The following is a financial review and analysis of our financial condition and results of operations for the three months ended March 31, 2009 and 2008. This discussion should be read in conjunction with our consolidated financial statements and accompanying notes and other detailed information regarding us appearing elsewhere in this report on Form 10-Q and our report on Form 10-K,

FORWARD-LOOKING STATEMENTS

Certain statements in this report, including, without limitation, matters discussed under this Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations, should be read in conjunction with the consolidated financial statements, related notes, and other detailed information included elsewhere in this report on Form 10-Q. We are including this cautionary statement to make applicable and take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Statements that are not historical fact are forward-looking statements. Certain of these forward-looking statements can be identified by the use of words such as "believes," "anticipates," "expects," "intends," "plans," "projects," "estimates," "assumes," "may," "should," "will," or other similar expressions. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors, which could cause actual results, performance or achievements to differ materially from future results, performance or achievements. These forward-looking statements are based on our current beliefs, intentions and expectations. These statements are not guarantees or indicative of future performance. Important assumptions and other important factors that could cause actual results to differ materially from those forward-looking statements include, but are not limited to, those factors, risks and uncertainties described in Part II Item 1A Risk Factors of this Quarterly Report on Form 10-Q and in our other securities filings with the Securities and Exchange Commission ("SEC"). Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and involve inherent risks and uncertainties. Our estimates of the value of collateral securing our loans may change, or the value of the underlying property could decline subsequent to the date of our evaluation. As a result, such estimates are not guarantees of the future value of the collateral. The forward-looking statements contained in this report are made only as of the date hereof. We undertake no obligation to update or revise information contained herein to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

RESULTS OF OPERATIONS

OVERVIEW

Our primary business objective is to generate income while preserving principal by investing in real estate loans. We believe there is a significant market opportunity to make real estate loans to owners and developers of real property whose financing needs are not met by other real estate lenders. The loan underwriting standards utilized by our manager and Vestin Originations are less strict than those used by many institutional real estate lenders. In addition, one of our competitive advantages is our ability to approve loan applications more quickly than many institutional lenders. As a result, in certain cases, we may make real estate loans that are riskier than real estate loans made by many institutional lenders such as 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 many institutional real estate lenders, in return, we seek to generate higher yields from our real estate loans.

Our operating results are affected primarily by: (i) the amount of capital we have to invest in real estate loans, (ii) the level of real estate lending activity in the markets we service, (iii) our ability to identify and work with suitable borrowers, (iv) the interest rates we are able to charge on our loans and (v) the level of non-performing assets, foreclosures and related loan losses which we may experience.

Our recent operating results have been adversely affected by increases in allowances for loan losses and increases in non-performing assets. This negative trend accelerated sharply during the year ended December 31, 2008 and continues to affect our operations. As of March 31, 2009, we had 13 loans considered non-performing (i.e., 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 or when the payment of interest is 90 days past due). These loans are currently carried on our books at a value of approximately $18.0 million, net of allowance for loan losses of approximately $12.9 million. These loans have been placed on non-accrual of interest status and are the subject of pending foreclosure proceedings.

Non-performing assets, net of allowance for loan losses, totaled approximately $23.3 million or 64% of our total assets as of March 31, 2009, as compared to approximately $23.5 million or 62% of our total assets as of December 31, 2008. At March 31, 2009, non-performing assets consisted of approximately $5.3 million of real estate held for sale and approximately $18.0 million of non-performing loans, net of allowance for loan losses. One of the real estate held for sale properties generated net income from rentals totaling $10,000, during the three months ended March 31, 2009. See Note F - Real Estate Held for Sale and Note D - Investments In Real Estate Loans of the Notes to the Consolidated Financial Statements included in Part I, Item I Consolidated Financial Statements of this Quarterly Report on Form 10-Q.

We believe that the significant increase in the level of our non-performing assets is a direct result of the deterioration of the economy and credit markets. As the economy has weakened and credit has become more difficult to obtain, many of our borrowers who develop and sell commercial real estate projects have been unable to complete their projects, obtain takeout financing or have been otherwise adversely impacted. Our exposure to the negative developments in the credit markets and general economy has likely been increased by our business strategy, which entails more lenient underwriting standards and expedited loan approval procedures. Moreover, declining real estate values in the principal markets in which we operate has in many cases eroded the current value of the security underlying our loans.

We expect that the weakness in the credit markets and the weakness in lending will continue to have an adverse impact upon our markets for the foreseeable future. This may result in a further increase in defaults on our loans and we might be required to record additional reserves based on decreases in market values or we may be required to restructure loans. This increase in loan defaults has materially affected our operating results and led to the suspension of dividends to our stockholders. For additional information regarding our non-performing loans see "Non-Performing Loans" in Note D - Investments In Real Estate Loans of the Notes to the Consolidated Financial Statements included in

As of March 31, 2009, our loan-to-value ratio was 77.93%, net of allowances for loan losses, on a weighted average basis generally using updated appraisals. Additional marked increases in loan defaults accompanied by additional declines in real estate values, as evidenced by updated appraisals generally prepared on an "as-is-basis," will have a material adverse effect upon our financial condition and operating results. The current loan-to-value ratio is primarily a result of declining real estate values, which have eroded the market value of our collateral.

As of March 31, 2009, we have provided a specific reserve allowance for 10 non-performing loans and 7 performing loans based on updated appraisals of the underlying collateral and our evaluation of the borrower for these loans, obtained by our manager. For further information regarding allowance for loan losses, refer to Note D - Investments in Real Estate Loans in the notes to our consolidated financial statements in Part I, Item I Consolidated Financial Statements of this Quarterly Report on Form 10-Q.

Our capital, subject to a 3% reserve, will constitute the bulk of the funds we have available for investment in real estate loans.

As of March 31, 2009, our loans were in the following states: Arizona, California, Hawaii, Nevada, Oklahoma, Oregon and Texas.

SUMMARY OF FINANCIAL RESULTS

Comparison of Operating Results for the three months ended March 31, 2009 to the
three months ended March 31, 2008.

                                                             For the Three Months
                                                                Ended March 31,
                                                             2009             2008

Total revenues                                           $    361,000     $  1,037,000
Total operating expenses                                      755,000          318,000
Non-operating income (loss)                                  (106,000 )         93,000
Loss from real estate held for sale                          (687,000 )     (1,333,000 )

Loss before provision for income taxes                     (1,187,000 )       (521,000 )

Provision for income taxes                                         --               --

Net loss                                                 $ (1,187,000 )   $   (521,000 )

Basic and diluted loss per common share                  $      (0.18 )   $      (0.08 )
Dividends declared per common share                      $         --     $       0.11
Weighted average common shares                              6,603,647        6,873,809
Weighted average term of outstanding loans, including
extensions                                                  18 months        18 months

Total Revenues: For the three months ended March 31, 2009, total revenues were approximately $0.4 million compared to approximately $1.0 million for the same period in 2008, a decrease of approximately $0.6 million or 66% compared to the same period in 2008 due in significant part to the following factor:

· Interest income from investments in real estate loans was approximately $0.3 million during the three months ended March 31, 2009 compared to approximately $1.0 million during the same period in 2008. Our revenue is dependent upon the balance of our investment in real estate loans and our ability to collect the interest earned on these loans. As of March 31, 2009, our investment in real estate loans was approximately $43.1 million. As of March 31, 2008, our investment in real estate loans was approximately $55.6 million. The decline in interest income is largely attributable to the increase in non-performing assets, which has reduced the amount of cash available for investment in new loans and the increase of real estate owned properties acquired through the foreclosures of our investments in real estate loans. As of March 31, 2009, approximately $29.7 million of our loans were non-performing compared to approximately $16.8 million as of March 31, 2008. For additional information on our loan portfolio, see Note D - Investment Real Estate Loans of the Notes to the Consolidated Financial Statements of this Quarterly Report Form 10-Q.

Total Operating Expenses: For the three months ended March 31, 2009, total operating expenses were approximately $1.1 million compared to approximately $0.3 million during the three months ended March 31, 2008, an increase of approximately $0.8 million or 242%. Expenses were primarily affected by the following factors:

· During the three months ended March 31, 2009, we recognized a provision for loan losses totaling approximately $0.3 million, compared to none for the same period in 2007. See "Specific Loan Allowance" in Note D - Investment Real Estate Loans of the Notes to the Financial Statements included in Part I, Item I Consolidated Financial Statements of this Quarterly Report on Form 10-Q.

· Professional fees increased approximately $0.4 million during the three months ended March 31, 2009 compared to the same period in 2008, primarily due to the legal fees relating to the legal actions that have been filed against us in connection with the REIT conversion. See Note M - Legal Matters Involving The Company of the Notes to the Financial Statements included in Part I, Item I Consolidated Financial Statements of this Quarterly Report on Form 10-Q.

Total Non-Operating Income (Loss): During the three months ended March 31, 2009, total non-operating loss was $0.1 million compared to non-operating income of $0.1 million during the three months ended March 31, 2008, a decline of approximately $0.2 million or 214%. This decline is primarily due to the following factors:

· During the three months ended March 31, 2009, we recognized approximately $1,000 of interest income from banking institutions compared to approximately $45,000 in the same period in 2008. The decrease is due to the decrease in our average cash balance.

· During the three months ended March 31, 2008, we recognized approximately $48,000 of dividend income from investment in marketable securities - related party. We had no similar income in the same period in 2009.

· During the three months ended March 31, 2009, we recognized $107,000 in expenses related to settlements with several shareholders.

Total Loss from Real Estate Held for Sale: For the three months ended March 31, 2009, total losses from real estate held for sale were approximately $0.7 million compared to approximately $1.3 million for the three months ended March 31, 2008, a decrease of approximately $0.7 million or 48% due in significant part to the following factor:

· We wrote down approximately $0.7 million on three properties held for sale during the three months ended March 31, 2009 compared to approximately $1.3 million on one property held for sale during the three months ended March 31, 2008. These write downs resulted from declining real estate values which adversely impacted the value of the properties we acquired through foreclosure. For additional information see Note F - Real Estate Held For Sale of the Notes to the Financial Statements included in Part I, Item I Consolidated Financial Statements of this Quarterly Report on Form 10-Q. As of March 31, 2009, we held 10 properties held for sale totaling approximately $5.3 million compared to 3 properties held for sale as of March 31, 2008 totaling approximately $5.8 million.

Dividends to Stockholders; Reliance on Non-GAAP Financial Measurements: To maintain our status as a REIT, we are required to declare dividends, other than capital gain dividends, to our stockholders each year in an amount at least equal to (1) the sum of (a) 90% of our taxable income, computed without regard to the dividends paid deduction and our net capital gain, and (b) 90% of the net income, after tax, from foreclosure property, minus (2) the sum of certain specified items of noncash income over 5% of our REIT taxable income, determined without regard to the dividends paid and our net capital gain. Because we expect to declare dividends based on these requirements, and not based on our earnings computed in accordance with GAAP, we expect that our dividends may at times be more or less than our reported earnings as computed in accordance with GAAP. During the three months ended March 31, 2009, we did not declared any cash dividends.

Total taxable income and REIT taxable income are non-GAAP financial measurements, and do not purport to be an alternative to reported net income or cash flow from operations determined in accordance with GAAP as a measure of operating performance. Our total taxable income represents the aggregate amount of taxable income generated by us and our wholly owned taxable REIT subsidiary, TRS I, Inc. REIT taxable income is calculated under U.S. federal tax laws in a manner that, in certain respects, differs from the calculation of net income pursuant to GAAP. REIT taxable income excludes the undistributed taxable income of TRS I, Inc., which is not included in REIT taxable income until distributed to us. Subject to certain TRS value limitations, there is no requirement that the TRS I, Inc. distribute their earnings to us. Since we are structured as a REIT and the Internal Revenue Code requires that we distribute substantially all of our net taxable income in the form of dividends to our stockholders, we believe that presenting investors with the information management uses to calculate our taxable income is useful to investors in understanding the amount of the minimum dividends that we must declare to our stockholders so as to comply with the rules set forth in the Internal Revenue Code. Because not all companies have identical calculations, this presentation of total taxable income and REIT taxable income may not be comparable to those reported by other companies.

The table below reconciles the differences between reported net income and total estimated taxable income and estimated REIT taxable income for the three months ended March 31, 2009:

                                                                       For the Three
                                                                        Months Ended
                                                                       March 31, 2009
Net loss, as reported                                                  $   (1,531,000 )
Add (deduct):
Provision for loan losses                                                     330,000
Write down on real estate held for sale                                       659,000
Net tax loss on foreclosure of real estate loans                           (1,938,000 )
Tax loss on sale of real estate loan                                       (1,666,000 )
Provision for doubtful accounts related to receivable                           3,000
Total taxable loss                                                         (4,143,000 )
Less: Taxable income attributable to TRS I, Inc.                                    -

Estimated REIT taxable loss (prior to deductions for dividends paid)   $   (4,143,000 )

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 general operating purposes. Subject to a 3% reserve, we generally seek to use all of our available funds to invest in real estate loans. Distributable cash flow generated from such loans is paid out to our stockholders, in the form of a dividend. 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. We may pay our manager an annual management fee of up to 0.25% of our aggregate capital received by us and Fund I from the sale of shares or membership units.

During the three months ended March 31, 2009, net cash flows used by operating activities approximated $0.4 million. Operating cash flows were adversely impacted by the decrease in interest income related to the decrease in our investments in real estate loans of approximately $12.5 million, during the three months ended March 31, 2009 compared to the same period in 2008. In addition, we incurred approximately $0.5 million in write-downs on real estate held for sale and approximately $0.3 million in provision for loan losses during the three months ended March 31, 2009. These write-downs and allowance represent the decreases in the fair value of these properties, which will affect the amount of proceeds we will receive from future sales of these assets. Cash flows related to investing activities consisted of cash provided by loan payoffs, sales of real estate loans and proceeds for sales of real estate held for sale of approximately $0.4 million and cash used for new investments and purchases of real estate loans totaling approximately $2.9 million. Cash flows used from financing activities consisted of a purchase of treasury stock totaling $59,000 and principal payments on a note payable of $19,000.

At March 31, 2009, we had approximately $0.5 million in cash, $0.5 million in marketable securities - related party and approximately $37.1 million in total assets. We intend to meet short-term working capital needs through a combination of proceeds from loan payoffs, loan sales, sales of real estate held for sale and/or borrowings. We believe we have sufficient working capital to meet our operating needs in the near term.

Since we comply with the REIT requirements and distribute at least ninety percent (90%) of our annual taxable income, our sources of liquidity include; repayments of outstanding loans, dividend reinvestments by our stockholders, arrangements with third parties to participate in our loans and proceeds from issuance of note payable and secured borrowings. We rely primarily upon repayment of outstanding loans and proceeds from sales of real estate held for sale to provide capital for investment in new loans. The significant level of defaults on outstanding loans has reduced 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 has diminished our capital resources and impaired our ability to invest in new loans. During June 2008, our Board of Directors decided to suspend the payment of dividends. Our Board of Directors will closely monitor our operating results in order to determine when dividends should be reinstated. We will continue to comply with the REIT requirements and will distribute at least ninety percent (90%) of our annual taxable income.

Non-performing assets included loans in non-accrual status, net of allowance for loan losses, and real estate held for sale totaling approximately $18.0 million and $5.3 million, respectively, as of March 31, 2009, compared to approximately $19.9 million and $3.6 million, respectively, as of December 31, 2008. 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. Our manager believes that these non-performing assets have increased in significant part as a result of conditions in the real estate and credit markets. We believe that the continued weakness in real estate markets may result in additional losses on our real estate held for sale.

As a commercial real estate lender willing to invest in riskier loans, rates of delinquencies, foreclosures and losses on our loans could be higher than those generally experienced in the commercial mortgage lending industry during periods of economic slowdown or recession. Problems in the sub-prime residential mortgage market have adversely affected the general economy and the availability of funds for commercial real estate developers. We believe this lack of available funds has led to an increase in defaults on our loans. Furthermore, problems experienced in U.S. credit markets since the summer of 2007 have reduced the availability of credit for many prospective borrowers. These problems have made it more difficult for our borrowers to obtain the anticipated re-financing necessary in many cases to pay back our loans. Thus, we have had to work with some of our borrowers to either modify, restructure and/or extend their loans in order to keep or restore the loans to performing status. Our manager will continue to evaluate our loan portfolio in order to minimize risk associated with current market conditions.

We have no current plans to sell any new shares except through our dividend reinvestment program. As of March 4, 2009, approximately 4% of our stockholders owning less than 1% our outstanding shares have elected to reinvest their dividends. The level of dividend reinvestment in the future will depend upon our performance, as well as the number of our stockholders who prefer to reinvest rather than receive current dividends.

We are considering various options to enhance the company's capital resources. We are raising funds through the issuance of promissory notes secured by certain of our real estate owned properties.

On February 21, 2008, our board of directors authorized the repurchase of up to $5 million worth of our common stock. Depending upon market conditions, shares may be repurchased from time to time at prevailing market prices through open market or privately negotiated transactions. We are not obligated to purchase any shares. Subject to applicable securities laws, including SEC Rule 10b-18, repurchases may be made at such times and in such amounts, as our management deems appropriate. The share repurchase program may be discontinued or terminated at any time and we have not established a date for completion of the share repurchase program. The repurchases will be funded from our available cash. As of March 31, 2009, we had purchased 243,613 shares of treasury stock through the repurchase program noted above. These shares are carried on our books at a cost totaling approximately $0.7 million. In addition, as part of a settlement agreement, we repurchased 38,500 shares of stock and classified them as treasury stock and incurred $107,000 in settlement expenses. These shares are carried on our books at cost totaling $59,000 and are not part of the repurchase program. As of March 31, 2009, we had a total of 282,113 shares of treasury stock carried on our books at cost totaling approximately $0.7 million.

We maintain working capital reserves of approximately 3% in cash and cash equivalents, certificates of deposits and short-term investments or liquid marketable securities. This reserve is available to pay expenses in excess of revenues, satisfy obligations of underlying properties, expend money to satisfy our unforeseen obligations and for other permitted uses of working capital.

We may seek to expand our capital resources through borrowings from institutional lenders or through securitization of our loan portfolio or similar arrangements. 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.

Investments in Real Estate Loans Secured by Real Estate Portfolio

We offer five real estate loan products consisting of commercial property, . . .