in 2012, $3.5 million in 2013, $3.2 million in 2014, $2.8
million in 2015, and $2.6 million in 2016 had been logged, subject to unit valuation adjustments.
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, filing of a proxy and registration
statement with the SEC, 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. NOTE M  SUBSEQUENT EVENT Following a periodic review by our Manager as required pursuant to the Operating Agreement,
effective April 1, 2005, we adjusted the stated unit value of each unit to $9.75 to reflect the
actual net book value of each unit at that date. Our Manager is pursuing remedies it deems
appropriate for collection of shortfalls, including litigation to enforce guarantees of the
borrowers. We cannot predict the eventual outcome of any remedies chosen. 16




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS BACKGROUND We were organized in December 1999 as a Nevada limited liability company for the purpose of
investing in mortgage loans. We invest in loans secured by real estate through deeds of trust and
mortgages. We commenced our business 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. During June 2004 we discontinued the offering of our Units.
Our manager is Vestin Mortgage, Inc., a licensed mortgage broker in the State of Nevada (Vestin
Mortgage, or Manager). Vestin Mortgage is a wholly-owned subsidiary of Vestin Group, Inc., a
Delaware corporation (Vestin Group). Vestin Groups common stock currently trades in the pink
sheets published by Pink Sheets, LLC. On April 5, 2005, Vestin Groups majority shareholder,
Michael V. Shustek commenced a tender offer to acquire any and all of the outstanding shares of
Vestin Group common stock which he does not currently own. As a result, Vestin Group may become a
privately held company in the near future. Through its subsidiaries, Vestin Group is engaged in
asset management, real estate lending and other financial services. In this quarterly report, from
time to time, we will refer to our company, Vestin Fund I, LLC, as the Company. We invest in mortgage loans throughout the areas in which Vestin Mortgage and its correspondents
have experience, primarily Arizona, California, Hawaii, New York, and Nevada. 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 following is a financial review and analysis of our financial condition and results of
operations for the three and six month periods ended March 31, 2005 and 2004. This discussion
should be read in conjunction with our financial statements and accompanying notes and other
detailed information appearing elsewhere in this Form 10-Q and our report on Form 10-K for the year
ended September 30, 2004. 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. 17




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Summary of Financial Results Three months ended March 31,
    
    
    Six months ended March 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Total revenues
    
    $
    2,154,238
    
    
    $
    6,831,323
    
    
    $
    4,464,273
    
    
    $
    8,879,471Total expenses
    
    
    2,001,612
    
    
    
    953,926
    
    
    
    2,737,393
    
    
    
    2,214,467Net income
    
    $
    152,626
    
    
    $
    5,877,397
    
    
    $
    1,726,880
    
    
    $
    6,665,004Net income allocated to members per
weighted average membership units
    
    $
    0.02
    
    
    $
    0.68
    
    
    $
    0.21
    
    
    $
    0.75Annualized rate of return to members (a)
    
    
    0.79
    %
    
    
    27.13
    %
    
    
    4.29
    %
    
    
    15.00
    %Weighted average membership units
    
    
    7,738,967
    
    
    
    8,664,702
    
    
    
    8,049,013
    
    
    
    8,888,926Cash distributions
    
    $
    1,157,972
    
    
    $
    1,187,653
    
    
    
    2,408,013
    
    
    $
    2,460,298Cash distributions per weighted average
membership unit
    
    $
    0.15
    
    
    $
    0.14
    
    
    $
    0.30
    
    
    $
    0.28
   (a)
    
    The annualized rate of return to members is calculated based upon the net income allocated to
members per weighted average units as of March 31, 2005 and 2004 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 Six Months Ended March 31, 2005 Compared To Three and Six Months Ended March 31, 2004 Total Revenues.For the three and six months ended March 31, 2005 and 2004, revenues totaled
$2,200,000 and $4,500,000 compared to $6,800,000 and $8,900,000, respectively, a decrease of
$4,600,000 and $4,400,000 or 68% and 49%. During the three and six months ended March 31, 2004 we
recognized $4.7 million of a finders fee as revenue related to the sale of real estate in the City
of Mesquite, Nevada. The note reflected a finders fee by the Company; we did not loan any money to
the unaffiliated party with respect to the $4.7 million. We had no such revenue in the three and
six months ended March 31, 2005. Total non-performing assets decreased to $16,100,000 at March 31,
2005 from $35,500,000 at March 31, 2004.
Non-performing assets at March 31, 2005 consist of approximately $8,000,000 of non-performing loans,
approximately $8,100,000 of real estate held for sale not resold through seller financing. The amount of
non-performing assets may reflect the continuing weakness in certain sectors of the economy and the risks inherent in
our business strategy which entails more lenient underwriting standards and expedited loan approval procedures.
Our revenues will continue to be impacted until we are able to convert these non-performing assets into interest
paying mortgage loans. We attempt to accomplish this by working with the borrower where possible and by
foreclosing on the underlying property where necessary. We intend to sell properties acquired through foreclosure
as soon as practicable, consistent with our objective of avoiding a loss of principal. However, we cannot predict
how quickly we can convert non-performing assets and any increase in our non-performing assets will have an
adverse affect upon our revenues. During the past year, our Manager has experienced less demand for loans. While we cannot be
certain as to the reason for the lower demand, our Manager believes that the pending SEC inquiry
has harmed our reputation among potential borrowers. The continuation of the SEC inquiry, and any
resulting proceedings or penalties, could have a further adverse impact upon our ability to compete
for borrowers. Approximately $0.4 million and $0.9 million of our interest revenue for the three months ended
March 31, 2005 and 2004 respectively was derived from interest reserves. Revenues for the three and six months ended March 31, 2005 included other income of $600,000 and $700,000,
respectively, compared to $30,000 and $300,000, respectively for the same periods in 2004. The increase is
primarily related to an increase in late fees received on our investments in mortgage loans. As of March 31, 2005, our Manager had granted extensions on 5 loans pursuant to the terms of the
original loan agreements, which permit extensions by mutual consent. Such extensions are generally
provided on loans where the original term was 12 months or less and where a borrower requires
additional time to complete a construction project or negotiate take out financing. However, our
Manager only grants extensions when a borrower is in full compliance with the terms of the loan,
including, but not limited to the borrowers obligation to make interest payments on the loan. The
aggregate amount due from borrowers whose loans had been extended as of March 31, 2005 was
approximately $4.9 million. Our Manager concluded that no allowance for loan loss was necessary
with respect to these loans as of that date. Total Expenses. For the three and six months ended March 31, 2005, expenses totaled $2,000,000 and
$2,700,000 compared to $1,000,000 and $2,200,000 for the same period in 2004, an increase of
$1,000,000 and $500,000 or 100%.and 23%. The increases are primarily related to the following: For the three months ended: 18




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
    We wrote down the carrying value of a 126 unit assisted living facility in Phoenix,
Arizona by approximately $640,000 based on updated appraisal information received during
the quarter ended March 31, 2005.
    We recognized a loss of approximately $400,000 resulting from the sale of a 126 unit
Hotel in Mesquite, Nevada.
    We recognized professional fees of approximately $140,000 which was an increase of
approximately $100,000 from the same period in 2004. We expect these fees to continue at
the amounts being incurred during the three months ended March 31, 2005.
    Expenses related to the maintenance of real estate held for sale increased by
approximately $200,000. This increase includes expenses of approximately $160,000 in
property taxes.
    The increase in expenses was partially offset by an interest expense decrease of
approximately $400,000 due to a decrease in the amount of secured borrowings of $5.0
million for same period in prior year. For the six months ended: In addition to the foregoing factors, during the six months ended:  
    We wrote down the carrying value of a custom residential property located in Santa Fe,
New Mexico by approximately $300,000 during the quarter ended December 31, 2004.
    Expenses related to the maintenance of real estate held for sale increased by
approximately $300,000. This increase includes expenses of approximately $160,000 in
property taxes.
    The increase in expenses was partially offset by an interest expense decrease of
approximately $800,000 due to a decrease in the amount of secured borrowings of
approximately $5.0 million. Net Income.As a result of the foregoing factors the net income for the three months ended March
31, 2005 totaled $0.2 million compared to $5.9 million for the same period in 2004, a decrease of
$5.5 million or 96%. Overall, the net income for the six months ended March 31, 2005 totaled $1.8
million compared to $6.7 million for the same period in 2004, a decrease of $4.9 million or 73%. Annualized Rate of Return to Members.For the three months ended March 31, 2005, annualized rate
of return to members totaled 0.79% as compared to 27.13% for the same period in 2004. For the six
months ended March 31, 2005, annualized rate of return to members totaled 4.29% as compared to
15.0% for the same period in 2004. Distributions to Members. For the three month period ended March 31, 2005, members received
distributions totaling $1,157,972, as compared to distributions totaling $1,187,653 for the three
months ended March 31, 2004. For the six-month period ended March 31, 2005, members received
distributions totaling $2,408,013, as compared to distributions totaling of $2,460,298 for the six
months ended March 31, 2004. The foregoing distributions were paid entirely from 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. Of the foregoing distributions, $289,942 paid for the three months ended March 31, 2005
represented a return of capital for income tax purposes. 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 March 31, 2005, the
total of redemptions made from inception was $37.0 million. Balances 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 March 31, 2005, remaining requests to redeem are approximately $2.3 million in 2005,
$7.4 million in 2006, $6.6 million in 2007, $6.0 million in 2008, $5.4 million in 2009, $4.8
million in 2010, $4.3 million in 2011, $3.9 million in 2012, $3.5 million in 2013, $3.2 million in
2014, $2.8 million in 2015, and $2.6 million in 2016 had been logged, subject to unit valuation
adjustments. 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, filing of a proxy and registration
statement with the SEC, approval of a majority in interest of our outstanding units and 19




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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. INVESTMENTS IN MORTGAGE LOANS SECURED BY REAL ESTATE PORTFOLIO As of March 31, 2005, we had investments in mortgage loans secured by real estate totaling
$63,717,054, including 30 loans of which 29 were secured by the first deed of trust totaling
$63,559,204, and 1 was secured by second deed of trust totaling $157,850. If we hold a second
mortgage, generally, it is junior to a first trust deed position also held by us or our Manager. As of March 31, 2005, the weighted average interest rate on our investment in mortgage loans is
10.39%. These mortgage loans have contractual maturities within the next 30 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 collectibility is doubtful is a matter of
judgment. On a quarterly basis, our Manager evaluates our mortgage loan portfolio for impairment.
The fact that a loan is temporarily past due does not necessarily mean the loan is impaired.
Rather, all relevant circumstances are considered by our 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 our Manager believes that the allowance for loan losses totaling
$644,565 included in the accompanying balance sheet as of March 31, 2005 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
we experience losses greater than the amount of the allowance, we may incur a charge to earnings
that will adversely affect our operating results and the amount of any distributions payable to our
members. 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. Real Estate Held For Sale 20




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##### Table of Contents



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. We seek to
sell properties acquired through foreclosure as quickly as circumstances permit. The carrying
values of real estate held for sale are assessed on a regular basis from updated appraisals,
comparable sales values or purchase offers. Real Estate Held For Sale  Seller Financed Seller financed real estate held for sale includes real estate acquired through foreclosure and
resold to independent third parties where we have provided the financing and the borrower has not
met certain criteria in accordance with Statement of Financial Accounting Standards (FAS) No. 66
(FAS 66). FAS 66 requires the borrower to have a certain percentage equity ownership (typically
20%) 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 real estate is retained as real estate held for sale. Investments in Mortgage Loans Investments in mortgage loans are secured by trust deeds and mortgages. Generally, all of our
mortgage loans require interest only payments with a balloon payment of the principal at maturity.
We have 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 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 mortgage loans for estimated credit
impairment inherent to our loan 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 asset is disposed. 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 SFAS No.
140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
(SFAS No. 140). The Inter-creditor Agreements provide us additional funding sources for mortgage
loans whereby a third party investor (the Investor) may participate 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 Intercreditor 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. 21




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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
Lenders being repaid. Mortgage loan financing under the participation agreements are also
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 general operating purposes. Subject to a 3%
reserve, we generally use all of our available funds to invest in mortgage 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 a monthly management fee of up to 0.25% of our aggregate capital
contributions. During the six months ended March 31, 2005, cash flows provided by operating activities
approximated $3.4 million. Investing activities consisted of cash provided by loan payoffs of
approximately $10.3 million, new investments in mortgage loans of approximately $16.5 million, and
proceeds from the sale of real estate held for sale of approximately $8.2 million. Financing
activities consisted of members redemptions in the amount of $6.6 million and distributions of
$2.1 million (net of reinvestments). At March 31, 2005, we had $6,500,000 in cash, $300,000 in certificates of deposit, and $88,900,000
in total assets. It appears 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. As of March 31, 2005, members holding approximately 20% of our outstanding units have elected to
reinvest their distributions. We no longer accept new investments. Only members who have
previously reinvested their distributions are permitted to reinvest. 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 of their income. As of March 31, 2005, we have commenced a judicial foreclosure on a loan secured by 4 cemeteries and 8 mortuaries in Hawaii. The aggregate amount of the loan is approximately $32 million, of which our balance totals
$4,138,662. Of the 4 lenders included in this loan, 1 lender has priority over the remaining 3 lenders in the
approximate amount of $14 million pursuant to an Inter-creditor Agreement. Accordingly, our total exposure on this
loan is approximately $18.1 million. In exchange for expediting the foreclosure process, the lenders jointly agreed
to release the guarantors from their guaranty of the loan. We anticipate obtaining title to the underlying property
during 2005. The cemeteries and mortuaries are operating businesses and, after obtaining title and pending
disposition of these properties we expect 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. Our Manager evaluated the underlying collateral and determined it was sufficient to protect us against
losses of principal and interest. Our Manager will continue to evaluate this loan in order to determine if any
allowance for the loan should be recorded. 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 our Operating Agreement and Internal Revenue Code, we may
redeem no more than 10% of the members capital in any calendar year. As of March 31, 2005, the
total of redemptions made from inception was $37.0 million. Balances 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 March 31, 2005, remaining requests to redeem approximately $2.3 million in 2005, $7.4
million in 2006, $6.6 million in 2007, $6.0 million in 2008, $5.4 million in 2009, $4.8 million in
2010, $4.3 million in 2011, $3.9 million in 2012, $3.5 million in 2013, $3.2 million in 2014, $2.8
million in 2015, and $2.6 million in 2016 had been logged, subject to unit valuation adjustments.
Our Manager is currently evaluating a plan to convert Vestin Fund I into a Real Estate Investment 22




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##### Table of Contents



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, filing of a proxy and registration
statement with the SEC, 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. Loans in which third party investors have participated through inter-creditor agreements
(Inter-creditor 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 Inter-creditor Agreements provide us additional funding sources for mortgage
loans whereby a third party investor (the Investor) may participate 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 Intercreditor 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
Lenders being repaid. Mortgage loan financing under the participation agreements are also
accounted for as a secured borrowing in accordance with SFAS No. 140. As of March 31, 2005, funds being used under intercreditor and participation agreements where we
have potential obligations as defined above, totaled $10,100,000 compared to $15,100,000 at March
31, 2004. 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. 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
$8,000,000 and $8,100,000, respectively, as of March 31, 2005 compared to $7,000,000 and
$25,200,000 as of March 31, 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. 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. 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. The following summarizes our contractual obligations as of March 31, 2005. Payment due by periodLess than 1
    
    
    
    
    
    
    
    
    
    
    
    
    
    More thanContractual Obligation
    
    
    Total
    
    
    
    year
    
    
    
    1-3 years
    
    
    
    3-5 years
    
    
    
    5 yearsSecured borrowings
    
    
    $
    10,148,000
    
    
    
    $
    10,148,000
    
    
    
    $
    
    
    
    
    $
    
    
    
    
    $
    
 23




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RELATED PARTY TRANSACTIONS For the three and six months ended March 31, 2005, we recorded management fees to our Manager of
approximately $69,000 and $132,000, respectively compared to $64,000 and $128,000 for same periods
in prior year. Additionally, for the three and six months ended March 31, 2005, we recorded pro
rata distributions owed to our Manager of approximately $15,000 and $30,000 respectively, compared
to $13,000 and $26,000 for the same periods in prior year based upon the total of 100,000 units
owned by our Manager. During the three months ended
March 31, 2005 we incurred $5,142 for legal fees to a law firm in
which the Secretary of Vestin Group has an equity ownership interest.
No such amounts were incurred during the first three months of the
six months ended March 31, 2005. During the three months ended
March 31, 2005, the Company incurred $37,500 to L.L. Bradford &
Company, LLC, a certified public accounting firm for accounting services and a former director is
an equity owner in that firm. No such amounts were incurred during the first three months of the
six months ended March 31, 2005. As of March 31, 2005 we owed Fund II approximately $1,525,000 primarily related to payments made on
our behalf for the maintenance of real estate owned. As of March 31, 2005, we owed the Manager approximately $908,000 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. From time to time we may acquire or sell investments in mortgage loans from/to the 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 to either free up
capital to make new investments or place excess capital in investments to maximize the use of our
capital. 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 Mortgage 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 mortgage
lenders. This may result in a higher rate of non-performing loans.
    We approve mortgage loans more quickly than other mortgage 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 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 24




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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 interest in mortgage 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 mortgage lenders. We seek 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 us 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 we will earn less (if any) income from such loans,
thereby reducing our earnings. 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 its 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 mortgage loans after market interest rates have increased. Our loan documents may
permit us to raise the interest rate we charge on extended loans anywhere from 3/4% to 3% from the
then-current rate on the loan. This creates three risks for us: (i) There can be no assurance that this permitted rate increase 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 on mortgage loans we place 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 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
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 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
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. In addition, we believe the pending SEC investigation has had an adverse effect upon our
ability to attract borrowers. Effect of Fluctuations in the Economy Our sole business, making loans secured by real estate, is particularly vulnerable to changes in
macroeconomic 25




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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 on 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. 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
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. QUANTITATIVE AND 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 mortgage loans, including those
that are financed under Intercreditor Agreements. At March 31, 2005, our aggregate investment in
mortgage loans was $63,717,054 with a weighted average yield of 10.39%. Loans financed under
Intercreditor Agreements totaled $10,147,880 at March 31, 2005 and are classified as assets under
secured borrowings. Such financing is at a weighted average interest rate of 12.06%. These
mortgage loans mature within the next 12 months. Most of the mortgage loans have a term of 12
months. The weighted average term of outstanding loans at March 31, 2005 has increased to 19 months
due to a loan totaling $7.9 million having a contractual term of 30 months. All of the outstanding
mortgage loans at March 31, 2005 are fixed rate loans. All of the mortgage loans are held for
investment purposes and are intended to be held to their maturity date. None of the mortgage loans
have prepayment penalties. Market fluctuations in interest rates generally do not affect the carrying value of our investment
in mortgage 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 mortgage 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. As of March 31, 2005, we had cash and investments in certificates of deposit and other short-term
deposit accounts totaling $6,800,000. 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 mortgage
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. CONTROLS AND PROCEDURES. Disclosure Controls and Procedures 26




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Our company is in the process of conducting its evaluation, under the supervision and with the
participation of our companys Chief Executive Officer and Chief Financial Officer, of 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 March 31, 2005. Based on preliminary results to date, the 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
March 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. Management conducted an evaluation of the effectiveness of internal control over financial
reporting based on various resources including the framework in Internal ControlIntegrated
Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on
this evaluation, management concluded that our companys internal control over financial reporting
was not effective as of March 31, 2005. Management identified internal control deficiencies that
represented material weaknesses in internal control over the financial statement close process. The
control deficiencies generally related to our companys limited resources and internal level of
technical accounting and reporting expertise. These material weaknesses affects our ability to
prepare and properly review interim and annual consolidated financial statements and accompanying
footnote disclosures in accordance with generally accepted accounting principles and the rules and
regulations of the Securities and Exchange Commission. As we have not completed the testing and evaluation of our internal control over financial
reporting, it is possible that additional deficiencies could be determined to be individually or in
aggregate a material weakness. A material weakness in internal controls is a significant deficiency, or combination of significant
deficiencies, that results in more than a remote likelihood that a material misstatement of the
financial statements would not be prevented or detected on a timely basis by our company. Changes in Internal Control Over Financial Reporting In order to address and correct the deficiencies identified above, managements corrective actions
include: 1) Pursue and hire the appropriate amount of highly qualified personnel to perform the
internal function of the preparation and review of our interim and annual reports, 2) increase
training and strengthen the expertise in accounting, internal controls over financial reporting for
employees in critical accounting and financial reporting positions, and 3) where appropriate,
replacing and/or adding experienced personnel to our accounting and financial reporting functions
to review and monitor transactions, accounting processes and control activities more effectively. While we are recruiting experienced, skilled finance professionals, we cannot anticipate when our
staffing initiative will be completed and therefore cannot anticipate when the material weaknesses
relating to our financial close process will be remediated. 27




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Except for the material weaknesses discussed above, no changes in our internal control over
financial reporting have occurred that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting. 28




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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 us, Vestin Group, Fund II and Vestin
Fund III, LLC. We have fully cooperated during the course of the informal inquiry. On January 6,
2005, we received from the SEC an Order Directing Private Investigation and Designating Officers
to Take Testimony which appears to focus upon the financial reporting of us, Fund II and Fund III.
We intend to continue to cooperate fully in this matter and believe that we have complied with SEC
disclosure requirements. We cannot at this time predict the outcome of this matter. 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. CHANGES IN SECURITIES AND USE OF PROCEEDS During the three months ended March 31, 2005 Members redeemed $5,832,191 in membership units. 
 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 quarter ended March 31, 2005. 
 ITEM 5. OTHER INFORMATION None. 
 ITEM 6. EXHIBITS Exhibits 3.1(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 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 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. 29




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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/ John AlderferJohn Alderfer(Chief Financial Officer of the Managerand Duly Authorized Officer)
 Dated: May 10, 2005 30




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VESTIN FUND I, LLC A Nevada Limited Liability Company 
 INDEX TO EXHIBITS Exhibit
    
    Description of ExhibitsNo.3.1(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 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 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. 31