**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549





**FORM
      10-Q**





(Mark
      One)


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







**For
      the Quarterly Period Ended June 30, 2008**





**OR**





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




**For
      the transition period from ______________ to
      ______________**





**Commission
      File Number:  000-50893**





**Lakeside
      Mortgage Fund, LLC**


(Exact
      name of registrant as specified in its charter)





**California**
            **52-2387294**(State
                or other jurisdiction of incorporation
            (I.R.S.
                Employeror
                organization)
            Identification
                No.)





**1738
                Yuba Street, Redding, CA**
            **96001**(Address
                of principal executive offices)
            (Zip
                Code)





**(530)
                226-5850**


(Registrant’s
      telephone number, including area code)





**NOT
                APPLICABLE**


(Former
      name, former address and former fiscal year, if changed since last
      report)





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





Yes
            XX
            
            No





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





Large
                Accelerated Filer o
            Accelerated
                Filer o
            Non-Accelerated
                Filer o
            Smaller
                reporting company x





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





Yes
            
            
            No
            XX











**LAKESIDE
                MORTGAGE FUND, LLC**


**(A
                California Limited Liability Company)****Index**





**PAGE
                NO.****PART
                I.**
            **FINANCIAL
                INFORMATION**Item
                1.
            Financial
                StatementsBalance
                Sheets as of June 30, 2008 (unaudited) and December 31, 2007
            3Statements
                of Operation for the three and six months ended June 30, 2008 and
                2007
                (unaudited)
            4Statement
                of Member’s Equity for the six months ended June 30, 2008 (unaudited)
            5Statements
                of Cash Flows for the six months ended June 30, 2008 and 2007 (unaudited)
            6Notes
                to Consolidated Financial Statements (unaudited)
            7Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of Operations
            18Item
                3.
            Quantitative
                and Qualitative Disclosures about Market Risk
            24Item
                4T.
            Controls
                and Procedures
            24**PART
                II.**
            **OTHER
                INFORMATION**Item
                1.
            Legal
                Proceedings
            26Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            26Item
                3.
            Defaults
                Upon Senior Securities
            27Item
                6.
            Exhibits
            27SIGNATURE
            27




-
          2 -


**Part
      1**   **FINANCIAL
      INFORMATION**





**Item
      1**   **FINANCIAL
      STATEMENTS**





**LAKESIDE
                MORTGAGE FUND, LLC****(A
              California Limited Liability Company)****BALANCE
                SHEETS****JUNE
                30, 2008 (unaudited) AND DECEMBER 31,
                2007**




**June
                30,****2008**
            
            **December
                31, 2007****ASSETS**Cash
                and cash equivalents
            
            $
            592,979
            
            $
            224,016Cash
                restricted for loan interest reserve
            
            
            49,235
            
            
            176,805Interest
                receivable
            
            
            95,978
            
            
            117,690Accounts
                receivable - related parties
            
            
            108,672
            
            
            36,043Notes
                receivable - related parties
            
            
            2,111,000
            
            
            2,136,218Notes
                      receivable - non related parties, net of allowance for loan
                      losses: $
                      824,853 and $187,512
            
            
            13,045,181
            
            
            16,463,118Real
                estate owned (REO) property, net of allowancefor
                losses: $542,600 and $100,000
            
            
            6,608,078
            
            
            4,228,871**TOTAL
                ASSETS**
            
            **$**
            **22,611,123**
            
            **$**
            **23,382,761****LIABILITIES
                AND MEMBERS' EQUITY**LiabilitiesAccounts
                payable and other current liabilities
            
            $
            348,739
            
            $
            37,676Deferred
                interest on notes receivable
            
            
            49,235
            
            
            292,442Notes
                payable
            
            
            2,475,000
            
            
            1,675,000Total
                liabilities
            
            
            2,872,974
            
            
            2,005,118Un-invested
                subscriptions
            
            
            20,606
            
            
            38,360Members'
                equityMembers'
                contributions, net
            
            
            21,201,314
            
            
            21,434,879Distributions
                in excess of earnings
            
            
            (1,483,771
            )
            
            (95,596
            )Total
                members' equity
            
            
            19,717,543
            
            
            21,339,283**TOTAL
                LIABILITIES AND MEMBERS' EQUITY**
            
            **$**
            **22,611,123**
            
            **$**
            **23,382,761**





The
      accompanying notes are an integral part of these financial
      statements


-
          3 -




**LAKESIDE
                MORTGAGE FUND, LLC**


**(A
                California Limited Liability Company)****STATEMENTS
                OF OPERATION****FOR
                THE THREE AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007
                (unaudited)**




**Three
                Months Ended June 30,**
            
            **Six
                Months Ended June 30,****2008**
            
            **2007**
            
            **2008**
            
            **2007****Revenues**Interest
                income
            
            $
            296,076
            
            $
            517,986
            
            $
            656,970
            
            $
            953,051Total
                revenues
            
            
            296,076
            
            
            517,986
            
            
            656,970
            
            
            953,051**Expenses**Professional
                fees
            
            
            83,551
            
            
            20,200
            
            
            116,151
            
            
            35,650Provision
                for loan and REO losses
            
            
            966,729
            
            
            68,000
            
            
            1,090,967
            
            
            86,000Interest
                expense
            
            
            39,249
            
            
            -
            
            
            104,166
            
            
            -0-Other
                expenses
            
            
            90,163
            
            
            63,165
            
            
            164,401
            
            
            113,728Total
                expenses
            
            
            1,179,692
            
            
            151,365
            
            
            1,475,685
            
            
            235,378**Net
                income/(loss)**
            
            **$**
            **(883,616**
            **)**
            **$**
            **366,621**
            
            **$**
            **(818,715**
            **)**
            **$**
            **717,673**




The
      accompanying notes are an integral part of these financial
      statements


-
          4 -





**LAKESIDE
                MORTGAGE FUND, LLC****(A
                California Limited Liability Company)****STATEMENT
                OF MEMBERS’ EQUITY****FOR
                THE SIX MONTHS ENDED JUNE 30, 2008
                (unaudited)**




**Members'**
            
            **Distributions
                in****Contributions**
            
            **excess
                of earnings**
            
            **TOTAL****Balance,
                January 1, 2008**
            
            **$**
            **21,434,879**
            
            **$**
            **(95,596**
            **)**
            **$**
            **21,339,283**Contributions
            
            
            322,365
            
            
            
            
            
            322,365Costs
                incurred in raising capital
            
            
            (4,710
            )
            
            
            
            
            (4,710
            )Reinvestment
                of members' distributions
            
            
            240,239
            
            
            
            
            
            240,239Members’
                withdrawal
            
            
            (791,459
            )
            
            
            
            
            (791,459
            )Net
                loss
            
            
            
            
            
            (818,715
            )
            
            (818,715
            )Distributions
            
            
            
            
            
            (569,460
            )
            
            (569,460
            )**Balance,
                June 30, 2008**
            
            **$**
            **21,201,314**
            
            **$**
            **(1,483,771**
            **)**
            **$**
            **19,717,543**






The
        accompanying notes are an integral part of these financial
        statements




-
          5 -




**LAKESIDE
                MORTGAGE FUND, LLC****(A
                California Limited Liability Company)****STATEMENTS
                OF CASH FLOWS****FOR
                THE SIX MONTHS ENDED JUNE 30, 2008 AND
                2007(unaudited)**




**2008**
            
            **2007****Cash
                Flows from Operating Activities:**Net
                income (loss)
            
            $
            (818,715
            )
            $
            717,673Provision
                for loan and REO losses
            
            
            1,090,967
            
            
            86,000Change
                in:Interest
                receivable
            
            
            (142,293
            )
            
            (4,097
            )Accounts
                receivable related parties
            
            
            (72,629
            )
            
            -Cash
                restricted for loan interest reserves
            
            
            127,570
            
            
            86,928Accounts
                payable and other liabilities
            
            
            311,063
            
            
            (17,469
            )Deferred
                interest on notes
            
            
            (243,207
            )
            
            (86,928
            )Net
                cash provided by operating activities
            
            
            252,756
            
            
            782,107**Cash
                Flows from Investing Activities:**Notes
                receivable secured by real estate-non related parties and real estate
                owned properties:Funding
            
            
            (478,387
            )
            
            (4,749,735
            )Payoff
            
            
            1,351,793
            
            
            1,319,420Notes
                receivable secured by real estate-related partiesFunding
            
            
            (199,172
            )
            
            (1,200,000
            )Payoff
            
            
            224,390
            
            
            -Net
                cash provided by (used in) investing activities
            
            
            898,624
            
            
            (4,630,315
            )**Cash
                Flows from Financing Activities:**Members'
                contributions, subscriptions and re investments
            
            
            583,211
            
            
            2,986,321Members'
                withdrawals
            
            
            (791,459
            )
            
            (1,189,859
            )Costs
                incurred in raising capital and commissions
            
            
            (4,710
            )
            
            (248,016
            )Distributions
                to members
            
            
            (569,459
            )
            
            (750,134
            )Net
                cash provided by (used in) financing activities
            
            
            (782,417
            )
            
            798,312**Net
                increase (decrease) in cash during the period**
            
            
            **368,963**
            
            
            **(3,049,896**
            **)****Cash
                in bank, beginning of period**
            
            
            **224,016**
            
            
            **3,693,595****Cash
                in bank, end of period**
            
            **$**
            **592,979**
            
            **$**
            **643,699**Non
                cash investing and financing transactions:Conversion
                of notes receivable to real estate owned
            
            $
            1,930,000
            
            
            -Assumption
                of note payable on real estate owned
            
            $
            800,000
            
            
            -




The
      accompanying notes are an integral part of these financial
      statements.


-
          6 -


**LAKESIDE
      MORTGAGE FUND, LLC**


**(A
      CALIFORNIA LIMITED LIABILITY COMPANY)**


**Notes
      to Financial Statements (Unaudited)**


**June
      30, 2008**


**Note
      1 -**  **Organization
      and Description of Business**





Lakeside
      Mortgage Fund, LLC (the “Fund”), a California limited liability company was
      formed on December 4, 2002 under the California Beverly-Killea Limited Liability
      Company Act (the “Act”) to conduct any lawful business for which a limited
      liability company may be organized under the Act, including investment of the
      Fund’s cash and making or investing in notes, mortgages and loans to members of
      the general public secured by deeds of trust on real estate properties located
      primarily in the State of California.





The
      accompanying unaudited condensed financial statements of the Fund have been
      prepared in accordance with accounting principles generally accepted in the
      United States of America ("U.S. GAAP") for interim financial information and
      pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X
      of
      the Securities and Exchange Commission ("SEC"). Accordingly, these statements
      do
      not include all of the information and footnotes required by U.S. GAAP for
      complete financial statements. In the opinion of the Fund’s Manager, these
      unaudited condensed financial statements reflect all adjustments (consisting
      of
      normal recurring adjustments) necessary to present fairly the financial position
      of the Fund at June 30, 2008, the results of operations for the three
      and
      six months ended June 30,
      2008 and 2007 and cash flows for the six
      months ended
      June 30, 2008 and 2007. Results of operations for the three and six months
      ended
      June 30, 2008 are not necessarily indicative of results of operations expected
      for the full fiscal year ending December 31, 2008. Please refer to the Fund’s
      2007 Annual Report on Form 10-KSB for the complete financial statements for
      the
      period ended December 31, 2007.





**Terms**


The
      Fund’s operating plan is to continue to seek investors and use those proceeds to
      fund suitable loans consistent with the Fund’s lending criteria. Management
      believes qualified investors will continue to invest in the Fund so that the
      Fund will continue to raise capital from such investors, and invest such capital
      in commercial mortgage loans.





The
      Manager of the Fund is Lakeside Financial Group, Inc. (the “Manager” or
“Lakeside”), a California corporation formed for the purpose of managing the
      Fund. Lakeside was incorporated in August 2002 and began doing business in
      November 2002. Lakeside is not a member of the Fund, and is owned by
      shareholders who are not members of the Fund.





The
      Fund
      will continue to operate indefinitely until dissolved and terminated by a vote
      of the members holding a majority of the outstanding membership interests,
      with
      the concurrence of the Fund Manager.





**Profits
      and losses**


The
      profit or loss of the Fund is allocated to the members in proportion to their
      respective percentage interest. The Manager is required to allocate to the
      members all profits and losses realized by the Fund during the month as of
      the
      close of business on the last day of each calendar month, in accordance with
      their respective percentage interests and in proportion to the number of days
      during the calendar month that they owned the interests.





**Distributions**


Cash
      available for distribution is the net income during the calendar month using
      the
      accrual method of accounting and in accordance with US GAAP. Monthly, the Fund
      provides statements of account to members and distributes or reinvests amounts
      equal to the members’ proportionate share of the Fund’s net income during such
      month. The Manager is required to distribute funds only to the extent that
      funds
      are available.





**Withdrawals**


Fund
      members are allowed to withdraw from the Fund and receive a return of the amount
      in their capital accounts only after 12 months from the date of admission into
      the Fund (“Holding Period”). Members must give a 60-day written notice prior to
      withdrawing and payments to any withdrawing member are limited to $ 25,000
      per
      quarter. After the Holding Period, members may withdraw and receive a return
      of
      their capital accounts subject to the availability of cash in the Fund, and
      subject to the following penalties for early withdrawal pursuant to the terms
      of
      the operating agreement: (i) 3% of withdrawal amount within the first year
      following the Holding Period; (ii) 2% of withdrawal amount within the second
      year following the Holding Period; and (iii) 1% of withdrawal amount within
      the
      third year following the Holding Period. Aggregate withdrawals among all members
      may not exceed 10% of the Fund’s total capital for any calendar year. The Fund
      does not maintain a reserve for withdrawing members. The Fund’s capacity to
      return a withdrawing member’s capital account is limited by the availability of
      cash on hand after payment of expenses and provision for maintaining adequate
      reserves, in the discretion of the Manager.




-
          7 -


**LAKESIDE
        MORTGAGE FUND, LLC**
 **(A
        CALIFORNIA LIMITED LIABILITY COMPANY)**
 **Notes
        to Financial Statements (Unaudited)**
 **June
        30, 2008**


As
      of
      June 30, 2008 the Fund has received requests for withdrawal from one hundred
      and
      three investors representing $6,050,841 of membership interest which have not
      yet been paid, subject to the limitations of the membership agreement that
      does
      not allow for total annual fund withdrawals of more than 10% of the total
      capital account at the beginning of the year ($2,244,000). The withdrawals
      are
      expected to be processed and paid over the next fourteen quarters.





**Related
      parties**


The
      Manager is entitled to receive certain fees, compensation and expense
      reimbursements from the Fund. The Manager is entitled to receive from the Fund
      an asset management fee, payable monthly, in a maximum amount of 2.75% of the
      gross assets under management per year (0.229% per month). The Manager is also
      entitled to receive a loan servicing fee, payable monthly, in a maximum amount
      of 0.25% of the total unpaid principal balances of loans serviced (0.02% per
      month). The Manager may waive these fees in order to improve the return to
      investor members. The Manager is also entitled to receive reimbursement from
      the
      Fund for organizational, syndication and other operating expenses incurred
      on
      behalf of the Fund, including out-of-pocket general and administrative expenses
      of the Fund related to the offering of membership interests, accounting and
      audit fees, legal fees and expenses, postage and other expenses related to
      the
      preparation of reports to members.





The
      Manager receives other fees from third parties as compensation to the Manager
      for acting as broker in arranging loans from the Fund. These fees (which are
      not
      paid by the Fund, but rather by third party borrowers) are determined on a
      case-by-case basis, are generally 3% to 5% of the loan amount, and generally
      consist of brokerage, origination, renewal and/or processing fees.





The
      Fund
      receives certain operating and administrative services from the Manager, some
      of
      which may not be reimbursed to the Manager. During
      the three and six months ended June 30, 2008 and 2007, the Manager waived a
      total of $174,379
      and $146,065, and $347,308 and $290,635 of
      management and loan service fees, respectively. The
      Fund’s financial position and results of operations would likely be different
      without this relationship with the Manager.





**Note
      2 -**  **Summary
      of Significant Accounting Policies**





**(a)**
            **Basis
                of Accounting**


The
      financial statements of the organization have been prepared on the accrual
      basis
      of accounting and accordingly reflect all significant receivables, payables
      and
      other liabilities.





**(b)**
            **Management
                Estimates**


The
      preparation of financial statements in conformity with US 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. Such estimates related principally to
      the
      determination of the allowance for loan losses, including the valuation of
      impaired loans and valuation of real estate owned properties. Actual results
      could differ from those estimates.




-
          8 -


**LAKESIDE
        MORTGAGE FUND, LLC**
 **(A
        CALIFORNIA LIMITED LIABILITY COMPANY)**
 **Notes
        to Financial Statements (Unaudited)**
 **June
        30, 2008**


**(c)**
            **Cash
                and Cash Equivalents**


For
      purposes of the statements of cash flows, cash and cash equivalents include
      interest-bearing and non interest-bearing bank deposits, money market accounts
      and commercial paper with original maturities of three months or less.
      Periodically, the Fund’s cash balances exceed federally insured limits.





**(d)**
            **Loans
                Secured by Trust Deeds**


Loans
      secured by trust deeds are recorded at cost. To date, no loans have been
      purchased from outside third party issuers of loans. The Fund loans will have
      varying terms at the discretion of the Manager. Construction loans will
      generally have a term of between one and five years and will provide for monthly
      payments of interest only with a “balloon payment” at the end of the term. Other
      Fund loans may have a longer amortization schedule and may be fully amortizing,
      i.e. original principal amount of the loan will be repaid in equal monthly
      installments of principal and interest over the term. The Fund will not
      recognize interest income on loans once they are determined to be impaired
      until
      the interest is collected in cash after principal is collected. A loan is
      impaired when, based on current information and events, it is probable that
      the
      Fund will be unable to collect all amounts due according to the contractual
      terms of the loan agreement. Cash receipts will be allocated to interest income,
      except when such payments are specifically designated as principal reduction
      or
      when management does not believe the Fund’s investment in the loan is fully
      recoverable. Impairment is measured on a loan by loan basis by either the
      present value of expected future cash flows discounted at the loan’s effective
      interest rate, the loan’s obtainable market price or the fair value of the
      underlying collateral.





**(e)**
            **Allowance
                for Loan Losses**


The
      allowance for loan losses will be established as losses are estimated to have
      occurred through a provision for loan losses that will be charged to earnings.
      Loan losses will be charged against the allowance when management believes
      the
      un-collectability of a loan balance is confirmed. Subsequent recoveries, if
      any,
      will be credited to income. The allowance for loan losses will be evaluated
      on a
      regular basis by management and is based upon management’s periodic review of
      the collectability of the loans in light of historical experience, the types
      and
      dollar amounts of loans in the portfolio, adverse situations that may affect
      the
      borrower’s ability to repay, estimated value of any underlying collateral and
      prevailing economic conditions. This evaluation is inherently subjective as
      it
      requires estimates that are susceptible to significant revision as more
      information becomes available.





The
      following shows the activities in the allowance for loan losses during the
      6-month period ended June 30, 2008:





Balance,
                December 31, 2007
            
            $
            187,512Additions
            
            
            637,341Write
                offs
            
            
            -Balance,
                June 30, 2008
            
            $
            824,853




**(h)**
            **Real
                Estate Held for Sale**


Real
      estate held for sale includes real estate acquired through foreclosure and
      is
      stated at the lower of the recorded investment in the loan, plus any senior
      indebtedness, or at the property’s estimated fair value, less estimated costs to
      sell.





**(i)**
            **Cash
                Restricted for Loan Interest Reserve**


The
      Fund
      often requires borrowers to set up interest reserve accounts from which monthly
      payments of interest are made. The interest reserve is deposited into a separate
      bank account in the name of the Fund, designated specifically as interest
      reserve on loans issued by the Fund. At the end of the month, the Fund draws
      the
      calculated monthly interest on outstanding loans from the interest reserve
      account and transfers such amount into the general operating account of the
      Fund
      as part of the distributable fund available for monthly disbursement to the
      members. The equivalent unearned amount is recorded as deferred interest in
      the
      liabilities section of the balance sheet. As of June 30, 2008, the loan interest
      reserve had a balance of $49,235.




-
          9 -


**LAKESIDE
        MORTGAGE FUND, LLC**
 **(A
        CALIFORNIA LIMITED LIABILITY COMPANY)**
 **Notes
        to Financial Statements (Unaudited)**
 **June
        30, 2008**






**(j)**
            **Contra-Equity
                Accounts: Offering Costs and Commissions Incurred in Connection with
                Raising of Capital**


Syndication
                costs incurred in connection with the raising of capital by offering
                units
                of membership interest in the Fund are being treated as a reduction
                of
                paid in capital. Initial marketing fees and broker’s commissions paid to
                an outside brokerage firm are treated as contra-equity accounts.
                The fees
                paid by the Fund are currently up to 6.5%. The brokers are also entitled
                to receive “trailer commissions” equivalent to 1.0% of the average daily
                invested capital at the 1 year anniversary of the invested funds.
                The
                initial marketing/broker’s fees are capitalized in accordance with US
                GAAP, pursuant to the AICPA’s Technical Practice Aid TIS 7200.07
                (Accounting for Syndication Costs of Limited Partnerships). Subsequent
                payments of trailer commissions however are treated as period costs
                and
                charged to current earnings of the Fund. As such, the initial
                marketing/broker’s fees are included in the balance sheet under the
                caption heading “Members’ contributions, net” while the trailer
                commissions are shown in the statement of operations, when incurred.The
                Fund incurred $1,275 and $4,710 of syndication costs and brokers’ fees
                during the three and six months ended June 30,
                2008.




**(k)**
            **Subscription
                Account**


Upon
      receipt of the funds from prospective investors subscribing to purchase
      membership interests, those funds are deposited into a subscription account.
      The
      funds are held, in the Manager’s discretion up to a maximum of 60 days, until
      needed by the Fund. The funds are then contributed to the capital of the Fund
      in
      exchange for a membership interest. The Manager may hold funds in the
      subscription account for longer than 60 days only upon the written consent
      of
      the subscriber.





As
      of
      June 30, 2008, the un-invested funds in the subscription account were
      $20,606.





**(f)**
            **Revenue
                Recognition**


Interest
      is recognized as revenue when earned according to the contractual terms of
      the
      loan and when collection is reasonably expected.





**(g)**
            **Income
                Taxes**


The
      Fund
      is treated as a partnership for federal and California income tax purposes.
      Consequently, all tax effects of the Fund’s income or loss are passed through to
      the members individually, and no federal or California income taxes are provided
      for in the financial statements of the Fund. The Fund pays an annual California
      tax and an annual California LLC fee based upon its annual gross
      receipts.





**(l)**
            **Fair
                Value of Financial
                Instruments**


Effective
      January 1, 2008, we adopted the provisions of Statement of Financial Accounting
      Standards (“SFAS”) No. 157, “Fair Value Measurements”, for our financial assets
      and liabilities. The adoption of this portion of SFAS No. 157 did not have
      any
      effect on our financial position or results of operations and we do not expect
      the adoption of the provisions of SFAS No. 157 related to non-financial assets
      and liabilities to have an effect on our financial position or results of
      operations.





-
          10 -





**LAKESIDE
      MORTGAGE FUND, LLC**


**(A
      CALIFORNIA LIMITED LIABILITY COMPANY)**


**Notes
      to Financial Statements (Unaudited)**


**June
      30, 2008**






Various
      inputs are used in determining the fair value of our financial assets and
      liabilities and are summarized into three broad categories:


·
            Level
                1 - quoted price in active markets for identical
                securities;


·
            Level
                2 - other significant observable inputs, including quoted prices
                for
                similar securities, interest rates, prepayment speeds, credit risk,
                etc.;
                and


·
            Level
                3 - significant observable inputs, including our own assumptions
                in
                determining fair value.





The
      inputs or methodology used for valuing securities are not necessarily an
      indication of the risk associated with investing in those
      securities.




Following
      are the disclosures related to our assets and (liabilities) pursuant to SFAS
      No.
      157 (in thousands):





June
                30, 2008Fair
                Value
            
            Input
                LevelNotes
                receivable-related party
            
            $
            2,111
            
            
            Level
                3Notes
                receivable
            
            $
            13,045
            
            
            Level
                3Real
                estate owned
            
            $
            6,608
            
            
            Level
                3




Valuation
      of notes receivable


The
      fair
      value of our notes receivable approximates carrying value based upon estimated
      cash flow.





Valuation
      of Real Estate owned


We
      estimate the fair value of real estate owned based upon market comparables
      less
      cost of disposal and estimated carrying costs. The fair value approximates
      carrying value at June 30, 2008.





**(m)**
            **Recent
                accounting pronouncements**





On
      September 15, 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”
(SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring
      fair value under GAAP and enhances disclosures about fair value measurements.
      SFAS 157 defines fair value as the exchange price that would be received for
      an
      asset or paid to transfer a liability (an exit price) in the principal or most
      advantageous market for the asset or liability in an orderly transaction between
      market participants on the measurement date. SFAS 157 is effective for the
      Fund’s financial statements issued for the year beginning on January 1, 2008,
      with earlier adoption permitted. The adoption of SFAS 157 did not have a
      material impact on the Fund’s financial condition and results of
      operations.





On
      February 15, 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Liabilities (SFAS 159), “The Fair Value Option for Financial Assets
      and Financial Liabilities” (SFAS 159), which allows entity the irrevocable
      option to elect fair value for the initial and subsequent measurement for
      certain financial assets and liabilities on a contract-by-contract basis.
      Subsequent changes in fair value of these financial assets and liabilities
      would
      be recognized in earnings when they occur. SFAS 159 further establishes certain
      additional disclosure requirements. SFAS 159 is effective for the Fund’s
      financial statements for the year beginning on January 1, 2008, with earlier
      adoption permitted. The adoption of SFAS 159 did not have a material impact
      on
      the Fund’s financial condition and results of operations.




In
      December 2007, the FASB issued SFAS No. 141 (revised 2007) (“SFAS 141R”),
“Business Combinations” and SFAS No. 160 (“SFAS 160”), “Non-controlling
      Interests in Consolidated Financial Statements, an amendment of Accounting
      Research Bulletin No. 51”. SFAS 141R will change how business acquisitions are
      accounted for and will impact financial statements both on the acquisition
      date
      and in subsequent periods. SFAS 160 will change the accounting and reporting
      for
      minority interests, which will be re-characterized as non-controlling interests
      and classified as a component of equity. SFAS 141R and SFAS 160 are effective
      for us beginning in the first quarter of fiscal 2009. Early adoption is not
      permitted. We do not expect that SFAS 141 (R) or SFAS 160 will have a material
      impact on our consolidated results of operations, financial position or
      liquidity.




-
          11 -


**LAKESIDE
      MORTGAGE FUND, LLC**


**(A
      CALIFORNIA LIMITED LIABILITY COMPANY)**


**Notes
      to Financial Statements (Unaudited)**


**June
      30, 2008**






In
      March
      2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments
      and
      Hedging Activities ("SFAS 161"). This statement will require enhanced
      disclosures about derivative instruments and hedging activities to enable
      investors to better understand their effects on an entity's financial position,
      financial performance, and cash flows. It is effective for financial statements
      issued for fiscal years and interim periods beginning after November 15, 2008,
      with early application encouraged. Management is assessing the impact of the
      adoption of SFAS 161.





**Note
      3 -**  **Notes
      Receivable**





At
      June
      30, 2008, the Fund held the following types of mortgages:





Commercial
            
            $
            4,454,250Construction
            
            
            5,337,094Unimproved
                Land
            
            
            6,189,690Total
            
            $
            15,981,034First
                Mortgages
            
            $
            12,354,817Second
                Mortgages
            
            
            3,626,217Total
            
            $
            15,981,034





Scheduled
      maturities of loans secured by trust deeds as of June 30, 2008 and the interest
      sensitivity of such loans are as follows:





FixedInterestRateYear
                Ending December 31:2008
            
            $
            15,298,0342009
            
            
            683,000Total
            
            $
            15,981,034





The
      scheduled maturities for the year ending 2008 include eleven loans (totaling $9,814,930) that
      are
      past maturity at June 30, 2008. It is the Fund’s experience that loans can be
      refinanced or repaid before or after the maturity date. Therefore, the above
      tabulation for scheduled maturities is not a forecast of future cash
      receipts.





Accrued
      interest receivable on the eleven loans mentioned above amounted to $88,142
      as
      of June 30, 2008; loans are classified under non-accrual status at the time
      the
      Manager determines that collection of interest is doubtful, therefore, interest
      has not been accrued on a majority of these loans for periods ranging from
      1-21
      months. Additionally, two loans amounting to $683,000 and $1,085,000 that have
      not yet matured were delinquent in interest payments for 9 and 3 months,
      respectively. Occasionally, the Fund allows borrowers to continue to make the
      payments on loans past maturity for periods of time. The
      loans
      are collateralized by the underlying real estate properties.





-
          12 -
 
 **LAKESIDE
          MORTGAGE FUND, LLC**
 **(A
          CALIFORNIA LIMITED LIABILITY COMPANY)**
 **Notes
          to Financial Statements (Unaudited)**
 **June
          30, 2008**


The
      Fund
      has no variable interest rate loans at June 30, 2008.





At
      June
      30, 2008, 100% of the Fund’s loans receivable was collateralized by properties
      located in California.





At
      June
      30, 2008, the Fund’s gross loan portfolio consisted of seventeen real estate
      loans to unrelated parties totaling to $13,870,034 and three loans receivable
      from related parties amounting to $2,111,000.





1.
            Loan
                200412, an investment in participation notes issued by an affiliate
                amounting to $500,000 and maturing in December 2008. Interest is
                payable
                monthly at an effective rate of approximately 9.00% per
                annum.


2.
            Loan
                200504 amounting to $802,800 due in monthly installments of $8,028
                interest only at 12.00%. This loan matured on September 8, 2006 and
                is
                secured by a second trust deed on the underlying
                property.


3.
            Loan
                200507 amounting to $257,375 due in monthly installments of $2,574
                interest only at 12.00%. This loan matured on June 25, 2007 and is
                secured
                by a second trust deed on the underlying
                property.


4.
            Loan
                200510 amounting to $455,042 due in monthly installments of $4,550
                interest only at 12.00%. This loan matured on August 8, 2007 and
                is
                secured by a second trust deed on the underlying
                property.


5.
            Loan
                200511 amounting to $549,240 due in monthly installments of $5,492
                interest only at 12.00%. This loan matured on March 15, 2008 and
                is
                secured by a first trust deed on the underlying
                property.


6.
            Loan
                200602 amounting to $589,473 due in monthly installments of $5,895
                interest only at 12%. This loan matured on January 30, 2007 and is
                secured
                by a first trust deed on the underlying
                property.


7.
            Loan
                200603 amounting to $2,780,000 due in monthly installments of $27,800
                interest only at 12%. This loan matured on May 2, 2008. This loan
                is
                secured by a first trust deed on the underlying
                property.


8.
            Loan
                200608 amounting to $525,000 due in monthly installments of $4,769
                interest only at 10.90%. This loan matured on June 7, 2008. This
                loan is
                secured by a first trust deed on the underlying
                property.


9.
            Loan
                200609.1 amounting to $345,000 due in monthly installments of $3,134
                interest only at 10.90%. This loan matured on June 27, 2008. This
                loan is
                secured by a first trust deed on the underlying
                property.


10.
            Loan
                200612 amounting to $570,000 due in monthly installments of $5,653
                interest only at 11.90% maturing on August 30, 2008. This loan is
                secured
                by a first trust deed on the underlying
                property.


11.
            Loan
                200615 amounting to $1,100,000 due in monthly installments of $10,542
                interest only at 11.50% maturing on October 20, 2008. This loan is
                secured
                by a first trust deed on the underlying
                property.


12.
            Loan
                200701 amounting to $1,900,000 due in monthly installments of $19,792
                interest only at 12.50%. This loan matured on January 11, 2008 and
                is
                secured by a first trust deed on the underlying
                property.


13.
            Loan
                200702 amounting to $685,693 due in monthly installments of $6,800
                interest only at 11.90% maturing on September 2, 2008. This loan
                is
                secured by a first trust deed on the underlying
                property.


14.
            Loan
                200703 amounting to $1,200,000 due in monthly installments of $11,900
                interest only at 11.90%. This loan matured on March 8, 2008. This
                loan is
                secured by a second trust deed on the underlying
                property.






-
          13 -


**LAKESIDE
        MORTGAGE FUND, LLC**
 **(A
        CALIFORNIA LIMITED LIABILITY COMPANY)**
 **Notes
        to Financial Statements (Unaudited)**
 **June
        30, 2008**






15.
            Loan
                200704 amounting to $683,000 due in monthly installments of $6,773
                interest only at 11.90% maturing on June 4, 2009. This loan is secured
                by
                a first trust deed on the underlying
                property.


16.
            Loan
                200705 amounting to $123,261 due in monthly installments of $1,222
                interest only at 11.90% maturing on July 13, 2008. This loan is secured
                by
                a first trust deed on the underlying
                property.


17.
            Loan
                200706 amounting to $1,085,000 due in monthly installments of $10,760
                interest only at 11.90% maturing on August 17, 2008. This loan is
                secured
                by a first trust deed on the underlying
                property.


18.
            Loan
                200707 amounting to $1,198,900 due in monthly installments of $11,489
                interest only at 11.50% maturing on September 6, 2008. This loan
                is
                secured by a first trust deed on the underlying
                property.


19.
            Loan
                200708 amounting to $220,250 due in monthly installments of $2,184
                interest only at 11.90% maturing on September 21, 2008. This loan
                is
                secured by a first trust deed on the underlying
                property.


20.
            Loan
                200709 amounting to $411,000 due in monthly installments of $5,138
                interest only at 15.00%. This loan matured on May 27, 2008. This
                loan is
                secured by a second trust deed on the underlying
                property.





**Note
      4 - Related Party Transactions**





**Notes
      Receivable**


The
      Fund
      may invest up to 20% of its total assets in loans to affiliated entities. On
      June 30, 2008, the Fund had an interest in three loans issued by affiliated
      entities. One loan is a commercial loan for $411,000, all of which was funded
      through June 30, 2008. The note bears an interest rate of 15.00% and was due
      on
      May 27, 2008. The loan was still outstanding as of June 30, 2008. The second
      participation loan amounting to $500,000 matures in December 2008 and bears
      a
      nominal interest rate of 9% per annum. Interest payments have been delinquent
      since April 2007 and total $56,250 as of June 30, 2008. The third loan amounting
      to $1,200,000 matured on March 8, 2008 and bears interest at 11.90%. Delinquent
      interest at the default rate since maturity totals $63,657. Pursuant to a
      provision of the Operating Agreement, the Manager is obligated to purchase
      from
      the Fund any related-party loan with respect to which any material event of
      default by the borrower has occurred and is continuing for thirty days. There
      are two such loans described above. The Manager is aware of the default on
      these
      two loans and is in active discussion with the affiliated borrowers with the
      objective of curing all defaults.





For
      the
      three months ended June 30, 2008 and 2007, the Fund recognized interest income
      on loans to related parties amounting to
      $14,548 and $54,578. For the six months ended June 30, 2008 and 2007, the Fund
      recognized interest income of $52,212 and $80,459, respectively on loans to related parties.





As
      noted,
      the Fund is limited in its investments with affiliated entities to a maximum
      of
      20% of its total assets, as defined. As of June 30, 2008 the Fund is in
      compliance with this restriction.





**Contra
      Equity Costs**


During
      the quarter ended June 30, 2008 the Fund incurred no additional costs in
      connection with the offering of units of membership interest in the Fund.
      Expenditures consisted primarily of the initial accounting and filing costs
      relating to the registration and have been treated as syndication costs as
      contemplated in the AICPA’s Technical Practice Aid TIS 7200.07 (Accounting for
      Syndication Costs of Limited Partnerships). Accordingly, these costs are treated
      as reduction of paid in capital.





The
      Fund
      paid commissions to securities brokers in connection with the sale of membership
      interests by the Fund. The commission rate was up to 6.5% of the gross sales
      proceeds from the sale of units of the Fund. The total amount of net brokers’
commissions paid during the quarters ended June 30, 2008 and 2007 were
      $ 1,275 and
      $ 46,493 ,
      respectively. These costs are recorded as “Costs incurred in raising capital”
and included in the balance sheet under the heading “Members’ contributions,
      net”.




-
          14 -
 
 **LAKESIDE
          MORTGAGE FUND, LLC**
 **(A
          CALIFORNIA LIMITED LIABILITY COMPANY)**
 **Notes
          to Financial Statements (Unaudited)**
 **June
          30, 2008**





**Borrower’s
      Costs**


The
      Manager acts as loan broker in the initial placement of the Fund loans and
      performs loan servicing functions as well. The Manager is compensated by the
      Fund for such loan servicing activities and is compensated by the borrower
      for
      the initial placement of the loans. The Fund does not incur “Incremental Direct
      Costs” as defined in SFAS No. 91, “ *Accounting
      for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans
      and Initial Direct Costs of Leases* .”
These
      are costs to originate loans that result directly from, and are essential to,
      the lending transaction and would not have been incurred by the Fund had the
      lending transaction not occurred. The Manager of the Fund incurs these types
      of
      costs; consequently the Manager is entitled to receive certain fees for its
      services such as loan brokerage commissions, loan processing and documentation
      fees, loan servicing and asset management fees and reimbursement of other
      expenses of the Manager. None of these fees are paid by the borrower to the
      Fund
      directly and therefore are not included in the income and expenses of the
      Fund.





**Broker’s
      Commissions on Invested Funds**


The
      Fund
      has retained the services of securities broker/dealers to sell units of
      membership interest in the Fund. One such broker/dealer is ePlanning Securities,
      Inc., which is affiliated with the Manager. Certain shareholders of the Manager
      (who are not members of the Fund) are also shareholders and/or directors of
      ePlanning. ePlanning sold membership units of the Fund to its client-investors
      during the quarters ended June 30, 2008 and 2007 amounting to $31,640 and
      $1,005,311 of which it realized commissions totaling $1,275 and $46,493,
      respectively. The brokers do not earn a commission until funds are transferred
      from the subscription account to members’ equity, at which time the funds become
      contributed capital of the Fund.





**Management
      and servicing fees**


The
      Manager earned $0 and $16,522 during the quarters ended June 30, 2008 and 2007,
      respectively, representing management and servicing fees it was entitled to
      receive from the Fund. The Manager earned $0 and $30,535 during the six months
      ended June 30, 2008 and 2007, respectively.





**Note
      5 - Real Estate Owned (REOs) and Notes Payable**





The
      following schedule reflects the activities in REOs at June 30,
      2008:





Gross
                balance, January 1, 2008
            
            $
            4,328,871Additions
            
            
            2,821,807Dispositions
            
            
            -Reserve
            
            
            (542,600
            )Net
                balance, June 30, 2008
            
            $
            6,608,078




-
          15 -


**LAKESIDE
        MORTGAGE FUND, LLC**
 **(A
        CALIFORNIA LIMITED LIABILITY COMPANY)**
 **Notes
        to Financial Statements (Unaudited)**
 **June
        30, 2008**


Three
      loans were foreclosed on during the six months ended June 30, 2008, in addition
      to the four that were foreclosed during 2007. The REOs are valued at the lower
      of the estimated net realizable values and carrying costs of the REOs. The
      first
      REO was taken over in April 2007 (loan amount: $850,000) consisting of a
      commercial property (vacant building and 1.39 acre parcel in Oroville, CA).
      The
      second property was taken over in May 2007 (construction loan amount: $928,200)
      consisting of two newly-constructed single family homes in Marina City, CA.
      When
      the borrower defaulted, the Company took possession of the unfinished project
      and hired a general contractor to finish the construction project. This involved
      the infusion of additional funds to finish the project amounting to
      approximately $242,000 at June 30, 2008. The third property is a 1.5 acre vacant
      parcel in Tustin Hills, CA which was taken over in October 2007 (loan amount:
      $270,000) subject to a senior first trust deed loan amounting to $550,000.
      The
      first trust deed bears a 12% interest rate, with a monthly interest payment
      of
      $5,500. The senior note matured in February 2008. The fourth property consists
      of a 24.02 vacant parcel in Los Gatos Hills, Santa Clara County, CA. This
      property was taken over in August 2007 (loan amount: $260,000) and was subject
      to a senior first trust deed loan amounting to $1,125,000. The first trust
      deed
      bears a 12% interest rate, with a monthly interest payment of $11,250, which
      matured in April 2008. The fifth property consists of 10 acres of undeveloped
      land in Galt, CA (loan amount: $890,000). This property was taken over in
      January 2008 and was subject to a senior first trust deed loan amounting to
      $800,000, which was assumed by the Fund. The senior lien bears an 11% interest
      rate, with a monthly interest only payment of $7,333.33. The sixth property
      was
      taken over in May 2008 (loan amount: $552,000) and consists of 14.78 acres
      of
      undeveloped land in Madera County, CA. The seventh property was taken over
      in
      June 2008 (loan amount: $400,000) and consists of 19 acres of agricultural
      land
      in Le Grand, CA. The total notes payable related to REO due at June 30, 2008
      totaled $2,475,000.





The
      Manager is working to list these properties for sale with real estate brokers
      in
      the communities where the properties are located. The only other significant
      carrying costs that the Company anticipates in connection with holding the
      properties are real estate property taxes and liability insurance. The taxes
      and
      insurance premiums are expensed when incurred.





**Note
      6 -**  **Concentrations,
      commitments and contingencies and workout agreements**





**Notes
      receivable - non related parties**


Five
      loans totaling $2,653,930 were made to separate entities controlled by the
      same
      person. The various borrowing entities were organized for different purposes,
      and own real properties
      in various places in California, mostly in the Central Valley. These loans
      represent 17% of the total loan portfolio. All five loans have matured and
      remained outstanding at June 30, 2008. Interests on these loans have not been
      accrued for periods ranging from 9-22 months. The loans are collateralized
      by
      the underlying real estate properties, and are personally guaranteed by the
      controlling person.





**Commitments
      and contingencies**


The
      Fund
      has outstanding loan commitments on three construction loans totaling $1,224,146
      which was undisbursed at June 30, 2008.





**Workout
      agreements**


The
      Fund
      periodically negotiates various workout agreements with borrowers whose loans
      are past maturity or who are delinquent in making payments. As of June 30,
      2008,
      there were six loans totaling $ 5,026,261 under negotiation or in the process
      of
      workout agreements.





**Legal
      proceedings**


The
      Manager of the Fund has been named in two civil actions, Oakdale Heights Redding
      I, LLC et al v. Asset Real Estate & Investment Company, et al. filed April
      18, 2008 in Shasta Superior Court and Dean G. Nowacki, et al. v. Asset Real
      Estate & Investment Company, et al. filed May 21, 2008 in Shasta Superior
      Court. As a result of these civil actions the Manager’s legal counsel informed
      the California Department of Corporations that the Manager would voluntarily
      stop offering the Fund for investment until further notice.




The
        Fund
        is involved in various legal actions related to foreclosures and loans in
        default, which arise in the normal course of business. Management is currently
        unable to estimate the effect of these matters on the financial position
        of the
        Fund.




-
          16 -
 
 **LAKESIDE
          MORTGAGE FUND, LLC**
 **(A
          CALIFORNIA LIMITED LIABILITY COMPANY)**
 **Notes
          to Financial Statements (Unaudited)**
 **June
          30, 2008**





**Note
      7 - Regulatory Requirements**





**Employee
      Retirement Income Security Act of 1974 (“ERISA”)**


Some
      of
      the investors purchasing membership interests are employee benefit plans,
      including Individual Retirement Accounts, which are subject to ERISA. Persons
      making the investment decisions for such ERISA investors are deemed to be
“fiduciaries” of such investors and must discharge their duties with the care,
      skill and prudence which a prudent person would exercise under the
      circumstances.





Normally
      an investment in an equity interest of an entity, such as a membership interest
      in the Fund, will be deemed a “plan asset” of the ERISA investor, but the
      underlying assets of the entity will not be deemed plan assets. However, if
      (i)
      the equity interests are not publicly-offered securities, (ii) the entity is
      not
      one of several types of “operating companies” defined in ERISA regulations, and
      (iii) investment by ERISA investors exceeds 25% of the value of the class of
      equity interests, then the underlying assets of the entity may be deemed “plan
      assets,” with the entity deemed a “fiduciary” with respect to the ERISA
      investors.





**Securities
      Laws**


In
      offering the units of membership interest, the Fund is subject to applicable
      federal and state securities laws. On the federal level, the Fund is offering
      the membership interests pursuant to the exemption from registration for
      intrastate offerings provided by Section 3(a) (11) of the Securities Act of
      1933, as amended, and Rule 147 promulgated thereunder. In accordance with this
      exemption, the membership interests are offered only in California, the Fund
      restricts the amount of its assets which are located outside of California
      and
      members are prohibited from transferring any part of their membership interests
      to out-of-state transferees for a period of nine months.





On
      the
      state level, the Fund is offering the units of membership interest pursuant
      to a
      permit issued by the California Department of Corporations. The permit requires
      annual renewal. The original permit was issued on February 24, 2003. The permit
      was most recently renewed on February
      29, 2008.





As
      of
      June 30, 2008, the Fund was in compliance with all applicable federal and state
      securities laws.





**Note
      8 - Subsequent Events**


In
        July
        2008 one of the REO properties, a 1.5 acre parcel in Tustin Hills, CA, was
        foreclosed on by the senior first trust deed holder and the Fund did not
        receive
        any proceeds from the sale of the underlying collateral. The loss associated
        with this property is approximately $345,000, and has been fully reserved
        for as
        of June 30, 2008.





In
      July
      2008 the fund foreclosed and took over property related to an outstanding loan
      of $1,900,000. The property consists of 194 acres of land in Oroville,
      CA.


-
          17 -


**Item
      2. M** **anagement’s
      Discussion and Analysis of Financial Condition and Results of
      Operations**





**Critical
      Accounting Policies.**





In
      preparing the financial statements, management is required to make estimates
      based on the information available that affect the reported amounts of assets
      and liabilities as of the balance sheet dates and revenues and expenses for
      the
      reporting periods.  Such estimates relate principally to the
      determination of (1) the allowance for loan losses (i.e. the amount of allowance
      established against loans receivable as an estimate of potential loan losses)
      including the accrued interest that are estimated to be unrecoverable based
      on
      estimates of amounts to be collected plus estimates of the value of the property
      as collateral and (2) the valuation of real estate held.  At June 30,
      2008, there were seven real estate properties held, acquired through foreclosure
      during the prior year and through the first half of 2008.





Loans
      and
      the related accrued interest and late fees are analyzed on a periodic basis
      for
      recoverability. Delinquencies are identified and followed up as part of the
      loan
      servicing procedures.  Delinquencies are determined based upon
      contractual terms.  A provision is made for loan losses to adjust the
      allowance for loan losses to an amount considered by management to be adequate,
      with due consideration to collateral values, and to provide for unrecoverable
      loans and receivables, including impaired loans, other loans, accrued interest,
      and late fees on loans.




The
      allowance for loan losses is established as losses are estimated to have
      occurred through a provision for loan losses that is charged to earnings. Loan
      losses are charged against the allowance when management believes the
      un-collectability of a loan balance is confirmed. Subsequent recoveries, if
      any,
      are credited to income. The allowance for loan losses is evaluated on a regular
      basis by management and is based upon management’s periodic review of the
      collectability of the loans in light of historical experience, the types and
      dollar amounts of loans in the portfolio, adverse situations that may affect
      the
      borrower’s ability to repay, estimated value of any underlying collateral and
      prevailing economic conditions. This evaluation is inherently subjective as
      it
      requires estimates that are susceptible to significant revision as more
      information becomes available.





**Forward-Looking
      Statements**




Certain
      statements in this Report on Form 10-Q which are not historical facts may be
      considered forward-looking statements within the meaning of Section 27A of
      the
      Securities Act of 1933, as amended, and Section 21E of the Securities and
      Exchange Act of 1934, as amended, including statements regarding the Fund’s
      expectations, hopes, intentions, beliefs and strategies regarding the future.
      Forward-looking statements include statements regarding future interest rates
      and economic conditions and their effect on the Fund and its assets, trends
      in
      the California real estate market, estimates as to the allowance for loan
      losses, estimates of future investor withdrawals, 2008 annualized yield
      estimates, the intention not to sell the Fund’s loan portfolio and the
      expectation foreclosures will not have a material effect on liquidity. Actual
      results may be materially different from what is projected by such
      forward-looking statements. Factors that might cause such a difference include
      unexpected changes in economic conditions and interest rates, the impact of
      competition and competitive pricing and downturns in the real estate markets
      in
      which the Fund has made loans. All forward-looking statements and reasons why
      results may differ included in this Form 10-Q are made as of the date hereof,
      and we assume no obligation to update any such forward-looking statement or
      reason why actual results may differ.





**Related
      parties**





The
      Fund
      treats the affiliated companies of the Manager as related parties due to the
      significant influence of the Manager and its Board with respect to the
      management and operations of the Fund. The Manager arranges, services and
      maintains the loan portfolio of the Fund as well as managing the day-to-day
      affairs of the Fund. Pursuant to the Operating Agreement between the Fund and
      the Manager, the Manager is entitled to receive certain fees, compensation
      and
      expense reimbursements from the Fund. The Manager is entitled to receive from
      the Fund an asset management fee, payable monthly, in a maximum amount of 2.75%
      of the gross assets under management per year (0.229% per month). The Manager
      is
      also entitled to receive a loan servicing fee, payable monthly, in a maximum
      amount of 0.25% of the total unpaid principal balances of loans serviced (0.02%
      per month). The Manager may waive these fees in order to improve the return
      to
      investor members. The Manager is also entitled to receive reimbursement from
      the
      Fund for organizational, syndication and other operating expenses incurred
      on
      behalf of the Fund, including out-of-pocket general and administrative expenses
      of the Fund related to the offering of membership interests, accounting and
      audit fees, legal fees and expenses, postage and other expenses related to
      the
      preparation of reports to members.





-
          18 -


The
      Manager receives other fees from third parties as compensation to the Manager
      for acting as broker in arranging loans from the Fund. These fees (which are
      not
      paid by the Fund, but rather by third party borrowers) are determined on a
      case-by-case basis, are generally 3% to 5% of the loan amount, and generally
      consist of brokerage, origination, renewal and/or processing fees.





The
      Fund
      receives certain operating and administrative services from the Manager, some
      of
      which may not be reimbursed to the Manager. During
      the three and six months ended June 30, 2008 and 2007, the Manager waived a
      total of $174,379
      and $146,065, and $347,308 and $290,635 and of
      management fees, respectively. The
      Fund’s financial position and results of operations would likely be different
      without this relationship with the Manager.





The
      Fund
      may invest up to 20% of its total assets in loans to affiliated entities. On
      June 30, 2008, the Fund had an interest in three loans issued by affiliated
      entities. One loan is a commercial loan for $411,000, all of which was funded
      through June 30, 2008. The note bears an interest rate of 15.00% and was due
      on
      May 27, 2008. The loan was still outstanding as of June 30, 2008. The second
      participation loan amounting to $500,000 matures in December 2008 and bears
      a
      nominal interest rate of 9% per annum. Interest payments have been delinquent
      since April 2007 and total $56,250 as of June 30, 2008. The third loan amounting
      to $1,200,000 matured on March 8, 2008 and bears interest at 11.90%. Delinquent
      interest at the default rate since maturity totals $63,657. Pursuant to a
      provision of the Operating Agreement, the Manager is obligated to purchase
      from
      the Fund any related-party loan with respect to which any material event of
      default by the borrower has occurred and is continuing for thirty days. There
      are two such loans described above. The Manager is aware of the default on
      these
      two loans and is in active discussion with the affiliated borrowers with the
      objective of curing all defaults.





For
      the
      three months ended June 30, 2008 and 2007, the Fund recognized interest income
      on loans to related parties amounting to
      $14,548 and $54,578. For the six months ended June 30, 2008 and 2007, the Fund
      recognized interest income of $52,212 and $80,459, respectively on loans to related parties.





As
      noted,
      the Fund is limited in its investments with affiliated entities to a maximum
      of
      20% of its total assets, as defined. As of June 30, 2008, the Fund is in
      compliance with this restriction.





**Results
      of Operations**





The
      decrease in interest income for the three and six month period ended June 30,
      2008 as compared to the same periods in 2007 was primarily due to a higher
      level
      of non-performing loans for a longer period of time during the current period.
      There were eleven non performing loans that have delinquent interest for periods
      ranging from 3-21 months at June 30, 2008 versus three non-performing loans
      with
      past due interests ranging between 1-9 months at June 30, 2007. Additionally,
      there were seven real estate owned properties (REO) amounting to $7,150,678
      (before a reserve of $542,600) at June 30, 2008 versus $2,158,220 on June 30,
      2007.





The
      increase in professional fees for the three and six month period ended June
      30,
      2008 as compared to 2007 was due to increased audit and legal fees. Legal fees
      have increased and will continue to increase due to the volume of foreclosures
      and loans in default.





The
      increase in interest expense for the three and six months ended June 30, 2008
      is
      the result of notes payable assumed in connection with taking control of the
      REO’s.





-
          19 -


The
      increase in the provision for losses on loans and real estate properties for
      the
      three and six months ended June 30, 2008 as compared to the same periods in
      2007
      was due to the increase in the allowance for loan losses based on management’s
      estimates of fair value and recoverability, reflecting current market conditions
      and the declining real estate market.





**Allowance
      for Losses**





The
      Manager periodically reviews the loan portfolio, examining the status of
      delinquencies, the underlying collateral securing these loans, real estate
      held
      for sale expenses, sales activities, borrower’s payment records and other data
      relating to the loan portfolio.  Data on the local real estate market
      and on the national and local economy are studied. Based upon this and other
      information, the allowance for loan losses is increased or decreased. Borrower
      foreclosures are a normal aspect of the Fund’s operations.  The Fund
      is not a credit based lender and hence while it reviews the credit history
      and
      income of borrowers, and if applicable, the income from income producing
      properties, the Manager expects on occasion to take back real estate
      security.   At June 30, 2008, eleven loans ($9,814,930 or 61% of total
      loan portfolio) have already matured and remained unpaid at the end of the
      period. Accrued interest receivable on these loans amounted to $88,142 as of
      June 30, 2008; these loans are classified under non-accrual status at the time
      the Manager deemed that collection of interest was doubtful; therefore interest
      has not been accrued on a majority of these loans for periods ranging from
      1-21
      months. Additionally, two loans amounting to $683,000 and $1,085,000 that have
      not yet matured were delinquent in interest payments for 9 and 3 months,
      respectively. The Manager occasionally enters into workout agreements with
      borrowers who are past maturity or delinquent in their regular
      payments.   Typically, a workout agreement allows the borrower to
      extend the maturity date of the balloon payment and/or allows the borrower
      to
      make current monthly payments while deferring for periods of time, past due
      payments, or allows time to pay the loan in full.   The number of
      foreclosures and workout agreements will generally rise during difficult times
      and conversely fall during good economic times.   These factors
      have been considered by management to arrive at an appropriate level of
      allowance for loan losses. Due to the number of variables involved, the
      magnitude of possible swings and the Manager’s inability to control many of
      these factors, actual results may and do sometimes differ materially from
      estimates made by the Manager.





Three
      loans were foreclosed during the six months ended June 30, 2008, in addition
      to
      the four that were foreclosed during 2007. The REOs are valued at the lower
      of
      the estimated net realizable values and carrying costs of the REOs. The first
      REO was taken over in April 2007 (loan amount: $850,000) consisting of a
      commercial property (vacant building and 1.39 acre parcel in Oroville, CA).
      The
      second property was taken over in May 2007 (construction loan amount: $928,200)
      consisting of two newly-constructed single family homes in Marina City, CA.
      When
      the borrower defaulted, the Company took possession of the unfinished project
      and hired a general contractor to finish the construction project. This involved
      the infusion of additional funds to finish the project amounting to
      approximately $242,000 at June 30, 2008. The third property is a 1.5 acre vacant
      parcel in Tustin Hills, CA which was taken over in October 2007 (loan amount:
      $270,000) subject to a senior first trust deed loan amounting to $550,000.
      The
      first trust deed bears a 12% interest rate, with a monthly interest payment
      of
      $5,500. The senior note matured in February 2008. The fourth property consists
      of a 24.02 vacant parcel in Los Gatos Hills, Santa Clara County, CA. This
      property was taken over in August 2007 (loan amount: $260,000) and was subject
      to a senior first trust deed loan amounting to $1,125,000. The first trust
      deed
      bears a 12% interest rate, with a monthly interest payment of $11,250, which
      matured in April 2008. The fifth property consists of 10 acres of undeveloped
      land in Galt, CA (loan amount: $890,000). This property was taken over in
      January 2008 and was subject to a senior first trust deed loan amounting to
      $800,000, which was assumed by the Fund. The senior lien bears an 11% interest
      rate, with a monthly interest only payment of $7,333.33. The sixth property
      was
      taken over in May 2008 (loan amount: $552,000) and consists of 14.78 acres
      of
      undeveloped land in Madera County, CA. The seventh property was taken over
      in
      June 2008 (loan amount: $400,000) and consists of 19 acres of agricultural
      land
      in Le Grand, CA. The total notes payable related to REO due at June 30,
      2008 totaled $2,475,000.





-
          20 -


The
      Manager is working to list the properties for sale with real estate brokers
      in
      the communities where the properties are located. The only other significant
      carrying costs that the Company anticipates in connection with holding the
      properties are real estate property taxes and liability insurance. The taxes
      and
      insurance premiums are expensed when incurred.


The
        Manager made increases to the provision for loan loss reserves of $637,341
        and
        $68,000 during the six month period ended June 30, 2008 and 2007,
        respectively.  The allowance for loan loss reserve of $824,853 and
        $187,512 as of June 30, 2008 and December 31, 2007, respectively, is considered
        to be adequate for the secured loan portfolio balances of $15,981,034 and
        $18,822,891, respectively. The reserve for losses on REOs as of June 30,
        2008
        and December 31, 2007 was $542,600 and $100,000,
        respectively.




**PORTFOLIO
      REVIEW**





**Loan
      Portfolio**





The
      Fund’s loan portfolio consists primarily of short-term (one to two years), fixed
      rate loans secured by real estate in the State of California. At
      June
      30, 2008, the Fund’s loan portfolio consisted of seventeen real estate loans to
      unrelated parties totaling $13,870,034, and three loans receivable from related
      parties amounting to $2,111,000.





At
      June
      30, 2008, the Fund held the following types of mortgages:





Commercial
            
            $
            4,454,250Construction
            
            
            5,337,094Unimproved
                Land
            
            
            6,189,690Total
            
            $
            15,981,034First
                Mortgages
            
            $
            12,354,817Second
                Mortgages
            
            
            3,626,217Total
            
            $
            15,981,034








Scheduled
      maturities of loans secured by trust deeds as of June 30, 2008 and the interest
      sensitivity of such loans are as follows:





FixedInterestRateYear
                Ending December 31:2008
            
            $
            15,298,0342009
            
            
            683,000Total
            
            $
            15,981,034




The
        scheduled maturities for the year ending 2008 include eleven loans totaling $9,814,930 that
        are
        past maturity at June 30, 2008. It is the Fund’s experience that loans can be
        refinanced or repaid before or after the maturity date. Therefore, the above
        tabulation for scheduled maturities is not a forecast of future cash
        receipts.


Five
      loans totaling $2,653,930 were made to separate entities controlled by the
      same
      person. The various borrowing entities were organized for different purposes,
      and own real properties
      in various places in California, mostly in the Central Valley. These loans
      represent 17% of the total loan portfolio. All 5 loans have matured and remained
      outstanding at June 30, 2008. Interest on these loans has not been accrued
      for
      periods ranging from 9-22 months. The loans are collateralized by the underlying
      real estate properties, and are personally guaranteed by the controlling
      person.





-
          21 -


**Liquidity
      and Capital Resources**





As
      of
      June 30, 2008, we have sold a total of 232,045.42 Units, at $100 per Unit,
      for a
      total of $23,204,542. As of June 30, 2008, Fund members electing to reinvest
      their monthly income distributions have reinvested $2,471,466 back into the
      Fund. After deducting for broker commissions and offering expenses ($1,098,674),
      the net proceeds to the Fund from these sales (which include reinvestment of
      earnings) have been $24,577,334. Members withdrew a total of $3,454,027 through
      the period ended June 30, 2008. As of June 30, 2008, the Fund has
      $15,981,034  invested
      in commercial mortgage loans. As of June 30, 2008, the Fund has 378 members.





To
      compare this with how the Fund was doing during the same period last year,
      as of
      June 30, 2007 we had sold a total of 239.238.12 Units, for a total of
      $23,923,812. Reinvested funds amounted to $1,779,624. After deducting for broker
      commissions and offering expenses ($1,013,055), the net proceeds to the Fund
      from these sales were $22,910,757. Members withdrew a total of $2,076,407
      through the period ended June 30, 2007. The Fund had $18,295,552 invested in
      commercial mortgage loans. As of June 30, 2007, the Fund had 387
      members.





Syndication
      costs incurred in connection with the raising of capital by offering units
      of
      membership interest in the Fund are
      being treated as a reduction of paid in capital. Initial marketing fees, and
      broker’s commissions paid to an outside brokerage firm, are treated as
      contra-equity accounts. The fees are currently up to 6.5% (6% commission, 0.5%
      marketing fee). Brokers are also entitled to receive “trailer commissions,”
equivalent to 1.0% of the average daily balance of invested capital for each
      investor. These are received following each anniversary of the investor’s
      initial investment. As of June 30, 2008, the Fund has
      capitalized $1,098,674 of syndication costs since inception.





The
      Fund
      will continue to be managed by Lakeside Financial Group, Inc., which will
      continue to underwrite and select loans for the Fund to invest in, as well
      as
      short term investments for cash between loans. The Manager will continue to
      manage the Fund as described in the Fund’s Operating Agreement. The Fund will
      continue to pay the Manager, on a monthly basis, a management fee (annualized
      at
      2.75% of gross assets under management) and loan servicing fee (annualized
      at
      0.25% of loan principal amounts) to the extent these fees are not waived by
      the
      Manager. During the quarter ended June 30, 2008, the Manager accepted no
      management fees and waived a total of $174,379 of
      these
      fees. During the six months ended June 30, 2008, the Manager accepted no
      management fees and waived a total of $347,308.





Until
      recently the Fund has raised capital through the sale of membership interests
      and has invested that capital in commercial real estate loans. As
      noted
      in Part II, Item 1, however, the Manager has temporarily ceased offering the
      Fund as an investment and therefore is not currently a source of capital to
      the
      Fund. The Fund has no off-balance sheet arrangements.





The
      Fund
      also relies upon loan payoffs and borrowers’ mortgage payments as a source of
      funds for loans and operations.  The Fund has seen an increase in the
      number of slow paying loans and those in default. Due to this slowdown and
      a
      decrease in the amount of new member contributions, the Fund has made no new
      loan investments in the second quarter of 2008.  The largest cash
      outflow during the six months ended June 30, 2008; $791,459 was related to
      member withdrawals.





Fund
      members are allowed to withdraw from the Fund and receive a return of the amount
      in their capital accounts only after 12 months from the date of admission into
      the Fund (“Holding Period”). Members must give a 60-day written notice prior to
      withdrawing and payments to any withdrawing member are limited to $25,000 per
      quarter. After the Holding Period, members may withdraw and receive a return
      of
      their capital accounts subject to the availability of cash in the Fund, and
      subject to the following penalties for early withdrawal pursuant to the terms
      of
      the operating agreement: (i) 3% of withdrawal amount within the first year
      following the Holding Period; (ii) 2% of withdrawal amount within the second
      year following the Holding Period; and (iii) 1% of withdrawal amount within
      the
      third year following the Holding Period. Aggregate withdrawals among all members
      may not exceed 10% of the Fund’s total capital for any calendar year. The Fund
      does not maintain a reserve for withdrawing members. The Fund’s capacity to
      return a withdrawing member’s capital account is limited by the availability of
      cash on hand after payment of expenses and provision for maintaining adequate
      reserves, in the discretion of the Manager.





-
          22 -


As
      of
      June 30, 2008 the Fund has received requests for withdrawal from one hundred
      and
      three investors representing $6,050,841 of membership interest which have not
      yet been paid, subject to the limitations of the membership agreement that
      does
      not allow for total annual fund withdrawals of more than 10% of the total
      capital account at the beginning of the year ($2,244,000). The withdrawals
      are
      expected to be processed and paid over the next fourteen quarters.





If
      interest rates were to increase substantially, the yield of the partnership’s
      loans may provide lower yields than other comparable debt-related
      investments.  Additionally, since the partnership has made primarily
      fixed rate loans, if interest rates were to rise, the likely result would be
      a
      slower prepayment rate for the partnership.  This could cause a lower
      degree of liquidity as well as a slowdown in the ability of the partnership
      to
      invest in loans at the then current interest rates.  Conversely, in
      the event interest rates were to decline, the partnership could experience
      significant borrower prepayments, which, if the partnership can only obtain
      the
      then existing lower rates of interest may cause a dilution of the partnership’s
      yield on loans, thereby lowering the partnership’s overall yield to the limited
      partners.





**Current
      Economic Conditions**





The
      Fund
      primarily makes secured mortgage loans in the State of California, concentrating
      in the Northern California communities. California’s economic health plays a
      significant role in the performance of the real estate industry, and property
      values, which provide the underlying collateral for our loans. The vitality
      of
      California’s economy is driven by numerous diverse industries including,
      technology, finance, health, medical care, government, and
      entertainment.





In
      recent
      years, the economy of the United States and California has stagnated. A
      weakening in real estate is predicted to continue causing further slowing in
      the
      economy.





The
      unemployment rate in the United States, a significant factor in the borrower’s
      ability to service their debt, decreased to a low of 4.4% in December 2006
      and
      gradually rose to 5.0% in December 2007. The unemployment rate in the United
      States for June 2008 was 5.5%. The most recent low in California’s unemployment
      occurred in November 2006 at 4.8%. This rate has gradually increased to 5.3%
      in
      June of 2007 and as of June 2008, stood at 7.0%.





In
      an
      attempt to counter the slowing economy, rising unemployment, and the turmoil
      created by a credit crisis stemming from the subprime mortgage loan market
      write
      downs, the Federal Reserve has made multiple rate reductions. The Federal Funds
      Rate now stands at 2.00% as of August 15, 2008, compared to 5.25% at this time
      last year. The prime rate offered by banks for borrowing has followed in step
      with the reductions in the Federal Funds Rate and is currently at 5.0%, a
      decrease of 3.25% compared to this time last year.





As
      some
      of our loans pertain to undeveloped land or construction loans planned for
      residential construction, residential mortgage rates can affect the viability
      of
      a project. Freddie Mac reports average interest rates for 30 year fixed rate
      conforming loans were 6.66% for June 2007, 6.10% for December 2007, and 6.45%
      for June 2008.





There
      continues to be an increase in loan delinquencies and foreclosures in the real
      estate market in California and nationwide. During the first six months of
      2008,
      the number of vacant land and commercial developments in foreclosure increased
      to the highest level in more than 15 years. Lending institutions throughout
      California sent 121,341 default notices during the second quarter of 2008,
      an
      increase of 125% from the second quarter of 2007. (Dataquick) The California
      Association of Realtors, (CAR), reported their unsold inventory index, which
      indicates the number of months needed to deplete the market supply of properties
      at the current sales rate, was 7.7 months in June 2008 compared to 10.2 months
      in June 2007, the increased volume is largely due to the 38% decline in the
      median home prices in California.





-
          23 -


**Item
      3.**  **QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**





**Market
      Risk**





The
      Fund’s primary market risk in terms of its profitability is the exposure to
      fluctuations in general interest rates and diminution in values of the
      underlying real estate collaterals due to adverse economic
      conditions.  All of the Fund’s mortgage loans earn interest at fixed
      rates. Changes in interest rates may also affect the value of the Fund’s
      investment in mortgage loans and the rates the Fund reinvests funds obtained
      from loan repayments and new capital contributions from investors.  If
      interest rates increase, the interest rates the Fund obtains from reinvested
      funds will generally increase, but the value of the Fund’s existing loans at
      fixed rates will generally tend to decrease.  The risk is mitigated as
      the Fund does not intend to sell its loan portfolio, rather such loans are
      held
      until they are paid off.  If interest rates decrease, the amounts
      becoming available to the Fund for investment due to repayment of partnership
      loans may be reinvested at lower rates than the Fund had been able to obtain
      in
      prior investments, or than the rates on the repaid loans.  In
      addition, interest rate decreases may encourage borrowers to refinance their
      loans with the Fund at a time where the Fund is unable to reinvest in loans
      of
      comparable value.  The Fund does not hedge or otherwise seek to manage
      interest rate risk.  The Fund does not enter into risk sensitive
      instruments for trading purposes.





**Asset
      Quality**





A
      consequence of lending activities is occasionally losses will be experienced
      and
      the amount of such losses will vary from time to time, depending upon the risk
      characteristics of the loan portfolio as affected by economic conditions and
      the
      financial experiences of borrowers.  Many of these factors are beyond
      the control of the Manager.  There is no precise method of predicting
      specific losses or amounts that ultimately may be charged off on particular
      segments of the loan portfolio, especially in light of the current economic
      environment.





The
      conclusion a loan may become uncollectible, in whole or in part, is a matter
      of
      judgment.  Although institutional lenders are subject to requirements
      and regulations that, among other things, require them to perform ongoing
      analyses of their portfolios, loan-to-value ratios, reserves, etc., and to
      obtain and maintain current information regarding their borrowers and the
      securing properties, the partnership is not subject to these regulations and
      has
      not adopted certain of these practices.  Rather, the Manager, in
      connection with the periodic closing of the accounting records of the Fund
      and
      the preparation of the financial statements, determines whether the allowance
      for loan losses is adequate to cover potential loan losses of the
      Fund.  As of June 30, 2008 the Manager has determined that the
      allowance for loan losses and real estate owned of $1,367,453 (loans: $824,853
      and real estate owned: $542,600) is adequate.  Because of the number
      of variables involved, the magnitude of the swings possible and the Manager’s
      inability to control many of these factors, actual results may and do sometimes
      differ significantly from estimates made by the Manager.





For
      a
      quantitative analysis of the loan and REO portfolio please see the Portfolio
      Review section of Management’s Discussion and Analysis.





**Item
      4T. Controls and Procedures.**





The
      Manager of the Fund strives to maintain disclosure controls and procedures
      designed to ensure that information required to be disclosed in reports filed
      under the Securities Exchange Act of 1934, as amended, is recorded, processed,
      summarized and reported within the specified time periods and that such
      information is accumulated and communicated to management to allow timely
      decisions on required disclosure. Due to the departure of the Manager’s CFO
      on June 20, 2008, we have concluded that the Fund’s disclosure controls and
      procedures regarding information required to be included in SEC reports as
      of
      June 30, 2008 was not adequate.





-
          24 -


In
      light
      of the above, the Manager performed additional analysis and other post-closing
      procedures to ensure the consolidated financial statements were prepared in
      accordance with generally accepted accounting principles. One way the Manager
      addressed this issue was by hiring an outside public accounting firm to assist
      in the preparation of the June 30, 2008 financial statements and drafting of
      Form 10Q. Accordingly, the Manager believes the financial statements of the
      Fund
      included in this report fairly present, in all material respects, the financial
      condition, results of operations and cash flows for the periods
      presented. ****





The Fund ’s
      operations are managed by its fund manager, Lakeside Financial Group, Inc.
      The
      Manager does not own a membership interest in the Fund .









-
          25 -


**PART
      II - OTHER INFORMATION**





**Item
      1.**  **Legal
      Proceedings**





The
      Manager of the Fund has been named in two civil actions, Oakdale Heights Redding
      I, LLC et al v. Asset Real Estate & Investment Company, et al. filed April
      18, 2008 in Shasta Superior Court and Dean G. Nowacki, et al. v. Asset Real
      Estate & Investment Company, et al. filed May 21, 2008 in Shasta Superior
      Court. As a result of these civil actions the Manager’s legal counsel informed
      the California Department of Corporations that the Manager would voluntarily
      stop offering the Fund for investment until further notice.


In
          the
          normal course of business, the Fund may become involved in various types
          of
          legal proceedings such as assignment of rents, bankruptcy proceedings,
          appointment of receivers, unlawful detainers, judicial foreclosure, etc.
          to
          enforce the provisions of the deeds of trust, collect the debt owed under
          the
          promissory notes, or to protect, or recoup its investment from the real
          property
          secured by the deeds of trust. Management
          is currently unable to estimate the effect of these matters on the financial
          position of the Fund. As
          of the
          date hereof, the Fund is not involved in any legal proceedings other than
          those
          that would be considered part of the normal course of business.


**Item
      2. Unregistered Sales of Equity Securities and Use of
      Proceeds**





During
      the period covered by this report the Fund made sales of unregistered securities
      set forth in the table below. All sales were of units of membership interest
      in
      the Fund, for the purchase price of $100 per unit of membership interest, and
      all sales were for cash consideration. No sales involved any underwriter, but
      all sales were effected through a licensed securities broker, ePlanning
      Securities, Inc., to whom a commission was paid of up to 6.5% of the sales
      price.





All
      sales
      were made under the exemption from registration provided by Section 3(a)(11)
      of
      the Securities Act of 1933, as amended, and under Rule 147 promulgated
      thereunder. The offering is limited to California residents only. The Fund
      derives 100% of its revenues from loans secured by real property located in
      California. The Fund’s Operating Agreement and Subscription Agreement, both of
      which are executed by the investor, contain written disclosures regarding the
      limitations on resale prescribed by Rule 147.





With
      respect to applicable state securities laws, all sales were made pursuant to
      a
      permit issued to the Fund by the California Department of Corporations (“DOC”)
      pursuant to Sections 25110 and 25113 of the California Corporations Code. The
      permit must be renewed each year by filing a renewal application and an updated
      Offering Circular for approval by the DOC. The renewed permit was issued by
      the
      DOC on February 29, 2008.





During
      the period covered by this report the Fund made the following sales of
      unregistered securities, to various investors meeting the Fund’s investor
      suitability standards, on the terms described above:





Date
                of Sale
            
            Units
                Sold
            
            Purchase
                Price01/14/08
            
            
            294.51
            
            $
            29,45102/01/08
            
            
            252.25
            
            $
            25,22503/31/08
            
            
            233.38
            
            $
            23,33804/03/08
            
            
            149.10
            
            $
            14,91005/20/08
            
            
            167.30
            
            $
            16,73001/04/08
                (reinvestment)
            
            
            628.54
            
            $
            62,85402/05/08
                (reinvestment)
            
            
            628.03
            
            $
            62,80303/05/08
                (reinvestment)
            
            
            381.74
            
            $
            38,17404/08/08
                (reinvestment)
            
            
            392.54
            
            $
            39,25405/14/08
                (reinvestment)
            
            
            193.00
            
            $
            19,30006/11/08
                (reinvestment)
            
            
            178.55
            
            $
            17,854




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          26 -


**Item
      3.**  **Defaults
      on Senior Securities**




Three
      of
      the loans guaranteed by the same Principal (Note 6 - Concentration) were
      subordinated to first trust deed loans totaling $2,929,000 at interest rates
      of
      11%-12% per year. Interests on these notes have been delinquent for periods
      ranging from 7-15 months and the borrower has not paid the holder of the first
      trust deed as of June 30, 2008. Additionally, another loan that was guaranteed
      by the same Principal was foreclosed upon in January 2008, subject to a first
      trust deed amounting to $800,000 at 11% interest. Interest on this senior note
      was 19 months past due as of June 30, 2008, therefore, based on the terms of
      the
      note, the Fund is in default on this senior deed of trust.





A
      senior
      first trust deed amounting to $550,000 at 12% interest matured on February
      1,
      2008. The Fund holds the second trust deed and exercised its right to foreclose
      in October 2007 and the property has now been listed for sale. Interest has
      been
      delinquent since January 2007; therefore, based on the terms of the note, the
      Fund is in default on this senior deed of trust.





A
      senior
      first trust deed amounting to $1,125,000 at 12% interest rate was assumed when
      the Fund foreclosed on a promissory note in August 2007. Interest on this senior
      note is 10 months past due, therefore, based on the terms of the note, the
      Fund
      is in default on this senior deed of trust.





**Item
      6.**  **Exhibits**





Exhibit
                No.
            Description3.1.*
            Articles
                of Organization3.1.*
            Operating
                Agreement of Lakeside Mortgage Fund, LLC3.2.**
            Amendment
                No. 1 to Operating Agreement31.1.
            Certification
                of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
                Act of 2002.31.2.
            Certification
                of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
                Act of 2002.32.1.
            Certification
                of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley
                Act of 2002.32.2.
            Certification
                of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley
                Act of 2002.




*
      Incorporated by reference to the Company’s Registration Statement on Form 10-SB,
      as amended, originally filed with the Commission under the Exchange Act on
      August 6, 2004.





**
      Incorporated by reference to the Company’s Annual Report on Form 10-KSB,
      originally filed with the Commission under the Exchange Act on March 30,
      2005.





**SIGNATURES**





Pursuant
      to the requirements of Section 13 or 15 (d) of the Securities Exchange Act
      of
      1934 the registrant has duly caused this report to be signed on its behalf
      by
      the undersigned, thereto duly authorized on this 19 th day of
      August, 2008.




LAKESIDE
                  MORTGAGE FUND, LLC,A
                  California Limited Liability CompanyBy:
              Lakeside
                  Financial Group, Inc.,ManagerBy:
              /S/
                  Paula M. LewisPaula
                  M. Lewis, President & CEO




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          27 -