UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   Form 10-KSB

(Mark One)

[X]   ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934


                                   For the fiscal year ended December 31, 2004
                                                             -----------------

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



              For the transition period from ________________ to _______________

              Commission file number 333-98337
                                     ---------

Yosemite Mortgage Fund II, LLC
-------------------------------------------------------------------------------
                 (Name of small business issuer in its charter)


          California                                    94-3394131
--------------------------------            ----------------------------------
(State or other jurisdiction of            (I.R.S. Employer Identification No.)
  incorporation or organization)


414 13th Street, Suite 400, Oakland, CA                       94612
---------------------------------------                      --------
(Address of principal executive offices)                    (Zip Code)


Issuer's telephone number (510) 452-9144
                          --------------

Securities registered under Section 12(b) of the Exchange Act:

Title of each class                   Name of each exchange on which registered

None
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Securities registered under Section 12(g) of the Exchange Act:


                         Limited Liability Company Units
--------------------------------------------------------------------------------
                                (Title of class)



      Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]

SEC 2337 (12-03)


Persons who are to respond to the collection of information contained in this
form are not required to respond unless the form displays a currently valid OMB
control number.

<PAGE>

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant' s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]

      State issuer's revenues for its most recent fiscal year.   $3,135,029
                                                                -----------

      State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which the
common equity was sold, or the average bid and asked price of such common
equity, as of a specified date within the past 60 days. (See definition of
affiliate in Rule 12b-2 of the Exchange Act.) $38,172,077

Note: If determining whether a person is an affiliate will involve an
unreasonable effort and expense, the issuer may calculate the aggregate market
value of the common equity held by non-affiliates on the basis of reasonable
assumptions, if the assumptions are stated.


     (ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

      Check whether the issuer has filed all documents and reports required to
be filed by Section 12,13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ]


                   (APPLICABLE ONLY TO CORPORATE REGISTRANTS)

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.

------------------------------



                       DOCUMENTS INCORPORATED BY REFERENCE

      If the following documents are incorporated by reference, briefly describe
them and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into
which the document is incorporated: (1) any annual report to security holders;
(2) any proxy or information statement; and (3) any prospectus filed pursuant to
Rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act"). The listed
documents should be clearly described for identification purposes (e.g., annual
report to security holders for fiscal year ended December 24, 1990).

      Certain exhibits filed with Registrant's Registration Statement No.
333-98337 are incorporated by reference into Part III.

      Exhibit Index at page 39.

      Transitional Small Business Disclosure Format (Check one): Yes [ ]; No [X]

<PAGE>

                         YOSEMITE MORTGAGE FUND II, LLC
                    (A California Limited Liability Company)

                              Index to Form 10-KSB




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                                                                            Page
                                     Part I
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Item 1.  Description of Business                                              2
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Item 2.  Description of Property                                             26
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Item 3.  Legal Proceedings                                                   26
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Item 4.  Submission of Matters to a Vote of Security Holders                 26
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                                     Part II
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Item 5.  Market for Common Equity and Related Stockholder Matters            27
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Item 6.  Management's Discussion and Analysis or Plan of Operations          27
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Item 7.  Financial Statements                                                29
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Item 8.  Changes In and Disagreements With Accountants on Accounting
         and Financial Disclosure                                            29
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Item 8A. Controls and Procedures                                             30
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Item 8B. Other Information                                                   30
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                                    Part III
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Item 9.  Directors, Executive Officers, Promoters and Control Persons;
         Compliance with Section 16(a) of the Exchange Act                   43
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Item 10. Executive Compensation                                              45
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Item 11. Security Ownership of Certain Beneficial Owners and Management
         and Related Stockholder Matters                                     45
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Item 12. Certain Relationships and Related Transactions                      45
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Item 13. Exhibits                                                            45
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Item 14. Principal Accountant Fees and Services                              46
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                                       1
<PAGE>

                                     PART I

Item 1.   DESCRIPTION OF BUSINESS

History and Organization

The Registrant was organized as a California limited liability company on March
19, 2001. (The Registrant will be referred to in this Form 10-KSB as "the
Company" or "we.") The Company's registration statement on Form SB-2 covering
its public offering of 5,000,000 units of limited liability company interest
became effective with the Securities and Exchange Commission on March 13, 2003.
Other than organizational, planning and registration activities, we conducted no
business until May 2003, at which time we first acquired mortgage loans for our
portfolio, using the initial proceeds from our public offering. We registered
6,500,000 units, of which 5,000,000 are being offered in the initial public
offering and 1,500,000 units are reserved for possible issuance under the
Company's distribution reinvestment program.

Our Manager is MFP Management LLC, organized as a California limited liability
company on August 20, 2001, and its sole Manager is Steven M. Pontes, who is the
principal owner and Chief Executive Officer of Pontes Financial Group, Ltd., a
California corporation organized in 1987 and a licensed California real estate
broker corporation. All mortgage loans invested in by the Fund are originated by
or through Pontes Financial Group, Ltd., which services those loans for the Fund
and provides it with administrative services. The Manager assigns the fees that
it is entitled to be paid by the Fund to Pontes Financial Group, Ltd.

Our Business Strategy

Our business strategy is designed to generate current income by investing in
mortgage loans. We believe there is a significant market opportunity to make
mortgage loans to owners and developers of real property whose financing needs
are not met by traditional mortgage lenders. Factors that often preclude such
borrowing are perceived credit risks, based on standards created by the lenders,
bank aversion to cyclical conditions in markets, and certain industry risks,
such as environmental issues. The traditional underwriting standards and length
of time required by conventional mortgage lenders such as commercial banks also
result in some potential borrowers who are unable to obtain such financing or
who are unwilling to go through the time consuming process often required by
traditional lenders.

We lend funds to such borrowers provided that they have sufficient equity in the
underlying real estate and otherwise meet our lending criteria. In certain cases
we may make mortgage loans which are riskier than the mortgage loans made by
commercial banks. However, in return we anticipate receiving a higher interest
rate and the Manager takes steps intended to mitigate the risks, such as
imposing a lower loan to value ratio (thereby providing us with a bigger equity
cushion should real estate values drop.)

We believe that by focusing on the value of the underlying real estate that
serves as collateral on our mortgage loans, the Manager can expedite the loan
approval process and approve loans to certain borrowers who might not qualify
for loans from traditional mortgage lenders. The Manager will generally spend
not more than 10 days assessing the character and credit history of our
borrowers. Rather, the Manager focuses its underwriting review on the value of
the collateral which secures our loan.

The mortgage loan business is highly competitive, and the Company competes with
numerous established entities, some of which have significantly more financial
resources and experience in the mortgage lending business than does Steven
Pontes, Pontes Financial Group, Ltd. or the Manager. The principal competitors
are Owens Mortgage Investment Fund, Bar K Mortgage Fund, the Redwood Mortgage
Funds, Southern Pacific Thrift, Cascade Financial Corporation and Cushman
Capital. The Company also has competition from banks, insurance companies,
savings and loan associations, mortgage bankers, pension funds, real estate
investment trusts, other mortgage investment funds and lenders with objectives
similar in whole or in part to those of the Company.

Results of Operations

Following our receipt from the escrow of the first $1,500,000 of proceeds from
our public offering in May 2003 and until December 31, 2004, the Company
received $36,518,399 in Member contributions from sales of our units in the
public offering. As part of its initial plan of operation, the Company proposed
to purchase approximately $31,583,000 of pre-existing mortgages, primarily from
two private mortgage funds affiliated with our Manager. Due to early payoffs by
borrowers of a portion of those pre-existing mortgages, the amount actually
purchased was $22,650,493.

The pre-existing loans that we purchased, using proceeds from our initial public
offering, are described in the table, Pre-Existing Loans Purchased as of
12/31/03, at page 12. The loans are all fixed interest rates, mostly commercial
loans, with a few that are multi-residential or residential. The borrowers are a
mix of developer entities and individuals.

In addition to the purchase of those pre-existing loans, the Company, as of
December 31, 2003, had purchased newly originated


                                       2
<PAGE>

mortgage loans in the total amount of $10,765,000. As of December 31, 2003,
portfolio loans totaling $4,841,859 had been paid off by borrowers prior to
their maturity. In addition, principal payments of approximately $78,000 from
amortized loans were also received in 2003.

During 2004, the Company acquired or originated loans, with interest rates
ranging from 8.75% to 11.75%, totaling approximately $13,600,000. Included in
this amount is $800,000 in which the Company acquired interests in mortgage
loans from the Manager.

The net income and revenues of the Company for the year 2004 were $2,739,344 and
$3,135,029, respectively. For the year 2003, the net income of the Company was
$1,074,256 on total revenues of $1,254,199. Total expenses for 2004 and 2003
were $395,685 and $179,943, respectively.

During 2004, borrowers paid off the following loans:

Loan                   Principal     Interest       Payoff
Number                  Amount         Rate        Month/Year
------                  ------         ----        ----------

3041                 $    236,238      12.75%        6/2004
3064                      193,594      12.50%        7/2004
3092                      775,000      12.75%        8/2004
3094                      280,966      12.75%        6/2004
3095                      243,282      12.50%        7/2004
3101                       25,616      11.75%       10/2004
3105                      295,664      11.25%        1/2004
3108                      265,000      11.75%        6/2004
3115                      418,500      12.68%        7/2004
3116                      723,684      12.75%        5/2004
3118                    1,070,000      12.25%       11/2004
3119                       96,075      12.75%       12/2004
3126                    2,000,000      11.75%        9/2004
3127                      625,000      11.75%        1/2004
3129                      350,000       9.75%        8/2004
3131                      310,000      12.00%        3/2004
3133                    1,350,000      11.75%        9/2004
3138                      565,000      12.00%        6/2004
3142                    1,250,000      12.75%        9/2004
                     ------------
Total                $ 11,073,619
                     ============

Payoffs of loans are attributable to generally lower prevailing mortgage loan
interest rates available in the marketplace, which have resulted in increases of
cash of the Company, from approximately $4,420,000 as of December 31, 2003 to
approximately $8,754,000 as of December 31, 2004. As a result, the public
offering of the Company's units was suspended from April 1,2004 to December 1,
2004, awaiting selection by the Manager of appropriate mortgage loans for the
Company's portfolio.

As of December 31, 2004, the following loans were in default:

        Loan                 Total Principal          Company      Interest
        Number                   Amount              Ownership       Rate
        ------                   ------              ---------       ----
        3077                   $  1,110,000        $     965,217     12.75%
        3107                        550,000              550,000     11.75%
        3143                      3,500,000            2,150,000     12.75%
        3144                      6,075,000            4,975,000     12.75%
                               ------------        -------------
        Total                  $ 11,235,000        $   8,640,217
                               ============        =============


                                       3
<PAGE>

The borrower of loan #3077 has failed to make their payments on a timely basis
beginning with the payment due August 1, 2004. The Manager has advanced all
payments and since has received repayment from the borrower for two of these
advances. The Company filed a notice of default against the borrower on October
22, 2004, and the trustee sale date is scheduled for March 7, 2005. The Manager
believes the proceeds from a liquidation will be sufficient to pay all past due
payments including the default interest rate, late charges, principal and all
expenses related to collection. Because the Manager has agreed to advance the
borrower payments on an ongoing basis, the Company continues to accrue interest
on this loan.

Loan #3107 is currently not performing and was scheduled for trustee/foreclosure
sale on July 20, 2004. However, on July 16, 2004, the borrower filed for a
reorganization under Chapter 11 of the Bankruptcy Code. Since the borrower's
initial bankruptcy filing, the borrower has converted from a Chapter 11
(Reorganization) to a Chapter 7 (Liquidation) filing. The Company has entered
into a stipulated judgment with the bankruptcy trustee granting the Company
relief from the stay effective March 15, 2005. The Company will proceed with its
trustee sale at that time. Updated valuation research confirms that a full
repayment of principal, interest and expenses are likely upon the sale of the
property securing the Company's loan. Due to the loan being in default, the
Manager has not reflected any accrued interest in the financial statements.

The borrower of Loan #3143 paid only part of the payment due June 1, 2004. The
Manager advanced the remainder of the June 1, 2004 payment, as well as each of
the entire payments due July 1, 2004 through December 1, 2004. As such, the loan
is in foreclosure and had a scheduled sale date of December 7, 2004. Prior to
the sale date, however, an unsecured creditor filed for an involuntary
bankruptcy, Chapter 11 reorganization. The Manager believes the borrower will
either bring the payments current or the proceeds from a liquidation will be
sufficient to pay all past due payments including the default interest rate,
late charges, principal and all expenses related to collection. Due to the
bankruptcy proceedings, the Manager has elected to no longer advance payments on
the loan and accordingly, will not accrue interest on the loan.

Loan #3144 was scheduled for a trustee/foreclosure sale during the third quarter
of 2004. Prior to the sale date, however, the borrower filed for bankruptcy. The
Manager is currently taking legal action to obtain a "Relief from Stay" motion
in order to continue with foreclosure proceedings. On September 7, 2004, the
Manager on behalf of the lenders of the loan, of which the Company represents
81.89% ownership, entered into a sixty-day renewable Option Agreement with a
junior lender secured by the same property. Under the terms of the Option
Agreement, the junior/secondary lender paid a non-refundable fee of $500,000
that was used to pay the lenders for all unpaid and accrued interest and late
fees (at the pre-default rate of 12.75% as well as all costs incurred in
connection with the foreclosure proceedings). The Option Agreement provides the
junior/secondary lender the option to purchase the loan, or the real property
acquired in the event of foreclosure, at a purchase price equaling the unpaid
principal balance of the promissory note plus accrued interest, late fees and
all costs and expenses incurred in connection with the loan documents or real
property, as the case may be, less any amounts paid by the junior/secondary
lender under the Option Agreement. The Manager believes that, either the sale
through the Option Agreement, or the sale through foreclosure will result in
adequate equity to repay the loan including all back payments and costs
associated with the foreclosure. Due to the loan not performing, the Manager has
not reflected any accrued interest in the financial statements.


Our Public Offering

As of December 31, 2004 we have sold a total of 3,833,623 units at $10.00 per
unit, for a total amount of $38,336,230. This includes 3,651,840 units sold in
our initial public offering and 181,783 units issued under our Distribution
Reinvestment Program. The net proceeds to the Company after deducting the
expenses of the offering to December 31, 2004 were $37,806,950, which have been
invested in mortgages or retained as cash. Including payoffs and principal pay
downs, the amount invested in real estate mortgage loans as of December 31, 2004
was approximately $29,455,000. As of December 31, 2004, over $8,754,000 was
invested in cash, awaiting the Manager's selection of appropriate real estate
mortgage loans for the Company's portfolio. No units were sold in the initial
public offering from April 1, 2004 to December 1, 2004, as the Manager suspended
such sales pending availability and selection of mortgage loans suitable for the
Fund's portfolio. From January 1, 2005 to February 25, 2005, the Company
received over $4.1 million in capital contributions, paid member withdrawals of
approximately $739,000, funded over $8 million in new loans and received two
payoffs of loans with combined principal of $865,000.

Current Economic Conditions

The Company's sole business, making loans secured by real estate, is
particularly vulnerable to changes in macroeconomic conditions. Any significant
decline in economic activity, particularly in the geographical markets in which
the loans are concentrated, results in a decline in the demand for real estate
acquisition and development loans. Declines in economic activity are often
accompanied by a decline in prevailing interest rates. Although the Company's
lending rates are not directly tied to the Federal Reserve Board's discount
rate, a sustained and widespread decline in interest rates impacts the interest
rates the Company is able to obtain on loans. Since the Company's loans
generally do not have prepayment penalties, declining interest rates may


                                       4
<PAGE>

motivate borrowers to prepay their loans and the Company may not be able to
reinvest the amounts prepaid in loans generating a comparable yield. Moreover,
any significant decline in economic activity could adversely impact the ability
of borrowers to complete their projects and obtain take out financing. This in
turn could increase the level of defaults the Company may experience.

In general, institutional mortgage rates were very stable throughout 2004. The
Federal Reserve Bank, after 3 years of very accommodating posture in the market
place, signaled in June of 2004 that it would begin raising the discount rate in
a steady and measured fashion. The Fed has since raised rates a total of 6 times
in all for a total of 1.5% (to 2.5%) as of February 15, 2005. By comparison the
Fed Funds rate was 1% as of 12/31/03 and 2.5% as of February 22, 2005. The prime
rate has increased from 4% to 5.5% during this same period.

In spite these increases in rates liquidity has remained robust and availability
of mortgage funds plentiful. Ironically, while the rates mentioned above have
increased dramatically on a percentage basis, the 10-year bond has remained very
stable. The 10-year rate as of 12/31/03 was 4.25% and 4.27% as of February 22,
2005.

Along with the continued stream of liquidity resulting from the accommodating
Fed Reserve's posture, real estate values have increased dramatically in the
past year and continue to do so in many markets. The Manager believes that real
estate values at current levels are inflated and unsustainable.

With the exception of the Dividend Reinvestment Program, the Fund was closed to
new investments from March 1, 2004 through December 1, 2004. The fund remained
closed for the majority of the year while management continued to secure
suitable mortgage investments for the fund and to avoid dilution of the yield by
having funds sitting idle in low yielding money market accounts. The fund
re-opened for a brief period of time during the month of December.

The market place for the types of loans the fund seeks as improved over the past
several months. Payoffs have slowed dramatically and the fund has been
successful in originating new loans meeting its criteria.

Twelve Month Plan of Operations

During the 12 months from January 1, 2005, the Manager and its affiliate, Pontes
Financial Group, Ltd., will be seeking to originate mortgage loans for our
investment portfolio and will also assist us by obtaining, processing and
managing those loans for us. The number of loans in which we invest will depend
upon our available cash, additional gross proceeds raised in our offering, as
well as the availability of suitable loans for our investment portfolio.

We do not anticipate hiring any employees, acquiring any fixed assets such as
office equipment or furniture, or incurring material office expenses during the
next 12 months because we will be utilizing the personnel and office equipment
of Pontes Financial Group, Ltd., at no charge to us. Under our operating
agreement the Manager is entitled to receive a flat, annual management fee of up
to 0.75% of the aggregate capital contributions of our Members and an annual
loan servicing fee of up to 0.25% of the outstanding principal amount of the
mortgages in our portfolio that are serviced by the Manager or Pontes Financial
Group, Ltd. The Manager waived the management fee for the years 2003 and 2004.
It has assigned the loan servicing fee to Pontes Financial Group, Ltd.

Our loans will be a combination of fixed and variable rate, secured loans. We
will not engage in hedging transactions or acquire derivative instruments in an
effort to mitigate risks of interest rate changes. While we believe such hedging
transactions are not necessary in light of the short term nature of our
investments, failure to engage in hedging transactions may expose us to losses
if there are significant changes in prevailing interest rates.

Investment Objectives and Policies

As a non-conventional lender, we are more willing to invest in mortgage loans to
borrowers that conventional lenders would not deem to be creditworthy, and we
rely primarily on loan to value ratios. Because of our increased willingness to
fund riskier loan types and borrowers, borrowers have been willing to pay us an
interest rate that is 3-5 points above the rates charged by conventional
lenders.

Our principal investment objectives are to:

      o     Preserve and return investors' capital contributions;

      o     Produce revenues from the interest income on our mortgage loans;

      o     Provide quarterly cash distributions to investors from the net
            income earned on our mortgage loans; and


                                       5
<PAGE>

      o     Reinvest to the extent permissible payments of principal and
            proceeds of prepayments, sales and insurance proceeds, net of
            expenses.

We cannot assure that we will achieve these objectives or that investors'
capital will not decrease. The Manager may change the overall investment
strategy, subject to the fiduciary obligations that it owes to all members.
However, the Manager may not change the investment objectives above, except upon
majority approval of the Members. The Manager has no authority to do anything
that would impair our ability to carry on our ordinary business as a mortgage
investor.

Loan Acquisition and Investment Policies

We will seek to invest substantially all of our offering proceeds and
distribution reinvestments in mortgage loans, after paying applicable fees and
expenses. Of the offering proceeds, we expect to invest at least 95% in mortgage
loans if the maximum offering is sold, not including approximately 3% that will
be held as a working capital cash reserve.

The collateral on our mortgage loans will be the real property that the borrower
currently owns. However, occasionally we will take collateral other than real
property, such as leasehold improvements, in addition to the primary collateral.
We sometimes refer to these real properties as the security properties. While we
may invest in other types of loans, most of the loans in which we invest will
have been made to real estate developers, with a lesser proportion of loans
involving land loans and bridge financing.

We will not give any rebates or enter into any reciprocal agreement with the
Manager or any of its affiliates that enables the Manager or its affiliates to
receive a rebate. Our mortgage investments are not insured or guaranteed by any
government agency.

The Manager will continuously evaluate prospective investments, select the
mortgages in which we invest and make all investment decisions on our behalf in
its sole discretion, unless the operating agreement provides otherwise. You are
not entitled to act on any proposed investment. In evaluating prospective
mortgage loan investments, the Manager considers such factors as the following:

      o     the ratio of the amount of the investment to the value of the
            property by which it is secured;

      o     the previous business and borrowing experience of the borrower;

      o     the potential for capital appreciation or depreciation of the
            property securing the investment;

      o     expected levels of rental and occupancy rates (if applicable);

      o     potential for rental increases (if applicable);

      o     current and projected revenues from the property;

      o     the status and condition of the record title of the property
            securing the investment;

      o     geographic location of the property securing the investment; and

      o     the financial condition of the borrowers and their principals, if
            any, who guarantee the loan.

The Manager may obtain our loans from non-affiliated mortgage brokers and
previous borrowers, and by solicitation of new borrowers in those states where
permissible. We may purchase existing loans that were originated by third party
lenders and acquired by the Manager to facilitate our purchase of the loans. The
Manager will sell the loans to us for no greater than the Manager's cost, not
including its service fees and compensation. There are no specific requirements
or guidelines governing the Manager's discretion in determining which mortgage
loans it will place with the Fund and which it will place with other funding
sources.

When selecting mortgage loans for us, the Manager will adhere to the following
guidelines, which are intended to control the quality of the collateral given
for our loans:

1.   Priority of Mortgages. We anticipate investing up to 60% of our assets in
     secured first mortgages, with the balance primarily in second mortgages.
     With rare exceptions, other mortgages that we invest in on the security
     property will not be junior to more than one other mortgage. The only
     subordinated mortgages we currently intend to invest in at this time are
     second mortgages, although in the future we may invest in wraparound, or
     all-inclusive, mortgages, which may be more junior than second mortgages.


                                       6
<PAGE>

2.   Loan-to-Value Ratio. We do not anticipate that the amount of our loans
     combined with the outstanding debt secured by a senior mortgage on a
     security property will exceed the following percentage of the appraised
     value of the security property at the time of funding:

<TABLE>
<CAPTION>
     Type of Secured Property                         Loan-to-Value Ratio
     -------------------------------                  -------------------------
     <S>                                              <C>
     Residential                                      70%
     Unimproved Land                                  50%
     Commercial                                       70%
     Property under Development/Construction Loan     70% (of anticipated post-development value)
     Leasehold Interest                               70% (of value of leasehold interest)
</TABLE>

The Manager, in its discretion, may increase any of the above loan-to-value
ratios if a given loan is supported by credit adequate to justify a higher
loan-to-value ratio, including personal guarantees. Occasionally, our collateral
may include personal property as well as real property. We do not have specific
requirements with respect to the projected income or occupancy levels of a
property securing our investment in a particular loan. These loan-to-value
ratios will not apply to financing offered by us to the purchaser of any real
estate acquired through foreclosure, or to refinance an existing loan that is in
default when it matures. In those cases, the Manager, in its sole discretion,
shall be free to accept any reasonable financing terms it deems to be in our
best interest. Nevertheless, in no event will the loan-to-value ratio on any
loan exceed 80% of the independently appraised completed value of the property.
The target loan-to-value ratio for our loan portfolio as a whole is
approximately 65%.

We will obtain an independent appraisal for each property to be security for our
investment. Copies of these appraisals will be available for review at the
offices of the Manager for a period of six (6) years. We will retain appraisers
who will be licensed or qualified as independent appraisers and be certified by
or hold designations from one or more of the following organizations: The
Federal National Mortgage Association, the Federal Home Loan Mortgage
Corporation, the National Association of Review Appraisers, the Appraisal
Institute, the Society of Real Estate Appraisers, M.A.I., Class IV Savings and
Loan appraisers or from among appraisers with other qualifications acceptable to
the Manager. However, appraisals are only estimates of value and cannot be
relied on as measures of realizable value. An employee or agent of Pontes
Financial Group, Ltd. will review each appraisal report and will conduct a
comprehensive physical inspection for each property. A comprehensive physical
inspection includes an assessment of the subject property, the adjacent
properties and the neighborhood and includes entering any structures on the
subject property.

3.   Terms of Mortgage Loans. Most of our loans will be for one to five years.
     We anticipate that up to 90% of our loans will provide for payments of
     interest only, with a balloon payment of principal payable in full at the
     end of the term.

4.   Escrow Conditions. Our loans will often be funded by us through an escrow
     account held by a title insurance company, subject to the following
     conditions:

      o     Borrowers will obtain title insurance coverage for all loans, with
            the title insurance policy naming us as the insured and providing
            title insurance in an amount at least equal to the principal amount
            of the loan. Title insurance insures only the validity and priority
            of our deed of trust, and does not insure us against loss by other
            causes, such as diminution in the value of the security property.

      o     Borrowers will obtain fire and casualty insurance for all loans
            secured by improved real property, naming us as loss payee in an
            amount sufficient to cover the replacement cost of improvements.

      o     All insurance policies, notes, deeds of trust or mortgages, escrow
            agreements and any other loan document for a particular transaction
            will name us as payee and beneficiary. Mortgage loans will not be
            written in the name of the Manager or any other nominee, unless and
            to the extent, they invest in said loans.

5.   Purchase of Mortgage Investments from Affiliates. We may acquire mortgage
     loans from our affiliates, including the Manager, for a price not in excess
     of the par value of the note or its fair market value, whichever is lower,
     plus allowable fees and expenses, but without the allowance of any other
     compensation for the loans. Except for the compensation paid to the Manager
     described elsewhere in this prospectus, any affiliate from which we
     purchase mortgage loans will remit to us all income it earns from the
     mortgage loan while the loan is in its portfolio.

6.   Note Hypothecation. We may also acquire mortgage loans secured by
     assignments of secured promissory notes. These mortgage loans must satisfy
     our stated investment standards, including our loan-to-value ratios. For
     mortgage loans secured by promissory notes, we will rely on the appraised
     value of the underlying property, as determined by an independent written
     appraisal which was conducted within the then-preceding twelve months. If
     an appraisal was not conducted within that period, then we will arrange for
     a new appraisal to be prepared for the property.


                                       7
<PAGE>

7.    Participation. We may also participate in loans with other lenders,
      including affiliates as permitted by The Mortgage Program Guidelines of
      the North American Securities Administrators Association (NASAA
      Guidelines), by providing funds for or purchasing an undivided interest in
      a loan meeting our investment guidelines described above. We would be
      likely to participate in loans if, for example:

      o     we did not have sufficient funds to invest in an entire loan.

      o     we received offering proceeds that were insufficient to adequately
            diversify our portfolio.

      o     the Manager originated a loan that fit within our investment
            guidelines but it would constitute more than 20% of our anticipated
            capital contributions or otherwise be disproportionately large given
            our then existing portfolio.

      We will participate in loans with non-affiliates if we acquire a
      controlling interest, alone or with any of our publicly registered
      affiliates meeting the requirements below, in such participation. We
      presently have no publicly registered affiliate. A controlling interest
      would enable us to direct or cause the direction of the management and
      policies of such participation, which would include the authority to:

      o     review all material contracts;

      o     cause a sale of the mortgage or our interest therein subject in
            certain cases to limitations imposed by the participation agreement
            between the parties;

      o     approve budgets and major capital expenditures, subject to a stated
            minimum amount;

      o     veto any sale of a mortgage, or alternatively, to receive a
            specified preference on sale or proceeds; and

      o     exercise a right of first refusal on any desired sale by a
            participant of its interest in a loan except for transfer to its
            affiliate.

      In the event of participation with a publicly registered affiliate, the
      investment objectives of the participants shall be substantially
      identical. There shall be no duplicate fees. The compensation to the
      sponsors must be substantially identical, and the investment of each
      participant must be on substantially the same terms and conditions. Each
      participant shall have a right of first refusal to buy the other's
      interest if the co-participant decides to sell its interest. We will not
      invest in joint ventures with or purchase interests of affiliates.

      We will not give the Manager or any of its affiliates any consideration
      similar to rebates or give-backs or enter into reciprocal arrangements
      with the Manager or its affiliates that might be entered into in lieu of
      participations.

8.    Diversification. No single mortgage loan will exceed 20% of our
      anticipated capital contributions. Additionally, mortgage loans in favor
      of any one borrower or any one property, in the aggregate, will not exceed
      20% of the capital to be raised.

9.    Reserve Fund. We will establish contingency working capital reserves of
      approximately 3% of the gross proceeds of this Offering to cover our
      unexpected cash needs.

10.   Credit Evaluations. Before making a loan, the Manager must first determine
      that a borrower has sufficient equity in the security property to meet the
      loan-to-value ratios described above. The Manager may also consider the
      income level and creditworthiness of a borrower to determine its ability
      to repay the mortgage loan.

No Sale of Foreclosed Properties to the Manager.

We will not sell foreclosed properties to the Manager or to any affiliate of the
Manager or to any other mortgage program in which the Manager has an interest.

Mortgage Loans to Affiliates

We will not invest in mortgage loans made to the Manager or any of its
affiliates. However, we may hold an investment in a mortgage loan payable by the
Manager or an affiliate when it has assumed the obligations of the borrower
under that loan, either by purchasing the loan or an interest therein to prevent
a default or foreclosure, or has purchased the loan after a foreclosure.


                                       8
<PAGE>

Types of Loans We Intend to Invest In

We primarily invest in loans which will be secured by first or second mortgages
on real property. Such loans fall into the following categories: raw and
unimproved land, acquisition and development, construction, commercial,
residential and bridge loans, as follows.

      o     Commercial Property Loans

We expect approximately 65% of the loans invested in by us to be commercial
property loans. Commercial loans provide funds to allow property owners the
capital needed for their businesses, renovate and upgrade the property, and
address other current capital needs. Many of the commercial property loans
provided by the Fund may be secured by properties in which the borrowers operate
their businesses. Subject to the Funds' normal underwriting standards, we will
invest in these loans up to 70% of the appraised value of the property.

      o     Construction Mortgage Loans

We anticipate that we will invest in construction loans other than home
improvement loans on residential property, subject to the following guidelines:

We do not anticipate that the loan-to-value ratio on construction loans in which
we invest will exceed 70% of the independently appraised, completed value of the
security property. This serves to mitigate the risk of these loans that a
borrower-developer may not be able to complete the project on the securing
property.

      o     Multi-Residential Loans

We intend that approximately 20% of the loans invested in by us will be loans
secured by improved multi-residential properties. These loans typically provide
funds to the borrower to renovate properties, provide capital for short-term
needs, and to pay off existing financing. Subject to the Funds' normal
underwriting guidelines, we will generally invest in these loans up to 70% of
the appraised value of the property.

      o     Acquisition and Development Loans

We expect that approximately 15 to 20% of the loans invested in by us may be
acquisition and development loans. The types of properties securing such loans
may be raw land, unimproved land with off-site improvements, and existing
properties deemed appropriate for renovation and re-use renovations. The loans
provide borrowers with the funds necessary to plan, execute, and complete the
development, construction, and renovation plans. We will generally invest in
these loans up to 70% of the appraised value of the property; by doing so, the
Manager seeks to mitigate the risk of non-development of the property.

      o     Residential Loans

The Fund will not as a general rule pursue single-family residential loans;
however, in many cases the Fund will endeavor to obtain such properties as
additional collateral for other type loans. In some instances they will be the
primary collateral. The Fund may invest in these loans secured by single-family
residences up to 70% of the appraised value.

      o     Collateral

The types of collateral that normally will secure the loans brokered by us
include a first deed of trust, a second deed of trust or a leasehold interest.

      o     First Mortgage Loans

Loans invested in by us that are secured by a first deed of trust on real
property give us rights as a first mortgage lender on the collateralized
property.

      o     Second and Wraparound Mortgage Loans

Up to 60% of the loans invested in by us may be in second mortgage loans and in
wraparound mortgage loans. In a second mortgage loan, the rights of the lender
(such as the right to receive payment on foreclosure) will be subject to the
rights of the first mortgage lender. In a wraparound loan, the lender's rights


                                       9
<PAGE>

will be comparably subject to the rights of a first mortgage lender, but the
aggregate indebtedness evidenced by the loan documentation will be the first
mortgage loan plus the new funds the lender invests. The lender would receive
all payments from the borrower and forward to the senior lender its portion of
the payments the lender receives. The increased risk carried by other than first
mortgage loans is sought to be mitigated by the Manager by maintaining a loan to
value of 70% or less.

      o     Third Mortgage Loans

On rare occasions, we may invest in a loan that is subject to the rights of the
first and second lender.

      o     Interest-Only Loans with Balloon Payments at Maturity

Balloon payment loans carry the risk that the borrower may not be able to make
the balloon payment when due at the end of the loan. The Manager seeks to
mitigate this risk by emphasis on adequate value of the securing property.

      o     Leasehold Interest

Loans on leasehold interests are secured by an agreement of the borrower's
leasehold interest in the particular real property. Leasehold interest loans are
usually combined with first or second mortgage loans secured by additional
collateral to mitigate the risk from leasehold interest-only loans.

Repayment of Mortgages on Sales of Properties

We require by contract a borrower to repay a mortgage loan upon the sale of the
mortgaged property rather than allow the buyer to assume the existing loan. We
will either invest our net proceeds from any capital transaction in new mortgage
loans, hold the net proceeds as cash or distribute them to the members. These
net proceeds will also include the principal of a loan deemed to be repaid for
tax purposes as a result of the nature of a loan modification or loan extension.
Our operating agreement provides that whether we choose to distribute the
proceeds or reinvest them, investors will be deemed to have received a
distribution of capital and recontributed the same amount to us. Capital
transactions include payments of principal, foreclosures and prepayments of
mortgages, to the extent classified as a return of capital under the Internal
Revenue Code, and any other disposition of a mortgage or property.

Variable Rate Loans

Variable rate loans originated by the Manager may use as indices the one and
five year Treasury Constant Maturity Index, the Prime Rate Index and the Monthly
Weighted Average Cost of Funds Index for Eleventh District Savings Institutions
(Federal Home Loan Bank Board). The Manager may negotiate spreads over these
indices of 2.5% to 5.5%, depending upon market conditions when the loan is made.

It is possible that the interest rate index used in a variable rate loan will
rise (or fall) more slowly than the interest rate of other loan investments
available to us. The Manager attempts to minimize this interest rate
differential by tying variable rate loans to indices that are sensitive to
fluctuations in market rates. Additionally, variable rate loans originated by
the Manager contain provisions under which the interest rate cannot fall below
the initial rate.

Interest Rate Caps

Our variable rate loans usually have interest rate caps. We anticipate that the
interest rate cap will be a ceiling that is 2-4% above the initial rate with a
floor rate equal to the start rate. For these loans there is the risk that the
market rate may exceed the interest cap rate.

Borrowing

We may borrow money:

      o     to finance our investments in mortgage loans,

      o     to prevent a default under mortgage loans that are senior to our
            mortgage loans,

      o     to discharge senior mortgage loans if this becomes necessary to
            protect our investment in mortgage loans, or

      o     to operate or develop a property that we acquired under a defaulted
            loan.


                                       10
<PAGE>

At no time will our indebtedness exceed 70% of the fair market value of our
mortgage loans. This indebtedness may be with recourse to our assets. As of the
date of this Form 10-KSB, we have not created any indebtedness and have no plan
to do so at this time.

In addition, we may enter into structured arrangements with lenders in order to
provide them with a senior position in mortgage loans which we might jointly
fund. For example, we might establish a wholly-owned special purpose corporation
which would borrow funds from an institutional lender under an arrangement where
the resulting mortgage loans would be assigned to a trust, and the trust would
issue a senior certificate to the institutional lender and a junior certificate
to the special purpose corporation. This would assure the institutional lender
of repayment in full prior to our receipt of any repayment on the jointly funded
mortgage loans.

No Trust or Investment Company Activities

We have not qualified as a real estate investment trust under the Internal
Revenue Code, and therefore we are not subject to the restrictions on its
activities that are imposed on real estate investment trusts. We believe that we
conduct our business so that we are not an investment company within the meaning
of the Investment Company Act of 1940, which provides an exemption from
registration and regulation to us and companies like us that operate real estate
and mortgage investment funds and that do not redeem their outstanding
securities at net asset value. We do, however, repurchase limited amounts of our
units from our members under certain circumstances. See page 44 of our
prospectus, Repurchase of Units, Withdrawal From the Fund.

Various Other Policies and Procedures

Without approval of a majority of the members, we will not:

      o     issue securities senior to the units or issue any units or other
            securities for other than cash;

      o     invest in the securities of other issuers for the purpose of
            exercising control, except when exercising our rights as a secured
            lender; or

      o     underwrite securities of other issuers.

Regulation

Our operations are conducted by the Manager, which is affiliated with Pontes
Financial Group, Ltd., a licensed real estate broker with the California
Department of Real Estate. Our loans secured by California real property will be
acquired through the services of Pontes Financial Group, Ltd. The supervision of
Pontes Financial Group, Ltd. by the California Department of Real Estate
involves the filing of reports and inspections of its records.

We and the Manager are subject to the Equal Credit Opportunity Act of 1974,
which prohibits creditors from discriminating against loan applicants on the
basis of race, color, sex, age or marital status, and the Fair Credit Reporting
Act of 1970, which requires lenders to supply applicants with the name and
address of the reporting agency if the applicant is denied credit. We are also
subject to various other federal and state securities laws regulating the
issuance and sale of securities, as well as the Employee Retirement Income
Security Act of 1974. Should the Manager not adhere to these regulations, it or
the Company could face potential disciplinary or other civil action that could
have a material adverse effect on our business. The Manager believes that these
regulations are being complied with. The indemnification provisions described in
Item 5 Part II of the Form 10-SB, which allow the Manager to obtain repayment of
its liabilities and costs from the Fund that it incurs on the Fund's behalf in
limited circumstances, do not allow any such indemnification where the Manager's
damages result from its negligence or misconduct.

Loans Purchased From Affiliates of the Manager and Non-Affiliated Persons

The following table describes as of December 31, 2003, the pre-existing mortgage
loans that the Fund has purchased. These loans, or interests in the loans, were
owned by PFG, Ltd. Sterling 1995 Limited Partnership, a California limited
partnership, whose general partner was Steven Pontes, and Yosemite Mortgage
Fund, LLC, a California limited liability company, whose manager was Pontes
Financial Group, Ltd., and other non-affiliated loan investors. Pontes Financial
Group, Ltd. paid cash for and owned less than a 1% capital interest in Yosemite
Mortgage Fund, LLC, and Steven Pontes paid cash for and owned a 1% capital
interest in PFG Ltd. Sterling 1995 Limited Partnership. The limited partnership
and limited liability company were liquidated and dissolved as of December 31,
2003, following the Fund's purchase of their mortgage loan portfolios. During
2004, the Company purchased interests in mortgage loans from the Manager in the
amount of $800,000.


                                       11
<PAGE>

                   Pre-Existing Loans Purchased as of 12/31/03

<TABLE>
<CAPTION>
   Loan                              Property           Date
  Number         Borrower            Location          Orig(a)   LTV(b) Int(c)
------------------------------------------------------------------------------
<S>         <C>                <C>                     <C>       <C>    <C>
3041        Morton             Taft, CA                07/31/98    58%  12.75
3053        Stuvland           Berkeley, CA            07/15/99    57%  13.00
3054        Dry Creek Inn      Healdsburg, CA          07/15/99    58%  12.75
3055        Ratanjee           Antioch, CA             09/09/99    61%  12.50
3064        Ellis              Berkeley, CA            01/25/00    59%  12.50
3073        Homewood           Homewood, CA            08/16/00    49%  12.00
3077        SF Rawhide         San Francisco, CA       11/09/01    63%  12.75
3080        Olivet             Oakland, CA             02/09/01    65%  12.75
3081        Olivet             Oakland, CA             02/09/01    65%  12.75
3092        Flag City          Lodi, CA                05/04/01    41%  12.75
3094        Morton             Taft, CA                05/17/01    60%  12.75
3095        Ellis              San Francisco, CA       05/16/01    43%  12.50
3096        Goldenberg         Napa, CA                08/30/01    59%  13.00
3099        Gandhi             Pleasanton, CA          07/18/01    66%  13.75
3101        Thomas             San Leandro, CA         08/08/01    61%  11.75
3102        Danelen            Watsonville, CA         02/12/02    67%  10.75
3105        Alexander          Oakland, CA             11/30/01    66%  10.25
3107        Manhattan Beach    Rockaway Beach, OR      02/28/02    66%  11.00
3108        Thomas             San Leandro, CA         03/06/02    49%  11.75
3110        Porto Bodega       Bodega Bay, CA          05/10/02    66%  11.75
3111        Azari              Berkeley, CA            05/08/02    57%  11.00
3112        Jackson-Encinal    Oakland, CA             04/30/02    60%  12.00
3115        Mattos             Hayward, CA             07/03/02    63%  12.50
3116        Stadium-Aldar      Berkeley, CA            07/17/02    64%  12.75
3118        Napa Valley
             Athletic          Napa, CA                08/16/02    65%  11.50
3119        Willett            Oakland, CA             10/08/02    64%  12.75
3121        Dosanjh            Hayward, CA             09/26/02    65%  12.00
3125        Spencer            Tulare, CA              01/24/03    60%  11.75
3126        Danelen            San Jose, CA            02/14/03    22%  10.00
3127        Punla              San Francisco, CA       03/04/03    67%  11.75
3128        Weber              Alamo, CA               02/27/03    51%  11.25
3129        OSR Investors      Napa, CA                04/01/03    67%   9.75
3131        Nappaland, Inc.    St. Helena, CA          02/27/03    47%  12.00
3133        Brugnara           San Francisco, CA       03/21/03    42%  11.75

<CAPTION>
   Loan      Mat.              Loan         Original Loan    Purchase
  Number     Date(d)   PT(e)  Type(f)  SP(g)   Amount         Price(h)
----------------------------------------------------------------------
<S>         <C>        <C>    <C>     <C>   <C>               <C>
3041         8/1/2003   C     Amrt.   1; 2        675,000      387,349
3053         9/1/2004   MR     Int.     1         425,000      325,000
3054         7/1/2006   C     Amrt.     2       1,600,000    1,409,196
3055        10/1/2004   C     Amrt.     2       1,270,000      726,679
3064         2/1/2007   C     Amrt.   1; 2        470,000      401,995
3073         9/1/2005   C      Int.   1; 2      2,500,000    1,424,400
3077        12/1/2005   C      Int.   1; 2      1,150,000      965,217
3080         3/1/2006   C     Amrt.   1; 2        200,000      188,907
3081         3/1/2006   C     Amrt.   1; 2        650,000      607,469
3092         5/1/2004   C      Int.     1         775,000      775,000
3094         8/1/2003   C     Amrt.   1; 2        302,258      280,966
3095         2/1/2007   C     Amrt.   1; 2        290,000      262,192
3096        10/1/2006   C      Int.   1; 2      1,385,000      755,000
3099         9/1/2006   R      Int.     2         485,000      235,000
3101         9/1/2006   MR     Int.     1         730,000      430,000
3102         3/1/2007   C     Amrt.     1         465,000      450,882
3105        12/1/2006   R      Int.     1       1,430,000      295,664
3107         2/1/2008   R      Int.     1         550,000      550,000
3108         3/1/2007   MR     Int.     2         265,000      265,000
3110         5/1/2004   C      Int.     1       2,250,000    1,405,000
3111        11/1/2002   C      Int.   1; 2        650,000      650,000
3112         5/1/2007   C      Int.   1; 2      2,000,000    1,000,000
3115         8/1/2007   C      Int.     2         655,000      418,500
3116         8/1/2005   C      Int.   1; 2      1,900,000    1,250,000
3118         9/1/2007   C      Int.     2       1,070,000    1,070,000
3119        9/16/2007 R, MR    Int.     2         650,000       96,076
3121        9/23/2007   C      Int.     1         715,000      415,000
3125         2/1/2006   C      Int.   1; 2      2,550,000    2,000,000
3126         3/1/2005   C      Int.     1         570,000      425,000
3127         3/1/2008   C      Int.     2         750,000      125,000
3128         3/1/2003  R, C    Int.     2       2,000,000    1,050,000
3129         4/1/2008   C      Int.     1       1,650,000      350,000
3131         4/1/2008   C      Int.     2         300,000      310,000
3133        10/1/2004   R      Int.     1       2,500,000    1,350,000

                                                            22,650,492
                                                            ==========
</TABLE>

(a)   Date Orig: Origination Date principal & interest;

(b)   LTV (Loan to Value): The ration of the amount of loan to balloon principal
      the underwritten value of the property securing the loan

(c)   Int: Interest rate

(d)   Mat Date: Maturity Date

(e)   PT (Property Type): C - Commercial;
                          M - Multi-Residential; purchase
                          R - Residential loan.

(f)   Loan Type: Amrt. - Amortized payments of principal & Int. - Payments of
      interest only, balloon payment

(g)   SP (Secured Position): 1 - First mortgage;
                             2 - Second mortgage

(h)   Purchase Price: Amount paid by the Company to purchase the loan.


                                       12
<PAGE>

MANAGEMENT

Our Management

Steven M. Pontes, age 50, is the sole manager of MFP Management, LLC, a
California limited liability company organized on August 20, 2001 for the
primary purpose of acting as the Manager of the Fund. Mr. Pontes has been the
chief executive officer and principal owner of Pontes Financial, Group, Ltd., a
financial services firm and a California licensed real estate broker
corporation, since it was founded in 1987. Mr. Pontes also founded PFG
Investment Services, Inc. in 1996, which registered with the SEC as an
investment adviser on March 22, 2001. Mr. Pontes has been a director of that
company since it's founding, but he does not participate in the day-to-day
conduct of its business. Under an agreement dated December 31, 2004, Mr. Pontes
sold his 50% interest in PFG Investment Services, Inc. to the remaining
shareholder, Bradley Sasser. Mr. Pontes holds a life and disability insurance
agent license from the California Department of Insurance.

Pontes Financial Group, Ltd. and PFG Investment Services, Inc. provide financial
advisory and investment management services to individuals, families,
corporations and other institutions. Their offices are in a seven-story downtown
Oakland office building owned by Real Estate Recovery Associates-13th Street,
LLC, an affiliate of Mr. Pontes, and together they employ approximately ten
people. There is no lease or other agreement for the office space. Among the
business activities of Pontes Financial Group, Ltd. is twenty years in real
estate mortgage lending. During that period, they and their clients have
participated in placing and investing in more than $150 million in real estate
secured loans in California. As part of these investments, Mr. Pontes and Pontes
Financial Group, Ltd. have sponsored and managed several private mortgage
lending limited partnerships and limited liability companies in California. For
more information, see the prospectus under Management - Prior Experience on page
29.

Mr. Pontes devotes more than 40% of his full working time and efforts to
management activities for Yosemite Mortgage Fund II, LLC. Loss of Mr. Pontes'
services would require that, if the other owners of MFP Management LLC, our
Manager, do not replace Mr. Pontes, the Company would be required to either
designate a successor manager, requiring a majority vote of the Members (see the
prospectus page 41, Voting and Other Rights of Members), or liquidate and
dissolve the Fund.

Chart of Interrelationships Among Affiliates of Manager

<TABLE>
<CAPTION>
<S>                                          <C>                                      <C>
                                             --------------------------------------
                                                       Steven M. Pontes
                                                         (Individual)
                                             --------------------------------------



------------------------------------------   --------------------------------------  ----------------------------------
      Pontes Financial Group, Ltd.                    MFP Management LLC               PFG Investment Services, Inc.
        (California corporation)                       (California LLC)                  (California corporation)
Steven Pontes, CEO and controlling owner          Steven Pontes, sole Manager             Steven Pontes, Director
                                                    and 30% interest owner,                    and 50% owner
                                                  as trustee of family trust            Bradley Sasser, President,
                                                                                                 Director
------------------------------------------   --------------------------------------  ----------------------------------

                        Mortgage Services                   Manager

                                             --------------------------------------
                                                  Yosemite Mortgage Fund II, LLC
                                                        (California LLC)
                                                  MFP Management, LLC, Manager
                                             --------------------------------------
</TABLE>


The Manager's Role

The Manager manages and controls our affairs and has responsibility and final
authority in almost all matters affecting our business. These duties include
dealings with members, accounting, tax and legal matters, communications and
filings with regulatory agencies and all other needed management and operational
duties. The Manager has complete authority and responsibility for:

      o     evaluating and choosing the mortgage loans in which we will invest;

      o     deciding what agreements we will enter into and whether we will
            enter into joint ventures with other companies to invest in mortgage
            loans;

      o     originating, servicing and managing our mortgage loan investments;
            and

      o     managing all our other operations.


                                       13
<PAGE>

Notwithstanding that the Manager has the broad authority described above,
neither it directly nor Mr. Pontes indirectly may do any of the following:

      o     impair our ability to carry on or change the nature of our business;

      o     admit a Manager without prior approval of a majority of the members;

      o     sell all or over 50% of our assets or dissolve the Fund without
            prior majority approval; and

      o     anything else not permitted in the Operating Agreement.

Investors have no right to participate in the management or control of our
business or affairs other than to exercise the limited voting rights provided
for members in the operating agreement. The Manager has primary responsibility
for the initial selection, evaluation and negotiation of our mortgage loans. The
Manager, through its affiliate, Pontes Financial Group, Ltd., will provide all
executive, supervisory and administrative services for our operations, including
servicing the mortgage loans we hold. Our books and records are maintained by
the Manager, subject to audit by independent certified public accountants.

The Manager is required to maintain a minimum financial net worth of $1,000,000,
in accordance with a provision in our operating agreement. As of December 31,
2004, the financial net worth of the Manager is $1,244,690.

The Manager will cease to be our manager upon its removal, withdrawal or
dissolution, or if it is found to be bankrupt. A majority, excluding the
Manager's interest, can remove MFP Management, LLC as our Manager upon the
following conditions:

      o     if the members have not previously elected an additional Manager,
            the removal will not become effective for at least 120 days
            following the consent or authorizing vote by the majority;

      o     during the 120 days set forth above, a majority can agree in writing
            to continue our business and, within six months following the
            termination date of the last remaining Manager, elect and admit a
            new Manager who agrees to continue our existence; and

      o     the substitution of a new manager shall be effective when the new
            manager accepts in writing the duties and responsibilities of a
            manager.

By majority vote, we may terminate the Manager's interest in the Fund by paying
an amount equal to the then-present fair market value of its interest in the
Fund, which would be its outstanding capital account at such time. The Manager
presently holds no capital account in the Fund, although Pontes Financial Group,
Ltd., as the Initial Member, has made a $1,000.00 capital contribution to the
Fund and the Pontes Financial Group, Ltd., Retirement Trust 401(k) Plan holds
31,877.211 units in the Fund as of February 25, 2005. All payments to a
terminated Manager must be fair and must protect our solvency and liquidity.

If a majority does not designate and admit a new manager within the time
specified, we will dissolve. The Manager may assign its interest, if any, in the
Fund, but our Manager may not be changed except as set forth above.

The Manager, acting through its General Manager, Steven Pontes, considers and
evaluates prospective loans for us. In that regard, the Manager evaluates the
credit of prospective borrowers, analyzes the return to us of potential mortgage
loan transactions, reviews property appraisals and determines which types of
transactions appear to be most favorable to us. We will not establish our own
underwriting standards and will solely rely on the Manager to provide such
services.

The Manager identifies a potential loan and then Pontes Financial Group, Ltd.
processes the application. When processing a loan, Pontes Financial Group, Ltd.
will

      o     order and review a property title search,

      o     perform a comprehensive property inspection,

      o     obtain an appraisal which is reviewed for reasonableness,

      o     conduct its own in-house appraisal, and

      o     perform credit underwriting through borrower interviews, credit
            reports and review of borrower and principals' financials.


                                       14
<PAGE>

After Pontes Financial Group, Ltd. processes the loan, the Manager will acquire
the loan for the Fund from Pontes Financial Group, Ltd. or directly from the
borrower.

After we acquire mortgage loans, the Manager also manages our mortgage loan
portfolio. The Manager is responsible for:

      o     reviewing loans;

      o     recommending changes in loans;

      o     employing and supervising employees who handle the loans;

      o     preparing and reviewing projected performance;

      o     reviewing reserves and working capital;

      o     collecting and maintaining all loans;

      o     creating and implementing investment policies in furtherance of
            those contained in the operating agreement;

      o     preparing and reviewing budgets, economic surveys, cash flow and
            taxable income or loss projections and working capital requirements;

      o     preparing and reviewing reports for securities filings, distribution
            to our members or otherwise;

      o     communicating with members;

      o     supervising and reviewing our bookkeeping, accounting and audits;

      o     supervising and reviewing the preparation of our state and federal
            tax returns; and

      o     supervising professionals employed by us, including attorneys,
            accountants and appraisers.

Prior Experience

Pontes Financial Group, Ltd. is licensed in California as a real estate broker
corporation, and Steven M. Pontes is the corporation's licensed broker and
designated officer with the California Department of Real Estate. The Department
of Real Estate monitors the mortgage lending activities of the corporation and
Mr. Pontes, and they are subject to on-site examinations and record maintenance
and report filing requirements. The mortgage lending activities that they
conduct for the Fund are subject to those same requirements.

Prior to the Fund's commencement, Pontes Financial Group, Ltd. and Mr. Pontes
were engaged in the real estate-backed lending business in Northern California
since 1987. During that time, they originated and serviced approximately
$150,000,000 of real estate mortgage loans. These loans were either sold to
individual investors directly or to four non-public mortgage investment funds,
sponsored by Pontes Financial Group, Ltd. or Mr. Pontes since 1992. These
investment funds are described below and in Tables I, II, IIIa, IIIb and IV that
follow.

Pontes Financial Group, Ltd. obtains borrowers through the loan brokerage and
banking community, advertisement, repeat business and referrals. Upon obtaining
a request for a loan, Pontes Financial Group, Ltd. processes the application by

      o     ordering and reviewing a property title search;

      o     inspecting the property;

      o     conducting its own appraisal, at times obtaining an independent
            appraisal which is always reviewed for reasonableness (all loans to
            be acquired by the Fund have an independent appraisal); and

      o     performing credit-worthiness and character evaluations through
            borrower interviews, credit reports and review of borrower's
            financial data.

The primary focus of Pontes Financial Group, Ltd. and Steven Pontes in their
choice of loans has been and will continue to be on their assessment of market


                                       15
<PAGE>

value of the real property securing the loan. In addition to their own and third
party appraisals, they base their valuations on current economic and business
conditions, as well as possible future negative conditions. Various assumptions
of future conditions are projected on each property before the loan commitment
is made.

In addition to appraising the value of the underlying property, Pontes Financial
Group, Ltd. and Mr. Pontes assess the character and reliability of the applicant
borrower by reviewing available financial records and seeking other information
about the borrower's background and track record, both personal and
professional.

Beginning in 1992, Mr. Pontes offered to California investors participating
interests in a California limited partnership of which he was the general
partner. In 1993 and 1995, the second and third of similar mortgage investment
fund limited partnerships were started. In 1996, a fourth similar fund was
started as a California limited liability company, with Pontes Financial Group,
Ltd. as its manager. The first two of these funds ceased doing business, in
accordance with their original plans, and made liquidating distributions to
their limited partners in 1996 and 2000, respectively. The third and fourth
funds, PFG, Ltd. Sterling 1995 Mortgage Fund and Yosemite Mortgage Fund, LLC,
liquidated and dissolved as of December 31, 2003.

These four mortgage investment funds raised a combined total of about
$32,000,000 from about 300 investors, many of whom invested in more than one of
the funds. The funds themselves were invested in a combined total of 98 loans in
the amount of about $61,340,077, including amounts invested in new loans from
the capital proceeds from matured or early pay-off of existing loans.

The investment objectives of the four funds were the same as ours - to generate
above average yields from investing in mortgages and managing expenses in order
to pass through in excess of 95% of gross income to their investors. As shown in
the tables below, the four funds consistently earned in excess of 10% per annum
after all expenses and distributed those earnings to their investors. There is
no assurance that we will achieve similar results.

Pontes Financial Group, Ltd. and its affiliates have obtained their compensation
primarily from the origination, processing and servicing fees charged and paid
by borrowers. These fees have ranged between three and six percent of the loan
amount and an annual servicing fee of usually three quarters of one percent.

About 95% of the loans invested in by the prior four mortgage investment funds
were secured by properties located in California, and the rest were in Nevada
and Oregon. In 1991 California experienced a general economic downturn that
caused erosion in real estate values, lasting through 1996. Factors causing this
were the 1989 Loma Prieta earthquake, the September 1991 Oakland hills fire,
several military base closings and drastic cuts in the aerospace and defense
spending arenas. Despite these negative factors, no losses of principal were
experienced on any of the mortgage loans held by the four prior mortgage funds.

COMPENSATION TO THE MANAGER AND AFFILIATE

Organization and Offering Stage

Pontes Financial Group, Ltd advanced or paid all of the Company's expenses
incurred through December 31, 2003 in connection with the organization and the
planning and preparation for the public offering. These expenses included
accounting and legal fees, registration fees with the SEC, and filing fees with
the National Association of Securities Dealers, Inc. and the states in which the
Company has filed to register it's units for offer and sale. There are also
printing, reproduction and mailing costs for the prospectus to be used in the
offering. As of December 31, 2003, the total of these expenses was over
$507,600, which we have repaid to Pontes Financial Group, Ltd. in full. The
Company paid directly, the 2004 offering expenses, which totaled approximately
$107,200. Pontes Financial Group, Ltd. contributed capital in the amount of
$1,000 as the Initial Member of the Company, for which it received 100 units at
$10.00 per unit, and Pontes Financial Group, Ltd. Retirement Trust 401(k) Plan
holds 31,877 units of the Fund as of February 25, 2005. Neither the Manager nor
Steven Pontes directly owns units of the Company.

Public Offering Expenses

We anticipate additional offering expenses during 2005 to include the following
approximate amounts, which may be advanced by Pontes Financial Group, Ltd. and
reimbursed to it:

                              State registration fees              $   5,000
                              Legal                                   25,000
                              Accounting                               5,000
                              Prospectus Costs and Other              15,000
                                                                   ---------
                                                          Total    $  50,000
                                                                   =========

Operational Stage

Where the fees below are described as competitive fees or based on local market


                                       16
<PAGE>

conditions, this means the fees are determined by price competition within a
given market. Additionally, the amount of the fees is dependent upon the size of
a particular loan. To ensure that our fees remain competitive, we will directly
contact our competition, such as major banks in the local market or other
relevant commercial lenders. We expect that the interest rate on the loans in
which we invest will be 3-5 points higher than comparable loans made by banks
and that the fees paid to the Manager or its affiliates will be 3-4 points
higher than similar fees charged by conventional lenders. We believe that this
rate structure is consistent with rates and fees charged by other
non-conventional lenders. References below to local law also contemplate
additional requirements imposed by local or state law, such as usury laws.



<TABLE>
<CAPTION>
Paid By Borrowers
<S>      <C>                                     <C>
o        Loan Placement Fees for Loan            3%-6% of each loan, the percentage shall be a
         Selection and Brokerage                 competitive fee based on local market conditions.  These
                                                 fees are paid by the borrower no later than when the
                                                 loan proceeds are distributed.

o        Service Fee for Administering the Loan  Pontes Financial Group, Ltd. or its affiliates may
                                                 receive borrower-paid mortgage service fees of up to
                                                 1/2%, which when added to all other fees paid in
                                                 connection with the servicing of a particular mortgage,
                                                 including the 1/4% to be paid by us, does not exceed
                                                 three-fourths of one percent (3/4%) of the principal
                                                 outstanding on such loan.  These fees will be paid by
                                                 the borrower either annually or added to the monthly
                                                 payment.

o        Loan Extension or Modification Fee      3%-6% of outstanding principal, as permitted by local
                                                 market conditions.  The amount to be received is not
                                                 determinable at this time.

Paid by Us

o        Annual Management Fee                   Up to 0.75% of our aggregate capital contributions, paid
                                                 monthly in arrears.  The Manager may in its discretion
                                                 waive all or a part of the management fee to the extent
                                                 it deems appropriate to do so.  It has waived this fee
                                                 for the years 2004 and 2003.  The maximum such fees that
                                                 would have otherwise been payable to the Manager for the
                                                 years 2004 and 2003 were approximately $278,000 and
                                                 $239,000, respectively.  In making such an assessment,
                                                 the Manager will review our performance and the impact
                                                 of the fees on our performance.  The Manager assigns
                                                 this fee to Pontes Financial Group, Ltd. for its
                                                 services to the Fund, which will consist of all
                                                 administrative services for our operation, including
                                                 servicing the mortgage loans we hold.  No portion of
                                                 this fee will be used to reimburse Pontes Financial
                                                 Group, Ltd. for any selling commissions that it pays in
                                                 the offering of our units.

o        Promotional Interest                    An annual, non-cumulative payment of up to 25% of our
                                                 cash available for distribution to members that for each
                                                 year exceeds 12% of members' payment for their units.
                                                 No promotional interest has been earned to date.

o        Service Fee for Administering Loans     Up to 0.25% of the principal amount of each loan
                                                 serviced, which the Manager assigns to Pontes Financial
                                                 Group, Ltd.   The amount of the fees, which were paid by
                                                 us to Pontes Financial Group, Ltd., were $67,500 and
                                                 $26,800 for the years 2004 and 2003, respectively.

o        Property Management Fee                 If the Manager or an affiliate manages property obtained
                                                 by the Fund from foreclosure of any loan, fees shall be
                                                 the lesser of competitive fees or 5% of revenues from
                                                 residential property; 6% of revenues from commercial
                                                 properties where the Manager or its affiliate performs
                                                 leasing-type services or 3% if not; 1% from 10-year or
                                                 longer leases of commercial property, plus a one-time
                                                 initial leasing fee of 3% of such lease revenues,
                                                 payable over the first 5 years of the lease.  No portion


                                       17
<PAGE>

                                                 of this fee will be used to reimburse Pontes Financial
                                                 Group, Ltd. for any selling commissions that it pays in
                                                 the offering of our units.  There have been no such fees
                                                 earned or paid to date.

o        Competitive Real Estate Commission to   The total compensation paid to all persons for the sale
         Pontes Financial Group, Ltd. for        of property held by us as a result of foreclosure shall
         Resales of Foreclosed Property          be limited to a competitive real estate brokerage
                                                 commission not to exceed six percent (6%) of the
                                                 contract price for the sale of the property.  Pontes
                                                 Financial Group, Ltd. shall be entitled to receive up to
                                                 1/2 or a maximum of 3% of such commission where it
                                                 substantially contributed to the sale, but only if the
                                                 members of the Fund have been paid their capital
                                                 contributions in the form of distributions of income
                                                 from the Fund that are cumulatively equal to their
                                                 capital contributions, plus an amount that is at least
                                                 6% of their capital contributions per year
                                                 cumulatively.  No foreclosed property will be sold to
                                                 the Manager or any of its affiliates.  There have been
                                                 no such fees earned or paid to date.
</TABLE>

The Manager will make arrangements with the respective borrowers for payment to
it of fees owing from those borrowers. The Manager anticipates that borrowers
will pay its compensation out of the proceeds of loans or upon closing the
relevant transaction. For loan servicing fees, the Manager will receive these
fees monthly in arrears along with the payments it receives on loans that we
have acquired.

The Manager may, in its sole discretion, share with us the loan placement fees
it receives from borrowers. The Manager is under no obligation to share its
placement fees and investors should not assume that any placement fees will be
shared with the Fund.

CONFLICTS OF INTEREST

The relationships among us, the Manager and other affiliates of Steven M. Pontes
will result in various conflicts of interest. Pontes Financial Group, Ltd. and
its affiliates are engaged in business activities involving real estate lending,
and they anticipate engaging in similar activities in the future that could be
competitive with us. The Manager will exercise its fiduciary duties to us and to
investors in a manner it believes will preserve and protect investors' rights as
members. Additionally, our operating agreement contains provisions that limit
our ability to enter into transactions with the Manager and its affiliates.

We expect to purchase mortgage loans from Pontes Financial Group, Ltd. if they
were acquired by it for the purpose of facilitating our acquisition of such
loans. Pontes Financial Group, Ltd. must sell such loans to us for a price no
greater than the lesser of Pontes Financial Group, Ltd.'s cost, excluding
certain service fees and compensation, or the fair market value of such loans.
However, we will not sell our mortgage loans to the Manager, Pontes Financial
Group, Ltd. or any of its affiliates, nor acquire mortgage loans from, or sell
mortgages to, a program in which one of them has an interest, except as
permitted under our operating agreement.

We may participate in mortgage loans with publicly registered affiliates if the
investment objectives of the participants are substantially identical, there are
no duplicate fees, the sponsors receive substantially identical compensation,
the investment of each participant is on substantially the same terms, and the
participants have a right of first refusal with regard to the sale of any
participant's interest in such loans. In addition, we will not participate in
mortgage loans with non-publicly registered affiliates, except as permitted
under the NASAA Guidelines. The Manager and Pontes Financial Group, Ltd. do not
presently contemplate organizing or operating publicly registered affiliates of
the Fund.

The numbered paragraphs below describe material conflicts of interest that may
arise in the course of the Manager's management and operation of our business.
The list of potential conflicts of interest reflects our knowledge of the
existing or potential conflicts of interest as of the date of this prospectus.
We cannot assure you that no additional conflicts of interest will arise in the
future.

      1. Payment of Fees and Expenses. Pontes Financial Group, Ltd. will receive
substantial fees and expenses from the proceeds of the Offering and our ongoing
operations, including:

      o     Paid by Borrowers:

            o     loan placement fees of 3% to 6% of each loan for brokerage,
                  selection and processing

            o     loan servicing fees of 1/2% of each loan


                                       18
<PAGE>

            o     loan extension or modification fees of 3% to 6% of each loan
                  extended or modified

      o     Paid by Us:

            o     annual management fee,

            o     loan serving fees of 1/4% of each loan,

            o     subordinated promotional interest, and

            o     subordinated real estate brokerage commissions payable upon
                  the resale of foreclosed properties.

All management fees and the 1/4% loan servicing fees charged to us will be
payable even if we are not profitable or the particular transaction causes us to
incur a loss. During the first twelve months of loans, the aggregate percentages
of each of our loans that it is anticipated will be paid to Pontes Financial
Group, Ltd. by borrowers and by us is from 3.75% to 6.75%. Annual loan servicing
fees beyond the first year will increase these percentages. We will pay an
annual management fee to Pontes Financial Group, Ltd., an Affiliate of the
Manager, of up to 0.75% of the aggregate capital contributions to the Fund.
Pontes Financial Group, Ltd. will pay and will not be reimbursed by us for any
general or administrative overhead expenses it incurs in connection with
managing the operation of the Fund even if such amounts exceed its annual
management fee. However, Pontes Financial Group, Ltd. may be reimbursed for
expenses paid to non-affiliates on our behalf. We anticipate such expenses will
consist of legal, accounting, tax preparation fees and other customary
operational expenses. Such amounts will be paid from available cash. In the
event available cash is inadequate to cover such expenses, Pontes Financial
Group, Ltd. shall advance such expenses on our behalf and will be repaid for
such advances when there are adequate funds in the cash reserve.

      2. Purchase of Mortgage Notes from Pontes Financial Group, Ltd. We will
acquire our mortgage loans from or through Pontes Financial Group, Ltd. Pontes
Financial Group, Ltd. is in the business of obtaining, processing, making,
brokering and selling, and managing and servicing mortgage loans. All our
mortgage loans purchased from Pontes Financial Group, Ltd. will be at prices no
higher than the lesser of the cost of the mortgage loan to Pontes Financial
Group, Ltd. or the then current market value of the mortgage loan. Steven
Pontes, General Manager of our Manager, makes all decisions concerning the
mortgage loans in which we will invest or purchase. Because the Manager's fees
are generated by the volume of the mortgage loans we purchase, the Manager will
face a conflict of interest in determining whether a loan not squarely within
our investment guidelines is appropriate for our loan portfolio.

      3. Non-Arm's Length Agreements. Our agreements and arrangements for
compensating the Manager are not the result of arm's-length negotiations.

Pontes Financial Group, Ltd. believes it has sufficient staff to be capable of
discharging its responsibility to us and to all other entities to which it or
its officers or affiliates are responsible. However, if there are times when we
and the other businesses are handling a high volume of loans, a conflict will
arise as to which company's loan processing to complete first.

      4. Competition between the Fund, the Manager and Pontes Financial Group,
Ltd. The Manager anticipates that it or its affiliates will engage in businesses
which are or may be competitive with ours or which have the same management as
we do. To the extent that these other entities with similar investment
objectives have funds available for investment when we do and a potentially
suitable investment has been offered to us or one of these programs, conflicts
of interest will arise as to which entity should acquire the investment.

If any conflict arises between us and any affiliate of Pontes Financial Group,
Ltd., as to whether the Fund or another entity will have the right to invest in
a particular mortgage loan or other investment, the Manager will make the
determination largely based on a review of the respective loan portfolios. The
Manager will also base the decision on factors such as the amount of funds
available for investment, yield, portfolio diversification, type and location of
the property on which Pontes Financial Group, Ltd. will make the mortgage loan,
and proposed loan or other transaction terms.

The Manager is subject to a fiduciary duty to deal fairly with us and our
members. Subject to this fiduciary duty, neither the Manager nor its affiliates
will be obligated to present to us any particular investment opportunity that
comes to their attention, even if the opportunity is of a character that might
be suitable for us.

      5. Lack of Separate Representation. We are represented by the same legal
counsel as the Manager and its affiliates, and we anticipate that this multiple
representation by our attorneys will continue in the future. If a dispute arises
between us and the Manager or any of its affiliates, the Manager or the
affiliate will either obtain separate counsel or facilitate our retaining


                                       19
<PAGE>

separate counsel for such matters. However, we do not anticipate obtaining
separate counsel should there be a need in the future to negotiate or prepare
contracts or other agreements between us and the Manager for services including
those contemplated by the prospectus, and as a result these agreements will not
reflect arm's length bargaining.

      6. Rights of Affiliates. The Manager, Pontes Financial Group, Ltd. and any
other affiliate may acquire, own, hold and dispose of units for its individual
account and may exercise all rights of a member, except for voting rights with
respect to the Manager, to the same extent and in the same manner as if he were
not an affiliate of ours.

      7. We May Co-Invest in Mortgages Acquired by the Manager. If the Manager
determines that an entire loan is not suitable for our loan portfolio, we may
co-invest in the loan with the Manager, Pontes Financial Group, Ltd. or an
affiliate. If we co-invest in a loan with the Manager, Pontes Financial Group,
Ltd. or an affiliate, our investment will be on substantially the same terms as
those of that other person. A conflict of interest may arise between us and the
Manager or its affiliate if the borrower defaults on the loan and each of us
seeks to protect our interests in the loan and in the security property. Also,
we will have no written or oral agreement or understanding with the co-investor
concerning our relative priority when a borrower defaults; as a result,
investors must rely on the Manager to act in accordance with its fiduciary duty
under the operating agreement to protect its interest.

GENERAL INFORMATION AS TO PROMOTERS

The Manager, Steven M. Pontes, its General Manager, and Pontes Financial Group,
Ltd. are the promoters of the Fund. Mr. Pontes owns the controlling interest in
Pontes Financial Group, Ltd.

FIDUCIARY RESPONSIBILITY

MFP Management, LLC, the Manager, is a fiduciary for members and the Fund. As a
fiduciary, the Manager must exercise good faith and integrity when handling the
Fund's affairs. The Manager must not take advantage of members, and must make
full disclosure of any conflicts of interest or benefit to it in its dealings
with the Fund. As set forth in the operating agreement, the Manager has
fiduciary responsibility for the safekeeping and use of all of funds and assets
and the Manager will not use, or permit another to use funds or assets in any
manner except for the Fund's exclusive benefit. The Manager will not allow Fund
assets to be commingled with its assets or the assets of any other person or
company. The Manager and its affiliates may engage in activities similar to or
identical with the Fund's business, but the Manager must devote sufficient time
to the Fund's business as it determines, in good faith, to be reasonably
necessary. Pontes Financial Group, Ltd., an affiliate of the Manager, is also
the manager of other non-publicly traded mortgage funds and it may act for its
own account as a real estate broker. In connection with this activity, it
brokers, arranges and services mortgage loans for investors that it obtains in
the ordinary course of its brokerage business, including by way of seminars,
general solicitations and referrals. When it acts in those capacities, it has a
fiduciary duty to each as set forth in the respective organizational documents
and under applicable law, and is bound to treat each fairly and with appropriate
access to investment opportunities.

Additionally, the Manager could change the Fund's investment guidelines when a
reasonably prudent person would do likewise, subject to its fiduciary duties to
our members. However, the Manager can only change investment objectives upon
approval of a majority of members.

The above described fiduciary duty is both contractual, arising by virtue of the
operating agreement, and imposed by California limited liability company law.

Investors have the following legal rights and remedies concerning the Manager
and the conduct of operations:

      o     investors may bring individual actions on behalf of itself or class
            actions on behalf of itself and other members to enforce its rights
            under our operating agreement and California limited liability
            company law, including for breaches by the Manager of its fiduciary
            duty;

      o     a majority of members may remove MFP Management, LLC as Manager, as
            described elsewhere in the prospectus;

      o     investors may bring actions on the Fund's behalf for claims we might
            have as derivative actions, if the Manager refuses to bring suit;
            and

      o     investors may bring actions under federal or state securities laws,
            either individually or as part of a class of members, if the Manager
            has violated those laws in connection with the offer and sale, or
            repurchase of units.

This is a rapidly changing and developing area of law. If investors have
questions concerning the fiduciary duties of MFP Management, LLC in its role as
our Manager, they should consult with their own legal counsel.


                                       20
<PAGE>

Indemnification

We may indemnify the Manager or hold it harmless under certain circumstances. We
will not indemnify the Manager or any of its affiliates, agents, attorneys, nor
any person acting as securities broker or dealer for any loss or liability
suffered by the Fund, unless all of the following conditions are met:

      o     the Manager has determined in good faith, that the course of conduct
            which caused the loss or liability was in the best interests of the
            Fund;

      o     the Manager was acting on behalf of or performing services for the
            Fund;

      o     such liability or loss was not the result of negligence or
            misconduct by the Manager; and

      o     such indemnification or agreement to hold harmless is recoverable
            only out of the assets of the Fund and not from the members.

Notwithstanding the statements regarding indemnification in the preceding
paragraph, we will not indemnify the Manager or any of its affiliates, agents,
or attorneys, nor any person acting as securities broker or dealer for the units
from any liability, loss or damage incurred by them arising due to an alleged
violation of federal or state securities laws unless:

      o     there has been a successful adjudication on the merits of each count
            involving alleged securities law violations as to the particular
            party;

      o     the claims have been dismissed with prejudice on the merits by a
            court of competent jurisdiction as to the particular party; or

      o     a court of competent jurisdiction approves a settlement of the
            claims against the particular party and finds that indemnification
            of the settlement and related costs should be made.

Before seeking a court approval for indemnification, the party seeking
indemnification must apprise the court of the position of the Securities and
Exchange Commission concerning indemnification for securities violations, which
is that indemnification for liabilities arising under the Securities Act of 1933
is against public policy and therefore unenforceable.

We will not purchase any insurance that protects a party from any liability for
which we could not indemnify that party.

We will advance funds to the Manager or its affiliates for legal expenses and
other costs incurred as a result of any legal action if the following conditions
are satisfied:

      o     the legal action relates to acts or omissions with respect to the
            performance of duties or services on our behalf;

      o     the legal action is initiated by a third party who is not a member,
            or the action is initiated by a member and a court specifically
            approves such advancement; and

      o     the Manager or its affiliates undertake to repay the advanced funds
            to us in the event the Manager or its affiliates is not entitled to
            indemnification.

SUMMARY OF OPERATING AGREEMENT, RIGHTS OF MEMBERS AND DESCRIPTION OF UNITS

This is a summary of our operating agreement and does not contain all the
information that may be important to investors. Furthermore, investors will be
bound by the operating agreement by purchasing units. Consequently, investors
should read carefully both this prospectus and the operating agreement, which
are attached as Exhibit A to the prospectus.

Member Status

Our acceptance of subscription agreements is effective when the Manager
countersigns it on our behalf. Subscriptions will be accepted or rejected no
sooner than 5 business days after the date of the subscription agreements and
within 30 days of their receipt. If we reject a subscription agreement, funds
will be returned within 10 business days. If we accept the subscription and
payment for units, the investor will receive units in, and be a member of, the
Fund within 5 business days after we accept the subscription. We will promptly
send a confirmation of the number of units acquired. This will be evidence that
the investor is a member of the Fund. As a member, the investor has the rights
that are outlined in the prospectus.


                                       21
<PAGE>

Limited Liability of Members

The California statute under which the Fund has been formed provides that
members are not personally liable for the obligations of their limited liability
company. The operating agreement also provides that every written agreement
entered into by us is not enforceable against our members personally.

Term of the Fund

The Fund will cease operating on December 31, 2021 and commence an orderly
liquidation of its assets. Before then, the members may vote by a majority to
extend its life or to dissolve it sooner. Additionally, we may dissolve earlier
if the Manager ceases serving as the Manager and the members cannot agree on a
new Manager within six months.

Meetings

Either the Manager or members owning capital accounts with at least 10% of the
amounts in all capital accounts may call meetings of the members. The Manager
has informed us that it has no present intention of calling any meetings of the
members. Any voting by the members is anticipated to be by written consent.

Voting and Other Rights of Members

The Manager may amend the operating agreement without consent to

      o     remedy any ambiguity or formal defect or omission,

      o     conform it to applicable laws and regulations, and

      o     make any change which, in the judgment of the Manager, is not to the
            prejudice of the members.

We require the vote or consent of a majority of members (excluding the Manager
or its affiliates) to do any of the following:

      o     amend the operating agreement, except in the instances mentioned
            above,

      o     dissolve the Fund and wind up our business,

      o     add or remove a Manager,

      o     cause us to merge with another company, and

      o     approve or disapprove the sale of more than 50% of our assets.

Certain of our books and records may be inspected at our principal office during
our regular business hours. We also maintain a copy of each appraisal for the
security property where we have invested in a mortgage loan at our principal
office for at least six years after the last date that we held the related
mortgage. These appraisals may be inspected and copied during our regular
business hours. We may charge a fee for copying them.

Description of the units

Each unit represents an undivided equity interest in a California limited
liability company. The units in the Fund are not evidenced by a certificate.
Units are non-assessable and are entitled to a pro rata share of the Fund's
profits and losses in accordance with the terms of the operating agreement.
There are various limitations on transfer of units. The Manager may reject any
proposed transfer which would jeopardize the tax status of the Fund as a
partnership for Federal tax purposes. Owners of units must hold their units for
at least one year. After the one year holding period, an owner may redeem
his/her units by submitting a written request for redemption to our Manager,
subject to our having adequate funds available to make the requested redemption
and subject to an overall cap that not more than 10% of the units may be
redeemed in any 12 month period. There are no outstanding securities senior to
the units and senior securities may only be issued with the approval of a
majority of the holders of the units. Each holder of units is entitled to vote
on matters pertaining to the Fund in accordance with the terms of the operating
agreement.

Capital Accounts

The Manager will credit the capital account it establishes for each investor
when we receive the initial investment after the escrow ends. We will allocate
to each capital account the percentage of our income, gains, losses and


                                       22
<PAGE>

distributions that the amount in the capital account bears to all members'
capital accounts. Capital accounts will increase by the amount of additional
capital contributions, including distribution reinvestments, and by the share of
income and gains realized by us. Capital accounts will decrease by the share of
losses realized by us and by any income or capital distributed. Increases and
decreases in capital accounts do not depend on the number of units owned.

Except for when we write down our investments, we do not adjust capital accounts
to reflect unrealized appreciation or depreciation of our underlying assets.
Consequently, the amount in capital accounts may not reflect the portion of the
fair market value of our underlying assets attributed to units. This is a
continuous offering in which allocations will be made based on the proportionate
interest of capital accounts. As a result, depending upon when units are
purchased, the units purchased by our members for ten dollars will likely have:

      o     different rights to distributions and income from our mortgage
            loans, and

      o     different proportionate interests in the fair market value of our
            underlying assets.

If the fair market value of our assets is less than the cost of the assets on
our books a capital contribution is made, then the value of the units' interest
in the fair market value of our underlying assets may be less than ten dollars
per unit. Conversely, if the fair market value of our assets is greater than the
cost of the assets on our books when a new member makes a capital contribution,
then the units' interest in the realized gains in the fair market value of our
assets will be shared with the new members making the contribution or
reinvestment. This will result in a dilution in the value of the units' interest
in the fair market value of our underlying assets. These principles apply
equally for when a member makes a distribution reinvestment.

Unit Repurchases and Deemed Distributions

The number of units investors hold will decrease when we return capital and will
increase when investors contribute or are deemed to recontribute capital. If we
return capital to investors, we will treat it as a redemption of units in an
amount proportionate to the amount in their capital accounts. We will provide
statements reflecting the number of units that we have redeemed and the number
of units that are still owned as a result of the redemption.

Additionally, for tax purposes investors will be deemed to have received a
return of capital and recontributed to us any proceeds we receive from loan
repayments, foreclosures or other capital transactions, or any loan
modifications or extensions treated as a disposition for tax purposes. While we
believe that this characterization will not affect the tax liability of our
members, if the Internal Revenue Service unexpectedly were to disagree,
investors may have a tax liability with no cash distributions to pay that
liability.

Allowance for Loan Losses

The Manager regularly reviews the mortgage loan portfolio to assess whether a
loan loss reserve is necessary. Borrower payment history, the value of the
property by which the loan is secured, and other economic and geographical
conditions are considered. In addition to these factors the Manager believes its
underwriting standard to fund only those loans not greater than 70% of the
collateral provides an adequate reserve against risk posed by market
deterioration and/or delinquent payments. The Manager determines, on a
case-by-case basis, whether or not to accrue interest income for loans
delinquent or otherwise in default. The Manager regularly reviews its portfolio,
particularly any loans that are delinquent, to determine whether a loan loss
reserve is necessary. As of December 31, 2004 and December 31, 2003, the Manager
determined that no loan loss reserves were required.

Members' Return on Investment

Our mortgage loans will generate monthly payments of interest and/or principal
to us. We intend to distribute these interest payments to investors as described
below. These distributions will be paid quarterly in arrears in cash or via
reinvestment. We will not accumulate assets other than mortgage notes or similar
instruments and we will not usually accumulate cash on hand, except for working
capital reserves of approximately 3% of capital contributions except when the
Manager elects to return additional cash pending investment in mortgage loans in
which cash funds will be held in short-term liquid investments. Our first
distribution to investors will be the share of our distribution for the quarter
in which the contribution is actually received by us and invested. We calculate
the amount of the distributions on a pro rata basis, based upon the return, if
any, on all of our assets, the size of the capital account and, if applicable,
when during the quarter we received the contribution.

We will distribute all net income attributable to interest we receive from
borrowers. When we distribute net income attributable to these payments, all
distributions will be made to the members in proportion to their contributed
capital.

Net proceeds will include the proceeds from the repayment of principal or the
prepayment of a mortgage loan, or the net proceeds of a foreclosure sale. Net


                                       23
<PAGE>

proceeds will be distributed during the period that is within 36 months of the
scheduled termination of the Fund, December 31, 2021. The Manager may consider
the alternatives listed below in determining whether and how much of the net
proceeds to distribute in cash.

      o     reinvesting in new loans,

      o     improving or maintaining any properties that we acquire through
            foreclosure,

      o     paying permitted operating expenses, or

      o     distributing to the members.

Before making a distribution, we will pay our expenses and other liabilities and
confirm that our working capital reserves are adequate. If net proceeds are to
be retained and not distributed, there must be sufficient cash distributed, to
the extent available, to pay any anticipated state and federal taxes (assuming a
specified tax bracket applicable to all Members) created by the disposition or
refinancing of a mortgage loan.

Distribution Reinvestment Plan

Investors can elect to participate in the distribution reinvestment plan by so
indicating in the completed subscription agreement, or can later elect to become
a participant. We will treat the investor as a distribution reinvestment plan
participant on the date we actually receive the initial investment, if it is
indicated as such in the subscription agreement. Investors may also make an
election or revoke a previous election at any time by sending us written notice.
Units purchased under the plan will be credited to capital accounts as of the
first day of the calendar quarter following the calendar quarter in which the
reinvested distribution was made. If we are notified prior to 10 days before the
end of any given quarter, an investor will be removed from the reinvestment plan
during that quarter and any distribution received that quarter will be paid in
cash. If we are notified within ten days of the end of the quarter, the investor
will need to wait until the following quarter to receive cash instead of units.

Investors' continued participation in the plan depends on whether they meet our
investor suitability standards. While participants, for each $10.00 in
distributions reinvested, one unit will be acquired. The Manager may terminate
or reinstate, as applicable, the distribution reinvestment plan at any time.

If an investor chooses to reinvest distributions in units, we will send a report
within 30 days after each time units are received describing the distributions
received, the number of units purchased, the purchase price per unit, and the
total number of units accumulated. We will also send a current prospectus and
tax information for income earned on units under the reinvestment plan for the
calendar year when investors receive annual tax information from us. Investors
must pay applicable income taxes upon all distributions, whether the
distribution is paid in cash or reinvested.

No reinvestment participant shall have the right to draw checks or drafts
against his distribution reinvestment account.

Units acquired through the distribution reinvestment plan carry the same rights
as the units acquired through original investments. However, as previously
noted, the proportional net asset value of the new units issued for ten dollars
will not necessarily be the same as those previously acquired for ten dollars.

We may amend or end the distribution reinvestment plan for any reason at any
time by mailing a notice to the last address of record for each investor at
least 30 days before the effective date of our action. The Manager specifically
reserves the right to suspend or end the distribution reinvestment plan if:

      o     the Manager determines that the distribution reinvestment plan
            impairs our capital or operations;

      o     the Manager determines that an emergency makes continuing the plan
            unreasonable;

      o     any governmental or regulatory agency with jurisdiction over us
            requires us to do so;

      o     in the opinion of our counsel, the distribution reinvestment plan is
            no longer permitted by federal or state law;

      o     if transactions involving units within the previous twelve (12)
            months would result in our being considered terminated under Section
            708 of the Internal Revenue Code; or

      o     the Manager determines that allowing any further reinvestments would
            create a material risk that we would be treated as a publicly traded
            partnership within the meaning of Section 7704 of the Internal
            Revenue Code.


                                       24
<PAGE>

Reinvestment of Proceeds of Capital Transactions

We will either invest our net proceeds from any capital transaction in new
mortgage loans, hold the net proceeds as cash or distribute them to the members.
Capital transactions include payments of principal, foreclosures and prepayments
of mortgages, to the extent classified as a return of capital under the Internal
Revenue Code, and any other disposition of a mortgage or property. Net proceeds
of capital transactions will also include the principal of a loan deemed to be
repaid for tax purposes as a result of a loan modification or loan extension.
Our operating agreement provides that if we reinvest the proceeds, investors
will be deemed to have received a distribution of capital and recontributed the
same amount to us for tax purposes. We will not reinvest proceeds from a capital
transaction unless we have sufficient funds to pay any state or federal income
tax in connection with the disposition or refinancing of mortgages. Units
purchased by virtue of a deemed recontribution of distributed capital will be
credited to capital accounts as of the day when the distribution was deemed to
be made. Units acquired through the deemed recontribution of capital carry the
same rights as the units acquired through original investments. However, as
previously noted, the proportionate net asset value of the new units issued for
ten dollars will not necessarily be the same as those previously acquired for
ten dollars.

Assignment and Transfer of Units

The rights to sell or transfer units are limited. There is no public market in
which to sell units and none will develop anytime in the future. Parts of units
may not be sold unless required by law and investors may not transfer any units
if, as a result, they would own fewer than 1,000 units. Investors may transfer
units using a form approved by the Manager and must obey all relevant laws when
permitted to transfer units. Any person who buys units must meet the investor
suitability requirements in his home state. The Manager must approve any new
members and all transfers of membership must comply with the operating
agreement. The Manager's consent to transfers will be withheld to the extent
needed to prohibit transfers that would cause us to be classified as a publicly
traded partnership under the Internal Revenue Code. In the event the Manager
approves of such transfers or assignment, our records will be amended to reflect
such transfer or assignment within one month of the transaction.

Repurchase of Units, Withdrawal from the Fund

Investors may withdraw, or partially withdraw, from the Fund and obtain the
return of all or part of capital accounts within 61 to 91 days after we are
delivered written notice of withdrawal to the Manager, subject to the following
additional conditions:

      o     Investors may not withdraw from the Fund until one year after you
            purchased units.

      o     We can only make cash payments in return of an outstanding capital
            account from net proceeds of capital transactions and capital
            contributions.

      o     The Manager must determine that the proposed withdrawal will not
            impair the capital or operation of the Fund.

      o     We are not required to sell any portion of our assets to fund a
            withdrawal.

      o     The amount to be distributed to the investor depends solely on the
            capital account on the date of the distribution, even if this is not
            the same as the proportionate share of the then fair market value of
            our assets.

      o     We will not permit more than 10% of the outstanding capital accounts
            of members to be withdrawn during any calendar year, except upon
            dissolution of the Fund.

      o     If a capital account is reduced below $10,000 due to any withdrawal
            payment, we may distribute all remaining amounts in the capital
            account in cancellation of your units, and the investor will then
            cease to be a member.

      o     All payments to meet requests for withdrawal are on a first-come,
            first-served basis. If the sums needed to fund withdrawals in any
            particular month exceed the amount of cash available for
            withdrawals, funds will be distributed first to the member whose
            request we received first, until his withdrawal request is paid in
            full.


                                       25
<PAGE>

Item 2.  DESCRIPTION OF PROPERTY

None.



Item 3.  LEGAL PROCEEDINGS

The Partnership is not presently involved in any material pending legal
proceedings other than ordinary routine litigation incidental to the business.



Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.


                                       26
<PAGE>

                                     PART II

Item 5.   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

There is no public trading market for the Registrant's units of limited
liability company interest. As of December 31, 2004, there were 362 members of
the Registrant. The cumulative amount of interest distributions allocated to
members as of December 31, 2004 is $3,813,424, which provided a return on
investments of a range of 6% to 9%, depending on when an investment was made.



Item 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

Results of Operations

Twelve Months Ended December 31, 2004 Compared to 2003

Net income increase of approximately $1,665,000 was primarily due to an increase
in loan interest income of over $1,834,000, which resulted from an increase in
the loan portfolio over the prior year.


Financial Condition

During the year ended December 31, 2004, the Company sold, as Units at $10.00
each, $3,954,500 in member capital contributions, as compared to $32,563,899 in
2003. No units were sold from April 1, 2004 to the December 1, 2004, as the
Manager had suspended the public offering of the Company's units, pending
selection by the Manager of appropriate mortgage loans for the Company's
portfolio. Included in the $3,954,500 sold in 2004 is $137,000 in deposits that
were received in 2003, and accepted as contributions in the first quarter of
2004. As such, pending deposits of $137,000 were accrued as Deposits from
Pending Members as of December 31, 2003. 140,772 Units valued at $10.00 each
were issued during 2004 under the Distribution Reinvestment Plan. As of December
31, 2004, a total of 3,833,623 Units were outstanding. From January 1, 2005 to
February 25, 2005, the Company received over $4.1 million in capital
contributions, paid member withdrawals of approximately $739,000, funded over $8
million in new loans and received two payoffs of loans with combined principal
of $865,000.

The Company originated and purchased loans approximating $13,595,000 and
$33,415,000 during 2004 and 2003, respectively. The interest rates of the loans
acquired in 2004 and 2003 range from 8.75% to 12.75% and 9.75% to 13.75%,
respectively.


                                       27
<PAGE>

During 2004, borrowers paid off the following loans:

                       Principal      Interest       Payoff
Loan Number             Amount          Rate      Month/Year
-----------             ------          ----      ----------

3041                 $    236,238      12.75%        6/2004
3064                      193,594      12.50%        7/2004
3092                      775,000      12.75%        8/2004
3094                      280,966      12.75%        6/2004
3095                      243,282      12.50%        7/2004
3101                       25,616      11.75%       10/2004
3105                      295,664      11.25%        1/2004
3108                      265,000      11.75%        6/2004
3115                      418,500      12.68%        7/2004
3116                      723,684      12.75%        5/2004
3118                    1,070,000      12.25%       11/2004
3119                       96,075      12.75%       12/2004
3126                    2,000,000      11.75%        9/2004
3127                      625,000      11.75%        1/2004
3129                      350,000       9.75%        8/2004
3131                      310,000      12.00%        3/2004
3133                    1,350,000      11.75%        9/2004
3138                      565,000      12.00%        6/2004
3142                    1,250,000      12.75%        9/2004
                    -------------
Total               $  11,073,619
                    =============

Payoffs of loans are attributable to generally lower prevailing mortgage loan
interest rates available in the marketplace, which have resulted in increases of
cash of the Company, from approximately $4,420,000 as of December 31, 2003 to
approximately $8,754,000 as of December 31, 2004. As a result, the public
offering of the Company's units was suspended from April 1,2004 to December 1,
2004, awaiting selection by the Manager of appropriate mortgage loans for the
Company's portfolio.

As of December 31, 2004, the following loans were in default:

Loan                   Total Principal       Company
Number                     Amount           Ownership
------                     ------           ---------
3077                    $  1,110,000     $     965,217
3107                         550,000           550,000
3143                       3,500,000         2,150,000
3144                       6,075,000         4,975,000
                        ------------     -------------
Total                   $ 11,235,000     $   8,640,217
                        ============     =============


The borrower of loan #3077 has failed to make their payments on a timely basis
beginning with the payment due August 1, 2004. The Manager has advanced all
payments and since has received repayment from the borrower for two of these
advances. The Company filed a notice of default against the borrower on October
22, 2004, and the trustee sale date is scheduled for March 7, 2005. The Manager
believes the proceeds from a liquidation will be sufficient to pay all past due
payments including the default interest rate, late charges, principal and all
expenses related to collection. Because the Manager has agreed to advance the
borrower payments on an ongoing basis, the Company continues to accrue interest
on this loan.

Loan #3107 is currently not performing and was scheduled for trustee/foreclosure
sale on July 20, 2004. However, on July 16, 2004, the borrower filed for a
reorganization under Chapter 11 of the Bankruptcy Code. Since the borrower's


                                       28
<PAGE>

initial bankruptcy filing, the borrower has converted from a Chapter 11
(Reorganization) to a Chapter 7 (Liquidation) filing. The Company has entered
into a stipulated judgment with the bankruptcy trustee granting the Company
relief from the stay effective March 15, 2005. The Company will proceed with its
trustee sale at that time. Updated valuation research confirms that a full
repayment of principal, interest and expenses are likely upon the sale of the
property securing the Company's loan. Due to the loan being in default, the
Manager has not reflected any accrued interest in the financial statements.

The borrower of Loan #3143 paid only part of the payment due June 1, 2004. The
Manager advanced the remainder of the June 1, 2004 payment, as well as each of
the entire payments due July 1, 2004 through December 1, 2004. As such, the loan
is in foreclosure and had a scheduled sale date of December 7, 2004. Prior to
the sale date, however, an unsecured creditor filed for an involuntary
bankruptcy, Chapter 11 reorganization. The Manager believes the borrower will
either bring the payments current or the proceeds from a liquidation will be
sufficient to pay all past due payments including the default interest rate,
late charges, principal and all expenses related to collection. Due to the
bankruptcy proceedings, the Manager has elected to no longer advance payments on
the loan, and accordingly, will not accrue interest on the loan.

Loan #3144 was scheduled for a trustee/foreclosure sale during the third quarter
of 2004. Prior to the sale date, however, the borrower filed for bankruptcy. The
Manager is currently taking legal action to obtain a "Relief from Stay" motion
in order to continue with foreclosure proceedings. On September 7, 2004, the
Manager on behalf of the lenders of the loan, of which the Company represents
81.89% ownership, entered into a sixty-day renewable Option Agreement with a
junior lender secured by the same property. Under the terms of the Option
Agreement, the junior/secondary lender paid a non-refundable fee of $500,000
that was used to pay the lenders for all unpaid and accrued interest and late
fees (at the pre-default rate of 12.75% as well as all costs incurred in
connection with the foreclosure proceedings). The Option Agreement provides the
junior/secondary lender the option to purchase the loan, or the real property
acquired in the event of foreclosure, at a purchase price equaling the unpaid
principal balance of the promissory note plus accrued interest, late fees and
all costs and expenses incurred in connection with the loan documents or real
property, as the case may be, less any amounts paid by the junior/secondary
lender under the Option Agreement. The Manager believes that, either the sale
through the Option Agreement, or the sale through foreclosure will result in
adequate equity to repay the loan including all back payments and costs
associated with the foreclosure. Due to the loan not performing, the Manager has
not reflected any accrued interest in the financial statements.


Compensation of the Manager and Affiliates By the Registrant

The Manager, MFP Management LLC, earned compensation in the form of loan
servicing fees from the registrant for its services during the 2004 and 2003 in
the amounts of $67,457 and $26,785, respectively, all of which the Manager has
assigned to its affiliate, Pontes Financial Group, Ltd. No other amounts were
received by the Manager or its Affiliates for services or reimbursement of costs
or expenses from the registrant during the period covered by this report.


Forward-Looking Statements

Some of the information in this report on Form 10-KSB may contain
forward-looking statements. Uses of the words such as "will", "may",
"anticipate", "estimate", "continue" or other similar words discuss or refer to
future expectations, contain projections of results of operations or of
financial conditions, or state other forward-looking information. As such, this
analysis may prove to be inaccurate because of assumptions made by the Manager
or the actual development of future events. No assurance can be given that any
of these statements or predictions will ultimately prove to be correct or
substantially correct.



Item 7.  FINANCIAL STATEMENTS

Our audited financial statements appear beginning at page 31 of this report.



Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.


                                       29
<PAGE>

Item 8A.  CONTROL AND PROCEDURES

Within the 90 days prior to the date of this report, the General Manager of the
Manager of the registrant, MFP Management LLC, who performs the functions of the
registrant's principal executive and principal financial officers, carried out
an evaluation of the effectiveness of the design and operation of the
registrant's disclosure controls and procedures (as defined in Rule 13a-15(e) or
Rule 15d-15(e) under the Exchange Act). Based upon the evaluation, the General
Manager concluded that the registrant's disclosure controls and procedures are
effective. There were no significant changes in the registrant's internal
controls or in other factors that could significantly affect the registrant's
disclosure controls and procedures subsequent to the date of this evaluation.



Item 8B.  OTHER INFORMATION

None.


                                       30
<PAGE>

             Report of Independent Registered Public Accounting Firm


To the Manager and Members of
Yosemite Mortgage Fund II, LLC

We have audited the accompanying balance sheets of Yosemite Mortgage Fund II,
LLC (a California limited liability company) as of December 31, 2004 and 2003,
and the related statements of income, members' equity, and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Yosemite Mortgage Fund II, LLC
(a California limited liability company) as of December 31, 2004 and 2003, and
the results of its operations and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States of
America.


/s/  Burr, Pilger & Mayer LLP


January 14, 2005
San Francisco, California


                                       31
<PAGE>

                         YOSEMITE MORTGAGE FUND II, LLC
                    (A California Limited Liability Company)

                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                          December 31, 2004  December 31, 2003
                                                           ----------------   ----------------
<S>                                                        <C>                <C>
                                     Assets
Assets:
   Loans receivable (Note 4)                               $     29,454,647   $     28,495,649
   Cash                                                           8,754,478          4,419,769
   Interest receivable                                              209,287            271,448
   Late fee receivable                                                   --                187
   Due from affiliate (Note 3)                                       96,075                 --
   Software                                                              --             36,982
   Deferred offering costs, net of
     accumulated amortization of $156,311 and
     $62,524 at December 31, 2004 and
     December 31, 2003, respectively                                312,621            406,408
                                                           ----------------   ----------------
                 Total Assets                              $     38,827,108   $     33,630,443
                                                           ================   ================

                         Liabilities and Members' Equity
Liabilities:
   Accounts payable                                        $          7,400   $         11,523
   Distributions payable                                            417,538            264,278
   Accrued legal fees                                                 6,033                 --
   Deposits from pending members                                         --            137,000
   Service fees payable (Note 3)                                      4,905              5,796
                                                           ----------------   ----------------
                 Total Liabilities                                  435,876            418,597
                                                           ----------------   ----------------

Members' Equity:
   Initial member                                                       824                824
   Members                                                       38,390,408         33,211,022
                                                           ----------------   ----------------
                 Total Members' Equity                           38,391,232         33,211,846
                                                           ----------------   ----------------
Total Liabilities and Members' Equity                      $     38,827,108   $     33,630,443
                                                           ================   ================
</TABLE>

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


                                       32
<PAGE>

                         YOSEMITE MORTGAGE FUND II, LLC
                    (A California Limited Liability Company)

                              STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                       For the twelve    For the twelve
                                        months ended      months ended
                                     December 31, 2004  December 31, 2003
                                      ----------------   ----------------
<S>                                   <C>                <C>
Revenue:
   Interest on loans receivable       $      3,084,140   $      1,249,566
   Late charges on loans receivable             14,926              2,887
   Other interest                               35,963              1,746
                                      ----------------   ----------------
      Total Revenue                          3,135,029          1,254,199
                                      ----------------   ----------------

Expenses:
   Accounting                                  116,495             53,928
   Amortization                                 93,787             62,524
   Licensing and filing fees                    13,741             12,787
   Foreclosure                                  11,295                 --
   Fund insurance                                2,740                 --
   Legal fees                                   76,427             11,515
   Printing                                      6,943             10,004
   Loan servicing fees (Note 3)                 67,457             26,785
                                      ----------------   ----------------
      Total Expenses                           388,885            177,543
                                      ----------------   ----------------
        Income from operations               2,746,144          1,076,656
                                      ----------------   ----------------
        Income tax provision                     6,800              2,400
                                      ----------------   ----------------
        Net Income                    $      2,739,344   $      1,074,256
                                      ================   ================
</TABLE>

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


                                       33
<PAGE>

                         YOSEMITE MORTGAGE FUND II, LLC
                    (A California Limited Liability Company)

                          STATEMENT OF MEMBERS' EQUITY


<TABLE>
<CAPTION>
                             Initial Member      Members         Total
                             --------------      -------         -----
<S>                          <C>               <C>            <C>
Balance, January 1, 2003             1,000              --           1,000
Contributions                           --      32,563,899      32,563,899
Distributions                           --        (427,309)       (427,309)
Net (loss) income allocated           (176)      1,074,432       1,074,256
                              ------------    ------------    ------------

Balance, December 31, 2003             824      33,211,022      33,211,846

Contributions                           --       3,954,500       3,954,500
Distributions                           --      (1,514,458)     (1,514,458)
Net income allocated                    --       2,739,344       2,739,344
                              ------------    ------------    ------------

Balance, December 31, 2004    $        824    $ 38,390,408    $ 38,391,232
                              ============    ------------    ------------
</TABLE>

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


                                       34
<PAGE>

                         YOSEMITE MORTGAGE FUND II, LLC
                    (A California Limited Liability Company)

                            STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                 For the twelve      For the twelve
                                                                   months ended        months ended
                                                                December 31, 2004   December 31, 2003
                                                                 ----------------    ----------------
<S>                                                              <C>                 <C>
Cash flows from operating activities:
   Net Income                                                    $      2,739,344    $      1,074,256
   Amortization                                                            93,787              62,524
   Write-off of software                                                   36,982                  --
   Adjustments to reconcile net income to net cash
     provided by operations:

     Accounts payable                                                      (4,123)             11,523
     Accounts payable to pending members                                       --             137,000
     Deferred offering costs                                                   --             (61,694)
     Due to/from affiliate                                                (96,075)           (407,238)
     Interest receivable                                                   62,161            (271,448)
     Accrued legal fees                                                     6,033                  --
     Late fees receivable                                                     187                (187)
     Service fees payable                                                    (891)              5,796
                                                                 ----------------    ----------------
               Net cash provided by operating activities                2,837,405             550,532
                                                                 ----------------    ----------------

Cash flows from investing activities:
   Purchase of software                                                        --             (36,982)
   Origination of loans receivable                                    (11,870,126)        (10,765,000)
   Purchase of loans receivable                                        (1,725,000)        (22,650,493)
   Collection on loans receivable                                      12,636,128           4,919,844
                                                                 ----------------    ----------------
               Net cash provided (used)by investing activities           (958,998)        (28,532,631)
                                                                 ----------------    ----------------


Cash flows from financing activities:
   Members' contributions                                               3,817,500          32,563,899
   Members' distributions                                              (1,361,198)           (163,031)
                                                                 ----------------    ----------------
               Net cash provided by financing activities                2,456,302          32,400,868
                                                                 ----------------    ----------------

                    Increase in cash                                    4,334,709           4,418,769

                    Cash, beginning of period                           4,419,769               1,000
                                                                 ----------------    ----------------

                           Cash, end of period                   $      8,754,478    $      4,419,769
                                                                 ================    ================
</TABLE>

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


                                       35
<PAGE>

                         YOSEMITE MORTGAGE FUND II, LLC
                    (A California Limited Liability Company)

                          Notes to Financial Statements

                                  ------------

1.    Nature of Operations and Development-Stage Operations

      Yosemite Mortgage Fund II, LLC (the Company) was formed on March 19, 2001
      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 Company's cash
      and the purchase and sale of notes, mortgages, and deeds of trust, secured
      by interests in real estate.

      The Company's operating agreement provides that the term of the Company
      shall continue until December 31, 2021, unless terminated earlier.

      The Company began operations in May of 2003. Fiscal year 2003 is the first
      year during which the Company is considered an operating company. Prior to
      fiscal year 2003, the Company had been in the development stage.

      The Manager is MFP Management LLC (a California limited liability company)
      formed on August 20, 2001 under the Act and is engaged in business as an
      investor in real estate secured loans. MFP Management LLC is an affiliate
      of Pontes Financial Group, Ltd. a California corporation, and Steven M.
      Pontes, General Manager of MFP Management LLC.

      The fiscal year end of the Company is December 31.

      The Profit or Loss of the Company 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
      Company during any quarter as of the close of business on the last day of
      each calendar quarter, in accordance with their respective Interests and
      in proportion to the number of days during the calendar quarter that they
      owned the Interests.

      The Manager and its Affiliates are entitled to receive fees, compensation
      and expense reimbursements from the Company, such as Management Fee,
      Mortgage Service Fees, Company Expenses, Promotional Interest, Property
      Management Fee, and Real Estate Brokerage Commissions.

      The Manager is entitled to receive from the Company a Management Fee
      payable monthly, in amounts determined by the Manager from time to time,
      up to a maximum of three-quarters of one percent (0.75%) per annum of the
      Base Amount. For any portion of the Capital Contributions not included in
      the Base Amount, the Management Fee shall not exceed 0.5% per annum.

      The Manager is entitled to receive a Promotional Interest in the Company,
      as an additional Management Fee, that is equal to twenty-five percent
      (25%) of the amount of Cash Available for Distributions that exceeds
      twelve percent (12%) of Capital Contributions, for each and every Fiscal
      Year of the Partnership on a noncumulative basis.

      If the Manager or an Affiliate performs property management services with
      respect to a foreclosed residential property, the maximum Property
      Management Fee, including all rent-up, leasing, and re-leasing fees and
      bonuses, and leasing related services paid to any Person, shall be five
      percent (5%) of the gross revenues from such property. For individual and
      commercial property, the maximum Property Management Fee from such leases
      shall be six percent (6%) of the gross revenues where the Manager or its
      Affiliates includes leasing, re-leasing, and leasing-related services.
      Conversely, the maximum Property Management Fee from such leases shall be
      three percent (3%) of the gross revenues where the Manager or its
      Affiliates do not perform leasing, re-leasing, and leasing-related
      services with respect to the property. For industrial and commercial
      properties which are leased on a long-term basis, the maximum Property
      Management Fee from such leases shall be one percent (1%) of the gross
      revenues, except for a one-time initial leasing fee of three percent (3%)
      of the gross revenues on each lease payable over the first five full years
      of the original term of the lease.

      The total compensation paid to all Persons for the sale of a property held
      by the Company as a result of a foreclosure shall be limited to a
      competitive real estate commission, not to exceed six percent (6%) of the
      contract price for the sale of the property.

      All capitalized items used in this Note 1 are defined in the Company's
      operating agreement.


                                       36
<PAGE>

                         YOSEMITE MORTGAGE FUND II, LLC
                    (A California Limited Liability Company)

                          Notes to Financial Statements

                                  ------------

2.    Summary of Significant Accounting Policies

      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.

      Estimates

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

      Income (Loss) Allocation

      Quarterly profits and losses are allocated to the members based upon each
      member's respective interest in proportion to the number of days during
      the quarter in which each member owned the interest. Net losses allocable
      to the period before the admission of additional members are allocated to
      the initial member. During the first quarter of 2003, the initial member
      was the only member; accordingly, the first quarter's net loss of $176 was
      allocated to the initial member. Terms of the Limited Liability Company
      Operating Agreement call for prospective profits and losses to be
      allocated only to the members with no allocation to the initial member.

      Income Taxes

      The Company is treated as a partnership for federal and California income
      tax purposes. Consequently, all tax effects of the Company'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 Company. The Company pays an annual California tax of $800 and an
      annual California LLC fee based upon its total annual income.

      Revenue Recognition

      Interest is recognized as revenue when earned according to the terms of
      the loan.

      Capitalized Software

      Capitalized software is stated at cost. At December 31, 2003, the software
      was still in the development stage. All long-lived assets are reviewed for
      impairment when events or changes in circumstances indicate that the
      carrying amount of the asset may not be recoverable. Impairment losses are
      recorded if the asset's carrying amount is not recoverable through its
      undiscounted cash flows. An impairment loss is recognized and recorded in
      current earnings to the extent the carrying amount of an asset exceeds its
      estimated fair value. During the first quarter of 2004, the Manager deemed
      the Capitalized Software to be impaired and, hence, a loss of $36,982 was
      recorded as accounting expenses in the Statement of Income for the year
      ended December 31, 2004. The loss, however, was offset by the
      reimbursement from the Initial Member of $50,000 relating to the failed
      software development effort and related accounting fees (see note 3).


                                       37
<PAGE>

                         YOSEMITE MORTGAGE FUND II, LLC
                    (A California Limited Liability Company)

                          Notes to Financial Statements

                                  ------------

2.    Summary of Significant Accounting Policies, continued

      Loans Secured by Trust Deeds

      Loans secured by trust deeds are selected by the Manager and originated by
      or through Pontes Financial Group, Ltd., a California licensed real estate
      broker corporation, and are recorded at cost. Interest income on loans
      will be accrued by the simple interest method. The Company will not
      recognize interest income on loans once they are determined to be impaired
      until the interest is collected in cash. A loan is impaired when, based on
      current information and events, it is probable that the Company will be
      unable to collect all amounts due according to the contractual terms of
      the loan agreement, and a specific reserve is recorded. 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 Company's investment in the loan is fully recoverable.

      As of December 31, 2004, the following loans were in default:

     <TABLE>
     <CAPTION>
       Loan                 Total Principal         Company      Interest
       Number                   Amount             Ownership       Rate
       ------                   ------             ---------       ----
     <C>                     <C>                 <C>              <C>
       3077                  $  1,110,000       $     965,217     12.75%
       3107                       550,000             550,000     11.75%
       3143                     3,500,000           2,150,000     12.75%
       3144                     6,075,000           4,975,000     12.75%
                             ------------       -------------
     Total                   $ 11,235,000       $   8,640,217
                             ============       =============
     </TABLE>


      The borrower of loan #3077 has failed to make their payments on a timely
      basis beginning with the payment due August 1, 2004. The Manager has
      advanced all payments and since has received repayment from the borrower
      for two of these advances. The Company filed a notice of default against
      the borrower on October 22, 2004, and the trustee sale date is scheduled
      for March 7, 2005. The Manager believes the proceeds from a liquidation
      will be sufficient to pay all past due payments including the default
      interest rate, late charges, principal and all expenses related to
      collection. Because the Manager has agreed to advance the borrower
      payments on an ongoing basis, the Company continues to accrue interest on
      this loan.

      Loan #3107 is currently not performing and was scheduled for
      trustee/foreclosure sale on July 20, 2004. However, on July 16, 2004, the
      borrower filed for a reorganization under Chapter 11 of the Bankruptcy
      Code. Since the borrower's initial bankruptcy filing, the borrower has
      converted from a Chapter 11 (Reorganization) to a Chapter 7 (Liquidation)
      filing. The Company has entered into a stipulated judgment with the
      bankruptcy trustee granting the Company relief from the stay effective
      March 15, 2005. The Company will proceed with its trustee sale at that
      time. Updated valuation research confirms that a full repayment of
      principal, interest and expenses are likely upon the sale of the property
      securing the Company's loan. Due to the loan being in default, the Manager
      has not reflected any accrued interest in the financial statements.

      The borrower of Loan #3143 paid only part of the payment due June 1, 2004.
      The Manager advanced the remainder of the June 1, 2004 payment, as well as
      each of the entire payments due July 1, 2004 through December 1, 2004. As
      such, the loan is in foreclosure and had a scheduled sale date of December
      7, 2004. Prior to the sale date, however, an unsecured creditor filed for
      an involuntary bankruptcy, Chapter 11 reorganization. The Manager believes
      the borrower will either bring the payments current or the proceeds from a
      liquidation will be sufficient to pay all past due payments including the
      default interest rate, late charges, principal and all expenses related to
      collection. Due to the bankruptcy proceedings, the Manager has elected to
      no longer advance payments on the loan and accordingly, will not accrue
      interest on the loan.

      Loan #3144 was scheduled for a trustee/foreclosure sale during the third
      quarter of 2004. Prior to the sale date, however, the borrower filed for
      bankruptcy. The Manager is currently taking legal action to obtain a
      "Relief from Stay" motion in order to continue with foreclosure
      proceedings. On September 7, 2004, the Manager on behalf of the lenders of
      the loan, of which the Company represents 81.89% ownership, entered into a


                                       38
<PAGE>

                         YOSEMITE MORTGAGE FUND II, LLC
                    (A California Limited Liability Company)

                          Notes to Financial Statements

                                  ------------

      sixty-day renewable Option Agreement with a junior lender secured by the
      same property. Under the terms of the Option Agreement, the
      junior/secondary lender paid a non-refundable fee of $500,000 that was
      used to pay the lenders for all unpaid and accrued interest and late fees
      (at the pre-default rate of 12.75% as well as all costs incurred in
      connection with the foreclosure proceedings). The Option Agreement
      provides the junior/secondary lender the option to purchase the loan, or
      the real property acquired in the event of foreclosure, at a purchase
      price equaling the unpaid principal balance of the promissory note plus
      accrued interest, late fees and all costs and expenses incurred in
      connection with the loan documents or real property, as the case may be,
      less any amounts paid by the junior/secondary lender under the Option
      Agreement. The Manager believes that, either the sale through the Option
      Agreement, or the sale through foreclosure will result in adequate equity
      to repay the loan including all back payments and costs associated with
      the foreclosure. Due to the loan not performing, the Manager has not
      reflected any accrued interest in the financial statements.

      As of December 31, 2004, the Fund's interest in delinquent loans for which
      interest continues to be accrued is $965,217, representing the principal
      balance of loan #3077. Total interest in delinquent loans for which
      interest is not being accrued is $7,675,000, as of December 31, 2004,
      representing the combined principal balances of loan numbers 3107, 3143
      and 3144.

      At December 31, 2003, three loans were delinquent. A Notice of Default was
      filed on two of these loans (Loan #'s 3064 and 3095). These two loans were
      loans to the same borrower. In February 2004, the borrower subsequently
      sold one of the properties collateralizing the loans, and the loans became
      current. The Manager was one of the purchasers of the sold property. In
      the third quarter of 2004, both loans were paid in full by the borrower.

      The third loan in default as of December 31, 2003, Loan #3107, in the
      amount of $550,000, has been delinquent since October 1, 2003. In July of
      2004, the borrower filed for a reorganization under Chapter 11 of the
      Bankruptcy Code and has since converted from a Chapter 11 (Reorganization)
      to a Chapter 7 (Liquidation) filing. The Manager believes that a full
      repayment of principal, interest and expenses is likely upon the sale of
      the property. Due to the loan being in default, the Manager has not
      reflected any accrued interest in the financial statements.

      Allowance for Loan Losses

      The Manager regularly reviews the mortgage loan portfolio to assess
      whether a loan loss reserve is necessary. Borrower payment history, the
      value of the property by which the loan is secured, and other economic and
      geographical conditions are considered. In addition to these factors the
      Manager believes its underwriting standard to fund only those loans not
      greater than 70% of the collateral provides an adequate reserve against
      risk posed by market deterioration and/or delinquent payments. The Manager
      determines, on a case by case basis, whether or not to accrue interest
      income for loans delinquent or otherwise in default. The Manager regularly
      reviews its portfolio, particularly any loans that are delinquent, to
      determine whether a loan loss reserve is necessary. As of December 31,
      2004 and December 31, 2003, the Manager determined that no loan loss
      reserves were required.

      Deferred Offering Costs

      During the Company's development stage, all costs associated with the
      offering of the Company's securities were capitalized. These deferred
      offering costs, totaling $468,932 are amortized using the straight-line
      method over five years.

      Reclassifications

      Certain reclassifications of prior year balances have been made to conform
      to the current year presentation. Such reclassifications have no effect on
      net income.


                                       39
<PAGE>

                         YOSEMITE MORTGAGE FUND II, LLC
                    (A California Limited Liability Company)

                          Notes to Financial Statements

                                  ------------

3.    Related Party Transactions

      Due to/from Affiliate

      Pontes Financial Group, Ltd., the Initial Member, has advanced offering
      costs and paid certain expenses on behalf of the Company and was entitled
      to receive reimbursement from the Company. During 2003, all outstanding
      offering costs and expenses payable to Pontes Financial Group, Ltd. were
      paid. As of December 31, 2004 and 2003, there were no amounts due to
      Pontes Financial Group, Ltd. The Manager or its Affiliates received $0 and
      $507,648 for the reimbursement of costs or expenses from the Company
      during 2004 and 2003, respectively.

      Pontes Financial Group, Ltd., the Initial Member, offered then agreed to
      reimburse the Company in the amount of $50,000 for a portion of the
      organizational costs relating to a failed software development effort and
      related accounting fees. During the third quarter of 2004, Pontes
      Financial Group, Ltd. paid the entire amount of $50,000 to the Company.
      This $50,000 reimbursement was recorded as an offset to accounting
      expenses in the Statement of Income for the year ended December 31, 2004.

      Pontes Financial Group, Ltd., the Initial Member, services the loans in
      which the Company invests. On December 29, 2004, Loan #3119 was paid in
      full by the borrower. Pontes Financial Group, Ltd. collected the principal
      and interest payment associated with this payoff. As of December 31, 2004,
      $96,075 was due from the affiliate, Pontes Financial Group, Ltd.,
      representing the Company's portion of the payoff proceeds that were in
      transit. The amount was paid in full by Pontes Financial Group, Ltd. and
      received by the Company on January 3, 2005.

      Management Fees

      Under the Operating Agreement, the Manager is entitled to receive from the
      Company and assign to its affiliate a Management Fee payable monthly, in
      amounts determined by the Manager from time to time, up to a maximum of
      three-quarters of one percent (0.75%) per annum of capital contributions
      committed to investment in mortgage loans. The Management Fee was waived
      by the Manager for the each of the years since the Company's inception.
      Had the Manager accepted the management fee, the maximum management fee
      expenses charged to the Company would have been $277,971 and $239,460 for
      the years ending December 31, 2004 and 2003, respectively.

      Loan Servicing Fees

      The Manager and its Affiliates are also entitled to receive monthly
      mortgage servicing fees on loans which it services in the amount of
      three-quarters of one percent (0.75%) per annum of the principal
      outstanding in each loan. One quarter of one percent (0.25%) of the total
      fees were paid by the Company and the remaining one-half of one percent
      (0.5%) of the total fees were paid by the borrowers. Loan servicing fees,
      representing the one-quarter of one percent paid by the Company to the
      Manager, were $67,457 and $26,785, respectively, for the years ended
      December 31, 2004 and 2003. Service fees payable to the Manager from the
      Company as of December 31, 2004 and 2003 were $4,905 and $5,796.

      Borrower's Costs

      The Manager receives loan origination fees and other fees normally
      associated with the loan placement and paid by the borrowers. These fees
      are paid directly to the Manager by borrowers and are not included in the
      income and expenses of the Company.

      Loans Purchased from Affiliates of the Manager

      The Company purchased loans, in whole or in part, from affiliates of the
      Manager and certain members of the Company. Payments of interest and
      principal for loans purchased are due on the first of the following month.
      As of December 31, 2004 and 2003, there were no outstanding amounts
      payable for the loans purchased during the quarter.


                                       40
<PAGE>

                         YOSEMITE MORTGAGE FUND II, LLC
                    (A California Limited Liability Company)

                          Notes to Financial Statements

                                  ------------

4.    Loans Receivable


      All loans receivable are secured by deeds of trust, and ownership of some
      loans is partially shared with related parties (See Note 3). Loans
      receivable as of December 31, 2004 and December 31, 2003 consist of the
      following:


<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
                                                                                          Company
   Loan                        Interest        Loan                         Maturity      Ownership    December 31,  December 31,
   Number                        Rate         Status      Loan Type           Date        Percentage      2004           2003
---------------------------------------------------------------------------------------------------------------------------------
<S>                          <C>             <C>        <C>                <C>            <C>         <C>            <C>
---------------------------------------------------------------------------------------------------------------------------------
#3041                           12.75%       Paid off   Interest-only        8/2003          75.56%   $         --   $    387,349
---------------------------------------------------------------------------------------------------------------------------------
#3053                           13.00%        Current   Interest-only        9/2004           79.6%        390,126        325,000
---------------------------------------------------------------------------------------------------------------------------------
#3054                           12.75%        Current      Amortized         7/2006            100%      1,279,243      1,370,502
---------------------------------------------------------------------------------------------------------------------------------
#3064                            12.5%       Paid off      Amortized         2/2007            100%             --        386,680
---------------------------------------------------------------------------------------------------------------------------------
#3068                           12.75%        Current   Interest-only        5/2005             25%        150,000             --
---------------------------------------------------------------------------------------------------------------------------------
#3077                           12.75%        Default   Interest-only       12/2005          86.96%        965,217        965,217
---------------------------------------------------------------------------------------------------------------------------------
#3080                           12.75%        Current      Amortized         3/2006            100%        178,641        185,362
---------------------------------------------------------------------------------------------------------------------------------
#3081                           12.75%        Current      Amortized         3/2006            100%        580,579        602,427
---------------------------------------------------------------------------------------------------------------------------------
#3092                           12.75%       Paid off   Interest-only        5/2004            100%             --        775,000
---------------------------------------------------------------------------------------------------------------------------------
#3094                           12.75%       Paid off   Interest-only        8/2003            100%             --        280,966
---------------------------------------------------------------------------------------------------------------------------------
#3095                            12.5%       Paid off      Amortized         2/2007            100%             --        252,327
---------------------------------------------------------------------------------------------------------------------------------
#3101                           11.75%       Paid off      Amortized         9/2006          58.91%             --        430,000
---------------------------------------------------------------------------------------------------------------------------------
#3102                           11.00%        Current      Amortized         3/2007            100%        435,841        444,581
---------------------------------------------------------------------------------------------------------------------------------
#3105                           11.25%       Paid off   Interest-only       12/2006          27.97%             --        295,664
---------------------------------------------------------------------------------------------------------------------------------
#3107                           11.75%        Default   Interest-only        2/2008            100%        550,000        550,000
---------------------------------------------------------------------------------------------------------------------------------
#3108                           11.75%       Paid off   Interest-only        3/2007            100%             --        265,000
---------------------------------------------------------------------------------------------------------------------------------
#3110                           12.75%        Current   Interest-only        9/2004          66.89%      1,630,000      1,405,000
---------------------------------------------------------------------------------------------------------------------------------
#3112                           12.00%        Current   Interest-only        5/2007             50%      1,000,000      1,000,000
---------------------------------------------------------------------------------------------------------------------------------
#3115                           12.68%       Paid off   Interest-only        8/2007            100%             --        418,500
---------------------------------------------------------------------------------------------------------------------------------
#3116                           12.75%       Paid off   Interest-only        8/2005          65.79%             --      1,250,000
---------------------------------------------------------------------------------------------------------------------------------
#3118                           12.25%       Paid off   Interest-only        9/2007            100%             --      1,070,000
---------------------------------------------------------------------------------------------------------------------------------
#3119                           12.75%       Paid off   Interest-only       10/2007           71.7%             --         96,074
---------------------------------------------------------------------------------------------------------------------------------
#3121                           12.75%        Current   Interest-only       10/2007          58.04%        415,000        415,000
---------------------------------------------------------------------------------------------------------------------------------
#3125                           11.50%        Current   Interest-only        3/2005          74.56%        425,000        425,000
---------------------------------------------------------------------------------------------------------------------------------
#3126                           11.75%       Paid off   Interest-only        2/2006          78.43%             --      2,000,000
---------------------------------------------------------------------------------------------------------------------------------
#3127                           11.75%       Paid off   Interest-only        3/2008            100%             --        625,000
---------------------------------------------------------------------------------------------------------------------------------
#3129                            9.75%       Paid off   Interest-only        4/2008          21.21%             --        350,000
---------------------------------------------------------------------------------------------------------------------------------
#3131                           12.00%       Paid off   Interest-only        4/2008          75.61%             --        310,000
---------------------------------------------------------------------------------------------------------------------------------
#3132                           12.75%        Current   Interest-only        7/2006            100%        210,000        210,000
---------------------------------------------------------------------------------------------------------------------------------
#3133                           11.75%       Paid off   Interest-only       10/2004             54%             --      1,350,000
---------------------------------------------------------------------------------------------------------------------------------
#3137                           10.75%        Current   Interest-only        5/2008            100%        700,000        700,000
---------------------------------------------------------------------------------------------------------------------------------
#3138                           12.00%       Paid off   Interest-only       12/2004            100%             --        565,000
---------------------------------------------------------------------------------------------------------------------------------
#3140                           12.75%        Current   Interest-only       11/2008          50.41%        915,000        665,000
---------------------------------------------------------------------------------------------------------------------------------
#3142                           12.75%       Paid off   Interest-only       11/2004          83.33%             --      1,000,000
---------------------------------------------------------------------------------------------------------------------------------
#3143                           12.75%        Default   Interest-only       11/2008          61.43%      2,150,000      2,150,000
---------------------------------------------------------------------------------------------------------------------------------
#3144                           12.75%        Default   Interest-only        5/2005          81.89%      4,975,000      4,975,000
---------------------------------------------------------------------------------------------------------------------------------
#3146                           11.75%        Current      Amortized         4/2009            100%        450,000             --
---------------------------------------------------------------------------------------------------------------------------------
#3149                           10.75%        Current   Interest-only        9/2008           57.6%      2,350,000             --
---------------------------------------------------------------------------------------------------------------------------------
#3151                            9.00%        Current   Interest-only        7/2009            100%      1,000,000             --
---------------------------------------------------------------------------------------------------------------------------------
#3152                           11.00%        Current   Interest-only        7/2007            100%        515,000             --
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       41
<PAGE>

                         YOSEMITE MORTGAGE FUND II, LLC
                    (A California Limited Liability Company)

                          Notes to Financial Statements

                                  ------------

<TABLE>
---------------------------------------------------------------------------------------------------------------------------------
<S>                             <C>           <C>       <C>                 <C>                <C>      <C>              <C>
#3153                            9.00%        Current   Interest-only        7/2009            100%      1,900,000             --
---------------------------------------------------------------------------------------------------------------------------------
#3155                           10.00%        Current   Interest-only        8/2007            100%      2,000,000             --
---------------------------------------------------------------------------------------------------------------------------------
#3156                            8.75%        Current   Interest-only        8/2007            100%      1,100,000             --
---------------------------------------------------------------------------------------------------------------------------------
#3157                            9.50%        Current   Interest-only        9/2007            100%      1,000,000             --
---------------------------------------------------------------------------------------------------------------------------------
#3158                           10.00%        Current   Interest-only       12/2006            100%        810,000             --
---------------------------------------------------------------------------------------------------------------------------------
#3161                            9.50%        Current   Interest-only       12/2007            100%        480,000             --
---------------------------------------------------------------------------------------------------------------------------------
#3162                           11.00%        Current   Interest-only        6/2006            100%        900,000             --
---------------------------------------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------------------------------------------
Total Loans Receivable                                                                                $ 29,454,647   $ 28,495,649
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                   Weighted Average Yield of Portfolio = 11.39%

5.    Concentrations

      Cash and Cash Equivalents

      Financial instruments that potentially subject the Company to
      concentrations of credit risk consist of bank balances in excess of the
      FDIC insured amount of $100,000. At December 31, 2004 and 2003, the
      Company had approximately $8,558,000 and $4,384,000, respectively, of cash
      that exceeded this limit and thus was not covered by federal depository
      insurance.

      Loans Receivable

      At December 31, 2004 and December 31, 2003, approximately 72% and 61%,
      respectively, of the Company's loans receivable were collateralized by
      properties located in Northern California.


                                       42
<PAGE>

                                    PART III

Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT

Steven M. Pontes, age 50, is the sole manager of MFP Management, LLC, a
California limited liability company organized on August 20, 2001 for the
primary purpose of acting as the Manager of the Fund. Mr. Pontes has been the
chief executive officer and principal owner of Pontes Financial, Group, Ltd., a
financial services firm and a California licensed real estate broker
corporation, since it was founded in 1987. Mr. Pontes also founded PFG
Investment Services, Inc. in 1996, which registered with the SEC as an
investment adviser on March 22, 2001. Mr. Pontes has been a director of that
company since its founding, but he does not participate in the day-to-day
conduct of its business. Under an agreement dated December 31, 2004, Mr. Pontes
sold his 50% interest in PFG Investment Services, Inc. to the remaining
shareholder, Bradley Sasser. Mr. Pontes holds a life and disability insurance
agent license from the California Department of Insurance.

The Manager's Role

The Manager manages and controls our affairs and has responsibility and final
authority in almost all matters affecting our business. These duties include
dealings with members, accounting, tax and legal matters, communications and
filings with regulatory agencies and all other needed management and operational
duties. The Manager has complete authority and responsibility for:

o     evaluating and choosing the mortgage loans in which we will invest;

o     deciding what agreements we will enter into and whether we will enter into
      joint ventures with other companies to invest in mortgage loans;

o     originating, servicing and managing our mortgage loan investments; and

o     managing all our other operations.

Notwithstanding that the Manager has the broad authority described above,
neither it directly nor Mr. Pontes indirectly may do any of the following:

o     impair our ability to carry on or change the nature of our business;

o     admit a Manager without prior approval of a majority of the members;

o     sell all or over 50% of our assets or dissolve the Fund without prior
      majority approval; and

o     anything else not permitted in the Operating Agreement.

The Manager has primary responsibility for the initial selection, evaluation and
negotiation of our mortgage loans. The Manager, through its affiliate, Pontes
Financial Group, Ltd., will provide all executive, supervisory and
administrative services for our operations, including servicing the mortgage
loans we hold. Our books and records are maintained by the Manager, subject to
audit by independent certified public accountants.

The Manager is required to maintain a minimum financial net worth of $1,000,000,
in accordance with a provision in our operating agreement. As of December 31,
2004, the financial net worth of the Manager is $1,244,690.

The Manager, acting through its General Manager, Steven Pontes, considers and
evaluates prospective loans for us. In that regard, the Manager evaluates the
credit of prospective borrowers, analyzes the return to us of potential mortgage
loan transactions, reviews property appraisals and determines which types of
transactions appear to be most favorable to us. We will not establish our own
underwriting standards and will solely rely on the Manager to provide such
services.

The Manager identifies a potential loan and then Pontes Financial Group, Ltd.
processes the application. When processing a loan, Pontes Financial Group, Ltd.
will -

o     order and review a property title search,


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<PAGE>

o     perform a comprehensive property inspection,

o     obtain an appraisal which is reviewed for reasonableness,

o     conduct its own in-house appraisal, and

o     perform credit underwriting through borrower interviews, credit reports
      and review of borrower and principals' financials.

After Pontes Financial Group, Ltd. processes the loan, the Manager will acquire
the loan for the Fund from Pontes Financial Group, Ltd. or directly from the
borrower.

After we acquire mortgage loans, the Manager also manages our mortgage loan
portfolio. The Manager is responsible for:

o     reviewing loans;

o     recommending changes in loans;

o     employing and supervising employees who handle the loans;

o     preparing and reviewing projected performance;

o     reviewing reserves and working capital;

o     collecting and maintaining all loans;

o     creating and implementing investment policies in furtherance of those
      contained in the operating agreement;

o     preparing and reviewing budgets, economic surveys, cash flow and taxable
      income or loss projections and working capital requirements;

o     preparing and reviewing reports for securities filings, distribution to
      our members or otherwise;

o     communicating with members;

o     supervising and reviewing our bookkeeping, accounting and audits;

o     supervising and reviewing the preparation of our state and federal tax
      returns; and

o     supervising professionals employed by us, including attorneys, accountants
      and appraisers.


The Registrant does not have a formal board of directors or an audit committee.

The Manager has adopted a code of business conduct known as the Code of Conduct
(the "Code"). The Manager will provide a copy of the Code to any person without
charge upon request to Yosemite Mortgage Fund II, LLC, 414 13th Street, Oakland,
CA 94612.


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Item 10. EXECUTIVE COMPENSATION

The Company does not pay compensation to any persons, other than loan servicing
fees to the Manager. The Company has not issued, awarded or otherwise paid, any
options, SAR's, securities, or any other direct or indirect form of compensation
other than the service fees to the Manager permitted under the operating
agreement.

The following table summarizes the forms and amounts of compensation to the
Manager for the year ended December 31, 2004:

                                 Actual         Maximum
      Form of Compensation     Amount Paid     Allowable
      --------------------     -----------     ---------

      Paid by the Company:
      Management fees         $          0   $    277,971
      Loan servicing fees           67,457         67,457
                              ------------   ------------
         Total                $     67,457   $    345,428
                              ============   ============

      Paid by Borrowers:
      Loan origination fees   $    424,891   $    424,891
      Loan servicing fees          134,914        134,914
      Late fees                     14,906         14,906
                              ------------   ------------
         Total                $    574,711   $    574,711
                              ============   ============

Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

No person or entity owns beneficially more than 5% of the ownership interests in
the Company. Pontes Financial Group, Ltd. contributed capital in the amount of
$1,000 as the Initial Member of the Company, for which it received 100 units at
$10.00 per unit, and Pontes Financial Group, Ltd. Retirement Trust 401(k) Plan
holds 31,877 units of the Fund as of February 25, 2005. Neither the Manager nor
Steven Pontes directly owns units of the Company.

Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Transactions with Management

Management Fee

The Manager is entitled to a management fee, up to 0.75% of our aggregate
capital contributions, paid monthly in arrears. The Manager may in its
discretion waive all or a part of the management fee to the extent it deems
appropriate to do so. It has waived this fee for the years 2004 and 2003. The
maximum such fees that would have otherwise been payable to the Manager for the
year ended December 31, 2004 was approximately $278,000.

Loan Servicing Fees

The Manager is entitled to receive loan servicing fees, up to 0.25% of the
principal amount of each loan serviced, which the Manager assigns to Pontes
Financial Group, Ltd. The amount of the fees, which were paid by the Company to
Pontes Financial Group, Ltd., were approximately $67,500 for the year ended
December 31, 2004.

Item 13. EXHIBITS

The following exhibits are listed according to the numbers assigned to them in
Part III of Form 1-A:

      2.    Limited Liability Company Articles of Organization, incorporated by
            reference to Exhibit 3 to Registrant's Form SB-2 registration
            statement number 333-98337.


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<PAGE>

      3.    Limited Liability Company Fourth Amended Operating Agreement,
            incorporated by reference to Exhibit 4.1 to Form SB-2/A, amended
            registration statement filed February 21, 2003, number 333-98337.

      31.   Rule 13a-14a/15d-14(a) Certification.

      32.   Section 1350 Certification.


Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Items 9(e)(1) to 9(e)(4):

                               2004           2003
                           ------------   ------------

      Audit Fees           $     53,846   $     12,120
      Audit-Related Fees             --             --
      Tax Fees (1)                5,460          4,130
      All Other Fees                 --             --
                           ------------   ------------
      Total                $     59,306   $     16,250
                           ------------   ------------

(1)   Tax services include tax return preparation, tax research, compliance,
      planning and advice.


Item 9(e)(5):

      (i)   Before the accountant is engaged by the Company to render audit or
            non-audit services, the engagement is approved by the Manager.

      (ii)  100% of the services described in Items 9(e)(2) through 9(e)(4) were
            approved by the Manager.


Item 9(e)(6):

Not applicable.


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<PAGE>

                                   SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, in the capacities and on the date indicated.


                                     Yosemite Mortgage Fund II, LLC


                                 By:  /s/ Steven M. Pontes
                                     -----------------------------------
                                     Steven M. Pontes, General Manager
                                     MFP Management, LLC,
                                     Manager

                                     Principal Executive Officer
                                     Principal Financial Officer


                                     Date: March 18, 2005

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