The following is a financial review and analysis of our financial condition and results of operations for the three months ended March 31, 2012 and 2011. 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 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 the mortgage brokers we utilize 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, 2012, we had three 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 $3.1 million, net of allowance for loan losses of approximately $3.6 million. These loans have been placed on non-accrual of interest status and may be the subject of pending foreclosure proceedings.

Non-performing assets, net of allowance for loan losses, totaled approximately $5.5 million or 27% of our total assets as of March 31, 2012, as compared to approximately $6.2 million or 30% of our total assets as of December 31, 2011. See Note F - Real Estate Held for Sale Note D - Investments In Real Estate Loans and Note G - Other Real Estate Owned 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 level of our non-performing assets is a direct result of the deterioration of the economy and credit markets several years ago. As the economy weakened and credit became more difficult to obtain, many of our borrowers who develop and sell commercial real estate projects were unable to complete their projects, obtain takeout financing or were otherwise adversely impacted. While the general economy has improved, the commercial real estate markets in the areas where we make loans continued to suffer from depressed conditions. 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.

Continued weakness in the commercial real estate markets and the weakness in lending will continue to have an adverse impact upon our markets for the foreseeable future. This may result in further 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 addition 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 Part I, Item I Consolidated Financial Statements of this Quarterly Report on Form 10-Q.

During the three months ended March 31, 2012, we funded three loans totaling approximately $5.8 million. During the three months ended March 31, 2011, we funded one loan totaling approximately $0.5 million. As of March 31, 2012, our loan-to-value ratio was 74%, net of allowances for loan losses, on a weighted average basis generally using updated appraisals. Additional 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 on our financial condition and operating results.

As of March 31, 2012, we have provided a specific reserve allowance for three non-performing and four 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 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.

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, 2012, our loans were in the following states: Arizona, California, Colorado, Nevada, Oregon, Texas and Utah.

At our annual meeting held on December 15, 2011, a majority of the shareholders voted to amend our Bylaws to expand our investment policy to include investments in and acquisition, management and sale of real property or the acquisition of entities involved in the ownership or management of real property. A majority of the shareholders also voted to amend our charter to change the terms of our existence from its expiration date of December 31, 2019 to perpetual existence. As a result we will begin to acquire, manage, renovate, reposition, sell or otherwise invest in real property or acquire entities involved in the ownership or management of real property.

We are currently exploring the possibility of a stock for stock merger with VRM
II. A special committee of our board of directors, consisting solely of independent directors, has been appointed to evaluate and negotiate the potential merger. The special committee has engaged independent financial and legal advisors to assist in this process. Any such proposed merger would be subject to the approval of our shareholders as well as the shareholders of VRM II.

SUMMARY OF FINANCIAL RESULTS

The Three Months Year Ended March 31, 2012

Total Revenue:                               2012          2011         $ Change       % Change
Interest income from investment in real
estate loans                               $ 142,000     $ 128,000     $   14,000             11 %
Recovery of allowance for doubtful notes
receivable                                    30,000            --         30,000            100 %
Gain related to pay off of real estate
loan, including recovery of allowance
for loan loss                                 57,000            --         57,000            100 %
Other Income                                      --         2,000         (2,000 )         (100 %)
      Total                                $ 229,000     $ 130,000     $   99,000            (76 %)

Our revenue from interest income is dependent upon the balance of our investment in real estate loans and the interest earned on these loans. Interest income has been adversely affected by the level of modified loans and the reduction in new lending activity during the first three quarters of 2011. We experienced an increase in new lending activity in the second half of 2011. We anticipate that the activity in our loan portfolio will continue will produce an increase in interest income for 2012. It is premature at this time to predict whether or not the increase in lending activity in the second half of 2011 will be sustained in the future. Scheduled payments on fully reserved notes receivable and loans resulted in an increase in gain related to payoff of real estate loan and other income.

For additional information see Note D - Investments in Real Estate Loans and Note I - Notes Receivable of the Notes to the Consolidated Financial Statements included in Part I, Item 1 Consolidated Financial Statements of this Quarterly Report on Form 10-Q.

Operating Expenses:                 2012          2011         $ Change       % Change
Management fees - related party   $  69,000     $  69,000     $       --             --
Provision for loan loss              19,000       127,000       (108,000 )          (85 %)
Interest expense                         --         8,000         (8,000 )          100 %
Professional fees                   175,000       192,000        (17,000 )           (9 %)
Insurance                            56,000        62,000         (6,000 )           (4 %)
Consulting                           18,000        29,000        (11,000 )         (388 %)
Other                                54,000        39,000         15,000             38 %
      Total                       $ 391,000     $ 526,000     $ (135,000 )          (25 %)

Operating expenses were 25% lower during the three months ended March 31, 2012 largely as a result of a lower provision for loan losses than what occurred during the three months ended March 31,2011. Interest expense decreased during the three months ended March 31, 2012 due to the decreased balance of secured borrowings which were paid off in compared to 2011. Professional fees have decreased due to a significant decrease in pending litigation.

See "Specific Loan Allowance" in Note D - Investments in Real Estate Loans and Note M - Legal Matters Involving The Company of the Notes to the Consolidated Financial Statements included in Part I, Item 1 Consolidated Financial Statements of this Quarterly Report on Form 10-Q.

Non-operating income (loss):                  2012          2011         $ Change       % Change
Interest income from banking institutions   $      --     $   2,000     $   (2,000 )         (100 %)
Income from equity investee held for sale          --       109,000       (109,000 )         (100 %)
Settlement expense                            (23,000 )          --        (23,000 )         (100 %)
      Total                                 $ (23,000 )   $ 111,000     $ (134,000 )          121 %

During the three months ended March 31, 2012 we settled a lawsuit with an acquirer of property previously foreclosed upon and sold which resulted in an expense of approximately $23,000. In addition, we received income from equity investee held for sale during the three months ended March 31, 2011 and did not have similar income in 2012.

See Note O - Legal Matters Involving The Company of the Notes to the Consolidated Financial Statements and Note G - Other Real Estate Owned included in Part I, Item I Consolidated Financial Statements of this Quarterly Report on Form 10-Q.

Income (loss) from real estate held for
sale:                                        2012          2011        $ Change       % Change
Net gain on sale of real estate held for
sale                                       $   2,000     $      --     $  (2,000 )         (100 %)
Expenses related to real estate held for
sale                                         (31,000 )     (56,000 )     (25,000 )          (47 %)
Expenses related to real estate held for
sale - related party                              --       (25,000 )     (25,000 )         (100 %)
      Total                                $ (29,000 )   $ (81,000 )   $ (52,000 )           64 %

During 2012 we recorded net gains on sale of real estate held for sale for properties sold in prior periods due to payments on settlement agreements. The overall decrease in losses from discontinued operations was primarily affected by a decrease in write-downs on real estate held for sale, offset by an increase in expenses related to real estate held for sale. The decrease in write-downs on real estate held for sale is due to current appraisals reflecting a current value closer to the recorded value of asset.

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 Annual Report on Form 10-Q.

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% working capital 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, 2012, net cash flows used in operating activities approximated $0.5 million. Operating cash flows were adversely impacted by prepaid management fees of approximately $70,000 in 2012 compared to 2011. Cash flows related to investing activities consisted of cash provided by loan and notes receivable payoffs of approximately $3.5 million and cash used for purchases of investments in real estate loans of approximately $5.9 million. Cash flows from financing activities consisted of cash used in payment of notes payable of approximately $19,000.

At March 31, 2012, we had approximately $3.9 million in cash, $0.8 million in marketable securities - related party and approximately $20.4 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.

We have no current plans to sell any new shares. Although a small percentage of our shareholders have elected to reinvest their dividends, we suspended payment of dividends in June 2008 and at this time are not able to predict when dividend payments will resume. Accordingly, we do not expect to issue any new shares through our dividend reinvestment program in the foreseeable future.

When economic conditions permit, 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 additional 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.

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. During the year ended December 31, 2011, we used approximately $104,000 to acquire 78,600 shares of our common stock. We are not obligated to purchase any additional shares. As of March 31, 2012 and December 31, 2011, we had a total of 534,207 shares as treasury stock carried on our books at cost totaling $1.0 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. As of May 15, 2012, we have met our 3% reserve requirement.

Investments in Real Estate Loans Secured by Real Estate Portfolio

We offer five real estate loan products consisting of commercial property, construction, acquisition and development, land, and residential. The effective interest rates on all product categories range from 0% to 15%, as a result of troubled debt restructuring whereby, the total interest on one performing loan is being fully accrued and payable at maturity. Revenue by product will fluctuate based upon relative balances during the period.

For additional information on our investments in real estate loans, refer to 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.

Asset Quality and Loan Reserves

As a commercial real estate lender willing to invest in riskier loans, rates of delinquencies, foreclosures and our losses on our loans could be higher than those generally experienced in the commercial mortgage lending industry during this period of economic slowdown and 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 from 2007 through present reduced the availability of credit for many prospective borrowers. While credit markets have generally improved, the commercial real estate markets in our principal areas of operation have not recovered, thereby resulting in continuing constraints on the availability of credit in these markets. 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.

OFF-BALANCE SHEET ARRANGEMENTS

As of March 31, 2012, 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.

RELATED PARTY TRANSACTIONS

From time to time, we may acquire or sell investments in real estate loans from/to our manager or other related parties pursuant to the terms of our Management Agreement without a premium. 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. For further information regarding related party transactions, refer to Note H - Related Party Transactions 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.

CRITICAL ACCOUNTING ESTIMATES

Revenue Recognition

Interest income on loans is accrued by the effective interest method. We do not accrue interest income from loans once they are determined to be non-performing. A loan is considered non-performing 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 or when the payment of interest is 90 days past due.

The following table presents a sensitivity analysis, averaging the balance of our loan portfolio at the end of the last six quarters, to show the impact on our financial condition at March 31, 2012, from fluctuations in weighted average interest rate charged on loans as a percentage of the loan portfolio:

                                                                            Increase
                                                                          (Decrease) in
Changed Assumption                                                       Interest Income
Weighted average interest rate assumption increased by 1.0% or 100
basis points                                                             $       138,000
Weighted average interest rate assumption increased by 5.0% or 500
basis points                                                             $       691,000
Weighted average interest rate assumption increased by 10.0% or 1,000
basis points                                                             $     1,383,000
Weighted average interest rate assumption decreased by 1.0% or 100
basis points                                                             $      (138,000 )
Weighted average interest rate assumption decreased by 5.0% or 500
basis points                                                             $      (691,000 )
Weighted average interest rate assumption decreased by 10.0% or 1,000
basis points                                                             $    (1,383,000 )

The purpose of this analysis is to provide an indication of the impact that the weighted average interest rate fluctuations would have on our financial results. It is not intended to imply our expectation of future revenues or to estimate earnings. We believe that the assumptions used above are appropriate to illustrate the possible material impact on the consolidated financial statements.

Allowance for Loan Losses

We maintain an allowance for loan losses on our investments in real estate loans for estimated credit impairment in our investment in real estate loans portfolio. Our 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.

The following table presents a sensitivity analysis to show the impact on our

financial condition at March 31, 2012, from increases and decreases to our
allowance for loan losses as a percentage of the loan portfolio:

                                                                                Increase
                                                                             (Decrease) in
                                                                             Allowance for
Changed Assumption                                                            Loan Losses
Allowance for loan losses assumption increased by 1.0% of loan portfolio    $        168,000
Allowance for loan losses assumption increased by 5.0% of loan portfolio    $        842,000
. . .