The following is a financial review and analysis of our financial condition and results of operations for the three and nine months ended September 30, 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, Part II, Item 7 Management's Discussion and Analysis of Financial Conditions and Results of Operations for the year ended December 31, 2008 and our quarterly report filed on Form 10-Q for the three months ended March 31, 2009 and the six months ended June 30, 2009.

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 September 30, 2009, we had 10 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 $12.6 million, net of allowance for loan losses of approximately $11.9 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 $16.7 million or 58% of our total assets as of September 30, 2009, as compared to approximately $23.5 million or 62% of our total assets as of December 31, 2008. At September 30, 2009, non-performing assets consisted of approximately $4.1 million of real estate held for sale and approximately $12.6 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 $11,000, during the nine months ended September 30, 2009. None of the other properties held for sale generated net income during such time period. 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 September 30, 2009, our loan-to-value ratio was 71.98%, 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 September 30, 2009, we have provided a specific reserve allowance for nine non-performing loans and six 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 September 30, 2009, our loans were in the following states: Arizona, California, Hawaii, Nevada, Oregon and Texas.

SUMMARY OF FINANCIAL RESULTS

                                   For the Three Months               For the Nine Months
                                    Ended September 30,               Ended September 30,
                                   2009             2008             2009             2008

Total revenues                 $    320,000     $    436,000     $  1,165,000     $   2,798,000
Total operating expenses          3,045,000        2,561,000        6,566,000         6,895,000
Non-operating loss                       --       (2,146,000 )       (106,000 )      (1,986,000 )
Loss from real estate held
for sale                         (1,925,000 )     (2,155,000 )     (3,883,000 )      (5,679,000 )

Loss before provision for
income taxes                     (4,650,000 )     (6,426,000 )     (9,390,000 )     (11,762,000 )

Provision for income taxes               --               --               --                --

Net loss                       $ (4,650,000 )   $ (6,426,000 )   $ (9,390,000 )   $ (11,762,000 )

Basic and diluted loss per
common share                   $      (0.71 )   $      (0.93 )   $      (1.43 )   $       (1.71 )
Dividends declared per
common share                   $         --     $         --     $         --     $        0.16
Weighted average common
shares                            6,561,319        6,875,066        6,585,818         6,874,524
Weighted average term of
outstanding loans, including
extensions                        17 months        19 months        17 months         19 months

Comparison of Operating Results for the three months ended September 30, 2009, to the three months ended September 30, 2008.

Total Revenues: For the three months ended September 30, 2009, total revenues were approximately $0.3 million compared to approximately $0.4 million for the same period in 2008, a decrease of approximately $0.1 million or 27% compared to the same period in 2008 due in significant part to the following factors:

· Interest income from investments in real estate loans was approximately $0.3 million during the three months ended September 30, 2009 compared to approximately $0.4 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 September 30, 2009, our investment in real estate loans was approximately $36.1 million. As of September 30, 2008, our investment in real estate loans was approximately $42.3 million. The decline in interest income is largely attributable to the increase in non-performing assets, which has reduced our interest income as well as the amount of cash available for investment in new loans. For additional information on our loan portfolio, see Note D - Investments in Real Estate Loans of the Notes to the Consolidated Financial Statements of this Quarterly Report Form 10-Q.

· During the three months ended September 30, 2008, we recognized approximately $41,000 in income from a principal payment on a note receivable which was fully reserved. We received no comparable income during the same period in 2009.

Total Operating Expenses: For the three months ended September 30, 2009, total operating expenses were $3.0 million compared to approximately $2.6 million during the three months ended September 30, 2008, an increase of approximately $0.4 million or 19%. Expenses were primarily affected by the following factors:

· During the three months ended September 30, 2009, we recognized a provision for loan loss totaling approximately $2.2 million, and approximately $2.0 million for the same period in 2008. The recognition in loan losses is primarily a result of declining values in real estate reflected in updated appraisals obtained by our manager in 2009. We believe that the continued weakness in the real estate market may result in our recording additional losses related to the declining value of real estate securing our investment in real estate loans. See "Specific Reserve Allowances" in Note D - Investments in 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 three months ended September 30, 2009, compared to the same period in 2008, primarily due to legal fees relating to the legal actions that have been filed against us in connection with the REIT conversion. During the quarter ended September 30, 2009, we received, subject to a reservation of rights, payment of approximately $0.2 million from our Directors and Officers insurance carrier in respect of legal fees incurred in the defense of such actions. No assurance can be made regarding future reimbursement of legal fees. 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 Loss: During the three months ended September 30, 2008, total non-operating loss was approximately $2.1 million compared to none during the same period in 2009 due substantially to the recognition of an other than temporary impairment of our marketable securities-related party, totaling approximately $2.2 million, for the three months ended September 30, 2008. We had no similar loss in the same period in 2009.

Total Loss from Real Estate Held for Sale: For the three months ended September 30, 2009, total losses from real estate held for sale were approximately $1.9 million compared to approximately $2.2 million for the three months ended September 30, 2008, a decrease of approximately $0.3 million or 11% due in significant part to the following factors:

· We wrote down approximately $1.9 million on six properties held for sale during the three months ended September 30, 2009, compared to approximately $2.0 million on four properties held for sale during the three months ended September 30, 2008. These write-downs resulted from declining real estate values which have 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 September 30, 2009, we had ten properties held for sale totaling approximately $4.1 million compared to seven properties held for sale as of September 30, 2008 totaling approximately $6.0 million.

· We recorded a net gain of $2,000 on the sale of one real estate held for sale property during the three months ended September 30, 2009, compared to a net loss of $97,000, during the same period in 2008, on the sale of one real estate held for sale property. 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.

Comparison of Operating Results for the nine months ended September 30, 2009, to the nine months ended September 30, 2008.

Total Revenues: For the nine months ended September 30, 2009, total revenues were approximately $1.2 million compared to approximately $2.8 million during the nine months ended September 30, 2008, a decrease of approximately $1.6 million or 58%. Revenues were primarily affected by the following factor in addition to the factors discussed above in Total Revenues for the three months ended September 30, 2009:

· Interest income from investments in real estate loans decreased to approximately $1.1 million during the nine months ended September 30, 2009, compared to approximately $2.4 million during the same period in 2008. The decline in interest income is largely attributable to the decrease in assets, which has reduced our interest income as well as the amount of cash available for investment in new loans. As of September 30, 2009 our total assets were approximately $28.8 million compared to $48.7 million as of September 30, 2008. For additional information see Note D- Investments in Real Estate Loans of the Notes to the Consolidated Financial Statements included in Part I, Item 1 Consolidated Financial Statements of this Interim Report Form 10-Q.

Total Operating Expenses: For the nine months ended September 30, 2009, total operating expenses were approximately $6.6 million compared to approximately $6.9 million during the nine months ended September 30, 2008, a decrease of approximately $0.3 million or 5%. Expenses were primarily affected by the following factors in addition to the factors discussed above in Total Operating Expenses for the three months ended September 30, 2009:

· During the nine months ended September 30, 2009, we recognized a provision for loan loss totaling approximately $4.3 million, compared to $5.6 million for the same period in 2008. It is premature at this time for us to determine whether or not the reduction in provision for loan loss during the nine months ended September 30, 2009, as compared to the same period in 2008, is indicative of a trend. See "Specific Loan Allowance" in Note D - Investments in 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 $1.1 million during the nine months ended September 30, 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 Loss: For the nine months ended September 30, 2009, total non-operating loss was $0.1 million compared to total non-operating income of approximately $2.0 million during the nine months ended September 30, 2008, a decrease of $1.9 million or 95%, due substantially to the recognition of impairment of marketable securities-related party discussed above in Total Non-Operating Loss for the three months ended September 30, 2009.

Total Loss from Real Estate Held for Sale: For the nine months ended September 30, 2009, total losses from real estate held for sale were approximately $3.9 million compared to approximately $5.7 million during the nine months ended September 30, 2008, a decrease of approximately $1.8 million or 32%. The loss from real estate held for sale is due to the write-down on 11 real estate held for sale properties, of approximately $3.7 million, during the nine months ended September 30, 2009. During the nine months ended September 30, 2008, total write-downs on real estate held for sale was approximately $5.4 million on six real estate held for sale properties.

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 nine months ended September 30, 2009, we did not declare 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 nine months ended September 30, 2009:

                                                             For the Nine
                                                             Months Ended
                                                          September 30, 2009
    Net loss, as reported                                 $        (9,390,000 )
    Add (deduct):
    Provision for loan loss                                         4,251,000
    Write-down on real estate held for sale                         3,657,000
    Net tax loss on foreclosure of real estate loans               (4,616,000 )
    Book loss on sale of real estate held for sale                     76,000
    Tax loss on sale of real estate held for sale                  (1,766,000 )
    Recovery of allowance for doubtful notes receivable               (10,000 )
    Total taxable loss                                             (7,798,000 )
    Less: Taxable income attributable to TRS I, Inc.                       --

    Estimated REIT taxable loss                           $        (7,798,000 )

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 nine months ended September 30, 2009, net cash flows used by operating activities approximated $1.1 million. Operating cash flows were adversely impacted by increased legal fees and the decrease in interest income, related to the decrease in our investments in real estate loans, of approximately $1.3 million, during the nine months ended September 30, 2009 compared to the same period in 2008. In addition, we incurred approximately $3.7 million in write-downs on real estate held for sale and approximately $4.3 million in provisions for loan losses during the nine months ended September 30, 2009. These write-downs and allowances represent the decreases in the fair value of these properties, which are expected to 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 $1.4 million and cash used for new investments and purchases of real estate loans totaling approximately $3.9 million. Cash flows used in financing activities consisted of a purchase of treasury stock totaling $194,000, principal payments on a note payable of $169,000 and proceeds from issuance of notes payable of $45,000.

At September 30, 2009, we had approximately $0.8 million in cash, $0.7 million in marketable securities - related party and approximately $28.8 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 during the next 12 months.

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.

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