The following is a financial review and analysis of our financial condition and results of operations for the six months ended June 30, 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 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. See Note F - Real Estate Held for Sale and "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.

We believe that the current 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 many of the areas where we make loans continue 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 may continue to have an adverse impact upon our markets. 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 additional 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 six months ended June 30, 2012, we funded nine loans totaling approximately $12.2 million. During the six months ended June 30, 2011, we funded one loan totaling approximately $0.5 million. As of June 30, 2012, our loan-to-value ratio was 69%, 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 June 30 2012, we have provided a specific reserve allowance for one non-performing and two 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 June 30, 2012, our loans were in the following states: Arizona, California, Michigan, Nevada, 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 and VRM II announced on May 30, 2012 that they, along with VRM Merger Sub, Inc. (a wholly owned subsidiary of VRM II), have entered into a definitive merger agreement pursuant to which VRM Merger Sub will merge with and into VRM I in a stock-for-stock merger, with us surviving the transaction as a wholly owned subsidiary of VRM II. Under the terms of the transaction, which has been approved by the boards of directors of both companies, stockholders of VRM I (other than VRM II) will receive a fixed ratio of 0.82 share of VRM II common stock for each share of VRM I common stock they own. Upon closing, which is expected in the fourth quarter of 2012, our stockholders will own approximately 30% of VRM II common stock. Pursuant to the terms of the agreement, one member of our Board of Directors will replace an existing Director on the VRM I Board of Directors. The primary purpose of the proposed merger is the potential cost savings and operating synergies that will be achieved through a combination. A registration statement relating to the stock to be issued by VRM II in the proposed transaction will be filed with the SEC. The transaction is subject to customary approvals and closing conditions and requires the approval of our stockholders (with respect to the merger) and the VRM II stockholders (with respect to the issuance of VRM II common stock).

SUMMARY OF FINANCIAL RESULTS

Comparison of Operating Results for the three months ended June 30, 2012, to the
three months ended June 30, 2011.

Total Revenue:                               2012          2011        $ Change       % Change
Interest income from investment in real
estate loans                               $ 210,000     $ 103,000     $ 107,000            104 %
Recovery of allowance for doubtful notes
receivable                                    29,000        21,000         8,000             38 %
Gain related to pay off of real estate
loan, including recovery of allowance
for loan loss                                132,000            --       132,000            100 %
      Total                                $ 371,000     $ 124,000     $ 247,000            199 %

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 and we anticipate that the activity in our loan portfolio will produce an overall 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 and first half of 2012 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. During May 2012, we, VRM II and Fund III sold our portions of a fully reserved loan of $14.0 million, of which our portion was $1.2 million to a third party. We received a payment of approximately $0.1 million.

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     $      --            --
Interest expense                      1,000         5,000        (4,000 )         (80 %)
Professional fees                   213,000        81,000       132,000           163 %
Insurance                            55,000        62,000        (7,000 )         (11 %)
Consulting                           20,000        29,000        (9,000 )         (31 %)
Other                                26,000        69,000       (43,000 )         (62 %)
      Total                       $ 384,000     $ 315,000     $  69,000            22 %

Operating expenses were 22% higher during the three months ended June 30, 2012 than during the same three months in 2011. Interest expense decreased during the three months ended June 30, 2012 due to the decreased balance of secured borrowings which were paid off in 2011. Professional fees have increased due to payment of legal bills pertaining to the merger.

Non-operating income (loss):                     2012          2011         $ Change       % Change
Interest income from banking institutions      $      --     $   2,000     $   (2,000 )         (100 %)
Recovery from settlement with loan guarantor     711,000            --        711,000            100 %
Income from equity investee held for sale             --       225,000       (225,000 )         (100 %)
Discounted legal fees                                 --       300,000       (300,000 )         (100 %)
      Total                                    $ 711,000     $ 527,000     $ (184,000 )         (350 %)

During the three months ended June 30, 2011 we received income from equity investee held for sale and did not have similar income in 2012. In addition, we received approximately $0.3 million in discounts related to past legal bills in 2011. There was no similar discount received in 2012. During January 2011, we, VRM II and Fund III were awarded unsecured claims up to $3.6 million from a bankruptcy settlement with a guarantor of certain loans. Pursuant to the terms of the settlement, we received payment of approximately $0.7 million during April 2012.

See Note G - Assets Held for Sale and Discontinued Operations included in Part I, Item I Consolidated Financial Statements of this Quarterly Report on Form 10-Q.

Income (loss) from discontinued
operations:                                   2012           2011         $ Change       % Change
Net gain on sale of real estate held for
sale                                       $    2,000     $       --     $    2,000           (100 %)
Income from asset held for sale, net of
income taxes                                   39,000             --         39,000           (100 %)
Expenses related to real estate held for
sale                                          (56,000 )      (53,000 )       (3,000 )            6 %
Write-downs on real estate held for sale     (316,000 )     (132,000 )     (184,000 )          139 %
      Total                                $ (331,000 )   $ (185,000 )   $  146,000           (126 %)

During the three months ended June 30, 2012, we recorded net gains on sale of real estate held for sale for a property sold. The overall increase in losses from discontinued operations was primarily affected by an increase in write-downs on real estate held for sale. The increase in write-downs on real estate held for sale is mainly due to the acceptance of a purchase contract on one property. In addition, we received income from assets held for sale during the three months ended June 30, 2012 and did not have similar income in 2011. Expenses related to real estate held for sale increased in the three months ended June 30, 2012 due to the acquisition of two properties during the six months ended June 30, 2012.

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.

SUMMARY OF FINANCIAL RESULTS

Comparison of Operating Results for the six months ended June 30, 2012 to the
six months ended June 30, 2011.

Total Revenue:                               2012          2011        $ Change       % Change
Interest income from investment in real
estate loans                               $ 352,000     $ 231,000     $ 121,000             52 %
Recovery of allowance for doubtful notes
receivable                                    59,000        21,000        38,000            181 %
Gain related to pay off of real estate
loan, including recovery of allowance
for loan loss                                188,000            --       188,000            100 %
Other income                                      --         2,000        (2,000 )         (100 %)
      Total                                $ 599,000     $ 254,000     $ 345,000            403 %

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 and we anticipate that the activity in our loan portfolio will produce an overall 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 and first half of 2012 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. During May 2012, we, VRM II and Fund III sold our portions of a fully reserved loan of $14.0 million, of which our portion was $1.2 million to a third party. We received a payment of approximately $0.1 million.

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   $ 138,000     $ 138,000     $       --            --
Provision for loan losses            19,000       127,000       (108,000 )         (85 %)
Interest expense                      1,000        12,000        (11,000 )         (92 %)
Professional fees                   388,000       273,000        115,000            42 %
Insurance                           111,000       120,000         (9,000 )          (8 %)
Consulting                           38,000        47,000         (9,000 )         (19 %)
Other                                79,000       125,000        (46,000 )         (37 %)
      Total                       $ 774,000     $ 842,000     $  (68,000 )          (8 %)

Operating expenses were 8% lower during the six months ended June 30, 2012 than during the same six months in 2011. Provision for loan losses was lower during the six months ended June 30, 2012 than the same six months in 2011 due to values of the collateral securing our loans remaining constant. Interest expense decreased during the six months ended June 30, 2012 due to the decreased balance of secured borrowings which were paid off in 2011. Professional fees have increased due to payment of legal bills pertaining to the merger.

See "Specific Loan Allowance" in 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 Quarterly Report on Form 10-Q.

Non-operating income (loss):                     2012          2011         $ Change       % Change
Interest income from banking institutions      $      --     $   5,000     $   (5,000 )         (100 %)
Recovery from settlement with loan guarantor     711,000            --        711,000            100 %
Income from equity investee held for sale             --       333,000       (333,000 )         (100 %)
Settlement expense                               (23,000 )          --        (23,000 )         (100 %)
Discounted legal fees                                 --       300,000       (300,000 )         (100 %)
      Total                                    $ 688,000     $ 638,000     $   50,000              8 %

During the six months ended June 30, 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 and approximately $0.3 million in discounts related to past legal bills during the six months ended June 30, 2011 and did not have similar income or discount in 2012. During January 2011, we, VRM II and Fund III were awarded unsecured claims up to $3.6 million from a bankruptcy settlement with a guarantor of certain loans. Pursuant to the terms of the settlement, we received payment of approximately $0.7 million during April 2012.

See Note G - Assets Held for Sale and Discontinued Operations 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                                       $    4,000     $       --     $    4,000            100 %
Income from assets held for sale, net of
income taxes                                   39,000             --         39,000           (100 %)
Expenses related to real estate held for
sale                                          (87,000 )     (134,000 )       47,000            (35 %)
Write-downs on real estate held for sale     (316,000 )     (132,000 )     (184,000 )          139 %
      Total                                $ (360,000 )   $ (266,000 )   $  (94,000 )          (35 %)

During six months ended June 30, 2012 we recorded net gains on sale of real estate held for sale for properties sold in current and prior periods due to payments on settlement agreements. The overall increase in losses from discontinued operations was primarily affected by an increase in write-downs on real estate held for sale. The increase in write-downs on real estate held for sale is mainly due to the acceptance of a purchase contract on one property. In addition, we received income from assets held for sale during the six months ended June 30, 2012 and did not have similar income in 2011.

See Note F - Real Estate Held For Sale and Note G - Assets Held for Sale and Discontinued Operations of the Notes to the Financial Statements included in

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 six months ended June 30, 2012, net cash flows used in operating activities approximated $0.6 million. Operating cash flows were used for the payment of normal operating expenses such as management fees, accounting fees and legal bills. Cash flows related to investing activities consisted of cash provided by loan and notes receivable payoffs of approximately $5.6 million, proceeds from settlement from loan guarantor of approximately $0.7 million and cash used for purchases of investments in real estate loans of approximately $12.2 million. Cash flows from financing activities consisted of cash used in payment of notes payable of approximately $55,000.

At June 30, 2012, we had approximately $2.3 million in cash, $0.6 million in marketable securities - related party and approximately $22.0 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 June 30, 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 . . .