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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
 FORM 10-K (Mark one) x
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended September 30, 2004 Or o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from ________________ to ________________ Commission File Number 333-32800 VESTIN FUND I, LLC  NEVADA
    
    88-0446244(State or other jurisdiction of
    
    (I.R.S. EmployerIncorporation or organization)
    
    Identification No.)
 8379 WEST SUNSET RD., LAS VEGAS, NEVADA 89113
(Address of principal executive offices) (Zip Code) Registrants telephone number, including area code 702.227.0965 Securities registered pursuant to Section 12(b) of the Act:
NONE Securities registered pursuant to Section 12(g) of the Act:
NONE Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No o Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Sec. 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of the registrants knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. o Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes x No o State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was sold, or the average bid and asked price of such common equity, as
of the last business day of the registrants most recently completed second
fiscal quarter. Not applicable. As of October 31, 2004, 8,218,828 of our Units were outstanding. Documents incorporated by reference: None.




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TABLE OF CONTENTS  
 PAGEPART IITEM 1. BUSINESS
    
    
    3ITEM 2. PROPERTIES
    
    
    11ITEM 3. LEGAL PROCEEDINGS
    
    
    12ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    12PART IIITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
    
    
    13ITEM 6. SELECTED FINANCIAL DATA
    
    
    14ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    15ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    30ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    
    
    31ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
    
    
    31ITEM
9A. CONTROLS AND PROCEDURES
    
    
    31ITEM 9B. OTHER INFORMATION
    
    
    31PART IIIITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
    
    
    32ITEM 11. EXECUTIVE COMPENSATION
    
    
    33ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
    
    
    33ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
    
    
    34ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
    
    
    34PART IVITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
    
    
    36EXHIBIT INDEXSIGNATURESExhibit 10.1Exhibit 10.2Exhibit 10.3Exhibit 10.4Exhibit 10.5Exhibit 31.1Exhibit 31.2Exhibit 32
  2




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PART I Note Regarding Forward Looking Statements This report and other written reports and oral statements made from time to
time by us may contain forward looking statements. Such forward looking
statements may be identified by the use of such words as expects, plans,
estimates, forecasts, projects, anticipates, believes and words of
similar meaning. Forward looking statements are likely to address such matters
as our business strategy, future operating results, future sources of funding
for mortgage loans brokered by us, future economic conditions and pending
litigation involving us. Some of the factors which could affect future results
are set forth in the discussion under Managements Discussion and Analysis of
Financial Condition and Results of Operations  Factors Affecting Our Operating
Results. 
 ITEM 1. BUSINESS General We were organized in December 1999 as a Nevada limited liability company for
the purpose of investing in mortgage loans. We invest in loans secured by real
estate through deeds of trust and mortgages. We commenced operations on
September 1, 2000. By June 2001, we had sold all of the 10,000,000 membership
units (Unit) offered pursuant to our registration statement. Since then, a
number of Units have been redeemed and, as of September 30, 2004, a total of
8,223,686 Units were outstanding. No additional Units will be sold to new
investors; however, current members who previously elected to participate in
our Distribution Reinvestment Plan may continue to do so, whereby the members
distributions may be used to purchase additional Units at $10 per Unit. Our
manager is Vestin Mortgage, Inc., a licensed mortgage company in the State of
Nevada (Vestin Mortgage, or Manager). Vestin Mortgage is a wholly-owned
subsidiary of Vestin Group, Inc., a Delaware corporation
(Vestin Group), whose
common stock is publicly held and traded on the Nasdaq SmallCap Market under
the ticker symbol VSTN. Through its subsidiaries, Vestin Group is engaged in
asset management, real estate lending and other financial services. In this
annual report, from time to time, we will refer to our company, Vestin Fund I,
LLC, as the Company. We invest in mortgage loans throughout the areas in which Vestin Mortgage and
its correspondents have experience, primarily Arizona, California, Florida,
Hawaii, Nevada, New York, North Carolina and Texas. The loans we invest in are
selected for us by Vestin Mortgage from among loans originated by Vestin
Mortgage or non-affiliated mortgage brokers. When Vestin Mortgage or a
non-affiliated mortgage broker originates a loan for us, that entity identifies
the borrower, processes the loan application, makes or invests in the loan, and
brokers or sells the loan to us. We believe that our loans are attractive to
borrowers because of the expediency of Vestin Mortgages loan approval process,
which takes about ten to twenty days. As a non-conventional lender, we are more willing to invest in mortgage loans
to borrowers that conventional lenders would not deem to be creditworthy.
Because of our willingness to fund riskier loans and borrowers, borrowers are
willing to pay us an interest rate that is two to five points above the rates
charged by conventional lenders. We invest a significant amount of our funds in
loans in which the real property being developed is not generating any income
to the borrower. The balloon payment loans and bridge loans in which we
invest are riskier because the borrowers repayment depends on its ability to
refinance the loan or develop the property so it can refinance the loan. Our principal investment objectives are to:  
    
    Produce revenues from the interest income on our mortgage loans;
    
    Provide monthly cash distributions from the net income earned on our mortgage loans;
    
    Preserve capital contributions; and
    
    Reinvest, to the extent permissible, payments of principal and sales (net of expenses). 3




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Acquisition and Investment Policies We seek to invest about 97% of our assets in mortgage loans. Approximately 3%
will be held as a working capital cash reserve. The majority of our collateral on our mortgage loans is the real property that
the borrower is purchasing or developing with the funds that we make available.
We sometimes refer to these real properties as the security properties. While
we may invest in other types of loans, most of the loans in which we invest
have been made to real estate developers with a lesser proportion of loans
involving land loans and bridge financing. Our mortgage investments are not insured or guaranteed by any government
agency. Vestin Mortgage continuously evaluates prospective investments, selects the
mortgages in which we invest and makes all investment decisions on our behalf
in its sole discretion. In evaluating prospective mortgage loan investments,
Vestin Mortgage considers such factors as the following:  
    
    the ratio of the amount of the investment to the value
of the property by which it is secured (loan-to-value ratio);
    
    the potential for capital appreciation or depreciation
of the property securing the investment;
    
    expected levels of rental and occupancy rates (if applicable);
    
    potential for rental increases (if applicable);
    
    current and projected revenues from the property (if applicable);
    
    the status and condition of the record title of the property securing the investment;
    
    geographic location of the property securing the investment; and
    
    the financial condition of the borrowers and their
principals, if any, who guarantee the loan. Vestin Mortgage may obtain our loans from non-affiliated mortgage brokers and
previous borrowers, and by solicitation of new borrowers in those states where
permissible. We may purchase existing loans that were originated by third party
lenders and acquired by Vestin Mortgage to facilitate our purchase of the
loans. Vestin Mortgage will sell the loans to us for no greater than Vestin
Mortgages cost, not including its service fees and compensation. There are no
specific requirements or guidelines governing Vestin Mortgages discretion in
determining which mortgage loans it will place with us and which it will place
with other funding sources. When selecting mortgage loans for us, Vestin Mortgage adheres to the following
guidelines, which are intended to control the quality of the collateral given
for our loans:  1.
    
    Priority of Mortgages.Generally, our assets are secured by first
mortgages. First mortgages are mortgages secured by a full or divided
interest in a first deed of trust secured by the property. Other mortgages
that we invest in on the security property will not be junior to more than
one other mortgage. As of September 30, 2004, more than 98% of the
principal amount of our outstanding interest in loans was secured by first
mortgages.  2.
    
    Loan-to-Value Ratio.The amount of our loan combined with the outstanding
debt secured by a senior mortgage on a security property does not exceed
the following percentage of the appraised value of the security property
at origination: 4




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Type of Secured Property
    
    Loan-to-Value RatioResidential
    
    75%Unimproved Land
    
    60% (of anticipated as-if development value)Acquisition and Development
    
    60% (of anticipated as-if development value)Commercial Property
    
    75% (of anticipated as-if development value)Construction
    
    75% (of anticipated post-development value)Bridge
    
    75% (of anticipated as-if development value)Leasehold Interest
    
    75% (of value of leasehold interest)
  The target loan-to-value ratio for our loan portfolio as a whole is
approximately 70%. However, we may deviate from these guidelines under
certain circumstances. For example, Vestin Mortgage, in its discretion, may
increase any of the above loan-to-value ratios if a given loan is supported
by credit adequate to justify a higher loan-to-value ratio, including
personal guarantees. Occasionally, our collateral may include personal
property as well as real property. We do not have specific requirements with
respect to the projected income or occupancy levels of a property securing
our investment in a particular loan. These loan-to-value ratios will not
apply to financing offered by us to the purchaser of any real estate
acquired through foreclosure, or to refinance an existing loan that is in
default when it matures. In those cases, Vestin Mortgage, in its sole
discretion, shall be free to accept any reasonable financing terms it deems
to be in our best interest.The Manager receives an appraisal at the time of loan underwriting, which
may have been commissioned by the borrower and also may precede the
placement of the loan with us. Such appraisals are generally dated no
greater than 12 months prior to the date of loan origination. The appraisal
may be for the current estimate of the as-if developed value of the
property which approximates the post-construction value of the
collateralized property assuming that such property is developed. As-if
developed values on raw land loans or acquisition and development loans
often dramatically exceed the immediate sales value and may include
anticipated zoning changes, selection by a purchaser against multiple
alternatives, and successful development by the purchaser; upon which
development is dependent on availability of financing. As most of the
appraisals will be prepared on an as-if developed basis, if a loan goes into
default prior to any development of a project, the market value of the
property may be substantially less than the appraised value. As a result,
there may be less security than anticipated at the time the loan was
originally made. If there is less security and a default occurs, we may not
recover the full amount of the loan.We or the borrower retain appraisers who are licensed or qualified as
independent appraisers and certified by or hold designations from one or
more of the following organizations: the Federal National Mortgage
Association, the Federal Home Loan Mortgage Corporation, the National
Association of Review Appraisers, the Appraisal Institute, the Society of
Real Estate Appraisers, M.A.I., Class IV Savings and Loan appraisers or from
among appraisers with other qualifications acceptable to Vestin Mortgage.
However, appraisals are only estimates of value and cannot be relied on as
measures of realizable value. An employee or agent of Vestin Mortgage will
review each appraisal report and will conduct a physical inspection for each
property. 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.3.
    
    Construction Mortgage Loans. We invest in construction loans other than
home improvement loans on residential property, when the loan-to-value
ratio does not exceed 75% of the appraised, completed value of the
security property at origination.4.
    
    Terms of Mortgage Loans.Our loans to date in 2004 range from a
four-month term to a seventy-two month term. Most of our loans are for a
term of 12 months. Our original loan agreements, however, permit
extensions to the term of the loan by mutual consent. Such extensions are
generally provided on loans where the original term was 12 months or less
and where a borrower requires additional time to complete a construction
project or negotiate take out financing.Currently all but one of our loans provide for payments of interest only
with a balloon payment of principal payable in full at the end of the
term. One of our loans is an amortizing loan with a balance of approximately
$7.9 million and a term of 72 months. In addition, we also
invest in mortgage loans that have interest reserves. Loans with
interest reserves require the borrowers to maintain interest reserves
funded from the principal amount of the loan for a period of time. At
September 30, 2004, we had investments mortgage loans that had
interest reserves where the total outstanding principal totaled
approximately $150.7 million. These loans had interest reserves of
approximately $7.9 million. Our investments in these loans
approximated $18.2 million. At September 30, 2003, we had investments
mortgage loans that had interest reserves where the total outstanding
principal totaled approximately $79.5 million. These loans had
interest reserves of approximately $4.5 million. Our investments in
these loans approximated $12.8 million. 5




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5.
    
    Escrow Conditions.Our loans will often be funded by us through an escrow
account held by a title insurance company, subject to the following
conditions:  
    
    Borrowers will obtain title insurance coverage for all
loans, with the title insurance policy naming us as the
insured and providing title insurance in an amount at least
equal to the principal amount of the loan. Title insurance
insures only the validity and priority of our deed of trust,
and does not insure us against loss by other causes, such as
diminution in the value of the security property.
    
    Borrowers will obtain fire and casualty insurance for
all loans secured by improved real property, naming us as
loss payee in an amount sufficient to cover the replacement
cost of improvements.
    
    All insurance policies, notes, deeds of trust or
mortgages, escrow agreements, and any other loan documents
for a particular transaction will name us as payee and
beneficiary. Mortgage loans will not be written in the name
of Vestin Mortgage or any other nominee.  6.
    
    Purchase of Mortgage Investments from Affiliates.We may acquire mortgage
loans from our affiliates, including Vestin Mortgage, for a price not in
excess of the par value of the note, plus allowable fees and expenses, but
without the allowance of any other compensation for the loans.7.
    
    Note Hypothecation.We may also acquire mortgage loans secured by
assignments of secured promissory notes. These mortgage loans must satisfy
our stated investment standards, including our loan-to-value ratios, and
also may not exceed 80% of the principal amount of the assigned note upon
acquisition. For example, if the property securing a note we acquire is
commercial property, the total amount of outstanding debts secured by the
property must not exceed 75% of the appraised value of the property, and
the mortgage loan will not exceed 80% of the principal amount of the
assigned note. For mortgage loans secured by promissory notes, we will
rely on the appraised value of the underlying property, as determined by
an independent written appraisal which was conducted within the
then-preceding twelve months. If an appraisal was not conducted within
that period, then we will arrange for a new appraisal to be prepared for
the property prior to acquisition of the loan.8.
    
    Participation.We participate in loans with other lenders, including
affiliates as permitted by the North American Securities Administrators
Association guidelines (NASAA Guidelines), by providing funds for or
purchasing an undivided interest in a loan meeting our investment
guidelines described above. Typically, we participate in loans if:  
    
    We did not have sufficient funds to invest in an entire loan.
    
    We are seeking to increase the diversification of our loan portfolio.
    
    Vestin Mortgage originated a loan that fit within our
investment guidelines but it would constitute more than 20%
of our anticipated capital contribution or otherwise be
disproportionately large given our then existing portfolio.  As of September 30, 2004, 97% of our loans were loans in which we
participated with other lenders.9.
    
    Diversification.The NASAA Guidelines provide that we neither invest in
or make mortgage loans on any one property which would exceed, in the
aggregate, an amount equal to 20% of our capital nor may we invest in or
make mortgage loans to or from any one borrower which would exceed, in the
aggregate, an amount greater than 20% of our capital. As of September 30,
2004, we had three loans which represented 32% of our total investment in
mortgage loans. 6




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10.
    
    Reserve Fund.We have established contingency working capital reserves of
approximately 3% of our capital to cover our unexpected cash needs.11.
    
    Credit Evaluations.When reviewing a loan proposal, Vestin Mortgage
determines whether a borrower has sufficient equity in the security
property. Vestin Mortgage may also consider the income level and
creditworthiness of a borrower to determine its ability to repay the
mortgage loan.12.
    
    Sale of Mortgage Investments. Although Vestin Mortgage has no plans to
do so, Vestin Mortgage may sell our mortgage loans or interest in our
loans to either affiliates or non-affiliated parties when Vestin Mortgage
believes that it is advantageous to us to do so. However, we do not
expect that the loans will be marketable or that a secondary market will
ever develop for them. Mortgage Loans to Affiliates We will not invest in mortgage loans made to Vestin Mortgage, Vestin Group or
any of our affiliates. However, we may acquire an investment in a mortgage loan
payable by Vestin Mortgage when Vestin Mortgage has assumed the obligations of
the borrower under that loan, through a foreclosure on the property. Purchase of Loans from Vestin Mortgage and its Affiliates In addition to those loans Vestin Mortgage selects for us, we purchase loans
that were originated by Vestin Mortgage or other parties and first held for
Vestin Mortgages own portfolio, as long as the loan is not in default and
otherwise satisfies all of our lending criteria. This requirement also applies
to any loan originated by an affiliate of Vestin Mortgage, such as Vestin
Group, Michael Shustek, Chief Executive Officer of Vestin Group or another
principal of Vestin Mortgage. However, we will not acquire a loan from or sell
a loan to a mortgage program in which Vestin Mortgage has an interest except in
compliance with NASAA Guidelines. Types of Loans We Invest In We primarily invest in 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,
residential and bridge loans. Although we attempt to invest in loans within
this range, from time to time, our investments may deviate from this range in
the event that several of our loans in a particular category are paid off at or
around the same time period. Raw and Unimproved Land Loans Approximately 15% to 25% of the loans invested in by us may be loans made for
the purchase or development of raw, unimproved land. Generally, we determine
whether to invest in these loans based upon the appraised value of
the property and the borrowers actual capital investment in the property. We
will generally invest in loans for up to 60% of the as-if developed appraised
value of the property and we generally 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. As of September 30, 2004, approximately 10% of our
loans were in this category. Acquisition and Development Loans Approximately 10% to 25% of the loans invested in by us may be acquisition and
development loans. These loans enable borrowers to acquire and/or 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. We will generally
invest in loans with a face value of up to 60% of the appraised value of the
property. Loan to value ratios on acquisition and development loans are
calculated using as-if developed appraisals. Such appraisals have the same
valuation limitations as raw and unimproved land loans, described above. As of
September 30, 2004, approximately 32% of our loans were in this category. 7




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Construction Loans Approximately 10% to 70% of our loans may be 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
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. We will typically require material and labor lien
releases by the borrower per completed phase of the project. We will review the
appraisal of the value of the property and proposed improvements, and will
generally finance up to 75% of the appraised value of the property and proposed
improvements. Such appraisals have the same valuation limitations as raw and
unimproved land loans, described above. As of September 30, 2004,
approximately 21% of our loans were in this category. Commercial Property Loans Approximately 20% to 50% of the loans invested in by us may be commercial
property loans. Commercial property loans provide funds to allow commercial
borrowers to acquire income producing property or 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. We will
review the appraisal of the value of the property and will generally invest in
loans for up to 75% of such appraised value of the property. As of September
30, 2004, approximately 22% of our loans were in this category. Residential Loans A small percentage of the loans invested in by us may be residential loans.
Such loans facilitate the purchase or refinance of one to four family
residential property units provided the borrower uses one of the units on the
property as such borrowers principal residence. We will generally invest in
loans for up to 75% of the value of the property. As of September 30, 2004,
there were no loans in this category. Bridge Loans Up to 15% of our loans may be bridge loans. Such loans provide interim
financing (12 to 24 months) to enable commercial borrowers to qualify for
permanent refinancing. We will review the appraisal of the value of the
property and will generally invest in loans of up to 75% of that value of the
property. Such appraisals may be based on either an as-is basis or as-if
developed basis, depending on the circumstances, and therefore, may not be an
accurate indicator of the fair value of the property. As of September 30,
2004, approximately 15% of our loans were in this category. Collateral The types of collateral that will secure the loans include a first deed of
trust, a second deed of trust or a leasehold interest. First Deed of Trust Most of our loans are secured by a first deed of trust. Thus as a lender, we
will have rights as a first mortgage lender of the collateralized property. As
of September 30, 2004, more than 98% of our loans were secured by a first deed
of trust. Second Deed of Trust In the future, up to 10% of our loans may be secured by second deeds of trust.
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. As of September 30, 2004, less than 2% of our
loans were secured by 8




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a second deed of trust. Leasehold Interest Up to 20% of the loans invested in by us may be in loans where the collateral
is an interest in a lease. As of September 30, 2004, we did not have any loans
secured by a leasehold interest. Prepayment Penalties and Exit Fees Generally, the loans we invest in will not contain prepayment penalties or exit
fees. If our loans are at a high rate of interest in a market of falling
interest rates, the failure to have a prepayment penalty provision or exit fee
in the loan allows the borrower to refinance the loan at a lower rate of
interest, thus providing a lower yield to us on the reinvestment of the
prepayment proceeds. However, these loans will usually be written with
relatively high minimum interest rates, which we would expect to minimize the
risk of lower yields. Extensions to Term of Loan Our original loan agreements permit extension to the term of the loan by mutual
consent. Such extension are generally provided on loans where the original
term was 12 months or less and where a borrower requires additional time to
complete a construction project or negotiate take out financing. However, we
only grant extensions when a borrower is in full compliance with the terms of
the loan, including, but not limited to, the borrowers obligation to make
interest payments on the loan. Interest Reserves We sometimes invest in loans which include a commitment for an interest reserve
which is usually 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. As of September 30,
2004, interest reserves had been established on approximately $18.2 million of
our outstanding loans. Balloon Payment Currently all of the loans we invest in or purchase will require the borrower
to make a balloon payment on the principal amount upon maturity of the loan.

There are no specific criteria used in evaluating the credit quality of
borrowers for mortgage loans requiring balloon payments. Furthermore, a
substantial period of time may elapse between the review of the financial
statements of the borrower and the date when the balloon payment is due. As a
result, there is no assurance that a borrower will have sufficient resources to
make a balloon payment when due. To the extent that a borrower has an
obligation to pay mortgage loan principal in a large lump sum payment, its
ability to repay the loan may be dependent upon its ability to sell the
property, obtain suitable refinancing or otherwise raise a substantial amount
of cash. As a result, these loans can involve a higher risk of default than
loans where the principal is paid at the same time as the interest payments. Repayment of Mortgages on Sale of Properties We may require a borrower to repay a mortgage loan upon the sale of the
mortgaged property rather than allow the buyer to assume the existing loan. We
will require repayment if we determine that repayment appears to be
advantageous to us based upon then-current interest rates, the length of time
that the loan has been held by us, the creditworthiness of the buyer and our
objectives. We will either invest our net proceeds from any capital
transaction in new mortgage loans, hold the net proceeds as cash or distribute
them to our members. These net proceeds will also include the principal of a
loan deemed to be repaid for tax purposes as a result of the nature of a loan
modification or loan extension. Our operating agreement provides that whether
we choose to distribute the proceeds or reinvest them, our members will be
deemed to have received a distribution of capital and recontributed the same
amount to us. Capital transaction include payments of principal, foreclosures
and prepayments of mortgages to the extent classified as a return of capital
under the Internal Revenue Code and any other disposition of a mortgage or
property. 9




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Variable Rate Loans Occasionally we may acquire variable rate loans. Variable rate loans originated
by Vestin Mortgage may use as indices the one and five year Treasury Constant
Maturity Index, the Prime Rate Index and the Monthly Weighted Average Cost of
Funds Index for Eleventh District Savings Institutions (Federal Home Loan Bank
Board). Vestin Mortgage may negotiate spreads over these indices of 2.5% to
5.5%, depending upon market conditions when the loan is made. As of September
30, 2004, we did not hold any variable rate loans, and all of the loans in the
mortgage loans portfolio were fixed rate loans. It is possible that the interest rate index used in a variable rate loan will
rise (or fall) more slowly than the interest rate of other loan investments
available to us. Vestin Mortgage attempts to minimize this interest rate
differential by tying variable rate loans to indices that are sensitive to
fluctuations in market rates. Additionally, most variable rate loans originated
by Vestin Mortgage contain provisions under which the interest rate cannot fall
below the initial rate. Variable rate loans generally have interest rate caps. We anticipate that the
interest rate cap will be a ceiling that is 2% to 4% above the starting rate
with a floor rate equal to the starting rate. For these loans there is the risk
that the market rate may exceed the interest cap rate. Variable rate loans of five to ten year maturities are not assumable without
the prior consent of Vestin Mortgage. We do not expect to invest in or purchase
a significant amount of other assumable loans. To minimize our risk, any
borrower assuming an existing mortgage loan will be subject to the same
underwriting criteria as the original borrower. Borrowing We may incur indebtedness:  
    
    to finance our investments in mortgage loans,
    
    to prevent a default under mortgage loans that are senior to our mortgage loans,
    
    to discharge senior mortgage loans if this becomes
necessary to protect our investment in mortgage loans, or
    
    to operate or develop a property that we acquired
under a defaulted loan. Our indebtedness will not exceed 70% of the fair market value of our mortgage
loans. This indebtedness may be with recourse to our assets. In addition, we may enter into structured arrangements with other lenders in
order to provide them with a senior position in mortgage loans which we might
jointly fund. For example, we might establish a wholly-owned special purpose
corporation which would borrow funds from an institutional lender under an
arrangement where the resulting mortgage loans would be assigned to a trust,
and the trust would issue a senior certificate to the institutional lender and
a junior certificate to the special purpose corporation. This would assure the
institutional lender of repayment in full prior to our receipt of any repayment
on the jointly funded mortgage loans. Competition Generally, real estate developers depend upon the timely completion of a
project to obtain a competitive advantage when selling their properties. We
have 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, we have established a market niche as a non-conventional mortgage
lender. We consider our 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 10




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conventional lenders. To a lesser extent, we also compete 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. Our
principal competitors in our market niche as a non-conventional mortgage lender
include: USA Capital, Residential Funding, First Security Bank, and United Bank
of Texas. No particular competitor dominates the market. Many of the companies
against which we compete have substantially greater financial, technical and
other resources than us. Competition in our market niche depends upon a number
of factors, including price and interest rates of the loan, speed of loan
processing, cost of capital, reliability, quality of service and support
services. Regulation Our operations are conducted by Vestin Mortgage. Vestin Mortgages operations
as a mortgage company are subject to extensive regulation by federal, state and
local laws and governmental authorities. Vestin Mortgage conducts its real
estate mortgage business under a license issued by the State of Nevada Mortgage
Lending 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. We and Vestin Mortgage are also subject to the Equal Credit Opportunity Act of
1974, which prohibits creditors from discriminating against loan applicants on
the basis of race, color, sex, age or marital status, and the Fair Credit
Reporting Act of 1970, which requires lenders to supply applicants with the
name and address of the reporting agency if the applicant is denied credit. We
are also subject to various other federal and state securities laws regulating
the issuance and sale of securities, as well as the Employee Retirement Income
Security Act of 1974. Investment capital raised by us is subject to the Mortgage Program Guidelines
of 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 the
NASAA Guidelines. The NASAA Guidelines also
include certain investment procedures and criteria which are required for new
loan investments. Because our business is regulated, the laws, rules and regulations applicable
to us 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 our ability to
broker or service loans, further limit or restrict the amount of commissions,
interest and other charges earned on loans brokered by us, or otherwise
adversely affect our business or prospects. Employees We do not have any employees. Our Manager, Vestin Mortgage, and its parent
company, Vestin Group, provide all of the employees necessary for our
operations. As of September 30, 2004, those entities had a total of 33
full-time and no part-time employees. All employees are at-will employees and
none are covered by collective bargaining agreements. Available Information Our Internet website address is www.vestinfund.com. We make available free of
charge through www.vestingroup.com our Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q, 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. PROPERTIES Our Manager, Vestin Mortgage, operates from its executive offices at 8379 West
Sunset Road, Las Vegas, Nevada 89113. We do not have any separate offices. 11




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Our Manager shares office facilities of approximately 40,940 square feet with
its parent corporation, Vestin Group, which in turn leases its principal
executive offices from Vestin Fund III, LLC (Vestin Fund III). The lease
agreement governing this property expires in March 2014 and the base rent is
approximately $71,645 per month. 
 ITEM 3. LEGAL PROCEEDINGS Legal Matters Involving Our Manager Vestin Group, Vestin Mortgage, and Del Mar Mortgage, Inc., a company wholly
owned by Michael Shustek, the largest shareholder and CEO of Vestin Group, are
defendants in a civil action entitled Desert Land, L.L.C. et al. v. Owens
Financial Group, Inc. et al (the Action). The Action was initiated by Desert
Land, L.L.C. (Desert Land) on various loans arranged by Del Mar Mortgage,
Inc. and/or Vestin Mortgage. On April 10, 2003, the United States District
Court for the District of Nevada (the Court) entered judgment jointly and
severally in favor of Desert Land against Vestin Group, Vestin Mortgage and Del
Mar Mortgage, Inc. Judgment was predicated upon the Courts finding that Del
Mar Mortgage, Inc. received an unlawful penalty fee from the plaintiffs. Defendants subsequently filed a motion for reconsideration. The Court denied
the motion and, on August 13, 2003, held that Vestin Group, Vestin Mortgage,
and Del Mar Mortgage, Inc. are jointly and severally liable for the judgment in
the amount of $5,683,312 (which amount includes prejudgment interest and
attorneys fees). On August 27, 2003, the Court stayed execution of the
judgment against Vestin Group and Vestin Mortgage based upon the posting of a
bond in the amount of $5,830,000. 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. On September 12, 2003, all of the
defendants held liable to Desert Land appealed the judgment to the Ninth
Circuit United States Court of Appeals. We are not a party to the Action. Our Manager is involved in a number of legal proceedings concerning matters
arising in connection with the conduct of its business activities. Our Manager
believes it has meritorious defenses to each of these actions and intends to
defend them vigorously. Our Manager believes that it is not a party to any
pending legal or arbitration proceedings that would have a material adverse
effect on our Managers financial condition or results of operations or cash
flows, although it is possible that the outcome of any such proceedings could
have a material impact on our Managers net income in any particular period. Legal Matters involving the Company The staff of the Pacific Regional Office of the Securities and Exchange
Commission (SEC) has been conducting an informal inquiry into certain matters
related to us, Vestin Group, Vestin Fund II, LLC (Vestin Fund II) and Vestin
Fund III. The staff of the SEC has not identified the reasons for its inquiry,
which remains ongoing as of December 14, 2004. We believe that we have complied
with SEC disclosure requirements and have cooperated with the inquiry. We
cannot at this time predict the outcome of the inquiry. We are involved in a number of legal proceedings concerning matters arising in
connection with the conduct of our business activities. We believe we have
meritorious defenses to each of these actions and intend to defend them
vigorously. We believe that we are not a party to any pending legal or
arbitration proceedings that would have a material adverse effect on the our
financial condition or results of operations or cash flows, although it is
possible that the outcome of any such proceedings could have a material impact
on our net income in any particular period. 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 12




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PART II 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Market Information There is no established public trading market for the trading of Units. Holders As of September 30, 2004, approximately 1349 Unit holders held 8,354,057
Units of interest in the Company. Dividend Policy We generally distribute to Unit holders on a monthly basis most of our
Net Income Available for Distribution (as defined in our Operating
Agreement). Net Income Available for Distribution is based upon cash
flow from operations, less certain reserves, and may exceed net income as
calculated in accordance with accounting principles generally accepted in
the United States (GAAP). Our Operating Agreement also permits
distributions of capital. We made distributions of approximately
$5,098,483 (prior to reinvested distributions) during the year ended
September 30, 2004, all of which was paid from Net Income Available for
Distribution. We distributed $10,363,438 during the fiscal year ended
September 30, 2003, of which $6,051,079 represented a return of capital.
It is our intention to continue to distribute most of our Net Income
Available for Distribution to our Unit holders. Recent Sales of Unregistered Securities None. Equity Compensation Plan Information None. Purchases of Equity Securities by the Issuer and Affiliated Purchasers Maximum Number(or ApproximateTotal Number of
    
    Dollar Value) ofUnits Purchased as
    
    Units that May YetPart of Publicly
    
    be Purchased underTotal Number of
    
    Average Price Paid
    
    Announced Plans or
    
    the Plans orPeriod
    
    Units Purchased (1)
    
    per Unit
    
    Programs
    
    ProgramsJuly 2004
    
    
    2,452
    
    
    $
    10.00
    
    
    None
    
    NoneAugust 2004
    
    
    20,102
    
    
    $
    10.00
    
    
    None
    
    NoneSeptember 2004
    
    
    4,166
    
    
    $
    10.00
    
    
    None
    
    None
 (1) Pursuant to our Operating Agreement, members may request to have their
units redeemed. However, in order to comply with our Operating Agreement and
the Internal Revenue Code, we may redeem no more than 10% of the aggregate
members capital in any calendar year. Balances in members capital accounts
for as of January 1, 2004 was $89.5 million, which would limit redemptions to
$9.0 million for calendar 2004. As of September 30, 2004, we had paid
approximately $7.7 million, or 770,000 units, in redemptions in 2004, and had
$1.2 million, or 120,000 in redemptions that remain to be fulfilled in 2004. 13




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ITEM 6. SELECTED FINANCIAL DATA Vestin Fund I, LLC September
    
    September
    
    September
    
    December
    
    December30, 2004
    
    30, 2003
    
    30, 2002
    
    31, 2001
    
    31, 2000Balance Sheet Data:Investments in mortgage loans (net of
allowance)
    
    $
    47,344,198
    
    
    $
    51,694,617
    
    
    $
    91,091,308
    
    
    $
    97,228,156
    
    
    $
    39,376,619Cash, cash equivalents, certificates
of deposits and short-term
investments
    
    $
    10,129,496
    
    
    $
    14,882,547
    
    
    $
    5,537,334
    
    
    $
    4,256,750
    
    
    $
    1,570,304Interest and other receivables
    
    $
    1,327,089
    
    
    $
    1,632,327
    
    
    $
    1,175,972
    
    
    $
    1,037,218
    
    
    $
    491,122Real estate held for sale
    
    $
    26,088,296
    
    
    $
    26,523,340
    
    
    $
    1,541,258
    
    
    $
    
    
    
    $Note receivable
    
    
    119,299
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $Assets under secured borrowing
    
    $
    6,134,410
    
    
    $
    20,323,719
    
    
    $
    6,637,370
    
    
    $
    
    
    
    $Other assets
    
    $
    
    
    
    $
    7,650
    
    
    $
    83,631
    
    
    $
    
    
    
    $
    199,396Total assets
    
    $
    91,142,788
    
    
    $
    115,064,200
    
    
    $
    106,066,873
    
    
    $
    102,522,124
    
    
    $
    41,637,441Liabilities
    
    $
    8,864,234
    
    
    $
    28,549,132
    
    
    $
    7,067,817
    
    
    $
    66,525
    
    
    $
    256,230Members capital
    
    $
    82,278,554
    
    
    $
    86,515,068
    
    
    $
    98,999,056
    
    
    $
    102,455,599
    
    
    $
    41,381,211Total liabilities and Members capital
    
    $
    91,142,788
    
    
    $
    115,064,200
    
    
    $
    106,066,873
    
    
    $
    102,522,124
    
    
    $
    41,637,441
 12 months12 months
    
    12 months
    
    ended
    
    12 months
    
    12 monthsended
    
    ended
    
    September
    
    ended
    
    endedSeptember
    
    September
    
    30, 2002
    
    December
    
    December30, 2004
    
    30, 2003
    
    (unaudited)
    
    31, 2001
    
    31, 2000Income Statement Data:Revenues
    
    $
    12,666,200
    
    
    $
    10,364,448
    
    
    $
    13,151,400
    
    
    $
    11,564,761
    
    
    $
    1,266,685Expenses
    
    $
    4,099,145
    
    
    $
    6,052,089
    
    
    $
    566,193
    
    
    $
    176,906
    
    
    $
    25,117Net income
    
    $
    8,567,055
    
    
    $
    4,312,359
    
    
    $
    12,585,207
    
    
    $
    11,387,855
    
    
    $
    1,241,568Net income allocated to Members
    
    $
    8,567,055
    
    
    $
    4,312,359
    
    
    $
    12,585,207
    
    
    $
    11,387,855
    
    
    $
    1,241,568Net income allocated to Members per
weighted average membership units
    
    $
    1.03
    
    
    $
    0.45
    
    
    $
    1.23
    
    
    $
    1.34
    
    
    
    0.45Cash distributions
    
    $
    5,098,483
    
    
    $
    10,363,438
    
    
    $
    9,636,502
    
    
    $
    10,756,770
    
    
    $
    802,037Cash distributions per weighted
average membership units
    
    $
    0.61
    
    
    $
    1.07
    
    
    $
    0.94
    
    
    $
    1.26
    
    
    
    0.29Weighted average membership units
    
    
    8,339,404
    
    
    
    9,668,310
    
    
    
    10,193,776
    
    
    
    8,519,804
    
    
    
    2,754,854
 The information in this table should be read in conjunction with the
accompanying audited financial statements and notes to financial statements
included elsewhere in this document. 14




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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS We commenced the offering of our Units in September 2000. Our offering
terminated in June 2001. Our financial results reflect the amount of capital we
had available for investment in mortgage loans. Our past performance may not be
indicative of future results. This discussion should be read in conjunction
with our financial statements and accompanying notes and other detailed
information regarding the Company appearing elsewhere in this Form 10-K. RESULTS OF OPERATIONS OVERVIEW Our primary business objective is to generate monthly income by investing in
mortgage loans. We believe there is a significant market opportunity to make
mortgage loans to owners and developers of real property whose financing needs
are not met by traditional mortgage lenders. The loan underwriting standards
our Manager utilizes are less strict than traditional mortgage lenders. In
addition, one of our competitive advantages is our ability to approve loan
applications more quickly than traditional lenders. As a result, in certain
cases, we may make mortgage loans which are riskier than mortgage loans made by
commercial banks. However, in return we seek a higher interest rate and our
Manager takes steps to mitigate the lending risks such as imposing a lower loan
to value ratio. While we may assume more risk than traditional mortgage
lenders, in return, we seek to generate higher yields from our mortgage loans. Our operating results are affected primarily by: (i) the amount of capital we
have to invest in mortgage loans, (ii) the level of real estate lending
activity in the markets we service, (iii) our ability to identify and work with
suitable borrowers, (iv) the interest rates we are able to charge on our loans
and (v) the level of foreclosures and related loan losses which we may
experience. Our capital is subject to a 3% reserve, will constitute the bulk
of the funds we have available for investment in mortgage loans. We do not have
any arrangements in place to materially increase the funds we will have
available to invest from any other sources. See discussion under  Capital and
Liquidity. Our operating results during the past several years have been adversely
affected by the fact that interest rates are near a 40-year low. The low
interest rates diminish the interest rates we can charge on our loans. The
average interest rate on our loans at September 30, 2004 was 10.3% as compared
to 12.3% at September 30, 2003. In addition, our operating results have been
adversely affected by non-performing assets. Non-performing assets totaled
approximately $26.5 million or 29.1% of our total assets as of September 30,
2004 as compared to $39.5 million or 34.4% of our assets as of September 30,
2003. A weakening economy and poor credit decisions by our Manager may result
in an increase in non-performing assets. If the economy weakens and our
borrowers who develop and sell commercial real estate projects are unable to
complete their projects or obtain takeout financing or are otherwise adversely
impacted, we may experience an increase in loan defaults which may reduce the
amount of funds we have for distribution to its members. Such conditions may
also require us to restructure loans in order to enhance their collectibility.
In this regard, it should be noted that the weighted average term of our
outstanding loans as of September 30, 2004 was 23 months, compared to 13.0
months at September 30, 2003. Our annualized rate of return to members for the
fiscal year September 30, 2004 was 10.27%, compared to 4.5% for the fiscal
year ended September 30, 2003. However, the 10.27% rate of return to members
in the current year was affected by revenues associated with the sale of real
estate approximating $4.7 million. We do not expect to receive this type of
revenue on a consistent basis. If we had not received the $4.7 million in
revenue, our rate of return paid to members for the current fiscal year would
have approximated 4.7%. Our revenues have been impacted by member redemptions
which leave us with less capital to invest and lower interest rates. Adverse economic conditions during the next year could have a material impact
on the collectibility of our loans. Recognizing the risk, we seek to maintain a
low loan-to-value ratio which, as of September 30, 2004, was 68% on a weighted
average basis, generally using appraisals prepared on an as-if developed basis
in connection with the loan origination. In this manner, we hope to retain
sufficient cushion in the underlying equity position to protect the value of
our loan in the event of a default. Nevertheless, no assurances can be given
that a marked increase in loan defaults accompanied by a rapid decline in real
estate values will not have a material adverse effect upon our financial
condition and operating results. 15




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Historically, our Manager has focused its operations on Nevada and certain
Western states. Because our Manager has a significant degree of knowledge with
respect to the real estate markets in such states, it is likely most of our
loans will be concentrated in such states. As of September 30, 2004, 40% of the
principal amount of our loans were secured by real estate in Nevada, while 20%,
20% and 7% were secured by real estate in California, Arizona, and Hawaii,
respectively. Such geographical concentration creates greater risk that any
downturn in such local real estate markets could have a significant adverse
effect upon our results of operations. Commercial real estate markets in Nevada
have continued to prosper, with significant borrowing activity. The commercial
real estate markets in Hawaii, Texas, Arizona and California also appear to be
relatively strong. If we enter into another recession, particularly in any of
the identified states, our operating results could be adversely affected. At September 30, 2004, the
aggregate amount of loans to our three largest borrowers represented
32% of our total investment in mortgage loans. These mortgage loans
consisted of construction and bridge loans, located in  Arizona,
Nevada and Hawaii, with a first lien position, earning between 5% and
14%, outstanding balances of approximately $18,733,000. At September
30, 2003, the aggregate amount of loans to our three largest borrowers
represented 23% of our total mortgage loans. These mortgage loans
consisted of construction and bridge loans, located in Hawaii and
Nevada, with a first lien position, earning between 10.5% and 14.0%,
outstanding balances of approximately $12,006,000 and maturing from
March 2004 through August 2005. Because we have a significant
concentration of credit risk with our three largest borrowers, a
default by any of such borrowers could have a  material adverse effect
on us. At September 30, 2004  two
 of these  loans had balances of approximately $6.7 million and $7.9
million representing 11.4% and 13.5%, respectively, of our total
investment in mortgage loans. At September 30, 2003, there were no such
borrowers having an aggregate amount of 10% or greater of our total
mortgage loans. Fiscal Year Ended September 30, 2004 Compared To September 30, 2003 FOR THE YEAR ENDED
    
    FOR THE YEAR ENDEDRESULTS OF OPERATIONS
    
    SEPTEMBER 30, 2004
    
    SEPTEMBER 30, 2003Total revenues
    
    $
    12,666,200
    
    
    $
    10,364,448Total expenses
    
    $
    4,099,145
    
    
    $
    6,052,089Net income
    
    $
    8,567,055
    
    
    $
    4,312,359Net income allocated to members per
weighted average membership units
    
    $
    8,567,055
    
    
    $
    4,312,359Cash distributions
    
    
    5,098,483
    
    
    
    10,363,438Cash distributions per weighted
average membership units
    
    $
    0.61
    
    
    $
    0.45Annualized rate of return to members(a)
    
    
    10.27
    %
    
    
    4.5
    %Weighted average membership units
    
    
    8,339,404
    
    
    
    9,668,310
  (a)
    
    The annualized rate of return to members is calculated based upon
the net income allocated to members per weighted average units as of
September 30, 2004 and 2003 divided by ten (the $10 cost per unit). Total Revenues. For the fiscal year ended September 30, 2004, total revenues
were approximately $12.7 million compared to $10.4 million for the fiscal year
ended September 30, 2003, an increase of $2.3 million or 22%. The increase in revenue for the year compared to the prior year was primarily
due to the recognition of $4.7 million in revenue related to a finders fee on
the sale of real estate in the City of Mesquite, Nevada. We received a
promissory note in lieu of cash from an unaffiliated party in connection with
the sale. The note required monthly interest payments at a rate of 8.5% per
annum and had an original maturity date of June 13, 2005. In addition, we
loaned $0.9 million to the unaffiliated party and received a mortgage note with
an original maturity date of June 13, 2004 in connection with the sale. We were
using the cost recovery method of accounting for the transaction. Accordingly,
the Company did not recognize any income on the $4.7 million note until the
principal balance of both notes were paid in full. Under the cost recovery
method, interest payments received by the Company in excess of the principal
balance are not recorded as income until such time as the note is paid off
which occurred in the first calendar quarter of 2004. In February 2004, both
notes were paid off and the Company recorded the $4.7 million as revenue
related to the sale of real estate related to the original note and $0.3
million in interest income related to interest payments received prior to loan
payoff. During the past year, our Manager has experienced less demand for loans. While
we cannot be certain as to the reason for the lower demand, our Manager
believes that the pending SEC inquiry has caused a number of potential
borrowers to seek loans from other sources. The continuation of the SEC
inquiry, and any resulting proceedings or penalties, could have a further
adverse impact upon our ability to compete for borrowers. The increase in revenue was partially offset by the declining amount of
investments in mortgage loans from approximately $51.7 million as of September
30, 2003 to approximately $47.3 million at September 30, 2004, a decrease of
approximately $4.4 million or 9%. The decrease is primarily related to member

redemptions for the year ended September 30, 2004. In addition, the average
interest rate on our loans as of September 30, 2004 was 10.28%, compared to
12.32% at September 30, 2003. The total decrease in interest income for the
year ended 16




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September 30, 2004 compared to the same period in 2003 was approximately $1.7
million. While there has some movement in the economy towards higher interest
rates, it is not clear if or when any such rate increases will impact our
business. Additionally, loan fees for the year ended September 30, 2004 decreased by
approximately $0.4 million due to a decrease in loan fee sharing arrangements
for the year. The overall decline in interest rates over the past several years may have
diminished the interest rates we can charge in our loans. The weighted average
interest rate on our loans at September 30, 2004 was 10.3%, as compared to
12.3% at September 30, 2003. In addition, there has been an increase in
competition from more conventional mortgage lenders and mortgage loan
investors, such as commercial banks, thrifts, and mortgage brokers, due to the
overall decline in interest rates. It is not clear yet if and when the recent,
modest increases in federal funds rates will enable us to charge higher
interest rates on our future loans. As of September 30, 2004, our Manager had granted extensions on 10 loans
pursuant to the terms of the original loan agreements which permit extensions
by mutual consent. Such extensions are generally provided on loans where the
original term was 12 months or less and where a borrower requires additional
time to complete a construction project or negotiate take out financing. The
aggregate amount due to us from borrowers whose loans had been extended as of
September 30, 2004 was approximately $6.9 million. At September 30, 2004, 7
such loans were performing with an outstanding balance of $3.2 million and 3
such loans were non-performing with an outstanding balance of $3.7 million.
Our Manager concluded that no additional allowance for loan losses was
necessary with respect to such loans. Total Expenses. In fiscal 2004, total expenses were $4.1 million compared to
$6.1 million for fiscal 2003, a decrease of $2.0 million or 33%. The decrease
in expenses resulted from several factors including the following:  
    
    Provisions for loan losses decreased by $0.3 million to $0.1
million for the year ended September 30, 2004 compared to $0.4 million
for the same period in the prior year due to our Managers
determination that our general allowance for loan losses is sufficient
to cover any inherent losses related to our loan portfolio. Therefore,
the general provision for loan losses was limited to $0.1 million for
the year ended September 30, 2004.
    
    We incurred valuation losses on real estate held for sale of
approximately $1.1 million for the year ended September 30, 2004 as
compared to $3.4 million in the prior year, a decrease of approximately
$2.3 million. The decrease is based on factors specific to each
property but generally related to our Managers evaluation of the real
estate held for sale portfolio and the respective estimated values.
Refer to Investment in real estate held for sale. The decreases in expenses were partially offset by an increase in interest
expense related to secured borrowings of approximately $0.7 million which
totaled $1.8 million for the year ended September 30, 2004 compared to $1.1
million for the same period in the prior year. Net Income. Overall, net income for the year ended September 30, 2004 was
approximately $8.6 million compared to $4.3 million for the same period in the
2003, an increase of $4.3 million or 100%. Annualized Rate of Return to Members. For fiscal year 2004, the annualized
rate of return to members was 10.3% compared to 4.5% for fiscal 2003. The
increase in annualized rate of return to members was primarily due to the
factors as outlined above. Distributions to Members. For the year ended September 30, 2004, members
received distributions totaling $5,098,483, as compared to distributions
totaling $10,363,438 for the year ended September 30, 2003. Distributions for
the year ended September 30, 2004 were paid entirely from Net Income Available
for Distribution as defined in our Operating Agreement. Of the distributions
for the year ended September 30, 2003, $6,051,079 represented a return of
capital and the balance of the distributions were paid from Net Income
Available for Distribution as defined in our Operating Agreement. Net Income
Available for Distribution is based upon cash flow from operations, less
certain reserves, and may exceed net income as calculated in accordance with
accounting principles 17




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##### Table of Contents



generally accepted in the United States (GAAP). Since net income for the
year ended September 30, 2003 was impacted by a significant amount of non-cash
expenses related to valuation allowances on real estate held for sale, Net
Income Available for Distribution exceeded our net income for that year as
calculated pursuant to GAAP. Redemptions. In order to comply with our Operating Agreement and the Internal
Revenue Code, we may redeem no more than 10% of the aggregate members capital
in any calendar year. As of September 30, 2004, redemptions made since
inception totaled $30.4 million. Balances in members capital accounts for as
of January 1, 2004 was $89.5 million, which would limit redemptions to $9.0
million for calendar 2004. As of September 30, 2004, we had paid approximately
$7.7 million in redemptions in 2004, and had $1.2 million in redemptions that
remain to be fulfilled in 2004. As of September 30, 2004, requests to redeem
approximately $8.1 million in 2005, $7.2 million in 2006, $6.5 million in 2007,
$5.9 million in 2008, $5.3 million in 2009, $4.8 million in 2010, $4.3 million
in 2011, and $3.9 million in 2012 had been logged. Fiscal Year Ended September 30, 2003 Compared To September 30, 2002 (Unaudited)  RESULTS OF OPERATIONS FISCAL YEARFISCAL YEAR
    
    ENDEDENDED
    
    SEPTEMBER 30,SEPTEMBER 30, 2003
    
    2002(unaudited)Total revenues
    
    $
    10,364,448
    
    
    $
    13,151,400Total expenses
    
    $
    6,052,089
    
    
    $
    566,193Net income
    
    $
    4,312,359
    
    
    $
    12,585,207Net income allocated to members per weighted
average Membership units
    
    $
    .45
    
    
    $
    1.23Annualized rate of return to members(a)
    
    
    4.5
    %
    
    
    12.3
    %Weighted average membership units
    
    
    9,668,310
    
    
    
    10,193,776
  (a)
    
    The annualized rate of return to members is calculated based upon the net income
allocated to members per weighted average units as of September 30, 2004 and 2003
divided by ten (the $10 cost per unit). Total Revenues. For the fiscal year ended September 30, 2003, total revenues
were approximately $10.4 million compared to $13.2 million for the fiscal year
ended September 30, 2002, a decrease of $2.8 million or 21.2%. The decline in
revenue was mainly due to lower interest income from investment in mortgage
loans as a result of the increase in non-performing assets to $39.5 million as
of September 30, 2003 compared to $13.2 million as of September 30, 2002 offset
by an increase in interest income from assets under secured borrowings. Our
average interest yields on our investments in mortgage loans for the year ended
September 30, 2003 was 12.3% compared to 13.8% for the year ended September 30,
2002. Our Manager believes that the increase in non-performing assets is
primarily the result of the individual circumstances of the borrowers involved.
The increase in non-performing assets may also reflect the continued
uncertainty in the economy and the risks inherent in our business strategy
which entails more lenient underwriting standards and expedited loan approval
procedures. Our revenues will continue to suffer until we are able to convert
these non-performing assets into interest paying mortgage loans. We will
attempt to accomplish this by working with the borrower where possible and by
foreclosing on the underlying property where necessary. We intend to sell
properties acquired through foreclosure as soon as practicable, consistent with
our objective of avoiding a loss of principal on our loans. However, we cannot
predict how quickly we will be able to sell the foreclosed properties. Total revenues have also decreased due to the increase in the amount of cash
and cash equivalents. At September 30, 2003, cash and certificates of deposit
totaled $14.9 million compared to $5.5 million at September 30, 2002. Because
these assets earn interest at a much lower rate than investments in mortgage
loans, revenues are reduced. Total Expenses. In fiscal 2003, total expenses were $6.1 million compared to
$0.6 million for fiscal 2002, an increase of $5.6 million. The increase in
total expenses primarily related to interest expense related to secured 18




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##### Table of Contents



borrowing, a provision for loan losses, losses on real estate held for sale and
the write-off of deferred offering costs. See also  Asset Quality and Loan
Reserves. Net Income. Overall, net income for fiscal 2003 was $4.3 million compared to
$12.6 million in fiscal 2002, a decrease of $8.3 million or 65.7%. The decrease
was primarily the result of lower revenues because of the increase in
non-performing assets and the write-offs recognized during the year ended
September 30, 2003. Annualized Rate of Return to Members. For fiscal 2003, the annualized rate of
return to members was 4.5% compared to 12.3% for fiscal 2002. The decrease in
annualized rate of return to members was primarily related to the increase in
total expenses as outlined above. Investments in Mortgage Loans Secured by Real Estate Portfolio Investments in mortgage loans as of September 30, 2004 are as follows: Number
    
    
    
    
    
    WeightedLoan
    
    of
    
    
    
    
    
    Average
    
    Portfolio
    
    LoanType
    
    Loans
    
    Balance(1)
    
    Interest Rate
    
    Percentage
    
    To Value(2)Acquisition and development
    
    
    10
    
    
    $
    18,810,500
    
    
    
    9.71
    %
    
    
    32.02
    %
    
    
    63.01
    %Bridge
    
    
    9
    
    
    
    8,687,165
    
    
    
    10.65
    %
    
    
    14.79
    %
    
    
    49.98
    %Commercial
    
    
    8
    
    
    
    12,932,116
    
    
    
    12.22
    %
    
    
    22.01
    %
    
    
    77.19
    %Construction
    
    
    4
    
    
    
    12,181,975
    
    
    
    7.64
    %
    
    
    20.74
    %
    
    
    76.81
    %Land
    
    
    4
    
    
    
    6,133,890
    
    
    
    12.65
    %
    
    
    10.44
    %
    
    
    71.42
    %35
    
    
    $
    58,745,646
    
    
    
    10.28
    %
    
    
    100.00
    %
    
    
    67.94
    %
 Investments in mortgage loans as of September 30, 2003 are as follows: Number
    
    
    
    
    
    WeightedLoan
    
    of
    
    
    
    
    
    Average
    
    Portfolio
    
    LoanType
    
    Loans
    
    Balance(1)
    
    Interest Rate
    
    Percentage
    
    To Value(2)Acquisition and development
    
    
    4
    
    
    $
    11,436,435
    
    
    
    11.70
    %
    
    
    20.35
    %
    
    
    55.79
    %Bridge
    
    
    7
    
    
    
    8,035,547
    
    
    
    12.14
    %
    
    
    14.30
    %
    
    
    60.50
    %Commercial
    
    
    22
    
    
    
    23,210,297
    
    
    
    11.82
    %
    
    
    41.30
    %
    
    
    67.52
    %Construction
    
    
    6
    
    
    
    11,510,498
    
    
    
    12.66
    %
    
    
    20.48
    %
    
    
    56.77
    %Land
    
    
    5
    
    
    
    1,839,922
    
    
    
    11.84
    %
    
    
    3.27
    %
    
    
    53.62
    %Residential
    
    
    1
    
    
    
    168,000
    
    
    
    12.50
    %
    
    
    0.30
    %
    
    
    70.00
    %45
    
    
    $
    56,200,699
    
    
    
    12.02
    %
    
    
    100.00
    %
    
    
    61.48
    %
 (1) The following table reconciles the balance of the loan portfolio to the
amount shown on the accompanying Balance Sheet. The contra accounts represent
the amount of real estate held for sale sold to third parties where the Company
provided financing. GAAP requires the borrower to have a certain percentage
equity ownership (typically 20%) to allow the Company to record the sale of a
property. In addition, the borrower must maintain a minimum commitment in the
property on a continuing basis. Therefore, until the borrower meets this
requirement, the investment in the new loan is reduced by the amount originally
invested in the real estate held for sale. September 30, 2004
    
    September 30, 2003Balance
    
    BalanceBalance per Loan Portfolio
    
    $
    58,745,646
    
    
    $
    56,200,699Less:Seller financed loans included in real estate held for sale
    
    
    (10,801,448
    )
    
    
    (4,006,082
    )Allowance for Loan Losses
    
    
    (600,000
    )
    
    
    (500,000
    )Balance per Balance Sheet
    
    $
    47,344,198
    
    
    $
    51,694,617
 (2) Loan to value ratios are based on appraisals obtained at the time of loan
origination and may not reflect subsequent changes in value estimates. Such
appraisals are generally dated no greater than 12 months prior to the 19




---



##### Table of Contents



date of loan origination and may have been commissioned by the borrower. The
appraisals may be for the current estimate of the as-if developed value of
the property, and which approximates the post-construction value of the
collateralized property assuming that such property is developed. As-if
developed values on raw land loans or acquisition and development loans often
dramatically exceed the immediate sales value and may include anticipated
zoning changes, selection by a purchaser against multiple alternatives, and
successful development by the purchaser; upon which development is dependent on
availability of financing. As most of the appraisals will be prepared on an
as-if developed basis, if a loan goes into default prior to any development of
a project, the market value of the property may be substantially less than the
appraised value. As a result, there may be less security than anticipated at
the time the loan was originally made. If there is less security and a default
occurs, we may not recover the full amount of the loan. September 30,2004
    
    Portfolio
    
    September 30, 2003
    
    PortfolioLoan Type
    
    Balance***
    
    Percentage
    
    Balance***
    
    PercentageFirst mortgages
    
    $
    57,830,608
    
    
    
    98.44
    %
    
    $
    56,200,699
    
    
    
    100.00
    %Second mortgages(3)
    
    
    915,038
    
    
    
    1.56
    %
    
    
    
    
    
    
    
    %$
    58,745,646
    
    
    
    100.00
    %
    
    $
    56,200,699
    
    
    
    100.00
    %
 *** Please see footnote (1) above. (3) All of our second mortgages are junior to a first trust deed position
held by either us or our Manager. The following is a schedule of maturities of investments in mortgage loans as
of September 30, 2004: 2004
    
    $
    11,345,3602005
    
    
    24,961,3352006
    
    
    14,528,4612007
    
    
    7,910,490$
    58,745,646
 The following is a schedule by geographic location of investments in mortgage
loans: September 30, 2004
    
    Portfolio
    
    September 30, 2003
    
    PortfolioBalance***
    
    Percentage
    
    Balance***
    
    PercentageArizona
    
    $
    11,681,908
    
    
    
    19.89
    %
    
    $
    4,887,202
    
    
    
    9.36
    %California
    
    
    11,475,286
    
    
    
    19.53
    %
    
    
    5,751,298
    
    
    
    11.02
    %Colorado
    
    
    
    
    
    
    
    
    
    
    163,333
    
    
    
    0.31
    %Florida
    
    
    
    
    
    
    
    %
    
    
    115,450
    
    
    
    0.22
    %Hawaii
    
    
    4,138,662
    
    
    
    7.05
    %
    
    
    10,992,254
    
    
    
    21.06
    %Nevada
    
    
    23,236,940
    
    
    
    39.56
    %
    
    
    21,698,057
    
    
    
    33.90
    %New Mexico
    
    
    
    
    
    
    
    
    
    
    168,000
    
    
    
    0.32New York
    
    
    3,320,000
    
    
    
    5.65
    %
    
    
    2,000,000
    
    
    
    3.83
    %North Carolina
    
    
    89,942
    
    
    
    0.15
    %
    
    
    
    
    
    
    Ohio
    
    
    
    
    
    
    
    
    
    
    400,000
    
    
    
    0.77
    %Oklahoma
    
    
    996,000
    
    
    
    1.70
    %
    
    
    
    
    
    
    Texas
    
    
    1,727,592
    
    
    
    2.94
    %
    
    
    6,080,095
    
    
    
    11.65Utah
    
    
    1,503,316
    
    
    
    2.56
    %
    
    
    3,369,010
    
    
    
    6.46
    %Washington
    
    
    576,000
    
    
    
    0.97
    %
    
    
    576,000
    
    
    
    1.76
    %$
    58,745,646
    
    
    
    100.00
    %
    
    $
    56,200,699
    
    
    
    100.00
    %
 *** Please see footnote (1) above. At September 30, 2004, five of our loans totaling $11.2 million were
non-performing (more than 90 days past due on interest payments) or past due on
principal. These loans have been placed on non-accrual of interest status. Our 20




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##### Table of Contents



Manager has commenced foreclosure proceedings on these loans and has evaluated
all of these loans and concluded that the underlying collateral is sufficient
to protect the Company against a loss of principal or interest. Accordingly, no
specific allowance for loan losses was deemed necessary for these loans. Balance at
    
    
    
    
    
    Number ofSeptember 30,
    
    
    
    
    
    Months Non-Description of Collateral
    
    2004
    
    Maturity Date
    
    PerformingRacetrack and hotel in Vernon, NY
    
    $
    3,320,000
    
    
    
    6/25/2005
    
    
    
    1126 unit Ramada Inn Hotel in Mesquite, NV
    
    
    2,140,267
    
    
    
    06/18/2003
    
    
    
    154 cemeteries and 8 mortuaries in Hawaii
    
    
    4,138,662
    
    
    
    3/31/2004
    
    
    
    6Commercial parcels of land in Rancho
Cucamonga, CA, Palm Springs, CA, and
Cathedral City, CA (a)
    
    
    68,113
    
    
    
    6/16/2004
    
    
    
    3473 acres of residential and commercial
land in Utah
    
    
    1,503,317
    
    
    
    11/2/2001
    
    
    
    21$
    11,170,359
 (a)During October 2004 the borrower made the required principal and interest
payments to bring this loan to current and performing status. Because of the fact that any decision regarding the allowance for loan losses
reflects a judgment about the probability of future events, there is an
inherent risk that such judgments will prove incorrect. In such event, actual
losses may exceed (or be less than) the amount of any reserve. To the extent
that we experience losses greater than the amount of our reserves, we may incur
a charge to our earnings that will adversely affect our operating results and
the amount of any distributions payable to our Members. Asset Quality and Loan Reserves Losses may occur from investing in mortgage loans. The amounts of losses will
vary as the loan portfolio is affected by changing economic conditions and the
financial condition of borrowers. The conclusion that a mortgage loan is uncollectible or that collectibility is
doubtful is a matter of judgment. On a quarterly basis, the Manager evaluates
our mortgage loan portfolio for impairment. The fact that a loan is
temporarily past due does not necessarily mean that the loan is impaired.
Rather, all relevant circumstances are considered by our Manager to determine
impairment and the need for specific reserves. Such evaluation, which includes
a review of all loans on which full collectibility may not be reasonably
assured, considers among other matters:  
    
    prevailing economic conditions;
    
    historical experience;
    
    the nature and volume of the loan portfolio;
    
    the borrowers financial condition and adverse situations that
may affect the borrowers ability to pay;
    
    evaluation of industry trends; and
    
    estimated net realizable value of any underlying collateral in relation to the loan amount. Based upon this evaluation, a determination is made as to whether the allowance
for loan losses is adequate to cover any potential losses. Additions to the
allowance for loan losses are made by charges to the provision for loan losses.
Recoveries of previously charged off amounts are credited to the allowance for
loan losses. As of September 30, 2004, our Manager had provided for $0.6
million as a general allowance for loan losses. At September 30, 2004, five of
our loans were non-performing (more than 90 days past due on principal or
interest payments) totaling $11.2 21




---



##### Table of Contents



million as summarized above. Our Manager evaluated the loans and concluded
that the underlying collateral was sufficient to protect us against further
losses of principal or interest. Our Manager will continue to evaluate these
loans in order to determine if any other allowance for loan losses should be
recorded. The following is a rollforward of the general allowance for loan losses for the
year ended September 30, 2004: Balance at
    
    
    
    
    
    
    
    
    
    Balance atSeptember 30,
    
    
    
    
    
    
    
    
    
    September 30,Description
    
    2003
    
    Provisions
    
    Deductions
    
    2004General Valuation
Allowance
    
    $
    500,000
    
    
    $
    100,000
    
    
    $
    
    
    
    $
    600,000
 In addition to the above-mentioned loans, at September 30, 2004, our Manager
had granted extensions on 10 loans pursuant to the terms of the original loan
agreements which permit extensions by mutual consent. Such extensions are
generally provided on loans where the original term was 12 months or less and
where a borrower requires additional time to complete a construction project or
negotiate take out financing. The aggregate amount due to us from borrowers
whose loans had been extended as of September 30, 2004 was approximately $6.9
million. At September 30, 2004, 7 such loans were performing with an
outstanding balance of $3.2 million and 3 such loans were non-performing with a
balance of $3.7 million. Accordingly, our Manager concluded that no additional
allowance for loan losses was necessary with respect to such loans. Investments in Real Estate Held for Sale At September 30, 2004, we held 9 properties with a total carrying value of
$15.3 million, which were acquired through foreclosure and recorded as
investments in real estate held for sale. The summary below includes our
percentage ownership in each property. These investments in real estate held
for sale are accounted for at the lower of cost or fair value less costs to
sell with fair value based on appraisals and knowledge of local market
conditions. It is not our intent to invest in or own real estate as a
long-term investment. We seek to sell properties acquired through foreclosure
as quickly as circumstances permit. The following is a rollforward of
investments in real estate held for sale for the three months ended September
30, 2004:  22




---



##### Table of Contents



Percentage
    

    Balance atDate
    
    of
    
    SeptemberDescription
    
    Acquired
    
    Ownership
    
    30, 2003
    
    Acquisitions
    
    SalesCustom residential
property located in
Santa Fe, New
Mexico
    
    
    3/4/2003
    
    
    
    93
    %
    
    $
    1,191,055
    
    
    $
    
    
    
    $
    40 acres of land
containing 354
residential lots in
Henderson, Nevada
(2)
    
    
    2/28/2003
    
    
    
    66
    %
    
    
    6,917,600
    
    
    
    
    
    
    
    (1,505,297
    )A 30-unit
condominium complex
in Las Vegas,
Nevada
    
    
    2/4/2003
    
    
    
    17
    %
    
    
    215,431
    
    
    
    
    
    
    
    126 unit assisted
living facility in
Phoenix, Arizona
(1)
    
    
    9/8/2004
    
    
    
    10
    %
    
    
    
    
    
    
    1,525,340
    
    
    
    460 acre
residential
sub-division in
Lake Travis, Texas
(1)
    
    
    8/3/2004
    
    
    
    34
    %
    
    
    
    
    
    
    1,784,041
    
    
    
    140 Unit/224 bed
senior facility in
Mesa, Arizona (1)
(3)
    
    
    05/26/04
    
    
    
    14
    %
    
    
    
    
    
    
    1,020,110
    
    
    
    28 acres of raw
land in Mesquite,
Nevada (2)
    
    
    11/27/2002
    
    
    
    58
    %
    
    
    2,304,130
    
    
    
    
    
    
    
    (145,000
    )Assisted living
facility in Las
Vegas, Nevada (2)
    
    
    9/23/2004
    
    
    
    48
    %
    
    
    11,776,730
    
    
    
    5,292,328
    
    
    
    (8,344,896
    )An approximate
200-unit apartment
complex located in
Las Vegas, Nevada
(2)
    
    
    1/27/2003
    
    
    
    98
    %
    
    
    112,312
    
    
    
    58,254
    
    
    
    (170,566
    )Hotel/Casino in Las
Vegas, Nevada (1)
(3)
    
    
    2/02/2004
    
    
    
    27
    %
    
    
    
    
    
    
    2,251,030
    
    
    
    (119,299
    )Total
    
    
    
    
    
    
    
    
    
    $
    22,517,258
    
    
    $
    11,931,103
    
    
    $
    (10,285,058
    )
   [Continued from above table, first column(s) repeated] Reductionin Note
    
    Transfer
    
    
    
    
    
    Balance atPayable
    
    Ownership
    
    Valuation/
    
    SeptemberDescription
    
    Fund II
    
    To Fund II
    
    Loss on Sale
    
    30, 2004Custom residential
property located in
Santa Fe, New
Mexico
    
    $
    
    
    
    $
    
    
    
    $
    (138,792
    )
    
    $
    1,052,26340 acres of land
containing 354
residential lots in
Henderson, Nevada
(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,412,303A 30-unit
condominium complex
in Las Vegas,
Nevada
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    215,431126 unit assisted
living facility in
Phoenix, Arizona
(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,525,340460 acre
residential
sub-division in
Lake Travis, Texas
(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,784,041140 Unit/224 bed
senior facility in
Mesa, Arizona (1)
(3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,020,11028 acres of raw
land in Mesquite,
Nevada (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,159,130Assisted living
facility in Las
Vegas, Nevada (2)
    
    
    (454,989
    )
    
    
    (7,423,645
    )
    
    
    (845,528
    )
    
    
    An approximate
200-unit apartment
complex located in
Las Vegas, Nevada
(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Hotel/Casino in Las
Vegas, Nevada (1)
(3)
    
    
    
    
    
    
    
    
    
    
    (13,501
    )
    
    
    2,118,230Total
    
    $
    (454,989
    )
    
    $
    (7,423,645
    )
    
    $
    (997,821
    )
    
    $
    15,286,848
  (1)
    
    Foreclosures for the year ended September 30, 2004:During February 2004, we foreclosed on two loans and took title to the
collateral which consists of the Castaways hotel/casino on approximately 25
acres of land. No specific reserve was provided upon foreclosure based on the
estimated underlying collateral value. We have 27% ownership in this
property.Through foreclosure proceedings in April 2004, we assumed ownership of a 140
Unit/224 bed senior facility in Mesa, Arizona. A receiver has been appointed
and the business has continued operations. The property has been listed for
sale and based on its estimated value and the underlying personal guarantee
from the borrower, no valuation allowance was deemed necessary as of
September 30, 2004. We have 14% ownership in this property.During the three months ended September 30, 2004 we foreclosed on loan
secured by a 460 acre residential sub-division in Lake Travis, Texas. Our
Manager has evaluated the carrying value of the property and based on its 23




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estimated value and the underlying personal guarantee from the borrower, no
valuation allowance was deemed necessary as of September 30,
2004. We have 34% ownership in this property.During the three months ended September 30, 2004 we foreclosed on a loan
secured by a 126 unit assisted living facility in Phoenix, Arizona. Our
Manager has evaluated the carrying value of the property and based on its
estimated value and the underlying personal guarantee from the borrower, no
valuation allowance was deemed necessary as of September 30,
2004. We have 10% ownership in this property.(2)
    
    Sales of real estate held for sale for the year ended September 30, 2004:On October 20, 2003, we sold an approximate 200 unit apartment complex to a
third party. At that time the property was transferred to real estate held
for sale. However, such real estate was seller financed as further discussed
below.During September 2004 we and Vestin Fund II entered into an agreement to sell
the remaining 29 acres of raw land in Mesquite, Nevada for $6.2 million.
Prior to quarter end, $145,000 was released from escrow representing an early
release of funds. The transaction will not be finalized for up to six months
and the remaining proceeds received thereupon.During July 2004 we sold 50 lots within the 40 acre subdivision in Henderson,
Nevada for $1,505,397.During July 2003, we foreclosed on our second mortgage on a partially
completed assisted living facility located in Las Vegas, Nevada and obtained
ownership to the property subject to the existing debt. Vestin Fund II also
owned a fractional interest in the first deed of trust totaling $4.6 million
but did not participate in the foreclosure. During the three months ended
September 30, 2004, we sold the property for approximately $11.5 million. At
the time of the sale, we transferred to Vestin Fund II its pro-rata interest
in the property. Since we and Vestin Fund II provided the financing and the
borrower did not meet the minimum equity requirement to be treated as a sale
under GAAP, the property remains as an asset under real estate held for sale
 seller financed.(3)
    
    Real estate held for sale sold subsequent to quarter end:During October 2004, we and Vestin Fund II sold the Castaways Hotel/Casino in
Las Vegas, Nevada of which our portion of the net cash proceeds totaled
$5,825,132. We originally sold this property under a 100% seller financing
arrangement. The borrowers then sold the property to an unrelated third
party which resulted in a payoff of the note and also allowed us to record
the sale and remove the asset from seller financed real estate held for sale.
In addition, during September 2004, we received a promissory note from the
guarantors of the loan in the amount of $160,000 in exchange for a release of
their personal guarantees. Since payments on the note do not begin for 18
months from the date of the note, we discounted the face value of the note to
$119,299 which is based on a discount rate of 8%. The transaction resulted
in a loss of $13,501 which is reflected in our valuation adjustments for the
year ended September 30, 2004.During November 2004, we and Vestin Fund II sold the 140 Unit/224 bed senior
facility in Mesa, Arizona for of which our net proceeds totaled $1,027,855.
We received cash of $160,206 and held back a promissory note and first deed
of trust totaling $867,679. This transaction resulted in a loss of $12,688
which will be reflected in the quarter ended December 31, 2004.During November 2004, we and Vestin Group, Inc. and affiliates sold a 30-unit
condominium complex in Las Vegas, Nevada for of which our net proceeds
totaled $1,990,353. We received cash of $396,603 and held back a promissory
note and first deed of trust totaling $1,593,750. This transaction resulted
in a gain of $114,315 which will be reflected in the quarter ended December
31, 2004.Foreclosures subsequent to year end:During October 2004, we foreclosed and took title to 32% of a 126 unit Ramada
Inn Hotel in Mesquite, NV. Vestin Fund II owns the other 68%. Our Manager
has evaluated the carrying value of $2,140,267 and based on 24




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its estimated value and the underlying personal guarantee from the borrower,
no valuation allowance was deemed necessary as of the date of foreclosure. Investments in Real Estate Held for Sale  Seller Financed At September 30, 2004, we held 5 properties with a total carrying value of
$10.8 million which have been sold in transactions where we provided the
financing to the purchaser. GAAP requires us to include these properties in
real estate held for sale until the borrower has met and maintained a certain
percentage of equity ownership, which is typically 20%. We may share ownership
of such properties with Vestin Fund II, the Manager, or other unrelated
parties. The summary below includes our percentage ownership in each property.
These investments in real estate held for sale are accounted for at the lower
of cost or fair value less costs to sell with fair value based on appraisals
and knowledge of local market conditions. The following is a rollforward of
seller financed real estate held for sale for the three months ended September
30, 2004: Percentage
    
    Balance at
    
    
    
    
    
    
    
    
    
    Valuation/
    
    Balance atDate
    
    of
    
    September
    
    
    
    
    
    
    
    
    
    Other
    
    September 30,Description
    
    Acquired
    
    Ownership
    
    30, 2003
    
    Acquisitions
    
    Sales
    
    Adjustments
    
    2004An approximate 200-unit
apartment complex located
in Las Vegas, Nevada
    
    
    1/27/2003
    
    
    
    98
    %
    
    $
    
    
    
    $
    170,565
    
    
    $
    
    
    
    $
    
    
    
    $
    170,565An uncompleted golf course
in Mesquite, Nevada
    
    
    11/6/2002
    
    
    
    36
    %
    
    
    2,171,813
    
    
    
    
    
    
    
    
    
    
    
    (696,995
    )
    
    
    1,474,81836 acres of raw land in
Mesquite, Nevada
    
    
    11/27/2002
    
    
    
    42
    %
    
    
    492,006
    
    
    
    
    
    
    
    
    
    
    
    (157,894
    )
    
    
    334,112Assisted living facility in
Las Vegas, Nevada (1)
    
    
    9/23/2004
    
    
    
    48
    %
    
    
    
    
    
    
    7,910,491
    
    
    
    
    
    
    
    
    
    
    
    7,910,491Raw land in Mesquite, Nevada
    
    
    11/27/2002
    
    
    
    41
    %
    
    
    1,342,263
    
    
    
    
    
    
    
    
    
    
    
    (430,801
    )
    
    
    911,462$
    4,006,082
    
    
    $
    8,081,056
    
    
    $
    
    
    
    $
    (1,285,690
    )
    
    $
    10,801,448
 OFF-BALANCE SHEET ARRANGEMENTS We do not have any interests in off-balance sheet special purpose entities nor
do we have any interests in non-exchange traded commodity contracts. CONTRACTUAL OBLIGATIONS The following summarizes our contractual obligations at September 30, 2004. Payment due by periodLess than 1
    
    
    
    
    
    
    
    
    
    More thanContractual Obligation
    
    Total
    
    year
    
    1-3 years
    
    3-5 years
    
    5 yearsSecured borrowings
    
    $
    6,134,410
    
    
    $
    6,134,410
    
    
    $
    
    
    
    $
    
    
    
    $
    
 CRITICAL ACCOUNTING ESTIMATES Revenue Recognition Interest income on loans is accrued by the effective interest method. We do not
recognize interest income from loans once they are determined to be impaired. A
loan is impaired when, based on current information and events, it is 25




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probable that we will be unable to collect all amounts due according to the
contractual terms of the loan agreement or when the payment of interest is 90
days past due. Investments in Mortgage Loans Investments in mortgage loans are secured by trust deeds and mortgages.
Generally, all of our mortgage loans require interest only payments with a
balloon payment of the principal at maturity. We have both the intent and
ability to hold mortgage loans until maturity and therefore, mortgage loans are
classified and accounted for as held for investment and are carried at
amortized cost. Loans sold to or purchased from affiliates are accounted for
at the principal balance and no gain or loss is recognized by us or any
affiliate. Loan to value ratios are based on appraisals obtained at the time
of loan origination and may not reflect subsequent changes in value estimates.
Such appraisals are generally dated within 12 months of the date of loan
origination and may be commissioned by the borrower. The appraisals may be for
the current estimate of the as-if developed value of the property, which
approximates the post-construction value of the collateralized property
assuming that such property is developed. As-if developed values on raw land
loans or acquisition and development loans often dramatically exceed the
immediate sales value and may include anticipated zoning changes and timely
successful development by the purchaser. As most of the appraisals will be
prepared on an as-if developed basis, if a loan goes into default prior to any
development of a project, the market value of the property may be substantially
less than the appraised value. As a result, there may be less security than
anticipated at the time the loan was originally made. If there is less
security and a default occurs, we may not recover the full amount of the loan. Allowance for Loan Losses We maintain an allowance for loan losses on our investments in mortgage loans
for estimated credit impairment in our investment in mortgage loans portfolio.
The Managers estimate of losses is based on a number of factors including the
types and dollar amounts of loans in the portfolio, adverse situations that may
affect the borrowers ability to repay, prevailing economic conditions and the
underlying collateral securing the loan. Additions to the allowance are
provided through a charge to earnings and are based on an assessment of certain
factors, which may indicate estimated losses on the loans. Actual losses on
loans are recorded as a charge-off or a reduction to the allowance for loan
losses. Subsequent recoveries of amounts previously charged off are added back
to the allowance or included as income. Our Manager believes that the allowance
for loan losses totaling $0.6 million as of September 30, 2004, included in the
accompanying balance sheet is adequate to address estimated and expected credit
impairment. Real Estate Held For Sale Real estate held for sale includes real estate acquired through foreclosure and
is carried at the lower of cost or the propertys estimated fair value, less
estimated costs to sell. We seek to sell properties acquired through
foreclosure as quickly as circumstances permit. The carrying values of real
estate held for sale are assessed on a regular basis from updated appraisals,
comparable sales values or purchase offers. Real Estate Held For Sale  Seller Financed Seller financed real estate held for sale includes real estate acquired through
foreclosure and resold to independent third parties where we have provided the
financing and the borrower has not met certain criteria in accordance with
Statement of Financial Accounting Standards (FAS) No. 66. FAS 66 requires the
borrower to have a certain percentage equity ownership (typically 20%) to allow
us to record the sale of a property. In addition, the borrower must maintain a
minimum commitment in the property on a continuing basis. Therefore, until the
borrower meets these requirements, the real estate is retained as real estate
held for sale. Secured Borrowings Loans that have been participated to third party investors through
intercreditor agreements (Agreements) are accounted for as secured borrowings
in accordance with SFAS No. 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities(SFAS No. 140). The
Agreements provide us additional funding sources for mortgage loans whereby a
third party investor (the Investor) may participate in certain 26




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mortgage loans with us and/or Vestin Fund II and/or Vestin Fund III
(collectively, the Lead Lenders). In the event of borrower non-performance,
the intercreditor agreements provide that the Lead Lenders must repay the
Investors loan amount either by (i) continuing to remit to the Investor the
interest due on the participated loan amount; (ii) substituting an alternative
loan acceptable to the Investor; or (iii) repurchasing the participation from
the Investor for the outstanding balance plus accrued interest. Additionally, an Investor may participate in certain loans with the Lead
Lenders through participation agreements. In the event of borrower
non-performance, the participation agreement allows the Investor to be repaid
up to the amount of the Investors investment prior to the Lead Lender being
repaid. Mortgage loan financing under the participation agreements are also
accounted for as a secured borrowing in accordance with SFAS No. 140. FACTORS AFFECTING OUR OPERATING RESULTS Our business is subject to numerous factors affecting our operating results. In
addition to the factors discussed above, our operating results may be affected
by: Risks of Investing in Mortgage Loans  
    
    Our underwriting standards and procedures are more
lenient than conventional lenders in that we will invest in
loans to borrowers who will not be required to meet the
credit standards of conventional mortgage lenders. This may
result in a higher rate of non-performing loans.
    
    We approve mortgage loans more quickly than other
mortgage lenders. Due to the nature of loan approvals, there
is a risk that the credit inquiry our Manager performs will
not reveal all material facts pertaining to the borrower and
the security.
    
    Our results of operations will vary with changes in
interest rates and with the performance of the relevant real
estate markets.
    
    If the economy is healthy, we expect that more people
will borrow money to acquire, develop or renovate real
property. However, if the economy grows too fast, interest
rates may
increase too much and the cost of borrowing may become too
expensive. This could result in a slowdown in real estate
lending which may mean we will have fewer loans to acquire,
thus reducing the revenues and the distributions to our
members.
    
    If, at a time of relatively low interest rates, a
borrower should prepay obligations that have a higher
interest rate from an earlier period, investors will likely
not be able to reinvest the funds in mortgage loans earning
that higher rate of interest. In the absence of a prepayment
fee, the investors will receive neither the anticipated
revenue stream at the higher rate nor any compensation for
their loss. This in turn could harm our reputation and make
it more difficult for us to attract investors willing to
acquire interest in mortgage loans. Risk of Defaults Our performance will be directly impacted by any defaults on the loans in our
portfolio. As noted above, we may experience a higher rate of defaults than
conventional mortgage lenders. We seek to mitigate the risk by estimating the
rate of the underlying collateral and insisting on low loan to value ratios.
However, no assurance can be given that these efforts will fully protect us
against losses on defaulted loans. Moreover, during the period of time when a
defaulted loan is the subject of foreclosure proceedings, it is likely that we
will earn less (if any) income from such loans, thereby reducing our earnings. Risks of Interest Rate Changes Our results of operations will vary with changes in interest rates and with the
performance of the relevant real estate markets. 27




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If the economy is healthy, we expect that more people will be borrowing money
to acquire, develop or renovate real property. However, if the economy grows
too fast, interest rates may increase too much and the cost of borrowing may
become too expensive. This could result in a slowdown in real estate lending
which may mean we will have fewer loans to acquire, thus reducing its revenues
and the distributions to members. One of the results of interest rate fluctuations is that borrowers may seek to
extend their low-interest-rate mortgage loans after market interest rates have
increased. Generally, our 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 us: (i) There can be no assurance that this permitted rate increase will be
adequate if interest rates have increased beyond the range contemplated by our
loan documents. (ii) If interest rates rise, borrowers under loans with monthly or quarterly
principal payments may be compelled to extend their loans to decrease the
principal paid with each payment because the interest component has increased.
If this happens, there is a higher risk that the borrower may default on the
extended loan, and the increase in the interest rate on the loan may not be
adequate compensation for the increased risk. Distributions on mortgage loans
we place may decline if lenders are unable to reinvest at higher rates or if an
increasing number of borrowers default on their loans. (iii) If, at a time of relatively low interest rates, a borrower prepays
obligations that have a higher interest rate from an earlier period, investors
will likely not be able to reinvest the funds in mortgage loans earning that
higher rate of interest. In the absence of a prepayment fee, the investors will
receive neither the anticipated revenue stream at the higher rate nor
compensation for their loss. This in turn could harm our business reputation. Competition for Borrowers We consider our competitors for borrowers to be the providers of
non-conventional mortgage loans, that is, lenders who offer short-term,
equity-based loans on an expedited basis for higher fees and rates than those
charged by conventional lenders and mortgage loans investors, such as
commercial banks, thrifts, conduit lenders, insurance companies, mortgage
brokers, pension funds and other financial institutions that offer conventional
mortgage loans. Many of the companies against which we compete have
substantially greater financial, technical and other resources than we do.
Competition in our market niche depends upon a number of factors including
price and interest rates of the loan, speed of loan processing, cost of
capital, reliability, quality of service and support services. During the past
year, our Manager has experienced less demand for loans. While we cannot be
certain as to the reason for the lower demand, our Manager believes that the
pending SEC inquiry has caused a number of potential borrowers to seek loans
from other sources. The continuation of the SEC inquiry, and any resulting
proceedings or penalties, could have a further adverse impact upon our ability
to compete for borrowers. Effect of Fluctuations in the Economy Our sole business, making loans secured by real estate, is particularly
vulnerable to changes in macroeconomic conditions. Any significant decline in
economic activity, particularly in the geographical markets in which we
concentrate our loans, could result in a decline in the demand for real estate
development loans. In order to stay fully invested during a period of declining
demand for real estate loans, we may be required to make loans on terms less
favorable to us or to make loans involving greater risk to us. Declines in
economic activity are often accompanied by a decline in prevailing interest
rates. Although our lending rates are not directly tied to the Federal Reserve
Boards discount rate, a sustained and widespread decline in interest rates
will impact the interest we are able to earn on our loans. Since our loans
generally do not have prepayment penalties, declining interest rates may also
cause our borrowers to prepay their loans and we may not be able to reinvest
the amounts prepaid in loans generating a comparable yield. Moreover, any
significant decline in economic activity could adversely impact the ability of
our borrowers to complete their projects and obtain take out financing. This in
turn could increase the level of defaults we may experience. 28




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CAPITAL AND LIQUIDITY Liquidity is a measure of a companys ability to meet potential cash
requirements, including ongoing commitments to fund lending activities and for
general operating purposes. Subject to a 3% reserve, we seek to use all of our
available funds to invest in mortgage loans. Income generated from such loans
is paid out to our members unless they have elected to reinvest their
dividends. We do not anticipate the need for hiring any employees, acquiring
fixed assets such as office equipment or furniture, or incurring material
office expenses during the next twelve months because Vestin Mortgage will
manage our affairs. We may pay Vestin Mortgage a monthly management fee of up
to 0.25% of our aggregate capital contributions. During the year ended September 30, 2004, cash flows provided by our operating
activities approximated $14.7 million. Our investing activities for the year
ended September 30, 2004 consisted of cash provided from the sale of
investments in loans secured by real estate in the amount of $0.7 million (net
of new investments and purchases of mortgage loans), cash outlays related to
the maintenance of real estate held for sale of approximately $5.4 million, and
net proceeds from investment in certificates of deposits, net of new
investments, of $0.9 million. Our financing activities primarily consisted of
member withdrawals of $8.6 million and members distributions, net of
reinvestments, of $4.3 million, and payment on a note payable of $2.0 million. At September 30, 2004, we had $9.8 million in cash, $0.3 million in
certificates of deposit, and $91.1 million in total assets. It appears we have
sufficient working capital to meet our operating needs in the near term. Since we distribute most or all of our operating income, our sources of
liquidity include: repayments of outstanding loans, distribution reinvestments
by our members and arrangements with third parties to participate in our loans. We rely primarily upon repayment of outstanding loans to provide capital for
investment in new loans. Any significant level of defaults on outstanding
loans could reduce the funds we have available for investment in new loans.
Resulting foreclosure proceedings may not generate full repayment of our loans
and may result in significant delays in the return of invested funds. This
would diminish our capital resources and would impair our ability to invest in
new loans. Non-performing assets include loans in non-accrual status totaling
$11.2 million as of September 30, 2004 compared to $11.0 million as of
September 30, 2003 and real estate held for sale totaling $15.3 million as of
September 30, 2004 compared to $26.5 million as of September 30, 2003. It is
possible that no earnings will be recognized from these assets until they are
disposed of, or that no earnings will be recognized at all, and the time it
will take to dispose of these assets cannot be predicted. Any significant level of redemptions by our members would reduce the amount of
capital available for investment. In order to comply with our Operating
Agreement and the Internal Revenue Code, we may redeem no more than 10% of the
aggregate members capital in any calendar year. Our Operating Agreement also
provides other conditions limiting redemptions. As of September 30, 2004,
redemptions made since inception totaled $30.4 million. Balances in members
capital accounts as of January 1, 2004 was $89.5 million, which would limit
redemptions to $9.0 million for calendar 2004. As of September 30, 2004, we
had paid approximately $7.7 million in redemptions in 2004, and had $1.2
million in redemptions that remain to be fulfilled in 2004. As of September
30, 2004, requests to redeem approximately $8.1 million in 2005, $7.2 million
in 2006, $6.5 million in 2007, $5.9 million in 2008, $5.3 million in 2009, $4.8
million in 2010, $4.3 million in 2011, and $3.9 million in 2012 had been
logged. Approximately 48% of our members currently reinvest their distributions. The
level of reinvested distributions is likely to be affected by our operating
performance. If our performance does not meet the expectations of our members,
the level of reinvestment may decline. 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 Vestin Mortgage, Vestin Fund II, Vestin Fund III
and the Company (collectively, the Lead Lenders). In the event of borrower
non-performance, the intercreditor agreements gives the Lead Lenders the right
to either (i) continue to remit to the Investor the interest due on the
participation amount; (ii) substitute an alternative loan acceptable to the
Investor; or (iii) repurchase the participation from the Investor for the
outstanding balance of the participation plus accrued interest. 29




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Additionally, an Investor may participate in certain loans with Lead Lenders
through participation agreements. In the event of borrower non-performance,
the participation agreement allows the Investor to be repaid up to the amount
of the Investors investment prior to the Lead Lenders being repaid. As of September 30, 2004, funds being used under intercreditor and
participation agreements where the Company has potential obligations as defined
above totaled $6.1 million. We may seek to expand our capital resources through borrowings from
institutional lenders or through securitization of our loan portfolio or
similar arrangements. Other than the line of credit mentioned above, we
currently do not have in place any commitments to borrow any funds or
securitize any of our assets. No assurance can be given that, if we should seek
to borrow funds or to securitize our assets we would be able to do so on
commercially attractive terms. Our ability to expand our capital resources in
this manner is subject to many factors, some of which are beyond our control,
including the state of the economy, the state of the capital markets and the
perceived quality of our loan portfolio. We do not currently have any interest in any special purpose entities nor do we
have any commitments or obligations which are not reflected on our balance
sheet. We do not have any interest in derivative contracts. We maintain working capital reserves of approximately 3% of aggregate members
capital accounts in cash and cash equivalents, certificates of deposits and
short-term investments. This reserve is available to pay expenses in excess of
revenues, satisfy obligations of underlying security properties, expend money
to satisfy our unforeseen obligations and for other permitted uses of the
working capital. At September 30, 2004, we had $9.8 million in cash, $0.3
million in certificates of deposit, and $91.1 million in total assets. It
appears we have sufficient working capital to meet its operating needs in the
near term. 
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to market risk, primarily from changes in interest rates. We do
not deal in any foreign currencies and do not own any options, futures or other
derivative instruments. We do not have a significant amount of debt. Most of our assets consist of investments in mortgage loans, including those
that are financed under intercreditor agreements. At September 30, 2004, our
aggregate investment in mortgage loans was approximately $58,745,646 with a
weighted average effective interest rate of 10.28%. Loans financed under
intercreditor agreements totaled $6,134,410 at September 30, 2004 and are
classified as assets under secured borrowings. Such financing is at a
weighted average interest rate of 11.26%. These mortgage loans mature within
the next 24 months. Most of the mortgage loans have a term of 12 months; the
weighted average term of outstanding loans at September 30, 2004 was 24 months.
All of the outstanding mortgage loans at September 30, 2004 were fixed rate
loans. All of the mortgage loans are held for investment purposes; none are
held for sale. We intend to hold such mortgage loans to maturity. None of the
mortgage loans have prepayment penalties. Market fluctuations in interest rates generally do not affect the carrying
value of our investment in mortgage loans. However, significant and sustained
changes in interest rates could affect our operating results. If interest rates
decline significantly, some of the borrowers could prepay their loans with the
proceeds of a refinancing at lower interest rates. This would reduce our
earnings and funds available for distribution to Members. On the other hand, a
significant increase in interest rates could result in a slowdown in real
estate development activity which would reduce the demand for commercial
mortgage loans. As a result, we might encounter greater difficulty in
identifying appropriate borrowers. We are not in a position to quantify the
potential impact on our operating results from a material change in interest
rates. At September 30, 2004, we also had approximately $10.1 million invested in cash
and cash equivalents, and certificates of deposit. Approximately 3% of our
assets will be held in such accounts as a cash reserve; additional deposits in
such accounts will be made as funds are received from new investors and
repayment of loans pending the deployment of such funds in new mortgage loans.
We believe that these financial assets do not give rise to significant interest
rate risk due to their short-term nature. 30




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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and supplementary data are indexed in Item 15 of this
report. 
 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 
 ITEM 9A. CONTROL AND PROCEDURES The Companys management has evaluated the effectiveness of the design and
operation of its disclosure controls and procedures (as such term is defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the Exchange Act)) as of the end of the period covered by this
report. Such evaluation was conducted under the supervision and with the
participation of the Chief Executive Officer (CEO) and the Chief Financial
Officer (CFO) of Vestin Mortgage, Inc., the Companys Manager, who function
as the equivalent of the CEO and CFO of the Company. Based upon such
evaluation, the CEO and CFO have concluded that, as of the end of the period,
the Companys disclosure controls and procedures were effective. There have
been no changes in the Companys internal control over financial reporting (as
such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act)
that occurred during the Companys most recent fiscal quarter that have
materially affected, or are reasonably likely to materially affect, the
Companys internal controls over financial reporting. 
 ITEM 9B. OTHER INFORMATION None. 31




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PART III 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT We do not have any directors or officers. We are managed by Vestin Mortgage.
Vestin Mortgage is a wholly-owned subsidiary of Vestin Group, Inc., a Delaware
corporation (Vestin Group), whose common stock is publicly held and is traded
on the Nasdaq SmallCap Market under the symbol VSTN. Through its
subsidiaries, Vestin Group is engaged in asset management, real estate lending
and other financial services. The directors and executive officers of Vestin Mortgage are listed below: Name
    
    Age
    
    TitleMichael V. Shustek
    
    
    45
    
    
    Chief Executive Officer, President,
and Chairman of the Board and
DirectorPeggy S. Shustek
    
    
    35
    
    
    Vice PresidentDaniel B. Stubbs
    
    
    43
    
    
    Executive Vice President, UnderwritingStephen A. Schneider
    
    
    58
    
    
    Vice President of OperationsLance K. Bradford
    
    
    37
    
    
    Chief Financial Officer, Treasurer,
Secretary and Director
 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: Michael V. Shustek has been a director of Vestin Mortgage 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. In 2003, Mr. Shustek became the Chief Executive Officer of Vestin
Mortgage and, in February 2004, he assumed the additional position of President
of Vestin Mortgage. Mr. Shustek also serves on the loan committee 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 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 teaches 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, who serves
as the Vice President of Vestin Mortgage. Peggy S. Shustek has been with Vestin Group since September 1995, and is
currently Vice President of Vestin Mortgage. From January 2001 until February
2004, Ms. Shustek was the President of Vestin Mortgage. From 1997 to 2000, Ms.
Shustek was the Senior Vice President of Vestin Mortgage. Ms. Shustek is
responsible for all new and existing clients and loan packages, 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, Vestin
Mortgages Chief Executive Officer, President and Chairman. Daniel B. Stubbs has been the 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 of Vestin
Mortgage 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 degree in
Communications Studies from the University of Nevada, in Las Vegas, Nevada. Stephen A. Schneider has been Vice President of Operations of Vestin Mortgage
since January 2001. From July 2000 to December 2000, Mr. Schneider was the
Chief Operation Officer of Vestin Group. Mr. Schneider is 32




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##### Table of Contents



responsible for the maintenance of all banking and financial relationships and
also serves on Vestin Mortgages loan committee. Mr. Schneider has over 26
years experience in the financial services industry. He worked at US Bank where
he managed the banks business banking department and underwrote loans for
companies with sales of $1 million to $10 million and maintained relationships
with the banks business customers. Mr. Schneider sits on the boards of Focus
Las Vegas and Leadership Las Vegas Youth as well as several other
organizations. He is responsible for the Vestin Foundation, a non-profit
organization aimed at funding local charitable organizations. Mr. Schneider
received his Bachelor of Arts degree in Accounting from the University of New
Mexico. Lance K. Bradford has served as Chief Financial Officer, Treasurer, Secretary
and a director of Vestin Mortgage and Treasurer and a director of Vestin Group
since April 1999. Mr. Bradford also served as President of Vestin Group from
January 2001 until February 2004. In addition, Mr. Bradford was appointed as
Chief Financial Officer of Vestin Group in February 2004 and serves on the loan
committee of Vestin Mortgage. 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 Vestin
Fund I, Vestin Fund II and Vestin Fund III. 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.
Mr. Bradford announced his resignation as an officer of Vestin Group and
Vestin Mortgage effective January 1, 2005. John Alderfer will succeed Mr.
Bradford as Chief Financial Officer and Treasurer of Vestin Group and as Chief
Financial Officer, Tresaurer and Secretary of Vestin Mortgage. Mr. Bradford
will remain a director of both Vestin Group and Vestin Mortgage. Audit Committee The board of directors of Vestin Group, the parent corporation of our Manager,
has a standing Audit Committee established in accordance with Section 3(a)(58)
of the Securities Exchange Act of 1934, as amended (the Exchange Act). The
Audit Committee is responsible for the appointment, compensation, retention and
oversight of our independent accountants. In addition, the Audit Committee
reviews with Vestin Groups management and our independent accountants
financial information that will be provided to our members and others, and our
audit and financial reporting processes. The Audit Committee operates under a
written Audit Committee Charter adopted by Vestin Groups board of directors.
The Audit Committee consists of Robert J. Aalberts, David Chavez, Rick
Zaffarese Leavitt and Roland Sansone. The board of directors of Vestin Group
believes that Mr. Chavez is an audit committee financial expert as defined in
Item 401(h) of Regulation S-K. Mr. Chavez and each of the other members of the
Audit Committee is an independent director as defined in Rule 4200 of the
Marketplace Rules of the National Association of Securities Dealers, Inc. Code of Ethics As we do not have any executive officers we have not adopted a Code of Ethics.
However, the executive officers of Vestin Mortgage, our Manager, are under an
obligation to follow the Code of Ethics of Vestin Group which has been filed as
Exhibit 14.1 to Vestin Groups Form 10-KSB for the year ended December 31,
2003. If our Manager or Vestin Group makes any substantive amendments to the
Code of Ethics or if our Manager grants any waiver, including any implicit
waiver, from a provision of the Code of Ethics to its 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 11. EXECUTIVE COMPENSATION Not Applicable. 
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT As of September 30, 2003, none of our members were beneficial owners of 5% or
more of our securities. Equity Compensation Plan Information 33




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##### Table of Contents



As of September 30, 2004 we did not have any equity compensation plans. 
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Transactions with the Manager Our Manager is entitled to receive from us a management fee of up to 0.25% of
our aggregate capital contribution, paid monthly in arrears. The amount of
management fees reported to our Manager for the fiscal years ended September
30, 2004 and 2003 approximated $255,000 and $253,000, respectively. As of September 30, 2004 and September 30, 2003, we owed our Manager
approximately $652,000 and $362,000, respectively, generally for foreclosure
and property maintenance costs advanced on our behalf and distributions due
related to units owned by our Manager. As of September 30, 2004, Vestin Mortgage had an investment in us of
approximately $1.0 million, which consists of certain costs paid on our behalf
related to the registration and start-up costs. Vestin Mortgage has received
100,000 units from us related to this investment. From time to time we may acquire or sell investments in mortgage loans from/to
our Manager or other related parties pursuant to the terms of our Operating
Agreement provided the price does not exceed the original cost. No gain or
loss is recorded on these transactions as it is not our intent to make a profit
on the purchase or sale of such investments. The purpose is generally to
diversify our portfolio by syndicating loans, thereby providing us with
additional capital to make additional loans. During the year ended September 30, 2003, we purchased $479,000 in mortgage
loans from our Manager. Transactions with the Funds We buy interests in loans from, and sell interests in loans to, various related
parties, including Vestin Fund II and Vestin Fund III, primarily in order to
diversify our loan portfolio by spreading our investments among a broader pool
of loans. Such interests are generally bought and sold at par value. We do
not seek to profit from a sale to a related party nor do we purchase loan
interests at a mark-up from related parties. As of June 30, 2004 the Company owed Vestin Fund II approximately $1,470,000
primarily related to payments made on behalf of the Company for the maintenance
of real estate owned. During the year ended September 30, 2003 we purchased $14,469,950 in mortgage
loans from Vestin Fund II. During the same period we sold $27,460,214 in
mortgage loans to Vestin Fund II. Transactions with other related parties During the years ended September 30, 2004 and 2003, we purchased a mortgage
loan in the amount of $350,000 and $6,509,307, respectively from a company
wholly-owned by our Managers Chief Executive Officer. Also, during the same
period, we sold $290,938 in mortgage loans to the same party. During the year ended September 30, 2003 we sold $4,500,000 in loans to Vestin
Group, Inc. During the year ended September 30, 2004 we paid $4,967 for legal fees to a law
firm in which the Secretary of Vestin Group has an equity ownership interest. 
 ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES During the fiscal years ended September 30, 2004 and September 30, 2003, Ernst
& Young, LLP (E&Y) provided various audit, audit related and non-audit
services to us as follows: 34




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September 30, 2004
    
    September 30, 2003Audit Fees
    
    $
    
    
    
    $
    113,332Audit Related Fees
    
    $
    
    
    
    $
    Tax Fees
    
    $
    
    
    
    $
    All Other Fees
    
    $
    
    
    
    $
    86,279
 During the fiscal year ended September 30, 2004, Moore Stephens Wurth Frazer
and Torbet, LLP (Moore Stephens) provided various audit, audit related and
non-audit services to us as follows: September 30, 2004Audit Fees
    
    $
    57,872Audit Related Fees
    
    $
    34,872Tax Fees
    
    $
    All Other Fees
    
    $
    
 The Audit Committee of Vestin Group (the 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 E&Ys or Moore Stephens independence. 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. 35




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##### Table of Contents



PART IV 
 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES  (a)
    
    The financial statements are contained on Pages F-2 through F-20 on this
Annual Report on Form 10-K, and the list of the financial statements
contained herein is set forth on page F-1, which is hereby incorporated by
reference.Financial Statement Schedules are contained on Pages F-21 through F-25(b) 
 EXHIBIT INDEX Exhibit No.
    
    Description of Exhibits3.1(1)
    
    Articles of Organization, as amended3.2(2)
    
    Third Amended and Restated Operating Agreement (included as Exhibit A to the prospectus)10.1
    
    Assignment Agreement, dated January 23, 2004, by and between Vestin Mortgage, Inc.,
Vestin Fund I, LLC, Vestin Fund II, LLC, Owens Financial Group, Inc. and Owens Mortgage
Investment Fund10.2
    
    Intercreditor Agreement, dated January 17, 2003, by and among Vestin Mortgage, Inc.,
Vestin Fund I, LLC, Vestin Fund II, LLC and Western United Life Assurance Company10.3
    
    Intercreditor Agreement, dated April 22, 2004, by and between Vestin Mortgage, Inc. and
Owens Mortgage Investment Fund10.4
    
    Intercreditor Agreement, dated June 24, 2004, by and between Vestin Mortgage, Inc. and
Owens Mortgage Investment Fund10.5
    
    Participation Agreement, dated May 13, 2004, by and among Vestin Fund I, LLC, Vestin
Fund II, LLC, Vestin Fund III, LLC and Royal Bank of America31.1
    
    Section 302 Certification of Michael V. Shustek31.2
    
    Section 302 Certification of Lance K. Bradford32
    
    Certification Pursuant to U.S.C. 18 Section 1350
  (1)
    
    Incorporated herein by reference to our Form S-11 Registration Statement filed on March 17, 2000 (File
No. 333-32800).(2)
    
    Incorporated herein by reference to Post-Effective Amendment No. 2 to our Form S-11 Registration
Statement filed on April 6, 2001 (File No. 333-32800). 36




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##### Table of Contents



INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION PAGEREPORT
OF INDEPENDENT AUDITORS
    
    
    F-2FINANCIAL STATEMENTSBalance
Sheets
    
    
    F-3Statements
of Income
    
    
    F-4Statements
of Members Equity
    
    
    F-5Statements
of Cash Flows
    
    
    F-6Notes
to Financial Statements
    
    
    F-7SUPPLEMENTARY INFORMATIONMortgage
Loans on Real Estate:Mortgage
Loan Rollforward
    
    
    F-21Mortgage
Loans by Type of Property
    
    
    F-22Mortgage
Loans by Lien Position
    
    
    F-23Mortgage
Loans that Exceed Three Percent of the Portfolio
    
    
    F-24
 F-1




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##### Table of Contents



Report of Independent Registered Public Accounting Firm Members of Vestin Fund I, LLC We have audited the accompanying balance sheets of Vestin Fund I, LLC (the
Company) as of September 30, 2004 and 2003, and the related statements of
income, members equity, and cash flows for the years ended September 30, 2004,
and 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 the standards of the Public
Accounting Oversight Board. 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 financial statements referred to above present fairly, in
all material respects, the financial position of Vestin Fund I, LLC as of
September 30, 2004 and 2003, and the results of its operations and its cash
flows for the years ended September 30, 2004 and 2003, in conformity with
accounting principles generally accepted in the United States.
Our audits were conducted for the purpose of forming an opinion on the
financial statements taken as a whole. The supplemental schedules are
presented for purposes of additional analysis and is not a required part of the
financial statements. Such information has been subjected to the auditing
procedures applied in our audits of the financial statements and, in our
opinion, is fairly stated in all material respects in relation to the financial
statements taken as a whole. /s/ Moore Stephens Wurth Frazer and Torbet, LLP
Orange, California
December 10, 2004 F-2




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##### Table of Contents



Vestin Fund I, LLC 
 BALANCE SHEETS SEPTEMBER 30, 2004
    
    SEPTEMBER 30, 2003ASSETSCash
    
    $
    9,829,496
    
    
    $
    13,707,547Certificates of deposit
    
    
    300,000
    
    
    
    1,175,000Interest and other receivables
    
    
    1,327,089
    
    
    
    1,632,327Note receivable
    
    
    119,299
    
    
    
    Real estate held for sale
    
    
    15,286,848
    
    
    
    22,517,258Real estate held for sale  seller financed
    
    
    10,801,448
    
    
    
    4,006,082Investment in mortgage loans, net of allowance for loan losses
of $600,000 and $500,000 at September 30, 2004, and
September 30, 2003, respectively
    
    
    47,344,198
    
    
    
    51,694,617Assets under secured borrowings
    
    
    6,134,410
    
    
    
    20,323,719Prepaid expenses
    
    
    
    
    
    
    7,650$
    91,142,788
    
    
    $
    115,064,200LIABILITIES AND MEMBERS EQUITYLiabilitiesAccounts payable
    
    $
    351,205
    
    
    $
    22,955Due to Manager
    
    
    652,312
    
    
    
    361,607Due to Vestin Group
    
    
    4,822
    
    
    
    131,560Due to Vestin Fund II
    
    
    1,469,743
    
    
    
    947,863Note payable
    
    
    
    
    
    
    2,000,000Note payable to Fund II
    
    
    
    
    
    
    4,733,311Secured borrowings
    
    
    6,134,410
    
    
    
    20,323,719Deferred income
    
    
    251,742
    
    
    
    28,117Total liabilities
    
    
    8,864,234
    
    
    

    28,549,132Members equity  authorized 10,000,000 units, 8,354,057 units
and 9,124,566 units issued at $10 per unit and outstanding at
September 30, 2004, and September 30, 2003 respectively
    
    
    82,278,554
    
    
    
    86,515,068Total members equity
    
    
    82,278,554
    
    
    
    86,515,068Total liabilities and members equity
    
    $
    91,142,788
    
    
    $
    115,064,200
 The accompanying notes are an integral part of these statements. F-3




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##### Table of Contents



Vestin Fund I, LLC 
 STATEMENTS OF INCOME FOR THE
    
    FOR THE
    
    FOR THEYEAR ENDED
    
    YEAR ENDED
    
    YEAR ENDEDSEPTEMBER 30, 2004
    
    SEPTEMBER 30, 2003
    
    SEPTEMBER 30, 2002RevenuesInterest income from investments in
mortgage loans
    
    $
    7,519,266
    
    
    $
    9,194,054
    
    
    $
    12,904,243Loan Fees
    
    
    72,234
    
    
    
    526,756
    
    
    
    Revenue related to the sale of real estate
    
    
    4,666,667
    
    
    
    
    
    
    
    Other income
    
    
    408,033
    
    
    
    643,638
    
    
    
    247,157Total revenues
    
    
    12,666,200
    
    
    
    10,364,448
    
    
    
    13,151,400Operating expensesManagement fees
    
    
    255,185
    
    
    
    253,100
    
    
    
    310,448Provision for loan losses
    
    
    100,000
    
    
    
    400,000
    
    
    
    100,000Interest expense
    
    
    1,789,187
    
    
    
    1,120,556
    
    
    
    113,689Loss on sale of real estate held for sale
    
    
    462,942
    
    
    
    
    
    
    
    Valuation adjustments on real estate held for sale
    
    
    534,879
    
    
    
    3,382,622
    
    
    
    Write off of deferred bond offering cost
    
    
    
    
    
    
    203,517
    
    
    
    Expenses related to real estate held for sale
    
    
    597,436
    
    
    
    466,623
    
    
    
    Legal expenses
    
    
    229,698
    
    
    
    194,674
    
    
    
    Other
    
    
    129,818
    
    
    
    30,997
    
    
    
    42,056Total operating expenses
    
    
    4,099,145
    
    
    
    6,052,089
    
    
    
    566,193NET INCOME
    
    $
    8,567,055
    
    
    $
    4,312,359
    
    
    $
    12,585,207Net income allocated to members
    
    $
    8,567,055
    
    
    $
    4,312,359
    
    
    $
    12,585,207Net income allocated to members per
weighted average membership units
    
    $
    1.03
    
    
    $
    0.45
    
    
    $
    1.23Weighted average membership units
    
    
    8,339,404
    
    
    
    9,668,310
    
    
    
    10,193,776
 The accompanying notes are an integral part of these statements. F-4




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##### Table of Contents



Vestin Fund I, LLC 
 STATEMENT OF MEMBERS EQUITY FOR THE YEAR ENDED SEPTEMBER 30, 2004 Units
    
    AmountMembers equity at September 30, 2003
    
    
    9,124,566
    
    
    $
    86,515,068Distributions
    
    
    
    
    
    
    (5,098,483
    )Reinvestments of distributions
    
    
    85,761
    
    
    
    857,610Members withdrawals
    
    
    (856,270
    )
    
    
    (8,562,696
    )Net income
    
    
    
    
    
    
    8,567,055Members equity at September 30, 2004
    
    
    8,354,057
    
    
    $
    82,278,554
 The accompanying notes are an integral part of these statements. F-5




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##### Table of Contents



Vestin Fund I, LLC 
 STATEMENTS OF CASH FLOWS FOR THE
    
    FOR THE
    
    FOR THEYEAR ENDED
    
    YEAR ENDED
    
    YEAR ENDEDSEPTEMBER 30, 2004
    
    SEPTEMBER 30, 2003
    
    SEPTEMBER 30, 2002(unaudited)Cash flows from operating activities:Net income
    
    $
    8,567,055
    
    
    $
    4,312,359
    
    
    $
    12,585,207Adjustments to reconcile net income to net
cash provided by operating activities:Write down of real estate held for sale
    
    
    
    
    
    
    3,259,361
    
    
    
    Write-off of deferred bond offering costs
    
    
    
    
    
    
    203,517
    
    
    
    Provision for loan losses
    
    
    100,000
    
    
    
    400,000
    
    
    
    100,000Loss on sale of real estate held for sale
    
    
    997,821
    
    
    
    3,246,909
    
    
    
    Change in operating assets and liabilities:Interest and other receivables
    
    
    225,854
    
    
    
    (450,129
    )
    
    
    (95,087
    )Due to Manager
    
    
    259,674
    
    
    
    272,217
    
    
    
    439,582Due to Vestin Group
    
    
    (126,738
    )
    
    
    
    
    
    
    Due to Fund II
    
    
    4,101,609
    
    
    
    
    
    
    
    Due to related parties
    
    
    
    
    
    
    475,867
    
    
    
    Other assets
    
    
    7,650
    
    
    
    (7,650
    )
    
    
    Accounts payable
    
    
    328,250
    
    
    
    22,955
    
    
    
    Note receivable from manager
    
    
    
    
    
    
    723,763
    
    
    
    Deferred income
    
    
    223,625
    
    
    
    28,117
    
    
    
    Net cash provided by operating activities
    
    
    14,684,800
    
    
    
    12,487,286
    
    
    
    13,029,702Cash flows from investing activities:Investments in mortgage loans on real estate
    
    
    (36,974,861
    )
    
    
    (16,918,965
    )
    
    
    (38,623,318
    )Purchase of investments in mortgage loans
    
    
    (2,498,464
    )
    
    
    (380,403
    )
    
    
    (25,405,212
    )Purchase of investments in mortgage loans from:Vestin Fund II, LLC
    
    
    
    
    
    
    (14,469,950
    )
    
    
    (9,100,000
    )Vestin Mortgage
    
    
    
    
    
    
    (478,829
    )
    
    
    (3,706,186
    )Other related party
    
    
    (350,000
    )
    
    
    (6,509,307
    )
    
    
    (60,000
    )Proceeds received from sale of mortgage loans to:Vestin Fund II, LLC
    
    
    
    
    
    
    13,111,987
    
    
    
    13,136,674Vestin Group, Inc.
    
    
    
    
    
    
    4,500,000
    
    
    
    996,000Other related party
    
    
    
    
    
    
    290,938
    
    
    
    4,114,973Proceeds from loan payoff
    
    
    35,011,486
    
    
    
    35,078,803
    
    
    
    54,905,439Sales of investments in mortgage loans
    
    
    5,528,138
    
    
    
    1,030,000
    
    
    
    8,457,865Cash outlays for real estate held for sale
    
    
    (5,350,581
    )
    
    
    
    
    
    
    Proceeds from sale of investment in real estate
    
    
    
    
    
    
    1,600,000
    
    
    
    Proceeds from certificates of deposit
    
    
    875,000
    
    
    
    
    
    
    
    225,000Net cash provided (used) by investing activities
    
    
    (3,759,282
    )
    
    
    16,854,274
    
    
    
    4,941,235Cash flows from financing activities:Payment on note payable
    
    
    (2,000,000
    )
    
    
    
    
    
    
    Members distributions, net of reinvestments
    
    
    (4,240,873
    )
    
    
    (8,048,762
    )
    
    
    (5,277,711
    )Members withdrawals
    
    
    (8,562,696
    )
    
    
    (10,347,585
    )
    
    
    (10,329,154
    )Net cash used in financing activities
    
    
    (14,803,569
    )
    
    
    (18,396,347
    )
    
    
    (15,606,865
    )NET CHANGE IN CASH
    
    
    (3,878,051
    )
    
    
    10,945,213
    
    
    
    2,364,072Cash, beginning of period
    
    
    13,707,547
    
    
    
    2,762,334
    
    
    
    398,262Cash, ending of period
    
    $
    9,829,496
    
    
    $
    13,707,547
    
    
    $
    2,762,334Supplemental disclosures of cash flows information:Non-cash investing and financing activities:Deferred offering costs paid by manager
    
    $
    
    
    
    $
    124,694
    
    
    $
    83,631Change in loans funded through secured borrowing
    
    $
    14,189,309
    
    
    $
    13,686,349
    
    
    $
    6,637,370Real estate held for sale acquired through foreclosure
    
    $
    6,580,521
    
    
    $
    36,920,348
    
    
    $
    1,541,258Reduction in Note Payable to Fund II due to valuation
allowance on real estate held for sale
    
    $
    454,989
    
    
    $
    
    
    
    $
    Investment in mortgage loans on real estate acquired for
investments in real estate held for sale
    
    $
    
    
    
    $
    478,829
    
    
    $
    Note receivable related to capital contribution by Manager
    
    $
    
    
    
    $
    723,763
    
    
    $
    In substance payoff of payable to Manager related to
capital contribution by Manager
    
    $
    
    
    
    $
    876,237
    
    
    $
    Sale of rights to receive proceeds of guarantee
    
    $
    
    
    
    $
    3,084,000
    
    
    $
    Loans rewritten with same or similar property as collateral
    
    $
    5,758,755
    
    
    $
    14,348,227
    
    
    $
    Note receivable received from guarantor in exchange
for release of guarantee
    
    $
    119,299
    
    
    $
    
    
    
    $
    Sale of real estate held for sale where we provide the financing
    
    $
    7,910,491
    
    
    $
    
    
    
    $
    
 The accompanying notes are an integral part of these statements. F-6




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##### Table of Contents



NOTE A  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization Vestin Fund I, LLC, a Nevada limited liability company, is primarily engaged in
the business of mortgage lending. We invest in loans secured by real estate
through deeds of trust and mortgages. We were organized on December 14, 1999
and will continue until December 31, 2019 unless dissolved prior or extended
thereto under the provisions of its operating agreement. On August 23, 2000, our Form S-11/A filed with the Securities and Exchange
Commission became effective for the initial public offering of 10,000,000 units
at $10 per unit. Consequently, we commenced operations on September 1, 2000. By
June 2001, we had sold all of the 10,000,000 Units offered pursuant to its
registration statement. No additional Units will be sold, however, current
members may continue to participate in our Distribution Reinvestment Plan
whereby the members distributions may be used to purchase additional Units at
$10.00 per Unit. As of September 30, 2003, an additional 779,092 Units have
been purchased under this plan. Additionally, we issued 100,000 units to its
Manager for offering costs paid by them to unrelated third parties on our
behalf. Our Manager is Vestin Mortgage, Inc. (the Manager), a Nevada corporation
engaged in the business of brokerage, placement and servicing of commercial
loans secured by real property. The Manager is a wholly-owned subsidiary of
Vestin Group, Inc., a Delaware corporation, whose common stock is publicly held
and traded on the Nasdaq SmallCap Market under the symbol VSTN. Through its
subsidiaries, Vestin Group, Inc. is engaged in asset management, real estate
lending and other financial services and has originated over $1.8 billion in
real estate loans. The operating agreement provides that the Manager controls
our daily operations; including the power to assign duties, to determine how to
invest our assets, to sign bills of sale, title documents, leases, notes,
security agreements, mortgage investments and contracts, and to assume
direction of the business operations. The operating agreement also provides
that the members have certain rights, including the right to terminate the
Manager subject to a majority vote of the members. Vestin Mortgage, Inc. is also the Manager of Vestin Fund II, LLC, (Fund II),
Vestin Fund III, LLC, (Fund III) and inVestin Nevada, Inc., entities in the
similar business as us. In June 2002, we changed our fiscal year end from December 31 to September 30.
Unaudited financial statements for the 12 months ended September 30, 2002 are
shown for comparative purposes. Management Estimates The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America (GAAP) requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates. Income Taxes Income tax effects resulting from our operations pass through to our members
individually and, accordingly, no provision for income taxes is included in the
financial statements. Cash and Cash Equivalents Cash and cash equivalents include interest-bearing and noninterest-bearing bank
deposits, money market accounts, short-term certificates of deposit with
original maturities of three months or less, and short-term instruments with a
liquidation provision of one month or less. Investment in Mortgage Loans F-7




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##### Table of Contents



Investments in mortgage loans are secured by trust deeds and mortgages.
Generally, all of our mortgage loans require interest only payments with a
balloon payment of the principal at maturity. We have both the intent and
ability to hold mortgage loans until maturity and therefore, mortgage loans are
classified and accounted for as held for investment and are carried at
amortized cost. Loans sold to or purchased from affiliates are accounted for
at the principal balance and no gain or loss is recognized by us or any
affiliate. Loan to value ratios are based on appraisals obtained at the time
of loan origination and may not reflect subsequent changes in value estimates.
Such appraisals, which may be commissioned by the borrower, are generally dated
within 12 months of the date of loan origination. The appraisals may be for the
current estimate of the as-if developed value of the property, which
approximates the post-construction value of the collateralized property
assuming that such property is developed. As-if developed values on raw land
loans or acquisition and development loans often dramatically exceed the
immediate sales value and may include anticipated zoning changes and timely
successful development by the purchaser. As most of the appraisals will be
prepared on an as-if developed basis, if a loan goes into default prior to any
development of a project, the market value of the property may be substantially
less than the appraised value. As a result, there may be less security than
anticipated at the time the loan was originally made. If there is less
security and a default occurs, we may not recover the full amount of the loan. We also invest in mortgage loans that have interest reserves. Loans with
interest reserves require the borrowers to maintain interest reserves funded
from the principal amount of the loan for a period of time. At September 30,
2004, we had investments mortgage loans that had interest reserves where the
total outstanding principal totaled approximately $150.7 million. These loans
had interest reserves of approximately $7.9 million. Our investments in these
loans approximated $18.2 million. At September 30, 2003, we had investments
mortgage loans that had interest reserves where the total outstanding principal
totaled approximately $79.5 million. These loans had interest reserves of
approximately $4.5 million. Our investments in these loans approximated $12.8
million. Revenue Recognition Interest is recognized as revenue when earned according to the terms of the
loans, using the effective interest method. We do not recognize interest
income on loans once they are determined to be impaired. A loan is impaired
when based on current information and events, it is probable that we will be
unable to collect all amounts due according to the contractual terms of the
loan agreement. Cash receipts will be allocated to interest income, except
when such payments are specifically designated by the terms of the loan as
principal reduction or when management does not believe our investment in the
loan is fully recoverable. Allowance for Loan Losses We maintain an allowance for
loan losses on our investment in mortgage loans
for estimated credit losses in our investment in mortgage loans portfolio. The
Managers estimate of losses is based on a number of factors including the
types and dollar amounts of loans in the portfolio, adverse situations that may
affect the borrowers ability to repay, prevailing economic conditions and the
underlying collateral securing the loan. Additions to the allowance are
provided through a charge to earnings and are based on an assessment of certain
factors which may indicate estimated losses on the loans. Actual losses on
loans are recorded as a charge-off or a reduction to the allowance for loan
losses. Subsequent recoveries of amounts previously charged off are added back
to the allowance or included in income when the property is sold. Real Estate Held For Sale Real estate held for sale includes real estate acquired through foreclosure and
is carried at the lower of cost or the propertys estimated fair value, less
estimated costs to sell. We seek to sell properties acquired through
foreclosure as quickly as circumstances permit. The carrying values of real
estate held for sale are assessed on a regular basis from updated appraisals,
comparable sales values or purchase offers. Real Estate Held For Sale  Seller Financed Seller financed real estate held for sale includes real estate acquired through
foreclosure and resold to independent third parties where we have provided the
financing and the borrower has not met certain criteria in accordance with F-8




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##### Table of Contents



Statement of Financial Accounting Standards (FAS) No. 66. FAS 66 requires the
borrower to have a certain percentage equity ownership (typically 20%) to allow
us to record the sale of a property. In addition, the borrower must maintain a
minimum commitment in the property on a continuing basis. Therefore, until the
borrower meets these requirements, the real estate is retained as real estate
held for sale. Secured Borrowings As of September 30, 2004, we had secured borrowings of $6.1 million related to
intercreditor agreements with various loan participants (Investors).
Pursuant to the intercreditor agreements, the Investor may invest in certain
loans with Vestin Mortgage, Fund II, Fund III and us (collectively, the Lead
Lenders). In the event of borrower non-performance, the intercreditor
agreements gives the Lead Lenders the right to either (i) continue to remit to
the investor the interest due on the participation amount; (ii) substitute an
alternative loan acceptable to the investor; or (iii) repurchase the
participation from the investor for the outstanding balance of the
participation plus accrued interest. Additionally, an Investor may participate in certain loans with Lead Lenders
through participation agreements. In the event of borrower non-performance,
the participation agreement allows the Investor to be repaid up to the amount
of the Investors investment prior to the Lead Lenders being repaid. Mortgage loan financing under the intercreditor and participation agreements
are accounted for as a secured borrowing in accordance with SFAS No. 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities. Fair Value of Financial Instruments The Financial Accounting Standards Boards Statement No. 107, Disclosures about
Fair Value of Financial Instruments, requires the determination of fair value
of our financial assets. The following methods and assumptions were used to
estimate the fair value of financial statements included in the following
categories:  (a)
    
    Certificate of Deposits and Short Term Investments: The carrying
amount of these instruments are at amortized cost which approximates
fair value.(b)
    
    Investment in Mortgage Loans: The carrying value of these
instruments, net of the allowance for loan losses, approximates the
fair value due to their short-term maturities. Fair values for loans,
which are delinquent and/or in foreclosure are indeterminable at this
time as no ready market exists for these loans, but fair value may be
significantly below the current carrying value.(c)
    
    Assets under Secured Borrowing. The carrying amount of these
instruments approximate fair value. The fair value is estimated based
upon projected cash flows discounted at the estimated current interest
rates at which similar loans would be made. Net Income Allocated to Members Net income allocated to members is computed by dividing income available to
members by the weighted average number of membership units outstanding for the
year. Segments We operate as one business segment. Reclassifications Certain reclassifications have been made to the prior years financial
statements to conform with the current year presentation. F-9




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##### Table of Contents



NOTE B  FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK Financial instruments with concentration of credit and market risk include cash
and loans secured by trust deeds. We maintain cash deposit accounts and certificates of deposit which, at times,
may exceed federally insured limits. We have not experienced any losses in such
accounts and believe we are not exposed to any significant credit risk on cash.
As of September 30, 2004 and 2003, we have $11,205,000 and $13,983,000,
respectively, in excess of the federally insured limits. As of September 30, 2004, 40% of our mortgage loans were in Nevada compared to
33.9% at September 30, 2003 and 7% of our mortgage loans were in Hawaii
compared to 21.1% at September 30, 2003. Additionally, as of September 30,
2004, 20% of our mortgage loans were in Arizona compared to 9% at September 30,
2003 and 20% of our mortgage loans were in California compared to 11% at
September 30, 2003. As a result of this geographical concentration of our
mortgage loans, a downturn in the local real estate markets in Nevada, Arizona,
Hawaii and/or California could have a material adverse effect on us. At September 30, 2004, the aggregate amount of loans to our three largest
borrowers represented 32% of our total investment in mortgage loans. These
mortgage loans consisted of construction and bridge loans, located in Arizona,
Nevada and Hawaii, with a first lien position, earning between 5% and 14%,
outstanding balances of approximately $18,733,000. At September 30, 2003, the
aggregate amount of loans to our three largest borrowers represented 23% of our
total mortgage loans. These mortgage loans consisted of construction and
bridge loans, located in Hawaii and Nevada, with a first lien position, earning
between 10.5% and 14.0%, outstanding balances of approximately $12,006,000 and
maturing from March 2004 through August 2005. Because we have a significant
concentration of credit risk with our three largest borrowers, a default by any
of such borrowers could have a material adverse effect on us. At September 30, 2004, there
were two loans with balances of approximately $6.7 million and $7.9
million representing 11.4% and 13.5%, respectively, of our total
investment in mortgage loans. These mortgage loans consist of
construction and bridge loans, located in Arizona and Nevada, with a
first lien position, earning 5% and 10%, respectively. At September
30,
2003, there were no such borrowers having an aggregate amount of 10%
or greater of our total mortgage loans. Most of our mortgage loans will require the borrower to make a balloon payment
of the principal at maturity. The success of a borrowers
ability to repay our
mortgage loan obligation in a large lump-sum payment may be dependent upon the
borrowers ability to refinance the obligation or otherwise 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. NOTE C  INVESTMENT IN MORTGAGE LOANS We have six mortgage loan products consisting of land, construction, commercial
building, bridge, residential, and acquisition and development loans. Mortgage
loans have effective interest rates ranging from 5.0% to 14.0% and 5.5% to
14.5% at September 30, 2004 and 2003, respectively. Revenue by product will
fluctuate based upon relative balances during the period. Investments in mortgage loans as of September 30, 2004 are as follows: Number
    
    
    
    
    
    WeightedLoan
    
    of
    
    
    
    
    
    Average
    
    Portfolio
    
    LoanType
    
    Loans
    
    Balance(1)
    
    Interest Rate
    
    Percentage
    
    To Value(2)Acquisition and development
    
    
    10
    
    
    $
    18,810,500
    
    
    
    9.71
    %
    
    
    32.02
    %
    
    
    63.01
    %Bridge
    
    
    9
    
    
    
    8,687,165
    
    
    
    10.65
    %
    
    
    14.79
    %
    
    
    49.98
    %Commercial
    
    
    8
    
    
    
    12,932,116
    
    
    
    12.22
    %
    
    
    22.01
    %
    
    
    77.19
    %Construction
    
    
    4
    
    
    
    12,181,975
    
    
    
    7.64
    %
    
    
    20.74
    %
    
    
    76.81
    %Land
    
    
    4
    
    
    
    6,133,890
    
    
    
    12.64
    %
    
    
    10.44
    %
    
    
    71.42
    %35
    
    
    $
    58,745,646
    
    
    
    10.28
    %
    
    
    100.00
    %
    
    
    67.94
    %
 Investments in mortgage loans as of September 30, 2003 are as follows: F-10




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##### Table of Contents



Number
    
    
    
    
    
    WeightedLoan
    
    of
    
    
    
    
    
    Average
    
    Portfolio
    
    LoanType
    
    Loans
    
    Balance(1)
    
    Interest Rate
    
    Percentage
    
    To Value(2)Acquisition and development
    
    
    4
    
    
    $
    11,436,435
    
    
    
    11.70
    %
    
    
    20.35
    %
    
    
    55.79
    %Bridge
    
    
    7
    
    
    
    8,035,547
    
    
    
    12.14
    %
    
    
    14.30
    %
    
    
    60.50
    %Commercial
    
    
    22
    
    
    
    23,210,297
    
    
    
    11.82
    %
    
    
    41.30
    %
    
    
    67.52
    %Construction
    
    
    6
    
    
    
    11,510,498
    
    
    
    12.66
    %
    
    
    20.48
    %
    
    
    56.77
    %Land
    
    
    5
    
    
    
    1,839,922
    
    
    
    11.84
    %
    
    
    3.27
    %
    
    
    53.62
    %Residential
    
    
    1
    
    
    
    168,000
    
    
    
    12.50
    %
    
    
    0.30
    %
    
    
    70.00
    %45
    
    
    $
    56,200,699
    
    
    
    12.02
    %
    
    
    100.00
    %
    
    
    61.48
    %
 (1) The following table reconciles the balance of the loan portfolio to the
amount shown on the accompanying Balance Sheet. The contra accounts represent
the amount of real estate held for sale sold to third parties where we provided
financing. GAAP requires the borrower to have a certain percentage equity
ownership (typically 20%) to allow us to record the sale of a property. In
addition, the borrower must maintain a minimum commitment in the property on a
continuing basis. Therefore, until the borrower meets this requirement, the
investment in the new loan is reduced by the amount originally invested in the
real estate held for sale. September 30, 2004
    
    September 30, 2003Balance
    
    BalanceBalance per Loan Portfolio
    
    $
    58,745,646
    
    
    $
    56,200,699Less:Seller financed loans included in real estate held for sale
    
    
    (10,801,448
    )
    
    
    (4,006,082
    )Allowance for Loan Losses
    
    
    (600,000
    )
    
    
    (500,000
    )Balance per Balance Sheet
    
    $
    47,344,198
    
    
    $
    51,694,617
 (2) Loan to value ratios are based on appraisals obtained at the time of loan
origination and may not reflect subsequent changes in value estimates. Such
appraisals are generally dated no greater than 12 months prior to the date of
loan origination and may have been commissioned by the borrower. The appraisals
may be for the current estimate of the as-if developed value of the property,
and which approximates the post-construction value of the collateralized
property assuming that such property is developed. As-if developed values on
raw land loans or acquisition and development loans often dramatically exceed
the immediate sales value and may include anticipated zoning changes, selection
by a purchaser against multiple alternatives, and successful development by the
purchaser; upon which development is dependent on availability of financing.
As most of the appraisals will be prepared on an as-if developed basis, if a
loan goes into default prior to any development of a project, the market value
of the property may be substantially less than the appraised value. As a
result, there may be less security than anticipated at the time the loan was
originally made. If there is less security and a default occurs, we may not
recover the full amount of the loan. September 30,2004
    
    Portfolio
    
    September 30, 2003
    
    PortfolioLoan Type
    
    Balance***
    
    Percentage
    
    Balance***
    
    PercentageFirst mortgages
    
    $
    57,830,608
    
    
    
    98.44
    %
    
    $
    56,200,699
    
    
    
    100.00
    %Second mortgages(3)
    
    
    915,038
    
    
    
    1.56
    %
    
    
    
    
    
    
    
    %$
    58,745,646
    
    
    
    100.00
    %
    
    $
    56,200,699
    
    
    
    100.00
    %
 *** Please see footnote (1) above (3) All of our second mortgages are junior to a first trust deed position
held by either us or our Manager. The following is a schedule of maturities of investments in mortgage loans as
of September 30, 2004: 2004
    
    $
    11,345,3602005
    
    
    24,961,3352006
    
    
    14,528,4612007
    
    
    7,910,490$
    58,745,646
 F-11




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##### Table of Contents



The following is a schedule by geographic location of investments in mortgage
loans: September 30, 2004
    
    Portfolio
    
    September 30, 2003
    
    PortfolioBalance***
    
    Percentage
    
    Balance***
    
    PercentageArizona
    
    $
    11,681,908
    
    
    
    19.89
    %
    
    $
    4,887,202
    
    
    
    9.36
    %California
    
    
    11,475,286
    
    
    
    19.53
    %
    
    
    5,751,298
    
    
    
    11.02
    %Colorado
Colorado
    
    
    
    
    
    
    
    
    
    
    163,333
    
    
    
    0.31
    %Florida
    
    
    
    
    
    
    
    %
    
    
    115,450
    
    
    
    0.22
    %Hawaii
    
    
    4,138,662
    
    
    
    7.05
    %
    
    
    10,992,254
    
    
    
    21.06
    %Nevada
    
    
    23,236,940
    
    
    
    39.56
    %
    
    
    21,698,057
    
    
    
    33.90
    %New Mexico
    
    
    
    
    
    
    
    
    
    
    168,000
    
    
    
    0.32New York
    
    
    3,320,000
    
    
    
    5.65
    %
    
    
    2,000,000
    
    
    
    3.83
    %North Carolina
    
    
    89,942
    
    
    
    0.15
    %
    
    
    
    
    
    
    Ohio
    
    
    
    
    
    
    
    
    
    
    400,000
    
    
    
    0.77
    %Oklahoma
    
    
    996,000
    
    
    
    1.70
    %
    
    
    
    
    
    
    Texas
    
    
    1,727,592
    
    
    
    2.94
    %
    
    
    6,080,095
    
    
    
    11.65Utah
    
    
    1,503,316
    
    
    
    2.56
    %
    
    
    3,369,010
    
    
    
    6.46
    %Washington
    
    
    576,000
    
    
    
    0.97
    %
    
    
    576,000
    
    
    
    1.76
    %$
    58,745,646
    
    
    
    100.00
    %
    
    $
    56,200,699
    
    
    
    100.00
    %
 *** Please see footnote (1) above. At September 30, 2004, five of our loans totaling $11.2 million were
non-performing (more than 90 days past due on interest payments) or past due on
principal. These loans have been placed on non-accrual of interest status. Our
Manager has commenced foreclosure proceedings on these loans and has evaluated
all of these loans and concluded that the underlying collateral is sufficient
to protect us against a loss of principal or interest. Accordingly, no specific
allowance for loan losses was deemed necessary for these loans. Balance at
    
    
    
    
    
    Number ofSeptember 30,
    
    
    
    
    
    Months Non-Description of Collateral
    
    2004
    
    Maturity Date
    
    PerformingRacetrack and hotel in Vernon Downs, NY
    
    $
    3,320,000
    
    
    
    6/25/2005
    
    
    
    1126 unit Ramada Inn Hotel in Mesquite, NV
    
    
    2,140,267
    
    
    
    06/18/2003
    
    
    
    154 cemeteries and 8 mortuaries in Hawaii
    
    
    4.138,662
    
    
    
    3/31/2004
    
    
    
    6Commercial parcels of land in Rancho
Cucamonga, CA, Palm Springs, CA, and
Cathedral City, CA (a)
    
    
    68,113
    
    
    
    6/16/2004
    
    
    
    3473 acres of residential and commercial
land in Utah
    
    
    1,503,317
    
    
    
    11/2/2001
    
    
    
    21$
    11,170,359
 (a)During October 2004 the borrower made the required principal and
interest payments to bring this loan to current and performing status. Because of the fact that any decision regarding the allowance for loan losses
reflects a judgment about the probability of future events, there is an
inherent risk that such judgments will prove incorrect. In such event, actual
losses may exceed (or be less than) the amount of any reserve. To the extent
that we experience losses greater than the amount of our reserves, we may incur
a charge to our earnings that will adversely affect our operating results and
the amount of any distributions payable to our Members. F-12




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##### Table of Contents



The following is a rollforward of the general allowance for loan losses for the
year ended September 30, 2004: Balance at
    
    
    
    
    
    
    
    
    
    Balance atSeptember 30,
    
    
    
    
    
    
    
    
    
    September 30,Description
    
    2003
    
    Provisions
    
    Deductions
    
    2004General Valuation
Allowance
    
    $
    500,000
    
    
    $
    100,000
    
    
    $
    
    
    
    $
    600,000
 In addition to the above-mentioned loans, at September 30, 2004, our Manager
had granted extensions on 10 loans pursuant to the terms of the original loan
agreements which permit extensions by mutual consent. Such extensions are
generally provided on loans where the original term was 12 months or less and
where a borrower requires additional time to complete a construction project or
negotiate take out financing. The aggregate amount due to us from borrowers
whose loans had been extended as of September 30, 2004 was approximately $6.9
million. At September 30, 2004, 7 such loans were performing with an
outstanding balance of $3.2 million and 3 such loans were non-performing with a
balance of $3.7 million. Our Manager concluded that no additional allowance for
loan losses was necessary with respect to such loans. NOTE D  REAL ESTATE HELD FOR SALE At September 30, 2004, we held 9 properties with a total carrying value of
$15.3 million, which were acquired through foreclosure and recorded as
investments in real estate held for sale. The summary below includes our
percentage ownership in each property. These investments in real estate held
for sale are accounted for at the lower of cost or fair value less costs to
sell with fair value based on appraisals and knowledge of local market
conditions. It is not our intent to invest in or own real estate as a
long-term investment. We seek to sell properties acquired through foreclosure
as quickly as circumstances permit. The following is a rollforward of
investments in real estate held for sale for the three months ended September
30, 2004: F-13




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##### Table of Contents



Percentage
    

    Balance atDate
    
    of
    
    SeptemberDescription
    
    Acquired
    
    Ownership
    
    30, 2003
    
    Acquisitions
    
    SalesCustom residential
property located in
Santa Fe, New
Mexico
    
    
    3/4/2003
    
    
    
    93
    %
    
    $
    1,191,055
    
    
    $
    
    
    
    $
    40 acres of land
containing 354
residential lots in
Henderson, Nevada
(2)
    
    
    2/28/2003
    
    
    
    66
    %
    
    
    6,917,600
    
    
    
    
    
    
    
    (1,505,297
    )A 30-unit
condominium complex
in Las Vegas,
Nevada
    
    
    2/4/2003
    
    
    
    17
    %
    
    
    215,431
    
    
    
    
    
    
    
    126 unit assisted
living facility in
Phoenix, Arizona
(1)
    
    
    9/8/2004
    
    
    
    10
    %
    
    
    
    
    
    
    1,525,340
    
    
    
    460 acre
residential
sub-division in
Lake Travis, Texas
(1)
    
    
    8/3/2004
    
    
    
    34
    %
    
    
    
    
    
    
    1,784,041
    
    
    
    140 Unit/224 bed
senior facility in
Mesa, Arizona (1)
(3)
    
    
    05/26/04
    
    
    
    14
    %
    
    
    
    
    
    
    1,020,110
    
    
    
    28 acres of raw
land in Mesquite,
Nevada (2)
    
    
    11/27/2002
    
    
    
    58
    %
    
    
    2,304,130
    
    
    
    
    
    
    
    (145,000
    )Assisted living
facility in Las
Vegas, Nevada (2)
    
    
    9/23/2004
    
    
    
    48
    %
    
    
    11,776,730
    
    
    
    5,292,328
    
    
    
    (8,344,896
    )An approximate
200-unit apartment
complex located in
Las Vegas, Nevada
(2)
    
    
    1/27/2003
    
    
    
    98
    %
    
    
    112,312
    
    
    
    58,254
    
    
    
    (170,566
    )Hotel/Casino in Las
Vegas, Nevada (1)
(3)
    
    
    2/02/2004
    
    
    
    27
    %
    
    
    
    
    
    
    2,251,030
    
    
    
    (119,299
    )Total
    
    
    
    
    
    
    
    
    
    $
    22,517,258
    
    
    $
    11,931,103
    
    
    $
    (10,285,058
    )
   [Continued from above table, first column(s) repeated] Reductionin Note
    
    Transfer
    
    
    
    
    
    Balance atPayable
    
    Ownership
    
    Valuation/
    
    SeptemberDescription
    
    Fund II
    
    To Fund II
    
    Loss on Sale
    
    30, 2004Custom residential
property located in
Santa Fe, New
Mexico
    
    $
    
    
    
    $
    
    
    
    $
    (138,792
    )
    
    $
    1,052,26340 acres of land
containing 354
residential lots in
Henderson, Nevada
(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,412,303A 30-unit
condominium complex
in Las Vegas,
Nevada
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    215,431126 unit assisted
living facility in
Phoenix, Arizona
(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,525,340460 acre
residential
sub-division in
Lake Travis, Texas
(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,784,041140 Unit/224 bed
senior facility in
Mesa, Arizona (1)
(3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,020,11028 acres of raw
land in Mesquite,
Nevada (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,159,130Assisted living
facility in Las
Vegas, Nevada (2)
    
    
    (454,989
    )
    
    
    (7,423,645
    )
    
    
    (845,528
    )
    
    
    An approximate
200-unit apartment
complex located in
Las Vegas, Nevada
(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Hotel/Casino in Las
Vegas, Nevada (1)
(3)
    
    
    
    
    
    
    
    
    
    
    (13,501
    )
    
    
    2,118,230Total
    
    $
    (454,989
    )
    
    $
    (7,423,645
    )
    
    $
    (997,821
    )
    
    $
    15,286,848
  (1)
    
    Foreclosures for the year ended September 30, 2004:During February 2004, we foreclosed on two loans and took title to the
collateral which consists of the Castaways hotel/casino on approximately 25
acres of land. No specific reserve was provided upon foreclosure based on the
estimated underlying collateral value. We have 27% ownership in this
property.Through foreclosure proceedings in April 2004, we assumed ownership of a 140
Unit/224 bed senior facility in Mesa, Arizona. A receiver has been appointed
and the business has continued operations. The property has been listed for
sale and based on its estimated value and the underlying personal guarantee
from the borrower, no valuation allowance was deemed necessary as of
September 30, 2004. We have 14% ownership in this property. F-14




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##### Table of Contents



During the three months ended September 30, 2004 we foreclosed on loan
secured by a 460 acre residential sub-division in Lake Travis, Texas. Our
Manager has evaluated the carrying value of the property and based on its
estimated value and the underlying personal guarantee from the borrower, no
valuation allowance was deemed necessary as of September 30,
2004. We have 34% ownership in this property.During the three months ended September 30, 2004 we foreclosed on a loan
secured by a 126 unit assisted living facility in Phoenix, Arizona. Our
Manager has evaluated the carrying value of the property and based on its
estimated value and the underlying personal guarantee from the borrower, no
valuation allowance was deemed necessary as of September 30,
2004. We have 10% ownership in this property.(2)
    
    Sales of real estate held for sale for the year ended September 30, 2004:On October 20, 2003, we sold an approximate 200 unit apartment complex to a
third party. At that time the property was transferred to real estate held
for sale  seller financed as further discussed below.During September 2004 we and Fund II entered into an agreement to sell the
remaining 29 acres of raw land in Mesquite, Nevada for $6.2 million. Prior
to quarter end, $145,000 was released from escrow representing an early
release of funds. The transaction will result in a net gain but will not be
finalized for up to six months and the remaining proceeds received thereupon.During July 2004 we sold 50 lots within the 40 acre subdivision in Henderson,
Nevada for $1,505,397.During July 2003, we foreclosed on our second mortgage on a partially
completed assisted living facility located in Las Vegas, Nevada and obtained
ownership to the property subject to the existing debt. Fund II also owned a
fractional interest in the first deed of trust totaling $4.6 million but did
not participate in the foreclosure. During the three months ended September
30, 2004, we sold the property for approximately $11.5 million. At the time
of the sale, we transferred to Fund II its pro-rata interest in the property.
Since we and Fund II provided the financing and the borrower did not meet
the minimum equity requirement to be treated as a sale under GAAP, the
property remains as an asset under real estate held for sale  seller
financed.(3)
    
    Real estate held for sale sold subsequent to quarter end:During October 2004, we and Fund II sold the Castaways Hotel/Casino in Las
Vegas, Nevada of which our portion of the net cash proceeds totaled
$5,825,132. We originally sold this property under a 100% seller financing
arrangement. The borrowers then sold the property to an unrelated third
party which resulted in a payoff of the note and also allowed us to record
the sale and remove the asset from seller financed real estate held for sale.
In addition, during September 2004, we received a promissory note from the
guarantors of the loan in the amount of $160,000 in exchange for a release of
their personal guarantees. Since payments on the note do not begin for 18
months from the date of the note, we discounted the face value of the note to
$119,299 which is based on a discount rate of 8%. The transaction resulted
in a loss of $13,501 which is reflected in our valuation adjustments for the
year ended September 30, 2004.During November 2004, we and Fund II sold the 140 Unit/224 bed senior
facility in Mesa, Arizona for of which our net proceeds totaled $1,027,855.
We received cash of $160,206 and held back a promissory note and first deed
of trust totaling $867,679. This transaction resulted in a loss of $12,688
which will be reflected in the quarter ended December 31, 2004.During November 2004, we and Vestin Group, Inc. and affiliates sold a 30-unit
condominium complex in Las Vegas, Nevada for of which our net proceeds
totaled $1,990,353. We received cash of $396,603 and held back a promissory
note and first deed of trust totaling $1,593,750. This transaction resulted
in a gain of $114,315 which will be reflected in the quarter ended December
31, 2004.Foreclosures subsequent to year end:During October 2004, we foreclosed and took title to 32% of a 126 unit Ramada
Inn Hotel in Mesquite, NV. Fund II owns the other 68% Our Manager has
evaluated the carrying value of $2,140,267 and based on its F-15




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##### Table of Contents



estimated value and the underlying personal guarantee from the borrower, no
valuation allowance was deemed necessary as of the date of foreclosure. NOTE E  REAL ESTATE HELD FOR SALE-SELLER FINANCED At September 30, 2004, we held 5 properties with a total carrying value of
$10.8 million which have been sold in transactions where we provided the
financing to the purchaser. GAAP requires us to include these properties in
real estate held for sale until the borrower has met and maintained a certain
percentage of equity ownership, which is typically 20%. We may share ownership
of such properties with Fund I, the Manager, or other unrelated parties. The
summary below includes our percentage ownership in each property. These
investments in real estate held for sale are accounted for at the lower of cost
or fair value less costs to sell with fair value based on appraisals and
knowledge of local market conditions. The following is a rollforward of seller
financed real estate held for sale for the three months ended September 30,
2004: Percentage
    
    Balance at
    
    
    
    
    
    
    
    
    
    Valuation/
    
    Balance atDate
    
    of
    
    September
    
    
    
    
    
    
    
    
    
    Other
    
    September 30,Description
    
    Acquired
    
    Ownership
    
    30, 2003
    
    Acquisitions
    
    Sales
    
    Adjustments
    
    2004An approximate 200-unit
apartment complex located
in Las Vegas, Nevada
    
    
    1/27/2003
    
    
    
    98
    %
    
    $
    
    
    
    $
    170,565
    
    
    $
    
    
    
    $
    
    
    
    $
    170,565An uncompleted golf course
in Mesquite, Nevada
    
    
    11/6/2002
    
    
    
    36
    %
    
    
    2,171,813
    
    
    
    
    
    
    
    
    
    
    
    (696,995
    )
    
    
    1,474,81836 acres of raw land in
Mesquite, Nevada
    
    
    11/27/2002
    
    
    
    42
    %
    
    
    492,006
    
    
    
    
    
    
    
    
    
    
    
    (157,894
    )
    
    
    334,112Assisted living facility in
Las Vegas, Nevada (1)
    
    
    9/23/2004
    
    
    
    48
    %
    
    
    
    
    
    
    7,910,491
    
    
    
    
    
    
    
    
    
    
    
    7,910,491Raw land in Mesquite, Nevada
    
    
    11/27/2002
    
    
    
    41
    %
    
    
    1,342,263
    
    
    
    
    
    
    
    
    
    
    
    (430,801
    )
    
    
    911,462$
    4,006,082
    
    
    $
    8,081,056
    
    
    $
    
    
    
    $
    (1,285,690
    )
    
    $
    10,801,448
 NOTE F  NOTE RECEIVABLE As of September 30, 2004, note receivable consisted of a promissory note
totaling $160,000 which is discounted to a present value of $119,299 as further
discussed in Note D. NOTE G  SECURED BORROWINGS As of September 30, 2004 and 2003, we have approximately $6,134,000 and
$20,324,000, respectively, in secured borrowings pursuant to an intercreditor
agreement with the related amounts included in assets under secured borrowing.
For the years ended September 30, 2004 and 2003, we recorded interest expense
of $1,777,000 and $1,121,000, respectively, related to the secured borrowing. NOTE H  MEMBERS EQUITY  1.
    
    Membership Units As of September 30, 2004, the Manager had contributed $1,000,000 to us in
connection with offering costs incurred on behalf of us in return for 100,000
units.  2.
    
    Allocations and Distributions F-16




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##### Table of Contents



In accordance with the operating agreement, our profits, gains and losses are
to be credited to and charged against each member in proportion to their
respective capital accounts as of the close of business on the last day of each
calendar month. Interest received on mortgage loans net of expenses, is distributed monthly to
members, members may elect to reinvest their distributions. Distributions of proceeds from the repayment of principal on a mortgage loan
will be made to the members pro rata based on their capital accounts.  3.
    
    Working Capital Reserves We are required by the operating agreement to maintain working capital reserves
of approximately 3% of the aggregate capital accounts of the members. This
reserve is available to pay any future expenses in excess of revenues, satisfy
obligations of underlying security properties, expend money to satisfy our
unforeseen obligations and for other permitted uses of its working capital.
Working capital reserves of up to 3% in cash or cash equivalents, short-term
investments and certificates of deposit are excluded from the funds committed
to mortgage investments in determining what proportion of the offering proceeds
and reinvested distributions have been invested in mortgage loans. NOTE I  RELATED PARTY TRANSACTIONS Transactions with the Manager Our Manager is entitled to receive from us a management fee of up to 0.25% of
our aggregate capital contribution, paid monthly in arrears. The amount of
management fees reported to our Manager for the fiscal years ended September
30, 2004 and 2003 approximated $255,000 and $253,000, respectively. As of September 30, 2004 and September 30, 2003, we owed our Manager
approximately $652,000 and $362,000, respectively, generally for foreclosure
and property maintenance costs advanced on our behalf and distributions due
related to units owned by our Manager. As of September 30, 2004, Vestin Mortgage had an investment in us of
approximately $1.0 million, which consists of certain costs paid on our behalf
related to the registration and start-up costs. Vestin Mortgage has received
100,000 units from us related to this investment. From time to time we may acquire or sell investments in mortgage loans from/to
our Manager or other related parties pursuant to the terms of our Operating
Agreement provided the price does not exceed the original cost. No gain or
loss is recorded on these transactions as it is not our intent to make a profit
on the purchase or sale of such investments. The purpose is generally to
diversify our portfolio by syndicating loans, thereby providing us with
additional capital to make additional loans. During the year ended September 30, 2003, we purchased $479,000 in mortgage
loans from our Manager. Transactions with the Funds As of June 30, 2004 we owed Fund II approximately $1,470,000 primarily
related to payments made on our behalf for the maintenance of real
estate owned. During the year ended September 30, 2003 we purchased $14,469,950 in mortgage
loans from Fund II. During the same period we sold $27,460,214 in mortgage
loans to Fund II. Transactions with other related parties During the years ended September 30, 2004 and 2003, we purchased a mortgage
loan in the amount of $350,000 and $6,509,307, respectively from a company
wholly-owned by our Managers Chief Executive Officer. Also, during F-17




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##### Table of Contents



the same period, we sold $290,938 in mortgage loans to the same party. During the year ended September 30, 2003 we sold $4,500,000 in loans to Vestin
Group, Inc. During the year ended September 30, 2004 we paid $4,967 for legal fees to a law
firm in which the Secretary of Vestin Group has an equity ownership interest. NOTE J  REVENUE RELATED TO THE SALE OF REAL ESTATE We received a promissory note in the amount of $4,666,667 in lieu of cash from
an unaffiliated party in connection with the sale of real estate located in the
City of Mesquite, Nevada. The note required monthly interest payments at a rate
of 8.5% per annum and had an original maturity date of June 13, 2005. In
addition, we loaned $0.9 million to the unaffiliated party and received a
mortgage note with an original maturity date of June 13, 2004 in connection
with the sale. We were using the cost recovery method of accounting for the
transaction. Accordingly, the Company did not recognize any income on the $4.7
million note until the principal balance of both notes were paid in full which
occurred in the first calendar quarter of 2004. Under the cost recovery method,
interest payments received by the Company in excess of the principal balance
are not recorded as income until such time as the note is paid off. In
February 2004, both notes were paid off and the Company recorded the $4.7
million as revenue related to the sale of real estate related to the original
note and $0.3 million in interest income related to interest payments received
prior to loan payoff. NOTE K  RECENT ACCOUNTING PRONOUNCEMENTS In January 2003, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 46, Consolidation of Variable Interest Entities, an
Interpretation of ARB No. 51(FIN No. 46). In December 2003, the FASB issued
FASB Interpretation No. 46R, which served to clarify guidance in FIN No. 46.
The FASB deferred the effective date for applying the provisions of FIN No. 46
for certain variable interest entities to periods ending after March 15, 2004.
The implementation of FIN No. 46, as revised, had no impact on our financial
statements. NOTE L  LEGAL MATTERS INVOLVING THE MANAGER Vestin Group, Vestin Mortgage, and Del Mar Mortgage, Inc., a company wholly
owned by Michael Shustek, the largest shareholder and CEO of Vestin Group are
defendants in a civil action entitled Desert Land, L.L.C. et al. v. Owens
Financial Group, Inc. et al (the Action). The Action was initiated by Desert
Land, L.L.C. (Desert Land) on various loans arranged by Del Mar Mortgage,
Inc. and/or Vestin Mortgage. On April 10, 2003, the United States District
Court for the District of Nevada (the Court) entered judgment jointly and
severally in favor of Desert Land against Vestin Group, Vestin Mortgage and Del
Mar Mortgage, Inc. Judgment was predicated upon the Courts finding that Del
Mar Mortgage, Inc. received an unlawful penalty fee from the plaintiffs. Defendants subsequently filed a motion for reconsideration. The Court denied
the motion and, on August 13, 2003, held that Vestin Group, Vestin Mortgage,
and Del Mar Mortgage, Inc. are jointly and severally liable for the judgment in
the amount of $5,683,312 (which amount includes prejudgment interest and
attorneys fees). On August 27, 2003, the Court stayed execution of the
judgment against Vestin Group and Vestin Mortgage based upon the posting of a
bond in the amount of $5,830,000. The bond was arranged by Michael Shustek and
was posted without any cost or obligation to Vestin Group and Vestin Mortgage.
Additionally, Del Mar Mortgage, Inc. has indemnified Vestin Group and Vestin
Mortgage for any losses and expenses in connection with the Action, and Mr.
Shustek has guaranteed the indemnification. On September 12, 2003, all of the
defendants held liable to Desert Land appealed the judgment to the Ninth
Circuit United States Court of Appeals. We are not a party to the Action. Our Manager is involved in a number of legal proceedings concerning matters
arising in connection with the conduct of their business activities. The
Manager believes it has meritorious defenses to each of these actions and
intends to defend them vigorously. The Manager believes that it is not a party
to any pending legal or arbitration proceedings that would have a material
adverse effect on the Managers financial condition or results of operations or
cash flows, although it is possible that the outcome of any such proceedings
could have a material impact on the Managers net income in any particular
period. F-18




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##### Table of Contents



NOTE M  LEGAL MATTERS INVOLVING THE COMPANY The staff of the Pacific Regional Office of the Securities and Exchange
Commission (SEC) has been conducting an informal inquiry into certain matters
related to us, Vestin Group, Fund II and Fund III. The staff of the SEC has not
identified the reasons for its inquiry, which remains ongoing as of December
14, 2004. We believe we have complied with SEC disclosure requirements and have
cooperated with the inquiry. We cannot at this time predict the outcome of the
inquiry. We are involved in a number of legal proceedings concerning matters arising in
connection with the conduct of our business activities. We believe we have
meritorious defenses to each of these actions and intends to defend them
vigorously. We believe that we are not a party to any pending legal or
arbitration proceedings that would have a material adverse effect on our
financial condition or results of operations or cash flows, although it is
possible that the outcome of any such proceedings could have a material impact
on our net income in any particular period. NOTE N  REDEMPTION LIMITATION In order to comply with our operating agreement and the Internal Revenue Code,
we may redeem no more than 10% of the aggregate members capital in any
calendar year. As of September 30, 2004, redemptions made since inception
totaled $30.4 million. Balances in members capital accounts for as of January
1, 2004 was $89.5 million, which would limit redemptions to $9.0 million for
calendar 2004. As of September 30, 2004, we had paid approximately $7.7
million in redemptions in 2004, and had $1.2 million in redemptions that remain
to be fulfilled in 2004. As of September 30, 2004, requests to redeem
approximately $8.1 million in 2005, $7.2 million in 2006, $6.5 million in 2007,
$5.9 million in 2008, $5.3 million in 2009, $4.8 million in 2010, $4.3 million
in 2011, and $3.9 million in 2012 had been logged. NOTE O  SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) The following schedule is a selected quarterly financial date for fiscal year
ended September 30, 2004: First
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    Quarter
    
    YearRevenues
    
    $
    2,048,148
    
    
    $
    6,831,323
    
    
    $
    1,965,319
    
    
    $
    1,821,410
    
    
    $
    12,666,200Expenses
    
    
    1,260,541
    
    
    
    953,926
    
    
    
    718,824
    
    
    
    1,165,854
    
    
    
    4,099,145Net income
    
    $
    787,607
    
    
    $
    5,877,397
    
    
    $
    1,246,495
    
    
    $
    655,556
    
    
    $
    8,567,055Net income allocated to members
per weighted average membership
units
    
    $
    0.09
    
    
    $
    0.68
    
    
    $
    0.15
    
    
    $
    0.08
    
    
    $
    1.03Weighted average membership units
    
    
    9,110,711
    
    
    
    8,664,702
    
    
    
    8,311,724
    
    
    
    8,385,189
    
    
    
    8,339,404
 The following schedule is a selected quarterly financial date for fiscal year
ended September 30, 2003: First
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    Quarter
    
    YearRevenues
    
    $
    2,656,246
    
    
    $
    2,512,144
    
    
    $
    2,642,236
    
    
    $
    2,553,822
    
    
    $
    10,364,448Expenses
    
    
    369,043
    
    
    
    395,572
    
    
    
    4,063,827
    
    
    
    1,223,647
    
    
    
    6,052,089Net income
    
    $
    2,287,203
    
    
    $
    2,116,572
    
    
    $
    (1,421,591
    )
    
    $
    1,330,175
    
    
    $
    4,312,359Net income allocated to members
per weighted average membership
units
    
    $
    0.23
    
    
    $
    0.22
    
    
    $
    (0.15
    )
    
    $
    0.14
    
    
    $
    0.76Weighted average membership units
    
    
    9,920,256
    
    
    
    9,838,467
    
    
    
    9,553,031
    
    
    
    9,270,833
    
    
    
    9,668,310
 F-19




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##### Table of Contents



NOTE P  SUBSEQUENT EVENTS On December 7, 2004 Vestin Group filed a Form 8-K with the SEC announcing that
effective January 1, 2005, John Alderfer will assume the responsibilities of
Chief Financial Officer and treasurer of Vestin Group, succeeding Lance
Bradford. John Alderfer will function as the equivalent of our Chief Financial
Officer. Real estate held for sale sold subsequent to quarter end:  During October 2004, we and Fund II sold the Castaways Hotel/Casino in Las
Vegas, Nevada of which our portion of the net cash proceeds totaled
$5,825,132. We originally sold this property under a 100% seller financing
arrangement. The borrowers then sold the property to an unrelated third
party which resulted in a payoff of the note and also allowed us to record
the sale and remove the asset from seller financed real estate held for sale.
In addition, during September 2004, we received a promissory note from the
guarantors of the loan in the amount of $160,000 in exchange for a release of
their personal guarantees. Since payments on the note do not begin for 18
months from the date of the note, we discounted the face value of the note to
$119,299 which is based on a discount rate of 8%. The transaction resulted
in a loss of $13,501 which is reflected in our valuation adjustments for the
year ended September 30, 2004.During November 2004, we and Fund II sold the 140 Unit/224 bed senior
facility in Mesa, Arizona for of which our net proceeds totaled $1,027,855.
We received cash of $160,206 and held back a promissory note and first deed
of trust totaling $867,679. This transaction resulted in a gain of $1,547
which will be reflected in the quarter ended December 31, 2004.During November 2004, we and Vestin Group, Inc. and affiliates sold a 30-unit
condominium complex in Las Vegas, Nevada for of which our net proceeds
totaled $1,990,353. We received cash of $396,603 and held back a promissory
note and first deed of trust totaling $1,593,750. This transaction resulted
in a gain of $114,315 which will be reflected in the quarter ended December
31, 2004.Foreclosures subsequent to year end:During October 2004, we foreclosed and took title to 32% of a 126 unit Ramada
Inn Hotel in Mesquite, NV. Fund II owns the other 68% Our Manager has
evaluated the carrying value of $2,140,267 and based on its estimated value
and the underlying personal guarantee from the borrower, no valuation
allowance was deemed necessary as of the date of foreclosure. F-20




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##### Table of Contents



Schedule I Vestin Fund I, LLC 
 MORTGAGE LOANS ON REAL ESTATE 
  Balance, December 31, 2000
    
    
    39,376,619Additions during the periodNew mortgage loans
    
    
    136,896,686Mortgage loans bought
    
    
    Deductions during the periodCollections of principal
    
    
    25,669,492Foreclosed loans (Real estate held for sale)
    
    
    Mortgage loans sold
    
    
    53,375,65779,045,149Balance, December 31, 2001
    
    
    97,228,156Additions during the periodNew mortgage loans
    
    
    40,070,662Mortgage loans bought
    
    
    60,000Deductions during the periodCollections of principal
    
    
    33,438,414Foreclosed loans (Real estate held for sale)
    
    
    1,541,258Mortgage loans sold
    
    
    11,187,83846,167,510Balance, September 30, 2002
    
    $
    91,191,308Additions during the periodNew mortgage loans
    
    
    36,814,532Mortgage loans bought
    
    
    21,359,660Mortgage loans transferred
    
    
    4,149,318Deductions during the periodCollections of principal
    
    
    35,078,802Foreclosed loans (Real estate held for sale)
    
    
    32,960,248Mortgage loans sold
    
    
    33,281,151101,320,201Balance, September 30, 2003
    
    $
    52,194,617Additions during the periodNew mortgage loans
    
    
    42,733,616Mortgage loans bought
    
    
    2,848,464Deductions during the periodCollections of principal
    
    
    38,341,187Foreclosed loans (Real estate held for sale)
    
    
    5,963,174Mortgage loans sold
    
    
    5,528,138(4,250,419
    )Balance, September 30, 2004
    
    $
    47,944,198
 F-21




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##### Table of Contents



Schedule II Vestin Fund I, LLC MORTGAGE LOANS ON REAL ESTATE 
  As of September 30, 2004: Carrying
    
    
    
    
    
    AmountFace Amount of
    
    amount of
    
    Maturity
    
    Subject toType of Property
    
    Interest Rate
    
    Mortgage
    
    mortgage
    
    Date
    
    DelinquencyAcquisition and
Development
    
    
    8%-14
    %
    
    $
    159,191,000
    
    
    $
    18,810,500
    
    
    
    2/05-3/06
    
    
    $
    1,503,317Construction
    
    
    5%-14
    %
    
    $
    31,529,136
    
    
    $
    12,181,975
    
    
    
    5/05-9/07
    
    
    $
    2,140,267Commercial
    
    
    10%-14
    %
    
    $
    82,535,000
    
    
    $
    12,932,116
    
    
    
    11/04-7/05
    
    
    $
    Land
    
    
    12%-14
    %
    
    $
    34,379,000
    
    
    $
    6,133,890
    
    
    
    3/05-7/05
    
    
    $
    Bridge
    
    
    10%-13
    %
    
    $
    36,131,000
    
    
    $
    8,687,165
    
    
    
    10/04-4/06
    
    
    $
    7,526,775
 As of September 30, 2003: Carrying
    
    
    
    
    
    AmountFace Amount of
    
    amount of
    
    Maturity
    
    Subject toType of Property
    
    Interest Rate
    
    Mortgage
    
    mortgage
    
    Date
    
    DelinquencyCommercial
    
    
    5.5%-14
    %
    
    $
    222,160,000
    
    
    $
    23,210,297
    
    
    
    12/02-6/05
    
    
    $
    4,750,000Construction
    
    
    12%-14.5
    %
    
    $
    88,150,000
    
    
    $
    11,510,498
    
    
    
    11/01-8/05
    
    
    $
    3,847,345Acquisition and
Development
    
    
    12%-14
    %
    
    $
    76,700,000
    
    
    $
    7,430,353
    
    
    
    2/02-9/04
    
    
    $
    3,369,010Land
    
    
    10%-13
    %
    
    $
    14,859,500
    
    
    $
    1,839,922
    
    
    
    3/01-6/04
    
    
    $
    220,780Bridge
    
    
    11%-14
    %
    
    $
    73,565,000
    
    
    $
    8,035,547
    
    
    
    7/03-6/05
    
    
    $
    816,155Residential
    
    
    12.5
    %
    
    $
    168,000
    
    
    $
    168,000
    
    
    
    8/03-8/04
    
    
    $
    
 F-22




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##### Table of Contents



Schedule III Vestin Fund I, LLC MORTGAGE LOANS ON REAL ESTATE 
  As of September 30, 2004: Carrying
    
    
    
    
    
    AmountFace Amount of
    
    
    
    
    
    amount of
    
    Maturity
    
    Subject toLien Position
    
    Mortgage
    
    Interest Rate
    
    mortgage
    
    Date
    
    Delinquency1st
    
    $
    340,940,136
    
    
    
    5.0%-14
    %
    
    $
    57,830,608
    
    
    
    10/04-9/04
    
    
    $
    11,170,3582nd
    
    $
    2,825,000
    
    
    
    10.0%-13.0
    %
    
    $
    915,038
    
    
    
    12/04-3/05
    
    
    $
    
 As of September 30, 2003: AmountFace Amount of
    
    Interest
    
    Carrying amount
    
    Maturity
    
    Subject toLien Position
    
    Mortgage
    
    Rate
    
    of mortgage
    
    Date
    
    Delinquency1st
    
    $
    475,602,500
    
    
    
    5.5%-14.5
    %
    
    $
    52,194,617
    
    
    
    2/02-8/05
    
    
    $
    13,003,2902nd
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
 F-23




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##### Table of Contents



Schedule IV Vestin Fund I, LLC MORTGAGE LOANS ON REAL ESTATE 
  As of September 30, 2004: Carrying
    
    AmountDescription
    
    Interest
    
    Maturity
    
    Lien
    
    Face Amount of
    
    Amount of
    
    Subject toof Loan
    
    Rate
    
    Date
    
    Position
    
    Mortgage
    
    Mortgage
    
    DelinquencyLand
    
    
    14.00
    %
    
    
    7/21/05
    
    
    1st
    
    $
    8,645,000
    
    
    $
    1,500,000
    
    
    $
    Acquisition and
Development
    
    
    14.00
    %
    
    
    2/1/02
    
    
    1st
    
    $
    7,000,000
    
    
    $
    1,503,317
    
    
    $
    1,503,317Acquisition and
Development
    
    
    13.00
    %
    
    
    4/22/05
    
    
    1st
    
    $
    20,000,000
    
    
    $
    1,781,932
    
    
    $
    Construction
    
    
    11.00
    %
    
    
    5/21/05
    
    
    1st
    
    $
    6,000,000
    
    
    $
    2,000,000
    
    
    $
    Construction
    
    
    14.00
    %
    
    
    6/18/03
    
    
    1st
    
    $
    6,705,000
    
    
    $
    2,140,267
    
    
    $
    2,140,267Acquisition and
Development
    
    
    9.00
    %
    
    
    1/13/05
    
    
    1st
    
    $
    30,000,000
    
    
    $
    2,231,507
    
    
    $
    Land
    
    
    12.00
    %
    
    
    12/18/04
    
    
    1st
    
    $
    12,365,000
    
    
    $
    2,308,110
    
    
    $
    Acquisition and
Development
    
    
    8.00
    %
    
    
    8/15/05
    
    
    1st
    
    $
    9,500,000
    
    
    $
    2,720,391
    
    
    $
    Commercial
    
    
    11.00
    %
    
    
    7/14/05
    
    
    1st
    
    $
    12,500,000
    
    
    $
    3,000,000
    
    
    $
    Bridge
    
    
    11.00
    %
    
    
    6/30/05
    
    
    1st
    
    $
    26.000.000
    
    
    $
    3,320,000
    
    
    $
    3,320,000Bridge
    
    
    10.00
    %
    
    
    3/30/06
    
    
    1st
    
    $
    35,000,000
    
    
    $
    3,672,128
    
    
    $
    Acquisition and
Development
    
    
    8.00
    %
    
    
    1/25/06
    
    
    1st
    
    $
    35,000,000
    
    
    $
    4,105,958
    
    
    $
    Bridge
    
    
    14.00
    %
    
    
    3/31/04
    
    
    1st
    
    $
    34,000,000
    
    
    $
    4,138,662
    
    
    $
    4,138,662Bridge
    
    
    10.00
    %
    
    
    4/30/06
    
    
    1st
    
    $
    15,000,000
    
    
    $
    6,684,000
    
    
    $
    Construction
    
    
    5.00
    %
    
    
    6/28/05
    
    
    1st
    
    $
    15,334,136
    
    
    $
    7,910,491
    
    
    $
    
 F-24




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##### Table of Contents



As of September 30, 2003: Carrying
    
    AmountDescription
    
    Interest
    
    Maturity
    
    Lien
    
    Face Amount of
    
    Amount of
    
    Subject toof Loan
    
    Rate
    
    Date
    
    Position
    
    Mortgage
    
    Mortgage
    
    DelinquencyCommercial
    
    
    7.00
    %
    
    
    6/14/05
    
    
    1st
    
    $
    2,000,000
    
    
    $
    2,000,000
    
    
    $
    2,000,000Commercial
    
    
    14.00
    %
    
    
    4/6/03
    
    
    1st
    
    $
    8,400,000
    
    
    $
    2,500,000
    
    
    $
    2,500,000Commercial
    
    
    12.00
    %
    
    
    11/27/03
    
    
    1st
    
    $
    8,000,000
    
    
    $
    1,799,950
    
    
    $
    Commercial
    
    
    12.00
    %
    
    
    11/27/03
    
    
    1st
    
    $
    29,000,000
    
    
    $
    2,079,484
    
    
    $
    Commercial
    
    
    14.00
    %
    
    
    3/31/04
    
    
    1st
    
    $
    34,000,000
    
    
    $
    4,138,662
    
    
    $
    Bridge
    
    
    11.00
    %
    
    
    6/30/03
    
    
    1st
    
    $
    23,000,000
    
    
    $
    2,000,000
    
    
    $
    Bridge
    
    
    12.50
    %
    
    
    8/19/04
    
    
    1st
    
    $
    20,500,000
    
    
    
    3,398,779
    
    
    $
    Acquisition and
Development
    
    
    14.00
    %
    
    
    2/1/02
    
    
    1st
    
    $
    7,000,000
    
    
    $
    3,369,010
    
    
    $
    3,369,010Acquisition and
Development
    
    
    14.00
    %
    
    
    6/28/03
    
    
    1st
    
    $
    32,000,000
    
    
    $
    2,759,100
    
    
    $
    Construction
    
    
    14.00
    %
    
    
    11/18/01
    
    
    1st
    
    $
    4,500,000
    
    
    $
    2,083,050
    
    
    $
    2,083,050Construction
    
    
    14.50
    %
    
    
    6/18/03
    
    
    1st
    
    $
    6,700,000
    
    
    $
    2,140,270
    
    
    $
    Construction
    
    
    14.50
    %
    
    
    6/8//03
    
    
    1st
    
    $
    6,100,000
    
    
    $
    1,764,295
    
    
    $
    1,764,295Construction
    
    
    13.50
    %
    
    
    8/13/04
    
    
    1st
    
    $
    51,450,000
    
    
    $
    4,468,942
    
    
    $
    
 F-25




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##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized. Vestin Fund I, LLCBy:
    
    Vestin Mortgage, Inc., its sole managerBy:
    
    /s/ Michael V. ShustekMichael V. ShustekChief Executive Officer and Director of the Manager(Principal Executive Officer of Manager)By:
    
    /s/ Lance K. BradfordLance K. BradfordChief Financial Officer of the Manager
 Dated: December 14, 2004




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##### Table of Contents



EXHIBIT INDEX Exhibit No.
    
    Description of Exhibits3.1(1)
    
    Articles of Organization, as amended3.2(2)
    
    Third Amended and Restated Operating Agreement (included as Exhibit A to the prospectus)10.1
    
    Assignment Agreement, dated January 23, 2004, by and between Vestin Mortgage, Inc.,
Vestin Fund I, LLC, Vestin Fund II, LLC, Owens Financial Group, Inc. and Owens Mortgage
Investment Fund10.2
    
    Intercreditor Agreement, dated January 17, 2003, by and among Vestin Mortgage, Inc.,
Vestin Fund I, LLC, Vestin Fund II, LLC and Western United Life Assurance Company10.3
    
    Intercreditor Agreement, dated April 22, 2004, by and between Vestin Mortgage, Inc. and
Owens Mortgage Investment Fund10.4
    
    Intercreditor Agreement, dated June 24, 2004, by and between Vestin Mortgage, Inc. and
Owens Mortgage Investment Fund10.5
    
    Participation Agreement, dated May 13, 2004, by and among Vestin Fund I, LLC, Vestin
Fund II, LLC, Vestin Fund III, LLC and Royal Bank of America31.1
    
    Section 302 Certification of Michael V. Shustek31.2
    
    Section 302 Certification of Lance K. Bradford32
    
    Certification Pursuant to U.S.C. 18 Section 1350
  (1)
    
    Incorporated herein by reference to our Form S-11 Registration Statement filed on March 17, 2000 (File
No. 333-32800).(2)
    
    Incorporated herein by reference to Post-Effective Amendment No. 2 to our Form S-11 Registration
Statement filed on April 6, 2001 (File No. 333-32800).