##### Table of Contents



The following items were
the subject of a Form 12b-25
and are included herein:
Items 6, 7, 8 and 8A
and Exhibits 31.1, 31.2 and 32. U.S. SECURITIES AND EXCHANGE COMMISSION  FORM 10-KSB/A (Mark One) x
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the year ended December 31, 2003 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the transition period from _______________ to _______________ Commission File Number 000-24803 VESTIN GROUP, INC.  Delaware
    
    52-2102142(State or other jurisdiction of
    
    (I.R.S. Employerincorporation of organization)
    
    Identification No.)
 2901 El Camino Avenue, Suite 206, Las Vegas, Nevada 89102  (Address of principal executive offices)
 (702) 227-0965  (Issuers telephone number)
 Securities registered under Section 12(b) of the Exchange Act: None Securities registered under Section 12(g) of the Exchange
Act: Common Stock, $.0001 Par Value Check whether the issuer (1) has 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 o 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. $23,080,565 As of March 1, 2004, there were 5,328,340 shares of the issuers common
stock, $.0001 par value, issued and outstanding. The aggregate market value
of the common stock held by non-affiliates on March 1, 2004 was
approximately $9.32 million.




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Documents Incorporated By Reference None. Transitional Small Business Disclosure Format (check one): Yes o No x




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Explanatory Note

This Form 10KSB-A is
being amended and restated in its entirety to (i) provide
Items 6, 7, 8 and 8A, which were previously the subject of a
Form 12b-25 and previously omitted and (ii) to make certain
corrections of information to Items 1, 2, 3, 5, 9, 10, 11, 12 and
13.

In addition, our principal
executive officer and principal financial officer are providing the
certifications required by Rule 13a-14, promulgated under the
Securities Act of 1934, as amended, and 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 to the
Sarbanes-Oxley Act of 2002, in connection with this Form 10-KSB/A.



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TABLE OF CONTENTS


|                                                                                                                        |  |   
|----------------------------------------------------------------------------------------------------------------------- |  | --
|PART I                                                                                                                 
|ITEM 1. DESCRIPTION OF
BUSINESS                                                                                         |  | 1 
|ITEM 2. DESCRIPTION OF PROPERTY                                                                                         |  | 8 
|ITEM 3. LEGAL PROCEEDINGS                                                                                               |  | 8 
|ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                             |  | 10
|PART II                                                                                                                
|ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                                                        |  | 11
|ITEM 6. MANAGEMENTS DISCUSSION
AND ANALYSIS                                                                            |  | 13
|ITEM 7. FINANCIAL STATEMENTS                                                                                            |  | 25
|ITEM 8. CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES                           |  | 25
|ITEM 8A. CONTROL AND PROCEDURES                                                                                         |  | 25
|PART III                                                                                                               
|ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT |  | 26
|ITEM 10. EXECUTIVE COMPENSATION AND RELATED INFORMATION                                                                 |  | 28
|ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                                                 |  | 32
|ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                                 |  | 35
|ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K                                                                               |  | 38
|ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES                                                                         |  | 40
|SIGNATURES                                                                                                              |  |   
|EXHIBIT INDEX                                                                                                           |  |   
|EXHIBIT 10.21                                                                                                          
|EXHIBIT 10.22                                                                                                          
|EXHIBIT 10.23                                                                                                          
|EXHIBIT 10.24                                                                                                          
|EXHIBIT 31.1                                                                                                           
|EXHIBIT 31.2                                                                                                           
|EXHIBIT 32                                                                                                             





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PART I NOTE REGARDING FORWARD LOOKING STATEMENTS This annual report and other written reports and oral statements made from time
to time by the Company may contain forward looking statements. Such forward
looking statements may be identified by the use of such words as experts,
plans, estimates, forecasts, projects, anticipates, believes and
words of similar meaning. Forward looking statements are likely to address such
matters as the Companys business strategy, future operating results, future
sources of funding for mortgage loans brokered by the Company, future economic
conditions and pending litigation involving the Company. As a result, investors
should carefully consider any forward looking statements in light of the
various factors which could affect future results. Some of these factors are
discussed below. 
 ITEM 1. DESCRIPTION OF BUSINESS The Company Vestin Group, Inc. (Vestin, the Company or we, us or our) is
primarily engaged in the commercial mortgage brokerage business. The Company
arranges loans to owners and developers of real property whose financing needs
are not being met by traditional mortgage lenders. The underwriting standards
and length of time required by traditional mortgage lenders, such as commercial
banks, results in certain potential borrowers who are unable to or unwilling to
go through the process required by traditional lenders. As a non-conventional
lender, the Company focuses on the needs of borrowers unable or unwilling to
meet the more restrictive requirements of traditional lenders. When evaluating
prospective borrowers, the Company will typically focus on the value of
collateral, which reduces the paperwork and time needed to evaluate other
factors. The Company conducts its operations primarily through Vestin Mortgage, Inc., a
wholly owned subsidiary (Vestin Mortgage or Manager). Vestin Mortgage
operates as a mortgage broker licensed in the state of Nevada. Vestin Mortgage
is engaged in the brokerage and placement of commercial loans secured by real
property. Vestin Mortgages primary operations consist of the brokerage and
placement of commercial, construction, acquisition and development, land, and
residential mortgage loans secured by real property as well as managing three
publicly held funds, Vestin Fund I, LLC (Fund I), Vestin Fund II, LLC (Fund
II), Vestin Fund III, LLC (Fund III, collectively referred to as the
Funds) and an entity owned by the Companys Chief Executive Officer, inVestin
Nevada, Inc. (inVestin Nevada). The Funds and inVestin Nevada invest in
mortgage loans. Fund III also intends to invest in real property. The Company was originally incorporated in Delaware on June 2, 1998 under the
name Sunderland Acquisition Corporation. We changed our name to Vestin Group,
Inc. on July 3, 2000. Our principal executive offices are located at 2901
El Camino Avenue, Suite 206, Las Vegas, Nevada 89102. Our telephone number is
702-227-0965. Mortgage Brokerage Operations The Companys mortgage business involves processing loan applications as well
as approving, funding, and servicing loans. In processing a loan application,
the Company will determine whether a proposed loan satisfies the Companys
lending criteria by analyzing the purpose of the loan, the value of the
underlying real estate, and the credit history and references of the borrower.
In order to verify a prospective borrowers equity in a property or project,
the Company typically receives an independent appraisal from an appraiser
licensed or qualified as an independent appraiser and who is certified by or
holds designations from one or more of the following organizations: the Federal
National Mortgage Association of Review Appraisers, the Appraisal Institute,
the Society of Real Estate Appraisers, M.A.I., or Class IV Savings and Loan
Appraisers. Generally, these appraisals are completed within twelve months
prior to funding of the loan and may have been previously performed for the
borrower. The appraisals may be for the current estimated as-if developed or
as-if completed value of the property or, in the case of acquisition and
development loans or construction loans, for the estimated value of the
property upon completion of the project. As-if completed or as-if developed
values on raw land loans or acquisition 1




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and development loans often dramatically exceed the immediate sales value and
may include anticipated zoning changes, selection by a purchaser against
multiple alternatives, and successful development by the purchaser; upon which
development is dependent on availability of financing. However, appraisals are
only estimates of value and cannot be relied on solely as measures of
realizable value. An employee or agent of Vestin Mortgage reviews each
appraisal report and conducts a physical inspection for each property. Additionally, the Company will order and review a property title search and
review the documentation provided to determine whether there exists sufficient
evidence of the borrowers right to the property or project. Generally,
employees of the Company will physically inspect the property to enhance the
Companys knowledge with respect to the underlying property in an effort to
ensure there is sufficient equity in the property to secure the financing. A
physical inspection includes an assessment of the subject property, the
adjacent properties and the neighborhood but generally does not include
entering any structures on the property. The loan approval process of the Company typically involves a review by a loan
committee which generally consists of three or more officers of the Company
authorized to approve loans. The loan committee meets on a weekly basis or as
necessary to review potential loans, reports and other information regarding a
particular loan and/or borrower. Generally, the officers serving on the loan
committee have substantial experience in the real estate and mortgage lending
industries. The credit evaluation process may take up to 20 days as compared to
conventional lenders which may take up to 120 days or longer in approving a
particular loan. The loans brokered by the Company for the Funds typically require the borrowers
to execute promissory notes on the behalf of the Funds. The Funds receive
monthly interest payments from the promissory notes as paid by the borrowers.
Interest payments from the borrower may come from an interest reserve
established at loan closing. The interest reserve may be advanced by the
Company or other lenders with the amount of the borrowers indebtedness
increased by the amount of such advances. The deeds of trust grant a security
interest in the real property that serves as collateral for the loan. The
Company will arrange loans which generally range from 50-75% of the appraised
value of the property that serves as collateral for the loan in order to
provide protection for the investments while permitting a significant return.
The appraised value can increase or decrease as conditions and circumstances
affecting the property change. Such change can be significant. The general terms of a loan brokered by the Company typically include: (i) a
one to seven year maturity date; (ii) regular interest payments; and (iii) a
balloon payment of principal payable in full at the end of the term. To the
extent that a borrower has an obligation to pay mortgage loan principal in a
large lump sum payment, such borrowers ability to repay the loan may depend
upon its ability to sell the property, obtain suitable refinancing, or
otherwise raise capital. The Company monitors the repayment of the loans through its loan accounting
department which services the loans. Servicing agents in the loan accounting
department receive loan payments from the borrowers, disburse corresponding
payments to the applicable lenders, such as the Funds, and assist in collection
efforts on past due loans. Additionally, the servicing agents review loan
status reports and alert collection agents within the Company in the event a
borrower has not made a payment on its loan within one day of such payments
due date. Collection agents notify the delinquent borrower of its default and
allow the borrower to respond in a timely fashion prior to engaging in
foreclosure action. Should the Company be required to commence foreclosure
action on property serving as collateral to a loan in default, the Company will
simultaneously begin negotiations with potential purchasers of the foreclosed
property. Neither the Company nor the Funds intend to hold foreclosed
properties as investments. 2




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Management of Fund I, Fund II and Fund III Vestin Mortgage is the manager of Fund I, Fund II, and Fund III, all of which
are Nevada limited liability companies. As manager, Vestin Mortgage evaluates
prospective investments, selects the mortgages in which the Funds will invest
and makes all investment decisions for the Funds. Additionally, Vestin Mortgage
is responsible for all administrative matters such as accounting, tax and legal
requirements for the Funds. Vestin Mortgage records an annual management fee of
up to 0.25% of the aggregate capital contributions to the Funds per annum. The
Manager may, in its sole discretion, waive its management fee. For the year
ended December 31, 2003, the Manager recorded management fees of approximately
$254,000 from Fund I and $953,000 from Fund II as compared to $249,000 from
Fund I and $586,000 from Fund II for the same period in 2002. Amounts due from
Fund I totaling $401,705 and $530,873 as of December 31, 2003 and 2002,
respectively, and amounts due from Fund II totaling $1,431,253 and $1,247,156
for the same periods relate to management fees, earnings on units in Fund I and
reimbursable expenses. In connection with the organization of the Funds,
Vestin Mortgage received approximately 100,000 Units in Fund I for expenses
paid by Vestin Mortgage to unaffiliated third parties in connection with the
offering of units in Fund I, and 110,000 units from Fund II for such offering
expenses which is the maximum amount allowed for such expenses under the
Operating Agreement of Fund II. As of December 31, 2003, Fund III raised
approximately $1,616,247 of the required $10,000,000 to break escrow and
commence operations. Therefore, no management fees were earned by Vestin
Mortgage for the year ended December 31, 2003 for Fund III. As of February 12,
2004, Fund III raised the required $10,000,000 to break escrow and commence
operations. The Operating Agreements for
the Funds provide that Vestin Mortgage may be indemnified
for any action, claim or liability arising from any act or omission made in
good faith and in the performance of its duties under the Operating Agreement. Types of Loans Brokered The Company primarily brokers loans which are 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
property, residential and bridge loans. Raw and Unimproved Land Loans Approximately 15 - 25% of the loans placed by the Company are loans made for
the purchase or development of raw, unimproved land. Generally, the Company
determines whether to broker these loans based upon the appraised value of the
property and the borrowers actual capital investment in the property. The
Company will generally broker loans with a face value of up to 60% of the as-if
developed appraised value of the property and we usually require that the
borrower has invested in the property actual capital expenditures of at least
25% of the propertys value. As-if developed values on raw and unimproved land
loans often dramatically exceed the immediate sales value and may include
anticipated zoning changes, selection of a purchaser against multiple
alternatives, and successful development by the purchaser; upon which
development is dependent on availability of financing. Acquisition and Development Loans Approximately 10-25% of the loans placed by the Company are acquisition and
development loans. These loans enable borrowers to complete the basic
infrastructure and development of their property prior to the construction of
buildings or structures. Such development may include installing utilities,
sewers, water pipes, and/or streets. Generally, the Company will broker loans
with a face value of up to 60% of the appraised value of the property. Loan to
value ratios on some acquisition and development loans may be calculated using
as-if developed appraisals. Such appraisals have the same valuation limitations
as raw and unimproved land loans, described above. Construction Loans Approximately 10-70% of the Companys brokered loans are construction loans. A
construction loan provides funds for the construction of one or more structures
on developed land. Funds under this type of loan will generally not be 3




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forwarded to the borrower until work in the previous phase of the project has
been completed and an independent inspector has verified certain aspects of the
construction and its costs. The Company will typically require material and
labor lien releases by the borrower per completed phase of the project. The
Company will review the appraised value of the property and proposed
improvements, and will arrange loans for up to 75% of the appraised value. Loan
to value ratios on some construction loans may be calculated using as-if
developed appraisals. Such appraisals have the same valuation limitations as
raw and unimproved land loans as described above. Commercial Property Loans Approximately 20-50% of the loans placed by the Company are commercial property
loans. Commercial property loans provide funds to allow commercial borrowers to
make improvements or renovations to the property in order to increase the net
operating income of the property so that it may qualify for institutional
refinancing. The Company will review the appraised value of the property and
will broker loans for up to 75% of such appraised value. Residential Loans A small percentage of the loans brokered by the Company are residential loans.
Such loans facilitate the purchase or refinance of one to four family
residential property provided the borrower uses one of the units on the
property as such borrowers principal residence. The Company will place loans
for up to 75% of the appraised value of the property. Bridge Loans Up to 15% of the Companys brokered loans are bridge loans. Such loans provide
interim financing (up to six months) to enable commercial borrowers to qualify
for permanent refinancing. The Company will review the appraised value of the
property and will generally arrange for loans of up to 75% of that value. Such
appraisals may be based on either an as-is basis or as-if developed basis,
depending on the circumstances. Collateral The types of collateral that will secure the loans brokered by the Company
include a first deed of trust, a second deed of trust or a leasehold interest. First Deed of Trust The majority of the loans placed by the Company are secured by a first deed of
trust. Thus the applicable lender will have rights as a first mortgage lender
of the collateralized property. Second Deed of Trust Up to 10% of the loans placed by the Company 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 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. Leasehold Interest Up to 20% of the loans brokered by the Company may be in loans where the
collateral is an interest in a lease. Sources of Revenue The Companys mortgage brokerage operations generate revenues through (i) loan
placement fees on the loans it brokers; (ii) loan servicing fees; and (iii)
loan extension fees charged to borrowers who desire to extend the term of 4




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their loan(s). Mortgage
brokerage operations accounted for approximately 89%
and 96% of the Companys revenues in 2003 and 2002, respectively. For each loan brokered by the Company, the Company receives a loan placement
fee typically between 2% to 6% of the principal amount of the loan. Such fee is
a competitive fee based upon local market conditions. An evaluation and
processing fee of up to 5% per loan is charged to document and package the
loan. Such fee is also a competitive fee based upon local market conditions.
The servicing fee for administering the financing is an annual fee up to .25%
of the outstanding principal of each loan. Loan extension fees may be up to 6%
of outstanding principal on the loan as determined by law and local market
conditions. Late charges are assessed for non-timely payments. During the year ended December 31, 2003, there were 65 mortgage loans placed by
the Company with an aggregate value of $266,843,250. During the year ended
December 31, 2002, there were 79 mortgage loans placed by the Company with an
aggregate value of $477,942,550. The majority of the loans placed by the
Company are secured by real estate located in Nevada and other western states
such as Arizona, California, Hawaii, Texas, Utah and Washington. The following chart sets forth a summary of the types of loans arranged by the
Company for the years ended December 31, 2003 and 2002. Number of
    
    Aggregate
    
    Loan Placement
    
    AverageLoans
    
    Dollar Amount
    
    Fees by Loan
    
    Origination FeesLoan Type
    
    Originated
    
    in Total
    
    Type
    
    as % of Loans2003Bridge and
Residential Loans
    
    
    32
    
    
    $
    15,658,750
    
    
    $
    361,820
    
    
    
    2.31
    %Construction
and Acquisition and Development Loans
    
    
    17
    
    
    
    87,191,500
    
    
    
    5,025,119
    
    
    
    5.76
    %Land Loans
    
    
    3
    
    
    
    43,618,000
    
    
    
    1,649,950
    
    
    
    3.78
    %Commercial Loans
    
    
    13
    
    
    
    120,375,000
    
    
    
    6,211,050
    
    
    
    5.16
    %65
    
    
    $
    266,843,250
    
    
    $
    13,247,939
    
    
    
    4.96
    %2002Bridge and
Residential Loans
    
    
    15
    
    
    $
    31,205,050
    
    
    $
    1,217,496
    
    
    
    3.90
    %Construction
and Acquisition and Development Loans
    
    
    25
    
    
    
    226,836,000
    
    
    
    11,084,200
    
    
    
    4.89
    %Land Loans
    
    
    12
    
    
    
    34,271,500
    
    
    
    1,047,450
    
    
    
    3.06
    %Commercial Loans
    
    
    27
    
    
    
    185,630,000
    
    
    
    7,422,825
    
    
    
    4.00
    %79
    
    
    $
    477,942,550
    
    
    $
    20,771,971
    
    
    
    4.35
    %
 Investment in Mortgage Loans and Other Investments The Funds are a primary source of money for loans originated by the Company.
From time to time, the Company may co-invest in certain mortgage loans with
participating lenders. The type and nature of such mortgage loans generally
mirror the composition of loans placed through the Companys mortgage brokerage
operations. As of December 31, 2003, the Company held for investment approximately
$843,035 net of valuation allowance of $110,000. Interest income generated by such types of investments comprised less
than 5% of the Companys revenues for 2003 and 2002. In the event of a default of loans in which the Company invested, the Company
will initiate foreclosure activity on the property securing the corresponding
loan and as a result, own such real estate. The types of real estate which the
Company may own as a result of foreclosure include raw and undeveloped land and
commercial and residential 5




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properties. Simultaneously with the foreclosure actions, the Company anticipates entering into negotiations with
potential purchasers of such property. At December 31, 2003, the Company had
eight properties totaling $7,036,203, which were acquired through foreclosure and recorded as investments in real
estate held for sale. Such investments in real estate held for sale are
recorded at the lower of cost or fair value less costs to sell, based on
appraisals and knowledge of local market conditions. It is not the Companys
intent to invest in or own real estate acquired through foreclosure. The
Company seeks to sell properties acquired through foreclosure as quickly as
circumstances permit. As of December 31, 2003, the Company held approximately 100,000 units in Fund
I, representing approximately 1% of the equity of Fund I, and 110,000 units in
Fund II, representing approximately 0.3% of the equity of Fund II. The primary
activity of the Funds consists of investing in mortgage loans. The Company
serves as manager of the Funds and evaluates loans to determine which loans the
Funds should invest in. As of December 31, 2003, the Company had an investment
in Fund III of approximately $673,088, which consists of certain costs paid on
behalf of Fund III related to the registration and start-up costs. As of
February 12, 2004, Fund III raised the required $10,000,000 to break escrow and
commence operations. Such costs will be converted into membership
units at a conversion price of $10 per unit once Fund III receives
sufficient gross proceeds to ensure that such costs do not exceed 2%
of the gross proceeds received by the Company. If converted into
units, Vestin Mortgage would have received 67,309 units in Fund
III related to this investment. Competition The Company must compete both for sources of funds to finance the mortgage
loans which it brokers and for borrowers who are seeking mortgage loans. Competition for Funds Historically, the main source of the Companys funds had been individual
investors interested in the investment opportunity offered by the Company.
Since 2001 the main source of the Companys revenues have been the Funds. In
seeking investors for the Funds, the Company competes with alternative
investment vehicles as well as competing mortgage brokers. The attractiveness
of the Companys mortgage loans as compared with other investment opportunities
depends upon the yields on loans placed by the Company, the safety of the
underlying investment, the Companys reputation, general economic conditions
and real estate market conditions. The increase in
non-performing assets in the Funds and the resulting decline in rate
of return and unit values has adversely affected the Company's
ability to compete for new investors. In addition, the Company is at a disadvantage compared to
alternative investment vehicles to the extent that an investment in mortgage
loans lacks liquidity and is not guaranteed or insured by a governmental
agency. In addition, the Company is smaller than many of the full service
financial firms which market alternative investment vehicles and has a more
limited operating history. In competing with other mortgage brokers, the Company has been a leading
non-traditional real estate lender in southern Nevada. However, this may carry
less weight as the Company expands its operations into other markets. Competition for Borrowers Generally, real estate developers depend upon the timely completion of a
project to obtain a competitive advantage when selling their properties. The
Company has sought to attract real estate developers by offering expedited loan
processing, which generally provides quick loan approval and funding of a loan.
As a result, the Company has established a market niche as a non-conventional
mortgage lender. The Company considers its direct competitors to be the providers of
non-conventional mortgage loans, that is, lenders who offer short-term,
equity-based loans on an expedited basis for higher fees and rates than those
charged by conventional lenders. To a lesser extent, the Company also competes
with conventional mortgage lenders and mortgage loan investors, such as
commercial banks, thrifts, conduit lenders, insurance companies, mortgage
brokers, pension funds and other financial institutions that offer conventional
mortgage loans. The Companys principal competitors in its market niche as a
non-conventional mortgage lender include: USA Capital, Residential Funding,
First Security Bank, and United Bank of Texas. Many of the companies against
which the Company competes have substantially greater financial, technical and
other resources than the Company. Competition in the Companys 6




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market niche depends upon a number of factors, including price and interest
rates of the loan, speed of loan processing, cost of capital, reliability,
quality of service and support services. Other Business Operations The Company conducts other operations through its subsidiaries. Vestin
Capital, Inc., a wholly owned subsidiary of the Company, serves as the lead
broker dealer on the sale of units for Fund I, Fund II, and Fund III and also
provides administrative services. Vestin Capital does not receive any
commissions from the sale of units for Fund I and Fund II. Rather, Vestin
Capital receives an administrative fee from Vestin Mortgage related to the
maintenance of investor files. Vestin Advisors, Inc., a wholly owned subsidiary of the Company, is a passive
non-bank custodian that serves as a custodian for individual retirement
accounts of investors in Vestin products. Government Approval and Regulation The primary operations of Vestin Group are conducted through its wholly owned
operating subsidiary, Vestin Mortgage. These operations are subject to
regulation by federal, state and local laws and governmental authorities.
Vestin Mortgage conducts its real estate mortgage business under a privileged
license issued by the State of Nevada Financial Institutions Division (the
Division). Under applicable Nevada law, the Division has broad discretionary
authority over Vestin Mortgages activities, including the authority to conduct
periodic regulatory audits of all aspects of Vestin Mortgages operations. On March 26, 1999, Del Mar Mortgage, a company controlled by Mr. Shustek,
entered into a stipulated court order (the Order) with the State of Nevada,
Department of Business and Industry, Financial Institutions Division (the
Division) resolving a dispute regarding Del Mar Mortgages alleged
noncompliance with various Nevada regulatory statutes. Without admitting any
facts, and solely to settle these matters, Del Mar Mortgage agreed to assure
compliance with applicable Nevada law in its advertising solicitation of
mortgage borrowers and in its making and servicing of mortgage loans. In April 1999, Vestin Group (then
known as Sunderland Acquisition Corporation) acquired the customer lists, good
will and certain other intangible assets of Del Mar Mortgage and assumed
certain liabilities related to such assets. Neither Vestin Group (then
Sunderland Acquisition Corporation) nor Vestin Mortgage (then known as
Capsource, Inc.) acquired any loans or other financial assets of Del Mar
Mortgage, which continued to operate as an independent business. In
contemplation of such acquisition, Vestin Group (then Sunderland Acquisition
Corporation) and Vestin Mortgage (then Capsource, Inc.) agreed to be bound by
the terms of the Order. Investment capital raised by
the Funds is subject to the Mortgage Program Guidelines and Real
Estate Programs of the North American Securities Administrators
Association (NASAA). These guidelines are adopted by
various state agencies charged with protecting the interest of the
investors. Administrative fees, loan fees, and other compensation paid
to Vestin Mortgage and its affiliates are generally limited by
guidelines set forth the NASAA program guidelines. These guidelines
also include certain investment procedures and criteria which are
required for new loan and real estate investments. The Company is required to comply with 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. The
Company is 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. Because the Companys business is regulated, the laws, rules and regulations
applicable to the Company are subject to regular modification and change. There
can be no assurance that laws, rules or regulations will not be adopted in the
future that could make compliance much more difficult or expensive, restrict
the Companys ability to broker or service loans, further limit or restrict the
amount of commissions, interest and other charges earned on loans brokered by
the Company, or otherwise adversely affect the business or prospects of the
Company. 7




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Employees As of March 1, 2004, the
Company and its subsidiary, Vestin Mortgage, employed 43 personnel of which one was a
part-time employee. Of these employees, 16 were employed to identify, arrange,
and service loans and 27 performed general and administrative as well as
information technology and marketing functions. The Company has entered into
employment agreements with certain officers and key employees. No employees are
covered by a collective bargaining agreement. Available Information Our Internet website address is www.vestingroup.com. We make available free of
charge this website our Annual Reports on Form 10-KSB, Quarterly Reports on
Form 10-QSB, Current Reports on Form 8-K and all amendments to those reports as
soon as reasonably practicable after such material is electronically filed with
or furnished to the Securities and Exchange Commission. 
 ITEM 2. DESCRIPTION OF PROPERTY The Company currently maintains its executive offices at 2901 El Camino Avenue,
Las Vegas, Nevada 89102. The Companys office is approximately 15,000 square
feet and houses the Companys marketing, loan processing and administrative
personnel. The Company leases its principal executive offices from
The Wildwood Hills Development, Corporation. The lease agreement governing this property
expires in April 2006 and the base rent is approximately $36,000 per month. The Company has entered into
a new lease with Luke Properties, LLC for its executive offices which are
currently under construction at Durango Road and the 215 Beltway in Las Vegas,
Nevada. The Company currently anticipates that construction will
be completed in the summer of 2004. The Company is attempting to sublease its current
office space. The Companys new office space is approximately 41,614 square
feet. The new lease agreement governing this property will expire in March
2014 and the base rent is $72,824.50 per month. The Company
anticipates spending $100,000 to $150,000 in tenant
improvements in excess of the allowance provided by the landlord. The Company
believes that the new leased office space will be adequate for its current
operations. 
 ITEM 3. LEGAL PROCEEDINGS Vestin Group, Vestin Mortgage, and Del Mar Mortgage, Inc., a company wholly
owned by Michael Shustek, the largest stockholder and CEO of Vestin Group are
defendants in a civil action entitled Desert Land, L.L.C. et al. v. Owens
Financial Group, Inc. et al (the Action). The Action was initiated by Desert
Land, L.L.C. (Desert Land) on various loans arranged by Del Mar Mortgage,
Inc. and/or Vestin Mortgage. On April 10, 2003, the United States District
Court for the District of Nevada (the Court) entered judgment jointly and
severally in favor of Desert Land against Vestin Group, Vestin Mortgage and Del
Mar Mortgage, Inc. Judgment was predicated upon the Courts finding that Del
Mar Mortgage, Inc. received an unlawful penalty fee from the plaintiffs. Defendants subsequently filed a motion for reconsideration. The Court denied
the motion and, on August 13, 2003, held that Vestin Group, Vestin Mortgage,
and Del Mar Mortgage, Inc. are jointly and severally liable for the judgment in
the amount of $5,683,312.19 (which amount includes prejudgment interest and
attorneys fees). On August 27, 2003, the Court stayed execution of the
judgment against Vestin Group and Vestin Mortgage based upon the posting of a
bond in the amount of $5,830,000. Mr. Shustek personally posted a
cash bond without any cost or obligation to Vestin Group and Vestin Mortgage.
Additionally, Del Mar Mortgage, Inc. has indemnified Vestin Group and Vestin
Mortgage for any losses and expenses in connection with the Action, and Mr.
Shustek has guaranteed the indemnification with his cash bond. On September 12, 2003, all of the
defendants held liable to Desert Land appealed the judgment to the United
States Court of Appeals for the Ninth Circuit. The staff of the Pacific Regional Office of the Securities and Exchange
Commission (SEC) has been conducting an informal inquiry into certain matters
related to the Company, Fund I, Fund II and Fund III. The staff of the SEC 8




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##### Table of Contents



has not identified the reasons for its inquiry, which remains ongoing as of
March 30, 2004. We believe that we have fully complied with SEC disclosure
requirements and are fully cooperating with the inquiry. We cannot at this time
predict the outcome of the inquiry. On May 30, 2003, Vestin
Mortgage filed a civil action against First American Title Company in
the Utah Third District Court (Case No. 030912242) for various
causes of action in connection with First American Title
Companys alleged failure to note in its title report a bond
assessment on certain foreclosed land in Utah. First
American Title Company subsequently filed for dismissal and the case was dismissed
on November 5, 2003. On March 2, 2004, Vestin Mortgage
appealed the judgment to the Utah Court of Appeals. The Company and its subsidiaries are involved in a number of legal proceedings
concerning matters arising in connection with the conduct of their business
activities. The Company believes it has meritorious defenses to each of these
actions and intends to defend them vigorously. The Company believes that it is
not a party to, nor are any of its subsidiaries the subject of, any pending
legal or arbitration proceedings that would have a material adverse effect on
the Companys financial condition or results of operations or cash flows,
although it is possible that the outcome of any such proceedings could have a
material impact on the Companys net income in any particular period. 9




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##### Table of Contents



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS We held our 2003 Annual Meeting of Stockholders as further discussed below:  (a)
    
    Our 2003 Annual Meeting of Stockholders was held on November 24,
2003 in San Diego, California.(b)
    
    Proxies for the Annual Meeting of Stockholders were solicited
pursuant to Regulation 14 under the Securities and Exchange Act of
1934, as amended. There was no solicitation in opposition to the
nominees in the proxy statement, and all of such nominees were elected.  (c)
    
    At the Annual Meeting of Stockholders the following matters were
considered and voted upon:  1.
    
    The election of five directors to serve on the Companys Board of
Directors until the 2004 Annual Meeting of Stockholders or until their
successors are duly elected and qualified. Nominee
    
    Votes For
    
    Votes Against
    
    AbstentionsMichael V. Shustek
    
    
    4,596,035
    
    
    
    0
    
    
    
    34,750Lance K. Bradford
    
    
    4,598,035
    
    
    
    0
    
    
    
    32,750Robert J. Aalberts
    
    
    4,599,035
    
    
    
    0
    
    
    
    31,750David Chavez
    
    
    4,599,035
    
    
    
    0
    
    
    
    31,750Roland M. Sansone
    
    
    4,599,035
    
    
    
    0
    
    
    
    31,750
  2.
    
    To ratify the appointment of Ernst & Young LLP as independent auditors of
the Company for the fiscal year ended December 31, 2003. Votes For
    
    Votes Against
    
    Abstentions4,623,885
    
    
    4,800
    
    
    
    2,100
 10




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PART II 
 ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Market Information The Companys Common Stock is traded on the Nasdaq National Market under the
ticker symbol VSTN. The Company has received notice from the Nasdaq that it
no longer meets the minimum value of publicly held shares required for the
Companys inclusion on the Nasdaq National Market. The Company has been
afforded an opportunity to regain compliance or transfer to the Nasdaq Small
Cap Market. The Company is currently contemplating transferring its securities
to the Nasdaq Small Cap Market. The table below lists the quarterly high and low sales prices for the Common
Stock as reported by the Nasdaq for the four quarters in 2003 and 2002. As of
March 15, 2004, the closing sale price for the Companys Common Stock was $2.00
per share. NasdaqUS $High
    
    US $Low2003First Quarter
    
    
    7.00
    
    
    
    5.20Second Quarter
    

    
    6.01
    
    
    
    2.92Third Quarter
    
    
    3.70
    
    
    
    2.22Fourth Quarter
    
    
    3.15
    
    
    
    1.852002First Quarter
    
    
    8.02
    
    
    
    5.05Second Quarter
    
    
    9.75
    
    
    
    6.80Third Quarter
    
    
    9.20
    
    
    
    6.11Fourth Quarter
    
    
    7.84
    
    
    
    6.55
 Holders On March 1, 2004, there were approximately 145 stockholders of record of the
Companys Common Stock, which does not reflect the beneficial stockholders
whose shares are held in nominee names. Dividends Any determination to pay dividends is at the discretion of the Companys Board
of Directors and will depend upon the Companys financial condition, results of
operations, capital requirements, limitations contained in loan agreements and
such other factors as the Board of Directors deems relevant. According to the
Companys Certificate of Designations, holders of the Companys Series A
Preferred Stock are entitled to receive, when, as and if declared by the Board
of Directors, dividends in an amount to be determined by the Board of
Directors, but not less than 0.83% of the Original Issue Price per annum
(initially set at $10) and not more than 10% of the Original Issue Price per
annum, prior and in preference to any declaration or payment of any dividends
on the Common Stock, which may be paid in cash or in Common Stock and are not
cumulative. The Company paid approximately $901,079 in dividends to Preferred
Stock shareholders during 2003. During the year 2003 the Company declared
dividends on Common Stock as follows: Month
    
    Dividend PerDeclared
    
    Common ShareMarch
    
    $
    0.12
 11




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##### Table of Contents



Recent Sales of Unregistered Securities None. 12




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ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS The following financial review and analysis concerns the Companys financial
condition and results of operations for the years ended December 31, 2003 and
2002. This information should be read in conjunction with the Companys
Consolidated Financial Statements and accompanying notes and other detailed
information appearing elsewhere in this Form 10-KSB/A. OVERVIEW The Company is primarily engaged in the commercial mortgage brokerage business.
The Company arranges loans to owners and developers of real property whose
financing needs are not being met by traditional mortgage lenders. The
underwriting standards and length of time required by traditional mortgage
lenders, such as commercial banks, result in certain potential borrowers who
are unable to or unwilling to go through the process required by traditional
lenders. As a non-conventional lender, the Company focuses on the needs of
borrowers unable or unwilling to meet the more restrictive requirements of
traditional lenders. When evaluating prospective borrowers, the Company
typically focuses on the value of the collateral, which reduces the paperwork
and time needed to evaluate other factors. Vestin Mortgage, our wholly-owned subsidiary, operates as a mortgage broker
licensed in the state of Nevada. Vestin Mortgages primary operations consist
of the brokerage and placement of commercial, construction, acquisition and
development, land and residential mortgage loans secured by real property as
well as managing Vestin Fund I, Vestin Fund II, Vestin Fund III (collectively,
the Funds) and inVestin Nevada, a company wholly-owned by the Companys Chief
Executive Officer. The Funds and inVestin Nevada invest in mortgage loans.
Fund III also intends on investing in real property. The Funds are the main funding sources for Vestin Mortgages commercial
mortgage brokerage activities. As manager of the Funds, Vestin Mortgage
evaluates prospective investments, selects the mortgages in which the Funds
will invest and makes all investment decisions for the Funds. Additionally,
Vestin Mortgage is responsible for all administrative matters such as
accounting, tax and legal requirements for the Funds. The Company experienced a decline in total revenues from its mortgage brokerage
operations from approximately 89% of total revenues in 2003 compared to 96% in
2002. Factors that affect the Companys mortgage brokerage operations include
(i) an increase in non-performing assets at the Funds, (ii) withdrawals by Fund
members, (iii) a general slowdown of commercial real estate lending activity,
(iv) a reduction in the number of suitable loans the Company is able to
identify and (v) increased competition in its lending sector. SUBSEQUENT EVENTS On March 15, 2004, the
Company notified Planned Licensing, Inc., the public relations firm
for Joe Namath, that it is terminating its License Agreement, dated
January 10, 2001 (the License Agreement), with
Mr. Namath. Pursuant to the termination provisions of the
License Agreement, the Company may terminate the License Agreement in
the event, in the consensus of public opinion, Mr. Namaths
conduct has reflected so seriously on Mr. Namaths public
reputation as to prejudice substantially the Companys business
interests if the License Agreement were to continue. Planned
Licensing, Inc. is contesting the termination of the License
Agreement and has threatened to initiate litigation regarding its
termination. The Company cannot predict at this time how much, if
any, it may have to pay in connection with the termination of the
License Agreement and any warrants issued in connection therewith. CONSOLIDATED RESULTS OF OPERATIONS COMPARISON OF YEAR ENDED DECEMBER 31, 2003 AND YEAR ENDED DECEMBER 31, 2002 HISTORICAL PERFORMANCE REVENUE During 2003 the Companys total revenues decreased $8.8 million to $23.1
million compared to $31.9 million for the same period in 2002. Approximately
89% of total revenues were generated by the Companys mortgage brokerage
operations for 2003 compared to 96% in 2002. The decline is primarily
attributable to lower loan placements and related fees. The Company generated
$20.7 million of loan placement and related fees for the year ended December
31, 2003 as compared to $30.6 million for the year ended December 31, 2002.
This decline is primarily attributable to a decline in loans originated. In
2003, the Company originated 65 loans with an aggregate value of $266,843,250
as compared to 79 loans
originated in 2002 with an aggregate value of $477,942,550. The 13




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effect of the decline in
loans originated was offset to some extent by a 0.6%
increase in the average placement fee per loan. In addition, the Company has
adopted stricter underwriting guidelines resulting in more declines of loan
requests. The Companys goal is to originate higher quality loans with higher
yields on each loan placed. The Company believes the decrease in the amount of loans placed is also
related to a slowdown in borrowing demand within the Companys market segment.
Competition in the market as a result of the current economy is allowing banks
to make loans to borrowers that would normally be in the Companys target
market. Of the $20.7 million of loan placement and related fees for 2003, approximately
$4.9 million, or 24%, represent loan extension fees, as compared to extension
fees of $3.1 million, which comprised 10% of total loan placement and related
fees for 2002. The increase in extension fees reflects an increasing number of
borrowers who have required additional time to complete their projects and
obtain take-out financing. The Funds generally will not agree to an extension
of loans which are not current in all material performance obligations. For
the year ended December 31, 2003, 48 loans were extended of which 10 became
non-performing as of December 31, 2003. A loan is non-performing
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 term of the loan agreement or when the payment of
interest is 90 days past due. The increase in Other Income from $0.7 million to $1.8 million is largely due
to an increase in management fees. Vestin Mortgage is entitled to receive an
annual management fee of up to 0.25% of the aggregate capital contributions to
the Funds. Vestin Mortgage may, in its sole discretion, waive the management
fee. For the years ended December 31, 2003 and 2002, the Company recorded
management fees of approximately $254,000 and $249,000, respectively, for Fund
I. Vestin Mortgage recorded management fees of approximately $953,000 and
$586,000 for the years ended December 31, 2003 and 2002 for Fund II. Amounts
due from Fund I totaling $401,705 and $530,873 as of December 31, 2003 and
2002, respectively, and amounts due from Fund II totaling $1,431,253 and
$1,247,156 for the same periods relate to management fees, earnings on units in
Fund I and reimbursable expenses. As of December 31, 2003, Fund III had raised
approximately $1.6 million of the required $10 million to break escrow and
commence operations. Therefore, no management fees have been recorded for Fund
III. As of February 12, 2004, Fund III raised the required $10 million to
break escrow and commence operations. Direct Investment As of December 31, 2003
and 2002, the Company had approximately $0.8 million
and $8.9 million invested in mortgage loans, respectively. The decrease is
related to the liquidation of such investments primarily to pay off its lines
of credit. Revenues related to the Companys investments in mortgage loans
approximated $0.5 million for both years ended December 31, 2003 and 2002. As
of December 31, 2003 the Company also had approximately $2.7 million invested
as capital contributions in the Funds. The Company earns additional income from
interest earned on monies in its bank deposits. As of December 31, 2003 and 2002, the Company had $7.0 million and $6.0
million, respectively, in real estate held for sale, considered to be
non-earning assets, which represented 33% and 21%, respectively, of its total
assets. Geographical Expansion Although the Company has historically focused its operations in certain Western
states, the Company has originated loans throughout the United States. The
Company has developed a significant degree of knowledge with respect to the
real estate markets in the Western States. Such knowledge is critical to the
Companys business as it enables the Company to process loan applications more
quickly than many conventional lenders. The Company is able to rapidly process
loan applications in large part because its underwriting standards focus
heavily on the value of the underlying property rather than the
creditworthiness of the borrower. The Companys ability to quickly assess the
underlying value of real estate when it arranges the terms of a mortgage loan
is therefore essential to its strategy of providing fast turnaround for loan
applications. The Company believes the real estate markets are significantly influenced by local conditions as well as
by national economic conditions. Thus, real estate markets vary greatly from
place to place and local knowledge of a real estate market is essential to
prudent lending. In order to obtain such local knowledge, the Company intends
to engage the services of local real estate brokers and real estate lawyers who
are believed to be familiar with the markets into which it may expand. No 14




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assurances can be given that the Company will be successful in any of its
operations, especially related to loans originated outside the Western States,
or that the Company will be able to mitigate the related risks by working with
local brokers and lawyers. Any difficulties the Company encounters in this
regard could adversely affect its results of operations or result in a
reduction of loan placement fees. SALES AND MARKETING EXPENSES Sales and marketing expenses primarily consist of advertising and public
relations costs and commissions. Sales and marketing expenses approximated
$11.7 million and $7.9 million or 51% and 25% of the Companys total revenues
for the years ended December 31, 2003 and 2002, respectively. The increase in
sales and marketing expenses in proportion to total revenues is primarily
attributable to the following factors:  
    
    During 2003, the Company expanded its marketing and advertising
budget in an effort to increase awareness of the availability of the
Funds as an investment as well as to attract new borrowers. Therefore,
advertising and public relations costs increased by $0.8 million during
2003.  
    
    Commission expense increased by $2.3 million as a result of an
increase in the number of leads for new loan placements referred by
brokers and real estate professionals.  
    
    The Companys travel costs increased by $0.3 million primarily due
to adoption of stricter underwriting guidelines resulting in more
travel to potential loan sites as well as an increase in the number of
out-of-state seminars held to promote the availability of the Funds as
an investment. These costs were classified as general and
administrative expenses in 2002. During January 2004, the Company has initiated a program of rightsizing and
strategic cost controls, which includes the reduction of various costs
including reducing the marketing department and other sales expenses to a
level that is more suitable to its current business strategy. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses generally include payroll and related
expenses, professional fees, and general corporate expenses. The Companys
general and administrative expenses were $14.4 million or 62% of the total
revenues for the year ended December 31, 2003, as compared to $17.2 million or
54% of total revenues for 2002. General corporate expenses remained fairly
constant for 2003 as compared to 2002 with the exception of payroll and related
expenses which increased by $1.2 million due to the hiring of additional staff
during 2003 to support the Companys anticipated growth and an increase in
legal and professional fees of $1.3 million due primarily to its anticipated
growth and increases in the legal work related to public filings and reports. During 2002 the Company recorded losses on investments of $5.2 million in
connection with its write-off of $4.8 million relating to the rights to a legal
judgment it acquired from the Funds. In addition, during 2002 the Company
recorded a loss of $0.2 million related to the sale of its investment in
Prepaid Advisors.com. The Company did not incur losses of this type during
2003. During 2002 the Company recorded $0.6 million in travel expenses as general and
administrative type expenses. During 2003, these types of expenses were
recorded as sales and marketing expenses as they primarily relate to loan
placement and expenses related to marketing the Funds. As discussed above, the Company performed an extensive review of the economic
environment and business landscape and has concluded that in order to provide
the best possible opportunity for success in meeting its strategic and
financial objectives, a change in operating strategy is required. To that end
the Company has initiated a program of rightsizing and strategic cost controls
which include the reduction of various costs including payroll, marketing and
sales expenses to a level that is more suitable to its current business
strategy. As a result, the Company expects general and administrative expenses
to significantly decrease for the year 2004, specifically as it relates to
payroll and related expenses. 15




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##### Table of Contents



OTHER EXPENSES The Company periodically assesses the value of real estate held for sale
acquired through foreclosure by various methods including obtaining updated
appraisals when deemed necessary, reviewing recent market activity or any other
method available to properly assess such values. As a result of such
assessments, the Company recorded valuation losses of $1.6 million for the year
ended December 31, 2003. There were no such losses for the same period in
2002. The table below summarizes the adjusted carrying value of real estate
held for sale and the related valuation losses as of December 31, 2003. Carrying Value
    
    2003Before
    
    Valuation
    
    AdjustedAdjustment
    
    Loss
    
    Carrying valueRaw land in Utah
    
    $
    3,824,402
    
    
    $
    824,402
    
    
    $
    3,000,000Raw land in Las Vegas, Nevada
    
    
    595,860
    
    
    
    
    
    
    
    595,860Raw land in Las Vegas, Nevada
    
    
    593,840
    
    
    
    
    
    
    
    593,84030-unit condominium project
in
Las Vegas, Nevada
    
    
    1,094,914
    
    
    
    10,000
    
    
    
    1,084,914Raw land in Mesquite, Nevada
    
    
    169,807
    
    
    
    169,807
    
    
    
    Residence in Las Vegas, Nevada
    
    
    2,375,429
    
    
    
    613,840
    
    
    
    1,761,589Total
    
    $
    8,474,445
    
    
    $
    1,608,049
    
    
    $
    7,036,203
 The Company also periodically analyzes the value and collectibility of accounts
receivable. Through this analysis, the Company has recorded specific
allowances through bad debt expense totaling $1.5 million for the year ended
December 31, 2003 related to balances due from borrowers who are either in
default or have been foreclosed upon compared to $0.3 million for the same
period in 2002. The Company elected to contribute capital of $1.6 million to Fund I in the form
of an interest-bearing amortizing note of $723,763 and the forgiveness of an
obligation due from Fund I in the amount of $876,237. The Company made this
capital contribution to restore member capital accounts in Fund I to $10.00 per
unit. These capital accounts had been diminished by certain over-distributions
to members. The capital contribution increased the existing members capital
accounts in Fund I. The amount of the contribution was charged to current
operating results during the year ended December 31, 2003, as the Company did
not receive additional units in Fund I as consideration for the contribution. INCOME BEFORE INCOME TAXES As a result of the foregoing factors, loss from continuing operations before a
benefit for income taxes approximated $7.8 million in 2003 compared to income
from operations of $6.0 million in 2002. LIQUIDITY AND CAPITAL RESOURCES Liquidity is a measure of the Companys ability to meet potential cash
requirements, including ongoing commitments to fund lending activities. The
Company has historically met its capital requirements through cash flows from
operations and its ability to access individual investors, as well as the
Funds, who acquire interests in mortgage loans. For the year ended December 31, 2003, cash flows provided by the Companys
operating activities totaled $2.5 million or 11% of total revenues, compared to
cash provided by in operating activities of $7.6 million or 24% of total
revenues for the same period in 2002. Although the Company suffered a net loss
of approximately $5.2 million for the year ended December 31, 2003, operating
activities provided for positive cash flows. The net loss is primarily
attributable to non-cash valuation adjustments to accounts receivable and real
estate held for sale, the
capital contribution to Fund I, and expenses related to stock warrants issued
to Joe Namath, the Companys former spokesperson. 16




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Cash provided by investing activities totaled $6.0 million for the year ended
December 31, 2003, compared to cash used by investing activities of $5.5
million for the same period in 2002. Investing activities primarily consist of
the purchase and sale of investments in mortgage loans and real estate held for
sale. The Company has historically relied upon cash flow from operations and the sale
of securities to provide for its capital requirements. The Company believes
that cash generated from operations, together with cash flows from the sale of
real estate held for sale at December 31, 2003, will be sufficient to provide
for its capital requirements to sustain currently expected loan volumes for at
least the next 12 months. Additionally, the Company entered into a settlement
of the Arroyo Heights matter in February 2004. This settlement will result in
the recognition of income of approximately $5.2 million which includes a parcel of land
and $2.25 million in cash. The Company is also exploring additional sources of financing including new
credit facilities. There can be no assurance that the Company will be able to
obtain any additional financing. Funding Sources In order to maintain and expand its business, the Company must have access to
funding sources that are prepared to invest in mortgage loans which it brokers.
Historically, the Company has relied primarily upon individual investors and
participating lenders for this purpose. However, in order to expand its
business, the Company organized Fund I and Fund II upon which it now depends as
its principal funding sources. Fund I raised $100 million in a public offering
of its units which was completed in June 2001. Fund II is currently seeking to
raise $500 million through a public offering of its units. As of December 31,
2003, Fund II had raised approximately $412 million through the sale of units.
The Companys wholly-owned subsidiary, Vestin Mortgage, is the manager of both
Funds. On November 7, 2003, the SEC declared the registration statement (Form S-11) of
Fund III to be effective and the marketing of $100 million of Fund III units
commenced. Fund III will invest in and operate multifamily, assisted living,
office, industrial and retail property, and other income producing properties
as well as investing in mortgage loans where the collateral is real property.
Vestin Mortgage is the manager of Fund III. Vestin Mortgage will earn real
estate commissions, advisory fees, and property management fees as well as loan
brokerage, evaluation, administration and extension, or modification fees.
Vestin Capital, Inc., the Companys wholly-owned subsidiary, is the
dealer-manager for the sale of Fund III units. As of February 12, 2004, Fund
III had raised more than $10,000,000 to break escrow and commence operations. The Companys ability to attract investors to acquire interests in mortgage
loans, either directly or through the Funds or other means, depends upon a
number of factors, some of which are beyond its control. The key factors in
this regard include general economic conditions, the condition of real estate
markets, the availability of alternative investment opportunities, and the
Companys business reputation. The yields generated by loans the Company
originates may prove more attractive in the near term if equity markets are
perceived as being risky or volatile and if most fixed rate investments do not
offer comparable yields. On the other hand, when equity markets are doing
well, it is generally harder to attract investors to the Funds. Notwithstanding the high historical yields generated by the Companys mortgage
loans compared to conventional mortgage lenders, the Company believes its
ability to attract investors may be impaired by its small size and limited
operating history. In addition, the mortgage loan investments the Company
offers are not federally insured as are certain bank deposits and the mortgage
loan interests are generally illiquid as compared to government or corporate
bonds. Thus, the Companys ability to place loans with high yields is critical
to offsetting some of the disadvantages of investments in mortgage loans. The
Companys ability to attract investors has suffered because the rate of return
paid to members of the Funds has declined over the past year. If this decline
continues, the Company will find it increasingly difficult to attract investors
and the Funds may shrink as members exercise their redemption rights. Any significant level of redemptions by the Funds members would reduce the
capital available by the Funds for investment, and accordingly, reduce the fees
paid to Vestin Mortgage. Such redemptions, which totaled $9.7 million
for Fund I and $31.0 million for Fund II for the calendar year ended December
31, 2003, are limited by the terms of the Funds Operating Agreements and
Federal statutes, to no more than 10% of the members capital in any calendar 17




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year and are subject to other conditions. Beginning capital on January 1, 2004,
was $85.4 million for Fund I and $384.4 million for Fund II, which would limit
redemptions to $8.5 million and $38.4 million, respectively, for calendar 2004.
As of December 31, 2003, requests to redeem approximately $7.8 million in
units for Fund I and $34 million in units for Fund II in 2004, $5.5 million in
units for Fund I and $35.0 million in units for Fund II in 2005, $6.4 million
in units for Fund I and $11.0 million in units for Fund II in 2006, and $4.4
million in units for Fund I in 2007 had been logged. Between January 1, 2004
and February 10, 2004, the Company had fulfilled $4.6 million and $28.4 million
of requests for Fund I and Fund II, respectively, related to 2004 redemption
requests. Intercreditor agreements provide the Company additional funding sources for
mortgage loans whereby a third party investor (the Investor) may participate
in certain mortgage loans with the Company and/or the Funds (collectively the
Lead Lenders). In the event of borrower non-performance, the intercreditor
agreements provide that the Lead Lenders must repay the Investors investment
amount either by (i) continuing to remit to the Investor the interest due on
the participated loan amount; (ii) substituting an alternative loan acceptable
to the Investor; or (iii) repurchasing the participated loan amount from the
Investor for the outstanding balance plus accrued interest. For the year ended
December 31, 2003, funds provided by intercreditor agreements totaled $69.5
million as compared to $52.2 million for 2002. COMMITMENTS AND CAPITAL REQUIREMENTS The following table summarizes the Companys outstanding borrowings and
long-term contractual obligations at December 31, 2003, and the effects these
obligations are expected to have on its liquidity and cash flow in future
periods. Payments Due By PeriodLess Than
    
    1-3
    
    3-5
    
    More ThanContractual Obligations
    
    Total
    
    1 Year
    
    Years
    
    Years
    
    5 YearsLong-term debt
    
    $
    3,810,172
    
    
    $
    3,810,172
    
    
    $
    
    
    
    $
    
    
    
    $
    Capital lease obligations
    
    
    160,440
    
    
    
    77,940
    
    
    
    82,499
    
    
    
    
    
    
    
    Operating leases
    
    
    9,757,578
    
    
    
    1,021,130
    
    
    
    3,148,138
    
    
    
    2,579,220
    
    
    
    3,009,090Total
    
    $
    13,728,190
    
    
    $
    4,909,242
    
    
    $
    3,230,637
    
    
    $
    2,579,220
    
    
    $
    3,009,090
 The Company has entered into a new lease with Luke Properties, LLC for
executive offices which are currently under construction at Durango Road and
the 215 Beltway in Las Vegas, Nevada. The Company currently anticipates that
construction will be completed in the summer of 2004. The Company is attempting
to sublease its current office space. The Companys new office space is
approximately 41,614 square feet. The new lease agreement governing this
property will expire in March 2014 and the base rent is $72,824.50 per month.
The Company anticipates spending $100,000 to $150,000 in tenant improvements in
excess of the allowance provided by the landlord. The Company believes that the
new leased office space will be adequate for its current operations. The Companys minimum obligation for office rent and equipment leases in 2004
is approximately $1,021,130. Fees generated by the Companys mortgage brokerage activities should be
sufficient to meet all of its capital requirements. If the Companys mortgage
brokerage operations do not generate sufficient cash flow, the Company might be
required to cut back the scope of its operations and the extent of its
marketing and promotional efforts. This would further reduce the Companys
revenues. The Company pays its Preferred Stock stockholders a dividend in an amount to be
determined by the Companys Board of Directors, but not less than 0.83% of the
Original Issue Price (initially set at $10 per share) per annum and
not more than 10% of the Original Issue Price per annum. The minimum annual
payment due on the Preferred Stock is $7,452. 18




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##### Table of Contents



RELATED PARTY TRANSACTIONS The Company has entered into a number of transactions with its principal
stockholder and other related parties. Such transactions fall into the
following categories: 1. Transactions with the Funds On July 2, 2001, Vestin Mortgage brokered a loan to Arroyo Heights for
$10,000,000. The loan was funded by Fund I and Fund II and was guaranteed by
three guarantors. Subsequently, Arroyo Heights defaulted on the loan, and Fund
I and Fund II foreclosed and took title to the collateral. Based on an
appraisal at the conclusion of the foreclosure, Fund I and Fund II estimated
that there was a $4.8 million shortfall between the carrying amount of the loan
and the value of the collateral. Fund I and Fund II filed litigation to recover
the shortfall from the individual guarantors. Vestin Mortgage purchased the
rights to collect the proceeds of the guarantee from Fund I and Fund II on
December 31, 2002 in exchange for investments in mortgage loans on real estate
valued at $4.8 million. Vestin Mortgage did not recognize any gain or loss on
the sale to Fund I and Fund II. Vestin Mortgage entered into a settlement of
the Arroyo Heights matter in February 2004. Vestin Mortgage
expects this settlement will result in the
recognition of income of approximately $5.2 million. For the years ended December 31, 2003 and 2002, the Company recorded revenues
of approximately $85,000 and $30,000, respectively, from its investment in Fund
I as a result of distributions declared during those periods. Vestin Mortgage,
as the Manager, is entitled to a monthly management fee of up to 0.25% of the
aggregate capital contributions to Fund I. During the years ended December 31,
2003 and 2002, Vestin Mortgage recorded management fees from Fund I of
approximately $254,000 and $249,000, respectively. For the years ended December 31, 2003 and 2002, the Company recorded revenues
of approximately $102,000 and $30,000, respectively, from its investment in
Fund II as a result of distributions declared during those periods. Vestin
Mortgage, as the Manager, is entitled to a monthly management fee of up to
0.25% of the aggregate capital contributions to Fund II. During the years ended
December 31, 2003 and 2002, Vestin Mortgage recorded management fees from Fund
II of approximately $953,000 and $586,000, respectively. As of December 31, 2003, the Company had an investment in Fund III of
approximately $0.7 million, which consists of certain costs paid on behalf of
Fund III related to the registration and start-up costs. As of February 12,
2004, Fund III raised the required $10,000,000 to break escrow and commence
operations. Such costs will be converted into membership units at a conversion
price of $10 per unit once Fund III receives sufficient gross proceeds to
ensure that such costs do not exceed 2% of the gross proceeds received by Fund
III. As of December 31, 2003, if the investment was converted into units,
Vestin Mortgage would have received 67,309 units in Fund III related to this
investment. During the year ended December 31, 2003, the Company elected to contribute
capital of $1.6 million to Fund I in the form of an interest-bearing amortizing
note of $723,763 and the forgiveness of an obligation due from Fund I in the
amount of $876,237. The Company did not receive any additional units in Fund I
in consideration of the capital contribution. The capital contribution
increased the existing members capital accounts in Fund I to approximately $10
per unit. The amount of the contribution was charged to current operating
results during the year ended December 31, 2003, as the Company did not receive
additional units for the contribution. The note was paid in full as of December
31, 2003. During the year ended December 31, 2003, the Company purchased real estate held
for sale of $1.1 million from Vestin Fund I. No gain or loss was recorded by
Fund I on this sale. During the year ended
December 31, 2003, the Company sold $9.3 million in
loans to Fund II pursuant to the terms of the Operating Agreements of the Funds
which permit the Funds to acquire loans from the Company if the loans were
acquired to facilitate their acquisition by the Funds and provided that the
price paid is no greater than the
Companys cost. During the year ended December 31, 2003, the Company also
purchased $2.0 million in loans from Fund II. No gain or loss was recorded on
these transactions as it is not the Companys intent to make a profit on the 19




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purchase or sale of such investments. The purpose is to either free up capital
to make new investments or place excess capital in investments to provide a
return on investment. 2. Transactions with Officers and Directors and their Affiliates In 2000, the Company loaned a former employee approximately $251,000 to enable
him to operate, develop and grow a California real estate loan fund. The
Company does not have any affiliations with the California real estate loan
fund. The loan is unsecured but is a full recourse loan. The interest rate of
10% is payable on a semi-annual basis and the principal is due on the maturity
date of April 19, 2004. As of December 31, 2003, the balance on this note was
$87,964. At December 31, 2001, the Company had approximately $352,000 due from Mr.
Shustek, the majority stockholder and Chief Executive Officer of the
Company. These balances
bore no interest and were due on demand. Such indebtedness was incurred prior
to the Company becoming a public company when the Company advanced to Mr. Shustek funds
necessary to enable him to pay taxes on undistributed S corporation income. The
largest amount outstanding on such indebtedness during 2002 was $352,000. As of
May 10, 2002, such indebtedness was paid in full by Mr. Shustek. During the year ended December 31, 2003, Vestin Mortgage had approximately
$694,000 due from Mr. Shustek related to various advances and legal costs paid
by Vestin Mortgage on his behalf. During December 2003, Mr. Shustek repaid the
entire balance through the assignment of collateralized mortgage obligations
totaling $325,375 and the relief of $368,273 in debt owed to a company wholly
owned by Mr. Shustek. The Company had an investment in the amount of $84,500 in a mortgage loan to
Del Mar Mortgage, Inc., which is 100% owned by the Companys Chief Executive
Officer. During December 2002, a sale of the property securing the investment
was consummated. As of December 31, 2002, the Company recorded a receivable for
the proceeds of the loan payoff which was fully collected in January 2003. The
Company has not made, and does not contemplate making, any investments in Del
Mar Mortgage, Inc. The Companys Chief Financial Officer and Tax Manager are equity owners in L.L.
Bradford & Company, LLC, a Certified Public Accounting firm (L.L. Bradford).
For the years ended December 31, 2003 and 2002, approximately $228,000 and
$150,000, respectively, was paid to L.L. Bradford for services including
assistance in the preparation of the Companys financial reports as well as other
bookkeeping and consulting services. For the years ended
December 31, 2003 and 2002 the Company paid approximately $128,000 and
$91,000 respectively, to a partnership owned by the Companys Chief
Financial Officer for reimbursements of fixed asset purchases paid on
the Companys behalf. The Company had an investment in Prepaid Advisors.com, a financial services
start-up company, of $453,500 recorded at cost as of December 31, 2001. The
Companys Chief Financial Officer previously had a controlling equity interest
in Prepaid Advisors.com and was Chairman of Prepaid Advisors.coms board. The
Company sold its investment in Prepaid Advisors.com in the last quarter of 2002
and recorded a loss of $253,500. The Company had an investment in an Internet credit reporting start-up company
of $150,000 and recorded at cost as of December 31, 2001. The president of
Creditmart.com is a stockholder and former
director of the Company. The Company wrote off the investment in June 2002. At December 31, 2001 and 2002 the Company had an investment of $69,310 in a
mortgage loan to an entity that is 100% owned by the Companys Chief Executive
Officer. The note had a face value of $669,310, with interest at 13.5% and
matured in January 2003. The remaining portion of the loan amount totaling
$600,000 was funded by another entity 100% owned by the Companys Chief
Executive Officer. At December 31, 2001 and 2002, the note was delinquent more
than 90 days with respect to interest payments. The note was paid in full in
January 2003. Amounts due from inVestin Nevada totaling $161,481 relate to management fees
earned by Vestin Mortgage. Such amounts bear no interest and are due on demand.
In October 2002, inVestin Nevada, a corporation wholly-owned by the Companys
Chief Executive Officer was created as an additional funding source for the
Company that will seek 20




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to raise $100,000,000 through the sale of subordinated
notes to Nevada residents. Vestin Mortgage has entered into an agreement to
provide management services to inVestin Nevada whereby Vestin Mortgage will
receive a monthly management fee equal to the first four percent (4%) of
revenues earned by inVestin Nevada above the average aggregate interest paid to
the debenture holders. During the year ended December 31, 2003, Vestin Mortgage
earned approximately $161,000 relating to the agreement. During March 2004,
this balance was paid in full. During the year ended
December 31, 2003, the Company purchased $0.7 million in
loans from inVestin Nevada. The Company also sold $0.7 million
in loans to inVestin Nevada for the same period. During the years ended December 31, 2003 and 2002, the Company paid $755,222
and $509,283, respectively, for legal fees to a law firm in which the Secretary
of the Company has an equity ownership interest. During the year ended December 31, 2003, the Company paid approximately
$1,017,000 to C5, LLC, a company wholly owned by the Companys Chief Executive Officer,
pursuant to an Aircraft Usage Agreement. The agreement allows the Company to
use an airplane on a preferred basis over any other proposed user. The Company
used the airplane primarily for marketing and lending activities. The Company
is required to pay a monthly fee based on an hourly rate of $3,000 per hour for
the first 10 hours and $2,500 per hour for each hour thereafter. The Company is
required to make a minimum monthly payment equivalent to 16 hours of usage
($45,000). The terms of the agreement were approved by the Companys Board of
Directors. The Company believes based upon a review of aircraft rental rates
that the terms of the Aircraft Usage Agreement are fair and reasonable to the
Company. During 2003, the Company paid approximately $28,000 to King Air, LLC, a company
owned jointly by its Chief Executive Officer and a stockholder
of the Company related to the use of an airplane for company travel. OFF BALANCE SHEET ARRANGEMENTS The Company does not have any interests in off-balance sheet special purpose
entities nor does the Company have any interests in non-exchange traded
commodity contracts. CRITICAL ACCOUNTING ESTIMATES Revenue recognition The Company recognizes revenue primarily from loan placement fees, loan
servicing fees and extension fees. Loan placement fees are recorded as revenue
at the close of escrow and reduced by direct loan placement costs on loans
which the Company has not recorded as investments in mortgage loans on its
financial statements. Typically, deeds of trust related to loans placed are
initially in the Companys name to facilitate the loan placement process. Upon
arranging a funding source for such loans, the deeds of trust are assigned to
the respective investor (i.e., the Funds). Loan servicing fees are recorded as
revenue when such services are rendered. Servicing fees represent the interest
spread between what is paid to the investor and what the borrower pays for the
use of the money, which can vary from loan to loan. Servicing costs approximate
servicing fees and therefore, the Company has not recognized a servicing asset
or liability. Extension fees are generally recorded as revenue at the extension
grant date. Interest income on investments in mortgage loans on real estate is recorded
when earned. The Company does not recognize interest income from loans once
they are determined to be impaired. A loan is impaired when, based on current
information and events, it is probable that the Company will be unable to
collect all amounts due according to the contractual terms of the loan
agreement or when the payment of interest is 90 days past due. Investments in real estate held for sale Real estate held for sale includes real estate acquired through foreclosure and
is carried at the lower of cost or the propertys estimated fair value, less
estimated costs to sell. The Company seeks to sell properties acquired through
foreclosure as quickly as circumstances permit. The carrying values of real
estate held for sale are assessed on a regular basis from updated appraisals,
comparable sales values or purchase offers. 21




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Investments in mortgage loans Investments in mortgage loans are secured by trust deeds and mortgages.
Generally, all of the Companys mortgage loans require interest only payments,
either through payments or decrease of an interest reserve, with a balloon
payment of the principal at maturity. The Company has both the intent and
ability to hold mortgage loans until maturity and therefore, mortgage loans are
classified and accounted for as held for investment and are carried at cost.
Loan-to-value ratios are based on appraisals obtained at the time of loan
origination and may not reflect subsequent changes in value estimates. Such
appraisals, which may be commissioned by the borrower, are generally dated
within 12 months of the date of loan origination. The appraisals may be for the
current estimate of the as-if developed value of the property, which
approximates the post-construction value of the collateralized property
assuming that such property is developed. As-if developed values on raw land
loans or acquisition and development loans often drastically exceed the
immediate sales value and may include anticipated zoning changes, selection by
a purchaser against multiple alternatives, and successful development by the
purchaser; upon which development is dependent on availability of financing. As
most of the appraisals will be prepared on an as-if developed basis, if a loan
goes into default prior to any development of a project, the market value of
the property may be substantially less than the appraised value. As a result,
there may be less security than anticipated at the time the loan was originally
made. If there is less security and a default occurs, the Company may not
recover the full amount of the loan. Allowance for loan losses The Company maintains an allowance for loan losses on its investment in
mortgage loans for estimated credit impairment in its investment in mortgage
loans portfolio. The Companys estimates of losses is based on a number of
factors including the types and dollar amounts of loans in the portfolio,
adverse situations that may affect the borrowers ability to repay, prevailing
economic conditions and the underlying collateral securing the loan. Additions
to the allowance are provided through a charge to earnings and are based on an
assessment of certain factors including, but not limited to, estimated losses
on the loans. Actual losses on loans are recorded as a charge-off or a
reduction to the allowance for loan losses. Subsequent recoveries of amounts
previously charged off are added back to the allowance. Income taxes The Company accounts for its income taxes using the liability method, which
requires recognition of deferred tax assets and liabilities for the future tax
consequences attributable to differences between carrying amounts of existing
assets and liabilities and their respective tax bases and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. FACTORS AFFECTING OUR OPERATING RESULTS The Companys business is subject to numerous factors affecting its operating
results. In addition to the factors discussed above, the Companys operating
results may be affected by: LIMITED EXPERIENCE IN CERTAIN REAL ESTATE MARKETS Currently, the Company brokers mortgage loans or works with mortgage brokers
primarily in areas in which the Company and Vestin Mortgage have substantial
experience such as Arizona, California, Nevada, Texas, and Hawaii. Depending on
the market and on the Companys performance, the Company plans to expand its
operations throughout the United States. However, the Company has limited
experience outside of certain Western States. Real estate markets vary greatly
from location to location. The Companys limited experience in most U.S. real
estate markets may impact its ability to make prudent investment decisions and
may delay the loan approval process. This delay could have a material impact on
the Companys competitive advantage of providing fast loan approvals.
Accordingly, the Company plans to utilize independent real estate advisors
located in markets where the Company
lacks experience for consultation prior to making investment decisions. No
assurance can be given that such advisors will provide the Company effective
assistance. 22




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DEPENDENCE ON KEY PERSONNEL The Companys success depends upon the continued contributions of certain key
personnel, including Michael V. Shustek and Lance Bradford, each of whom would
be difficult to replace because of his extensive experience in his field,
extensive market contacts and familiarity with the Companys activities. If any
of these key employees were to cease employment, the Companys operating
results could suffer. The Companys future success also depends in large part
upon its ability to hire and retain additional highly skilled managerial,
operational and marketing personnel. Should the Company be unable to attract
and retain skilled personnel, the Companys performance may suffer. RISKS OF UNDERWRITING STANDARDS AND PROCEDURES The Companys underwriting standards and procedures are more lenient than
conventional lenders in that it will invest in loans to borrowers who will not
be required to meet the credit standards of conventional mortgage lenders. The Company approves mortgage loans more quickly than other mortgage lenders.
Due to the nature of loan approvals, there may be a risk that the credit
inquiry the Company performs may not reveal all material facts pertaining to
the borrower and the security. As a result, loans the Company arranges and
loans in which the Company may invest may suffer from a higher rate of defaults
as compared to loans arranged by more conventional lenders. The Company
attempts to mitigate this risk by insisting upon lower loan-to-value ratios.
Nonetheless, the Companys future results of operations may be adversely
affected by defaulting borrowers and the attendant risk and expense of
foreclosure proceedings. Additionally, loan-to-value ratios on some
construction and development loans may be calculated using an as-if completed
appraisal, the values of which can dramatically change. RISKS OF INTEREST RATE CHANGES The Companys results of operations will vary with changes in interest rates
and with the performance of the relevant real estate markets. If the economy is healthy, the Company expects that more people will be
borrowing money to acquire, develop or renovate real property. However, if the
economy grows too fast, interest rates may increase too much and the cost of
borrowing may become too expensive. This could result in a slowdown in real
estate lending which may mean the Company will have fewer loans to acquire,
thus reducing its revenues and the distributions to stockholders. One of the results of interest rate fluctuations is that borrowers may seek to
extend their low-interest-rate mortgage loans after market interest rates have
increased. Generally, the Companys loan documents permit it to raise the
interest rate it charges on extended loans anywhere from between 3/4% to 3%
from the then-current rate on the loan. This creates three risks for the
Company: (i) There can be no assurance that this permitted rate increase will be
adequate if interest rates have increased beyond the range contemplated by the
Companys loan documents. (ii) If interest rates rise, borrowers under loans with monthly or quarterly
principal payments may be compelled to extend their loans to decrease the
principal paid with each payment because the interest component has increased.
If this happens, there is a higher risk that the borrower may default on the
extended loan, and the increase in the interest rate on the loan may not be
adequate compensation for the increased risk. Distributions on mortgage loans
the Company places may decline if lenders are unable to reinvest at higher
rates or if an increasing number of borrowers default on their loans. (iii) If, at a time of relatively low interest rates, a borrower prepays
obligations that have a higher interest rate from an earlier period, investors
will likely not be able to reinvest the funds in mortgage loans earning that
higher rate of interest. In the absence of a prepayment fee, the investors will
receive neither the anticipated revenue stream at the
higher rate nor compensation for their loss. This in turn could harm the
Companys business reputation and may make it more difficult for the Company to
attract investors willing to acquire interests in mortgage loans. 23




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##### Table of Contents



COMPETITION FOR FUNDS The Companys ability to access funds for mortgage loans depends upon the
perceived attractiveness of yields on loans the Company places, the safety of
the underlying investment, the Companys business reputation, general economic
conditions and real estate market conditions. The Companys principal advantage
in attracting investors is the high historical yields generated by loans the
Company brokers. The Company is at a disadvantage compared to alternative
investment vehicles to the extent that an investment in mortgage loans lacks
liquidity and is not guaranteed or insured by a governmental agency. In
addition, the fact that the Company is smaller than many of the full service
financial firms offering alternative investment vehicles and has a more limited
operating history may be disadvantages in seeking to attract investors.
Furthermore, the increase in non-performing loans in the Funds has adversely
affected the Companys ability to compete for new investors. COMPETITION FOR BORROWERS The Company considers its competitors for borrowers to be the providers of
non-conventional mortgage loans, that is, lenders who offer short-term,
equity-based loans on an expedited basis for slightly higher fees and rates
than those charged by conventional lenders. To a lesser extent, the Company
also competes with conventional mortgage lenders and mortgage loan investors,
such as commercial banks, thrifts, conduit lenders, insurance companies,
mortgage brokers, pension funds and other financial institutions that offer
conventional mortgage loans. Many of the companies against which the Company
competes have substantially greater financial, technical and other resources
than it does. Competition in the Companys market niche depends upon a number
of factors, including price and interest rates of the loan, speed of loan
processing, cost of capital, reliability, quality of service and support
services. 24




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##### Table of Contents



ITEM 7. FINANCIAL STATEMENTS The Companys consolidated financial statements required by this item are
included after Part III, Item 14 of this Report. 
  ITEM 8.
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES On January 27, 2004, Ernst & Young LLP (E&Y) informed the Company and the
Audit Committee of the Companys Board of Directors (the Audit Committee) in
writing of its decision not to stand for re-election as the Companys
independent auditors, effective upon the completion of its audit of the
Companys consolidated financial statements as of and for the year ending
December 31, 2003. On March 17, 2004, the Audit Committee engaged Moore
Stephens Wurth Frazer and Torbet, LLP (Moore Stephens) as the Companys
independent auditors for the year ended December 31, 2004. On March 14, 2004, Ernst & Young LLP (E&Y) advised the Company that it would
not render its report for the Companys consolidated financial statements as of
and for the year ended December 31, 2003 until the pending informal inquiry by
the Pacific Regional Office of the Securities and Exchange Commission is
substantially resolved, as more fully described under Legal Proceedings of
the Companys report on Form 10-KSB filed on March 30, 2004. On March 17, 2004,
the Audit Committee engaged Moore Stephens as the Companys independent auditors to conduct the
audit of the Companys consolidated financial statements as of and for the year
ended December 31, 2003. E&Ys reports on the Companys financial statements for the past two years did
not contain an adverse opinion or a disclaimer of opinion, and were not
qualified or modified as to uncertainty, audit scope or accounting principles.
During the 2002 and 2003 fiscal years, and the subsequent interim period
through the date hereof, there were no disagreements between the Company and
E&Y on any matter of accounting principles or practices, financial statement
disclosure or auditing scope and procedures, which if not resolved to E&Ys
satisfaction, would have caused E&Y to make reference to the matter in their
reports. 
 ITEM 8A. CONTROL AND PROCEDURES The Company has evaluated the effectiveness of the design and operation of its
disclosure controls and procedures as of a date within 90 days prior to the
filing of this report on Form 10-KSB/A (the Evaluation Date). Such evaluation
was conducted under the supervision and with the participation of the Companys
Chief Executive Officer (CEO) and the Chief Financial Officer (CFO). Based
upon such evaluation, the Companys CEO and CFO have concluded that, as of the
Evaluation Date, the Companys disclosure controls and procedures were
effective. There have been no significant changes in the Companys internal
controls or other factors that could significantly affect these controls
subsequent to the date of their most recent evaluation. 25




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##### Table of Contents



PART III 
 ITEM 9.
    
    DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
 The following sets forth certain information regarding the directors and
executive officers of Vestin Group as of March 15, 2004: Name
    
    Age
    
    TitleMichael V. Shustek
    
    
    45
    
    
    Chairman of the Board, Chief Executive Officer, President and DirectorLance K. Bradford
    
    
    37
    
    
    Treasurer, Chief Financial Officer and DirectorIra S. Levine
    
    
    43
    
    
    SecretaryMichael J. Whiteaker
    
    
    54
    
    
    Vice President of Regulatory AffairsPeggy
Shustek
    
    
    34
    
    
    Vice President of Vestin Mortgage, a subsidiary of Vestin GroupDaniel B. Stubbs
    
    
    42
    
    
    Senior Vice President, Underwriting of Vestin Mortgage, a subsidiary
of Vestin GroupRobert J. Aalberts
    
    
    53
    
    
    DirectorDavid Chavez
    
    
    39
    
    
    DirectorRoland M. Sansone
    
    
    49
    
    
    Director
 All the directors of Vestin Group hold office until the next annual meeting of
stockholders. The last annual meeting of Vestin Group stockholders was November
24, 2003. Michael Shustek can cause a change in the Board of Directors of
Vestin Group by virtue of his controlling ownership interest in Vestin Group.
The By-laws of Vestin Group provide for up to five directors and permit the
Board of Directors to fill any vacancy on the Board of Directors. Officers of
the company serve at the discretion of the Board of Directors. The principal occupation and business experience for each of our officers and
directors and key employees, for at least the last five years, are as follows: Robert J. Aalbertshas been a director of Vestin Group since April 1999. Since
1991, Professor Aalberts has held the Ernst Lied Professor of Legal Studies
professorship at the University of Nevada, Las Vegas. From 1984 to 1991,
Professor Aalberts was an Associate Professor of Business Law at Louisiana
State University in Shreveport, Louisiana. From 1982 through 1984, he served as
an attorney for Gulf Oil Company. Professor Aalberts has co-authored a book
relating to the regulatory environment, law and business of real estate; and he
is the author of numerous legal articles, dealing with various aspects of real
estate, business and the practice of law. Professor Aalberts received his Juris
Doctor degree from Loyola University, in New Orleans, Louisiana,
received his Masters of Arts from the University of Missouri in
Columbia, Missouri and received a
Bachelor of Arts degree in Social Sciences, Geography from the Bemidji State
University in Bemidji, Minnesota. He is admitted to the State Bar of
Louisiana but is presently on inactive status. Lance K. Bradfordhas served as Chief Financial Officer, Treasurer and
Secretary and a director of Vestin Mortgage and Treasurer and a director of
Vestin Group since April 1999. In addition, Mr. Bradford was appointed as Chief
Financial Officer of Vestin Group in February 2004 and serves on the Companys
loan committee. Mr. Bradford also served as President of Vestin Group from
January 2001 until February 2004. Mr. Bradford previously held the office of
Chief Financial Officer of Vestin Group from 1999 to September 2002. Mr.
Bradford also acts as the functional equivalent of a Chief Financial Officer
for both Vestin Fund I and Vestin Fund II. Mr. Bradford was also the Corporate
Secretary of Vestin Group from 1999 to 2000. Since 1992, Mr. Bradford has been
a partner in L.L. Bradford & Company, Las Vegas, Nevada, a certified public
accounting firm that he founded. From 1988 to 1991, Mr. Bradford served as an
accountant with Ernst & Young International. Mr. Bradford received a Bachelor
of Science degree in Accounting from the University of Nevada, in Reno, Nevada. David Chavezwas
elected as a director in November 2003. Mr. Chavez has served as the chief executive officer of Chavez & Koch, a
business consulting and certified public accounting firm since 1996. Prior to
1996, Mr. Chavez served in both the tax and audit practices of Arthur Andersen.
Mr. Chavez serves as the chairman of the Henderson Chamber of Commerces
Business Action 26




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##### Table of Contents



Committee. Mr. Chavez received his Bachelor of Science in Business
Administration from the University of Nevada, Las Vegas with a concentration in
Accounting. Mr. Chavez is a certified public accountant. Ira S. Levinehas been the Corporate Secretary of Vestin Group since January
2001. Mr. Levine also served as the Executive Vice President of Legal and
Corporate Affairs from September 2000 to December 2003. Mr. Levine received
his Bachelor of Science in Business Administration specializing in Accounting
from the University of Nevada in 1982, his Juris Doctor from Pepperdine
University School of Law in 1985 and his Masters of Legal Letters in Taxation
from New York University in 1986. Mr. Levine is a member of the state bars of
both Nevada and California. Since July 2003, Mr. Levine has been a partner of
Levine, Garfinkel & Katz, LLP. From 1997 to 2003, Mr. Levine was a partner in
the law firm of Berkley, Gordon, Levine, Goldstein & Garfinkel, LLP. Prior to
that he was a shareholder in the law firm of Levine, McBride & Garfinkel, LLP.
From 1995 to 1997, Mr. Levine was a shareholder in the law firm of Quartes &
Brady LLP, formerly known as Streich Lang. Prior to that, Mr. Levine was senior
vice president, secretary and general counsel of United Gaming, Inc. now known
as Alliance Gaming, Inc. Mr. Levine started his legal career with the law firm
of McKenna Long & Aldridge LLP formerly known as McKenna, Conner & Cuneo in Los
Angeles, California. Peggy Shustekhas been with Vestin Group since September 1995, and is currently
Vice President of Vestin Mortgage. Ms. Shustek was the President of Vestin
Mortgage from January 2001 to February 2004. From 1997 to 2000, Ms. Shustek was the
Senior Vice President of Vestin Mortgage. Ms. Shustek is responsible for all new
and existing clients, loan packages and manages investor relationships and
serves as the administrator of the corporate offices. Ms. Shustek has over ten
years of experience in title, escrow and private lending.
Ms. Shustek is the former wife of Mr. Shustek, the
Companys Chief Executive Officer, President and Chairman. Roland M. Sansonewas
elected as a director in November 2003. Mr. Sansone has served as President of Sansone Development, Inc. since
2002. Sansone Development, Inc. is a real estate development company. Mr.
Sansone has been self-employed as a manager and developer of real estate since
1980. Mr. Sansone is currently the president of several companies that develop,
own and manage commercial and residential property. Mr. Sansone attended Mt.
San Antonio College. Michael V. Shustekhas been a director of Vestin Mortgage, a subsidiary of
Vestin Group, and Chairman of the Board of Directors, Chief Executive Officer
and a director of Vestin Group since April 1999. In February 2004, Mr. Shustek
became the President of Vestin Group. Mr. Shustek also serves on the Companys
loan committee. In 2003, Mr. Shustek became the Chief Executive Officer of
Vestin Mortgage. In 1995, Mr. Shustek founded Del Mar Mortgage, and has been
involved in various aspects of the real estate industry in Nevada since 1990.
In 1993, he founded Foreclosures of Nevada, Inc., a company specializing in
non-judicial foreclosures. In 1993, Mr. Shustek also started Shustek
Investments, a company that originally specialized in property valuations for
third-party lenders or investors and which continues today as the primary
vehicle for his private investment portfolio. In 1997, Mr. Shustek was involved
in the initial founding of Nevada First Bank, with the largest initial capital
base of any new state charter in Nevadas history. Mr. Shustek has co-authored
two books, entitled Trust Deed Investments, on the topic of private mortgage
lending, and If I Can Do It, So Can You. Mr. Shustek is a guest lecturer at
the University of Nevada, Las Vegas, where he also has taught a course in Real
Estate Law and Ethics. Mr. Shustek received a Bachelor of Science degree in
Finance at the University of Nevada, Las Vegas. Mr. Shustek is
the former husband of Ms. Shustek, the Vice President of Vestin
Mortgage. Daniel B. Stubbshas been the Executive Vice President, Underwriting of Vestin
Mortgage since January 2000. Mr. Stubbs is responsible for analyzing the risks
of each loan as well as prescribing Title Insurance coverage for each
individual transaction. In addition, Mr. Stubbs serves on the loan committee
and acts as a liaison between Vestin Mortgage and the various banks that carry
its lines of credit. Mr. Stubbs has over 13 years experience in the Title
Insurance industry. Mr. Stubbs received his Bachelor of Arts in Communications
Studies from the University of Nevada, in Las Vegas, Nevada. Michael J. Whiteakerhas been Vice President of Regulatory Affairs of Vestin
Group since May 14, 1999 and is experienced in the banking and finance
regulatory fields, having most recently served with the State of Nevada,
Financial Institution Division from 1982 to 1999 as its Supervisory Examiner,
responsible for the financial and regulatory compliance audits of all financial
institutions in Nevada. Mr. Whiteaker has worked extensively on matters
pertaining to both state and federal statutes, examination procedures, policy
determination and credit administration for commercial and real estate loans.
From 1973 to 1982 Mr. Whiteaker was Assistant Vice President of Nevada National
Bank, responsible for a variety of matters including loan review. 27




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##### Table of Contents



Audit Committee Vestin Group has established an Audit Committee currently comprised of
Robert Aalberts, David Chavez, and Roland Sansone. The Board of Directors
of the Company believes that Mr. Chavez is an audit committee financial
expert as defined in Item 401(e) of Regulation S-B and meets the
definition of independent director as defined in Rule 4200 of the
Marketplace Rules of the National Association of Securities Dealers, Inc. Director Compensation We pay our non-employee directors a retainer of $1,500 for each Board meeting
attended in person, $750 per Board meeting attended by telephone conference and
$500 for each committee meeting attended, whether in person or by telephone.
Non-employee directors are reimbursed for reasonable travel time and other
out-of-pocket expenses incurred in connection with attendance at meetings of
the Board of Directors and committees of the Board of Directors. Each outside
director typically receives 15,000 options to acquire the Companys common
stock at the then fair market value on the date the non-employee director is
elected to the Board. Employee directors do not receive any additional compensation for serving as
members of our Board of Directors or any committee of our Board of Directors.
Employee directors are eligible to participate in our compensation and benefit
plans that are generally available to our other employees, including the
receipt of stock options under our 2000 Stock Option Plan and 401(k) Plan. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Companys executive officers and directors, and persons who own more than 10%
of a registered class of its equity securities, to file an initial report of
securities ownership on Form 3 and reports of changes in securities ownership
on Form 4 or 5 with the Securities and Exchange Commission. Such executive
officers, directors and 10% stockholders are also required by SEC rules to
furnish the Company with copies of all Section 16(a) forms that they file.
Based solely on the Companys review of the copies of such forms received by
the Company, or written representations from certain reporting persons that no
Forms 4 or 5 were required for such persons, the Company believes that, for the
2003 fiscal year, the Companys executive officers and directors timely filed
all reports required under Section 16(a) for such fiscal year. CODE OF ETHICS The Company has adopted a code of ethics that applies to the executive officers
and senior financial and accounting officers of the Company. The Companys
code of ethics has been filed as Exhibit 14.1 to the Companys
Form 10-KSB filed on March 30, 2004. If we make any
substantive amendments to the code of ethics or grant any waiver, including any
implicit waiver, from a provision of the code of ethics to our chief executive
officer, chief financial officer or chief accounting officer, we will disclose
the nature of such amendment or waiver on our website or in a Report on Form
8-K or quarterly or annual report under the Securities and Exchange Act of
1934. 
 ITEM 10. EXECUTIVE COMPENSATION AND RELATED INFORMATION The following Summary Compensation Table sets forth the compensation paid or
awarded for the fiscal year ended December 31, 2003 to Vestin Groups and
Vestin Mortgage, Inc.s Chief Executive Officer and the next most highly
compensated executive officers whose compensation for the fiscal year ended
December 31, 2003 exceeded $100,000. The individuals included in the following
table are collectively referred to as the Named Executive Officers. 28




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##### Table of Contents



Summary Compensation Table Annual Compensation
    
    Long-Term CompensationAwards
    
    PayoutsRestricted
    
    SecuritiesOther Annual
    
    Stock
    
    Underlying
    
    LTIP
    
    All OtherSalary
    
    Bonus
    
    Compensation
    
    Award(s)
    
    Options/SARs
    
    Payouts
    
    CompensationName and Principal Position
    
    Year
    
    ($)
    
    ($)
    
    ($)(4)
    
    ($)
    
    (#)
    
    ($)
    
    ($)Michael V. Shustek
    
    
    2003
    
    
    
    720,000
    
    
    
    305,000
    
    
    
    0
    
    
    
    0
    
    
    
    500,000
    
    
    
    0
    
    
    
    0Chief Executive Officer
    
    
    2002
    
    
    
    793,500
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    500,000
    
    
    
    0
    
    
    
    0of the Company
    
    
    2001
    
    
    
    852,000
    
    
    
    20,529
    
    
    
    0
    
    
    
    0
    
    
    
    500,000
    
    
    
    0
    
    
    
    0Stephen J. Byrne (1)
    
    
    2003
    
    
    
    200,000
    
    
    
    166,000
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Chief Operations Officer
    
    
    2002
    
    
    
    361,100
    
    
    
    14,175
    
    
    
    0
    
    
    
    0
    
    
    
    100,000
    
    
    
    0
    
    
    
    0of the Company and Chief Executive
Officer of Vestin Mortgage
    
    
    2001
    
    
    
    332,908
    
    
    
    22,406
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Lance K. Bradford
    
    
    2003
    
    
    
    200,000
    
    
    
    122,000
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Chief Financial Officer
    
    
    2002
    
    
    
    302,160
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    200,000
    
    
    
    0
    
    
    
    0and Treasurer of the Company
    
    
    2001
    
    
    
    296,500
    
    
    
    2,597
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Peggy Shustek
    
    
    2003
    
    
    
    160,000
    
    
    
    43,000
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Vice President of Vestin
    
    
    2002
    
    
    
    176,100
    
    
    
    62,009
    
    
    
    0
    
    
    
    0
    
    
    
    63,334
    
    
    
    0
    
    
    
    0Mortgage(2)
    
    
    2001
    
    
    
    132,667
    
    
    
    29,000
    
    
    
    0
    
    
    
    0
    
    
    
    35,000
    
    
    
    0
    
    
    
    0John Alderfer
    
    
    2003
    
    
    
    178,750
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Chief Financial Officer(3)
    
    
    2002
    
    
    
    175,000
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    02001
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Daniel B. Stubbs
    
    
    2003
    
    
    
    121,800
    
    
    
    20,685
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Senior Vice President,
    
    
    2002
    
    
    
    128,174
    
    
    
    70,000
    
    
    
    0
    
    
    
    0
    
    
    
    50,000
    
    
    
    0
    
    
    
    0Underwriting of Vestin
Mortgage
    
    
    2001
    
    
    
    90,000
    
    
    
    49,395
    
    
    
    0
    
    
    
    0
    
    
    
    10,000
    
    
    
    0
    
    
    
    0
  (1)
    
    Mr. Byrne resigned his position as Chief Operations Officer of the Company and as Chief Executive Officer of Vestin Mortgage in 2003. Mr. Byrnes 2003 compensation represents his total annual compensation. Mr. Byrnes
prorated salary was $191,666 and he received $180,000 in severance by the Company in 2003 and $180,000 in January of 2004. The compensation for Mr. Byrne includes compensation for services rendered to Vestin Mortgage,
Inc. as its Chief Executive Officer.(2)
    
    The compensation for Ms. Shustek includes compensation for services rendered to Vestin Mortgage and Vestin Capital, Inc. All of Ms. Shusteks 2003 compensation was paid directly by Vestin Capital, Inc., and all of her 2002
compensation was paid for by Vestin Mortgage, and Vestin Mortgage and Vestin Capital each paid 50% of her compensation in 2001.(3)
    
    Mr. Alderfer joined Vestin Group in September 2002 and
resigned his position as Chief Financial Officer of the Company in
February 2004. Mr. Alderfers 2002 compensation
represents his total annual compensation. Mr. Alderfers
prorated salary was $43,750 and his bonus $500. Mr.
Alderfer received $102,500 in severance by the Company in February of 2004.(4)
    
    None of the Named Executive Officers received other annual compensation exceeding the lesser of $50,000 or 10% of their salary and bonus for the relevant year. Option Grants in Last Fiscal Year The following Option and Warrant/ SAR Grants Tables set forth the individual
grants of stock options made in fiscal 2003 to Vestin Groups Named Executive
Officers named in the Summary Compensation Table above.  29




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##### Table of Contents



Option & Warrant/ SAR Grants in Fiscal Year 2003
(Individual Grants) Number of
    
    Percent of TotalSecurities
    
    Options/SARsUnderlying
    
    Granted to
    
    Exercise orOptions/SARs
    
    Employees
    
    Base
    
    ExpirationName
    
    Granted(#)
    
    in Fiscal 2003(%)
    
    Price($/SH)
    
    DateMichael V. Shustek
    
    
    500,000
    
    
    
    98.1
    %
    
    $
    2.03
    
    
    
    12/12/2013
 Aggregated Option Exercises and Fiscal Year-End Values The following table sets forth information with respect to each of our
Named Executive Officers named in the Summary Compensation Table concerning
the exercise of stock options during the 2003 fiscal year and the number of
shares subject to unexercised stock options held at the close of such
fiscal year. No stock appreciation rights were exercised during the 2003
fiscal year, and no stock appreciation rights were outstanding at the close
of such year. In the following table, Value Realized is equal to the difference between
the fair value of the shares at the time of exercise and the exercise price
paid for the shares and the Value of Unexercised In-The-Money Options is
based the closing selling price per share at the close of the 2003 fiscal
year less the exercise price payable per share. Options are In-the-Money
if the fair market value of the underlying options exceeds the exercise
price of the option. Number of Shares of Common
    
    Value of UnexercisedStock Underlying Unexercised
    
    In-the-Money OptionsSharesAcquired on
    
    Value
    
    Options at December 31, 2003
    
    at December 31, 2003Name
    
    Exercise (#)
    
    Realized ($)
    
    Exercisable
    
    Unexercisable
    
    Exercisable ($)
    
    Unexercisable ($)Michael V. Shustek
    
    
    
    
    
    
    
    
    
    
    2,000,000
    
    
    
    
    
    
    
    265,000
    
    
    
    Stephen J. Byrne
    
    
    
    
    
    
    
    
    
    
    133,330
    
    
    
    
    
    
    
    
    
    
    
    Lance K. Bradford
    
    
    
    
    
    
    
    
    
    
    66,660
    
    
    
    133,340
    
    
    
    
    
    
    
    Peggy Shustek
    
    
    
    
    
    
    
    
    
    
    66,109
    
    
    
    42,225
    
    
    
    
    
    
    
    John Alderfer
    
    
    
    
    
    
    
    
    
    
    16,665
    
    
    
    33,335
    
    
    
    
    
    
    
    Daniel Stubbs
    
    
    
    
    
    
    
    
    
    
    31,665
    
    
    
    33,335
    
    
    
    
    
    
    
    
 EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS In December 1999, we entered into an Employment Agreement with Michael V.
Shustek to serve as our Chief Executive Officer. Pursuant to the agreement, Mr.
Shustek is entitled to receive a minimum annual salary of $720,000 and such
additional salary as our Board of Directors deems appropriate. Mr. Shustek is
also entitled to receive an automobile allowance in the amount of $1,000 per
month during the term of the agreement. The agreement additionally provides
that Mr. Shustek is to receive warrants to purchase up to 500,000 shares of our
common stock each year during the term of the agreement. The agreement
terminates on November 30, 2002, but will continue for successive one year
periods unless either we or Mr. Shustek provide thirty days notice. In 30




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##### Table of Contents



February 2004, Mr. Shustek assumed the title of President along with the day-to-day
operational responsibilities associated with that position. On January 1, 2003, we entered into an Employment Agreement with Lance K.
Bradford to serve as our President. Pursuant to the agreement, Mr. Bradford is
entitled to receive an initial annual salary of $200,000 and performance
bonuses as our Board of Directors deems appropriate. Mr. Bradford is also
entitled to receive an automobile and living allowance in the amount of $1,000
per month during the term of the agreement. The agreement also provides that
Mr. Bradford will be entitled to an amount equal to the lesser
of six months,
salary or the salary due for the remaining term of his agreement in the event
that Mr. Bradford is terminated without Cause, as such term is defined in the
agreement. The agreement terminates December 31, 2008 but will continue for
successive one year periods unless either we or Mr. Bradford provide thirty
days notice. In February 2004, Mr. Bradford relinquished his title of
President in order to devote all of his energies as our new Chief Financial
Officer. Peggy Shustek entered into an Employment Agreement with Vestin Mortgage, with an
effective date of September 1, 2001, to serve as its President. Pursuant to the
agreement, Ms. Shustek is entitled to receive an initial annual salary of $160,000. Ms. Shustek is also
eligible for bonuses subject to the discretion of Vestin Mortgages Board
of Directors. The agreement additionally provides that Ms. Shustek is to receive an
amount equal to twelve months salary if Vestin Mortgage terminates the
agreement without Cause, as such term is defined in the agreement. The
agreement terminates on August 31, 2004 but will continue for successive one
year periods unless either Vestin Mortgage or Ms. Shustek provides thirty days
notice. On January 1, 2003,
Daniel Stubbs entered into an Employment Agreement with Vestin
Mortgage to serve as an executive officer. Pursuant to the agreement,
Mr. Stubbs is entitled to receive an initial salary of $121,800.
Mr. Stubbs is also eligible to receive bonuses, subject to the
discretion of Vestin Mortgages Board of Directors. The agreement
also provides that Mr. Stubbs will be entitled to an amount
equal to the lesser of six months salary or the salary due for
the remaining term of his agreement in the event Mr. Stubbs is
terminated without Cause, as such term is defined in the agreement.
The agreement terminates December 31, 2008 but will continue for
successive one year periods unless either Vestin Mortgage or
Mr. Stubbs provides thirty days notice. On October 14, 2003, we entered into a Separation Agreement and Release with
Steve Byrne under which Mr. Byrnes
employment with us and certain of our affiliates was terminated, effective November 30, 2003.
Under the terms of the agreement, Mr. Byrne received a payment of $180,000 upon
the execution of the agreement and an additional $180,000 on or before January
31, 2004. The agreement also provides that Mr. Byrne may exercise his vested
stock options to purchase shares of our common stock through the remaining term
set forth in his option agreement. 31




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##### Table of Contents



ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Share Ownership The following table indicates the beneficial ownership of Vestin Groups voting
securities by each person known by Vestin Group to be the beneficial owner of
more than 5% of such securities, as well as the securities of Vestin Group
beneficially owned by all officers and directors of Vestin Group as of March 1,
2004. Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock subject to options and warrants held by that person that
are currently exercisable or that will become exercisable within 60 days of
March 1, 2004, are deemed outstanding even if they have not actually been
exercised. Those shares, however, are not deemed outstanding for purpose of
computing the percentage ownership of any other person. Unless otherwise
indicated, the stockholders listed possess sole voting and investment power
with respect to the shares shown. Percentage ofCommon Stock
    
    Common StockName
    
    Beneficially Owned
    
    Beneficially Owned(1)Michael V. Shustek, Chairman, Chief Executive Officer and President
    
    
    5,164,199
    (2)
    
    
    70.5
    %of Vestin Group
2901 El Camino Avenue
Las Vegas, Nevada 89102Ira S. Levine, Corporate Secretary of Vestin Group
    
    
    175,100
    (3)
    
    
    3.2
    %2901 El Camino Avenue
Las Vegas, Nevada 89102Peggy Shustek, Vice President of Vestin Mortgage
    
    
    110,984
    (4)
    
    
    2.1
    %2901 El Camino Avenue
Las Vegas, Nevada 89102Lance K. Bradford, Treasurer, Chief Financial Officer and Director of
    
    
    97,160
    (5)
    
    
    1.8
    %Vestin Group and Chief Financial Officer, Treasurer, Secretary and
Director of Vestin Mortgage
2901 El Camino Avenue
Las Vegas, Nevada 89102Daniel Stubbs, Senior Vice President, Underwriting of Vestin Mortgage
    
    
    34,325
    (6)
    
    
    *2901 El Camino Avenue
Las Vegas, Nevada 89102Michael J. Whiteaker, Vice President of Regulatory Affairs of Vestin Group
    
    
    50,200
    (7)
    
    
    *2901 El Camino Avenue
Las Vegas, Nevada 89102
 32




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##### Table of Contents



Percentage ofCommon Stock
    
    Common StockName
    
    Beneficially Owned
    
    Beneficially Owned(1)Robert J. Aalberts, Director of Vestin Group
    
    
    16,700
    (8)
    
    
    *2901 El Camino Avenue
Las Vegas, Nevada 8910David Chavez, Director of Vestin Group
    
    
    0
    
    
    
    *2901 El Camino Avenue
Las Vegas, Nevada 89102Roland M. Sansone, Director of Vestin Group
    
    
    0
    
    
    
    *2901 El Camino Avenue
Las Vegas, Nevada 89102Bernard Greenblatt Trust U/A/D 7/15/96, Bernard Greenblatt, Trustee
    
    
    373,355
    (9)
    
    
    7.0
    %880 Buffwood Avenue
Las Vegas, Nevada 89123The Redd 1996 Trust, William Si Redd, Trustee
    
    
    834,704
    (10)
    
    
    15.7
    %2340 Camero Avenue
    
    
    
    (11)Las Vegas, Nevada 89123All directors and executive officers as a group (9 persons)(12)
    
    
    5,648,668
    
    
    
    73.3
    %
  *
    
    Less than 1%  (1)
    
    Based upon 5,328,340 shares outstanding on March 1, 2004.(2)
    
    Includes warrants to purchase up to 2,000,000 shares of Common Stock within 60 days of March 1, 2004.(3)
    
    Includes options to purchase up to 150,000 shares of Common Stock exercisable within 60 days of March 1, 2004.(4)
    
    Includes options to purchase up to 66,109 shares of Common Stock exercisable within 60 days of March 1, 2004.(5)
    
    Includes warrants to purchase up to 66,660 shares of Common Stock exercisable within 60 days of March 1, 2004.(6)
    
    Includes options to purchase up to 31,665 shares of Common Stock exercisable within 60 days of March 1, 2004.(7)
    
    Includes options to purchase up to 50,000 shares of Common Stock exercisable within 60 days of March 1, 2004.(8)
    
    Includes options to purchase up to 15,000 shares of Common Stock exercisable within 60 days of March 1, 2004.(9)
    
    The primary beneficiaries of the Greenblatt Trust are three hospitals and Leona Ledbedder. (10) Includes warrants to purchase 12,336 shares of Common Stock of the
Company held by Millennium 2001 Trust, which has common beneficiaries as the
Redd 1996 Trust. The Redd 1996 Trust and the Millennium 2001 Trust are
hereinafter referred to collectively as the Redd 1996 Trust. The beneficiary
of the Redd 1996 Trust is Tammy Redd. (11) The holders of the Companys preferred stock are entitled to convert
their preferred stock into common stock at a ratio of $6.08 for one share of
common stock. If all of the preferred stockholders were to convert into common
stock, the Redd 1996 Trust would own approximately 12.3% of the total issued
and outstanding shares and the Bernard Greenblatt Trust would own approximately
5.5%. In addition, the beneficial ownership of the following stockholders
would be reduced as follows: Michael Shustek 58.7%, Ira
Levine 2.5%, Peggy Shustek 1.6%, Lance Bradford 1.4%, Michael Whiteaker
will own less than 1%, and all directors and
executive officers as a group 61.5%. (12) Includes options
and warrants to purchase up to 2,379,434 shares of Common Stock
exercisable within 60 days of March 1, 2004. 33




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##### Table of Contents



EQUITY COMPENSATION PLAN INFORMATION The following table provides information as of December 31, 2003 with respect
to the shares of our common stock that may be issued under our existing equity
compensation plans. Number of SecuritiesRemaining Available forNumber of Securities to be
    
    
    
    
    
    Future Issuance UnderIssued Upon Exercise of
    
    Weighted-average Exercise
    
    Equity Compensation PlansOutstanding Options,
    
    Price of Outstanding Options,
    
    (Excluding SecuritiesWarrants and Rights
    
    Warrants and Rights
    
    Reflected in Column (a))Plan Category
    
    (a)
    
    (b)
    
    (c)Equity Compensation
Plans Approved by
Stockholders (1)
    
    
    1,129,330
    
    
    $
    5.57
    
    
    
    370,670
    (2)Equity Compensation
Plans Not Approved
by Stockholders
    
    
    2,000,000
    (3)
    
    $
    4.53
    
    
    
    Total
    
    
    3,129,330
    
    
    
    
    
    
    
    370,670
   (1)
    
    Consists of the 2000 Stock Option Plan, as amended in 2002.(2)
    
    Consists of shares available for future issuance under the 2000 Stock Option Plan. As of
December 31, 2003, an aggregate of
370,670 shares of our common stock were available for
issuance under the 2000 Stock Option Plan.(3)
    
    Consists of 2,000,000 warrants of which 500,000 has been granted each year for the past four
years to Mr. Shustek pursuant to his employment agreement. 34




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##### Table of Contents



ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company has entered into a number of transactions with its principal
stockholder and other related parties. Such transactions fall into the
following categories: 1. Transactions with the Funds On July 2, 2001, Vestin Mortgage brokered a loan to Arroyo Heights for
$10,000,000. The loan was funded by Fund I and Fund II and was guaranteed by
three guarantors. Subsequently, Arroyo Heights defaulted on the loan, and Fund
I and Fund II foreclosed and took title to the collateral. Based on an
appraisal at the conclusion of the foreclosure, Fund I and Fund II determined
that there was a $4.8 million shortfall between the carrying amount of the loan
and the value of the collateral. Fund I and Fund II filed litigation to
recover the shortfall from the individual guarantors. Vestin Mortgage
purchased the rights to collect the proceeds of the guarantee from Fund I and
Fund II on December 31, 2002 in exchange for investments in mortgage loans on
real estate valued at $4.8 million. Vestin Mortgage did not recognize any gain
or loss on the sale to Fund I and Fund II. Vestin Mortgage entered into a
settlement of the Arroyo Heights matter in February 2004. Vestin Mortgage expects this
settlement will result in the recognition of income of approximately
$5.2 million as it relates to the previously recorded
$4.8 million reserve to cover the shortfall. For the years ended December 31, 2003 and 2002, the Company recorded revenues
of approximately $85,000 and $30,000, respectively, from its investment in Fund
I as a result of distributions declared during those periods. Vestin Mortgage,
as the Manager, is entitled to a monthly management fee of up to 0.25% of the
aggregate capital contributions to Fund I. During the years ended December 31,
2003 and 2002, Vestin Mortgage recorded management fees from Fund I of
approximately $254,000 and $249,000, respectively. For the years ended December 31, 2003 and 2002, the Company recorded revenues
of approximately $102,000 and $30,000, respectively, from its investment in
Fund II as a result of distributions declared during those periods. Vestin
Mortgage, as the Manager, is entitled to a monthly management fee of up to
0.25% of the aggregate capital contributions to Fund II. During the years ended
December 31, 2003 and 2002, Vestin Mortgage recorded management fees from Fund
II of approximately $953,000 and $586,000, respectively. As of December 31, 2003, the Company had an investment in Fund III of
approximately $0.7 million, which consists of certain costs paid on behalf of Fund
III related to the registration and start-up costs. As of February 12, 2004,
Fund III raised the required $10,000,000 to break escrow and commence
operations. Such costs will be converted into membership units at a
conversion price of $10 per unit once Fund III receives
sufficient gross proceeds to ensure that such costs do not exceed 2%
of the gross proceeds received by Fund III. As of
December 31, 2003, if the investment was converted into
units, Vestin Mortgage would have received 67,309 units in Fund III
related to this investment. During the year ended December 31, 2003, the Company elected to contribute
capital of $1.6 million to Fund I in the form of an interest-bearing amortizing
note of $723,763 and the forgiveness of an obligation due from Fund I in the
amount of $876,237. The Company did not receive any additional units in Fund I
in consideration of the capital contribution. The capital contribution
increased the existing members capital accounts in Fund I to approximately $10
per unit. The amount of the contribution was charged to current operating
results during the year ended December 31, 2003, as the Company did not receive
additional units for the contribution. The note was paid in full as of December
31, 2003. During the year ended December 31, 2003, the Company purchased real estate held
for sale of $1.1 million from Vestin Fund I. No gain or loss was recorded by
Fund I on this sale. During the year ended
December 31, 2003, the Company sold $9.3 million in
loans to Fund II pursuant to the terms of the Operating Agreements of the Funds
which permit the Funds to acquire loans from the Company if the loans were
acquired to facilitate their acquisition by the Funds and provided that the
price paid is no greater than the Companys cost. During the year ended
December 31, 2003, the Company also purchased $2.0 million in loans from Fund
II. No gain or loss was recorded on these transactions as it is not the
Companys intent to make a profit on the purchase or sale of such investments.
The purpose is to either free up capital to make new investments or place
excess capital in investments to provide a return on investment. 35




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##### Table of Contents



2. Transactions with Officers and Directors and their Affiliates In 2000, the Company loaned a
former employee approximately $251,000
to enable him to operate, develop and grow a California real estate loan fund.
The Company does not have any affiliations with the California real estate loan
fund. The loan is unsecured but is a full recourse loan. The
interest rate of 10% is payable on a semi-annual basis and the principal is due
on the maturity date of April 19, 2004. As of December 31, 2003, the balance on
this note was $87,964. At December 31, 2001, the Company had approximately $352,000 due from Mr.
Shustek, the majority stockholder and Chief Executive Officer of the Company.
These balances bore no interest and were due on demand. Such indebtedness was
incurred prior to the Company becoming a public company when the Company
advanced to Mr. Shustek funds necessary to enable him to pay taxes on
undistributed S corporation income. The largest amount outstanding on such
indebtedness during 2002 was $352,000. As of May 10, 2002, such indebtedness
was paid in full by Mr. Shustek. During the year ended
December 31, 2003, Vestin Mortgage had approximately $694,000 due
from Mr. Shustek related to various advances and legal costs paid by
Vestin Mortgage on his behalf. During December 2003, Mr. Shustek
repaid the entire balance through the assignment of collateralized
mortgage obligations totaling $325,375 and the relief of $368,273 in
debt owed to a company wholly owned by Mr. Shustek. The Company had an investment
in the amount of $84,500 in a mortgage loan to
Del Mar Mortgage, Inc., which is 100% owned by the Companys Chief Executive Officer.
During December 2002, a sale of the property securing the investment was
consummated. As of December 31, 2002, the Company recorded a receivable for the
proceeds of the loan payoff which was fully collected in January 2003. The
Company has not made, and does not contemplate making, any investments in Del
Mar Mortgage, Inc. The Companys Chief
Financial Officer and Tax Manager are equity owners in L.L. Bradford &
Company, LLC, Certified Public Accounting firm (L.L. Bradford). For the years
ended December 31, 2003 and 2002, approximately $228,000 and $150,000,
respectively, was paid to L.L. Bradford for services including
assistance in the preparation of the
Companys financial reports as well as other bookkeeping and
consulting services. For the years ended
December 31, 2003 and 2002, the Company paid approximately
$128,000 and $91,000, respectively, to a partnership owned by the
Companys Chief Financial Officer for reimbursements of fixed
asset purchases paid on the Companys behalf. The Company had an investment in Prepaid Advisors.com, a financial services
start-up company, of $453,500 recorded at cost as of
December 31, 2001. The Companys Chief Financial Officer previously had a controlling equity interest in
Prepaid Advisors.com and was Chairman of Prepaid Advisors.coms board. The Company sold
its investment in Prepaid Advisors.com in the last quarter of 2002 and recorded
a loss of $253,500. The Company had an investment in an Internet credit reporting start-up company
of $150,000 recorded at cost as of December 31, 2001. The President of
Creditmart.com is a stockholder and former director of the Company. The Company
wrote off the investment in June 2002. At December 31, 2001 and 2002 the Company had an investment of $69,310 in a
mortgage loan to an entity that is 100% owned by the Companys Chief Executive
Officer. The note had a face value of $669,310, with interest at 13.5% and
matured in January 2003. The remaining portion of the loan amount totaling
$600,000 was funded by another entity 100% owned by the
Companys Chief Executive Officer. At December 31, 2001 and 2002, the note was delinquent more
than 90 days with respect to interest payments. The note was paid in full in
January 2003. Amounts due from inVestin Nevada totaling $161,481
relate to management fees earned by Vestin Mortgage. Such amounts bear no
interest and are due on demand. In October 2002, inVestin Nevada, a corporation
wholly-owned by the Chief Executive Officer of the Company was created as an
additional funding source for the Company that will seek to raise $100,000,000
through the sale of subordinated notes to Nevada residents. Vestin Mortgage has
entered into an agreement to provide management services to inVestin Nevada
whereby Vestin Mortgage will receive a monthly management fee equal to the
first four percent (4%) of revenues earned by inVestin Nevada above the average
aggregate interest paid to the debenture holders During the year ended December
31, 2003, Vestin Mortgage earned approximately $161,000 relating to the
agreement. During March 2004, this balance was paid off in full. During the year ended
December 31,  2003, the Company purchased $0.7 million in loans
from inVestin Nevada. The Company also sold $0.7 million in
loans to inVestin Nevada for the same period. During the years ended December 31, 2003 and 2002, the Company paid $755,222
and $509,283, respectively, for legal fees to a law firm in which the Secretary
of the Company has an equity ownership interest. 36




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##### Table of Contents



During the year ended December 31, 2003, the Company paid approximately
$1,017,000 to C5, LLC, a company wholly owned by the Companys Chief Executive
Officer, pursuant to an Aircraft Usage Agreement. The agreement allows the
Company to use an airplane on a preferred basis over any other proposed user.
The Company used the airplane primarily for marketing and lending
activities. The Company is required to pay a monthly fee based on an hourly rate of $3,000
per hour for the first 10 hours and $2,500 per hour for each hour thereafter.
The Company is required to make a minimum monthly payment equivalent to 16
hours of usage ($45,000). The terms of the agreement were approved by
the Companys Board of Directors. The Company believes based upon a
review of aircraft rental rates that the terms of the Aircraft Usage
Agreement are fair and reasonable to the Company. During 2003, the Company paid
approximately $28,000 to King Air, LLC, a company owned jointly
by the Companys Chief Executive Officer and a stockholder of the Company
related to the use of an airplane for company travel. 37




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##### Table of Contents



ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits EXHIBIT INDEX Exhibit
    
    
    
    Page Number/Number
    
    Description
    
    Filing Method2.1
    
    Agreement and Plan of Reorganization among the Company, Capsource, Inc. and
Stephen J. Byrne, dated as of April 9, 1999
    
    
    (1
    )2.2
    
    Asset Acquisition Agreement between the Company and Del Mar Holdings, Inc.,
dated as of April 9, 1999
    
    
    (1
    )2.3
    
    Asset Acquisition Agreement between the Company and Del Mar Mortgage, Inc.,
dated as of April 9, 1999
    
    
    (1
    )2.4
    
    Agreement and Plan of Reorganization among the Company, L. L. Bradford &
Company and the Shareholders of L. L. Bradford & Company, dated June 30,
2000
    
    
    (2
    )3.1
    
    Certificate of Incorporation
    
    
    (3
    )3.2
    
    By-laws
    
    
    (3
    )10.1
    
    Employment Agreement between Del Mar Mortgage, Inc. and Steve Byrne, dated
November 3, 1998
    
    
    (4
    )10.2
    
    Transition Agreement between Del Mar Mortgage, Inc. and Capsource, Inc.,
dated April 27, 1999 and First Amendment thereto, dated April 27, 1999
    
    
    (4
    )10.3
    
    Employment Agreement between Del Mar Mortgage and Mike Whiteaker, dated May
3, 1999
    
    
    (4
    )10.4
    
    The 2000 Stock Option Plan of Sunderland Corporation
    
    
    (4
    )10.5
    
    Employment Agreement between the Company and Michael V. Shustek, dated
December 1, 1999
    
    
    (4
    )10.6
    
    Third Amended and Restated Operating Agreement of DM Mortgage Investors,
LLC, dated as of November 2, 2000
    
    
    (5
    )10.7
    
    Certificate of Designations authorizing the issuance of Series A
Convertible Preferred Stock
    
    
    (6
    )10.8
    
    Operating Agreement of Vestin Fund II, LLC, dated as of December 7, 2001
    
    
    (7
    )10.9
    
    License Agreement by and between the Company and Planned Licensing, Inc.,
dated as of January 2001
    
    
    (8
    )10.10
    
    Amended and Restated Intercreditor Agreement by and among Vestin Mortgage,
Inc., Vestin Fund I, LLC, Vestin Fund II, LLC, Owens Financial Group, Inc.,
and Owens Mortgage Investment Fund, dated April 18, 2003.
    
    
    (9
    )10.11
    
    Aircraft Usage Agreement by and between the Company and C5, LLC, dated
September 1, 2002.
    
    
    (9
    )10.12
    
    Indemnity Agreement by and between the Company and Del Mar Mortgage, Inc.,
dated April 15, 2003.
    
    
    (10
    )10.13
    
    Guaranty by and among the Company, Michael V. Shustek, and Del Mar
Mortgage, Inc., dated April 15, 2003.
    
    
    (10
    )
 38




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##### Table of Contents



Exhibit
    
    
    
    Page Number/Number
    
    Description
    
    Filing Method10.14
    
    Employment Agreement by and between
Vestin Mortgage, Inc. and Peggy May (now known as Peggy Shustek), dated
September 1, 2001.
    
    
    (11)10.15
    
    Employment Agreement by and between
Vestin Mortgage, Inc. and Daniel Stubbs, dated January 1, 2003
    
    
    (11)10.16
    
    Totally Restated and Amended Employment Agreement by and between the
Company and Lance Bradford, dated as of January 1, 2003.
    
    
    (11)10.17
    
    Separation Agreement and Release of All Claims by and between Steve Byrne
and the Company, dated as of October 14, 2003
    
    
    (11)10.18
    
    Office Lease Agreement
between the Company and The Wildwood Hills Development, Corporation,
dated January 5, 2001.
    
    
    (11)10.19
    
    Office Lease by and between Luke Properties, LLC and the Company, dated
March 2004.
    
    
    (11)10.20
    
    Amended and Restated Intercreditor
Agreement by and between Vestin Mortgage, Inc., Vestin Fund I,
LLC, Vestin Fund II, LLC and Owens Financial Group, Inc., dated as of
September 25, 2002
    
    
    (11)10.21
    
    Office Lease Agreement by and
between 2901 El Camino, Las Vegas, NV, LLC and the Company, dated
August 1, 200210.22
    
    Office Lease Agreement by and
between The Wildwood Hills Development, Corporation and the Company,
dated January 5, 200110.23
    
    Office Lease by and between 2901 El
Camino, Las Vegas, NV, LLC and the Company, dated August 1, 200210.24
    
    Office Lease Agreement by and
between The Wildwood Hills Development, Corporation and the Company,
dated January 5, 200114.1
    
    Code of Ethics
    
    
    (11)21.1
    
    List of Subsidiaries of the Company
    
    
    (11)31.1
    
    Section 302 Certification of Michael V. Shustek31.2
    
    Section 302 Certification of Lance K. Bradford32
    
    Certification Pursuant to U.S.C. 18 Section 1350
   (1)
    
    Previously filed on Form 8-K (File No. 000-24803) on May 4, 1999.(2)
    
    Previously filed on Form 8-K (File No. 000-24803) on April 14, 2000.(3)
    
    Previously filed on Form 10-SB/A (File No. 000-24803) on August 13,
1998.(4)
    
    Previously filed on Form 10-KSB (File No. 000-24803) on March 31,
2000.(5)
    
    Previously filed on Form 424B5 (File No. 333-32800) on November 15,
2000.(6)
    
    Previously filed on Form 10-KSB (File No. 000-24803) on April 2,
2001.(7)
    
    Previously filed on Form S-11 (File No. 793646) on December 21, 2000.(8)
    
    Previously filed on Form 8-K (File No. 000-24803) on January 25,
2001.(9)
    
    Previously filed by Form SB-2/A (File No. 333-104109) on June 4,
2003.(10)
    
    Previously filed on Form SB-2/A (File No. 333-104109) on October 15,
2003.(11)
    
    Previously filed on Form 10-KSB (File No.
000-24803) on March 30, 2004. (b) Reports on Form 8-K. Current Reports on Form 8-K filed with the Commission on November 19, 2003 and
December 24, 2003, which report the following items:  (i)
    
    Item 5  Other Events and Regulation FD Disclosure;(ii)
    
    Item 7  Financial Statements and Exhibits;(iii)
    
    Item 9  Regulation FD Disclosure; and(iv)
    
    Item 12  Results of Operations and Financial Condition, including
Consolidated Statements of Income (Unaudited) for the three and nine months
ended September 30, 2003 and 2002. 39




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##### Table of Contents



ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES During the fiscal years ended December 31, 2003 and December 31, 2002, Ernst &
Young LLP provided various audit, audit related and non-audit services to us as
follows: December 31, 2003
    
    December 31, 2002Audit Fees:
    
    $
    77,445
    
    
    $
    191,660Audit Related Fees:
    
    $
    332,226
    
    
    $
    127,931Tax Fees:
    
    $
    0
    
    
    $
    0All Other Fees:
    
    $
    174,520
    
    
    $
    48,417
 Our Audit Committee has considered whether provision of the services described
regarding audit related fees, tax fees and all other fees above were compatible
with maintaining the independent accountants independence and has determined
that such services did not adversely affect Ernst & Young LLPs independence. Prior to the completion of Ernst & Young LLPs audit of our consolidated
financial statements as of and for the year ended 2003, Ernst & Young LLP
notified our Audit Committee that it would not render its report for our
consolidated financial statements until the pending informal inquiry by the
Pacific Regional Office of the Securities and Exchange Commission, as more
fully described in Legal Proceedings in this Report, is substantially resolved.
On March 17, 2004, we engaged Moore Stephens Wurth Frazer and Torbet, LLP
(Moore Stephens) to replace Ernst & Young LLP as our independent auditors to
conduct the audit of our consolidated financial statements as of and for the
year ended December 31, 2003. Moore Stephens did not provide services to us in
fiscal 2003 or 2002. The Audit Committee has direct responsibility to review and approve the
engagement of the independent auditors to perform audit services or any
permissible non-audit services. All audit and non-audit services to be provided
by the independent auditors must be approved in advance by the Audit Committee.
The Audit Committee may not engage the independent auditors to perform
specific non-audit services proscribed by law or regulation. All services
performed by independent auditors under engagements entered into on or after
May 6, 2003, were approved by the Audit Committee pursuant to its pre-approval
policy, and none was approved pursuant to the de minimusexception to the rules
and regulations of the Securities and Exchange Commission on pre-approval. 40




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##### Table of Contents



VESTIN GROUP, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS CONTENTS REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
    
    
    F-2CONSOLIDATED FINANCIAL STATEMENTSConsolidated Balance Sheet
    
    
    F-3Consolidated Statements of Operations
    
    
    F-4Consolidated Statements of Changes in Stockholders Equity
    
    
    F-5Consolidated Statements of Cash Flows
    
    
    F-6Notes to Consolidated Financial Statements
    
    
    F-8
 F-1




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##### Table of Contents



REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Stockholders and Board of Directors of Vestin Group, Inc. We have audited the accompanying consolidated balance sheet of Vestin Group,
Inc. and Subsidiaries (the Company) as of December 31, 2003, and the related
consolidated statements of operations, changes in stockholders equity, and
cash flows for each of the two years in the period ended December 31, 2003.
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 audits. We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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
audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Vestin Group, Inc.
and Subsidiaries at December 31, 2003, and the consolidated results of their
operations and their consolidated cash flows for each of the two years in the
period ended December 31, 2003, in conformity with accounting principles
generally accepted in the United States of America. As discussed in Notes H and M
of the consolidated financial statements, the Company has engaged in
significant related party transactions. /s/ Moore Stephens Wurth Frazer and Torbet, LLP
Orange, California
April 9, 2004 F-2




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##### Table of Contents



Vestin Group, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEET December 31, 2003 ASSETSCash
    
    $
    2,131,055Accounts
receivable, net of allowance of $161,899
    
    
    2,382,683Interest receivable
    
    
    10,649Due from related parties
    
    
    2,166,055Note receivable
    
    
    400,000Notes receivable - related party
    
    
    87,964Investments in real estate held for sale
    
    
    7,036,203Investments in mortgage loans on real estate,
net of allowance of $110,000
    
    
    843,035Other investments - related parties
    
    
    3,136,762Deferred tax asset
    
    
    1,879,528Property and equipment, net
    
    
    897,220Other assets
    
    
    144,205Total assets
    
    $
    21,115,359LIABILITIES AND STOCKHOLDERS EQUITYAccounts payable and accrued expenses
    
    $
    4,033,577Dividend payable
    
    
    74,817Deferred income
    
    
    2,875,000Income taxes payable
    
    
    258,894Notes payable - related party
    
    
    2,335,518Notes payable
    
    
    1,474,654Capital leases payable
    
    
    160,440Total liabilities
    
    $
    11,212,900Commitments and contingencies
    
    
    Stockholders equityPreferred stock, $.0001 par value; 20 million shares
authorized; 897,800 shares issued and outstanding
    
    
    90Common stock, $.0001 par value; 100 million shares
authorized 5,328,340 shares issued and outstanding
    
    
    532Additional paid-in capital
    
    
    9,767,187Treasury stock
    
    
    (544,305
    )Retained earnings
    
    
    678,955Total stockholders equity
    
    
    9,902,459Total liabilities and stockholders equity
    
    $
    21,115,359
 The accompanying notes are an integral part of these statements. F-3




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##### Table of Contents



Vestin Group, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS For the year endedDecember 31, 2003
    
    December 31, 2002RevenuesLoan placement and related fees
    
    $
    20,651,118
    
    
    $
    30,607,054Interest income
    
    
    596,750
    
    
    
    626,657Other revenues
    
    
    1,832,697
    
    
    
    670,593Total revenues
    
    
    23,080,565
    
    
    
    31,904,304ExpensesSales and marketing expenses
    
    
    11,703,687
    
    
    
    7,896,687General and administrative expenses
    
    
    14,442,404
    
    
    
    17,183,621Valuation losses on real estate held for
sale
    
    
    1,608,408
    
    
    
    Bad debt expense
    
    
    1,285,527
    
    
    
    332,420Capital contribution to Fund I
    
    
    1,600,000
    
    
    
    Interest expense
    
    
    262,413
    
    
    
    493,078Total expenses
    
    
    30,902,439
    
    
    
    25,905,806Income (loss) from
operations
before provision
(benefit) for
income taxes
    
    
    (7,821,874
    )
    
    
    5,998,498Provision (benefit) for income taxes
    
    
    (2,620,607
    )
    
    
    2,166,660NET INCOME (LOSS)
    
    
    (5,201,267
    )
    
    
    3,831,838Preferred stock dividends
    
    
    901,079
    
    
    
    933,800Net
income (loss) applicable to common shareholders
    
    $
    (6,102,346
    )
    
    $
    2,898,038Earnings (loss) per common share - Basic
    
    $
    (1.16
    )
    
    $
    0.54Earnings (loss) per common share - Diluted
    
    $
    (1.16
    )
    
    $
    0.34Weighted average number of common shares
outstanding - Basic
    
    
    5,283,266
    
    
    
    5,396,363Weighted average number of common shares
outstanding - Diluted
    
    
    5,283,266
    
    
    
    8,498,358
 The accompanying notes are an integral part of these statements. F-4




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##### Table of Contents



Vestin Group, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY Preferred Stock
    
    Common Stock
    
    Treasury StockShares
    
    Amount
    
    Shares
    
    Amount
    
    Shares
    
    AmountBalance at January 1, 2002
    
    
    937,800
    
    
    $
    94
    
    
    
    5,568,198
    
    
    $
    557
    
    
    
    
    
    
    $
    Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Realization of loss on marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Declaration of dividend on preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Declaration of dividend on common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expenses related to issuance of warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Treasury stock acquired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (296,200
    )
    
    
    (2,518,714
    )Common stock options exercised
    
    
    
    
    
    
    
    
    
    
    2,000
    
    
    
    
    
    
    
    
    
    
    
    Warrants issued to purchase common stock
for consulting services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Common stock issued from treasury for
employee bonus
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,000
    
    
    
    6,120Treasury stock retired
    
    
    
    
    
    
    
    
    
    
    (295,200
    )
    
    
    (30
    )
    
    
    295,200
    
    
    
    2,512,594Preferred stock converted into common stock
    
    
    (30,000
    )
    
    
    (3
    )
    
    
    49,342
    
    
    
    5
    
    
    
    
    
    
    
    Balance at December 31, 2002
    
    
    907,800
    
    
    
    91
    
    
    
    5,324,340
    
    
    
    532
    
    
    
    
    
    
    
    Dividends paid on preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Dividends paid on common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expenses related to issuance of warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Treasury stock acquired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (178,000
    )
    
    
    (544,305
    )Common stock options exercised
    
    
    
    
    
    
    
    
    
    
    4,000
    
    
    
    
    
    
    
    
    
    
    
    Redemption of preferred stock
    
    
    (10,000
    )
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at December 31, 2003
    
    
    897,800
    
    
    $
    90
    
    
    
    5,328,340
    
    
    $
    532
    
    
    $
    (178,000
    )
    
    $
    (544,305
    )
 AccumulatedAdditional
    
    
    
    
    
    OtherPaid-in
    
    Retained
    
    ComprehensiveCapital
    
    Earnings
    
    Income
    
    TotalBalance at January 1, 2002
    
    $
    7,948,778
    
    
    $
    8,984,283
    
    
    $
    (163,523
    )
    
    $
    16,770,189Comprehensive income:Net income
    
    
    
    
    
    
    3,831,838
    
    
    
    
    
    
    
    3,831,838Realization of loss on marketable securities
    
    
    
    
    
    
    
    
    
    
    163,523
    
    
    
    163,523Total comprehensive income
    
    
    
    
    
    
    3,831,838
    
    
    
    163,523
    
    
    
    3,995,361Declaration of dividend on preferred stock
    
    
    
    
    
    
    (933,800
    )
    
    
    
    
    
    
    (933,800
    )Declaration of dividend on common stock
    
    
    
    
    
    
    (1,942,965
    )
    
    
    
    
    
    
    (1,942,965
    )Expenses related to issuance of warrants
    
    
    928,302
    
    
    
    
    
    
    
    
    
    
    
    928,302Treasury stock acquired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,518,714
    )Common stock options exercised
    
    
    8,000
    
    
    
    
    
    
    
    
    
    
    
    8,000Warrants issued to purchase common stock
for consulting services
    
    
    37,807
    
    
    
    
    
    
    
    
    
    
    
    37,807Common stock issued from treasury for
employee bonus
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,120Treasury stock retired
    
    
    
    
    
    
    (2,518,684
    )
    
    
    
    
    
    
    (6,120
    )Preferred stock converted into common stock
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    Balance at December 31, 2002
    
    
    8,922,885
    
    
    
    7,420,672
    
    
    
    
    
    
    
    16,344,180Dividends paid on preferred stock
    
    
    
    
    
    
    (901,079
    )
    
    
    
    
    
    
    (901,079
    )Dividends paid on common stock
    
    
    
    
    
    
    (639,371
    )
    
    
    
    
    
    
    (639,371
    )Expenses related to issuance of warrants
    
    
    928,302
    
    
    
    
    
    
    
    
    
    
    
    928,302Treasury stock acquired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (544,305
    )Common stock options exercised
    
    
    15,999
    
    
    
    
    
    
    
    
    
    
    
    15,999Redemption of preferred stock
    
    
    (99,999
    )
    
    
    
    
    
    
    
    
    
    
    (100,000
    )Net loss
    
    
    
    
    
    
    (5,201,267
    )
    
    
    
    
    
    
    (5,201,267
    )Balance at December 31, 2003
    
    $
    9,767,187
    
    
    $
    678,955
    
    
    $
    
    
    
    $
    9,902,459
 The accompanying notes are an integral part of these statements. F-5




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##### Table of Contents



Vestin Group, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS For the year endedDecember 31, 2003
    
    December 31, 2002Cash flow from operating activities:Net income (loss)
    
    $
    (5,201,267
    )
    
    $
    3,831,838Adjustments to reconcile net income (loss) from
operations to net cash provided by operating activities:Depreciation
    
    
    167,741
    
    
    
    114,875Stock based compensation
    
    
    928,302
    
    
    
    966,109Net gain from sale of investment in real estate held for sale
    
    
    
    
    
    
    (168,889
    )Loss on investment in marketable securities
    
    
    
    
    
    
    256,658Loss on other investments
    
    
    
    
    
    
    5,202,426Loss related to capital contribution to Fund I
    
    
    1,600,000
    
    
    
    Provision for loan losses
    
    
    30,000
    
    
    
    80,000Bad debt expense
    
    
    1,285,527
    
    
    
    Valuation losses on real estate held for sale
    
    
    1,608,048
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    1,113,778
    
    
    
    (1,859,079
    )Interest receivable
    
    
    102,703
    
    
    
    (113,352
    )Due from related parties
    
    
    (1,619,539
    )
    
    
    (1,074,346
    )Other assets
    
    
    131,228
    
    
    
    71,012Deferred tax asset
    
    
    (1,483,962
    )
    
    
    Accounts payable and accrued expenses
    
    
    2,064,198
    
    
    
    446,614Deferred income
    
    
    2,875,000
    
    
    
    Dividend payable
    
    
    (833
    )
    
    
    (112,324
    )Income taxes payable
    
    
    (1,136,644
    )
    
    
    (67,705
    )Net cash provided by operating activities
    
    
    2,464,280
    
    
    
    7,573,837Cash flows from investing activities:Purchase of property and equipment
    
    
    (175,004
    )
    
    
    (529,271
    )Cash advanced on notes receivable
    
    
    
    
    
    
    (144,500
    )Principal payments received on notes receivable
    
    
    
    
    
    
    1,071,999Principal payments received on notes receivable - related party
    
    
    30,000
    
    
    
    132,999Purchase of investment in real estate held for sale
    
    
    (1,100,000
    )
    
    
    (111,171
    )Proceeds from sale of investment in real estate held for sale
    
    
    
    
    
    
    4,717,000Purchase of investment in marketable securities
    
    
    
    
    
    
    (215,460
    )Proceeds from sale of investment in marketable securities
    
    
    
    
    
    
    151,087Purchase of other investments - related party
    
    
    (602,387
    )
    
    
    Purchase of investments in mortgage loans on real
estate from Fund II
    
    
    (2,000,000
    )
    
    
    (23,273,124
    )Proceeds from sale of investments in mortgage loans
on real estate to Fund II
    
    
    9,297,925
    
    
    
    24,200,856Purchase of
investments in mortgage loans on real estate from other related
parties
    
    
    (1,080,000
    )
    
    
    Proceeds
from sale of investments in mortgage loans on real estate to other
related parties
    
    
    693,286
    
    
    
    Purchase of investments in mortgage loans on real estate
    
    
    (1,659,205
    )
    
    
    (29,241,363
    )Proceeds from sale of investments in mortgage loans
on real estate
    
    
    2,563,069
    
    
    
    17,784,257Net cash provided (used) in investing activities
    
    
    5,967,684
    
    
    
    (5,456,691
    )
 The accompanying notes are an integral part of these statements. F-6




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##### Table of Contents



Vestin Group, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED For the year endedDecember 31, 2003
    
    December 31, 2002Cash flows from financing activities:Advances on lines of credit
    
    
    
    
    
    
    33,700,000Payments on lines of credit
    
    
    (7,000,000
    )
    
    
    (26,700,000
    )Payments on notes payable
    
    
    
    
    
    
    (5,058,982
    )Payment on notes payable - related party
    
    
    (723,763
    )
    
    
    Payments on capital leases
    
    
    (10,404
    )
    
    
    Proceeds from notes payable
    
    
    1,078,997
    
    
    
    Common stock options exercised
    
    
    15,999
    
    
    
    8,000Payment of dividend on preferred stock
    
    
    (639,371
    )
    
    
    (858,150
    )Payment of dividend on common stock
    
    
    (901,079
    )
    
    
    (1,942,965
    )Redemption of preferred stock
    
    
    (100,000
    )
    
    
    Purchase of treasury stock
    
    
    (544,305
    )
    
    
    (2,518,714
    )Net cash used in financing activities
    
    
    (8,823,926
    )
    
    
    (3,370,811
    )NET DECREASE IN CASH
    
    
    (391,962
    )
    
    
    (1,253,665
    )Cash at beginning of period
    
    
    2,523,017
    
    
    
    3,776,682Cash at end of period
    
    $
    2,131,055
    
    
    $
    2,523,017Supplemental cash flow information:Cash paid for federal income taxes
    
    $
    
    
    
    $
    2,221,360Cash paid for interest
    
    $
    262,413
    
    
    $
    495,935Noncash investing and financing activities:Retirement of treasury stock
    
    $
    
    
    
    $
    2,518,714Dividends declared on preferred stock
    
    $
    74,817
    
    
    $
    75,650Notes payable assumed through foreclosure
    
    $
    244,654
    
    
    $
    2,714,181Notes payable - related parties assumed through foreclosure
    
    $
    802,363
    
    
    $
    Note payable related to capital contribution to Fund I
    
    $
    723,763
    
    
    $
    In substance receipt of amounts due from Fund I related to
capital contribution in Fund I
    
    $
    876,237
    
    
    $
    Investments in real estate held for sale acquired through foreclosure
    
    $
    1,094,914
    
    
    $
    5,900,059Investment in real estate held for sale acquired for
investments in mortgage loans on real estate
    
    $
    478,829
    
    
    $
    Purchase of equipment through capital lease
    
    $
    170,844
    
    
    $
    Purchase of rights to receive proceeds related to loan guarantee
in exchange for investments in mortgage loans on real estate
    
    $
    
    
    
    $
    4,798,926Investments received as partial satisfaction of shareholder receivable
    
    $
    325,375
    
    
    $
    Relief of note payable-related party as partial satisfaction of
shareholder receivable
    
    $
    368,273
    
    
    $
    
 The accompanying notes are an integral part of these statements. F-7




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##### Table of Contents



NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION Vestin Group, Inc. (Vestin or the Company) conducts its operations
primarily through Vestin Mortgage, Inc., a wholly owned subsidiary (Vestin
Mortgage). Vestin Mortgage operates as a mortgage broker licensed in the state
of Nevada. Vestin Mortgage is engaged in the brokerage and placement of
commercial loans secured by real property. Vestin Mortgages primary operations
consist of the brokerage and placement of commercial, construction, acquisition
and development, land, and residential mortgage loans secured by real property
as well as managing three publicly held funds, Vestin Fund I, LLC (Fund I),
Vestin Fund II, LLC (Fund II), Vestin Fund III, LLC (Fund III),
collectively referred to as (the Funds) and an entity owned by the Companys
Chief Executive Officer, inVestin Nevada, Inc. (inVestin Nevada), which
invest in mortgage loans. Fund III will also invest in real estate. Vestin
Mortgage, as manager of the Funds and inVestin Nevada will be referred to as
Manager. Vestin Capital, Inc., a wholly owned subsidiary of the Company, serves as the
lead broker dealer on the sale of units for the Funds and also provides
administrative services. Vestin Capital does not receive any commissions from
the sale of units for the Funds. Rather, Vestin Capital receives an
administrative fee from Vestin Mortgage related to the maintenance of investor
files and general investor services. Vestin Advisors, Inc., a wholly owned subsidiary of the Company, is a licensed
trust company in the state of Nevada that serves as a custodian for individual
retirement accounts of investors in Vestin products. Vestin Mortgage Advisors, Inc., a wholly owned subsidiary of the Company, was a
licensed mortgage banker in the state of Arizona. In, December 2003, the
license was not renewed and the Company does not intend to do business in this
entity in the future. JLS Advertising, a wholly owned subsidiary of the Company, is an advertising
company formed solely for the purposes of providing advertising buying power
for the Companys marketing efforts. There was no specific operating activity
in this company during the years ended 2003 and 2002. The Company operates in one business segment. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All significant inter-company transactions and
balances have been eliminated in consolidation. USE OF ESTIMATES The preparation of financial statements in conformity with accounting
principles 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. Significant estimates include expected useful lives of
property and equipment, allowance for accounts receivable, allowances for
investments in mortgage loans on real estate, and valuations of real estate
held for sale. Changes in facts and circumstances may result in revised
estimates, which are recorded in the period in which they become known. REVENUE RECOGNITION The Company recognizes revenue primarily from loan placement fees, loan
servicing fees and extension fees. Loan placement fees are generally recorded
as revenue at the close of escrow and reduced by direct loan placement costs on
loans which the Company has not recorded as investments in mortgage loans on
its financial statements. F-8




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##### Table of Contents



Typically, deeds of trust related to loans placed are initially in the
Companys name to facilitate the loan placement process. Upon arranging a
funding source for such loans, the deeds of trust are assigned to the
respective investor (i.e., the Funds). Loan servicing fees are recorded as
revenue when such services are rendered. Servicing fees represent the interest
spread between what is paid to the investor and what the borrower pays for the
use of the money, which can vary from loan to loan. Servicing costs approximate
servicing fees and therefore, the Company has not recognized a servicing asset
or liability. Extension fees are generally recorded as revenue at the extension
grant date. Interest income on investments in mortgage loans on real estate is recorded
when earned. The Company does not recognize interest income from loans once
they are determined to be impaired. A loan is impaired when, based on current
information and events, it is probable that the Company will be unable to
collect all amounts due according to the contractual terms of the loan
agreement or when the payment of interest is 90 days past due. INVESTMENTS IN REAL ESTATE HELD FOR SALE Real estate held for sale includes real estate acquired through foreclosure and
is carried at the lower of cost or the propertys estimated fair value, less
estimated costs to sell. The Company seeks to sell properties acquired through
foreclosure as quickly as circumstances permit. INVESTMENTS IN MORTGAGE LOANS ON REAL ESTATE Investments in mortgage loans are secured by trust deeds and mortgages.
Generally, the Companys mortgage loans require interest only payments, either
through payments or decrease of an interest reserve, with a balloon payment of
the principal at maturity. The Company has both the intent and ability to hold
mortgage loans until maturity and therefore, mortgage loans are classified and
accounted for as held for investment and are carried at cost. Loan to value
ratios are based on appraisals obtained at the time of loan origination and may
not reflect subsequent changes in value estimates. Such appraisals, which may
be commissioned by the borrower, are generally dated within 12 months of the
date of loan origination. The appraisals may be for the current estimate of the
as-if developed value of the property, which approximates the
post-construction value of the collateralized property assuming that such
property is developed. As-if developed values on raw land loans or acquisition
and development loans often drastically exceed the immediate sales value and
may include anticipated zoning changes, selection by a purchaser against
multiple alternatives, and successful development by the purchaser; upon which
development is dependent on availability of financing. As most of the
appraisals will be prepared on an as-if developed basis, if a loan goes into
default prior to any development of a project, the market value of the property
may be substantially less than the appraised value. As a result, there may be
less security than anticipated at the time the loan was originally made. If
there is less security and a default occurs, the Company may not recover the
full amount of the loan. ALLOWANCE FOR LOAN LOSSES The Company maintains an allowance for loan losses on its investment in
mortgage loans for estimated credit impairment in the Companys investment in
mortgage loans portfolio. The Companys estimate of losses is based on a number
of factors including the types and dollar amounts of loans in the portfolio,
adverse situations that may affect the borrowers ability to repay, prevailing
economic conditions and the underlying collateral securing the loan. Additions
to the allowance are provided through a charge to earnings and are based on an
assessment of certain factors including, but not limited to, estimated losses
on the loans. Actual losses on loans are recorded as a charge-off or a
reduction to the allowance for loan losses. Subsequent recoveries of amounts
previously charged off are added back to the allowance. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation is provided principally
on the straight-line method over the estimated useful lives of the assets
ranging from three to seven years. The cost of repairs and maintenance is
charged to expense as incurred. F-9




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##### Table of Contents



ADVERTISING COSTS Advertising costs are expensed as incurred and were approximately $4,498,000
and $3,015,000 for the years ended December 31, 2003 and 2002, respectively. INCOME TAXES The Company accounts for its income taxes using the liability method, which
requires recognition of deferred tax assets and liabilities for the future tax
consequences attributable to differences between carrying amounts of existing
assets and liabilities and their respective tax bases and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. IMPAIRMENT OF LONG-LIVED ASSETS The Company continually monitors events and changes in circumstances that could
indicate carrying amounts of long-lived assets may not be recoverable. When
such events or changes in circumstances are present, the Company assesses the
recoverability of long-lived assets by determining whether the carrying value
of such assets will be recovered through undiscounted expected future cash
flows. If the total of the future cash flows is less than the carrying amount
of those assets, the Company recognizes an impairment loss based on the excess
of the carrying amount over the estimated fair value of the assets. Assets to
be disposed of are reported at the lower of the carrying amount or the fair
value less costs to sell. STOCK OPTIONS AND WARRANTS ACTIVITY The Company applies Accounting Principles Board (APB) Opinion No. 25 (APB
25), Accounting for Stock Issued to Employees, and related interpretations
in accounting for all stock option plans. Under APB 25, compensation cost is
recognized for stock options granted to employees when the option is less than
the market price of the underlying common stock on the date of grant. SFAS No. 123 (SFAS 123), Accounting for Stock-Based Compensation and SFAS
No. 148 (SFAS 148), Accounting for Stock-Based
Compensation - Transition and
Disclosure - an amendment of FASB Statement No. 123 require disclosures as if
the Company had applied the fair value method to employee awards rather than
the intrinsic value method. The fair value of stock-based awards to employees
is calculated through the use of option pricing models, even though such models
were developed to estimate the fair value of freely tradable, fully
transferable options without vesting restrictions, which differ significantly
from the Companys stock option awards. These models also require subjective
assumptions, including future stock price volatility and expected time to
exercise, which greatly affect the calculated values. The Companys fair value
calculations for awards from stock option plans were made using the
Black-Scholes option pricing model. F-10




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##### Table of Contents



The following table summarizes the Companys employee and directors stock
options and warrants activity: WeightedAverageNumber
    
    ExerciseOf Shares
    
    PriceBalance, January 1, 2001
    
    
    961,800
    
    
    $
    4.00Options and warrants granted
    
    
    646,700
    
    
    
    5.03Options and warrants exercised
    
    
    
    
    
    
    Options and warrants forfeited/expired
    
    
    9,500
    
    
    
    4.00Balance, January 1, 2002
    
    
    1,599,000
    
    
    
    4.41Options and warrants granted
    
    
    1,140,000
    
    
    
    7.02Options and warrants exercised
    
    
    2,000
    
    
    
    4.00Options and warrants forfeited/expired
    
    
    15,000
    
    
    
    6.51Balance, December 31, 2002
    
    
    2,722,000
    
    
    $
    5.49Options and warrants granted
    
    
    510,000
    
    
    
    2.13Options and warrants exercised
    
    
    4,000
    
    
    
    4.00Options and warrants forfeited/expired
    
    
    94,670
    
    
    
    7.02Balance, December 31, 2003
    
    
    3,133,330
    
    
    $
    4.90
 The following table summarizes information about options and warrants
outstanding and exercisable for employees and directors at December 31, 2003
and 2002: Shares UnderlyingShares Underlying Options Outstanding
    
    Options ExercisableShares
    
    WeightedUnderlying
    
    Average
    
    Weighted
    
    Shares
    
    WeightedOptions/
    
    Remaining
    
    Average
    
    Underlying
    
    AverageExercise
    
    Warrants
    
    Contractual
    
    Exercise
    
    Options
    
    ExercisePrices
    
    Outstanding
    
    Life
    
    Price
    
    Exercisable
    
    Price$2.03 to $4.00
    
    
    1,471,300
    
    
    8.22 years
    
    $
    3.32
    
    
    
    1,471,300
    
    
    $
    3.32$5.07
    
    
    609,700
    
    
    7.88 years
    
    $
    5.07
    
    
    
    609,700
    
    
    $
    5.07$7.02
    
    
    1,052,330
    
    
    8.92 years
    
    $
    7.02
    
    
    
    712,980
    
    
    $
    7.023,133,330
    
    
    
    
    
    
    
    
    
    
    
    2,793,980
 The Company provides proforma disclosures of compensation expense under the
fair value method of SFAS 123 and SFAS 148. Following are the weighted average assumptions used for the year ended December
31: 2003
    
    2002Average risk-free interest rates
    
    
    2.79
    %
    
    
    2.58
    %Average expected life (in years)
    
    
    3.94
    
    
    
    3.00Volatility
    
    
    73.76
    %
    
    
    74.50
    %Dividend yield
    
    
    0.00
    %
    
    
    0.25
    %
 The Black-Scholes option valuation model was developed for use in estimating
the fair value of short-term traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including expected stock price
volatility. Because the Companys Employee stock options have characteristics
significantly different from those of traded options and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
managements opinion the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options. During 2003 and
2002, there were no options granted with an exercise price below the fair value
of the underlying stock at the grant date. The weighted average fair value of options and warrants granted with exercise
prices at the current fair value of the underlying stock during 2003 and 2002
was approximately $1.14 and $3.51 per option, respectively. F-11




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##### Table of Contents



Had compensation cost for the Companys option plans been determined using the
fair value method at the grant dates, the effect on the Companys net income
and income per share would have been as follows: For the year endedDecember 31,
    
    December 31,2003
    
    2002Net income (loss), as reported
    
    $
    (5,201,267
    )
    
    $
    3,831,838Add: Stock-based compensation
expense included in reported
income (loss), net of
related tax effects
    
    
    
    
    
    
    Deduct:Total stock based employee
compensation determined
under fair value method
for all awards, net of
related tax effects
    
    
    (1,637,368
    )
    
    
    (1,913,405
    )Pro forma net loss
    
    $
    (6,838,635
    )
    
    $
    1,918,433Earnings per share:Basic - as reported
    
    $
    (1.16
    )
    
    $
    0.54Basic - pro forma
    
    $
    (1.29
    )
    
    $
    0.18Diluted - as reported
    
    $
    (1.16
    )
    
    $
    0.34Diluted - pro forma
    
    $
    (1.29
    )
    
    $
    0.12
 STOCK WARRANTS Spokesperson Stock Warrants- In January 2001, the Company consummated an
agreement with Joe Namath, a National Football League Hall of Fame inductee, to
act as a spokesperson on behalf of the Company for five years. In
consideration, Mr. Namath will be compensated in the amount of $1,000,000 cash
annually and received warrants to purchase 800,000 shares of the Companys
common stock at an exercise price of $0.01 and warrants to purchase 400,000
shares of the Companys common stock at an exercise price of $4.60. The 800,000
warrants vest immediately, and the 400,000 warrants vest within one year. The
outstanding warrants granted have a term of ten years from the date of grant.
The fair value of the warrants was estimated as of the measurement date using
the Black-Scholes option pricing model with the following assumptions: dividend
yield of 0.0%, expected volatility of 54.51%, risk-free interest rate of 5.77%
and an expected holding period of five years. Based on these assumptions, total
compensation expense of the warrants granted was approximately $4,650,000 and
will be recognized over five years, the length of the consulting agreement.
Accordingly, the Company recorded public relations expenses of approximately
$930,000 for the year ended December 31, 2002. The following tables summarize
information about the Spokesperson Stock Warrants activity during the year
ended December 31, 2002: WeightedAverageNumber of
    
    ExerciseWarrants
    
    PriceBalance, January 1, 2003
    
    
    1,200,000
    
    
    $
    1.54Warrants granted
    
    
    
    
    
    
    Warrants canceled
    
    
    
    
    
    
    Warrants expired
    
    
    
    
    
    
    Warrants exercised
    
    
    
    
    
    
    Balance, December 31, 2003
    
    
    1,200,000
    
    
    $
    1.54
 F-12




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##### Table of Contents



RECENT ACCOUNTING PRONOUNCEMENTS In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations, which addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and
associated asset retirement costs. The new rules apply to legal obligations
associated with the retirement of long-lived assets that result from the
acquisition, construction, development and (or) normal operation of a
long-lived asset. SFAS 143 is effective at the beginning January 1, 2003. The
adoption of SFAS 143 did not have a material impact on the Companys
consolidated financial position or results of operations. In April 2002, the FASB issued SFAS 145, Rescission of FASB Statements Nos. 4,
44, and 64, Amendment of SFAS Statement No. 13, and Technical Corrections. SFAS
145 eliminates extraordinary accounting treatment for reporting a loss on debt
extinguishments, and amends other existing authoritative pronouncements to make
various technical corrections, to clarify meanings, and to describe
applicability under changed conditions. The provisions of SFAS 145 were
implemented for the Partnerships fiscal year beginning January 1, 2003. Debt
extinguishments reported as extraordinary items prior to scheduled or early
adoption of SFAS 145 would be reclassified in most cases following adoption.
SFAS 145 did not have a material impact on the Companys consolidated financial
position or results of operations. In June 2002, the FASB issued SFAS 146, Accounting for Costs Associated with
Exit or Disposal Activities. SFAS 146 requires the recording of costs
associated with exit or disposal activities at their fair values when a
liability has been incurred. Under previous guidance, certain exit costs were
accrued upon the Partnerships commitment to an exit plan, which is generally
before an actual liability has been incurred. Adoption of SFAS 146 was
implemented for the Partnerships fiscal year beginning January 1, 2003. SFAS
146 did not have a material impact on the Companys consolidated financial
position or results of operations. In May 2003, the FASB issued SFAS 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity. SFAS 150
specifies that instruments within its scope embody obligations of the issuer
and that, therefore, the issuer must classify them as liabilities. SFAS 150 did
not have a material impact on the Companys consolidated financial position or
results of operations. In January 2003, the FASB issued Interpretation No. 46 (Interpretation 46),
Consolidation of Variable Interest Entities, an interpretation of ARB No. 51.
This interpretation of Accounting Research Bulletin No. 51, Consolidated
Financial Statements, addresses consolidation by business enterprises of
variable interest entities (selected entities with related contractual,
ownership, voting or other monetary interests, including certain special
purpose entities), and requires certain additional disclosure with respect to
these entities. The provisions of Interpretation 46 are immediately applicable
to variable interest entities created after January 31, 2003. In December
2003, the FASB issued a revision to Interpretation 46, commonly referred to as
Interpretation No. 46R (Interpretation 46R). The objective of Interpretation
46R was to provide additional clarification to Interpretation 46 and require
public entities to identify those entities that are considered special purpose
entities (SPEs) in which they have variable interests and to apply the
provisions of either Interpretation 46 of 46R at December 31, 2003. The
Company has evaluated its relationships and interest in entities that might be
considered VIEs and concluded that the adoption of FIN 46 did not have an
effect on the Companys consolidated financial position or results of
operations. In October 2003, the AICPA issued SOP 03-3 Accounting for Loans or Certain Debt
Securities Acquired in a Transfer. SOP 03-3 applies to a loan with the evidence
of deterioration of credit quality since origination acquired by completion of
a transfer for which it is probable at acquisition, that the Partnership will
be unable to collect all contractually required payments receivable. SOP 03-3
is effective for loans acquired in fiscal years beginning after December 31,
2004. The Company does not expect SOP 03-3 to have a material impact on its
consolidated financial position or results of operations. RECLASSIFICATION Certain prior year balances have been reclassified to conform to the current year presentation. NOTE B - ACCOUNTS RECEIVABLE Accounts receivable represent extension, interest and loan placement fees
earned but not yet received. The Company services loans which have been
arranged for the investor parties through a servicing agreement. The servicing
agreement stipulates that all extension fees charged on behalf of the investors
shall be retained by the Company as part of the loan servicing fees. As of
December 31, 2003, accounts receivable totaling $2,382,683 is net of allowance
for doubtful accounts of $161,899. F-13




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##### Table of Contents



NOTE C - NOTES RECEIVABLE Notes receivable consist of the following: Promissory note totaling $400,000 related to proceeds from
properties sold by the Company. This note matures in December
2006, bears interest at 8%, and is secured by real estate. NOTE D - INVESTMENT IN REAL ESTATE HELD FOR SALE At December 31, 2003, the Company had various properties with a carrying value
totaling $7,036,203, which were acquired through foreclosure and recorded as
investments in real estate held for sale and secure specific payables as
discussed in Notes G and H. Such investments in real estate held for sale are
accounted for at the lower of cost or fair value less costs to sell, based on
appraisals and knowledge of local market conditions. It is not the Companys
intent to invest in or own real estate acquired through foreclosure. The
Company seeks to sell properties acquired through foreclosure as quickly as
circumstances permit. AdjustedDescription
    
    % of ownership
    
    Carrying valueRaw land in Utah*
    
    
    100
    %
    
    $
    3,000,000Raw land in Las Vegas, Nevada
    
    
    100
    %
    
    
    595,860Raw land in Las Vegas, Nevada
    
    
    100
    %
    
    
    593,84030-unit condominium project in Las Vegas, Nevada
    
    
    83
    %
    
    
    1,084,914Residence in Las Vegas, Nevada**
    
    
    100
    %
    
    
    1,761,589Total
    
    
    
    
    
    $
    7,036,203
 *This property is subject to a lien related to a Special Improvement District
(SID) which is not due and payable until such time as the Company sells the
property to a third party. If the Company begins development on the property,
the costs related to the SID will be assessed to the buyers of each individual
parcel resulting in no gain or loss to the Company. **On March 26, 2004 the Company completed the sale of this property for the
approximate carrying value as of December 31, 2003 which is net of closing
costs and sales expenses. Below is a rollforward of investments in real estate held for sale for the year
ended December 31, 2003: Balance at
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance atJanuary 1,
    
    
    
    
    
    
    
    
    
    Valuation
    
    December 31,Description
    
    2003
    
    Acquisitions
    
    Sales
    
    Adjustments
    
    2003Raw land in Utah
    
    $
    3,824,402
    
    
    $
    
    
    
    $
    
    
    
    $
    (824,402
    )
    
    $
    3,000,000Raw land in Las Vegas, Nevada
    
    
    595,860
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    595,860Raw land in Las Vegas, Nevada
    
    
    593,840
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    593,84030-unit condominium project
in Las Vegas, Nevada
    
    
    
    
    
    
    1,094,914
    
    
    
    
    
    
    
    (10,000
    )
    
    
    1,084,914Raw land in Mesquite, Nevada
    
    
    169,807
    
    
    
    
    
    
    
    
    
    
    
    (169,807
    )
    
    
    Residence in Las Vegas, Nevada
    
    
    796,600
    
    
    
    1,578,829
    
    
    
    
    
    
    
    (613,840
    )
    
    
    1,761,589Total
    
    $
    5,980,509
    
    
    $
    2,663,743
    
    
    $
    
    
    
    $
    (1,608,049
    )
    
    $
    7,036,203
 NOTE E - INVESTMENT IN MORTGAGE LOANS ON REAL ESTATE As of December 31, 2003, all outstanding mortgage loans were current and
performing according to their terms with the exception of one loan in the
amount of $75,000 which, as of January 20, 2004 was brought current and paid off.
See Note D for information with respect to properties acquired through
foreclosure on certain defaulted mortgage loans. Management has evaluated the
collectibility of the loans in foreclosure in light of the category and dollar F-14




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##### Table of Contents



amounts of such loans, adverse situations that may affect the borrowers
ability to repay, prevailing economic conditions and the underlying collateral
securing the loan. Due to economic uncertainties and historical loss
experience, the Companys management has established a reserve for inherent
losses in the portfolio totaling $110,000 based on the Companys policies and
procedures regarding the valuation of its investments in mortgage loans on real
estate as a long-term investment. Loan to value ratios are based on appraisals obtained at the time of loan
origination and may not reflect subsequent changes in value estimates. Such
appraisals are generally dated within 12 months of the date of loan origination
and may be commissioned by the borrower. The appraisals may be for the current
estimate of the as-if developed value of the property, which approximates the
post-construction value of the collateralized property assuming that such
property is developed. As-if developed values on raw land loans or acquisition
and development loans often dramatically exceed the immediate sales value and
may include anticipated zoning changes, selection by a purchaser against
multiple alternatives, and successful development by the purchaser; upon which
development is dependent on availability of financing. As most of the
appraisals will be prepared on an as-if developed basis, if a loan goes into
default prior to any development of a project, the market value of the property
may be substantially less than the appraised value. As a result, there may be
less security than anticipated at the time the loan was originally made. If
there is less security and a default occurs, the Company may not recover the
full amount of the loan. NOTE F - PROPERTY AND EQUIPMENT Property and equipment consists of the following as of December 31, 2003: Furniture and fixtures
    
    $
    177,478Computers and equipment
    
    
    701,517Real estate
    
    
    273,774Vehicles
    
    
    20,362Leasehold improvements
    
    
    106,2041,279,335Less: Accumulated depreciation
    
    
    (382,115
    )Total property and equipment
    
    $
    897,220
 NOTE G - NOTES PAYABLE Notes payable totaling $1,474,654 as of December 31, 2003, consist of the
following: Promissory notes totaling $374,654 to various parties related to foreclosed
real estate properties. Since the Company acquired the properties through
foreclosure, it is not required and does not intend to pay interest on these
notes. Promissory note to a financial institution totaling $1,100,000 related to a
residential real estate property the Company had purchased from Fund I. The
note is collateralized by the property, at an interest rate of 1.5% over the
prime interest rate (4.0% at December 31, 2003) payable in monthly interest
installments and is due on May 1, 2004. In March 2004 the property was sold
and this obligation was satisfied in full. NOTE H - NOTES PAYABLE - RELATED PARTY Notes payable  related party totaling $2,335,518 as of December 31, 2003,
consists of the following: Note payable to a company solely owned by the Companys Chief Executive
Officer totaling $158,000 related to developed parcels of land. Since the
Company acquired the properties through foreclosure, it is not required and
does not intend to pay interest on this note. F-15




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##### Table of Contents



Note payable to an entity controlled by the Companys Chief Executive Officer
totaling $569,061 related to vacant land. Since the Company acquired the
properties through foreclosure, it is not required and does not intend to pay
interest on this note. Note payable to entities controlled by the Companys Chief Executive Officer
totaling $806,094 related to vacant land. Since the Company acquired the
properties through foreclosure, it is not required and does not intend to pay
interest on this note. Notes payable to entities controlled by the Companys Chief Executive Officer
totaling $541,901 related to an apartment complex. Since the Company acquired
the properties through foreclosure, it is not required and does not intend to
pay interest on this note. Notes payable to entities controlled by the Companys Chief Financial Officer
totaling $260,462 related to an apartment complex. Since the Company acquired
the properties through foreclosure, it is not required and does not intend to
pay interest on this note. NOTE I  CAPITAL LEASE OBLIGATIONS The Company is obligated under various capital leases for equipment. The
capital lease obligations totaling $195,198 require minimum monthly lease
payments ranging from $300 to $3,200 with interest rates from 8.5% to 25.5%.
Future minimum lease payments are as follows: 2004
    
    $
    97,3292005
    
    
    95,1632006
    
    
    2,706195,198Less: amounts representing interest
    
    
    34,758160,440Less: current portion
    
    
    77,940Capital
lease obligations - long-term portion
    
    $
    82,500
 Equipment leased under the capital leases as of December 31, 2003 approximated
$161,700, which is net of accumulated depreciation of $3,800. NOTE J - CREDIT AGREEMENT The Company has entered into a credit agreement with a financial institution
that maintains non-interest bearing trust funds held on behalf of the investors
and other funds of the Company. The credit agreement allows the Company to
borrow funds up to the amount held in the trust accounts and other funds held
at the institution up to a maximum of $5 million at a rate of 1% and invest those funds in commercial paper
(securities). The Company has provided the financial institution with a
security interest in the securities and, at all times, the securities remain in
the financial institutions custody and control. As of December 31, 2003 there
was no balance due related to this agreement. This agreement expires
during May 2004. NOTE K - TRUST ACCOUNTS Vestin Mortgage manages certain trust assets including cash and receivables on
behalf of the investors. The cash is held at a financial institution, and the
Company records and reconciles the receivables from borrowers. At December 31,
2003, the cash held in trust approximated $2,014,047 and the trust receivable
was $1,806,718. The related trust liability was $3,820,765 at December 31,
2003. Vestin Advisors acts as custodian for Individual Retirement Accounts which are
primarily invested in the Funds. Assets held in these accounts totaled
$5,728,363 as of December 31, 2003. F-16




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##### Table of Contents



The trust assets and liabilities are not recorded on the balance sheet of the
Company at December 31, 2003. NOTE L - LOANS SERVICED FOR OTHERS The Company services loans for others that were originated by the Company,
which are not shown on the balance sheet. The face amount of these loans at
December 31, 2003 approximated $522,417,461. NOTE M - RELATED PARTY TRANSACTIONS Notes receivable  In 2000, the Company loaned a former employee, approximately
$251,000 to enable him to operate, develop and grow a California real estate
loan fund. The Company does not have any affiliations with the California real
estate loan fund. The loan is unsecured but is a full recourse loan. The
interest rate of 10% is payable on a semi-annual basis and the principal is due
on the maturity date of April 19, 2004. As of December 31, 2003, the balance on
this note was $87,964. Due from related parties approximating $2,166,055 as of December 31, 2003 are
comprised of the following: Amounts due from Fund I totaling $401,705 relate to management fees, earnings
on units in Fund I, and reimbursable expenses. Amounts due from Fund I bear
no interest and are due on demand. Amounts due from Fund II totaling $1,431,252 relate to management fees,
earnings on units in Fund II, and reimbursable expenses. Amounts due from
Fund II bear no interest and are due on demand. Advances to C-5, LLC totaling $171,617 relate to various expenses paid for
travel related to an aircraft usage agreement as discussed below. This
balance was paid in full during March 2004. Amounts due from inVestin Nevada, Inc. (inVestin Nevada) totaling $161,481
management fees earned by Vestin Mortgage. Such amounts bear no interest and
are due on demand. In October 2002, inVestin Nevada, a corporation
wholly-owned by the Chief Executive Officer of the Company was created as an
additional funding source for the Company that will seek to raise
$100,000,000 through the sale of subordinated notes to Nevada residents.
Vestin Mortgage has entered into an agreement to provide management services
to inVestin Nevada whereby Vestin Mortgage will receive a monthly management
fee equal to the first four percent (4%) of revenues earned by the Company
above the average aggregate interest paid to the debenture holders. For the
year ended December 31, 2003, Vestin Mortgage earned $161,481 related to the
agreement. During March 2004, this balance was paid off in full. Other investments  related parties totaling $3,136,762 as of December 31, 2003
are comprised of the following: The Companys investments in units of the Funds totaling $2,702,387 as of
December 31, 2003. Investments in Collateralized Mortgage obligations which are controlled by a
company wholly owned by the Companys Chief Executive Officer totaling
$434,375 as of December 31, 2003. During the years ended December 31, 2003 and 2002, the Company paid $755,222
and $509,283, respectively, for legal fees to a law firm in which the Secretary
of the Company has an equity ownership interest. The Companys Chief Financial Officer and Tax Manager are equity owners in L.L.
Bradford & Company, LLC, a Certified Public Accounting firm (L.L. Bradford).
For the years ended December 31, 2003 and 2002, approximately $228,000 and
$150,000, respectively, was paid to L.L. Bradford for services provided to the
Company. During the same period, L.L. Bradford also assisted in the preparation
of the Companys financial reports and provided bookkeeping services at no
charge to the Company. For the years ended December 31, 2003 and 2002, the Company recorded revenues
of approximately $85,000 and $30,000, respectively, from its investment in Fund
I as a result of distributions declared during those periods. Vestin Mortgage,
as the Manager, is entitled to a monthly management fee of up to 0.25% of the
aggregate capital F-17




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##### Table of Contents



contributions to Fund I. During the years ended December 31, 2003 and 2002,
Vestin Mortgage recorded management fees from Fund I of approximately $254,000
and $249,000, respectively. For the years ended December 31, 2003 and 2002, the Company recorded revenues
of approximately $102,000 and $30,000, respectively, from its investment in
Fund II as a result of distributions declared during those periods. Vestin
Mortgage, as the Manager, is entitled to a monthly management fee of up to
0.25% of the aggregate capital contributions to Fund II. During the years ended
December 31, 2003 and 2002, Vestin Mortgage recorded management fees from Fund
II of approximately $953,000 and $586,000, respectively. As of December 31, 2003, the Company an investment in Fund III of approximately
$673,088, which consists of certain costs paid on behalf of Fund III related to
the registration and start-up costs. As of February 12, 2004, Fund III raised
the required $10,000,000 to break escrow and commence operations. Such costs
will be converted into membership units at a conversion price of $10 per unit
once Fund III receives sufficient gross proceeds to ensure that such costs do
not exceed 2% of the gross proceeds received by Fund III. If converted into
units, Vestin Mortgage would have received 67,309 units in Fund III related to
this investment. During the year ended December 31, 2003, the Company elected to contribute
capital of $1.6 million to Fund I in the form of an interest-bearing amortizing
note of $723,763 and the forgiveness of an obligation due from Fund I in the
amount of $876,237. The Company did not receive any additional units in Fund I
in consideration of the capital contribution. The capital contribution
increased the existing members capital accounts in Fund I to approximately $10
per unit. The amount of the contribution was charged to current operating
results during the year ended December 31, 2003, as the Company did not receive
additional units for the contribution. The note was paid in full as of December
31, 2003. During the year ended
December 31, 2003, the Company sold $9.3 million in
loans to Fund II pursuant to the terms of the Operating Agreement of the Funds
which permits the Funds to acquire loans from the Company if the loans were
acquired to facilitate their acquisition by the Funds and provided that the
price paid is no greater than the Companys cost. During the year ended
December 31, 2003, the Company also purchased $2.0 million in loans from Fund
II. No gain or loss was recorded on these transactions as it is not the
Companys intent to make a profit on the purchase or sale of such investments.
The purpose is to either free up capital to make new investments or place
excess capital in investments to provide a return on investment. During the year
ended December 31, 2003, the Company purchased
$0.7 million in loans from inVestin Nevada. The Company also sold
$0.7 million in loans to inVestin Nevada for the same period. During the year ended December 31, 2003, the Company purchased real estate held
for sale of $1.1 million from Vestin Fund I. No gain or loss was recorded by
Fund I on this sale. During the year ended December 31, 2003, the Company paid approximately
$1,017,000 to C5, LLC, a company wholly owned by the Companys Chief Executive
Officer pursuant to an Aircraft Usage Agreement. The agreement allows the
Company to use an airplane on a preferred basis over any other proposed user.
The Company used the airplane primarily for marketing and lending activities.
The Company is required to pay a monthly fee based on an hourly rate of $3,000
per hour for the first 10 hours and $2,500 per hour for each hour thereafter.
The Company is required to make a minimum monthly payment equivalent to 16
hours of usage ($45,000). The terms of the agreement were approved by the
Companys Board of Directors. The Company believes based upon a review of
aircraft rental rates that the terms of the Aircraft Usage Agreement are fair
and reasonable to the Company. During 2003, the Company paid approximately $28,000 to a Company owned jointly
by the Companys Chief Executive Officer and a stockholder of the Company
related to the use of an airplane for company travel. NOTE N - INCOME TAXES The components of the provision (benefit) for income taxes are as follows at
December 31: 2003
    
    2002Current
    
    $
    (1,136,644
    )
    
    $
    2,096,828Deferred
    
    
    1,483,963
    
    
    
    69,832Total
    
    $
    (2,620,607
    )
    
    $
    2,166,660
 F-18




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##### Table of Contents



Deferred taxes result from temporary differences in the recognition of certain
revenue and expense items for income tax and financial reporting purposes. The
significant components of the Companys deferred taxes as of December 31 are as
follows: 2003
    
    2002Deferred tax assets:Allowance for doubtful accounts
    
    $
    55,046
    
    
    $
    27,448Unrealized loss on investments
    
    
    
    
    
    
    Spokesperson stock warrants
    
    
    315,623
    
    
    
    315,623Officer salaries
    
    
    4,958
    
    
    
    25,295Deferred revenue
    
    
    977,500
    
    
    
    Valuation loss on real estate
    
    
    489,001
    
    
    
    Allowance for loan losses
    
    
    37,400
    
    
    
    27,200Net deferred tax assets
    
    $
    1,879,528
    
    
    $
    395,566
 Deferred tax assets are included in other assets in the accompanying
Consolidated Balance Sheet. The reconciliation of the statutory federal rate to the Companys effective
income tax rate is as follows: 2003
    
    2002Statutory tax provision
    
    $
    (2,659,437
    )
    
    $
    2,039,490Non-deductible expenses
    
    
    38,830
    
    
    
    127,170$
    (2,620,607
    )
    
    $
    2,166,660
 NOTE O - EARNINGS PER COMMON SHARE Basic earnings per common share is calculated by dividing net income by the
weighted average number of common share outstanding during the period. Diluted
earnings per common share is calculated by dividing net income by the sum of
the weighted average number of common shares outstanding, plus all additional
common shares that would have been outstanding if potentially dilutive
securities or common stock equivalents had been issued. The following table
reconciles the weighted average number of shares used in the earnings per share
calculations as of December 31, 2003 and 2002: For the year ended December 31, 2003Loss
    
    Shares
    
    Per-Share(Numerator)
    
    (Denominator)
    
    AmountNet loss:
    
    $
    (5,201,267
    )Less: Preferred stock dividends
    
    
    (901,079
    )Basic EPS:Loss applicable to common stockholders
    
    
    (6,102,346
    )
    
    
    5,283,266
    
    
    $
    (1.16
    )Effect of dilutive securities:Options/warrants
    
    
    
    
    
    
    
    
    
    
    Diluted EPS:Loss applicable to common stockholders
plus assumed conversions
    
    $
    (6,102,346
    )
    
    
    5,283,266
    
    
    $
    (1.16
    )
 For the year ended December 31, 2002Income
    
    Shares
    
    Per-Share(Numerator)
    
    (Denominator)
    
    AmountNet income:
    
    $
    3,831,838Less: Preferred stock dividends
    
    
    (933,800
    )Basic EPS:Income available to common stockholders
    
    
    2,898,038
    
    
    
    5,396,363
    
    
    $
    0.54Effect of dilutive securities:Options/warrants
    
    
    
    
    
    
    3,101,995
    
    
    
    Diluted EPS:Income available to common stockholders
plus assumed conversions
    
    $
    2,898,038
    
    
    
    8,498,358
    
    
    $
    0.34
 There were no securities considered antidilutive in the computation of diluted
earnings per share for the year 2002. F-19




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##### Table of Contents



NOTE P - EMPLOYEE BENEFIT PLAN 401(K) PLAN The Company maintains a 401(k) Savings Plan which covers substantially all
full-time employees. Participants may make tax-deferred contributions of up to
15% of annual compensation (subject to other limitations specified by the
Internal Revenue Code). The Company matches employee contributions dollar for
dollar up to 7% of compensation. The Company contributed approximately $160,000
and $161,000 to the plan for the years ended December 31, 2003 and 2002,
respectively. NOTE Q - STOCKHOLDERS EQUITY PREFERRED STOCK During fiscal year 2001, the Company issued 937,800 shares of Series A
Convertible Preferred Stock (Preferred Stock) at $10.00 per share for a total
of $9,378,000. This consisted of $4,378,000 in cash and $5,000,000 in exchange
of a note payable. The holder of the Preferred Stock is entitled to receive,
when, as and if declared by the Board of Directors of the Company, out of any
funds legally available therefore, dividends equal to ten percent (10%) of the
original issue price prior and in preference to any declaration or payment of
any dividends on the Companys common stock; and convertible into the Companys
common stock, at the option of the holder thereof, at anytime after the date of
issuance at a conversion price of $6.08 per share of common stock. The
Preferred Stock is redeemable at the option of the Company at a redemption
price of eleven dollars ($11.00) per share. On March 29, 2002, the Company
amended the Preferred Stock agreement to allow the holders of the Preferred
Stock to be entitled to receive, when, as and if declared by the Board of
Directors, dividends in an amount to be determined by the Board of Directors,
but not less than 0.83% of the original issue price per annum and not more than
10% of the original issued price per annum, prior and in preference to any
declaration or payment of any dividends on the Common Stock. Dividends on the
Series A Preferred may be paid in cash or in Common Stock and shall not be
cumulative. During the year ended December 31, 2003, 10,000 shares of preferred stock were
redeemed for a total of $100,000. COMMON STOCK DIVIDENDS During fiscal year 2003, the Company declared and paid cash dividends
approximating $639,371 to common stockholders. STOCK OPTIONS During fiscal year 2003, the Company granted stock options for shares of common
stock totaling 510,000. The 10,000 employee stock options granted have a term
of 10 years from the date of grant and vest equally over a three year period
beginning one year after the date of grant. The stock warrants granted to the
chief executive officer totaling 500,000 have a term of 10 years from the date
of grant and vest entirely on the date of grant. As of December 31, 2003, outstanding stock options and warrants totaled
4,333,330. F-20




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##### Table of Contents



TREASURY STOCK During the year ended December 31, 2003, the Company acquired 178,000 shares of
the Companys common stock for a total value of approximately $544,305, which
was held in treasury as of December 31, 2003. NOTE R - EMPLOYMENT AGREEMENTS The Company has employment agreements and arrangements with certain officers
and key employees. The agreements generally continue for a period of three
years or until terminated by the executive or the Company with cause. The
agreements and arrangements provide the employees with a base salary and
benefits. The agreements contain covenants against competition with the
Company, which extend for a period of time after termination. NOTE S - FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of cash, accounts receivable, accounts payable, dividends
payable, and notes payable approximate fair value because of the short-term
maturity of these instruments. The carrying value of mortgage loans and notes receivable approximates the fair
value at December 31, 2003. The fair value is estimated based upon projected
cash flows discounted at the estimated current interest rates at which similar
loans would be made. NOTE T - CONCENTRATIONS Financial instruments, which potentially subject the Company to credit risk,
include cash in bank, accounts receivable and loans secured by trust deeds. The Company maintains its cash in bank deposit accounts, which, at times, may
exceed federally insured limits. The Company has not experienced any losses in
such accounts and believes it is not exposed to any significant credit risk on
cash. Concentration of credit risk with respect to accounts receivable is limited
because of the large number of diverse customers. The Company controls credit
risk through real estate securing mortgage loans and monitoring procedures. The
Company believes it is not exposed to any significant credit risk on accounts
receivable. Concentrations of mortgage loans serviced exist in Arizona, California, Hawaii,
and Nevada with approximately 141%, 14%, 20% and 37% of mortgage loan balances
as of December 31, 2003, respectively. As such, the Company has a significant
geographic concentration of credit risk that may be adversely affected by
periods of economic decline in these states. Concentrations of mortgage loans exist at December 31, 2003 in commercial,
construction, and acquisition and development loans. As such, the Company has a
significant product concentration and concentration of credit risk with one
borrower that may be adversely affected by periods of economic decline. The Companys investments in mortgage loans on real estate will require the
borrower to make a balloon payment of the principal at maturity. To the extent
that a borrower has an obligation to pay a mortgage loan in a lump sum payment,
its ability to satisfy this obligation may be dependent upon its ability to
refinance or raise a substantial amount of cash. An increase in interest rates
over the mortgage rate applicable at origination of the loan may have an
adverse effect on the borrowers ability to refinance. F-21




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##### Table of Contents



NOTE U - COMMITMENTS AND CONTINGENCIES LEASE COMMITMENTS The Company is obligated under several noncancellable operating leases for its
office facilities, equipment, and a vehicle. The leases require the Company to
pay certain escalation clauses for real estate taxes, operating expense, usage
and common area charges. Rent expense for leased office facilities, equipment,
and the vehicle charged to operations for the year ended December 31, 2003 and
2002 was $584,106 and $568,772, respectively. Future minimum rental payments required under the operating leases as of
December 31, 2003, are as follows: 2004
    
    $
    1,021,1302005
    
    
    1,347,1952006
    
    
    941,2032007
    
    
    859,7402008
    
    
    859,740Thereafter
    
    
    4,728,570Total
    
    $
    9,757,578
 In September 2003, the Company entered into a one year Aircraft Usage Agreement
with C5, LLC, a company wholly owned by the Companys Chief Executive Officer.
The agreement is to allow the Company to use an airplane on a preferred basis
over any other proposed user. The Company is required to pay a monthly fee
based on an hourly rate of $3,000 per hour for the first 10 hours and $2,500
per hour for each hour thereafter. The Company is required to make a minimum
monthly payment equivalent to 16 hours of usage ($45,000). The agreement
automatically renews for successive periods of one year each unless terminated
by either party no less than thirty days prior to the end of the term. Future
minimum payments required under this agreement for 2004 total $360,000. The Company has entered into a new lease with Luke Properties, LLC for
executive offices which are currently under construction at Durango Road and
the 215 Beltway in Las Vegas, Nevada. Construction is anticipated to be
completed in the summer of 2004. The Company is attempting to sublease the
current office space. The new office space is approximately 41,614 square feet.
The new lease agreement governing this property will expire in March 2014 and
the base rent is $72,824.50 per month. NOTE V  LEGAL PROCEEDINGS Vestin Group, Vestin Mortgage, and Del Mar Mortgage, Inc., a company wholly
owned by Michael Shustek, the largest stockholder and CEO of Vestin Group are
defendants in a civil action entitled Desert Land, L.L.C. et al. v. Owens
Financial Group, Inc. et al (the Action). The Action was initiated by Desert
Land, L.L.C. (Desert Land) on various loans arranged by Del Mar Mortgage,
Inc. and/or Vestin Mortgage. On April 10, 2003, the United States District
Court for the District of Nevada (the Court) entered judgment jointly and
severally in favor of Desert Land against Vestin Group, Vestin Mortgage and Del
Mar Mortgage, Inc. Judgment was predicated upon the Courts finding that Del
Mar Mortgage, Inc. received an unlawful penalty fee from the plaintiffs. Defendants subsequently filed a motion for reconsideration. The Court denied
the motion and, on August 13, 2003, held that Vestin Group, Vestin Mortgage,
and Del Mar Mortgage, Inc. are jointly and severally liable for the judgment in
the amount of $5,683,312.19 (which amount includes prejudgment interest and
attorney fees). On August 27, 2003, the Court stayed execution of the judgment
against Vestin Group and Vestin Mortgage based upon the posting of a bond in
the amount of $5,830,000. Mr. Shustek personally
posted a cash bond without any cost or obligation to Vestin Group and Vestin Mortgage.
Additionally, Del Mar Mortgage, Inc. has indemnified Vestin Group and Vestin
Mortgage for any losses and expenses in connection with the Action, and Mr.
Shustek has guaranteed the indemnification with his cash bond. On September 12, 2003, all of the
defendants held liable to Desert Land appealed the judgment to the United
States Court of Appeals for the Ninth Circuit. The staff of the Pacific Regional Office of the Securities and Exchange
Commission (SEC) has been conducting an informal inquiry into certain matters
related to the Company, Fund I, Fund II and Fund III. The staff of the SEC has
not identified the reasons for its inquiry, which remains ongoing as of April
14, 2004. We believe that we have fully complied with SEC disclosure
requirements and are fully cooperating with the inquiry. We cannot at this time
predict the outcome of the inquiry. On May 30, 2003, Vestin
Mortgage filed a civil action against First American Title Company in
the Utah Third District Court (Case No. 030912242) for various
causes of action in connection with First American Title
Companys alleged failure to note in its title report a bond
assessment on certain foreclosed land in Utah. First
American Title Company subsequently filed for dismissal and the case
was dismissed
on November 5, 2003. On March 2, 2004, Vestin Mortgage
appealed the judgment to the Utah Court of Appeals. F-22




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##### Table of Contents



The Company and its subsidiaries are involved in a number of legal proceedings
concerning matters arising in connection with the conduct of their business
activities. The Company believes it has meritorious defenses to each of these
actions and intends to defend them vigorously. The Company believes that it is
not a party to, nor are any of its subsidiaries the subject of, any pending
legal or arbitration proceedings that would have a material adverse effect on
the Companys financial condition or results of operations or cash flows,
although it is possible that the outcome of any such proceedings could have a
material impact on the Companys net income in any particular period. NOTE W  SUBSEQUENT EVENTS On July 2, 2001, Vestin Mortgage brokered a loan to Arroyo Heights for
$10,000,000. The loan was funded by Fund I and Fund II and was guaranteed by
three guarantors. Subsequently, Arroyo Heights defaulted on the loan, and Fund
I and Fund II foreclosed and took title to the collateral. Based on an
appraisal at the conclusion of the foreclosure, Fund I and Fund II determined
that there was a $4.8 million shortfall between the carrying amount of the loan
and the value of the collateral. Fund I and Fund II filed litigation to recover
the shortfall from the individual guarantors. Vestin Mortgage purchased the
rights to collect the proceeds of the guarantee from Fund I and Fund II on
December 31, 2002 in exchange for investments in mortgage loans on real estate
valued at $4.8 million. Vestin Mortgage did not recognize any gain or loss on
the sale to Fund I and Fund II. Vestin Mortgage entered into a settlement of
the Arroyo Heights matter in February 2004 which Vestin Mortgage
expects will result in the recognition
of income of approximately $5.2 million as it relates to the previously recorded
reserve of $4.8 million in 2002. On March 26, 2004 the Company completed the sale of this property for the
approximate carrying value as of December 31, 2003 which is net of closing
costs and sales expenses. On March 15, 2004, the
Company notified Planned Licensing, Inc., the public relations firm
for Joe Namath, that it is terminating its License Agreement, dated
January 10, 2001 (the License Agreement), with Mr. Namath.
Pursuant to the termination provisions of the License Agreement, the
Company may terminate the License Agreement in the event, in the
consensus of public opinion, Mr. Namaths conduct has reflected
so seriously on Mr. Namaths public reputation as to prejudice
substantially the Companys business interests if the License
Agreement were to continue. Planned Licensing, Inc. is contesting the
termination of the License Agreement and has threatened to initiate
litigation regarding its termination. The Company cannot predict at
this time how much, if any, it may have to pay in connection with the
termination of the License Agreement and any warrants issued in
connection therewith. F-23




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##### Table of Contents



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. VESTIN GROUP, INC./s/ Lance K. BradfordLance K. Bradford, Chief Financial Officer
 Dated: April 14, 2004 In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and
on the dates indicated. Signatures
    
    Title
    
    Date/s/ Michael V. Shustek
Michael V. Shustek
*Principal Executive Officer
    
    Chairman of the Board,
Chief Executive Officer and Director
    
    April 14, 2004/s/ Lance K. Bradford
Lance K. Bradford
*Principal Financial and
Accounting Officer
    
    Chief Financial Officer, Treasurer and
Director
    
    April 14, 2004/s/ Robert J. Aalberts
Robert J. Aalberts
    
    Director
    
    April 14, 2004/s/ David Chavez
David Chavez
    
    Director
    
    April 14, 2004/s/ Roland
SansoneRoland Sansone
    
    Director
    
 April 14, 2004




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##### Table of Contents



EXHIBIT INDEX Exhibit
    
    
    
    Page Number/Number
    
    Description
    
    Filing Method2.1
    
    Agreement and Plan of Reorganization among the Company, Capsource, Inc. and
Stephen J. Byrne, dated as of April 9, 1999
    
    
    (1
    )2.2
    
    Asset Acquisition Agreement between the Company and Del Mar Holdings, Inc.,
dated as of April 9, 1999
    
    
    (1
    )2.3
    
    Asset Acquisition Agreement between the Company and Del Mar Mortgage, Inc.,
dated as of April 9, 1999
    
    
    (1
    )2.4
    
    Agreement and Plan of Reorganization among the Company, L. L. Bradford &
Company and the Shareholders of L. L. Bradford & Company, dated June 30,
2000
    
    
    (2
    )3.1
    
    Certificate of Incorporation
    
    
    (3
    )3.2
    
    By-laws
    
    
    (3
    )10.1
    
    Employment Agreement between Del Mar Mortgage, Inc. and Steve Byrne, dated
November 3, 1998
    
    
    (4
    )10.2
    
    Transition Agreement between Del Mar Mortgage, Inc. and Capsource, Inc.,
dated April 27, 1999 and First Amendment thereto, dated April 27, 1999
    
    
    (4
    )10.3
    
    Employment Agreement between Del Mar Mortgage and Mike Whiteaker, dated May
3, 1999
    
    
    (4
    )10.4
    
    The 2000 Stock Option Plan of Sunderland Corporation
    
    
    (4
    )10.5
    
    Employment Agreement between the Company and Michael V. Shustek, dated
December 1, 1999
    
    
    (4
    )10.6
    
    Third Amended and Restated Operating Agreement of DM Mortgage Investors,
LLC, dated as of November 2, 2000
    
    
    (5
    )10.7
    
    Certificate of Designations authorizing the issuance of Series A
Convertible Preferred Stock
    
    
    (6
    )10.8
    
    Operating Agreement of Vestin Fund II, LLC, dated as of December 7, 2001
    
    
    (7
    )10.9
    
    License Agreement by and between the Company and Planned Licensing, Inc.,
dated as of January 2001
    
    
    (8
    )10.10
    
    Amended and Restated Intercreditor Agreement by and among Vestin Mortgage,
Inc., Vestin Fund I, LLC, Vestin Fund II, LLC, Owens Financial Group, Inc.,
and Owens Mortgage Investment Fund, dated April 18, 2003.
    
    
    (9
    )10.11
    
    Aircraft Usage Agreement by and between the Company and C5, LLC, dated
September 1, 2002.
    
    
    (9
    )10.12
    
    Indemnity Agreement by and between the Company and Del Mar Mortgage, Inc.,
dated April 15, 2003.
    
    
    (10
    )10.13
    
    Guaranty by and among the Company, Michael V. Shustek, and Del Mar
Mortgage, Inc., dated April 15, 2003.
    
    
    (10
    )10.14
    
    Employment Agreement by and between
the Company and Peggy May (now known as Peggy Shustek), dated
September 1, 2001.
    
    
    (11
    )




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##### Table of Contents



Exhibit
    
    
    
    Page Number/Number
    
    Description
    
    Filing Method10.15
    
    Employment Agreement by and between
the Company and Daniel Stubbs, dated January 1, 2003
    
    
    (11
    )10.16
    
    Totally Restated and Amended Employment Agreement by and between the
Company and Lance Bradford, dated as of January 1, 2003.
    
    
    (11
    )10.17
    
    Separation Agreement and Release of All Claims by and between Steve Byrne
and the Company, dated as of October 14, 2003
    
    
    (11
    )10.18
    
    Office Lease Agreement between the
Company and The Wildwood Hills Development, Corporation, dated
January 5, 2001.
    
    
    (11
    )10.19
    
    Office Lease by and between Luke Properties, LLC and the Company, dated
March 2004.
    
    
    (11
    )10.20
    
    Amended and Restated Intercreditor
Agreement by and between Vestin Mortgage, Inc., Vestin Fund I,
LLC, Vestin Fund II, LLC and Owens Financial Group, Inc., dated
as of September 25, 2002.
    
    
    (11
    )10.21
    
    Office Lease Agreement by and
between 2901 El Camino, Las Vegas, NV, LLC and the Company, dated
August 1, 200210.22
    
    Office Lease Agreement by and
between The Wildwood Hills Development, Corporation and the Company,
dated January 5, 200110.23
    
    Office Lease by and between 2901 El
Camino, Las Vegas, NV, LLC and the Company, dated August 1, 200210.24
    
    Office Lease Agreement by and
between The Wildwood Hills Development, Corporation and the Company,
dated January 5, 200114.1
    
    Code of Ethics
    
    
    (11
    )21.1
    
    List of Subsidiaries of the Company
    
    
    (11
    )31.1
    
    Section 302 Certification of Michael V. Shustek31.2
    
    Section 302 Certification of Lance K. Bradford32
    
    Certification Pursuant to U.S.C. 18 Section 1350
   (1)
    
    Previously filed on Form 8-K (File No. 000-24803) on May 4, 1999.(2)
    
    Previously filed on Form 8-K (File No. 000-24803) on April 14, 2000.(3)
    
    Previously filed on Form 10-SB/A (File No. 000-24803) on August 13,
1998.(4)
    
    Previously filed on Form 10-KSB (File No. 000-24803) on March 31,
2000.(5)
    
    Previously filed on Form 424B5 (File No. 333-32800) on November 15,
2000.(6)
    
    Previously filed on Form 10-KSB (File
No. 000-24803) on April 2,
2001.(7)
    
    Previously filed on Form S-11 (File No. 793646) on December 21, 2000.(8)
    
    Previously filed on Form 8-K (File No. 000-24803) on January 25,
2001.(9)
    
    Previously filed by Form SB-2/A (File No. 333-104109) on June 4,
2003.(10)
    
    Previously filed on Form SB-2/A (File No. 333-104109) on October 15,
2003.(11)
    
    Previously filed on Form 10-KSB (File No.
000-24803) on March 30, 2004.