##### Table of Contents



U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
 FORM 10-Q (MARK ONE) x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004 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
(State or Other Jurisdiction of
Incorporation or Organization)
    
    88-0446244
(I.R.S. Employer
Identification No.)
 2901 EL CAMINO AVENUE, SUITE 206, LAS VEGAS, NEVADA 89102
(Address of Principal Executive Offices) (Zip Code) Registrants Telephone Number: 702.227.0965 Indicate by check whether the registrant: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No o As of March 31, 2004, the Issuer had 8,594,015 of its Units outstanding. Indicate by check whether the registrant is an accelerated filer (as defined in
Rule 12b-2 of the Exchange Act.) Yes x No o




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TABLE OF CONTENTS PAGEPART I FINANCIAL INFORMATIONItem 1. Financial StatementsBalance sheets as of March 31, 2004 (unaudited), and September 30, 2003
    
    
    3Statements of income for the three and six months ended March 31, 2004 and 2003 (unaudited)
    
    
    4Statement of members equity for the six months ended March 31, 2004 (unaudited)
    
    
    5Statements of cash flows for the six months ended March 31, 2004 and 2003 (unaudited)
    
    
    6Condensed
Notes to financial statements (unaudited)
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    23Item 4. Controls and Procedures
    
    
    25PART II OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    26Item 2. Changes in Securities and Use of Proceeds
    
    
    26Item 3. Defaults Upon Senior Securities
    
    
    26Item 4. Submission of Matters to a Vote of Security Holders
    
    
    26Item 5.
Other Information
    
    
    24Item 6. Exhibits and Reports on Form 8-K
    
    
    26SIGNATURES
    
    
    28EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32
  2




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Vestin Fund I, LLC 
 BALANCE SHEETS MARCH 31, 2004
    
    SEPTEMBER 30, 2003(UNAUDITED)ASSETSCash
    
    $
    14,246,410
    
    
    $
    13,707,547Certificates of deposit
    
    
    1,009,711
    
    
    
    1,175,000Interest and other receivables
    
    
    1,322,088
    
    
    
    1,632,327Real estate held for sale
    
    
    28,548,915
    
    
    
    26,523,340Investment in mortgage loans, net of allowance for loan losses
of $600,000 and $500,000 at March 31, 2004, and
September 30, 2003, respectively
    
    
    48,777,875
    
    
    
    51,694,617Assets under secured borrowings
    
    
    15,076,160
    
    
    
    20,323,719Prepaid expenses
    
    
    7,650
    
    
    
    7,650$
    108,988,808
    
    
    $
    115,064,200LIABILITIES AND MEMBERS EQUITYLiabilitiesAccounts payable
    
    $
    17,198
    
    
    $
    22,955Due to Manager
    
    
    365,358
    
    
    
    361,607Due to Vestin Group, Inc.
    
    
    194,951
    
    
    
    131,560Due to Vestin Fund II, LLC
    
    
    1,283,935
    
    
    
    947,863Note payable
    
    
    2,000,000
    
    
    
    2,000,000Note payable to Vestin Fund II, LLC
    
    
    4,278,322
    
    
    
    4,733,311Secured borrowings
    
    
    15,076,160
    
    
    
    20,323,719Deferred income
    
    
    122,488
    
    
    
    28,117Total liabilities
    
    
    23,338,411
    
    
    
    28,549,132Members equity - authorized 10,000,000 units, 8,594,016 units
issued at $10 per unit and outstanding at March 31, 2004,
at $9.96 per unit and 9,124,566 units issued and outstanding
at $10 per unit at September 30, 2003
    
    
    85,650,398
    
    
    
    86,515,068Total members equity
    
    
    85,650,398
    
    
    
    86,515,068Total liabilities and members equity
    
    $
    108,988,808
    
    
    $
    115,064,200
 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
    
    FOR THE
    
    FOR THE
    
    FOR THETHREE MONTHS
    
    THREE MONTHS
    
    SIX MONTHS
    
    SIX MONTHSENDED
    
    ENDED
    
    ENDED
    
    ENDEDMARCH 31, 2004
    
    MARCH 31, 2003
    
    MARCH 31, 2004
    
    MARCH 31, 2003RevenuesInterest income from investment in
mortgage loans
    
    $
    2,137,083
    
    
    $
    2,475,401
    
    
    $
    3,955,973
    
    
    $
    4,991,929Revenue related to sale of real estate
    
    
    4,666,667
    
    
    
    
    
    
    
    4,666,667
    
    
    
    Other income
    
    
    27,573
    
    
    
    36,743
    
    
    
    256,831
    
    
    
    176,462Total revenues
    
    
    6,831,323
    
    
    
    2,512,144
    
    
    
    8,879,471
    
    
    
    5,168,391Operating expensesManagement fees to Manager
    
    
    63,796
    
    
    
    62,852
    
    
    
    127,592
    
    
    
    125,508Provision for loan losses
    
    
    
    
    
    
    100,000
    
    
    
    100,000
    
    
    
    200,000Interest expense
    
    
    534,608
    
    
    
    181,911
    
    
    
    1,029,680
    
    
    
    358,214Valuation allowances on real estate held for sale
    
    
    
    
    
    
    
    
    
    
    521,378
    
    
    
    Expenses related to real estate held for sale
    
    
    198,778
    
    
    
    
    
    
    
    256,503
    
    
    
    Legal expenses
    
    
    55,649
    
    
    
    
    
    
    
    76,865
    
    
    
    Other
    
    
    101,095
    
    
    
    50,809
    
    
    
    102,450
    
    
    
    80,894Total operating expenses
    
    
    953,926
    
    
    
    395,572
    
    
    
    2,214,467
    
    
    
    764,616NET INCOME
    
    $
    5,877,397
    
    
    $
    2,116,572
    
    
    $
    6,665,004
    
    
    $
    4,403,775Net income allocated to members
    
    $
    5,877,397
    
    
    $
    2,116,572
    
    
    $
    6,665,004
    
    
    $
    4,403,775Net income allocated to members per
weighted average membership units
    
    $
    0.68
    
    
    $
    0.22
    
    
    $
    0.75
    
    
    $
    0.45Weighted average membership units
    
    
    8,664,702
    
    
    
    9,838,467
    
    
    
    8,888,926
    
    
    
    9,879,811
 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, 2004 (unaudited) Units
    
    AmountMembers equity at September 30, 2003
    
    
    9,124,566
    
    
    $
    86,515,068Distributions
    
    
    
    
    
    
    (2,460,298
    )Reinvestments of distributions
    
    
    45,367
    
    
    
    453,666Members withdrawals
    
    
    (575,917
    )
    
    
    (5,523,042
    )Net income
    
    
    
    
    
    
    6,665,004Members equity at March 31, 2004
    
    
    8,594,016
    
    
    $
    85,650,398
 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
    
    FOR THE SIXMONTHS ENDED
    
    MONTHS ENDEDMARCH 31, 2004
    
    MARCH 31, 2003Cash flows from operating activities:Net income
    
    $
    6,665,004
    
    
    $
    4,403,775Adjustments to reconcile net income to net
cash provided by operating activities:Valuation allowances on real estate held for sale
    
    
    521,378
    
    
    
    Provision for loan losses
    
    
    100,000
    
    
    
    200,000Change in operating assets and liabilities:Interest and other receivables
    
    
    310,239
    
    
    
    157,910Deferred bond offering costs
    
    
    
    
    
    
    (32,312
    )Due to Manager
    
    
    (27,280
    )
    
    
    (56,637
    )Due to Vestin Group, Inc.
    
    
    63,391
    
    
    
    Due to Vestin Fund II, LLC
    
    
    336,072
    
    
    
    99,370Accounts payable
    
    
    (5,757
    )
    
    
    16,666Deferred income
    
    
    94,371
    
    
    
    Net cash provided by operating activities
    
    
    8,057,417
    
    
    
    4,788,772Cash flows from investing activities:Investments in mortgage loans on real estate
    
    
    (24,405,404
    )
    
    
    (21,327,843
    )Purchase of investments in mortgage loans from:Vestin Fund II, LLC
    
    
    
    
    
    
    (12,575,000
    )Vestin Group, Inc.
    
    
    
    
    
    
    (3,700,000
    )Other related party
    
    
    (350,000
    )
    
    
    (295,000
    )Private investor
    
    
    (1,498,464
    )
    
    
    (230,403
    )Proceeds received from sale of mortgage loans to:Vestin Fund II, LLC
    
    
    
    
    
    
    13,300,263Vestin Group, Inc.
    
    
    
    
    
    
    4,500,000Other related party
    
    
    
    
    
    
    290,938Proceeds from loan payoff
    
    
    27,629,367
    
    
    
    19,401,659Proceeds from sale of investment in real estate
held for sale from Manager
    
    
    
    
    
    
    1,100,000Cash outlays for real estate held for sale
    
    
    (1,529,668
    )
    
    
    Proceeds from certificates of deposit
    
    
    165,289
    
    
    
    950,000Net cash provided by investing activities
    
    
    11,120
    
    
    
    1,414,614Cash flows from financing activities:Members distributions, net of reinvestments
    
    
    (2,006,632
    )
    
    
    (4,453,654
    )Members withdrawals
    
    
    (5,523,042
    )
    
    
    (3,379,324
    )Net cash used in financing activities
    
    
    (7,529,674
    )
    
    
    (7,832,978
    )NET CHANGE IN CASH
    
    
    538,863
    
    
    
    (1,629,592
    )Cash, beginning of period
    
    
    13,707,547
    
    
    
    2,762,334Cash, ending of period
    
    $
    14,246,410
    
    
    $
    1,132,742Supplemental disclosures of cash flows information:Non-cash investing and financing activities:Change in loans funded through secured borrowing
    
    $
    5,247,559
    
    
    $
    4,507,009Real estate held for sale acquired through foreclosure
    
    $
    2,251,031
    
    
    $
    19,930,526Reduction in Note Payable to Vestin Fund II, LLC due to
valuation allowance on real estate held for sale
    
    $
    454,989
    
    
    $
    Investment in mortgage loans on real estate acquired for
investments in real estate held for sale
    
    $
    
    
    
    $
    478,829Note receivable related to capital contribution by Manager
    
    $
    
    
    
    $
    723,763In substance payoff of payable to Manager related to
capital contribution by Manager
    
    $
    
    
    
    $
    876,237Sale of rights to receive proceeds of guarantee
    
    $
    
    
    
    $
    3,084,000
 The accompanying notes are an integral part of these statements. 6




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VESTIN FUND I, LLC 
 CONDENSED NOTES TO FINANCIAL STATEMENTS MARCH 31, 2004 (Unaudited) NOTE A  ORGANIZATION Vestin
Fund I, LLC, a Nevada limited liability company (the Company), is
primarily engaged in the business of mortgage lending, where collateral is real
property. The Company invests in loans secured by real estate through deeds of
trust and mortgages. The Company was organized in December 1999 and will
continue until December 31, 2019 unless dissolved prior thereto or extended by
vote of the members under the provisions of the Companys operating agreement.
As a company investing in mortgage loans and raising funds through a public
offering, the Company is subject to the North American Securities
Administration Act Mortgage Program Guidelines (the NASAA Guidelines)
promulgated by the state securities administrators. The manager of the Company is Vestin Mortgage, Inc. (the Manager), a Nevada
corporation engaged in the business of brokerage, placement and servicing of
commercial loans secured by real property. The Manager is a wholly owned
subsidiary of Vestin Group, Inc. (Vestin Group), a Delaware corporation,
whose common stock is publicly held and traded on the Nasdaq National Market
under the symbol VSTN. Vestin Group has received notice from Nasdaq that it
no longer meets the minimum value of publicly held shares and shareholders
equity required for its inclusion on the Nasdaq National Market. Vestin Group
has applied for transfer to the Nasdaq Small Cap Market. Through its
subsidiaries, Vestin Group is engaged in asset management, real estate lending
and other financial services and has originated over $1.7 billion in real
estate loans. The operating agreement provides that the Manager controls the
daily operating activities of the Company; including the power to assign
duties, to determine how to invest the Companys assets, to sign bills of sale,
title documents, leases, notes, security agreements, mortgage investments and
contracts, and to assume direction of the business operations. As a result,
the operating results of the Company are dependent on the Managers ability and
intent to continue to service the Companys assets. The operating agreement
also provides that the members have certain rights, including the right to
terminate the Manager subject to a majority vote of the members. Vestin Mortgage, Inc. is also the manager of Vestin Fund II, LLC, (Fund II),
Vestin Fund III, LLC (Fund III) and inVestin Nevada, Inc., entities in the
similar business as the Company. The financial statements have been prepared in accordance with Securities and
Exchange Commission requirements for interim financial statements. Therefore,
they do not include all of the information and footnotes required by accounting
principles generally accepted in the United States for complete financial
statements. The financial statements should be read in conjunction with the
financial statements and notes thereto contained in the Companys annual report
on Form 10-K for the year ended September 30, 2003. The results of operations
for the interim periods shown in this report are not necessarily indicative of
results to be expected for the full year. In the opinion of management, the
information contained herein reflects all adjustments necessary to make the
results of operations for the interim periods a fair statement of such
operation. All such adjustments are of a normal recurring nature. 7




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NOTE B  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 1. MANAGEMENT ESTIMATES The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America (GAAP) requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Balances subject to significant
estimate include allowance for loan losses and valuation of real estate held
for sale. Actual results could differ from those estimates. 2. INVESTMENTS IN MORTGAGE LOANS Investments in mortgage loans are secured by trust deeds and mortgages.
Generally, all of the Companys mortgage loans require interest only payments
with a balloon payment of the principal at maturity. The Company has both the
intent and ability to hold mortgage loans until maturity and therefore,
mortgage loans are classified and accounted for as held for investment and are
carried at amortized cost. Loans sold to or purchased from affiliates are
accounted for at the principal balance and no gain or loss is recognized by the
Company or any affiliate. Loan-to-value ratios are based on appraisals
obtained at the time of loan origination and may not reflect subsequent changes
in value estimates. Such appraisals, which may be commissioned by the
borrower, are generally dated within 12 months of the date of loan origination.
The appraisals may be for the current estimate of the as-if developed value
of the property, which approximates the post-construction value of the
collateralized property assuming that such property is developed. As-if
developed values on raw land loans or acquisition and development loans often
dramatically exceed the immediate sales value and may include anticipated
zoning changes and timely successful development by the purchaser. As most of
the appraisals will be prepared on an as-if developed basis, if a loan goes
into default prior to any development of a project, the market value of the
property may be substantially less than the appraised value. As a result,
there may be less security than anticipated at the time the loan was originally
made. If there is less security and a default occurs, the Company may not
recover the full amount of the loan. 3. ALLOWANCE FOR LOAN LOSSES The Company maintains an allowance for loan losses on its investment in
mortgage loans for estimated credit losses in the Companys investment in
mortgage loans portfolio. The Managers estimate of losses is based on a number
of factors including the types and dollar amounts of loans in the portfolio,
adverse situations that may affect the borrowers ability to repay, prevailing
economic conditions and the underlying collateral securing the loan. Additions
to the allowance are provided through a charge to earnings and are based on an
assessment of certain factors which may indicate estimated losses on the loans.
Actual losses on loans are recorded as a charge-off or a reduction to the
allowance for loan losses. Subsequent recoveries of amounts previously charged
off are added back to the allowance. 4. REAL ESTATE HELD FOR SALE Real estate held for sale includes real estate acquired through foreclosure and
is carried at the lower of the recorded amount, inclusive of any senior
indebtedness, or the propertys estimated fair value, less estimated costs to
sell. 8




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5. SECURED BORROWINGS As of March 31, 2004, the Company had secured borrowings of $15.1 million
related to intercreditor and participation agreements with various loan
participants (Investors). Pursuant to the intercreditor agreement, the
Investor may participate in certain loans with Vestin Mortgage, Vestin Fund II,
Vestin Fund III and the Company (collectively, the Lead Lenders). In the
event of borrower non-performance, the intercreditor agreements gives the Lead
Lenders the right to either (i) continue to remit to the investor the interest
due on the participation amount; (ii) substitute an alternative loan acceptable
to the investor; or (iii) repurchase the participation from the investor for
the outstanding balance of the participation plus accrued interest.
Consequently, mortgage loan financing under the intercreditor agreements are
accounted for as a secured borrowing in accordance with SFAS No. 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities. Pursuant to the participation agreements, the Investor may participate in
certain loans with the Lead
Lenders. In the event of borrower non-performance, the participation
agreements may give the participant the right to require substitution of its
interest with another loan, or, if the right of substitution is not exercised
and the participant holds more than 50% of the loan, the participant may
request that the Lead Lender purchase a portion so that the Lead Lender has at
least a 50% pro rata share of the non-performing loan. Consequently, mortgage
loan financing under the participation arrangement is accounted for as a
secured borrowing in accordance with SFAS No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities. NOTE C  INVESTMENTS IN MORTGAGE LOANS Investments in mortgage loans as of March 31, 2004 are as follows: Number
    
    
    
    
    
    WeightedLoan
    
    Of
    
    
    
    
    
    Average
    
    Portfolio
    
    LoanType
    
    Loans
    
    Balance
    
    Interest Rate
    
    Percentage
    
    To Value*Acquisition and development
    
    
    7
    
    
    $
    8,478,778
    
    
    
    11.55
    %
    
    
    22.18
    %
    
    
    61.93
    %Bridge
    
    
    24
    
    
    
    17,607,294
    
    
    
    11.25
    %
    
    
    33.36
    %
    
    
    65.15
    %Commercial
    
    
    12
    
    
    
    13,203,342
    
    
    
    12.15
    %
    
    
    25.34
    %
    
    
    34.04
    %Construction
    
    
    4
    
    
    
    8,531,355
    
    
    
    13.65
    %
    
    
    16.17
    %
    
    
    51.38
    %Land
    
    
    3
    
    
    
    1,557,106
    
    
    
    12.20
    %
    
    
    2.95
    %
    
    
    53.57
    %50
    
    
    $
    49,377,875
    
    
    
    11.67
    %
    
    
    100.00
    %
    
    
    62.04
    %
 Investment in mortgage loans as of September 30, 2003 are as follows: Number
    
    
    
    
    
    WeightedLoan
    
    of
    
    
    
    
    
    Average
    
    Portfolio
    
    LoanType
    
    Loans
    
    Balance
    
    Interest Rate
    
    Percentage
    
    To Value*Acquisition and development
    
    
    4
    
    
    $
    7,430,353
    
    
    
    13.70
    %
    
    
    14.24
    %
    
    
    46.46
    %Bridge
    
    
    7
    
    
    
    8,035,547
    
    
    
    12.14
    %
    
    
    15.40
    %
    
    
    60.50
    %Commercial
    
    
    22
    
    
    
    23,210,297
    
    
    
    11.82
    %
    
    
    44.47
    %
    
    
    67.52
    %Construction
    
    
    6
    
    
    
    11,510,498
    
    
    
    12.66
    %
    
    
    22.05
    %
    
    
    56.77
    %Land
    
    
    5
    
    
    
    1,839,922
    
    
    
    11.84
    %
    
    
    3.52
    %
    
    
    53.62
    %Residential
    
    
    1
    
    
    
    168,000
    
    
    
    12.50
    %
    
    
    0.32
    %
    
    
    70.00
    %45
    
    
    $
    52,194,617
    
    
    
    12.32
    %
    
    
    100.00
    %
    
    
    60.59
    %
 9




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*Loan to value ratios are based on appraisals obtained at the time of loan
origination and may not reflect subsequent changes in value estimates. Such
appraisals, which may be commissioned by the borrower, are generally dated no
greater than 12 months prior to the date of loan origination. The appraisals
may be for the current estimate of the as-if developed value of the property,
which approximates the post-construction value of the collateralized property
assuming that such property is developed. As-if developed values on raw land
loans or acquisition and development loans often dramatically exceed the
immediate sales value and may include anticipated zoning changes, selection by
a purchaser against multiple alternatives, and successful development by the
purchaser; upon which development is dependent on availability of financing.
As most of the appraisals will be prepared on an as-if developed basis, if a
loan goes into default prior to any development of a project, the market value
of the property may be substantially less than the appraised value. As a
result, there may be less security than anticipated at the time the loan was
originally made. If there is less security and a default occurs, the Company
may not recover the full amount of the loan. March 31, 2004
    
    Portfolio
    
    September 30, 2003
    
    PortfolioLoan Type
    
    Balance
    
    Percentage
    
    Balance
    
    PercentageFirst mortgages
    
    $
    48,716,691
    
    
    
    98.75
    %
    
    $
    52,194,617
    
    
    
    100.00
    %Second mortgages
    
    
    661,184
    
    
    
    1.25
    %
    
    
    
    
    
    
    0.00
    %$
    49,377,875
    
    
    
    100.00
    %
    
    $
    52,194,617
    
    
    
    100.00
    %
 The following is a schedule of contractual maturities of investments in
mortgage loans as of March 31, 2004: 2004
    
    $
    30,458,4922005
    
    
    18,853,0082006
    
    
    66,375$
    49,377,875
 The following is a schedule by geographic location of investments in mortgage
loans as of: September 30,March 31, 2004
    
    Portfolio
    
    2003
    
    PortfolioBalance
    
    Percentage
    
    Balance
    
    PercentageArizona
    
    $
    6,285,812
    
    
    
    11.91
    %
    
    $
    4,887,202
    
    
    
    9.36
    %California
    
    
    9,550,800
    
    
    
    18.10
    %
    
    
    5,751,298
    
    
    
    11.02
    %Colorado
    
    
    3,000,000
    
    
    
    5.68
    %
    
    
    163,333
    
    
    
    0.31
    %Florida
    
    
    115,450
    
    
    
    0.22
    %
    
    
    115,450
    
    
    
    0.22
    %Hawaii
    
    
    6,368,014
    
    
    
    12.07
    %
    
    
    10,992,254
    
    
    
    21.06
    %Nevada
    
    
    17,912,497
    
    
    
    33.94
    %
    
    
    17,691,975
    
    
    
    33.90
    %New Mexico
    
    
    
    
    
    
    
    %
    
    
    168,000
    
    
    
    0.32
    %New York
    
    
    3,320,000
    
    
    
    6.29
    %
    
    
    2,000,000
    
    
    
    3.83
    %North Carolina
    
    
    89,942
    
    
    
    0.17
    %
    
    
    
    
    
    
    
    %Ohio
    
    
    
    
    
    
    
    %
    
    
    400,000
    
    
    
    0.77
    %Texas
    
    
    3,491,887
    
    
    
    6.62
    %
    
    
    6,080,095
    
    
    
    11.65
    %Utah
    
    
    2,065,363
    
    
    
    3.91
    %
    
    
    3,369,010
    
    
    
    6.46
    %Washington
    
    
    576,000
    
    
    
    1.09
    %
    
    
    576,000
    
    
    
    1.10
    %$
    52,775,765
    
    
    
    100.00
    %
    
    $
    52,194,617
    
    
    
    100.00
    %
 The Company has six mortgage loan products consisting of bridge, commercial,
construction, acquisition and development, land, and residential loans. The
effective interest rates on all product categories range from 5.5% to 14.5%.
Revenue by product will fluctuate based upon relative balances during the
period. 10




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##### Table of Contents



At March 31, 2004, four of the Companys loans totaling $7.0 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. The
Company has commenced foreclosure proceedings on these loans. The Companys
Manager evaluated all of these loans and concluded that the underlying
collateral is sufficient to protect the Company against a loss of principal or
interest. Accordingly, no specific allowance for loan losses was deemed
necessary for these loans except as noted below. As of March 31, 2004, the Companys Manager had granted extensions on 14 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. The
aggregate amount due to the Company from borrowers whose loans had been
extended as of March 31, 2004 was approximately $13.5 million. The Companys
Manager concluded that no allowance for loan loss was necessary with respect to
these loans as of that date. The Companys Manager has evaluated the collectibility of the loans in light of
the types and dollar amounts of loans in the portfolio, adverse situations that
may affect the borrowers ability to repay, prevailing economic conditions and
the underlying collateral securing the loan. The Companys Manager believes
that the allowance for loan losses totaling $600,000 included in the
accompanying balance sheet as of March 31, 2004 is adequate to address
estimated credit losses in the Companys investment in mortgage loan portfolio
as of that date. Decisions regarding an allowance for loan losses require managements judgment.
As a result, there is an inherent risk that such judgment will prove incorrect.
In such event, actual losses may exceed (or be less than) the amount of any
allowance. To the extent that the Company experiences losses greater than the
amount of its allowance, the Company may incur a charge to its earnings that
will adversely affect its operating results and the amount of any distributions
payable to its members. On June 25, 2003, the Companys Manager restructured a $15.2 million note due
on August 19, 2003 as a new note with the interest rate reduced from 11.0% to
5.5%. The Companys investment in this loan was approximately $1.5 million as
of March 31, 2004. No specific reserve has been provided for this loan based
on managements estimate of the underlying collateral value. The new loan has
a term of 24 months. Interest income not recognized during the period as a
result of the restructure was $20,430. NOTE D  RELATED PARTY TRANSACTIONS For the three months ended March 31, 2004, the Company recorded management fees
to the Companys Manager of approximately $64,000, compared to $63,000 for the
same period in 2003. Additionally, for the three months ended March 31, 2004,
the Company recorded pro rata distributions owed to the Companys Manager of
approximately $13,000 based upon the total of 100,000 units owned by the
Companys Manager. During the six months ended March 31, 2003, the Company purchased a mortgage
loan in the amount of $350,000 from a related party wholly-owned by Vestin
Group, Inc.s Chief Executive Officer. NOTE E  REAL ESTATE HELD FOR SALE At March 31, 2004, the Company
held seven properties with a
total carrying value of $25.2
million, which were acquired
through foreclosure and recorded
as investments in real estate
held for sale. During the six
months ended March 31, 2004, the
Company recorded valuation
losses of $0.5 million related
to these properties. The
Company may share ownership of
such properties with Fund II,
the Manager, or other unrelated
parties. The summary below
includes the Companys
percentage ownership in each
property. These investments in
real estate held for sale are
accounted for at the lower of
cost or fair value less costs to
sell with fair value based on
appraisals and knowledge of
local market conditions. It is
not the Companys intent to
invest in or own real estate as
a long-term investment. The
Company seeks to sell properties
acquired through foreclosure as
quickly as circumstances permit.
The following is a rollforward
of investments in real estate
held for sale for the three
months ended March 31,
2004: 11




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##### Table of Contents



Percentage
    
    Balance at
    
    
    
    
    
    
    
    
    
    Reduction in
    
    
    
    
    
    Balance atof
    
    January 1,
    
    
    
    
    
    
    
    
    
    Note Payable
    
    
    
    
    
    March 31,Description
    
    Ownership
    
    2004
    
    Acquisitions
    
    Sales
    
     Fund II
    
    Other
    
    2004Custom residential property
located in Santa Fe, New Mexico
    
    
    93
    %
    
    $
    1,052,263
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    1,052,26340 acres of land containing 354
residential lots in Henderson,
Nevada
    
    
    66
    %
    
    
    6,917,600
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,917,600An approximate 200-unit
apartment complex located in Las
Vegas, Nevada
    
    
    2
    %
    
    
    170,566
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    170,566An uncompleted 162-bed assisted
living facility in Las Vegas,
Nevada
    
    
    100
    %
    
    
    11,700,403
    
    
    
    1,165,154
    
    
    
    
    
    
    
    (454,989
    )
    
    
    
    
    
    
    12,410,568A 30-unit apartment complex in
Las Vegas, Nevada
    
    
    17
    %
    
    
    215,431
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    215,431An uncompleted golf course in
Mesquite, Nevada
    
    
    64
    %
    
    
    2,171,812
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (422,187
    )
    
    
    1,749,62565 acres of raw land in
Mesquite, Nevada
    
    
    58
    %
    
    
    2,796,137
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (95,643
    )
    
    
    2,700,494Hotel/Casino in Las Vegas, Nevada
    
    
    10
    %
    
    
    
    
    
    
    2,251,032
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,251,032Raw land in Mesquite, Nevada
    
    
    59
    %
    
    
    1,342,263
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (260,927
    )
    
    
    1,081,336Total
    
    
    
    
    
    $
    26,366,475
    
    
    $
    3,416,186
    
    
    $
    
    
    
    $
    (454,989
    )
    
    $
    (778,757
    )
    
    $
    28,548,915
  This schedule includes properties that have been sold to independent third
parties and the financing has been provided by the Company. GAAP requires the
borrower to have a certain percentage equity ownership (typically 20%) to allow
the Company to record the sale of a property and remove it from inventory. The
following table summarizes such investments in real estate held for sale that
have been sold which the buyer/borrower does not have the required percentage
of equity ownership at March 31, 2004 to record the sale of
property and remove it from inventory: Description
    
    Date Sold
    
    Balance at March 31, 2004An approximate 200-unit
apartment complex located
in Las Vegas, Nevada
    
    October 2003
    
    $
    170,566An uncompleted golf course
in Mesquite, Nevada
    
    August 2003
    
    
    1,749,62537 acres of raw commercial
land in Mesquite, Nevada
    
    August 2003
    
    
    587,649Raw residential land in
Mesquite, Nevada
    
    August 2003
    
    
    1,081,336Total
    
    
    
    
    
    $
    3,589,176
 * Through foreclosure proceedings in November 2002, the Company assumed
ownership an uncompleted golf course and raw land in Mesquite, Nevada as
described above. In June 2003, the Company sold the properties to a third
party. However, the Company financed 100% of the sale. GAAP requires 20% of
the sales price to be funded by the buyer to record a sale. During March 2004,
the Company received a payoff of $778,757 on its loan to the borrower. Since
the payoff came in the form of a refinancing by the borrower and no further
cash equity was injected, the Company did not record the entire sale, only that
portion that relates to the loan payoff. During February 2004, the Company foreclosed on two loans and took title to the
collateral which consists of a hotel/casino on approximately 25 acres of land.
No specific reserve was provided upon foreclosure based on the estimated
underlying collateral value. 12




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##### Table of Contents



NOTE F  SECURED BORROWINGS As of March 31, 2004, the Company had $15.1 million in secured borrowings
pursuant to intercreditor and certain participation agreements with the related
amounts included in assets under secured borrowings. For the three-month
periods ended March 31, 2004 and 2003, the Company recorded interest expense of
approximately $535,000 and $182,000, respectively, related to the secured
borrowings. NOTE G  NOTE RECEIVABLE The Company received a promissory note from an unaffiliated party in the amount
of $4.7 million in connection with the sale of real estate. The note reflected
a finders fee by the Company; the Company did not loan any money to the
unaffiliated party with respect to the $4.7 million. The note required monthly
interest payments at a rate of 8.5% per annum and was payable in full on June
13, 2005. The Company loaned $0.9 million to the unaffiliated party and
received a mortgage note due June 13, 2004 in connection with the sale of real
estate located in the City of Mesquite, Nevada. The Company was using the cost
recovery method of accounting for the transaction. Accordingly, the Company did
not recognize any income on the $4.7 million note until the principal balances
on both notes were paid in full. Under the cost recovery method, interest
payments received by the Company in excess of the principal balance are not
recorded as income until such time as the note is paid off. In February 2004,
the $4.7 million note was paid off and the Company recorded the $4.7 million as
income related to the original note and $0.3 million in income related to
interest payments received prior to loan payoff. NOTE H  RECENT ACCOUNTING PRONOUNCEMENTS In December 2003, the FASB revised Interpretation No. 46, Consolidation of
Variable Interest Entities (FIN 46). The Company has evaluated its
relationships and interest in entities that might be considered VIEs and
concluded that no prerequisite conditions exist. Accordingly, the adoption of
FIN 46 did not have an effect on the Companys financial statements. NOTE I  LITIGATION INVOLVING THE MANAGER Vestin Group, Vestin Mortgage, and Del Mar Mortgage, Inc., a company wholly
owned by Michael Shustek, the largest shareholder and CEO of Vestin Group are
defendants in a civil action entitled Desert Land, L.L.C. et al. v. Owens
Financial Group, Inc. et al (the Action). The Action was initiated by Desert
Land, L.L.C. (Desert Land) on various loans arranged by Del Mar Mortgage,
Inc. and/or Vestin Mortgage. On April 10, 2003, the United States District
Court for the District of Nevada (the Court) entered judgment jointly and
severally in favor of Desert Land against Vestin Group, Vestin Mortgage and Del
Mar Mortgage, Inc. Judgment was predicated upon the Courts finding that Del
Mar Mortgage, Inc. received an unlawful penalty fee from the plaintiffs. Defendants subsequently filed a motion for reconsideration. The Court denied
the motion and, on August 13, 2003, held that Vestin Group, Vestin Mortgage,
and Del Mar Mortgage, Inc. are jointly and severally liable for the judgment in
the amount of $5,683,312 (which amount includes prejudgment interest and
attorneys fees). On August 27, 2003, the Court stayed execution of the
judgment against Vestin Group and Vestin Mortgage based upon the posting of a
bond in the amount of $5,830,000. The bond was arranged by Michael Shustek and
was posted without any cost or obligation to Vestin Group and Vestin Mortgage.
Additionally, Del Mar Mortgage, Inc. has indemnified Vestin Group and Vestin
Mortgage for any losses and expenses in connection with the Action, and Mr.
Shustek has guaranteed the indemnification. On September 12, 2003, all of the
defendants held liable to Desert Land appealed the judgment to the Ninth
Circuit United States Court of Appeals. The Company is not a party to the
Action. NOTE J  LITIGATION INVOLVING THE COMPANY The staff of the Pacific Regional Office of the Securities and Exchange
Commission (SEC) has been conducting an informal inquiry into certain matters
related to the Company, Vestin Group, Vestin Fund II and Vestin Fund III. The
staff of the SEC has not identified the reasons for its inquiry, which remains
ongoing as of May 17, 2004. The Company believes that it has fully complied
with SEC disclosure requirements and is fully cooperating with the inquiry. The
Company cannot at this time predict the outcome of the inquiry. 13




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##### Table of Contents



The Company is involved in a number of legal proceedings concerning matters
arising in connection with the conduct of their business activities. The
Company believes it has meritorious defenses to each of these actions and
intends to defend them vigorously. The Company believes that it is not a party
to any pending legal or arbitration proceedings that would have a material
adverse effect on the Companys financial condition or results of operations or cash flows, although it is possible that the outcome of any such proceedings
could have a material impact on the Companys net income in any particular
period. NOTE K  REDEMPTION LIMITATION In order to comply with the Companys operating agreement and Internal Revenue
Code, the Company may redeem no more than 10% of the members capital in any
calendar year. As of March 31, 2004, the total redemptions made from inception
was $21.8 million. Beginning capital as of January 1, 2004 was $85.4 million,
which would limit redemptions to $8.5 million for calendar 2004. As of March
31, 2004, remaining requests to redeem approximately $1.8 million in 2004, $5.6
million in 2005, $6.4 million in 2006, $5.7 million in 2007, $3.1 million in
2008, and $0.2 million in 2009 had been logged. The Company does not accept
the maximum amount of redemptions for each year to allow for the redemption of
reinvested distributions as well as those who must take required distributions
from Individual Retirement Accounts in accordance with the Internal Revenue Code. 14




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is a financial review and analysis of the Companys financial
condition and results of operations for the three-month and six-month periods
ended March 31, 2004 and 2003. This discussion should be read in conjunction
with the Companys financial statements and accompanying notes and other
detailed information regarding the Company appearing elsewhere in this Form
10-Q and the Companys report on Form 10-K for the year ended September 30,
2003. BACKGROUND Vestin Fund I, LLC (the Company) was organized in December 1999 as a Nevada
limited liability company for the purpose of investing in mortgage loans
originated by the Companys manager, Vestin Mortgage, Inc. (the
Manager), a
licensed mortgage company in the State of Nevada. Vestin Mortgage is a
wholly-owned subsidiary of Vestin Group, Inc., a Delaware corporation (Vestin
Group), whose common stock is traded on the Nasdaq National Market under the
ticker symbol VSTN. Vestin Group has received notice from Nasdaq that it no
longer meets the minimum value of publicly held shares and shareholders equity
required for its inclusion on the Nasdaq National Market. Vestin Mortgage,
Inc. is also the manager of Vestin Fund II, LLC, (Vestin Fund
II), Vestin Fund
III, LLC and inVestin Nevada, Inc. which are entities in similar businesses to
Vestin Fund I, LLC. The loans are secured by real estate through deeds of
trust and mortgages. OVERVIEW On August 23, 2000, the Companys Registration Statement as filed with the
Securities and Exchange Commission became effective for the initial public
offering of up to 10,000,000 units at $10 per unit (Unit). The Company
commenced operations on September 1, 2000. By June 2001, the Company had sold
all of the 10,000,000 Units offered pursuant to the registration statement.
Members may also participate in the Companys Distribution
Reinvestment Plan
whereby the members distribution may be used to purchase additional Units at
$10.00 per unit. As of March 31, 2004, an additional 710,830 Units have been
purchased under this plan. Additionally, in connection with the Companys
organization, the Company issued 100,000 Units to its Manager for offering
costs paid by them to unrelated third parties on the Companys behalf. Our operating results are affected primarily by (i) the amount of capital we
have to invest in mortgage loans, (ii) the level of real estate lending
activity in the markets we service, (iii) our ability to identify and work with
suitable borrowers, (iv) the interest rates we are able to charge on our loans
and (v) the level of non-performing assets and loan losses which we experience. SUMMARY OF FINANCIAL RESULTS Three months ended March 31,
    
    Six months ended March 31,2004
    
    2003
    
    2004
    
    2003Total revenues
    
    $
    6,831,323
    
    
    $
    2,512,144
    
    
    $
    8,879,471
    
    
    $
    5,168,391Total expenses
    
    
    953,926
    
    
    
    395,572
    
    
    
    2,214,468
    
    
    
    764,616Net income
    
    $
    5,877,397
    
    
    $
    2,116,572
    
    
    $
    6,665,044
    
    
    $
    4,403,775Net income allocated to members per
weighted average membership units
    
    $
    0.68
    
    
    $
    0.22
    
    
    $
    0.75
    
    
    $
    0.45Annualized rate of return to members (a)
    
    
    27.1
    %
    
    
    8.6
    %
    
    
    15.0
    %
    
    
    8.9
    %Weighted average membership units
    
    
    8,664,702
    
    
    
    9,838,467
    
    
    
    8,888,926
    
    
    
    9,879,811
  (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,
2004 and 2003 divided by the number of months during the period and
multiplied by twelve (12) months, then divided by ten (the $10 cost per
unit). 15




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##### Table of Contents



Three and Six Months Ended March 31, 2004 Compared To Three and Six Months
Ended March 31, 2003 Total Revenues.For the three and six months ended March 31, 2004, revenues
totaled $6.8 million and $8.9 million compared to $2.5 million and $5.2 million
for the same period in 2003, an increase of $4.3 million and $3.7 million or 63%
and 41%, respectively. The increase in revenue for the three and six months ended March 31,
2004 compared to the same periods in the prior year was primarily due to the
recognition of $5.0 million in other income related to a promissory note from
an unaffiliated party. The $4.7 million note reflected a finders fee payable
to the Company in connection the real estate held for sale. The Company did not
loan any money to the unaffiliated party with respect to the $4.7 million. The
note required monthly interest payments at a rate of 8.5% per annum and was
payable in full on June 13, 2005. The Company loaned $0.9 million to the
unaffiliated party and received a mortgage note due June 13, 2004 in connection
with the sale of real estate located in the City of Mesquite, Nevada. The
Company was using the cost recovery method of accounting for the transaction.
Accordingly, the Company did not recognize any income on the $4.7 million note
until the principal balances on both notes were paid in full. Under the cost
recovery method, interest payments received by the Company in excess of the
principal balance are not recorded as income until such time as the note is
paid off. In February 2004, the $4.7 million note was paid off and the Company
recorded the $4.7 million as income related to the original note and $0.3
million in income related to interest payments received prior to loan payoff. Total non-performing assets decreased to $32.2 million at March 31, 2004 from
$41.8 million at December 31, 2003. These assets are in the form of
non-performing loans totaling $7.0 million and real estate held for sale
totaling $25.2 million. The amount of non-performing assets may reflect the
continuing weakness in the economy and the risks inherent in the Companys
business strategy which entails more lenient underwriting standards and
expedited loan approval procedures. The Companys revenues will continue to be
impacted until the Company is able to convert these non-performing assets into
interest paying mortgage loans. The Company will attempt to accomplish this by
working with the borrower where possible and by foreclosing on the underlying
property where necessary. The Company intends to sell properties acquired
through foreclosure as soon as practicable, consistent with its objective of
avoiding a loss of principal on its loans. However, the Company cannot predict
how quickly it will be able to sell foreclosed properties. As of March 31, 2004, the Companys Manager had granted extensions on 14 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. The
aggregate amount due to the Company from borrowers whose loans had been
extended as of March 31, 2004 was approximately $13.5 million. The Companys
Manager concluded that no allowance for loan loss was necessary with respect to
these loans as of that date. The U.S. economy has suffered from a mild recession starting in 2001 and the
effects of that recession and the weak recovery have caused a slowdown in the
hard money commercial real estate lending in the markets the Company serves. A
prolonged recession may continue to dampen real estate development activity,
thereby diminishing the market for the Companys loans. In addition, the
overall decline in interest rates may be expected to diminish the interest
rates the Company can charge on its loans. The weighted average interest rate
on the Companys loans at March 31, 2004 was 11.67%, as compared to 12.32% at
September 30, 2003. Total Expenses.For the three months ended March 31, 2004, expenses totaled
$1.0 million compared to $0.4 million for the same period in 2003, an increase
of $0.6 million. For the six months ended March 31, 2004, expenses totaled $2.2
million compared to $0.8 million for the same period in 2003, an increase of
$1.4 million. The increase in total expenses for the three and six months ended
March 31, 2004 is primarily related to higher interest expense of $0.5 million
and $1.0 million, for assets under secured borrowing, provisions for loan
losses on specific properties totaling $0.1 million and $0.1 million, increased
legal fees of approximately $17,000 and $26,000 incurred in connection with
foreclosure proceedings and related actions related to legal actions and
expenses of approximately $110,000 and $217,000 incurred in connection with the
maintenance of real estate held for sale. Expenses may continue at this higher
level in the immediate future if non-performing assets increase and the Company
is required to incur additional reserves against possible losses as well as
additional expenses related to the foreclosure process and the maintenance and
sale of foreclosed properties. Net Income.Overall, the net income for the three months ended March 31, 2004
totaled $5.9 million compared to 16




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##### Table of Contents



$2.1 million for the same period in 2003, an increase of $3.8 million or 181%.
Overall, the net income for the six months ended March 31, 2004 totaled $6.7
million compared to $4.4 million for the same period in 2003, an increase of
$2.3 million or 52%. Annualized Rate of Return to Members.For the three months ended March 31,
2004, annualized rate of return to members totaled 27.1% as compared to 8.6%
for the same period in 2003. For the six months ended March 31, 2004,
annualized rate of return to members totaled 15.0% as compared to 8.9% for the
same period in 2003. The increase in annualized rate of return to members was
primarily the result of the recognition of $4.7 million in other income related
to the sale of real estate. The increase is not indicative of future results. Distributions to Members. For the three month period ended March 31, 2004,
members received distributions totaling $1,187,653, as compared to
distributions totaling $2,790,863 for the three months ended March 31, 2003.
For the six month period ended March 31, 2004, members received distributions
totaling $2,460,298, as compared to distributions totaling $5,711,177 for the
six months ended March 31, 2003. The foregoing distributions for the three and
six month periods ending March 31, 2004 were paid entirely from Net Income
Available for Distribution as defined in the Companys Operating Agreement.
With respect to distributions paid in fiscal 2003, $674,291 paid for the three
months ended March 31, 2003 and $1,307,342 paid for the six months ended March
31, 2003 represented a return of capital and the balance of the distributions
were paid from Net Income Available for Distribution as defined in the
Companys Operating Agreement. Net Income Available for Distribution is based
upon cash flow from operations, less certain reserves, and may exceed net
income as calculated in accordance with GAAP. Redemptions. In order to comply with the Companys operating agreement and
Internal Revenue Code, the Company may redeem no more than 10% of the members
capital in any calendar year. As of March 31, 2004, the total of redemptions
made from inception was $21.8 million. Beginning capital as of January 1, 2004
was $85.4 million, which would limit redemptions to $8.5 million for calendar
2004. As of March 31, 2004, remaining requests to redeem approximately $1.8
million in 2004, $5.6 million in 2005, $6.4 million in
2006, $5.7 million in
2007, $3.1 million in 2008, and $0.2 million in 2009 had been logged. The
Company does not accept the maximum amount of redemptions for each year to
allow for the redemption of reinvested distributions as well as those who must
take required distributions from Individual Retirement Accounts in accordance with the Internal
Revenue Code. INVESTMENTS IN MORTGAGE LOANS SECURED BY REAL ESTATE PORTFOLIO As of March 31, 2004, the Company had investments in mortgage loans secured by
real estate totaling $52,775,765, including 50 loans of which 48 were secured
by the first deed of trust totaling $52,114,581, and 2 were secured by second
deed of trusts totaling $661,184. If the Company holds a second mortgage, it is
junior to a first trust deed position also held by the Company. As of March 31, 2004, the weighted average contractual interest yield on the
Companys investment in mortgage loans is 11.88%. These mortgage loans have
contractual maturities within the next 24 months. Losses may occur from investing in mortgage loans. The amount of losses will
vary as the loan portfolio is affected by changing economic conditions, the
financial position of borrowers, and changes in collateral values from time of
loan origination. The conclusion that a mortgage loan is uncollectible or that collectibility is
doubtful is a matter of judgment. On a quarterly basis, the Manager evaluates
the Companys mortgage loan portfolio for impairment. The fact that a loan is
temporarily past due does not necessarily mean that the loan is impaired.
Rather, all relevant circumstances are considered by the Manager to determine
impairment and the need for specific reserves. This evaluation considers among
other matters:  
    
    prevailing economic conditions;  
    
    historical experience;  
    
    the nature and volume of the loan portfolio; 17




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
    
    the borrowers financial condition and adverse situations that may affect the borrowers ability to pay;  
    
    evaluation of industry trends;  
    
    review and evaluation of loans identified as having loss potential; and  
    
    estimated fair value of any underlying collateral. Based upon this evaluation the Companys Manager believes that the allowance
for loan losses totaling $600,000 included in the accompanying balance sheet as
of March 31, 2004 is adequate to meet estimated credit losses. Decisions regarding an allowance for loan losses require judgment about the
probability of future events. As a result, there is an inherent risk that such
judgment will prove incorrect. In such event, actual losses may exceed (or be
less than) the amount of any allowance. To the extent that the Company
experiences losses greater than the amount of its allowance, the Company may
incur a charge to its earnings that will adversely affect its operating results
and the amount of any distributions payable to its members. CRITICAL ACCOUNTING ESTIMATES Revenue Recognition Interest income on loans is accrued by the effective interest method. The
Company does not recognize interest income from loans once they are determined
to be impaired. A loan is impaired when, based on current information and
events, it is probable that the Company will be unable to collect all amounts
due according to the contractual terms of the loan agreement or when the
payment of interest is 90 days past due. Real Estate Held For Sale Real estate held for sale includes real estate acquired through foreclosure and
is carried at the lower of cost or the propertys estimated fair value, less
estimated costs to sell. The Company seeks to sell properties acquired through
foreclosure as quickly as circumstances permit. The carrying values of real
estate held for sale are assessed on a regular basis from updated appraisals,
comparable sales values, purchase offers or any other basis deemed appropriate
to assess such values. Investments in Mortgage Loans Investments in mortgage loans are secured by trust deeds and mortgages.
Generally, all of the Companys mortgage loans require interest only payments
with a balloon payment of the principal at maturity. The Company has both the
intent and ability to hold mortgage loans until maturity and therefore,
mortgage loans are classified and accounted for as held for investment and are
carried at amortized cost. Loans sold to or purchased from affiliates are
accounted for at the principal balance and no gain or loss is recognized by the
Company or any affiliate. Loan to value ratios are based on appraisals
obtained at the time of loan origination and may not reflect subsequent changes
in value estimates. Such appraisals are generally dated within 12 months of the
date of loan origination and may be commissioned by the borrower. The
appraisals may be for the current estimate of the as-if developed value of
the property, which approximates the post-construction value of the
collateralized property assuming that such property is developed. As-if
developed values on raw land loans or acquisition and development loans often
dramatically exceed the immediate sales value and may include anticipated
zoning changes and timely successful development by the purchaser. As most of
the appraisals will be prepared on an as-if developed basis, if a loan goes
into default prior to any development of a project, the market value of the
property may be substantially less than the appraised value. As a result,
there may be less security than anticipated at the time the loan was originally
made. If there is less security and a default occurs, the Company may not
recover the full amount of the loan. Allowance for Loan Losses The Company maintains an allowance for loan losses on its investment in
mortgage loans for estimated credit impairment in the Companys investment in
mortgage loans portfolio. The Managers estimate of losses is based on 18




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a number of factors including the types and dollar amounts of loans in the
portfolio, adverse situations that may affect the borrowers ability to repay,
prevailing economic conditions and the underlying collateral securing the loan.
Additions to the allowance are provided through a charge to earnings and are
based on an assessment of certain factors which may indicate estimated losses
on the loans. Actual losses on loans are recorded as a charge-off or a
reduction to the allowance for loan losses. Subsequent recoveries of amounts
previously charged off are added back to the allowance. Secured Borrowing
Loans that have been participated to third party investors through
intercreditor agreements (Agreements) are accounted for as secured borrowings
in accordance with SFAS No. 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities(SFAS No. 140). The
Agreements provide the Company additional funding sources for mortgage loans
whereby a third party investor (the Investor) may participate in certain
mortgage loans with the Company, Vestin Mortgage, Vestin Fund II, and/or Vestin Fund III
(collectively, the Lead Lenders). In the event of borrower non-performance,
the intercreditor agreements provide that the Lead Lenders must repay the
Investors loan amount either by (i) continuing to remit to the Investor the
interest due on the 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. Consequently,
the investor is in a priority lien position against the collateralized loans
and mortgage loan financing under the intercreditor arrangement is accounted
for as a secured borrowing in accordance with SFAS No. 140. Similarly, pursuant to the participation agreements, the Investor may
participate in certain loans with the Lead Lenders. In the event of borrower
non-performance, the participation agreements gives the participant the right
to require substitution of its interest with another loan, or, if the right of
substitution is not exercised and the participant holds more than 50% of the
loan, the participant may request that the Lead Lender purchase a portion so
that the Lead Lender has at least a 50% pro rata share of the non-performing
loan. Consequently, mortgage loan financing under the participation
arrangement is accounted for as a secured borrowing in accordance with SFAS No.
140. 19




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CAPITAL AND LIQUIDITY Liquidity is a measure of a companys ability to meet potential cash
requirements, including ongoing commitments to fund lending activities and for
general operational purposes. The Company does not have any significant capital
expenditures. Accordingly, the Company believes that cash held at bank
institutions will be sufficient to meet the Companys capital requirements in
the next twelve months. The Company does not anticipate the need for hiring any
employees, acquiring fixed assets such as office equipment or furniture, or
incurring material office expenses during the next twelve months because the
Manager will continue to manage the Companys affairs. The Company is charged
by the Manager a monthly management fee of up to 0.25% of the Companys
aggregate capital contributions. Pursuant to the Companys operating agreement,
the Company recorded management fees to the Manager during the three months
ended March 31, 2004 of approximately $64,000. During the three months ended March 31, 2004, cash flows provided by operating
activities approximated $8.1 million. Investing activities consisted of cash
provided by loan sales and payoffs of approximately $27.6 million, cash used in
purchases of investments in mortgage loans approximating $26.3 million, and
cash outlays related to the maintenance of real estate held for sale of
approximately $1.5 million. Financing activities consisted of members
redemptions in the amount of $5.5 million and distributions of $2.0 million
(net of reinvestments). As of March 31, 2004, members holding approximately 22% of our outstanding
units have elected to reinvest their dividends. The level of dividend
reinvestment will depend upon our performance as well as the number of our
members who prefer to reinvest rather than receive current distributions of
their income. Any significant level of defaults on our outstanding loans could reduce the
funds we have available for investment in new loans. Foreclosure proceedings
may not generate full repayment of our loans and may result in significant
delays in the return of invested funds. This would diminish our capital
resources and would impair our ability to invest in new loans. In addition,
any significant level of redemptions by our Members would reduce the capital we
have available for investment. In order to comply with the Companys operating
agreement and Internal Revenue Code, the Company may redeem no more than 10% of
the members capital in any calendar year. As of March 31, 2004, the total of
redemptions made from inception was $21.8 million. Beginning capital as of
January 1, 2004 was $85.4 million, which would limit redemptions to $8.5
million for calendar 2004. As of March 31, 2004, remaining requests to redeem
approximately $1.8 million in 2004, $5.6 million in 2005, $6.4 million in 2006,
$5.7million in 2007, $3.1 million in 2008, and $0.2 million in 2009 had been
logged. The Company does not accept the maximum amount of redemptions for each
year to allow for the redemption of reinvested distributions as well as those
who must take required distributions from IRA account in accordance with the
Internal Revenue Code. Non-performing assets include loans in non-accrual status totaling $7.0 million
(discussed in Note C) and real estate held for sale totaling $25.2 million
(discussed in Note E), respectively, at 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. The Companys Manager believes that total non-performing assets at March 31,
2004 have increased since the Companys year ended September 30, 2003,
primarily as a result of factors unique to specific borrowers. However, since
December 31, 2003, the total amount of non-performing assets has decreased by
approximately $9.6 million. Because of the estimated value of the underlying
properties, the Company does not believe that any losses beyond those already
recognized will be incurred from these assets upon final disposition. However,
it is possible that the Company will not be able to realize the full estimated
carrying values upon disposition, particularly if continuing economic weakness
results in declining real estate values. On June 25, 2003, the Company refinanced a $15.2 million note due on August 19,
2003 as a new note with the interest rate reduced from 11.0% to 5.5% as a debt
restructuring. The new loan has a term of 24 months. Interest income not
recognized by the Company during the period as a result of the restructuring
was $20,430. At March 31, 2004, the Company had $14.2 million in cash, $1.0 million in
certificates of deposit, and $109.0 million in total assets. It appears the
Company has sufficient working capital to meet its operating needs in the near
term. 20




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As of March 31, 2004, the Company had secured borrowings of $15.1 million
related to intercreditor and participation agreements. Intercreditor agreements provide the
Company additional funding sources for mortgage loans whereby a third party
investor (the Investor) may participate in certain mortgage loans with the
Company, Vestin Mortgage, Vestin Fund II, and/or Vestin Fund III (collectively, the Lead
Lenders). In the event of borrower non-performance, the intercreditor
agreements provide that the Lead Lenders must repay the Investors loan amount
either by (i) continuing to remit to the Investor the interest due on the
participated loan; (ii) substituting an alternative loan acceptable to the
Investor; or (iii) repurchasing the participated loan amount from the Investor
for the outstanding balance plus accrued interest. Pursuant to the participation
agreements, the Investor may participate in certain loans with the Lead
Lenders. In the event of borrower non-performance, the participation agreements
gives the participant the right to require substitution of its interest with
another loan, or, if the right of substitution is not exercised and the
participant holds more than 50% of the loan, the participant may request that
the Lead Lender purchase a portion so that the Lead Lender has at least a 50%
pro rata share of the non-performing loan. Consequently, mortgage loan
financing under the participation arrangement is accounted for as a secured
borrowing in accordance with SFAS No. 140. The Company maintains working capital reserves of approximately 3% of aggregate
members capital accounts in cash and cash equivalents, and certificates of
deposit. This reserve is available to pay expenses in excess of revenues,
satisfy obligations of underlying security properties, expend money to satisfy
unforeseen obligations and for other permitted uses of the working capital.
Working capital reserves of up to 3% are included in the funds committed to
loan investments in determining what proportion of the offering proceeds and
reinvested distributions have been invested in mortgage loans. FACTORS AFFECTING THE COMPANYS OPERATING RESULTS The Companys business is subject to numerous factors affecting its operating
results. In addition to the factors discussed above, the Companys operating
results may be affected by: Risks of Investing in Mortgage Loans  
    
    The Companys underwriting standards and procedures are more lenient
than conventional lenders in that the Company will invest in loans to
borrowers who will not be required to meet the credit standards of
conventional mortgage lenders.  
    
    The Company approves mortgage loans more quickly than other mortgage
lenders. Due to the nature of loan approvals, there is a risk that the
credit inquiry the Companys Manager performs will not reveal all
material facts pertaining to the borrower and the security.  
    
    Appraisals may be performed on an as-if developed basis, if a loan
goes into default prior to development of a project, the market value of
the property may be substantially less than the appraised value. As a
result, there may be less security than anticipated at the time the loan
was originally made. If there is less security and a default occurs,
the Company may not recover the full amount of the loan.
`  
    
    The Companys results of operations will vary with changes in
interest rates and with the performance of the relevant real estate
markets.  
    
    If the economy is healthy, the Company expects that more people will
be borrowing money to acquire, develop or renovate real property.
However, if the economy grows too fast, interest rates may increase too
much and the cost of borrowing may become too expensive. This could
result in a slowdown in real estate lending which may mean the Company
will have fewer loans to acquire, thus reducing the Companys revenues
and the distributions to members.  
    
    If, at a time of relatively low interest rates, a borrower should
prepay obligations that have a higher interest rate from an earlier
period, investors will likely not be able to reinvest the funds in
mortgage loans earning that higher rate of interest. In the absence of a
prepayment fee, the investors will receive neither the anticipated
revenue stream at the higher rate nor any compensation for their loss.
This in turn could harm the 21




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Companys reputation and make it more difficult for the Company to attract
investors willing to acquire interest in mortgage loans. 22




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Risk of Defaults The Companys performance will be directly impacted by any defaults on the
loans in its portfolio. As noted above, the Company may experience a higher
rate of defaults than conventional mortgage lenders. The Company seeks to
mitigate the risk by estimating the value of the underlying collateral and
insisting on low loan to value ratios. However, no assurance can be given that
these efforts will fully protect the Company against losses on defaulted loans.
Moreover, during the period of time when a defaulted loan is the subject of
foreclosure proceedings, it is likely that the Company will earn less (if any)
income from such loans, thereby reducing the Companys earnings. Competition for Borrowers The Company considers its competitors for borrowers to be the providers of
non-conventional mortgage loans, that is, lenders who offer short-term,
equity-based loans on an expedited basis for higher fees and rates than those
charged by conventional lenders and mortgage loans investors, such as
commercial banks, thrifts, conduit lenders, insurance companies, mortgage
brokers, pension funds and other financial institutions that offer conventional
mortgage loans. Many of the companies against which the Company competes have
substantially greater financial, technical and other resources than the Company
does. Competition in the Companys market niche depends upon a number of
factors including price and interest rates of the loan, speed of loan
processing, cost of capital, reliability, quality of service and support
services. Effect of Fluctuations in the Economy The Companys sole business, making loans secured by real estate, is
particularly vulnerable to changes in macroeconomic conditions. Any significant
decline in economic activity, particularly in the geographical markets in which
the Company concentrates its loans, could result in a decline in the demand for
real estate development loans. In order to stay fully invested during a period
of declining demand for real estate loans, the Company may be required to make
loans on terms less favorable to the Company or to make loans involving greater
risk to the Company. Declines in economic activity are often accompanied by a
decline in prevailing interest rates. Although the Companys lending rates are
not directly tied to the Federal Reserve Boards discount rate, a sustained and
widespread decline in interest rates will impact the interest the Company is
able to earn on its loans. Since the Companys loans generally do not have
prepayment penalties, declining interest rates may also cause the Companys
borrowers to prepay their loans and the Company may not be able to reinvest the
amounts prepaid in loans generating a comparable yield. Moreover, any
significant decline in economic activity could adversely impact the ability of
the Companys borrowers to complete their projects and obtain take out
financing. This in turn could increase the level of defaults the Company may
experience. FORWARD LOOKING STATEMENTS When used in this Quarterly Report on Form 10-Q the words or phrases will
likely result, are expected to, is anticipated, or similar expressions are
intended to identify forward looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements are subject
to certain risks and uncertainties, including but not limited to changes in
interest rates, and fluctuations in operating results. Such factors which are
discussed in Managements Discussion and Analysis of Financial Condition and
Results of Operations, could affect the Companys financial performance and
could cause the Companys actual results for future periods to differ
materially from any opinion or statements expressed herein with respect to
future periods. As a result, the Company wishes to caution readers not to place
undue reliance on any such forward looking statements, which speak only as of
the date made. 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to market risk, primarily from changes in interest
rates. The Company does not have any assets or liabilities denominated in
foreign currencies nor does it own any options, futures or other derivative
instruments. Most of the Companys assets consist of mortgage loans, including those that
are financed under intercreditor agreements. At March 31, 2004, the Companys
aggregate investment in mortgage loans was $52,775,765 with a 23




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weighted average contractual yield of 11.67%. Loans financed under
intercreditor and participation agreements totaled $15,076,160 at March 31,
2004 and are classified as assets under secured borrowing. Such financing is
at a weighted average contractual interest rate of 11.88%. These mortgage
loans mature within the next 24 months. All of the outstanding mortgage loans
at March 31, 2004 are fixed rate loans. All of the mortgage loans are held for
investment purposes and are held to their maturity date. None of the mortgage
loans have prepayment penalties. As of March 31, 2004, the Company had cash and investments in certificates of
deposit and other short-term deposit accounts totaling $15.3 million. The
Company anticipates that approximately 3% of its assets will be held in such
accounts as a cash reserves. Additional deposits in such accounts will be made
as funds are received by the Company from new investors and repayment of loans
pending the deployment of such funds in new mortgage loans. The Company
believes that these financial assets do not give rise to significant interest
rate risk due to their short-term nature. 24




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ITEM 4. CONTROLS AND PROCEDURES. The Company has evaluated the effectiveness of the design and operation of its
disclosure controls and procedures as of March 31, 2004 (the Evaluation
Date). Such evaluation was conducted under the supervision and with the
participation of the Chief Executive Officer (CEO) and the Chief Financial
Officer (CFO) of Vestin Mortgage, Inc., the Companys Manager, who function
as the equivalent of the CEO and CFO of the Company. Based upon such
evaluation, the Managers CEO and CFO have concluded that, as of the Evaluation
Date, the Companys disclosure controls and procedures were effective. There
have been no significant changes in the Companys internal controls over
financial reporting that occurred during the Companys most recent fiscal
quarter, that have materially affected, or are reasonable likely to materially
affect, the Companys internal controls over financial reporting. 25




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PART II OTHER INFORMATION 
 ITEM 1. LEGAL PROCEEDINGS The staff of the Pacific Regional Office of the Securities and Exchange
Commission (SEC) has been conducting an informal inquiry into certain matters
related to the Company, Vestin Group, Vestin Fund II and Vestin Fund III. The
staff of the SEC has not identified the reasons for its inquiry, which remains
ongoing as of May 17, 2004. The Company believes that it has fully complied
with SEC disclosure requirements and is fully cooperating with the inquiry. The
Company cannot at this time predict the outcome of the inquiry. The Company is involved in a number of legal proceedings concerning matters
arising in connection with the conduct of their business activities. The
Company believes it has meritorious defenses to each of these actions and
intends to defend them vigorously. The Company believes that it is not a party
to any pending legal or arbitration proceedings that would have a material
adverse effect on the Companys financial condition or results of operations
or cash flows, although it is possible that the outcome of any such proceedings
could have a material impact on the Companys net income in any particular
period. 
 ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS Not Applicable. 
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not Applicable. 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders, through the solicitation
of proxies or otherwise, during the second quarter ended March 31, 2004. 
 ITEM 5. OTHER INFORMATION None. 
 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K  (a)
    
    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 Lance K. Bradford32
    
    Certification Pursuant to U.S.C. 18 Section 1350
  (1)
    
    Incorporated herein by reference to our Form S-11 Registration Statement filed on March 17, 2000.(2)
    
    Incorporated herein by reference to Post-Effective Amendment No. 2 to our Form S-11 Registration
Statement filed on April 16, 2001.  (b)
    
    Reports on Form 8-K 26




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The Company filed two Current Reports on Form 8-K with the Securities
and Exchange Commission during the first quarter of 2004 on February 4, 2004
and February 25, 2004, which report the following items:  (i)
    
    Item 4 Changes Regarding Certifying Accountants(ii)
    
    Item 7  Financial Statements and Exhibits. 27




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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. VESTIN FUND I, LLC By: Vestin Mortgage, Inc., its sole manager By:
    /s/ Lance K. BradfordLance K. BradfordDirector, Secretary and Treasurer

(Chief Financial Officer of the Manager

and Duly Authorized Officer) Dated: May 17, 2004 28




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VESTIN FUND I, LLC A Nevada Limited Liability Company INDEX TO EXHIBITS ExhibitNo.
    
    Description of Exhibits3.1(1)
    
    Articles of Organization, as amended4.1(2)
    
    Third Amended and Restated Operating Agreement
(included as Exhibit A to the prospectus)4.2(2)
    
    Subscription Agreement and Power of Attorney
(included as Exhibit B to the prospectus)31.1
    
    Section 302 Certification of Michael V. Shustek31.2
    
    Section 302 Certification of Lance K. Bradford32
    
    Certification Pursuant to U.S.C. 18 Section 1350
  (1)
    
    Incorporated herein by reference to our Form S-11 Registration Statement filed on March 17, 2000.(2)
    
    Incorporated herein by reference to Post-Effective Amendment No. 2 to our Form S-11 Registration
Statement filed on April 16, 2001. 29