GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) or 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934

CMR Mortgage Fund II, LLC
(Exact name of registrant as specified in its charter)

			Page
Item 1.	Business		1
Item 1A.	Risk Factors		19
Item 2.	Financial Information		28
Item 3.	Properties		47
Item 4.	Security Ownership of Certain Beneficial Owners and Management		47
Item 5.	Directors and Executive Officers		48
Item 6.	Executive Compensation		48
Item 7.	Certain Relationships and Related Transactions, and Director Independence		50
Item 8.	Legal Proceedings		51
Item 9.	Market Price of and Dividends on the Registrant's Common Equity and Related Stockholder Matters		51
Item 10.	Recent Sales of Unregistered Securities		52
Item 11.	Description of Registrant's Securities to be Registered		52
Item 12.	Indemnification of Directors and Officers		55
Item 13.	Financial Statements and Supplementary Data		56
Item 14.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure		56
Item 15.	Financial Statements and Exhibits		57
Financial Statements		F-1
Signatures		S-1
Exhibit Index

This Registration Statement on Form 10 contains "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The outcomes of the events described in these forward looking statements is subject to risks, uncertainties and other factors which may cause the actual outcomes and our results to differ materially from those projected in the forward looking statements. In some cases you can identify forward-looking statements by terms such as "believe," "expect," "will," "should," "may," "anticipate," "intend," "continue" or comparable terminology.

These forward-looking statements are based on the beliefs, assumptions and expectations of California Mortgage and Realty, Inc. (the "Manager") of our future performance as of the date this Registration Statement is filed. These beliefs, assumptions and expectations can change as a result of many factors, including those which are outside of the Manager's control. Risks and uncertainties that could cause our actual results to be different than anticipated or that could materially affect our financial condition, results of operations and cash flows include those described under "Item 1A—Risk Factors" and "Item 2—Financial Information—Management's Discussion and Analysis of Financial Condition and Results of Operations," as well as many other factors, some of which may be unknown to the Manager. By making forward-looking statements, we have not assumed any obligation to, and you should not expect us to, update or revise those statements because of new information, future events or otherwise.

We are a California limited liability company formed for the purpose of making or investing in business loans secured by deeds of trust or mortgages on real properties located primarily in California. The real properties consist of predominately commercial income-producing structures or land held by businesses. The land can be income-producing (e.g., vineyards) or may be held for commercial or residential development. Our loans are arranged and serviced by our manager, California Mortgage and Realty, Inc., a Delaware corporation (the "Manager"), which is licensed as a California real estate broker and a California Finance Lender. In addition, we have the ability to invest in loans that were not originated by the Manager. The Manager provides certain operating and administrative services to us. The Manager has complete control of our business, subject to the voting rights of our members on specified matters and on any other matters which the Manager wishes to submit to a vote. The Manager does not hold any of our membership interests currently and did not hold any of our membership interests at December 31, 2006 and 2005. An affiliate of the Manager held a membership interest at December 31, 2006 and 2005 of $303,607 and $277,569, respectively. This membership interest has been completely withdrawn.

In addition to arranging and servicing our loans, the Manager sells loans in our loan portfolio and purchases existing loans for us, including partial undivided interests in loans. The Manager sells and purchases loans for us primarily to and from its affiliates and its clients and occasionally from non-affiliated third parties. See "Our Mortgage Loan Portfolio" and "Potential Conflicts of Interest" below in this section.

Our business strategy is to generate current income by making or investing in mortgage loans with borrowers who are unwilling to undergo the lengthier or more burdensome underwriting processes often required by conventional mortgage lenders, such as commercial banks, in order to fund a loan, or borrowers who are unable to obtain financing from conventional mortgage lenders. Generally speaking, our underwriting focuses primarily on the value of the collateral securing the loan, and secondarily on the general creditworthiness of the borrower. In most cases, a personal guarantee of the borrower or the principal owner of the borrowing entity is obtained. See "Our Lending Standards and Policies—Credit Evaluations" below in this section. Loans normally are approved and funded within 30 days

from the date we receive a borrowing request, which is generally considerably faster than conventional mortgage lenders. We believe the higher credit risk profile of some of our borrowers is mitigated by our lending policies and standards, which, among other things, allow for a maximum loan-to-value ("LTV") ratio of 75% for commercial, residential or mixed use real property and a maximum loan-to-value ratio of 60% for land. At June 30, 2007, our average LTV ratios for loans secured by real property were as follows: commercial property (including multi unit residential property, office buildings, industrial warehouse facilities and retail properties): 66%; residential property: 62%, land: 47% and mixed use property (a combination of commercial and/or residential and/or land): 73%. See "Our Lending Standards and Policies—1. Loan-to-Value Ratios" below in this section. We receive higher interest rates in exchange for making or investing in loans to borrowers for whom quick decisions, reliable funding, and expeditious underwriting are paramount, or whose collateral or credit history precludes financing from commercial mortgage lenders. One outcome of our underwriting and lending practices is higher delinquency and foreclosures than experienced by conventional mortgage lenders. Historically, however, higher delinquencies and foreclosures have not led to higher charge-offs.

We obtain funding for our lending activities by selling our membership interests and selling all or a portion of our interest in the loans in our loan portfolio. We have, in one instance, accessed and in the future may access credit from third party lenders, as well as from the Manager or affiliates of the Manager, in order to fund our loans. See "Our Mortgage Loan Portfolio" below in this section.

Purchasers of the membership units become our members. A subscriber's subscription funds are placed initially in a segregated subscription account at a financial institution selected by the Manager. The Manager transfers subscription funds to us when it has identified a suitable lending opportunity and other funds are not available to make the loan. Any subscription funds remaining in the subscription account after 90 days from the date the Manager first received those funds are returned to the subscriber. Interest, if any, earned on subscription funds in the subscription account is solely for our benefit.

Upon transfer of the subscription funds to us, the subscriber becomes a member and is entitled to monthly allocations of our profits or losses, if any. Members may elect either to receive monthly distributions in cash, or to retain them in their capital accounts, thereby increasing their ownership (percentage interest) in us.

The rights and duties of members are set forth in our operating agreement. Members do not engage in our management, but certain events (dissolution or termination, amendment of the operating agreement, merger with another entity, and removal of or succession to the Manager) require the approval of the members. See "Item 11—Description of Registrant's Securities to be Registered" for a description of the operating agreement and the rights and the duties of our members.

The Manager receives a monthly management fee equal to 1/12th of 1% of the net assets under management as of the last day of each calendar month and, for each loan serviced, a monthly loan servicing fee not to exceed 2% per annum of the total unpaid principal balance of each loan serviced, which is payable only as we receive interest payments on the loan. For each loan the Manager originates, it receives an origination fee (typically 4% to 6%), as well as loan document preparation fees and certain other fees, which are paid by the borrower and not by us. The Manager, at its option, may waive fees to which it is entitled in order to provide a higher yield to members, but it is not obligated to do so. For a description of the duties of the Manager, see "The Manager" below in this section.

We are treated as a partnership for federal income tax purposes and therefore pay no federal income tax but report each member's share of our income, gains, losses, deductions and credits to the member. Each individual member then reports on his or her federal income tax his share of our income, gains, losses, deductions and credits.

We filed our articles of organization on September 5, 2003 and obtained our permit from the California Department of Corporations to offer securities to investors residing in California on November 20, 2003. That permit provided for a maximum offering amount of $50 million and a minimum offering amount of $250,000. We began offering membership interests to investors on November 20, 2003 and, after we reached our minimum offering amount, made our first investment in the amount of $1 million in February 2004 by purchasing a portion of a loan from another fund managed by the Manager. Our current permit was issued by the California Department of Corporations on December 15, 2006 and permits us to offer securities to investors residing in California for a maximum offering amount of $150 million. Currently, we are not accepting any subscriptions for membership interests.

In 2004, our net income was approximately $650,000. At December 31, 2004, our total assets were approximately $24,590,000 (net of an allowance of $107,875 for loan losses); our total members' capital was approximately $23,680,000; we had interests in 19 loans totaling approximately $21,575,000; and no loans were in foreclosure.

In 2005, our net income was approximately $4,158,000. At December 31, 2005, our total assets were approximately $75,459,000 (net of an allowance of $365,085 for loan losses); our total members' capital was approximately $72,465,000; we had interests in 29 loans totaling approximately $72,130,000; and three loans in which our interests totaled approximately $4,900,000 were in foreclosure.

In 2006, our net income was approximately $8,328,000. At December 31, 2006, our total assets were approximately $125,703,000 (net of an allowance of $684,845 for loan losses); our total members' capital was approximately $99,779,000; we had interests in 36 loans totaling approximately $117,969,000; and four loans in which our interests totaled approximately $12,590,000 were in foreclosure.

In the first six months of 2007, our net income was approximately $851,838. At June 30, 2007, our total assets were approximately $122,130,000 (net of an allowance of $1,360,160 for loan losses); our total members' capital was approximately $90,951,393; we had interests in 30 loans totaling approximately $111,031,915; and eight loans in which our interests totaled approximately $24,575,000 were in foreclosure. At that date, we also owned one property with a net realizable value of approximately $6.6 million.

We began making monthly distributions of our profits in March 2004. The distributions to members were based on an assumption that our members' return on average members' capital would be 9% annually. The actual investment return on average members' capital for 2004, 2005 and 2006 was 6.21%, 8.47% and 8.30% annually, respectively. The actual yields to members for 2004, 2005, and 2006 differ from the 9% distributed due to changes in net income from amounts previously reported and changes in the methodology for computing average equity.

During 2004, total profits distributed in cash and total profits retained by members in their capital accounts were $363,412 and $286,712, respectively. During 2005, total profits distributed in cash and total profits retained by members in their capital accounts were $1,797,825 and $2,359,849, respectively. During 2006, total profits distributed in cash and total profits retained by members in their capital accounts were $4,300,422 and $4,027,524, respectively.

Commencing January 2008, the Manager intends to adjust distributions quarterly to reflect actual return on average member capital.

The loans in our loan portfolio are selected for us by the Manager in accordance with our lending standards and policies. Our loans are primarily for business purposes and secured by land or commercial

real property located primarily in California, although some collateral may occasionally be residential or mixed use or may be located in other states. In addition to mortgages and deeds of trust, loans are typically secured by liens against personal property of the borrowers or their guarantors. We do not make loans for the purchase of owner-occupied residential property. However, on occasion some of our loans are secured by residential property. Most of our loans are bridge loans which the borrower intends to repay or refinance within a relatively short timeframe; consequently, loan terms typically range from one to five years and payments are generally interest-only with a balloon payment of the entire principal amount at maturity. As of June 30, 2007, of the total of 91 loans that have been in our loan portfolio from 2004 through 2006, 32 of the 91 loans were paid off within two years of their origination. Interest rates on loans in our loan portfolio as of June 30, 2007 ranged from 12.0% to 13.95%.

In addition to arranging loans for us, the Manager purchases loans, or portions of loans, for our portfolio from other funds that it manages, from other investors for whom the Manager provides servicing or from third parties. The Manager sells all or a portion of loans in our portfolio to these same groups when the Manager determines that it appears to be in our interests for us to do so, based upon then-current interest rates, the length of time that we have held the loan, and our overall investment objectives, such as loan diversification, liquidity and optimizing the investment of available cash. The Manager may also arrange sales of loans in our loan portfolio in order to generate cash to invest in new loans. See "Potential Conflicts of Interest" below in this section.

At June 30, 2007, we were invested in the following 30 loans or portions thereof:

Outstanding Loan Balance Payable to Fund		Total Outstanding Loan Balance		Fund's Interest in Total Loan Balance	Primary Type of Collateral		Location of Collateral by County
$	55,000		$	110,000	50.0	%	Land	CA	San Luis Obispo
$	20,000		$	400,000	5.0	%	Commercial	CA	Alameda
$	200,000		$	1,000,000	20.0	%	Land	NV	Washoe
$	3,081,425		$	6,000,000	51.4	%	Land	FL	Polk
$	800,000		$	800,000	100.0	%	Residential	NY	New York
$	10,000,000		$	10,000,000	100.0	%	Mixed	CA	San Mateo/Monterey/San Bernardino/ Fresno/Alameda/Humboldt (NV)
$	2,300,000		$	2,300,000	100.0	%	Residential	NY	New York
$	318,000		$	734,333	8.5	%	Mixed	CA	Alameda
$	557,000		$	10,000,000	5.6	%	Land	CA	Lassen/Plumas
$	8,000,000		$	10,000,000	80.0	%	Land	CA	Lassen/Plumas
$	600,000		$	600,000	100.0	%	Mixed	CA/NV	San Mateo/Monterey/San Bernardino/ Fresno/Alameda/Humboldt (NV)
$	70,000		$	2,700,000	2.6	%	Mixed	CA	Contra Costa/Alameda/Nevada
$	4,000		$	1,200,000	0.3	%	Land	CA	San Bernardino
$	40,000		$	1,000,000	4.0	%	Mixed	CA	San Mateo/Alameda
$	25,000		$	3,651,838	0.7	%	Land	SC	Horry
$	5,791,744		$	9,141,744	63.4	%	Land	SC	Horry
$	680,000		$	4,000,000	17.0	%	Land	CA	Placer
$	3,424,450		$	7,700,000	44.5	%	Land	FL	Sarasota
$	48,000,000	(1)	$	48,000,000	100.0	%	Land	CA/AZ	Yolo/Sutter/San Mateo/Pinal (AZ)
$	2,584,000		$	16,967,894	15.2	%	Land	CA/AZ	Yolo/Sutter/San Mateo/Pinal (AZ)
$	10,000		$	1,100,000	0.9	%	Commercial	CT	Hartford
$	2,690,000		$	10,000,000	26.9	%	Land	CA	Fresno/San Benito/San Diego
$	6,983,000		$	9,500,000	73.5	%	Land	CA	Fresno/San Benito/San Diego
$	1,100,000		$	3,500,000	31.4	%	Land	CA	Stanislaus
$	340,000		$	2,200,000	15.5	%	Commercial	CA	Sonoma/San Francisco
$	4,750,000		$	5,500,000	86.4	%	Land	CA	Contra Costa
$	2,800,000	(2)	$	5,400,000	51.9	%	Commercial	CA	Alameda

As of June 30, 2007, 11 of our 30 loans or interests in portions of loans were secured by two or more properties on which we have liens of varying priorities ranging from first to fourth position. The other 19 loans were each secured by one property on which we have liens of varying priorities ranging from first to second position. We made 15 of the 30 loans, and 15 were made by other funds managed by the Manager, before subsequently being purchased by us. In addition, as a result of our sale of a loan in a principal amount of $19,500,000 to ING USA Annuity and Life Insurance Company ("ING"), we receive monthly payments from ING equal to 3% per annum of the loan principal, but only so long as the borrower makes all interest payments under the loan on a current basis. In the event the borrower defaults on its obligations to timely pay its monthly interest payments on the loan, and if such payment default continues for more than ten business days following the payment due date, then all interest with respect to the scheduled monthly payment or any future monthly payment accrue for the benefit of, and belong to, ING and not us, until such payment default has been cured. In connection with the sale, the Manager became the sub-servicer for the loan, and is paid a monthly sub-servicing fee of 2% per annum of the unpaid principal balance of the loan but only if the borrower makes all required interest payments on the loan on a current basis. To date, we and the Manager have received all monthly payments from ING.

We have two loans in our mortgage loan portfolio, with principal balances of $58 million (of which $48,557,000 is held by us), with respect to which the borrowers are not making payments, but which payments on our notes are being received from holders of loans secured by junior liens on the same properties. All of these junior loans are owned by funds managed by the Manager or others for whom the Manager provides loan servicing. These payments were approximately $526,035 in September 2007.

We have four loans in our mortgage portfolio, with principal balances totaling $37,064,894 (of which $18,167,000 is held by us), which are secured by junior liens subordinate to senior liens totaling $61,686,000. We are advancing, on a monthly basis, amounts necessary to cure monetary defaults on the senior loans. All of these senior loans are owned by funds managed by the Manager or others for whom the Manager provides loan servicing. These payments were approximately $667,323 in September 2007.

The following table shows the primary type of collateral securing the loans in our loan portfolio and the lien position on such primary collateral at December 31, 2006, 2005 and 2004.

		2006		2005		2004
Loans by priority of liens:
First deeds of trust		$	11,952,725		31,505,621		1,435,000
Second deeds of trust			19,278,191		25,872,000		10,800,000
Third deeds of trust			12,891,744		550,000		550,000
Mixed Lien Positions(1)			73,846,271		14,202,000		8,790,000

	Total(2)	$	117,968,931	$	72,129,621	$	21,575,000

		2006		2005		2004
Loans by type of property:
Commercial		$	7,383,271	$	17,777,121	$	10,675,000
Residential			1,090,000		200,000		4,740,000
Land			98,302,660		31,412,500		360,000
Mixed Use			11,193,000		22,740,000		5,800,000

	Total(1)	$	117,968,931	$	72,129,621	$	21,575,000

Our borrowers may from time to time be in payment default under the terms of their loans, as well as in covenant default (such as failure to pay taxes or failure to maintain insurance on the properties securing their loans). California statutes impose a lien for property taxes such that if such taxes are not paid, the lien for unpaid taxes will have priority over the liens we have on that property. The following table provides delinquency information for loans in our loan portfolio as of June 30, 2007 that were in payment default.

	Outstanding Loan Balance Payable to Fund		Percent of Total Balance to Loan Portfolio
30 - 59 days delinquent	$	0	0.0	%
60 - 89 days delinquent	$	0	0.0	%
90+ days delinquent(1)	$	24,574,425	22	%

Total	$	24,574,425	22	%

As of September 30, 2007, delinquencies were as follows: 30 days: $600,000; 60-89 days: $200,000 and 90+ days: $14,554,425. Loans on non-accrual status at June 30, 2007 and September 30, 2007 were $6,554,425 (6%) and $17,154,425 (13%), respectively.

The following table shows our delinquency experience (over 90 days past due) and foreclosures as of and during the years ended December 31, 2006, 2005 and 2004.

	2006			2005			2004
Delinquent loans (90+ days past due)	$	17,230,425		$	2,800,000			—
Loans foreclosed		3			2			—
Total mortgage investments(1)	$	117,968,931		$	72,129,621		$	21,575,000
Percent of delinquent loans to total loan		15.0	%		4	%		0	%

The Manager may require a borrower to fund an interest reserve account with proceeds of its loan in order to provide the borrower with a period of time in which to arrange other financing and to provide some protection for us in the event that the borrower fails to make interest payments when due. The Manager generally requires interest reserve funds on loans secured by non-income generating property, such as unimproved land. These interest reserves have typically covered six to 18 months of interest payments. The Manager evaluates each loan on a case-by-case basis to determine whether an interest reserve will be required. There can be no assurance that the amount of any interest reserve established with respect to any loan will be adequate to cover any payment default by the borrower.

When we become aware of a payment default by a borrower, we typically send a written demand to the borrower that the default be promptly cured. Since the fourth quarter of 2006, our general policy has been to initiate foreclosure proceedings when borrowers miss two consecutive payments. As of June 30, 2007, there were eight loans with balances payable to us totaling $24,574,425 that were in default for which we had initiated a foreclosure proceeding.

In addition, as of June 30, 2007 we held title to one property that we foreclosed on in June 2007. The net realizable value of this property is estimated to be $6.6 million, resulting in a net loss of approximately $1.9 million.

General Standards for Mortgage Loans. We make loans to and purchase loans from individuals, businesses and other entities. Each loan is secured by one or more mortgages or deeds of trust that encumber real property, which in most cases is located in California but occasionally is located in other states. In most cases, a personal guarantee of the borrower or the principal owner of the borrowing entity is obtained. Additionally, loans are occasionally further secured by various personal property interests of our borrowers or their guarantors. In this Registration Statement on Form 10, the terms "deed of trust" and "mortgage" are used interchangeably.

To the extent the Manager believes it to be in our best interests, we will also make or invest in loans whose proceeds will be used for construction. However, to date, we have not made any construction loans based on the "as completed" value of the improvements to be constructed, although the proceeds of certain loans have been used by borrowers to make improvements to their properties. The loans that we make are not guaranteed or insured by any governmental agency or private entity. Our guidelines for our investment in loans are set forth below.

1. Loan-to-Value Ratios. For each loan that we make, the Manager conducts a valuation for each property securing the loan (a "Market Value Analysis"). In performing a Market Value Analysis, an officer or loan officer of the Manager typically conducts a site visit, which includes visiting the area surrounding the property which will secure the loan. The Manager may also visit other properties in the area which may be similar to or may provide a basis for comparison to the property which is being inspected and in some cases interviewing business owners and others in the area. The Manager also often speaks with brokers and other property owners who may be familiar with property values and investment conditions in the area. The Manager subscribes to many of the same industry services that are available to certified appraisers and is able to obtain sale prices of comparable properties recently sold and/or properties being offered for sale in the area. In many cases, the Manager obtains from the borrower an existing appraisal or other property valuation report performed by an independent appraiser within the past one, two or more years. While the Manager reviews these appraisals and other property valuation reports in its valuation process, it relies primarily on its Market Value Analysis. Historically, in cases in which no appraisal had been done within a year (due to current market conditions, within six months) by an independent third party, the Manager will usually obtain an appraisal by an independent third party, although the Manager will typically fund the loan prior to receiving this independent appraisal. The Manager believes that its Market Valuation Analysis provides a reasonable basis to evaluate the market value of the real property because it is based on at least the same essential information that an independent appraiser would use. We believe our primary reliance on the Manager's Market Value Analysis allows us to maintain our competitiveness by avoiding delays associated with obtaining or updating an appraisal done by an independent party prior to funding or purchase of a loan. The Manager will take certain precautions to avoid environmental problems, such as not making or investing in loans secured by properties known or suspected to have (or to be likely to have) significant environmental problems; however, there can be no assurance that any environmental review undertaken or requested by the Manager will reveal any environmental problems with respect to the real property securing a loan.

The following table shows the maximum LTV ratio prescribed by our lending standards and policies and the approximate LTV ratio of loans in our loan portfolio as of June 30, 2007 and December 31, 2006. The LTV ratio compares (i) the sum of the principal amount of the loan and the outstanding debt secured by any senior deed of trust on the property or properties securing the loan (in each case, as of the date of determination) to (ii) the value of the property or properties securing the loans, as determined by the Market Value Analysis at the time the loan is made. Market values are

updated for loans in non-accrual status. LTV ratios are reviewed at least quarterly to see if any update in market values is necessary as a result of additional loans in non-accrual status.

Type of Property	Loan to Value Ratio per lending policies		Loan to Value Ratio of Loans in Portfolio as of June 30, 2007		Loan to Value Ratio of Loans in Portfolio as of December 31, 2006
Commercial(1)	75	%	66	%	62	%
Residential (single family)	75	%	62	%	58	%
Land	60	%	47	%	43	%
Mixed Use	75	%	73	%	64	%

The LTV ratios in our lending policies may be increased if, in the sole discretion of the Manager, a given loan is supported by credit adequate to justify a higher LTV ratio or if mortgage insurance is obtained; however, the Manager has not required and does not anticipate obtaining or requiring the borrowers to maintain mortgage insurance. The LTV ratio in our lending policies do not apply to purchase money financing that we provide for the sale of any real estate owned (i.e., property acquired through foreclosure) or to refinance an existing loan that is in default at the time of maturity. In such cases, the Manager may accept any reasonable financing terms that it deems to be in our best interests, in its sole discretion.

2. Geographic Area of Lending Activity. Most loans are secured by mortgages or deeds of trust on properties located in California, but we also invest in loans secured by real property in other states if such loans otherwise satisfy the underwriting criteria described herein. As of June 30, 2007, eight loans totaling approximately $17.8 million were secured only by real property in states other than California. As of June 30, 2007, two loans, totaling approximately, $50,584,000, were secured both by properties in California and properties in Arizona.

3. Priority of Mortgages. If a loan is secured by a first deed of trust, the deed of trust is senior to all other recorded monetary liens other than liens for taxes or the assessments of special assessment districts to fund street, utility or other public improvements. Our loans are secured primarily by first and second priority deeds of trust on California real property. However, we may invest in loans secured by deeds of trust of mixed priority or which are junior to other senior encumbrances, i.e., third, fourth or even more junior position deeds of trust. As of June 30, 2007, we held in our loan portfolio nine loans secured by first deeds of trust, 11 loans secured by second deeds of trust, two loans secured by third deeds of trust, and eight loans secured by multiple deeds of trust with varying priorities. If a prospective loan is to be secured by a junior deed of trust (i.e., a second, third, fourth or other junior deed of trust) and the obligation secured by the senior lien(s) is in default, we will rarely make that loan unless the loan proceeds will be used to completely cure the default of the senior obligation(s). In addition, for loans already in our portfolio, we may make advances on behalf of borrowers to prevent or cure defaults relating the obligation secured by a senior lien. For example, we have made advances to borrowers to keep current an obligation secured by a senior lien to pay for fire insurance or for attorneys' fees.

4. Terms of Loans. The term (duration) of the loans we make will vary at the discretion of the Manager. Our loans will typically have a term of between three and five years, but may have a shorter or longer term but not longer than 20 years. Our loans will generally provide for monthly payments of interest only with the entire amount of the principal due at the end of the term, but may occasionally be partially or fully amortizing over the term of the loan. We typically do not have prepayment penalties in our loans. As of June 30, 2007, we did not have any loan in our portfolio with a maturity greater than five years and no loans were amortizing loans.

5. Escrow Conditions. Our loans are funded through an escrow account handled by a qualified title insurance escrow company or the Manager. Our policy is that loan funds are not disbursed until the following conditions are met:

6. No Loans to Manager. We will not make loans to the Manager or to any of its affiliates, except for any financing extended as part of a sale of real estate owned as a result of foreclosure. See "Potential Conflicts of Interest—Sale of Defaulted Loans or Real Estate Owned to Affiliates" below in this section.

7. Purchase of Loans from Affiliates and Others. The Manager is an active mortgage loan broker and California finance lender. We and other affiliates of the Manager make loans arranged for us or them by the Manager. We may purchase existing loans funded or acquired by the Manager or its affiliates. In addition, we have purchased and in the future may purchase loans from third parties. All loans we purchase will generally satisfy the lending guidelines described above, except that a new appraisal or market value analysis is not required when we purchase loans or portions of loans purchased from other entities managed by the Manager or when we purchase loans or portions of loans from a third party that purchased that loan from an entity managed by the Manager.

In order to take advantage of special opportunities that may arise to purchase loans at significant discounts (i.e., for a purchase price which is lower than the par value of the loan and thus yields potential additional profit to us), the Manager has the authority to cause us to acquire loans (or interests in loans) that are in default, but only so long as (i) the loan is being purchased from a third party unrelated to the Manager or its affiliates; (ii) the loan otherwise satisfies the lending guidelines described above; and (iii) immediately after the loan purchase, the aggregate principal amount of all loans held by us that are in default would not exceed 5% of our total capital. At June 30, 2007, we did not have any loans in our loan portfolio that had been purchased from third parties at a discount. In the past, we have acquired loans or portions of loans that were in default at the time we acquired those

loans. Of the loans in our loan portfolio as of June 30, 2007, eight loans or portions thereof aggregating $4,016,000 at the time of acquisition had been acquired when they were in payment default.

Generally, the purchase price we pay for any existing loan will not exceed the par value of the note or its fair market value, whichever is lower, but the Manager may purchase loans for a premium if the loan is current and the Manager believes the total purchase price is fair and reasonable, and in our best interest. To the extent the Manager is able to negotiate the purchase of a loan from third parties at a discounted purchase price, our policy is to pay the Manager a commission, in addition to the normal fees it is entitled to receive. However, the amount of the commission paid to the Manager on the purchase of a discounted loan may never exceed the amount of the discount (i.e., the par value of the loan less the purchase price of the loan) obtained for us by the Manager. See "Item 6—Executive Compensation—Compensation to Manager and its Affiliates."

8. Loan Diversification. No more than 25% of our total capital (equal to members' equity) will be invested in any one loan, calculated as of the time the investment is made. In 2006, we indirectly borrowed $25 million from Wells Fargo Foothill through Income Fund, an affiliate of the Manager, in order to fund a loan of $48 million. See "Leveraging Our Portfolio" and "Item 7—Certain Relationships and Related Transactions, and Director Independence." Although the entire $48 million loan to the borrower was more than 25% of our total capital at the time we made this loan, the amount of our own funds that we invested in the loan was $23 million, which was 22.7% of our total capital when the investment was made. The Manager and its affiliates made additional loans to this borrower aggregating approximately $19.4 million. We also have an interest aggregating $2,584,000 in a junior loan which is secured by the same property. See "Leveraging Our Portfolio" below.

Because the terms of the original loan from Wells Fargo Foothill required monthly payments of interest and amortized principal, the original loan balance of the Wells Fargo Foothill loan decreased. As a consequence of the additional loans and the reduced principal balance of the Wells Fargo Foothill loan, loans to this borrower secured by the same property totaled 26.6% of our capital at December 31, 2006 and 28.8% at June 30, 2007. The percentage of our total capital that our investment in these loans represent may grow if additional advances are made to this borrower or if our capital is reduced as a result of withdrawals by members from their capital accounts. See—"Leveraging Our Portfolio"—for additional discussion of this loan.

9. Reserve Fund. A contingency reserve fund may be retained for the purpose of covering our unexpected cash needs, if the Manager believes that to be in our best interests. The amount of this reserve fund, if any, would be established by the Manager. This reserve fund may be held in bank accounts, money market accounts or other liquid assets. Among the purposes of the fund would be the following: (i) provision for regular expenses incurred by us such as accounting and legal expenses associated with being a reporting company under the Exchange Act, (ii) provision for losses due to nonperforming loans and (iii) provision for advances which may be necessary to protect our interests. The creation of this reserve would involve the use of funds that would otherwise be available for distribution to members, and would necessarily have the effect of decreasing such distributions. To date, no such reserve fund has been created.

Credit Evaluations. The Manager may consider the income level and general creditworthiness of a borrower, and any guarantor, to determine a borrower's ability to repay the loan according to its terms, but such considerations are usually subordinate to a determination that a borrower has sufficient equity in the property or properties securing the loan to satisfy the LTV ratios or investment criteria described above. Therefore, we may make loans to borrowers who are in default under other of their obligations (e.g., to consolidate their debts) or who do not have sources of income that would be sufficient to qualify for loans from other lenders, such as banks or other financial institutions; however, we will not make a loan unless the Manager believes in good faith that the borrower has the ability and intent to repay the loan according to its terms.

Loan Servicing. All loans are and, unless the Manager selects another loan servicing agent for one or more loans, will be "serviced" (i.e., loan payments collected and other administrative services performed) by the Manager who is compensated for such loan servicing activities. See "Item 6—Executive Compensation."

Borrowers make loan payments in arrears, i.e., interest accrued over the preceding month on the outstanding principal balance, and are instructed to send their loan payments either to us directly or to the Manager for deposit on our behalf in the Manager's trust account, which is maintained at a financial institution selected by the Manager. At times, part of the available balance of a loan to a borrower may be held by the Manager or by us in order to provide for interest reserves for the loan and payments on the loan may be made from such funds.

Sale of Loans. We invest in mortgage loans. We are permitted to invest in real estate directly but have not done so, except if we foreclose on a property on which we have invested in a mortgage loan and we or an affiliate takes over ownership and management of the property. We presently do not intend to invest in mortgage loans primarily for the purpose of reselling such loans in the ordinary course of business. However, we will sell mortgage loans (or fractional interests therein) when the Manager determines that it appears to be in our interest to do so, based upon then-current interest rates, the length of time that we have held the loan, and our overall investment objectives, such as loan diversification, liquidity and optimizing the investment of available cash. The Manager may also arrange sales of loans in our loan portfolio in order to generate cash to invest in new loans that are arranged by it. This bolsters the Manager's position in the lending marketplace as a lender that has a ready funding capacity, which may indirectly benefit us (and the Manager's other affiliates) by promoting a steady flow of loan opportunities in which to invest but also results in the Manager receiving loan fees. See "Potential Conflicts of Interest" below in this section.

When the Manager deems it to be in the best interests of our members, we may borrow funds from a third party lender (which may but is not required to be a bank or other financial institution) or the Manager or its affiliates in order to fund additional mortgage loans or for other liquidity needs. By leveraging our loan portfolio, we may be able to increase the yield to our members. This increased yield will result if the interest we earn on our leveraged loans exceeds the interest that we must pay on the funds we borrow. This "spread" between the interest we earn on a leveraged loan and the interest paid on the borrowed funds used to make the loan will accrue to us. However, leveraging entails certain risks that would not otherwise be present if we had funded all of our loans from our own funds. For example, to the extent we make loans at long-term fixed interest rates while we borrow funds at short-term variable interest rates, we will be subject to the risk that prevailing interest rates (and our associated borrowing costs) will rise above the levels we earn on the fixed-rate portion of our loan portfolio, causing us losses. Another risk would be the liability to lenders and the loss of capital in the event we were unable to meet our obligations under any loan agreements with the lenders. In addition, while any additional profits we earn from leveraging our portfolio will be generally advantageous to our members, a portion of such additional profit may constitute unrelated business taxable income that may be taxable to our members (such as ERISA plan investors) that are otherwise tax exempt.

any payments since the last disbursement from the interest reserve in July 2007. As the owner of a portion of the $18 million loan, we have elected to make advances to pay interest on the $20 million loan in order to protect our lien position. Another holder of a portion of the $18 million loan, also managed by the Manager, has elected to make advances to pay interest on the $48 million loan. As security for the loan from Income Fund and the loan from the Wells Fargo Foothill, we pledged our interest in the $48 million loan to Income Fund and Wells Fargo Foothill and our interest in the collateral securing the $48 million loan (the "Fund II Collateral"). Income Fund has assigned our $25 million promissory note to Wells Fargo Foothill and its interest in the Fund II Collateral as security for the $25 million loan that it received from Wells Fargo Foothill. Our promissory note to Income Fund, as well as the Wells Fargo Foothill loan to Income Fund, matured on May 31, 2007. The Wells Fargo Foothill loan was renegotiated as of June 1, 2007 for interest only payments and extended to August 31, 2007. Wells Fargo Foothill and Income Fund entered into a forbearance agreement in which Wells Fargo Foothill agreed to not exercise remedies until October 31, 2007. The forbearance agreement also increased the interest rate on the loan to LIBOR plus 6.5% (as of September 30, 2007, the rate was 12.165%). Our note to Income Fund was correspondingly extended and its rate increased. Income Fund has also agreed not to exercise remedies pending discussions with Wells Fargo Foothill. The Manager is currently in negotiations with the borrowers on the $48 million loan to enter into a forbearance agreement to forbear exercising remedies for six months on certain conditions. See "Item 1A—Risk Factors—We have and in the future may assign any portion of our loan portfolio as security to a third party lender, and if we fail to meet our payment or other obligation under the loan from the third party lender, we may risk losing the loans we assign as security to such lender and the lender may have recourse to our other assets, which would adversely affect our financial condition and the return on investment of our members."

Our manager is California Mortgage and Realty, Inc., a Delaware corporation. It was incorporated on March 31, 1994 as Bellevue Capital Management Inc. and did business under the name of California Mortgage and Realty, Inc. In 1995, 1997 and 1998, the Manager acquired the operations of three California mortgage brokers. In 2004, the Manager changed Bellevue Capital Management Inc.'s name to California Mortgage and Realty, Inc. The telephone number of the Manager is (415) 974-1100. The sole director of the Manager is David Choo. The sole stockholder of the Manager is CMR Group, LLC, a Nevada limited liability company, whose sole member is David Choo. The Manager is licensed and qualified to do business in California as a real estate broker and as a California finance lender. The Manager engages in the business of arranging, funding, selling, purchasing and servicing trust deed investments for us, its other affiliates, its private investors and its own account. The Manager and its affiliates are also actively engaged in the businesses of real estate investment and occasionally real estate brokerage; however, the Manager specializes in arranging privately funded mortgage and trust deed investments. The Manager acts as the servicing agent in connection with our loan investments, unless the Manager selects another loan servicing agent for one ore more loans, and otherwise manages and directs our affairs. For a description of the officers and directors of the Manager, see "Item 5—Directors and Executive Officers."

The Manager is also the sponsor and manager of CMR Mortgage Fund, LLC, a California limited liability company and licensed California finance lender ("Fund I") which was formed in 2000, CMR Mortgage Fund III, LLC, a California limited liability company ("Fund III"), which was formed in 2006, Income Fund and First Street Commercial Mortgage Fund, LLC ("First Street Fund"). All of these funds engage in business similar to our business. The Manager also manages CMR Commercial Mortgage Fund, LLC ("Commercial Fund"), of which it is a minority member and which is engaged in business similar to ours.

The Manager manages and controls our affairs and has responsibility and final authority in almost all matters affecting our business. We do not have our own employees or offices and the Manager

carries out our operations with its employees at its offices. The duties of the Manager with respect to us include:

The Manager obtains borrowers through brokers, advertisements, referrals and repeat business.

Since 1995, the Manager has arranged more than 600 loans totaling more than $704,671,000 secured by deeds of trust or mortgages. As of June 30, 2007, the Manager serviced a portfolio of approximately $359,876,000 in trust deed or mortgage investments.

Fiduciary Duties of the Manager. Under California law, a manager is accountable to a limited liability company as a fiduciary, which means that a manager is required to exercise good faith and integrity with respect to company affairs. This fiduciary duty is in addition to those other duties and obligations of, and limitations on, the Manager which are set forth in our operating agreement. Our business operations and affairs are managed entirely by the Manager, which is subject to certain conflicts of interest. See "Potential Conflicts of Interest" below in this section.

The Manager must make available to any member or such member's authorized representative for inspection and copying during business hours certain information concerning us, including a current list of each member and the capital contribution, percentage interest and the capital account of each member, a current list and address of the Manager, a copy of our operating agreement and articles of organization, copies of certain of our federal, state and local tax or information returns and reports, copies of certain of our financial statements, and our books and records relating to our internal affairs for certain recent periods.

Our operating agreement provides that the Manager shall have no liability to us for losses resulting from errors in judgment or other acts or omissions, so long as the Manager in good faith determines that its course of conduct was in our best interests and its conduct did not constitute fraud, bad faith or willful misconduct. The operating agreement also provides that we will indemnify the Manager against any loss, expense, claim or liability (including reasonable attorneys' fees) resulting from any claim or legal proceeding brought by members or third parties relating to any act or omission concerning our activities, including derivative suit claims, so long as the Manager in good faith determined that its course of conduct was in our best interests and its conduct did not constitute fraud, bad faith or willful misconduct. Therefore, members may have a more limited right of action than they would have absent these provisions in the operating agreement. Because any indemnification of the Manager is payable solely from our assets, a successful indemnification of the Manager or any litigation that may arise in connection with the Manager's indemnification could deplete our assets.

The relationships among the Manager, the officers, the director and other affiliates of the Manager and us will result in various conflicts of interest. The Manager and its officers and the director and other affiliates are engaged in business activities involving real estate lending and real estate investing and may engage in additional business activities in the future that may be competitive with us. The Manager and its officers and director are required to exercise their fiduciary duties to us and to our members in a manner they believe will preserve and protect the interests of us and our members.

At September 1, 2007, CMR Group, LLC, a Nevada limited liability company, owned all of the outstanding shares of the Manager, and the sole member of CMR Group, LLC, is David Choo, who is also the sole director and president of the Manager.

The interests of the Manager will conflict with our interests in important areas described below. Members must rely on the general fiduciary standards which apply to the Manager to prevent unfairness by the Manager or an affiliate of the Manager in a transaction with us. See "The Manager—Fiduciary Duties of the Manager" above in this section. We have not been represented by separate legal counsel in connection with our formation or our dealings with the Manager. Except as may arise in the normal course of the relationship, there are no transactions presently contemplated between us and the Manager (or its affiliates) other than those listed below and discussed under "Item 7—Certain Relationships and Related Transactions, and Director Independence."

Loan Origination, Renewal and Forbearance Fees. None of the compensation set forth under "Item 6—Executive Compensation—Compensation to the Manager and its Affiliates" was determined by arms' length negotiations. For most loans, the Manager receives a loan origination fee of between 4% and 6%. Renewal fees are typically between 3% and 6% and forbearance fees are typically between 1% and 1.5%. These fees may be higher or lower depending upon market conditions. Any increase in such charges may have a direct, adverse effect upon the interest rates that borrowers will be willing to pay us, thus reducing the overall rate of return to members. Conversely, if the Manager reduced loan origination, renewal and forbearance fees, a higher rate of return might be obtained for us and our members. This conflict of interest will exist in connection with every Fund loan transaction, and members must rely upon the fiduciary duties of the Manager to protect their interests. We will generally charge borrowers interest at rates generally prevailing in the geographical areas where the security property is located for loans to comparable borrowers of similar creditworthiness, size, duration and the amount of our loans relative to the value of the real property securing our loans.

The Manager has the right to retain the services of other firms, in addition to or in lieu of the Manager, to perform brokerage services, loan servicing and other activities in connection with our loan portfolio that are described in this registration statement.

Other Funds or Businesses. The compensation structure applicable to the Manager in connection with loans that are arranged or originated for Fund I, Fund III, Income Fund, First Street Fund, Commercial Fund or individual investors may be different, and may be more lucrative to the Manager than the compensation payable to the Manager in connection with loans arranged for us. As a result, there may exist a financial incentive for the Manager to arrange loans for Fund I, Fund III, Income Fund, First Street Fund, Commercial Fund or for private investors outside the Fund, and the members must rely on the fiduciary duties of the Manager to protect their interests under such circumstances.

The Manager manages Fund I, Fund III, First Street Fund, Income Fund and Commercial Fund and in the future the Manager may also sponsor other funds formed to conduct business similar to ours. In addition, the Manager, principals and officers of the Manager, other affiliates of the Manager and other investors and clients of the Manager also invest in loans and may compete with us for investment opportunities. If these other funds or officers of the Manager have funds to invest at the same time as we do, there will then exist conflicts of interest on the part of the Manager as to whether to offer a particular loan opportunity to us or to these other funds. The Manager will decide which loans are appropriate for funding by us or by such other funds after consideration of all relevant factors, including the size of the loan, portfolio diversification, and amount of uninvested funds, but such decisions will not be subject to review or approval by members. The Manager is required by the terms of the operating agreement it has entered into with a member of Commercial Fund to offer loans to Commercial Fund and other funds and investors affiliates of the Manager in a specified order of rotation.

The Manager may engage for its own account, or for the account of others, in other business ventures, similar ours or otherwise, and neither we nor any member shall be entitled to any interest therein.

We will not have independent management and will rely on the Manager for our operations. The Manager is required to devote only so much time to our business as the Manager may deem to be reasonably necessary for the conduct of our business. The Manager will have conflicts of interest in allocating management time, services and functions between its existing business interests other than us and any future business ventures or arrangements which it may organize or in which it may be involved. The Manager believes it has sufficient staff available to be capable of discharging its responsibilities to all such entities.

Sale of Defaulted Loans or Real Estate Owned to Affiliates. In the event we become the owner of any real property by reason of foreclosure on a property securing a loan, the Manager's first priority will be to use its best efforts to sell the property for a fair price on the open market. If after 90 days, the property cannot be sold for a fair price, the Manager may arrange a sale to the Manager itself or to persons or entities controlled by or affiliated with the Manager (e.g., to another entity formed by the Manager or its affiliates or where the Manager or its affiliates may share management or ownership). In the event a loan goes into default, the Manager may arrange a sale of the loan to the Manager itself or to persons or entities controlled by or affiliated with the Manager. The Manager will be subject to conflicts of interest in arranging such sales since it will represent both parties to the transaction. For example, it will be determining the purchase price and other terms and conditions of sale for both us and the potential buyer. The Manager's decision will not be subject to review by any outside parties. In the event the property is sold by the Manager or an affiliate of the Manager, the net purchase price must be (i) no less favorable to us (taking into account any avoided commissions or other cost savings) than any bona fide third-party offer received, and (ii) no less than the total amount of our "investment" in the property.

A portion of the purchase price for real property may be paid by the Manager or affiliate executing a promissory note in favor of us, secured by a mortgage or deed of trust on the property being sold. In such a case, the total amount of the promissory note in favor of us and any senior mortgages or deeds of trust against the underlying real property will not exceed 90% of the purchase price of the property, and the note will otherwise contain terms and conditions consistent with those that would be contained in similar notes executed by third parties in arm's length transactions.

Sale or Purchase of Loans from the Manager or Other Funds Managed by the Manager. The Manager regularly sells loans or portions of loans from our portfolio and purchases loans or portions of loans for our portfolio to or from other funds that it manages, investors for whom it acts as servicer or third parties. Loans purchased from the Manager or its affiliates cannot be purchased at premium, and loans sold to the Manager or any of its affiliates cannot be sold at a discount. Pursuant to our operating agreement, we may sell existing loans to the Manager or its affiliates, but only so long as we receive net sales proceeds from the sale equal to the total unpaid balance of principal, accrued interest and other charges owing under such loan, or the fair market value of such loan, whichever is greater. In addition, our operating agreement provides that we may purchase loans from the Manager or its affiliates so long as at the time of purchase the borrower is not in default under the loan and no brokerage commissions or other compensation by way of premiums or discounts may be paid to the Manager or any of its affiliates by reason of such purchase (except loan origination fees earned upon initial funding of the loan). The Manager may also arrange sales of loans in our loan portfolio when the Manager determines that it appears to be in our interests for us to do so, based upon then current interest rates, the length of time that we have held the loan, and our overall investment objectives, such as loan diversification, liquidity and optimizing the investment of available cash.

The Manager faces intense competition in the business of originating or acquiring loans and loan interests for us. The Manager believes that the number of market participants in California alone who make mortgage loans to borrowers who cannot or do not want to obtain loans from conventional mortgage lenders is in the thousands. The Manager competes for borrowers with other private mortgage commercial lenders, subprime commercial lenders, hedge funds, investment banks, mortgage real estate investment trusts, private investors, commercial banks and others. Competition among industry participants can take many forms, including convenience in obtaining a loan, amount and term of the loan, speed in closing loans, customer service, loan origination fees and interest rates. To the extent any competitor significantly expands their activities in the nonprime market, we could be adversely affected.

We believe that the Manager's substantial experience in property valuation, flexibility in structuring the security for loans, and speed in closing loans enable us to remain competitive in our industry. Because the Manager services all loans in our loan portfolio, we are able, unlike most conventional mortgage lenders, to make loans secured by a combination of commercial and income producing properties, residential, and land.

Our operations are conducted by the Manager. Additionally, the Manager earns origination and servicing fees. Both we and the Manager hold California Finance Lender licenses. Additionally, the Manager holds a California real estate brokers' license. Each of these licenses requires that certain reports be filed with the California Department of Corporations or the California Department of Real Estate.

We have not qualified as a real estate investment trust under the Internal Revenue Code, and therefore we are not subject to the restrictions on activities that are imposed on real estate investment

trusts. We believe that we conduct our business so that we are not an investment company within the meaning of the Investment Company Act of 1940.

We and the Manager are subject to the Equal Credit Opportunity Act of 1974, which prohibits creditors from discriminating against loan applicants on the basis of race, color, sex, age or marital status, and the Fair Credit Reporting Act of 1970, which requires lenders to supply applicants with the name and address of the reporting agency if the applicant is denied credit. We are also subject to various federal and state securities laws regulating the issuance and sale of securities. Currently we have a permit from the California Department of Corporations to offer securities to residents of California in a maximum offering amount of $150 million.

If our assets are deemed to be "plan assets" under the Employee Income Security Act of 1974, as amended ("ERISA"), then the following issues will arise and impact ERISA-subject plan and individual account ("IRA") investors:

Under DOL regulations, when an ERISA-subject plan or IRA acquires an equity interest in another entity, such as any of our membership interests, the underlying assets of that entity will be considered "plan assets" unless an exception is available. We expect to rely on the "insignificant participation" exception in operating our business, which will be available if less than 25% of our percentage interests are held in the aggregate by ERISA Plan and IRA investors.

Should the Manager or we fail to adhere to applicable regulations, we could face potential disciplinary or other civil action that could have a material adverse effect on our business. The provision of our operating agreement which provides for indemnification of the Manager does not provide for such indemnification only in the case of the Manager's fraud, bad faith or willful misconduct or if the Manager fails to in good faith determine that its conduct was in our best interests. See, "Item 12—Indemnification of Directors and Officers."

We have offered our membership interests in reliance upon an exemption from the registration requirements of Section 5 of the Securities Act of 1933, as amended (the "Securities Act"), afforded by Section 3(a)(11) of the Securities Act and Rule 147 thereunder (collectively, the "Intrastate Offering Exemption").

One requirement of the Intrastate Offering Exemption is that we offer or sell our membership interests only to persons resident within the State of California. If a person purchases our membership interests on behalf of other persons, those other persons also must be resident within the State of California. The Intrastate Offering Exemption is unavailable for all offers and sales of our membership interests in a specific issue of membership interests if any of our membership interests sold in that issue are purchased by or on behalf of persons not resident within the State of California.

Adeline Investments, Inc., a Nevada corporation whose principal place of business is San Francisco, California ("Adeline"), is an affiliate of the Manager. At times in the past, Adeline has owned our membership interests, but currently does not own any such membership interests. Prior to Adeline's acquisition of our membership interests, certain individuals not resident within the State of

California loaned money to Adeline. It is possible that once Adeline acquired our membership interests, these loans made to Adeline by such persons constituted an indirect investment in the Fund made by Adeline on behalf of such persons.

If it is determined that such an indirect investment occurred, the offers or sales of our membership interests made by us in issues affected by such indirect investment would not qualify for the Intrastate Offering Exemption. In addition, if it is determined that such an indirect investment occurred, we would have offered and sold membership interests not in compliance with the registration requirements of Section 5 of the Securities Act since it is not likely that such offers or sales would qualify for any other exemption from such requirements. Under Section 12(a) of the Securities Act, we would be liable to persons purchasing our membership interests for the consideration paid, plus interest thereon, if the offer or sale was made in violation of Section 5 of the Securities Act. However, under Section 13 of the Securities Act, the purchaser must bring the action within one year after the sale made in violation of such Section 5. No similar statute of limitations applies to enforcement or remedial actions that may be taken by the U.S. Securities and Exchange Commission ("SEC") with respect to violations of the registration requirements of such Section 5.

The SEC has notified the Manager that it is conducting an informal inquiry relating to the Manager and us in order to determine whether there have been violations of the federal securities laws. In conjunction with this inquiry, certain information has been requested from us. The Manager is currently in the process of responding to the inquiry and has and will continue to cooperate with the SEC in response to its requests. The Manager believes that there will not be a material impact to our financial position or operations as a result of this inquiry.

An investment in membership interests involves a significant degree of risk and is suitable only for investors who have no need for liquidity in their investments. Prospective investors should carefully consider the following risks and other factors before making their investment decisions.

Our ability to generate cash for our operations, to make additional loans, or to fund withdrawals or distributions for members, will depend primarily on the ability of our borrowers to make timely payments on, and ultimately repay their loans, and defaults by a significant number of borrowers on their loan payments could have a material adverse effect on our operations and financial condition.

We derive cash from operations primarily from interest payments by borrowers on their loans, and obtain funds for making new loans and satisfying member withdrawals from cash from operations and loan repayments and additional capital from members. The ability of borrowers to make payments on their loans depends on a number of factors, including cash flow from their own operations, sale or refinancing of property and their other assets. A significant portion of our portfolio is secured by land which typically does not generate cash until the property is sold or refinanced. If a significant number of borrowers fail to make timely payments on their loans, including interest payments, we may not have adequate cash to fund our operations, make new loans or repay our obligations, including our indebtedness, and our financial condition may be materially adversely affected, which would adversely affect withdrawals or distributions to our members.

We also rely on borrower loan repayments to generate funds to make subsequent loans, to make payments on senior defaulted loans, to acquire or make payments on defaulted senior loans and to fund member withdrawals. Borrowers may be unable to repay the entire principal amount out of their own funds and consequently may be compelled to refinance. Fluctuations in interest rates and the unavailability of mortgage funds could adversely affect the ability of borrowers to refinance their loans at maturity. If our borrowers are unable to refinance or liquidate their properties in a timely manner,

our ability to fund our operations and protect our existing interests will be impaired. In addition, we may need to rely on future borrowings to fund operations, make loans or repay indebtedness, and there can be no assurance that such borrowings will be available to us or in amounts sufficient and on commercially reasonable terms to enable us to meet our liquidity needs.

A number of factors could affect the value of the real property securing a loan that we make or the amount that we may recover through foreclosure, which may result in recovery of amounts that are less than the full amount of a loan.

We are customarily an "asset" rather than a "credit" lender. This means that we may rely primarily on the value of the real property securing the loans to protect our investment. There are a number of factors which could adversely affect the value of any such real property securing loans, including, among other things, the following:

There are risks associated with junior mortgage positions, and we may not recover our initial investment in a foreclosure.

We are more likely to lose our entire investment in the case of a second or other junior mortgage or deed of trust than with first mortgage or deed of trust loans because upon any foreclosure or other sale of the property, the obligation secured by the senior lien must be paid in full before any obligation secured by a junior lien can be satisfied. There can be no assurance that any proceeds from the sale of property on which we have a junior lien will be available to satisfy the borrower's loan obligation to us. Furthermore, to protect our junior security interest, we may be required to make substantial cash outlays for such items as loan payments to senior lien holders to prevent their foreclosing on the properties or for property taxes, insurance, repairs, maintenance and other expenses associated with the property. These outlays could reduce or eliminate any proceeds available to us which could have an adverse effect on our profitability and significantly reduce the amount of distributions to members.

The lien that we have on property securing loans that we make may be subject to senior liens which allow the senior lienholder to accelerate the loan if the borrower grants a lien on the property to a junior lienholder.

A "due-on-encumbrance" clause contained in a senior deed of trust, which permits the holder of the deed of trust to accelerate the loan if the borrower executes an additional deed of trust on the security property in favor of a junior lienholder, is enforceable in all cases except when the security property consists of residential property consisting of four or fewer units. The Manager intends to follow customary and prudent lending practices when potential security property for a loan (except residences with four or fewer units) is already encumbered by a senior deed of trust which contains a "due-on-encumbrance" or "prohibition against junior financing" clauses and, if deemed necessary, the Manager, before making the loan, may obtain the written consent of the senior lienholder agreeing not to enforce the "due-on-encumbrance" or "prohibition against junior financing" clauses by reason of our loan.

Our results of operations are subject to fluctuations in interest rates and other economic conditions over which we have no control and any significant decline in economic activity may impact our ability to make loans and may result in lower interest rates on the loans we make and consequently result in lower distributions to members.

Our results of operations will vary with changes in interest rates and with the performance of the real estate market in California and, to a lesser extent, in certain other states. If the economy is healthy, we believe that more people will borrow money to acquire or develop real property. However, if the economy grows too fast, interest rates may increase too much and the cost of borrowing may become too expensive. Also, if the economy enters a recession, real estate development may slow down. These changes in interest rates or in the economy may result in our investing in fewer loans or having fewer loans to acquire and will therefore reduce our revenues and the distributions to members.

If interest rates decline and lower interest rate mortgage loans are available, a borrower may prepay its obligations on its existing higher interest rates loans. Since our rates are typically higher than those of conventional mortgage lenders and we typically do not have prepayment penalties in our loans, it is more likely that borrowers will prepay our loans in these circumstances. We will continue to invest in loans at competitive market interest rates. If interest rates decline with respect to future investments, we will invest funds at the market rate, which will reduce the overall yield.

If interest rates rise, our borrowers may find it more difficult to refinance our loans when they mature or to sell their properties. This would increase the risk that our borrowers will not be able to refinance their loans or will default on their loans. On the other hand, if interest rates rise with respect to future investments, we will make investments at higher rates increasing overall yield.

Our results will also reflect other economic conditions, such as a particular industry migrating to or from California. If businesses start to leave California or migration into California slows or there is a regional or local economic downturn in California, our ability to invest in loans in California will be adversely affected and the quality of our existing loan portfolio may decline, which may result in lower distributions to members.

We and the Manager may face lawsuits by borrowers relating to our lending activities which could adversely affect our profitability.

The Manager intends to act in good faith and use reasonable judgment in selecting borrowers and making and managing the loans. However, as lenders, both we and the Manager are exposed to the risk of litigation by a borrower or its affiliates, successor and assigns challenging the terms of the loans or the actions or representations of the Manager in making, managing or foreclosing on the loans. It is impossible for the Manager to foresee what allegations may be brought, and the Manager will use its best efforts to avoid litigation if, in the Manager's judgment, the circumstances warrant an alternative resolution. If an allegation is made and/or litigation is commenced against us or the Manager, we will incur legal fees and costs to respond to the allegations and to defend any resulting litigation. If we incur such fees and costs, this could have an adverse effect on our profitability and reduce the distributions to our members. In addition, in the event claims by the borrower against us are upheld by a court or regulatory authorities, loan principal, interest and other charges which we may have been entitled to may not be recoverable from the borrower.

We could incur liability for the remediation of hazardous substances as a result of our lending activities or as a result of foreclosure on properties that secure loans that we make, and the cost to remediate any hazardous substances could be substantial, which could adversely affect our financial condition.

We do not and will not participate in the on-site management of any facility on the property in order to minimize the potential for liability for cleanup of any environmental contamination under applicable federal, state, or local laws.

Under current federal and state law, the owner of real property contaminated with toxic or hazardous substances (including a mortgage lender that has acquired title through foreclosure) may be liable for all costs associated with any remedial action necessary to bring the property into compliance with applicable environmental laws and regulations. This liability may arise regardless of who caused the contamination or when it was caused.

There can be no assurance that if we foreclose on real property that we would not incur full recourse liability for the entire cost of any such removal and cleanup, or that the cost of such removal and cleanup would not exceed the value of the property. In addition, we could incur liability to tenants and other users of the affected property, or users of neighboring property, including liability for consequential damages. We would also be exposed to risk of lost revenues during any cleanup and to the risk of lower lease rates or decreased occupancy if the existence of such substances or sources on the property becomes known. If we fail to remove the substances or sources and clean up the property, it is possible that federal, state, and/or local environmental agencies could perform such removal and cleanup, and impose and subsequently foreclose liens on the property for the cost thereof. We may find it difficult or impossible to sell the property prior to or following any such cleanup. We could be liable to the purchaser thereof if the Manager knew or had reason to know that such substances or sources existed. In such case, we could also be subject to the costs described above. If toxic or hazardous substances are present on real property, the owner may be responsible for the costs of removal or treatment of the substances. The owner may also incur liability to users of the property or users of neighboring property for bodily injury arising from exposure to such substances. If we are required to incur such costs or satisfy such liabilities, this could have a material adverse effect our profitability.

Even if a mortgage lender does not foreclose on a contaminated site, the mere existence of hazardous substances on the property may depress the market value of the property such that the loan is no longer adequately secured. Additionally, if a borrower is required to incur such costs or satisfy such liabilities, this could result in the borrower's inability to repay its loan.

A lender's best protection against environmental risks is to thoroughly inspect and investigate the property before making or investing in a loan; however, such environmental inspections and investigations are expensive, and may not be financially feasible in connection with a particular size and type of loan we may make, particularly if the collateral is residential property. In addition, given the timeframes in which we make loans, we may not be able to obtain an appropriate (Phase I or Phase II) report on the property securing the loan and toxic contamination reports or other environmental site assessments will generally not be obtained by us in connection with our loans.

We may face other real property related liabilities as a result of our lending or foreclosure activities.

When we acquire any equity or leasehold interest in real property by direct investment, foreclosure or otherwise, we are exposed to the risks of liability incident to real property ownership or tenancy. Owners of real property may be subject to liability for injury to persons and property occurring on the real property or in connection with the activity conducted thereon, and liability for non-compliance with governmental regulations.

Our investment practices are not supervised or regulated by any federal or state authority.

Our management and investment practices are not supervised or regulated by any federal or state authority, except to the extent that certain of the lending and brokerage activities of us and the Manager are subject to supervision or regulation by the California Department of Real Estate or Department of Corporations. Therefore, members may not rely on the oversight of federal or state regulatory authorities over our business and affairs.

We may face losses due to fines, penalties and other amounts relating to any governmental action to enforce alleged violations of lending laws.

While the Manager will use its best efforts to comply with all local, state and federal lending regulations, there is the possibility of governmental action to enforce any alleged violations of such lending laws which may result in legal fees, damage awards or fines and penalties. While the Manager has never been cited for any such violations in the past, there is always a risk of potential governmental enforcement action which may lead to losses by us.

HOEPA imposes restrictions on and requires certain Truth-in-Lending disclosures with respect to mortgage loans secured by a consumer's principal dwelling (other than purchase money or construction loans and reverse mortgages) which either: (a) bear interest at an annual percentage rate that is 10 percentage points higher than the yield on Treasury securities having comparable periods of maturity; or (b) involve payment of points and fees by the consumer in excess of the greater of 8% of the loan amount or $400. A failure to comply with HOEPA subjects the lender to a loss of all finance charges and fees paid by the consumer and may be grounds for rescission by the consumer. HOEPA raises significant questions as to its application and interpretation, especially in cases involving clerical errors that result in mistaken disclosures. We may make loans that are subject to HOEPA and if we do so we intend to comply with the requirements of the HOEPA. However, it is possible that we may inadvertently fail to comply with the requirements of the HOEPA, which may result in unanticipated costs and losses to us.

Further, the California legislature and local governments have enacted certain statutes and ordinances designed to discourage so-called "predatory" lending practices by mortgage lenders. The Predatory Lending Law in California applies to consumer loans with an original principal balance of less than $250,000 and provides civil and administrative remedies against persons who willfully and knowingly violate provisions of this law. We do not intend to make any loans that would be subject to this California statute or any such local ordinance, although it is possible that we may inadvertently make a loan that is subject to such statute or ordinance, which may result in unanticipated costs and losses to us.

We have and in the future may assign any portion of our loan portfolio as security to a third party lender, and if we fail to meet our payment or other obligation under the loan from the third party lender, we may risk losing the loans we assign as security to such lender and the lender may have recourse to our other assets, which would adversely affect our financial condition and the return on investment of our members.

We may borrow funds in order to fund mortgage loans. We may assign most or all of our loan portfolio to such lenders for the loans.

The cost of the funds that we will be borrowing from lenders may accrue interest at a floating rate of interest. However, to date, most or all of our loans have been made at a fixed rate of interest. If the floating rate on funds borrowed should increase such that the cost of borrowed funds exceeds the fixed rate of interest that we are earning on the fixed rate portion of our loan portfolio, we may default under our loan and security agreement with a lender. If some or all of our loan portfolio is assigned to

a lender as security for the loan, we would be at risk of losing our assets (i.e., our loans and the underlying real property security), which loss may subsequently cause losses to members.

Various other events may cause us to default under a loan thereby allowing a lender to foreclose on our loan portfolio. These events may include our failure to observe any of the covenants contained in the loan agreement, our default under any other loan agreement to which we are a party, the bankruptcy or insolvency of the Manager, and other events specified in the loan agreement. Thus, we are at risk of losing most or all of our loan portfolio on the occurrence of many events that do not directly relate to our ability to service the loans and some of which are not within our control.

As of June 30, 2007, we had one promissory note outstanding in the principal amount of $21,489,124, related to a loan from our affiliate Income Fund. The original principal amount of the loan was $25 million, which Income Fund borrowed from Wells Fargo Foothill in order to make the loan to us. We borrowed this amount in order to originate a $48 million loan to several affiliated borrowers which loan is secured by several large land properties. This loan is one of three loans to the same borrowers secured by deeds of trust with differing priorities on these properties: a $48 million loan, a $20 million loan and an $18 million loan. We have no ownership interest in the $20 million loan but we own a 15.2% interest in the $18 million loan. The borrowers under these loans have not made any payments since the last disbursement from the interest reserve in July 2007. As the owner of a portion of the $18 million loan, we have elected to make advances to pay interest on the $20 million loan in order to protect our lien position. Another holder of a portion of the $18 million loan, also managed by the Manager, has elected to make advances to pay interest on the $48 million loan. As security for the loan from Income Fund and the loan from the Wells Fargo Foothill, we pledged our interest in the $48 million loan to Income Fund and Wells Fargo Foothill and our interest in the Fund II Collateral. Income Fund has assigned our $25 million promissory note to Wells Fargo Foothill and its interest in the Fund II Collateral as security for the $25 million loan that it received from Wells Fargo Foothill. Our promissory note to Income Fund, as well as the Wells Fargo Foothill loan to Income Fund, matured on May 31, 2007. The Wells Fargo Foothill loan was renegotiated as of June 1, 2007 for interest only payments and extended to August 31, 2007. Wells Fargo Foothill and Income Fund entered into a forbearance agreement in which Wells Fargo Foothill agreed to not exercise remedies until October 31, 2007. The forbearance agreement also increased the interest rate on the loan to LIBOR plus 6.5% (as of September 30, 2007, the rate was 12.165%). Our note to Income Fund was correspondingly extended and its rate increased. Income Fund has also agreed not exercise remedies pending discussions with Wells Fargo Foothill. The Manager is currently in negotiations with the borrowers on the $48 million loan to enter into a forbearance agreement to forbear exercising remedies for six months on certain conditions. The Manager anticipates that if we, through Income Fund, continue to make interest payments on the Wells Fargo Foothill loan and we are proceeding with respect to the $48 million loan in a manner acceptable to Wells Fargo Foothill, it will not foreclose on our pledged interest in the $48 million loan.

If Wells Fargo Foothill elected to exercise its remedies and foreclosed on the Fund II Collateral, we could lose our equity in the Fund II Collateral unless we are able to repay the Wells Fargo Foothill loan or protect our interest by bidding at the foreclosure sale. There is no assurance that we will have cash sufficient to pay the Wells Fargo Foothill loan prior to a foreclosure sale. Wells Fargo Foothill would also have recourse against our assets and will not be required to first seek recovery from the Fund II Collateral. Whether Wells Fargo Foothill should choose to recover the current amount we owe under the $25 million loan from our general assets or from a foreclosure on the Fund II Collateral, there would be an adverse effect on our financial condition and amounts available for distribution to our members.

Members will not have any opportunity to participate in our management and must rely on the Manager and the principals of the Manager to manage us; therefore, the loss of the Manager or any of its principals may adversely affect our business and operations.

Members will not have a voice in our management decisions and can exercise only a limited amount of control over the Manager. In addition, members will have no opportunity to review potential Fund loans. The Manager will make all decisions with respect to our management, including the determination as to what loans to originate or purchase, and we are dependent to a substantial degree on the Manager's continued services. In the event of the dissolution, death, retirement or other incapacity of the Manager or its principals, our business and operations may be adversely affected.

We will compete with the Manager and its affiliates, as well as others engaged in the mortgage lending business, including other investors which may limit the availability of secured loans and the quality of our loan portfolio, and the Manager will not be required to devote its full time to our affairs.

The Manager has substantial prior experience in the mortgage lending business. Due to the nature of our business, our profitability will depend to a large degree upon the future availability of secured loans or loan interests. We will compete with the Manager, its affiliates, its investors, institutional lenders and others engaged in the mortgage lending business, some of whom have greater financial resources and experience than us. Competition in the mortgage lending business may affect our ability to obtain both the quantity and quality of loans that we desire for our portfolio. In addition, the Manager is not required to devote its full time to our affairs, but only such time as the Manager may deem to be reasonably necessary for the conduct of our business. Its management of other entities may limit the time and services that it devotes to us.

Our success is dependent on the performance of the Manager, and therefore, if the Manager is unable to serve as our manager for any reason or unable to devote the time necessary to manage us, our performance may be adversely affected.

Because our day-to-day affairs are managed exclusively by the Manager, and we rely on the Manager's expertise to locate and evaluate lending opportunities for us and to manage our portfolio, our performance may be adversely affected if it becomes necessary to find another manager if the Manager, for any reason, were unable to continue to serve in this capacity or unable to devote the time necessary to manage our affairs. If the Manager suffers or is distracted by adverse financial operational problems in connection with its operations unrelated to us, its ability to allocate time and/or resources to our operations may be adversely affected. If the Manager is unable to allocate sufficient resources to oversee and perform our operations for any reason, the amount of cash we are able to generate may decrease significantly.

Members may not be able to liquidate their membership interests to take advantage of higher returns available from other investments.

Mortgage interest rates are subject to abrupt and substantial fluctuations, but the purchase of units is a relatively illiquid investment. If prevailing interest rates rise above the average interest rate being earned by our loan portfolio, investors may wish to liquidate their investment in order to take advantage of higher returns available from other investments but may be unable to do so because of limitations on withdrawal in our operating agreement. Under our operating agreement, a member may withdraw all or a portion of that member's capital account, but only with 60 days' prior written notice to the Manager and subject to availability of cash available to make this redemption. In addition, we will not be required to liquidate the capital account of any withdrawing member to the extent the aggregate distributions paid to all withdrawing members during any twelve month period would exceed

10% of the aggregate capital accounts of all members at the beginning of such period. Due to these limitations on withdrawal of a member's capital account, members may not be able to liquidate their investment in a timely manner in order to take advantage of higher returns available from other investments, in an emergency or for any other reason.

There is no public market for membership interests and none is expected to develop in the future.

There is no public market for our membership interests, and even if potential buyers could be found, the transferability of units is also restricted by the provisions of the Securities Act and Rule 147 thereunder, the California Corporate Securities Law of 1968, as amended, the regulations thereunder and by the provisions of our operating agreement. Any sale or transfer of units also requires the prior written consent of the Manager, which may be withheld in its sole discretion and may require the prior written consent of the California Commissioner of Corporations. Furthermore, members will have only limited rights to redeem their interests or withdraw from the Fund or to otherwise obtain the return of their invested capital. Therefore, all members must be capable of bearing the economic risks of investment in us with the understanding that their membership interests may not be liquidated by resale, and should expect to hold their membership interests for an undetermined period of time.

We are treated as a partnership for federal income tax purposes. Any favorable federal tax treatment presently available to us could be affected by any changes in tax laws that may result through future Congressional action, tax court or other judicial decisions, or interpretations of the Internal Revenue Service.

We expect to incur significant costs in connection with Exchange Act compliance and we may become subject to liability for any failure to comply.

As a result of our obligation to register our membership interests with the Securities and Exchange Commission under the Exchange Act, we will be subject to Exchange Act rules and related reporting requirements. This compliance with the reporting requirements of the Exchange Act will require timely filing of quarterly reports on Form 10-Q, annual reports on Form 10-K and current reports on Form 8-K, among other actions. Further, recently enacted and proposed laws regulations and standards have increased the costs of corporate governance, reporting and disclosure practices which are now required of us. Our efforts to comply with applicable laws and regulations, including requirements of the Exchange Act and the Sarbanes-Oxley Act of 2002, are expected to involve significant and potentially increasing costs. In addition, these laws, rules and regulations create new legal bases for administrative enforcement, civil and criminal proceedings against us in case of non-compliance, thereby increasing our risks of liability and potential sanctions.

The following table presents selected historical financial data pertaining to us. The information in the following table has been derived from our unaudited financial information for the six-month periods ended June 30, 2007 and June 30, 2006, and from our audited financial statements for the years ended December 31, 2006, 2005 and 2004. The selected financial data should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and our financial statements and related notes appearing elsewhere in this Registration Statement on Form 10.

The accompanying interim condensed financial statements as of June 30, 2007 and for the six months ended June 30, 2007 and 2006 included in this filing have not been reviewed by our independent registered public accounting firm in accordance with professional standards for conducting such reviews. During 2007, in connection with preparation of the Registration Statement on Form 10, it was determined that our prior auditors were not independent with respect to SEC rules and regulations. We changed auditors and they are in the process of reviewing the interim condensed financial statements as required.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements. This Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements within the meaning of Section 21E of the Exchange Act. Such statements can be identified by the use of forward-looking words such as "may," "will," "expect," "anticipate," "estimate," "continue" or other similar words. These statements discuss expectations, hopes, intentions, beliefs and strategies regarding the future, contain projections of results of operations or of financial conditions or state other forward-looking information. When considering such forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this Registration Statement on Form 10. Forward-looking statements include, among others, statements regarding future interest rates, availability of mortgage credit, and economic conditions and their effect on us and our assets, trends in real estate markets in which we do business, future loan payoffs, foreclosures and value recovered from property sales, estimates as to the allowance for loan losses and the valuation of real estate held for sale, our growth and estimates of future member withdrawals. Although the Manager believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions and available data and research, there are certain factors, in addition to these risk factors and cautioning statements, such as general economic

conditions, local and regional real estate conditions, adequacy of reserves, or weather and other natural occurrences that might cause a difference between actual results and those forward-looking statements. As a consequence, our actual results may be significantly different from the expectations expressed in the forward looking statements and our past results. All forward-looking statements and reasons why results may differ included in this Registration Statement on Form 10 are made as of the date hereof, and we assume no obligation to update any such forward-looking statement or reason why actual results may differ.

Overview. We are a California limited liability company organized on September 5, 2003 for the purpose of making or investing in business loans secured by deeds of trust or mortgages on real properties located primarily in California. The loans are arranged and serviced for us by the Manager. We fund our lending activities by selling our membership interests, selling all or a portion of our interest in the loans in our loan portfolio and accessing credit from third party lenders, as well as from the Manager or affiliates of the Manager. We commenced operations in February 2004. We ceased accepting new members in the third quarter of 2006.

Our business strategy is to generate current income by making or investing in mortgage loans with borrowers for whom quick decisions, available funding and flexible underwriting are the primary considerations (compared to the lengthier or more burdensome underwriting processes often required to originate and fund a loan by conventional commercial mortgage lenders, such as commercial banks, in order to fund a loan), or for whom the collateral type (e.g., undeveloped land or partially leased office buildings in need of repairs or maintenance and/or remodeling) or their credit histories precludes financing from conventional commercial mortgage lenders. Loans are arranged by the Manager from repeat borrowers, referrals, new "off-the-street" borrowers, advertising in real estate trade journals and business publications, or from loan brokers engaged and paid by the borrower. In addition, from time to time, we identify loans or portfolios of loans originated by other third parties that match our own origination criteria and acquire these loans or portfolios of loans. Although profitable, this has not been a significant part of our mortgage investing activities. Interest that we earn on our loans has been and is expected to continue to represent our primary source of revenue.

Generally speaking, the underwriting by the Manager focuses primarily on the value of the collateral securing the loan, and secondarily on the general creditworthiness and reputation of the borrower. The collateral is generally real properties—predominantly commercial income-producing structures or land held by businesses. The land can be itself income-producing (e.g., vineyards) or may be held for commercial or residential development. The collateral may include a security interest in the equity of the entity holding the asset or other interests such as water rights, personal property, work product, equipment or other business assets. In most cases, a personal guarantee of the borrower or the principal owner of the borrowing entity is obtained. As a result of the nature of our underwriting and lending our business model generally results in higher delinquency and foreclosures than experienced by conventional commercial mortgage lenders. Historically, higher delinquencies and foreclosures have not led to higher charge-offs.

Most of our assets are fixed-rate mortgage loans. We have not invested in derivative instruments or otherwise engaged in hedging transactions to reduce the risks of interest rate changes. In the future, we may consider hedging transactions as a tool in managing our interest rate risk.

The commercial mortgage loan business often is vulnerable to changes in macroeconomic conditions, including levels of interest rates. If softness in economic conditions results in decreases in interest rates, more borrowers may prepay their loans and we may not be able to reinvest the amounts repaid in loans generating as high a yield. To stay fully invested, our Manager may be required to arrange loans for us on terms less favorable to us or to make loans involving greater risk to us.

Interest rate movements also affect real estate values, as do quality and location of the real property, cash availability and end-user demand. Modest movements in real property values or interest rates are not expected to significantly affect our performance. A severe decline in real estate values could adversely affect the value of collateral underlying the loans which, in an event of default, could adversely affect ultimate collection of loan principal and interest and result in losses to us. Deterioration in economic conditions could also increase loan delinquencies and loan defaults with comparable effect. Decreases in loan payoffs, increases in loan delinquencies and defaults, and/or decreases in the yield in our mortgage-loan portfolio (including increases in real estate owned ("REO")), would reduce the cash we have available for distribution to our members and impact our returns.

The loans we invest in are relatively higher yielding loans at LTV ratios that are relatively lower than is typical with conventional commercial mortgage lenders. Historically, our loans have been originated with annual interest rates that have averaged between 12% and 13.95%, while LTV's have averaged below 65%. Since our formation in 2003, the challenge of originating these loans has been particularly pronounced due primarily to increased competition from other commercial mortgage lenders, rapidly increasing commercial property values and demands from potential borrowers for higher LTV loans and lower interest rates.

For many commercial property types such as apartment buildings, office buildings, hotels and retail buildings, values have risen over the past five years. During the same period, capitalization rates, a popular method of valuing income properties, decreased to their lowest levels in decades. As capitalization rates decrease, property values go up since the same net income results in higher valuations. The commercial property markets also experienced unprecedented demand from investors and lenders. Many of these investors and lenders came from overseas as the global economy expanded resulting in sizable amounts of liquidity in the real estate, private equity and financial markets.

In California and some other states, office properties increased in value significantly, resulting in part from low vacancy rates and rising rental rates, increasing their values. Hotels also experienced higher occupancy and average daily rates, increasing their values. Apartment values rose with higher occupancy rates and, in some areas, a significant interest from investors competing to purchase well-located buildings for conversion to condominiums.

Over the past five years, and particularly in California, there also has been a proliferation of competing lenders vying to originate mortgage loans. Many lenders who only a few years ago were not

active commercial real estate lenders began to enter the market or increase the aggressiveness of their lending efforts. Some of these lenders were engaged in the same type of lending as the Manager, with a focus primarily on the value of the underlying real estate collateral and less on the general creditworthiness and reputation of the borrower. Many hedge funds—some of them recently formed—began competing vigorously for commercial mortgage loans. In addition, several publicly traded REITs and other large publicly traded real estate companies began more actively lending against commercial real estate properties. A number of lenders and investors formed collateralized debt obligation programs which securitized mortgage loans and related other securities often secured by the same types of properties against which the Manager had traditionally originated loans.

The strong increase in property values, the falling capitalization rates, the increased number of other lenders engaged in our type of mortgage lending and the general availability of credit and liquidity resulted in a very competitive lending environment over the past several years. Loan requests were at or above the highest ranges of our LTV limitations and at interest rates lower than our targeted yields. The Manager also became concerned about not only lending at high LTV ratios, but doing so on appraised values that have increased as a result of shrinking capitalization rates and the relatively lower level of net income supporting these new valuations.

During this period, the Manager and many others in the real estate and mortgage financing industries began to anticipate the eventual downturn in the residential real estate markets. Home prices throughout the United States had risen dramatically beginning in the last half the 1990s and continuing through 2006. Home prices (and commercial real estate values) have always been cyclical and many of the commonly watched ratios and statistics such as the ratio of the average homeowner's income needed to make mortgage payments, the ratio of home prices relative to average income levels, the percentage of those able to afford to purchase homes and others had been stretched to what were considered by many to be unsustainable levels.

The Manager has always believed in the cyclical nature of the real estate market and that downturns in the real estate markets are inevitable over time. By holding a portfolio of loans with relatively lower LTVs, we believed we would be better able to withstand a significant decrease in real estate values without suffering large losses of uncollected principal and interest under our loans.

As of June 30, 2007, approximately 84% in aggregate principal amount of our loans was secured by California real estate. Also, as of June 30, 2007, 81% of our loan portfolio was secured by undeveloped land (68% in California and 13% outside of California), most of which properties do not generate current income. Undeveloped land can be held for future residential, commercial, or mixed-use development projects. The percent of loans secured by undeveloped land by type are to 3% residential and to 16% commercial and mixed-use. These geographic and land type concentrations of location and land type serve to increase our risk of adverse effects on our results of operations and cash flow from a local or regional real estate market downturn or one that affects particular types of properties (or affects particular types of properties more severely).

Due to the significance of loans collateralized by land held for residential development, the reversal in housing markets and the recent turmoil of the capital markets, particularly those elements that provide funding to subprime, Alt-A, and prime jumbo (non-conforming) lenders and borrowers, are expected to challenge our results of operations and cash flows. Although preliminary estimates of gross domestic product indicated growth at a robust 4% in the second quarter of 2007 (significantly improved from 0.7% in the first quarter), conditions in the housing sector remain exceptionally weak. Sales of existing and new homes continued in August 2007, and housing inventories continued to climb. In August 2007, inventory levels reached a 10 month supply (8.2 months for new homes) surpassing the worst point observed during the 1990-91 recession. Housing prices are generally declining, but unevenly. Much of the larger declines are in California and Arizona. Taken together, the slow home absorption rates and an increasing inventory of vacant developed lots are creating financial difficulties and an

uncertain future for the home builders and land developers, who are our borrowers. Homebuilder confidence fell in October to its lowest level since 1985, when record keeping began. In this uncertain market, prices for land held for residential development declined. The decline is exacerbated by the lack of buyers and available funding. Therefore, recent sales of land tend to be by highly motivated sellers to purchasers seeking rock-bottom prices.

Forward indicators for housing—the number of housing starts and housing permits registered sharp declines in August 2007—portend a future rebalancing of supply and demand. The Joint Center for Housing Studies of Harvard University states: "The length and depth of the current correction will depend on the course of employment growth and interest rates, as well as the speed with which builders pare down excess supply." Economists of the Federal National Mortgage Association project that housing activity will stabilize in the second half of 2008, unfortunately with additional price declines into 2009. They project home sales to decline 15% in 2007 and nearly 10% in 2008. The three-year (2006-2008) drop in single-family sales would be the largest since the housing downturn of 1979-1982. Sustained gains in sales are forecast to begin in early 2009. A 2007 paper from the Fisher Center for Real Estate & Urban Economics at the Haas School of Business at U.C. Berkeley forecasts even more dramatic declines in new single-family housing starting from 1.7 million in 2005 to 750,000 in 2008. Existing home sales are forecasted to decline from 7 million to 5.3 million in 2008.

Offsetting the near term correction is a more positive longer term outlook for housing. Household growth (in large part due to immigration and the children of these immigrants) is projected by the Joint Center for Housing Studies to exceed 14.6 million between 2005 and 2015 (exceeding by two million the strong growth of 1995 to 2005). While the Center projects continuing challenges from housing affordability, strong household growth bodes well for a rebalancing of for-sale housing inventory in 2009.

The Manager believes that the above economic conditions in the housing market have, in fact, resulted in a significant decrease in value in certain regions for land held for residential development. This decline is uneven across regions and even across projects within the same region. It may be a short-term or a longer-term event.

The general decline in value of land held for residential development is in some cases offset by an increase in value attributed to progress on land development, such as annexation by a town or municipality or granting of entitlement status that moves the project closer to a stage where lots can be sold, individually or in bulk.

The Manager reviews the collateral value of the land for each project in making the determination to recognize in the current period interest income for financial reporting and to determine if adjustments to the reserve for loan losses and/or adjustments to the carrying values of REO. (See "Critical Accounting Estimates" below in this section).

As to commercial real estate, other than land held for residential development, values appear to be holding steady or for some properties and property types increasing. The Federal Reserve Board in "The Beige Book" dated October 17, 2007, in the section on the Twelfth District—San Francisco states: "In contrast to housing, market demand for commercial real estate advanced further, and positive absorption continued in most areas despite the availability of substantial new contstruction." The Manager believes that similar market conditions exist in the markets in which it has lent.

Critical Accounting Estimates. Preparation of our financial statements requires the Manager to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. These estimates and assumptions are based on historical experience, independent evaluations (such as appraisals of specific properties), market data on real estate and real estate transactions available from public sources, industry and market research and forecasts, discussions with real estate brokers, developers and investors and various other sources and factors we believe to be reasonable

and reliable under the circumstances. The Manager periodically reviews our accounting policies and these estimates and assumptions and make adjustments when facts and circumstances dictate. Our accounting policies that are affected by estimates principally relate to the determination of (i) the allowance for loan losses (i.e., the amount of allowance established against loans receivable as an estimate of probable loan losses), including the accrued interest and advances that are estimated to be unrecoverable based on estimates of amounts to be collected plus estimates of the value of the property as collateral, and (ii) the valuation of real estate owned through foreclosure. Different estimates and assumptions in the application of these policies could result in material changes in our financial condition, results of operations, or cash flows.

Our assets do not trade regularly on public exchanges or in public markets. Most, if not all, transactions are negotiated privately with individuals or other funds. The Manager frequently negotiates such transactions for us and other funds it manages. Because information on trades and transactions is not publicly available, the Manager estimates fair values based on the best available data, including transactions it has completed and transactions it has been offered.

The Manager analyzes loans and the related accrued interest, late fees and advances weekly for collectability and recoverability. Delinquencies are identified and monitored as part of the loan servicing process. Delinquencies are determined based upon contractual terms. For past due loans, interest continues to accrue, and to be recognized as revenue in the financial statements, if the loan is adequately collateralized (up to 90% loan-to-collateral value) and the loan is in the process of collection. If warranted, a provision is made for loan losses to adjust the allowance for loan losses to an amount considered by the Manager to be adequate, with due consideration for collateral values, to provide for unrecoverable loans and receivables, including impaired loans, other loans, accrued interest, late fees and advances on loans and other accounts receivable (unsecured). We charge off uncollectible loans and related receivables directly to the allowance account once it is determined that the full amount is not collectible.

If the probable ultimate recovery of the carrying amount of a loan, with due consideration for collateral values, is less than amounts due according to the contractual terms of the loan agreement, the carrying amount of the investment is reduced to the present value of future cash flows discounted at the loan's effective interest rate. If a loan is collateral dependent, it is valued at the estimated fair value of the related collateral. See "Asset Quality" below in this section.

Real estate held for sale, including real estate acquired through foreclosure, is stated at the lower of the recorded investment in the loan, plus any senior indebtedness, or the property's estimated fair value, less estimated costs to sell. We periodically compare the carrying value of real estate to expected undiscounted future cash flows for the purpose of assessing the recoverability of the recorded amounts. If the carrying value exceeds the future undiscounted cash flows, the assets are reduced to estimated fair value through a provision for REO losses and a valuation account.

Recent events and trends in the real estate and capital markets and the economy have been taken into consideration in the process of arriving at the allowance for loan losses.

We cannot assure you that economic difficulties or other circumstances that would adversely affect our borrowers and their ability to repay outstanding loans will not occur. Such inability to pay which would be reflected in increased losses in our loan portfolio, which could result in actual losses that exceed reserves previously established.

We recognize interest as revenue for financial reporting so long as collateral adequately secures the loan and the collection effort is ongoing because the presumption is that the borrower will repay the debt and we will not acquire the property/collateral to satisfy the debt. A loan is classified as non-accrual for financial reporting purposes when any one of the following four events occurs:

Our profits are allocated among the members first in proportion to any losses previously allocated to them until the losses have been recouped and then on the basis of their relative capital account balances (i.e., percentage interests) as of the first day of the month; provided that if membership interests are purchased, increased or decreased during the month, the profits realized during the month will be prorated in proportion to the number of days during the month that each member held a capital account on a weighted average basis. Losses, if any, are allocated monthly as of the last day of the month to members in accordance with their percentage interests.

Members may elect to receive monthly cash distributions equal to their percentage interest of cash available for distribution or have those amounts added to their capital account and reinvested in us. Subject to certain limitations, as described in the operating agreement, members may change their elections. As a result of the ability to elect either cash distribution or reinvestment, a member's proportionate share of total members' capital will likely change over time. Accrued distributions represent the net income not yet distributed to those members who have elected to receive monthly cash distributions.

Summary of Financial Results. The following discussion is designed to provide a better understanding of significant trends related to our financial condition and results of operations. The discussion should be read in conjunction with our audited financial statements and notes thereto and the other financial information appearing elsewhere in this Registration Statement on Form 10.

Set forth below are summaries of our financial results for the six months ended June 30, 2007 and 2006 and for the years ended December 31, 2006, 2005 and 2004.

Interest income amounted to 119% of total revenues, net of servicing fees in the first six months of 2007 and 118% in the first six months of 2006. Interest income totaled approximately $7.2 million in the first six months of 2007, a $340,000 (5%) increase over the first six months of 2006. Interest income on loans accounted for a majority of the change, with interest on loans increasing $239,000 in the first six months of 2007 from the first six months of 2006. The increase reflects a growth in average loans outstanding of $16.0 million. Interest income for the first six months of 2007 and 2006 included interest on advances from borrowers of $168,000 and $86,000, respectively. Advances are amounts we pay to senior lienholders to prevent them from foreclosing on a property or for taxes, insurance, repairs, maintenance or other expenses and will fluctuate from period-to-period.

The yield on loans and advances in the first six months of 2007 was 12.27% annualized on average loans and advances of $115.6 million (loans: $113.6 million plus advances: $2.0 million) compared to 14.51% annualized on average loans and advances of $93.3 million (loans: $92.3 million plus advances: $1.0 million) in the first six months of 2006. The decline in yield of 224 basis points is primarily attributable to an increase in loans on non-accrual status ($8.1 million at June 30, 2007 compared to $3.1 million at June 30, 2006) and, at June 30, 2007, real estate owned that had previously been loans

on non-accrual status of $8.4 million. Collection of late fees, default interest income and other fees that are recognized when received significantly mitigated the effect of the non-accruing loans and REO.

Loan servicing fees increased to approximately $1.2 million in the first six months of 2007 (an increase of $102,000 or 9.7%) from $1.1 million in 2006. Loan servicing fees were 2% of the principal of each loan and were paid as interest income was collected. This increase reflects the increasing average size of the loan portfolio.

Interest expense in the first six months of 2007 of $1.5 million was attributable to the note payable to Income Fund, an affiliate of the Manager, in the original amount of $25 million. Income Fund obtained the loan from Wells Fargo Foothill and passed the proceeds through to us so that we could fund a $48 million loan. This was our first such borrowing and was obtained in May 2006. The rate, all in, of this borrowing was 13.47%.

The provision for loan losses increased $2.4 million (1,090%) to $2.6 million in the first six months of 2007 from $221,000 in the first six months of 2006. The increase is attributable to a write-down during the first six months of 2007 of $2.0 million of a loan to the appraised value, less estimated costs to sell, of the real estate taken back upon completion of the foreclosure, and a valuation reserve on two loans ($110,000). There were no such specific adjustments to the provision in 2006.

Operating expenses increased $498,000 (94%) in the first six months of 2007 from the first six months of 2006. Professional services accounted for substantially all of the increase, amounting to $526,000 in the first six months of 2007, which was $486,000 (1, 214%) more than the $40,000 in the first six months of 2006. The increase is attributable to significantly higher professional fees, primarily legal, accounting, and audit services, resulting from preparation for the registration of our membership interests under the Exchange Act and our need to comply with the reporting and other requirements of the Exchange Act. We expect these reporting and other requirements, including complying with the provisions of the Sarbanes Oxley Act of 2002 ("Sarbanes Oxley"), will result in higher professional fees, offset by certain efficiencies gained. Asset management fees, which amount to 1% annually of our "net asset value" and which are payable monthly, increased 3% in the first six months of 2007 from the first six months of 2006 (in line with the increase in the average loan outstanding.) We may reimburse the Manager for operating expenses, other costs and out-of-pocket general and administrative expenses, such as accounting, postage and preparation of the reports to the members, it incurs on behalf of us. As of June 30, 2007, there were no operating expenses or other costs incurred by the Manager for which reimbursement was sought.

Net income in the first six months of 2007 amounted to $852,000, a $3.9 million (81.9%) decrease from the $4.7 million recorded in the first six months 2006 primarily because of the increase in provision for loan losses and loans on non-accrual status. The net income represents returns of 4.40% annualized on average equity of $99.6 million for the first six months of 2007 and 10.12% on average members' capital of $93.2 million for the first six months of 2006. We have continued to make monthly distributions to members, however, at an estimated rate of 9% of average equity through and including October 31, 2007. Whether the net income will equal 9% will depend on events in the fourth quarter, including whether the Manager pays down the note it gave us in connection with its 2006 purchase of a REO from us to meet the 20% down payment required by accounting standards applicable to real estate asset sales and thereby to recognize the deferred gain of $1.3 million on REO. The Manager

may also purchase from us a property we foreclosed on in June 2007, at a price and terms which will offset the loss recognized in 2007. Without such actions by the Manager or if such actions are not sufficient, either by themselves or in combination with other possible actions, to cause the actual yield to equal the estimated 9% distribution, then the amounts distributed in excess of the actual yield would constitute a return of members' capital, not a distribution of profits.

Interest income amounted to 116% of total revenues, net of servicing fees in 2006, 114% in 2005 and 118% in 2004. Interest income totaled approximately $15.2 million in 2006, a $9.6 million (170%) increase over 2005. The 2005 total interest income of approximately $5.6 million was an increase of $4.6 million (432%) over the $1.1 million recorded in 2004, our first year of operations. Interest income on loans accounted for a majority of the change, with interest on loans increasing $9.8 million in 2006 from 2005 and $3.9 million in 2005 from 2004. The 2005-2006 increase reflects a growth in average loans outstanding of $66.8 million; the 2004-2005 increase reflects a growth in average loans outstanding of $33.1 million. Interest income for 2005 was impacted positively by $547,000 in interest on advances to borrowers (amounting to 11% of interest income for that year), as compared to $208,000 in 2006 and $14,000 in 2004. Advances are amounts we pay to senior lienholders to prevent them from foreclosing on a property or for taxes, insurance, repairs, maintenance or other expenses and will fluctuate from year to year.

The yield on loans and advances was 13.87% in 2006 on average loans and advances of $108.2 million (loans of $108 million plus advances of $255,000); 13.31% in 2005 on average loans and advances of $41.4 million (loans of $38.4 million plus advances of $3.0 million); and 12.53% in 2004 on average loans and advances of $8.3 million (loans of $8 million plus advances of $2,000). The yield fluctuations are typical for a fund in the first years of operation when pricing of individual loans, loans in non-accrual status and collection of ancillary fees recorded as revenue when received have a more significant impact on yield than when the fund is larger and loan amounts are more consistent period-to-period. Loans including accrued interest and advances on non-accrual status were $4,437,234 in 2006 and $7,182,027 million in 2005. There were no loans on non-accrual status in 2004. The yield is impacted positively by collection of late fees, default interest income and other fees that are recognized when received.

Loan servicing fees increased to approximately $2.4 million in 2006 (an increase of $1.7 million or 250%) from $675,000 in 2005 (an increase of $511,000 or 311%) from $165,000 in 2004. Loan servicing fees were 2% of the principal of each loan and were paid as interest income was collected. This increase reflects the increasing average size of the loan portfolio.

Total revenues, net of servicing fees for 2006 included a $166,000 gain on sale of a loan and $141,000 gain on sale of real estate owned. As with advances, sales of loans and real estate occur from time to the normal course of business.

Interest expense in 2006 of $1.9 million was attributable to the note payable to Income Fund, an affiliate of the Manager, in the original amount of $25 million. Income Fund obtained the loan from Wells Fargo Foothill and passed the proceeds through to us so that we could fund a $48 million loan. This was our first such borrowing and was obtained in May 2006. The rate, all in, of this borrowing was 13.23%.

Provision for loan losses was $1.6 million in 2006, $252,000 in 2005, and $108,000 in 2004. A provision for loan losses sufficient to maintain a non-specific (i.e., general) reserve for loan losses of one-half of one percent (0.5% or 50 basis points) of the amount of loans and advances outstanding was recorded in 2006, 2005 and 2004. In 2006, an additional provision was recorded of $1,151,017 to write down the value of a property acquired through foreclosure to the appraised value, less estimated costs to sell of $200,000, for a total of $1,351,017, and a specific reserve of $95,000 for another loan. There were no such specific adjustments to the provision in 2005 and 2004.

Operating expenses increased $646,000 (116%) in 2006 over 2005 and $419,000 (302%) in 2005 over 2004.

Asset management fees, which amount to one percent annually of our "net asset value" and which are payable monthly, accounted for the significant part of the increase, growing $524,000 (or 104%) in 2006 over 2005 and $398,000 (380%) in 2005 over 2004. This growth was again attributable to the growth in our loan portfolio.

Professional services amounted to $151,000 in 2006, which was $104,000 (221%) more than the $47,000 recorded in 2005, which was $19,000 more than the $28,000 recorded in 2004. Professional fees are primarily legal, accounting, and audit services and the increase cost is in line with the increasing size and complexity of our operations. The increase is also attributable to the additional legal, accounting, and audit services required to prepare for the registration of our membership interests

under the Exchange Act and our need to comply with the reporting and other requirements of the Exchange Act.

We may reimburse the Manager for operating expenses, other costs and out-of-pocket general and administrative expenses, such as accounting, postage and preparation of the reports to the members, it incurs on our behalf. As of December 31, 2006, there were no operating expenses or other costs incurred by the Manager for which reimbursement was sought.

Net income amounted to $8.3 million for 2006 (8.30% of average members' equity of $100.3 million); $4.2 million for 2005 (8.74% of average members' equity of $49.1 million); and $650,000 for 2004 (6.20% of average members' equity of $9.7 million). The increase in average equity is attributable to sale of membership interests, net of withdrawals, and the reinvestment of distributions by members.

Lending Capacity and Assets. From inception in February 2004, our lending capacity had increased at December 31, 2006, to $123.3 million (members' capital of $99.8 million and note payable-$23.5 million). Cash and equivalents ($4.1 million), loans ($115.3 million) and advances ($1.2 million) increased in the same period to $120.6 million or 98% of available capacity. The lending capacity at December 31, 2005 had increased from inception to $74.6 million (members' capital plus investors in applicant status). Cash and equivalents, loans and advances increased to $74.6 million or 100% of capacity. The increase in funding capacity in 2006 over 2005 was $48.7 million, or 65%, and approximately half of this increase was due to borrowings. As we are no longer accepting new members at this time, future growth in lending capacity will come from reinvestment of earnings and additional contributions from existing members and from borrowings.

Loan Portfolio and Asset Quality. As of June 30, 2007, December 31, 2006, December 31, 2005 and December 31, 2004 our mortgage investments aggregated 30, 36, 29, and 19, respectively. The average loan balances were $1,135,526 and $2,487,228 at the end of 2004 and 2005, respectively, and increased to $3,276,915 as of December 31, 2006 and $3,701,064 as of June 30, 2007. The average loan balance in our portfolio has been increasing since 2004, the first year of operations.

During the year ended December 31, 2006, we sold a 100% interest in one whole loan at the face value of $19.5 million to an unrelated party. The Manager retained a sub-servicing right in this transaction. As a result of a spread between the note yield and the yield provided to the purchaser, we recorded a gain of $166,000.

Approximately $24,574,425 (22%), $17,230,425 (15%) and $2,800,000 (4%) of the loans we invested in were more than 90 days delinquent in monthly payments as of June 30, 2007, December 31, 2006 and December 31, 2005, respectively. Of these loans, the amounts attributable to borrowers who filed bankruptcy were approximately $973,000 (1%), $65,000 (0%) and $10,000 (0%), respectively. In addition, loans past maturity (delinquent in principal) but current in monthly payments were approximately $0 (0%), $60,000 (0%) and $0 (0%), respectively. Four loans totaling approximately $5,012,000, as of December 31, 2006, were paid off in full and no partial paydowns on loans were made subsequent to year end(1).

We have negotiated various contractual workout agreements with borrowers whose loans are past maturity or who are delinquent in making payments. We are not obligated to fund additional money on these loans as of June 30, 2007. There are four loans totaling approximately $10,988,000 subject to workout agreements as of June 30, 2007.

As of June 30, 3007 and December 31, 2006, 2005, and 2004, we held the following types of mortgages.

Asset Quality. A consequence of originating or investing in loans is that losses may occur. The actual amount of such losses, if any, may vary from time to time. Factors that affect such potential risks include general economic conditions of the real estate market as well as specific conditions in a particular sub-market (e.g., land development), availability of funds in the capital market, and the experience and expertise of the borrower. While many of these factors are beyond the control of the Manager, they can be monitored and used by the Manager in assessing potential risks.

Institutional lenders are subject to regulations that, among other things, require them to perform ongoing analyses of their loan portfolios (including analyses of loan-to-value ratio, reserves, etc.) and to obtain current information regarding their borrowers and the securing properties. While the Fund is not subject to these regulations, the Manager has adopted many of these practices. The Manager has a weekly scheduled servicing meeting (and special meetings as warranted) in which any potential risks to the loan portfolio are discussed and analyzed. These discussions include:

The evaluation of a loan or loan portfolio and determining any potential losses is not an exact science. It requires an evaluation of all of the facts available as well as a best efforts estimate of

imprecise or unavailable information. While there is no precise methodology whereby the Manager can absolutely predict the potential loss on a loan, the Manager considers each of the above factors in light of the underlying collateral and borrower, along with the number and amount of delinquent loans, of loans subject to workout agreements and of loans in bankruptcy, in determining allowances for loan losses, but there can be no absolute assurance that the allowance is sufficient. Because any decision regarding the allowance for loan losses reflects judgment about the probability of future events, there is an inherent risk such judgments will prove incorrect. Actual losses may exceed (or be less than) the amount of loss reserves. To the extent that we experience losses greater than the amount of our reserves, we may incur a change to earnings that will adversely affect operating results and the amount of distributions payable to members.

The Manager, as part of the quarterly closing of our accounting records and preparation of our financial statements, evaluates our mortgage loan portfolio along with all the analysis established through our servicing meetings. Loan losses are established based on the Manager's evaluation of any risks inherent in our loan portfolio along with a review of the analysis provided for the individual loans by the assigned loan officer.

Additions to the allowance for loan losses are made by charges to the provision for loan losses. Loan losses deemed to be uncollectible are charged against the allowance for loan losses. Recoveries of previously charged off amounts are credited to the allowance for loan losses. As of June 30, 2007, management believes that the allowance for loan losses of $1,360,160 is adequate in amount to cover probable losses.

Changes in the allowance for loan losses for the six months ended June 30, 2007 and June 30, 2006, and the years ended December 31, 2006, 2005 and 2004 were as follows.

These same loans were delinquent in monthly payments greater than 90 days as of September 30, 2007.

Real Estate Owned. At June 30, 2007, we held title to one property that we foreclosed on in June 2007, which had an appraised value as determined in July 2007 of $7 million. The net realizable value of this property is estimated to be $6.6 million, resulting in a net allowance for losses of

$1,953,935. This property does not currently generate revenue. Expenses for the property including payments to the senior lienholders are expected to be approximately $250,000 per quarter.

During 2006, one property was acquired through foreclosure with a loss of $1,351,017. The Manager bought the property from us at the carrying value of the property plus the reported loss. The gain is being reported on the installment sale method of accounting. Expenses for this property were reimbursed by the Manager.

Liquidity and Capital Resources. Sale of new membership interests, payoff of existing loan investments, and interest on our loans have been the primary sources of our liquidity and capital. We also sell partial or whole interests in a loan investment to provide additional liquidity and diversification. In 2006, we sold one loan and we also borrowed in order to fund a loan. There were no unpaid subscription proceeds and no investors in applicant status at either June 30, 2007 or December 31, 2006 because we were not accepting new subscriptions.

In 2006, net cash provided by financing activities amounted to $40.9 million, compared to $46.2 million and $23.8 million in 2005 and 2004, respectively. Contributions from members amounted to $44.4 million in 2006, which were partially offset by withdrawals and distributions of $24.9 million. Contributions from members amounted to $55.8 million in 2005, which were partially offset by withdrawals and distributions of $11.0 million. Net cash used by financing activities totaled $4.4 million in the first six months of 2007 compared to net cash provided by financing activities of $42.2 million in the first six months of 2006. The change was the result of ceasing to accept new members resulting in minimal cash contributions from existing members in 2007 compared to $38.8 million in cash contributions from new and existing members for the same period in 2006.

We make cash available for distribution monthly based on a 9% assumed annual yield. When subscribing for membership interest, subscribers must elect whether to receive monthly distributions of cash or to "reinvest" their prorated share of the profit allocation in their capital accounts.

Members may withdraw all or part of their capital accounts on 60 days' written notice, subject to the availability of our cash flow, although we can limit all such withdrawals to not more than 10% of aggregate outstanding capital accounts during any 12-month period. We are not required to establish a reserve fund for making these payments and have not done so. Member withdrawals amounted to $21,153,238 and $9,422,098, or 21.1% and 19.2% of $9,579,265 in 2006 and 2005, respectively.

Investing activity used cash totaling $46.5 million in 2006, $48.8 million in 2005 and $21.6 million in 2004 as we invested the member contributions in loans. The sale of one loan in 2006 generated $19.1 million and was the primary source of cash provided by investing activities over the three-year period. Investing activity used cash of $4.4 million in the first six months of 2007 compared to $42.2 million in the first six months of 2006. The reduction in investing activities was a result of no longer accepting new member subscriptions and an absence of loan payoffs. This resulted is less new cash available in 2007.

Operating activities provided cash of $5.2 million in 2006, a decrease of $712,000 from 2005. Although net income increased from $4.2 million in 2005 to $8.3 million in 2006, additional loan loss reserves, a non-cash item of $1.4 million and an increase of $1.7 million in accrued interest receivables caused a net decline in the cash flow. The increase in accrued interest receivables was primarily caused by the increase in loans secured by land. Although these loans are still well secured, the borrowers generally have not made the monthly interest payments after the initial interest reserves were depleted. In addition, the net amount due from related parties (after deducting amounts due to related parties) increased $2.5 million in 2006 from 2005 reflecting amounts funded at the closing of loans and held by the Manager in a trust account as an interest reserve or for future advances.

Operating activities provided cash of $5.9 million in 2005, an increase of $6.6 million from the $898,000 of cash used by operations in 2004. Net income amounted to $4.2 million. In contrast to 2006, the net amount due to related parties (after deducting amounts due from related parties) increased $1.9 million in 2005 from 2004, reflecting collection of funds due from the sale of loan participation shares that were held in escrow at December 31, 2004.

From time to time, we may borrow funds from a third party lender (which may, but is not required to, be a bank or other financial institution), the Manager or its affiliates in order to fund additional mortgage loans or for other liquidity needs. As of June 30, 2007, we had one outstanding obligation in the original amount of $25 million to a fund affiliated with the Manager. Income Fund, which borrowed $25 million from Wells Fargo Foothill and in turn loaned us that amount in order for us to originate a new loan. The Wells Fargo Foothill loan is secured with a hypothecation and assignment of the promissory note and deed of trust of the new loan that the Manager originated. See "Item 1A—Risk Factors—We have and in the future may assign any portion of our loan portfolio as security to a third party lender, and if we fail to meet our payment or other obligation under the loan from the third party lender, we may risk losing the loans we assign as security to such lender and the lender may have recourse to our other assets, which would adversely affect our financial condition and the return on investment of our members." There are no limits on our borrowings.

Our cash and cash equivalents amounted to $364,880 at June 30, 2007, compared to $4,138,948 at December 31, 2006, and $4,556,991 at December 31, 2005. The Manager may establish, but has not to date established, a contingency reserve fund. Such a fund, if established, would be used to provide for(i) regular expenses incurred by us such as accounting and legal expenses associated with being a reporting company under the Exchange Act, (ii) losses due to nonperforming loans, and (iii) advances which may be necessary to protect our interests.

We believe the level of cash and cash equivalents at June 30, 2007, was substantially sufficient to provide for our operating expenses through year end. It may, however, be insufficient to fund member withdrawals or to provide significant advances in respect of properties should that be necessary to prevent foreclosure by senior lienholders, or otherwise provide for payment of taxes, insurance or other expenses on properties securing our loans. To provide for these latter amounts requires that loans be repaid, that interest be timely collected or that we sell some of our loans or interests in some of our loans, or to borrow from the Manager or third parties. Whether we temporarily reduce or suspend distributions or withdrawals to conserve our cash or whether we sell some of our loans or interests in some of our loans or borrow will be determined by the Manager as events develop during the fourth quarter of 2004.

Contractual Obligations and Material Commitments. The following table summarizes our contractual obligations and other material commitments as of December 31, 2006.

		Total*		Less than 1 year*		1-3 years		3-5 years		More than 5 years
Loan Commitments		$	3,852,333		$	3,852,333		—		—		—
Total		$	3,852,333		$	3,852,333		—		—		—

Off-Balance Sheet Arrangements. We have no off-balance sheet arrangements, except for the obligations described above.

Fair Value Measurements. In September 2006, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 157, Fair Value Measurements ("SFAS 157"). SFAS 157 defines fair value, establishes a framework for measuring fair

value and expands disclosures about fair value measurements. SFAS 157 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value but does not expand the use of fair value in any new circumstances. In support of this principle, SFAS 157 establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The provisions of SFAS 157 are effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The provisions should be applied prospectively, except for certain specifically identified financial instruments. The Manager does not expect the adoption of SFAS 157 to have a material impact on our financial position or results of operations."

Fair Value Accounting. In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—Including an Amendment of FASB Statement 115 ("SFAS 159"). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value and amends SFAS 115 to, and among other things, require certain disclosures for amounts for which the fair value option is applied. SFAS 159 is effective as of the beginning of an entity's first fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of SFAS 157. The Manager does not expect the adoption of SFAS 157 to have a material impact on our financial position or results of operations.

Our market risk results from changes in interest rates and, to the extent we must foreclose on a property securing a loan, the risks from changes in real estate values.

Our risk resulting from interest rate movements is limited to our variable rate borrowings (LIBOR-based) of approximately $23.5 million. All of our mortgage loans as of the date of this Registration Statement on Form 10 earn interest at fixed rates. Significant (200 or more basis points) changes in interest rates may affect the value of our investment in mortgage loans and the rates at which we reinvest funds obtained from loan repayments and new capital contributions from the members. In addition, interest rate decreases may encourage borrowers to refinance their loans with us at a time where we are unable to reinvest in loans of comparable value.

We do not hedge or otherwise seek to manage interest rate risk as, except as noted, our source of funding is members' capital. We do not enter into risk sensitive instruments for speculative or trading purposes.

The following table provides information about our financial instruments that are sensitive to changes in interest rates as of June 30, 2007. The presentation, for each category of information, aggregates the assets and liabilities and related weighted average interest rates by their maturity dates for maturities occurring in each of the years 2007 through 2011 and separately aggregates the information for all maturities arising after 2011.

Interest Earning Assets and Interest Bearing Liabilities,
Aggregated by Maturity Date
June 30, 2007

Type of Property	Loan to Value Ratio per lending policies		Loan to Value Ratio of Loans in Portfolio as of June 30, 2007		Loan to Value Ratio of Loans in Portfolio as of December 31, 2006
Commercial(1)	75	%	66	%	62	%
Residential (single family)	75	%	62	%	58	%
Land	60	%	47	%	43	%
Mixed Use	75	%	73	%	64	%

Our principal executive office is located at 62 First Street, 4th Floor, San Francisco, California, 94105, and our telephone number is (415) 974-1100. The facility for the administrative and professional offices of the Manager. The facility, which is the consists of approximately 11,800 square feet of office space, which the Manager leases from Sixty-Two First Street, LLC, an affiliate of the Manager, for $25,728 per month. The lease expires on April 30, 2008 and is renewable for an additional one-year term with notice. The Manager believes that its existing facility is adequate for its current use.

(a) We have no officers or directors, and all of the management powers are vested in the Manager. As of October 31, 2007, the Manager did not own any of our membership interests. The following table shows, as of October 31, 2007, the capital account balance of each person who is known to us to own more than 5% of the total members' capital.

Name and Address		Member's Capital Account Balance		Percentage of Total Fund Capital Account Balances
G. Samuels P.O. Box 129 Pleasanton, CA 94566		5,377,715		5.63	%

(b) The following table shows, as of October 31, 2007, the equity balance of each executive officer and director of the Manager.

Name		Member's Capital Account Balance		Percentage of Total Fund Capital Account Balances
Craig Raymond		1,406		Less than 1	%
Directors and executive officers as a group		1,406		Less than 1	%

We are a California limited liability company and have no directors or officers. All management powers are vested in the Manager, California Mortgage and Realty, Inc., which is a Delaware corporation. The following table sets forth certain information with respect to the executive officers and directors of the Manager:

Name	Age	Position
David Choo	44	Director and President
James Gala	55	Chief Executive Officer and Chief Financial Officer
Craig Raymond	63	Senior Vice President and Secretary

David Choo has been the President of the Manager from 1994 to the present and its sole director since 1998. He has also served as Chairman of the Manager since 1998 and as Secretary from 1994 to 1999. Mr. Choo became licensed as a California real estate broker in 1995. He has worked continually in the real estate investment industry since 1986. Mr. Choo is the immediate past president and a director of the California Mortgage Association and was previously a director of the California Trust Deed Broker's Association, a predecessor organization to the California Mortgage Association. He is a past member of the Mortgage Association of California and is a member of the Mortgage Banker's

Association. Mr. Choo received dual bachelor degrees in Economics and Computer Science from the University of California at Berkeley in 1984.

James Gala has been the Chief Executive Officer of the Manager since January 30, 2006 and was also elected to serve as Chief Financial Officer effective June 2006. Prior to joining the Manager, Mr. Gala was President and Chief Executive Officer of California Savings Bank from November 2004 to January 2006. Mr. Gala previously served as Chief Financial Officer of Fremont Bank from January 2003 to November 2004 and Senior Vice President, Loan Servicing & Post Closing, of Wells Fargo Home Mortgage from April 2001 to June 2002 and Senior Vice President, Servicing, from September 2000 to March 2001. Mr. Gala received a B.S. in Business Administration from Ohio State University in 1974.

Craig Raymond has been the Senior Vice President of the Manager since January 2005 and Secretary since 2000 and served as Vice President from 2000 to 2004. He served as advisor to numerous real estate investors, property managers, real estate and mortgage brokers and contractors for more than ten years before joining the Manager in August 1999. He was also an infantry officer in the U.S. Army for more than 20 years, specializing in training and fiscal management. Colonel Raymond received a B.S. in Business Administration from the University of California at Berkeley in 1966 and an M.A. in Management from Webster University in 1978.

We have no officers and directors and all of the management powers are vested in the Manager.

Compensation to the Manager and its Affiliates. The following summarizes the forms of compensation to be received by the Manager and its affiliates pursuant to our policies and our operating agreement. All of the amounts described below are payable regardless of our success or profitability. None of the following compensation was determined by arm's-length negotiations. The Manager retains the right to terminate all or any portion of its business relationship with us at any

time, in which event we would seek to retain one or more other firms to perform the various services rendered by the Manager as described below.

Form of Compensation Paid by Fund		Estimated Amount or Method of Compensation
Fees for Negotiating the Purchase of Discounted Loans from Third Parties(1)		Anticipated to average between 3% - 6% of the principal amount of each loan but may be higher or lower depending upon market conditions.
Loan Servicing Fee		Up to 2% of the principal amount of each Fund loan on an annual basis, payable monthly (i.e., ¹/6th of 1% per month), but only as interest is received by us.
Asset Management Fee		¹/12^th of 1% of Net Assets Under Management, payable monthly (i.e., 1% per year).(2)
Reimbursement of Expenses		Reimbursement for actual out-of-pocket organization, registration and syndication expenses and all of our operating and administrative expenses, including legal and accounting fees relating to this registration statement.
Commissions on Sales of Foreclosure Properties		Anticipated to average between 3% - 6% of the sales prices of such properties but payable only to the extent we receive the total amount of our investment in the property.
Form of Compensation Paid by Borrower
Origination, Forbearance and Renewal Fees(3)		Origination and renewal fees are anticipated to average between 3% and 6% of the principal amount of each loan conditions. Forbearance fees are anticipated to be between 1% and 1.5%. These fees may be higher or lower depending upon market conditions.
Loan Processing and Documentation Fees		Prevailing industry rates, of approximately $1,000 per loan for documentation fees and $1,000 per loan for loan processing fees. These fees may vary depending on Market conditions.

ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

Pursuant to the terms of our operating agreement, in the event we become the owner of any real property by foreclosure on a loan, we may sell such property to the Manager or an affiliate of the Manager, provided:

We foreclosed on one of our loans and formed a Nevada limited liability company called Fremont 4170, LLC ("Fremont 4170") in anticipation of the foreclosure sale. Fremont 4170 took fee simple title to the property in the foreclosure sale. The Manager conducted a market study to determine the best course of disposal for the property and concluded that because of a then pending lawsuit to enforce its title claim and general market conditions, a longer term disposition of the property, including potential change of the property use, would be preferable to maximize the sale value of this asset. The Manager also concluded that it would be more qualified to hold and dispose of the property since we do not normally hold or own real property. Because the Manager determined that the market value of the property at that time was less than our investment in the property, the Manager purchased Fremont 4170 from us for a total price of approximately $6 million, which was the total amount of our investment in the property. The Manager made a down payment of $604,642 in cash and delivered a promissory note and deed of trust in our favor for $5.4 million. The interest rate on the promissory note is 12.5% per annum and the note matures on January 1, 2010. David Choo, the sole director of the Manager and its president, has guaranteed the loan up to an amount of $2 million.

We may sell existing loans to the Manager or its affiliates, but only so long as we receive net sales proceeds from the sale equal to the total unpaid balance of principal, accrued interest and other charges owing under such loan, or the fair market value of such loan, whichever is greater. The Manager receives no fees or commissions in connection with these sales.

The Manager regularly sells loans or portions of loans in our portfolio to and purchases loans or portions of loans for our portfolio from other funds that it manages. By selling loans or portions of loans, we are able to more efficiently invest amounts that we receive from repayments of the principal amount of loans and from the sale of our membership interests.

In addition to acting as servicer for all of the loans in our loan portfolio, the Manager acts as sub-servicer for one loan we sold to ING. In connection with the sale, the Manager became the sub-servicer for the loan, and is paid a monthly sub-servicing fee of 2% per annum of the unpaid principal balance of the loan but only if the borrower makes all required interest payments on the loan on a current basis. To date, we and the Manager have received all monthly payments from ING. See "Item 1—Business—Our Mortgage Loan Porfolio."

We have one loan outstanding with a balance of approximately $21.5 million, as of June 30, 2007, which we indirectly borrowed from Wells Fargo Foothill through Income Fund, an affiliate of the Manager, in order to make a loan of $48 million. Income Fund borrowed $25 million from Wells Fargo Foothill and used the loan proceeds to make a loan to us for $25 million. Our promissory note to Income Fund, as well as the Wells Fargo Foothill loan to Income Fund, matured on May 31, 2007. The Wells Fargo Foothill loan was renegotiated as of June 1, 2007 for interest only payments and extended to August 31, 2007. Wells Fargo Foothill and Income Fund entered into a forbearance agreement in which Wells Fargo Foothill agreed to not exercise remedies until October 31, 2007. The forbearance agreement also increased the interest rate on the loan to LIBOR plus 6.5% (as of September 30, 2007, the rate was 12.165%). Our note to Income Fund was correspondingly extended and its rate increased. Income Fund has also agreed not exercise remedies pending discussions with Wells Fargo Foothill. The Manager is currently in negotiations with the borrowers on the $48 million loan to enter into a forbearance agreement to forbear exercising remedies for six months on certain conditions. See "Item 1A—Risk Factors—We have and in the future may assign any portion of our loan portfolio as security to a third party lender, and if we fail to meet our payment or other obligation under the loan from the third party lender, we may risk losing the loans we assign as security to such lender and the lender may have recourse to our other assets, which would adversely affect our financial condition and the return on investment of our members."

There are no legal proceedings to which we are a party or to which our property is subject, nor to the best of the Manager's knowledge are any material legal proceedings contemplated.

ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

We began offering our membership interest in an intrastate offering under a permit issued by the California Department of Corporations on November 20, 2003. We continued to offer membership interests under renewed permits issued by the California Department of Corporations on November 22, 2004, November 10, 2005 and December 15, 2006. Each unit of membership interests was sold at $1,000 with a minimum investment of $2,000 for investment retirement account ("IRA") investors and $5,000 for all other investors. No commissions were paid to any broker-dealer in connection with the sale of any membership interest. We are currently not accepting any additional subscriptions for membership interests.

All membership interests have been sold pursuant to the exemption from registration under applicable federal securities laws provided by Section 3(a)(11) of the Securities Act and Rule 147 promulgated thereunder. See "Item 1—Business—Past Sales of Membership Interests."

The securities being registered are our membership interests which are equity interests held by members. We have offered our membership interests at a purchase price of $1,000 per unit with a minimum subscription of five units per member and two units for an IRA. However, the relative interests of each of the members—their percentage interests—are based on the ratio the capital account of each bears to the aggregate capital accounts of all the members.

The rights, duties and powers of our members are governed by our operating agreement and the Beverly-Killea Limited Liability Company Act set forth in Title 2.5 of the California Corporations Code (the "LLC Act"). The discussion below of such rights, duties and powers is qualified in its entirety by reference to our operating agreement and the LLC Act. The following is a summary of our operating agreement, which was effective as of November 20, 2003, and which is attached to this Registration Statement on Form 10 as Exhibit 3.1.

Rights and Liabilities of Members. Members in their capacities as such are not personally liable for our obligations or for any of our losses beyond the amount of their agreed upon capital contributions and their share of any of our undistributed net income and gains. Members, however, may be liable for return of distributions if necessary to discharge liabilities existing at the time of such distribution.

Members will have no control over our management except that, with the consent of the Manager, members representing a majority of the percentage interests may approve or disapprove any of the following matters: (a) our dissolution and termination; (b) our merger or consolidation with one or more other entities; (c) certain amendments of the operating agreement; and (d) removal of the Manager and election of a successor manager. In addition, upon the removal or retirement of the Manager, a majority of membership percentage interests may elect a replacement manager to continue our business.

Capital Contributions. Our initial membership interests are sold in units of $1,000 each, and no person may acquire less than five units (or two units for an IRA). To purchase units an investor must deliver a subscription agreement together with his or her cash contribution.

Rights, Powers and Duties of Manager; Deferred Compensation. Subject to the rights of the members to vote on the matters specified above, the Manager has complete charge of our business. The Manager is not required to devote full time to our affairs but only such time as the Manager may deem reasonably necessary for the conduct of our business. The Manager acting alone has the power and authority to act for and bind us.

The Manager is granted the special power of attorney of each member to execute, acknowledge, publish and file our operating agreement, our articles and any amendments or cancellation thereof

required under California law and any documents which may be required to effect our continuation, the admission of a new or substituted member, the amendment of our operating agreement or our dissolution or termination.

The Manager will receive substantial compensation in connection with its management duties (see "Item 6—Executive Compensation—Compensation to Manager and its Affiliates"). The Manager may, from time to time in its sole discretion and without any obligation to do so, waive, defer or assign to us any portion of such compensation in order to increase the investment return to members. In such event, the Manager will be entitled to recover this deferred compensation at a later time to the extent that our investment return on members' capital accounts during any subsequent period exceeds 8% per annum on a simple basis.

Profits and Losses. Our profits are allocated to members first in proportion to any losses previously allocated to them until the losses have been recouped. Thereafter, our profits and losses are allocated to our members generally in accordance with their respective percentage interests as of the first day of such month (which percentage interests are determined based on the relative percentage of each member's capital to the total members' capital); provided that if any membership interests are purchased, increased or decreased during such month, then the profits realized during that month are prorated in proportion to the number of days during such month that such member's capital account was outstanding on a weighted average basis.

Cash Distributions. When subscribing for membership interests, a subscriber must elect whether to receive monthly distributions equal to his or her percentage interests of cash available for distribution from us in cash or to allow his or her profits to be retained in his or her capital account. Members who elect to change their elections must give the Manager 30 days' prior notice. Any member who wants to change his or her election from receiving cash distributions to reinvesting may make this change in election only if there is then in effect a permit issued by the California Department of Corporations for the offering of membership interests and the member has received the most current version of our offering circular. The capital accounts of members who do not elect cash distributions (and their percentage interests) will increase over time relative to those who receive cash distributions.

Meetings. No regular meetings of members are required to be held, but the Manager or members representing 10% of our percentage interests may call a meeting. Members may vote in person or by proxy at the meeting. A majority of the percentage interests will constitute a quorum.

Accounting and Reports. The Manager will cause to be prepared and furnished to the members within 90 days after the end of each fiscal year an annual report of our operation, which may (but is not required to) be audited by an independent accounting firm. The members will also be furnished such information which members may need for preparation of their federal income tax returns within 90 days after the end of each fiscal year. Any members may inspect the following during reasonable business hours: (1) a current membership list, including the capital contributions, capital account and percentage interest of each member and economic interest owner; (2) the name and business or residence address of the Manager, (3) a copy of our articles; (4) copies of our federal, state and local income tax or information returns and reports for the six most recent taxable years; (5) a copy of our operating agreement; (6) copies of our financial statements, if any, for the six most recent fiscal years; and (7) our books and records relating to our internal affairs for at least the current and past four fiscal years.

Amendment of the Agreement. The operating agreement may be amended by the Manager alone (with respect to certain matters, including when there is a change in the character of our business, there is a false or erroneous statement or a if change in our operating agreement is required in order that it accurately represents the agreement among members), or upon the affirmative vote of a majority of the percentage interests with the written consent of the Manager.

Withdrawal from Fund. Upon not less than 60 days' written notice to the Manager, members may withdraw all or part of their capital accounts subject to the limitations discussed below.

We will not establish a reserve from which to fund withdrawals and, accordingly, our capacity to return a member's capital account is restricted to the availability of our cash flow, as determined in good faith by the Manager. For this purpose, cash flow is considered to be available only after all of our current expenses have been paid (including compensation to the Manager and its affiliates) and provision has been made to maintain adequate reserves to meet our anticipated expenses, to fund outstanding loan commitments and approved loans; and to pay all monthly cash distributions on a pro rata basis which must be paid to members who elected to receive such distributions upon subscription for units.

We are not required, and do not intend, to allow withdrawals if the aggregate distributions paid to all withdrawing members during any 12-month period would exceed 10% of the aggregate capital accounts of all members at the beginning of such period.

If our current cash flow is inadequate to return a member's capital account immediately, we are not required to liquidate any of our loans prior to maturity for the purpose of liquidating the capital account of a withdrawing member and we are merely required to continue paying whatever cash flow is available to withdrawing Members until their outstanding withdrawal requests have been satisfied on a first-come, first-served basis; provided that the Manager has the right to accord priority to the withdrawal requests of deceased members and ERISA plan investors.

The Manager also reserves the right to expel a member involuntarily at any time for any reason or no reason, by liquidating and distributing to the member such member's capital account balance, subject only to any outstanding unfulfilled withdrawal requests from other members.

The amount that a withdrawing member will receive from us is based on the withdrawing member's capital account. A capital account is a sum calculated for tax and accounting purposes, and may be greater than or less than the fair market value of such investor's membership interest. The fair market value of a member's interest will generally be irrelevant in determining amounts to be paid upon withdrawal.

Limitations on Transferability. The operating agreement places limitations upon transferability of membership interests. Among other requirements, a transferee may not become a substituted member without the consent of the Manager. A transferee who does not become a substituted member will own an economic interest which entitles him or her only to the share of income or return of capital to which the transferor would be entitled. Economic interest holders will have no voting rights.

In addition to the restrictions imposed by the operating agreement, additional restrictions are imposed by applicable securities laws. Under the Securities Act, the exemption from registration we relied on is the intrastate exemption provided by Section 3(a)(11). Rule 147 promulgated under that section requires that no resales may be made to residents outside of California during an offering of membership interests and for a nine-month period after the offering terminates. Additionally, such resales may require the prior written consent of the California Commissioner of Corporations.

Withdrawal or Removal of Manager. The Manager may withdraw as such on not less than six months written notice, in which event members holding a majority of the percentage interests shall elect a successor. Members holding a majority of the percentage interests may also by written consent remove the Manager with written notice to the Manager. On delivery of the notice or within 90 days thereafter, members holding a majority of the percentage interests may by written notice designate a successor, who shall become the new Manager upon written acceptance of the duties and responsibilities of a Manager.

Term of Fund. We will continue indefinitely until dissolved and terminated by (i) approval of members representing a majority of the percentage interests, with the written consent of the Manager; (ii) entry of a decree of judicial dissolution pursuant to the LLC Act; and (iii) operation of law. If at any time there are outstanding unfulfilled withdrawal requests from members representing a majority of the percentage interests, the Manager may treat that as a vote by the members to dissolve us.

Winding Up. Upon our dissolution, the Manager will wind up our affairs as follows: (1) no new loans will be made or purchased; and (2) the Manager will liquidate our remaining assets as promptly as is consistent with obtaining the fair market value thereof, either by sale to third parties (including the Manager or affiliates) or by servicing outstanding loans in accordance with their terms; and (3) all cash held by us as of the date of dissolution together with all sums of cash we receive during the winding up process will be applied and promptly distributed to members in proportion to the positive balances in the respective capital accounts, but only after all of our debts have been paid or adequately provided for.

In the event we dissolve at a time when there are outstanding unfulfilled withdrawal requests, such withdrawal requests will be of no further force or effect and all members will thereafter be entitled to receive their pro rata portion of all remaining liquidating distributions in accordance with their respective outstanding capital account balances after all of our debts have been paid or adequately provided for.

Due to high prevailing interest rates or other factors, we could suffer reduced earnings (or losses) if a substantial portion of its loan portfolio remains and must be liquidated quickly at the end of the five-year winding-up period. Members who complete a withdrawal prior to any such liquidation will not be exposed to this risk. Conversely, if prevailing interest rates have declined at a time when the loan portfolio must be liquidated, unanticipated profits could be realized by those members who retain their membership interests until such termination.

Merger with Other Business Entities. The Manager, upon the prior approval of members representing a majority of the percentage interests, will have the right to merge or consolidate us with one or more other entities, including our affiliates.

Arbitration. All controversies or claims related to the operating agreement, or any breach of the operating agreement, are required to be settled by arbitration in accordance with the procedures and requirements of the operating agreement.

Our operating agreement (which is attached to this Registration Statement on Form 10 as Exhibit No. 3.1) contains a provision addressing the liability and indemnification of the Manager. That section provides that the Manager, and persons affiliated with the Manager, will have no liability for any loss suffered by us or any member so long as the Manager or such other Person, in good faith, determined that such course of conduct was in our best interests and did not constitute fraud, bad faith or willful misconduct. Further, the Manager, and persons affiliated with the Manager, are entitled to be indemnified and held harmless by us against any loss, expense, claim or liability (including reasonable attorneys' fees) resulting from claims and legal proceedings relating to the performance or non performance of any act concerning our activities, including claims by third parties or members so long as the party to be indemnified determined in good faith that such course was in our best interests and did not constitute fraud, bad faith or willful misconduct.

Under California law, a manager is accountable to a limited liability company as a fiduciary, which means that a manager is required to exercise good faith and integrity with respect to company affairs. This fiduciary duty is in addition to those other duties and obligations of, and limitations on, the Manager which are set forth in the operating agreement.

Our audited financial statements as of December 31, 2006 and 2005 and for each of the three years in the three-year period ended December 31, 2006 and our unaudited financial statements for the three-month periods ended June 30, 2007 and June 30, 2006 appear on pages F-3 to F-32 in this registration statement.

The following table sets forth certain unaudited quarterly financial data for each fiscal quarter within the past two fiscal years and for the six-month period ended June 30, 2007.

ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

We have retained and appointed Perry-Smith LLP as our independent registered public accounting firm. Perry-Smith LLP has audited our balance sheet as of December 31, 2006 and 2005 and the related statements of income, changes in members' capital and cash flows for each of the years in the three-year period ended December 31, 2006, as stated in their Report of Independent Registered Public Accounting Firm, which is included in this registration statement.

There have been no disagreements between us and Perry-Smith LLP with respect to accounting and financial reporting or disclosure.

Our audited financial statements as of December 31, 2006 and 2005 and for each of the three years in the three-year period ended December 31, 2006 and our unaudited financial statements as of June 30, 2007 and for the six-month periods ended June 30, 2007 and June 30, 2006 appear on pages F-3 to F-32 in this registration statement. The index to the financial statements appears on page F-1.

Exhibit No.		Description
2.1		Articles of Organization filed with the California Secretary of State on September 5, 2003.
3.1		Operating Agreement, effective as of November 20, 2003.
4.1		Form of Subscription Agreement.
10.1*		Promissory Note with Allonge, dated May 26, 2006 from CMR Mortgage Fund II, LLC to CMR Income Fund, LLC.
10.2*		Pledge and Security Agreement, dated as of May 26, 2006, among CMR Mortgage Fund II, LLC, CMR Income Fund, LLC and Wells Fargo Foothill, Inc.
10.3		Subservicing Fee Agreement, between CMR Mortgage Fund II, LLC and California Mortgage and Realty, Inc.
10.4		Promissory Note, dated December 29, 2006 from California Mortgage and Realty, Inc. to CMR Mortgage Fund II, LLC.
10.5		General Guaranty and Indemnity Agreement, effective as of December 29, 2006, executed by David Choo.

We have audited the accompanying balance sheet of CMR Mortgage Fund II, LLC (Fund), which is managed by California Mortgage and Realty, Inc. (Manager) as of December 31, 2006 and 2005, and the related statements of income, changes in members' capital and cash flows for each of the years in the three-year period ended December 31, 2006. These financial statements are the responsibility of the Manager of the Fund. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of CMR Mortgage Fund II, LLC as of December 31, 2006 and 2005, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2006, in conformity with accounting principles generally accepted in the United States of America.

CMR MORTGAGE FUND II, LLC

STATEMENT OF INCOME

For the Years Ended December 31, 2006, 2005 and 2004

CMR MORTGAGE FUND II, LLC

STATEMENT OF CHANGES IN MEMBERS' CAPITAL

For the Years Ended December 31, 2006, 2005 and 2004

CMR MORTGAGE FUND II, LLC

STATEMENT OF CASH FLOWS

For the Years Ended December 31, 2006, 2005 and 2004

CMR Mortgage Fund II, LLC (Fund) which is managed by California Mortgage and Realty, Inc. (Manager), a Delaware corporation, is a California Limited Liability Company organized on September 5, 2003 for the purpose of making or investing in business loans secured by deeds of trust on real properties—predominately commercial income-producing structures or land held by businesses—located primarily in California. The land can be income-producing (e.g., vineyards) or may be held for commercial or residential development. The Fund's loans are arranged and serviced by the Manager who is licensed as a California real estate broker and a California finance lender and broker. In addition, the Fund has the ability to invest in loans that were not originated by the Manager. Since inception, the Fund has only invested in one loan that was not originated by the Manager. The Manager provides certain operating and administrative services to the Fund. The Manager has complete control of the Fund's business, subject to the voting rights of the members on specified matters and on any other matters which the Manager wishes to submit to a vote. The Manager did not hold any membership interest in the Fund at December 31, 2006 and 2005. An affiliate of the Manager held a membership interest in the Fund at December 31, 2006 and 2005 for $303,607 and $277,569, respectively. The Fund commenced operations in February 2004.

Because the Fund is a California limited liability company, the liability of each member is limited to the member's investment. The rights, duties and powers of the members of the Fund are governed by the Fund's operating agreement (Operating Agreement) and the Beverly-Killea Limited Liability Company Act. The description of the Fund's general provisions contained in these financial statements provides only general information. Members should refer to the Fund's Operating Agreement and Offering Circular for a more complete description of the provisions.

The Fund is subject to applicable federal and state securities laws in its offer and sale of membership interests. Through December 31, 2006, the Fund has offered membership interests pursuant to the exemption from registration for intrastate offerings provided by Section 3(a)(11) of the Securities Act of 1933, as amended, and Rule 147. Under this exemption, membership interests must be offered and sold only to California residents, the Fund must restrict its investments in assets located outside California, and during an offering of membership interests and for a nine-month period after the offering terminates, members may only resell membership interests (or any portion thereof) purchased in the offering to California residents. Additionally, the Fund is limited in the offering of membership interests up to $150,000,000 (150,000 units), pursuant to a permit issued by the California Department of Corporations on November 20, 2003. As of June 1, 2006, the Fund is not accepting subscriptions for new membership interests.

Subscribed funds of potential investors are recorded as liabilities of the Fund until their unit proceeds are used to fund a loan or retire the capital of a withdrawing member at which time the subscribed units are included in members' capital. Subscription funds not able to be utilized by the Fund within ninety days from the date received are returned. Subscribed funds do not earn interest for the benefit of the potential investor. There were no subscribed units at December 31, 2006 because the Fund is not accepting new subscriptions.

Profits of the Fund are allocated among the members first in proportion to any losses previously allocated to them until the losses have been recouped and then on the basis of their relative capital account balances (Percentage Interests) as of the first day of the month; provided that if membership interests are purchased, increased or decreased during the month, the profits realized during the month will be prorated in proportion to the number of days during the month that each member held a capital account in the Fund on a weighted average basis. Losses of the Fund are allocated monthly as of the last day of the month to members in accordance with their Percentage Interests.

Members of the Fund may elect to receive monthly cash distributions equal to their Percentage Interest of cash available for distribution or have those amounts added to their capital account and reinvested by the Fund. Subject to certain limitations, as described in the Operating Agreement, investors may change their election. As a result of this distribution or reinvestment option, a member's proportionate share of total members' capital will likely change over time. Accrued distributions represent the net income not yet distributed to those members who have elected to receive monthly cash distributions.

Members' capital consists of capital contributions, adjusted for net income and distributions to members. There is no public market for membership interests in the Fund and none is expected to develop in the foreseeable future. There are substantial restrictions on the transferability of membership interests and accordingly, an investment in the Fund is not liquid. The Operating Agreement provides that upon not less than sixty days' written notice to the Manager, members may withdraw all or part of their capital accounts from the Fund subject to certain limitations. The Fund's capacity to return members' capital is restricted to the availability of existing cash and future cash flows, as determined in good faith by the Manager. In the event that cash and cash flows are inadequate to return a member's capital account, the Fund is not required to liquidate its loans or other assets for the purpose of paying a member desiring to withdraw from the Fund. At the Manager's discretion and if cash is available, withdrawals are effected in less than sixty days.

The financial statements have been prepared in accordance with the accounting principles generally accepted in the United States of America and prevailing practices within the industry.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Manager to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ significantly from these estimates.

The Manager has determined that since all of the operations for products and services offered by the Fund are conducted from one location and because resources are not allocated based on the performance of different lending or transaction activities, it is appropriate to aggregate the operations of the Fund and report them as a single operating segment.

For purposes of the statement of cash flows, cash and cash equivalents consist of cash on hand and on deposit with financial institutions. The Fund maintains its cash in accounts with financial institutions, which, at times, may exceed federally insured limits. Cash held in banks in excess of FDIC insured limits as of December 31, 2006 was $4,038,948 and as of December 31, 2005 was $4,456,991.

Loans originated by the Fund are stated at the principal balances outstanding. The initial investment in a loan purchased by the Fund is recorded at the net amount paid. Any discount or premium related to a purchased loan is recognized as an adjustment of interest income using the effective interest method. The unamortized balance of discounts or premiums is reported as a component of net loans. Interest is accrued daily based upon outstanding loan balances. Impaired and past-due loans accrue interest as long as the loans are in the process of collection and considered to be well-secured. Loans are placed on nonaccrual status at the earlier of the loan being twelve months past due, the Manager's determination that the primary source of repayment will come from the foreclosure and subsequent sale of the property securing the loan or when the loan is no longer considered well-secured. When loans are considered impaired, the accrual of interest is discontinued, however previously recorded accrued interest is not reversed. A loan may return to accrual status when all delinquent interest and principal become current in accordance with the original terms of the loan agreement.

A loan is considered impaired when, based on current information and events, it is probable that the Fund will be unable to collect all amounts due, including both principal and interest, in accordance with the contractual terms of the loan agreement. Loan impairment is measured based on the lesser of the carrying value of the loan, including principal balance, accrued interest, advances and other capitalized fees and costs, the present value of expected net future cash flows discounted at the loan's effective interest rate or the fair value of collateral if the loan is collateral-dependent. Payments received on impaired loans are applied to reduce principal to the extent necessary to ensure collection of principal. Subsequent payments on these loans, and payments received on nonaccrual loans for which the ultimate collectability of principal is not in doubt, are applied first to earned but unpaid interest and then to principal.

The Fund may retain part of the proceeds from a specific loan origination as an interest reserve to insure timely interest payments for up to the first year of the loan. The interest reserve funds are retained for the benefit of the borrower in a trust account maintained by Manager. As monthly interest payments become due, the Manager transfers funds from the trust account to the Fund. In the event of an early loan payoff, any unapplied interest reserves would be first applied to any accrued but unpaid interest and then as a reduction to the outstanding principal balance.

No significant loan origination fees, commitment fees or direct loan origination costs have been received by the Fund.

The Fund may acquire loans through a purchase for which differences may exist between the contractual cash flows and the cash flows expected to be collected due, at least in part, to credit quality. When the Fund acquires such loans, the yield that may be accreted (accretable yield) is limited to the excess of the Fund's estimate of undiscounted cash flows expected to be collected over the Fund's initial investment in the loan. The excess of contractual cash flows over cash flows expected to be collected may not be recognized as an adjustment to yield, loss, or a valuation allowance. Subsequent increases in cash flows expected to be collected generally are recognized prospectively through adjustment of the loan's yield over its remaining life. Decreases in cash flows expected to be collected are recognized as an impairment. The Fund may not "carry over" or create a valuation allowance in the initial accounting for loans acquired under these circumstances. At December 31, 2005, there was one loan being accounted for under this policy; there were no such loans at December 31, 2006.

In 2006, the Fund sold a loan with a principal balance of $19,500,000 and a stated interest rate of 13% with a scheduled maturity of September 2009. The Fund received proceeds of $19,500,000 less a fee of $390,000 and retained the right to receive 3% of future interest payments. The Manager of the Fund continues to service the loan and receives 2% of future interest payments. The Fund recorded an interest-only strip receivable, which is included in accrued interest receivable and other assets in the Balance Sheet, at its fair value of approximately $556,000 and a gain on sale of the loan of approximately $166,000. The unrealized holding gains and losses on the interest only strip were not significant at December 31, 2006. Unrealized gains and losses would be reported as a separate component of members' capital and as comprehensive income.

Advances are stated at principal balances outstanding to the Fund. The Manager has discretion to pay amounts to third parties on behalf of borrowers to protect the Fund's interest in the loan. Advances include, but are not limited to, the payment of interest and principal payments on a senior lien to prevent foreclosure by the senior lien holder, property taxes, property insurance premiums, and attorney fees. Advances accrue interest until repaid by the borrower.

The allowance for loan losses is an estimated amount that the Manager believes will be adequate to absorb losses inherent in the portfolio based on evaluations of collateral values, collectability, prior loss experience, including accrued interest, fees and other advances, and other factors. The allowance is established through a provision charged to expense. Loans are charged against the allowance when the Manager believes that the collectability of the principal is unlikely.

The Manager reviews the adequacy of the allowance for loan losses at least quarterly, including consideration of the relative risks in the portfolio and current economic conditions that may affect the borrowers' ability to pay. Classified loans and loans determined to be impaired are evaluated by the Manager for specific risk of loss. The allowance is adjusted based on that review if, in the Manager's judgment, changes are warranted. The allowance for loan losses at December 31, 2006 and 2005 reflects the Manager's estimate of probable losses in the loan portfolio.

The Fund, as a limited liability company, is classified and treated as a partnership solely for federal and state income taxation purposes. Taxes based on the operating results of the Fund are, therefore, determined and payable at the member level, whether or not any actual distribution is made to such member during the year. However, the Fund is subject to an annual minimum franchise tax and gross receipts fee by the State of California.

Real estate owned includes real estate acquired in full or partial settlement of loan obligations plus capitalized construction and other development costs incurred while preparing the real estate for sale. When property is acquired, any excess of the Fund's carrying value of the loan over the fair market value of the property, less estimated costs to sell it, is charged against the allowance for loan losses. Following foreclosure, valuations are periodically performed, with any subsequent write-downs recorded as a separate valuation allowance and charged to other operating expenses. The maintenance of the real estate owned, including expenses associated with the property's disposition, is expensed as incurred. Gains or losses on dispositions are recorded in other operating income or expense. Recognition of gains on the sale of real estate is dependent upon the transaction meeting certain criteria related to the nature of the property and the terms of the sale and potential financing. The Fund did not have any other real estate holdings at December 31, 2006 or 2005.

In September 2006, the FASB issued Statement No. 157 (SFAS 157), Fair Value Measurements. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS 157 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value but does not expand the use of fair value in any new circumstances. In support of this principle, SFAS 157 establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The provisions of SFAS 157 are effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The provisions should be applied prospectively, except for certain specifically identified financial instruments. The Manager does not expect the adoption of SFAS 157 to have a material impact to the Fund's financial position or result of operations.

In February 2007, the FASB issued FAS 159, "The Fair Value Option for Financial Assets and Financial Liabilities—Including an Amendment of FASB Statement 115" (SFAS 159). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value and amends SFAS 115 to, and among other things, require certain disclosures for amounts for which the fair value option is applied. This statement is effective as of the beginning of an entity's first fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of SFAS 157. The Manager does not expect the adoption of SFAS 159 to have a material impact to the Fund's financial position or result of operations.

California Mortgage and Realty, Inc, as the sole Manager of the Fund, is responsible for all management decisions related to the operations and investments of the Fund. In accordance with the Operating Agreement and other loan-servicing agreements with the Fund, the Manager is entitled to receive fees for the various services it provides and to be reimbursed for certain costs incurred on behalf of the Fund.

In consideration for the review, selection, evaluation, negotiation and extension of Fund investments, the Manager receives loan brokerage, origination, renewal or forbearance fees (Loan Origination Fees). These Loan Origination Fees are paid directly by the borrowers to the manager and, therefore, are not included in the operations of the Fund. During 2006, 2005, these fees were $5,173,356 and $4,327,753, respectively. There were no fees for 2004.

The Manager is entitled to receive a monthly fee for loan servicing of up to 2% per annum (1/6^th of 1% per month) of the outstanding principal balance of each loan. The fee is payable monthly as the Fund receives interest payments from borrowers. Loan servicing fees during 2006, 2005 and 2004 were $2,361,457, $675,792 and $164,617, respectively.

The Manager is entitled to receive a monthly fee for management services provided to the Fund equal to 1% per annum (1/12^th of 1% per month) of net assets under management. Net assets as defined by the Operating Agreement, is equal to total members' capital as of the first day of the month, which is payable on the last day of the month. Asset management fees during 2006, 2005 and 2004 were $1,027,163, $503,293 and $104,865, respectively.

The Manager may also be reimbursed by the Fund for all operating expenses and other costs it incurs on behalf of the Fund. There were no operating expenses or other costs incurred by the Manager for which reimbursement was sought during 2006, 2005 or 2004.

The Operating Agreement between the Fund and the Manager provides for other fees such as loan processing and documentation fees. Such fees are incurred by the borrowers and are paid directly to the Manager; therefore are not included in the operations of the fund.

At December 31, 2006, the Fund had a $5,400,000 loan to the Manager used to purchase real estate held for sale from the Fund pursuant to the terms in the Fund's Offering Circular (see Note 9).

In 2006, the Fund originated a $48,000,000 loan by deeds of trust (Loan) (see Note 5 and 9). As part of this transaction, the Fund invested $23,000,000 of its own capital in the Loan, and also entered into an agreement with CMR Income Fund, LLC, a related party, to borrow $25,000,000 under a note

payable secured by the Fund's interest in the Loan including all liens on properties securing the Loan. At December 31, 2006, the related party loan payable balance was $23,508,511. In conjunction with the loan, costs of $419,570 were deferred and are being amortized over the term of the loan. Amortization of $244,750 was recognized in 2006. The remaining unamortized amount of $174,820, which will be recognized in 2007, was included in accrued interest receivable and other assets in the Balance Sheet.

	Year Ended December 31,
	2006			2005		2004
Balance, beginning of year	$	360,085		$	107,875	$	—
Provision charged to operations		1,675,777			252,210		107,875
Losses charged to allowance		(1,351,017	)		—		—

Balance, end of year	$	684,845		$	360,085	$	107,875

	As of December 31,
	2006		2005
Number of loans		4	—
Total principal balance	$	13,397,985	—

These loans are considered well-secured and in the process of collection and therefore, are still accruing interest.

	As of December 31,
	2006		2005
Number of loans		4		3
Total principal balance plus advances and accrued interest	$	4,437,234	$	4,900,000
Interest income recognized during the year	$	179,055	$	287,938
Foregone interest income	$	71,541	$	482,805
Specific loan loss reserve	$	95,000		—

All of the impaired and nonaccrual loans are currently in the process of foreclosure. When a loan is placed on nonaccrual, the accrual of interest is discontinued, however previously recorded accrued interest is not reversed. Depending on the borrowers' ability to bring a loan current through payment, refinancing by a third party or the Fund, and other legal courses of action available to the borrower and the Fund, the foreclosure of properties may be postponed or not completed. At December 31, 2006 and 2005 there were no outstanding commitments to lend additional funds to borrowers whose loans were identified as impaired.

The average balance of principal plus advances and accrued interest of impaired and nonaccrual loans during the years ended December 31, 2006, and 2005 was $3,683,822, $5,139,534, respectively.

All of the Fund's loans are fixed rate loans with interest rates that range from 12.50% to 13.00% at December 31, 2006 and 10.00% to 13.00% at December 31, 2005.

While the Manager may consider the income level and general credit worthiness of a borrower to determine a borrower's ability to repay the loan according to its terms, such considerations are typically subordinate to a determination that the value of secured collateral will provide a sufficient source of funds for loan repayment. A significant portion of our loans are secured by two or more real estate parcels, which may be secured by differing positions for the deeds of trust. When the collateral deed trust types are different for a loan (e.g. secured by a combination of first, second and/or third trust deeds), the loan is categorized as "mixed". The Fund's loan portfolio as of December 31, 2006 and 2005 had the following characteristics:

The scheduled maturities for 2007 include $810,000 in loans that are past maturity at December 31, 2006.

It is the Fund's experience that loans may be refinanced or repaid before the maturity date therefore; the above tabulation for scheduled maturities is not a forecast of future cash receipts.

Loans vary by size and over time the mix in the portfolio changes. The portfolio size has grown each year since inception of the fund. During 2006 the portfolio concentrated to fewer borrowers. The largest quartile of loans increased by 15.9% of the total portfolio from 68.7% as of December 31, 2005 to 84.6% at December 31, 2006. Expressed as average dollar size of loans, the largest quartile increased by more than four million dollars from $6,839,255 as of December 31, 2005 to $10,902,513 as of December 31, 2006.

Loans are primarily secured by property in California. As of December 31, 2006, 89.7% of the collateral was spread across 15 counties in California and five other states. The largest concentration of loans was two loans to one borrower totaling $50,150,000 which was 43.3% of the portfolio. The collateral was in two counties in California. No other loans were secured by property in these two counties.

As of December 31, 2005, 81.4% of the collateral was spread across 14 counties in California and three other states. The largest concentration of loans was two loans to one borrower totaling $17,616,666 which was 25.3% of the portfolio. The collateral was in two counties in California. No other loans were secured by property in these two counties.

The Offering Circular specifies that no more than 25% of total Fund capital (members' equity) will be invested in any one loan, which is calculated at the time the investment is made. In 2006, we funded a $48,000,000 loan and the Fund subsequently indirectly borrowed $25,000,000 from Wells Fargo Foothill, Inc. (Wells Fargo) through CMR Income Fund LLC, an affiliate of the Manager (see Note 9). Although the $48,000,000 loan to the borrower was 47.5% of the total Fund capital at the time the loan was made, the amount of Fund capital that was invested in the loan was $23,000,000, which was 22.7% of the total Fund capital when the investment was made. The percentage of total Fund capital invested in this loan may grow if Fund capital is reduced as a result of withdrawals by members from their capital accounts. We have also subsequently made two additional loans for 2.1% of Fund capital to the borrower, which are secured by the same property. The Manager believes this transaction is in compliance with the provisions of the Offering Circular.

During 2006, the Fund foreclosed on one commercial property held as loan collateral and sold the acquired property to the Manager. The net realizable value of the property at the time of foreclosure required that the Fund record a loan loss of $1,351,017. The Manager bought the property from the Fund at the net realizable value plus the recognized loss which made the fund financially whole as compared to the net book value of the loan including principal, advances and accrued but unpaid interest just prior to foreclosure. The terms of the sale to the manager, as permitted by the Fund's Offering Circular, included a 10% down payment and a secured note for $5,400,000. The resultant gain on the sale of the property to the manager is being recognized on an installment sale basis. As of December 31, 2006 the gain recognized was $141,447 and the deferred gain on the sale was $1,263,195. The loan matures on January 1, 2010 and the loan terms call for interest-only payments at 12.5% per annum. Additionally, the sole stockholder of the Manager has personally guaranteed to indemnify the Fund against any losses sustained by the Fund related to the loan up to a maximum amount of $2,000,000.

In accordance with the Fund's Offering Circular, the Manager may, at his discretion, but is not obligated to purchase foreclosed real estate owned from the Fund.

The Fund is a party to financial instruments with off-balance-sheet risk in the normal course of business in order to meet the financing needs of its borrowers. These financial instruments include commitments to extend credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized on the balance sheet.

Commitments to extend credit are arrangements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration

dates or other termination clauses and may require the payment of a fee payable to the manager. Since some of the commitments are expected to expire without being drawn upon and certain commitments may be funded through other resources provided by the Manager, the total commitment amount does not necessarily represent future cash requirements to the Fund. There were no outstanding credit commitments as of December 31, 2006 or 2005.

The Fund is subject to legal proceedings and claims that arise in the ordinary course of business. In the opinion of Manager, the amount of ultimate liability with respect to such actions will not materially affect the financial position or results of operations of the Fund.

On December 1, 2006 the Fund received a notice from the SEC indicating that they were conducting an inquiry into certain matters of the Fund. In conjunction with this inquiry certain information has been requested from the Fund. The Manager of the Fund is currently in the process of responding to the inquiry and has and will continue to cooperate with the SEC in response to their requests. The Manager believes that there will not be a material impact to the financial position or operations of the Fund.

The Fund is in the process of preparing a registration statement on Form 10 pursuant to Section 12 of the Securities and Exchange Act of 1934, which was due April 30, 2006 because the number of investors in the Fund exceeded 500 as of December 31, 2005. Upon completion of the SEC registration, the Fund will have ongoing reporting and other requirements, including complying with the provisions of the Sarbanes-Oxley Act of 2002, including reporting on internal control over financial reporting, and will result in higher professional fees.

Estimated fair values are disclosed for financial instruments for which it is practicable to estimate fair value. These estimates are made as of a specific point in time based on relevant market data and information about the financial instruments. These estimates do not reflect any premium or discount that could result from offering the Fund's entire holdings of a particular financial instrument for sale at one time, nor do they attempt to estimate the value of anticipated future business related to the instruments.

Because no market exists for a significant portion of the Fund's financial instruments, fair value estimates are based on judgments regarding current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the fair value presented.

The following methods and assumptions were used by the Fund to estimate the fair value of its financial instruments at December 31, 2006 and 2005:

Cash and cash equivalents: For cash and cash equivalents, the carrying amount is estimated to be fair value.

Loans and Advances: The fair values for fixed rate loans or advances are estimated using discounted cash flow analyses, using interest rates offered at each reporting date for loans with similar

terms to borrowers of comparable creditworthiness adjusted for the allowance for credit losses. The carrying amount of the loans and accrued interest receivable approximates its fair value.

Note payable: The fair value of the note payable is estimated by discounting its future cash flows using rates at each reporting date for similar instruments. The carrying amount of accrued interest payable approximates its fair value.

	2006		2005
Due from Manager	$	4,447	$	—
Due from escrowed interest reserve trust account		2,360,928		205,210

	$	2,365,375	$	205,210

In addition, the Fund had a $5,400,000 loan due from the Manager which is included in loans secured by deeds of trust in the Balance Sheet as of December 31, 2006 (see Note 6).

			2006		2005
Due to Manager:
	Mortgage servicing fees payable		$	341,412	$	100,770
	Asset management fees payable			—		554,190

		Total due to manager	$	341,412	$	654,960

Due to Related Parties:
	Due to CMR Income Fund, LLC		$	23,508,511	$	—

During 2006, the Fund originated a $48,000,000 loan secured by deeds of trust (Loan) (see Note 5). As part of this transaction, the Fund invested $23,000,000 of its own capital in the Loan, and also entered into an agreement with CMR Income Fund, LLC, a related party, to borrow $25,000,000 under a note payable from Wells Fargo Foothill, Inc. The loan is secured by the Fund's interest in the Loan including all liens on properties securing the Loan. The loan terms require interest only payments at Libor plus 6.5% (11.8494% at December 31, 2006). The loan matured on May 31, 2007 and was extended to August 31, 2007. As of report date, the loan is in forbearance. At December 31, 2006, the related party loan payable balance was $23,508,511.

During 2006, the fund foreclosed on one loan and sold the acquired property to the Manager. The Manager bought the property from the Fund at the net realizable value plus the recognized loss which made the fund financially whole as compared to the net book value of the loan including principal, advances and accrued but unpaid interest just prior to foreclosure. The loan matures on January 1, 2010 and the loan terms call for interest-only monthly payments at 12.5% per annum. Additionally, the sole stockholder of the Manager has personally guaranteed to indemnify the Fund against any losses sustained by the Fund related to the loan up to a maximum amount of $2,000,000 (see Note 6).

On June 7, 2007, the Fund completed the foreclosure on one of the four properties considered impaired as of December 31, 2006 (see Note 4). The foreclosure resulted in a loss of approximately $1,400,000 and through the foreclosure, the Fund assumed a $6,000,000 senior loan obligation secured by a first deed of trust on the property. The loan matures on January 1, 2009 and the loan terms call for interest-only monthly payments at 12.5% per annum. The Manager is currently evaluating the best course of action to dispose of the property for the benefit of the Fund.

CMR MORTAGE FUND II, LLC

(A CALIFORNIA LIMITED LIABILITY COMPANY)

CONDENSED INTERIM FINANCIAL STATEMENTS

AS OF JUNE 30, 2007 AND DECEMBER 31, 2006 AND

FOR THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006

(UNAUDITED)

The accompanying interim condensed financial statements as of June 30, 2007 and for the six months ended June 30, 2007 and 2006 included in this filing have not been reviewed by the Fund's independent registered public accounting firm in accordance with professional standards for conducting such reviews. During 2007, in connection with preparation of the Registration Statement on Form 10, it was determined that the Fund's prior auditors were not independent with respect to SEC rules and regulations. The Fund changed auditors and they are in the process of reviewing the interim condensed financial statements as required.

The accompanying notes are an integral part of these unaudited condensed financial statements.

The accompanying are unaudited condensed interim financial statements as of June 30, 2007 and for the six months ended June 30, 2007 and 2006 have been prepared pursuant to generally accepted accounting principles for interim reporting. Accordingly, certain disclosures normally presented in the notes to the annual financial statements have been omitted. However, these condensed interim financial statements reflect all adjustments (consisting solely of normal recurring adjustments and accruals) which, in our opinion, are necessary for a fair presentation of the results for the interim periods presented and therefore, we believe that the disclosures are adequate to make the information not misleading.

These unaudited condensed interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and with the prevailing practices in the industry on a basis consistent with, and should be read in conjunction with, the audited financial statements as of and for the year ended December 31, 2006, and the notes thereto included elsewhere in the accompanying Form 10 and filed with the Securities and Exchange Commission.

The results of operations for the six months ended June 30, 2007, may not be indicative of the results of operations that may be expected for any other interim period or for the year ending December 31, 2007.

We are required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates used by us in preparation of the financial statements include the allowance for loan losses and contingencies. Actual results could differ significantly from those estimates.

The Manager is entitled to receive a monthly fee for loan servicing of up to 2% per annum (1/6th of 1% per month) of the outstanding principal balance of each loan. The fee is payable monthly as the

Fund receives interest payments from borrowers. Loan servicing fees for the six months ended June 30, 2007 and 2006 were $1,156,278 and $1,054,186, respectively.

The Manager is entitled to receive a monthly fee for management services provided to the Fund equal to 1% per annum (1/12th of 1% per month) of net assets under management. Net assets as defined by the Operating Agreement, is equal to total members' capital as of the first day of the month, which is payable on the last day of the month. Asset management fees for the six months ended June 30, 2007 and 2006 were $493,575 and $478,358, respectively.

At June 30, 2007, the Fund had a $5,400,000 loan to the Manager used to purchase real estate held for sale from the Fund pursuant to the terms in the Fund's Offering Circular.

In 2006, the Fund originated a $48,000,000 loan by deeds of trust. As part of this transaction, the Fund invested $23,000,000 of its own capital in the Loan, and also entered into an agreement with CMR Income Fund, LLC, a related party, to borrow $25,000,000 under a note payable secured by the Fund's interest in the Loan including all liens on properties securing the loan. At June 30, 2007, the related party loan payable balance was $21,704,279. In conjunction with the loan, costs of $419,570 were deferred and are being amortized over the term of the loan. Amortization of $244,750 was recognized in 2006. The remaining unamortized amount of $174,820 was recognized during the first six months of 2007.

	For the Six Month Period Ended:
	June 30, 2007			Dec. 31, 2006			June 30, 2006
Balance, beginning of period	$	684,845		$	581,085		$	360,085
Provision charged to operations		2,629,250			1,454,777			221,000
Losses charged to allowance		(1,953,935	)		(1,351,017	)		—

Balance, end of period	$	1,360,160		$	684,845		$	581,085

	As of June 30,
	2007		2006
Number of loans		6		2
Total principal balance	$	22,810,000	$	2,156,000

	As of June 30,
	2007		2006
Number of loans		3		0
Total principal balance	$	12,034,333	$	—
Interest income recognized during the year	$	89,226	$	—
Foregone interest income	$	232,855	$	—
Specific loan loss reserve	$	805,000	$	—

All of the impaired and nonaccrual loans are currently in the process of foreclosure. When a loan is placed on nonaccrual, the accrual of interest is discontinued, however previously recorded accrued interest is not reversed. Depending on the borrower's ability to bring a loan current through payment, refinancing by a third party or the Fund, and other legal courses of action available to the borrower and the Fund, the foreclosure of properties may be postponed or not completed. At June 30, 2007 and 2006 there were no outstanding commitments to lend additional funds to borrowers whose loans were identified as impaired.

All of the Fund's loans are fixed rate loans with interest rates that range from 12.00% to 13.95% at June 30, 2007 and 11.99% to 13.50% at June 30, 2006.

While the Manager may consider the income level and general creditworthiness of a borrower to determine a borrower's ability to repay the loan according to its terms, such considerations are typically subordinate to a determination that the value of secured collateral will provide a sufficient source of funds for loan repayment. A significant portion of our loans are secured by two or more real estate parcels, which may be secured by differing positions for the deeds of trust. When the collateral deed trust types are different for a loan (e.g., secured by a combination of first, second and/or third trust deeds), the loan is categorized as "mixed." The Fund's loan portfolio as of June 30, 2007 and 2006 had the following characteristics:

The scheduled maturities for the portfolio as of June 30, 2007 includes two loans totaling $1,743,296 that are past maturity. The scheduled maturities for the portfolio as of June 30, 2006 includes one loan for $2,250,000 that is past maturity.

It is the Fund's experience that loans may be refinanced or repaid before the maturity date therefore; the above tabulation for scheduled maturities is not a forecast of future cash receipts.

Loans vary by size and over time the mix in the portfolio changes. The portfolio size has grown each calendar year since inception of the fund.

During the six months ended June 30, 2007, the Fund foreclosed one of the four properties considered impaired as of December 31, 2006. The net realizable value of the property of $6,600,000 at the time of foreclosure required that the Fund record a loan loss of $1,953,935. The Fund assumed a $6,000,000 senior loan obligation secured by a first deed of trust on the property. The loan matures on January 1, 2009 and the loan terms call for interest-only monthly payments at 12.5% per annum. The Manager is currently evaluating the best course of action to dispose of the property for the benefit of the Fund.

In accordance with the Fund's Offering Circular, the Manager may, at his discretion, but is not obligated to purchase foreclosed real estate owned from the Fund.

Commitments to extend credit are arrangements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee payable to the manager. Since some of the commitments are expected to expire without being drawn upon and certain commitments may be funded through other resources provided by the Manager, the total commitment amount does not necessarily represent future cash requirements to the Fund. There were no outstanding credit commitments as of June 30, 2007 or 2006.

	2007		2006
Due from Manager	$	51,428	$	668
Due from Affiliated Funds		—		10,656,493
Due from escrowed interest reserve trust account		853,441		3,134,973

	$	904,869	$	13,792,134

			2007		2006
Due to Manager:
	Mortgage servicing fees payable		$	638,158	$	252,976
	Asset management fees payable			199,329		481,651

		Total due to manager	$	837,487	$	734,627

Due to Related Parties:
	Due to Affiliated Funds		$	258,953	$	—
	Due to CMR Income Fund, LLC			21,704,279		25,386,006

			$	21,963,232	$	25,386,006

During 2006, the Fund originated a $48,000,000 loan secured by deeds of trust. As part of this transaction, the Fund invested $23,000,000 of its own capital in the loan, and also entered into an agreement with CMR Income Fund, LLC, a related party, to borrow $25,000,000 under a note payable from Wells Fargo Foothill, Inc. The loan is secured by the Fund's interest in the Loan including all

liens on properties securing the Loan. The loan terms require interest only payments at Libor plus 6.25% (10.57% at June 30, 2007). The loan was extended to August 31, 2007. As of the filing of the SEC Form 10, the loan is in forbearance at Libor plus 6.5% (11.6275% at October 31, 2007). At June 30, 2007, the related party loan payable balance was $21,704,279.

Pursuant to the requirements of Section 12 of the Exchange Act, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.

California (State or other jurisdiction of incorporation or organization)		20-0671528 I.R.S. Employer Identification No.)
62 First Street, 4th Floor San Francisco, California (Address of principal executive offices)		94105 (Zip Code)

		June 30,						December 31,
		2007			2006			2006			2005			2004
Selected Financial Data
Summary of Operations:
Interest income		$	6,926,279		$	6,687,474		$	14,806,358		$	4,968,823		$	1,047,687
Interest on advances to borrowers			167,750			85,974			207,343			546,696			0
Other interest income			93,356			73,830			208,074			127,768			13,724
Total interest income			7,187,385			6,847,278			15,221,775			5,643,287			1,061,411
Loan servicing fees			1,156,278			1,054,186			2,361,457			675,792			164,617
Interest expense			1,522,402			324,500			1,959,928			0			0
Other gains									307,111			0			0
Provision for loan losses (recovery)			2,629,250			221,000			1,675,777			252,210			107,875
Operating expenses			1,027,617			529,386			1,203,778			557,611			138,795
Net income			851,838			4,718,206			8,327,946			4,157,674			650,124
Other Data:
Total assets			122,134,605			138,347,416			125,702,800			75,458,712			24,593,859
Loan (net) and advances
	End of period		112,439,057			112,626,018			117,103,913			70,406,934			21,589,333
	Average		115,648,017			93,311,258			108,231,360			41,431,772			8,362,311
Borrowings			21,704,279			25,386,006			23,508,511
Members' capital
	End of period		90,951,393			107,389,816			99,779,132			72,464,558			23,677,589
	Average		99,338,601			93,256,707			100,307,339			49,102,361			10,470,079
Financial Ratios:
Yield on average loans (net) and advances			12.83	%		14.83	%		13.87	%		13.31	%		12.53	%
Return on average loans (net) and advances			3.78	%		10.11	%		7.69	%		10.03	%		7.77	%
Return on average members' capital			4.40	%		10.12	%		8.30	%		8.47	%		6.21	%

				Six Months Ended June 30, 2007		Percent of Revenues, net	Six Months Ended June 30, 2006		Percent of Revenues, net
Revenues:
	Interest income:
		Interest on loans		$	6,926,279	114.9	$	6,687,474	115.4
		Interest on advances to borrowers			167,750	2.8		85,974	1.5
		Other interest income			93,356	1.5		73,830	1.3

			Total interest income		7,187,385	119.2		6,847,278	118.2
		Loan servicing fees			1,156,278	19.2		1,054,186	18.2

			Total interest income, net of servicing fees		6,031,107	100.0		5,793,092	100.0

	Gain on sale of loan				—	—		—	—

	Gain on sale of real estate owned				—	—

			Total revenues, net of servicing fees		6,031,107	100.0		5,793,092	100.0
Interest expense					1,522,402	25.2		324,500	5.6
Provision for loan losses					2,629,250	43.6		221,000	3.8

			Net revenues		1,879,455	31.2		5,247,592	90.6
Operating expenses:
	Asset management fees				493,575	8.2		478,358	8.3
	Professional services				525,815	8.7		40,020	0.7
	Other operating expenses				8,227	0.2		11,008	0.2

			Total operating expenses		1,027,617	17.1		529,386	9.2

			Net income	$	851,838	14.1	$	4,718,206	81.4

				2006		Percent of Revenues, net		2005		Percent of Revenues, net		2004		Percent of Revenues, net
Revenues:
	Interest income:
		Interest on loans		$	14,806,358	112.4	%	$	4,968,823	100.0	%	$	1,047,687	116.8	%
		Interest on advances to borrowers			207,343	1.6			546,696	11.0			—	—
		Other interest income			208,074	1.6			127,768	2.6			13,724	1.5

			Total interest income		15,221,775	115.6			5,643,287	113.6			1,061,411	118.3
		Loan servicing fees			2,361,457	17.9			675,792	13.6			164,617	18.3

		Total interest income, net of servicing fees			12,860,318	97.7			4,967,495	100.0			896,794	100.0
	Gain on sale of loan				165,664	1.3			—	—			—	—
	Gain on sale of real estate owned				141,447	1.0			—	—			—	—

			Total revenues, net of servicing fees		13,167,429	100.0			4,967,495	100.0			896,794	100.0
Interest expense					1,959,928	14.9			—	—			—	—
Provision for loan losses					1,675,777	12.7			252,210	5.1			107,875	12.0

			Net revenues		9,531,724	72.4			4,715,285	94.9			788,919	88.0

Operating expenses:
	Asset management fees				1,027,163	7.8			503,293	10.1			104,865	11.7
	Professional services				151,039	1.1			46,987	0.9			28,416	3.2
	Other operating expenses				25,576	0.2			7,331	0.1			5,514	0.6

			Total operating expenses		1,203,778	9.1			557,611	11.1			138,795	15.5

			Net income	$	8,327,946	63.3	%	$	4,157,674	83.7	%	$	650,124	72.5	%

	2007			2008		2009		2010		2011		Thereafter	Total
Interest earning assets:
Money market accounts	$	501,174			—		—		—		—	—	$	501,174
Average interest rate		3.4%
Loans secured by trust deeds	$	1,743,296		$	19,495,000	$	71,898,194	$	13,101,425	$	4,498,000	—	$	111,031,915
Average interest rate		13.5%			12.7%		12.9%		12.8%		12.9%	—
Interest bearing liabilities:
Note payable	$	21,704,279			—	$	6,000,000		—		—	—	$	27,704,279
Average interest rate		10.6%	(1)				12.5%

$	2,320,000		$	31,783,573	7.3	%	Land	HI	Honolulu
$	1,688,296		$	1,688,296	100.0	%	Commercial	CA	Alameda
$	1,800,000		$	1,800,000	100.0	%	Commercial	CA	Contra Costa

$	111,031,915	(3)	$	211,777,677

		June 30, 2007		December 31, 2006		December 31, 2005		December 31, 2004
First Trust Deeds		$	19,580,425	$	11,952,555	$	31,505,621	$	1,435,000
Second Trust Deeds			19,293,296		19,278,192		25,872,000		10,800,000
Third Trust Deeds			13,791,744		12,891,744		550,000		550,000
Mixed Trust Deeds			57,378,450		73,846,271		14,202,000		8,790,000

	Total	$	111,031,915	$	117,968,931	$	72,129,621	$	21,575,000

Commercial Real Estate		$	6,658,296	$	7,383,271	$	17,777,121	$	10,675,000
Residential Real Estate			3,100,000		1,090,000		200,000		4,740,000
Land			90,245,619		98,302,660		31,412,500		360,000
Mixed-Use Properties			11,028,000		11,193,000		22,740,000		5,800,000

	Total(1)	$	111,031,915	$	117,968,931	$	72,129,621	$	21,575,000

		Outstanding Loan Balance Payable to Us		Percent of Total Balance to Loan Portfolio
30-59 days delinquent		$	0	0.0	%
60-89 days delinquent		$	0	0.0	%
90+ days delinquent(1)		$	24,574,425	22	%

	Total	$	24,574,425	22	%

	As of December 31, 2006
	First Deeds of Trust			Second Deeds of Trust			Third Deeds of Trust			Mixed Deeds of Trust			Total
	Number	Amount		Number	Amount		Number	Amount		Number	Amount		Number	Amount
Commercial real estate	4	$	5,950,000	5	$	930,000	—		—	4	$	503,271	13	$	7,383,271
Residential real estate	—		—	1		1,090,000	—		—	—		—	1		1,090,000
Land	5		6,002,725	5		17,258,192	2		12,891,744	5		62,150,000	17		98,302,661
Mixed use properties	—		—	—		—	—		—	5		11,193,000	5		11,193,000

Total	9	$	11,952,725	11	$	19,278,192	2	$	12,891,744	14	$	73,846,271	36	$	117,968,932

	First Quarter		Second Quarter			Third Quarter		Fourth Quarter		Year
Revenues (net of provision for loan losses/including Recovery)
2007	$	1,845,322	$	34,133			N/A		N/A		N/A
2006	$	2,435,816	$	2,811,776		$	1,211,953	$	3,072,179	$	9,531,724
2005	$	462,997	$	546,143		$	862,991	$	3,591,102	$	$4,715,285
Operating expenses
2007	$	354,335	$	673,282			N/A		N/A		N/A
2006	$	238,599	$	290,787		$	299,329	$	375,063	$	1,203,778
2005	$	18,360	$	74,688		$	36,455	$	1,103,925	$	1,233,428
Net income
2007	$	1,490,987	$	(639,149	)		N/A		N/A		N/A
2006	$	2,197,217	$	2,520,989		$	912,624	$	2,697,116	$	8,327,946
2005	$	444,637	$	471,455		$	826,536	$	2,415,046	$	4,157,674

CMR Mortgage Fund II, LLC Financial Statements
Report of Independent Registered Public Accounting Firm		F-2
Balance Sheet at December 31, 2006 and 2005		F-3
Statement of Income for the Years Ended December 31, 2006, 2005 and 2004		F-4
Statement of Changes in Members' Capital for the Years Ended December 31, 2006, 2005 and 2004		F-5
Statement of Cash Flows for the Years Ended December 31, 2006, 2005 and 2004		F-6
Notes to Financial Statements for the Year Ended December 31, 2006		F-7
Condensed Balance Sheet at June 30, 2007 (unaudited) and December 31, 2006		F-22
Condensed Statement of Income (unaudited) for the Six Months Ended June 30, 2007 and 2006		F-23
Condensed Statement of Cash Flows (unaudited) for the Six Months Ended June 30, 2007 and 2006		F-24
Notes to Condensed Interim Financial Statements (unaudited) for the Six Months Ended June 30, 2007		F-25

			2006		2005
ASSETS
Cash and cash equivalents			$	4,138,948	$	4,556,991
Loans, secured by deeds of trust, net of allowance for loan losses of $684,845 in 2006 and $360,085 in 2005				115,262,678		69,290,973
Advances to borrowers				1,156,390		755,876
Due from related parties				2,365,375		205,210
Accrued interest receivable and other assets				2,779,409		649,662

		Total Assets	$	125,702,800	$	75,458,712

LIABILITIES AND MEMBERS' CAPITAL
Liabilities:
	Accounts payable		$	5,959	$	—
	Accrued expenses			55,090		—
	Accrued distributions			749,501		195,149
	Due to related party			341,412		654,960
	Deferred gain on sale of real estate to related party			1,263,195		—
	Note payable to related party			23,508,511		—
	Investors in applicant status			—		2,144,045

		Total Liabilities		25,923,668		2,994,154

Commitments and contingencies
Members' capital				99,779,132		72,464,558

		Total Liabilities and Members' Capital	$	125,702,800	$	75,458,712

						Members' Capital
	Investors in Applicant Status			Units		Members			Retained Earnings			Total Members' Equity
Balance January 1, 2004	$	—				$	—		$	—		$	—
Subscription proceeds received		25,803,656
Transfers to members' capital		(25,030,719	)	25,031			25,030,719			—			25,030,719
Net income				650						650,124			650,124
Purchase of additional membership units from earnings							286,712			(286,712	)		—
Distributions to members				(2,003	)		(1,639,842	)		(363,412	)		(2,003,254	)

Balance December 31, 2004		772,937		23,678			23,677,589			—			23,677,589
Subscription proceeds received		57,220,326
Transfers to members' capital		(55,849,218	)	55,849			55,849,218			—			55,849,218
Net income				4,158						4,157,674			4,157,674
Purchase of additional membership units from earnings							2,359,849			(2,359,849	)		—
Distributions to members				(11,220	)		(9,422,098	)		(1,797,825	)		(11,219,923	)

Balance December 31, 2005		2,144,045		72,465			72,464,558			—			72,464,558
Subscription proceeds received		42,296,243
Transfers to members' capital		(44,440,288	)	44,440			44,440,288			—			44,440,288
Net income				8,328						8,327,946			8,327,946
Purchase of additional membership units from earnings							4,027,524			(4,027,524	)		—
Distributions to members				(25,454	)		(21,153,238	)		(4,300,422	)		(25,453,660	)

Balance December 31, 2006	$	—		99,779		$	99,779,132		$	—		$	99,779,132

			2006			2005			2004
Cash flows form operating activities:
	Net income		$	8,327,946		$	4,157,674		$	650,124
	Adjustments to reconcile net income to net cash provided by operating activities:
		Provision for loan losses		1,675,777			252,210			107,875
		Gain on sale of loan		(165,664	)		—			—
		Gain on sale of real estate to related party		(141,447	)		—			—
	Net changes in operating assets and liabilities:
		Accrued interest receivable and other assets		(2,129,747	)		(404,807	)		(244,855	)
		Accounts payable and accrued expenses		61,049			—			—
		Due from related parties		(2,160,165	)		1,349,444			(1,554,654	)
		Due to related parties		(313,548	)		511,627			143,333

	Net cash provided by operating activities			5,154,201			5,866,148			(898,177	)
Cash flows from investing activities:
	Investment in real estate owned			(3,657,275	)		—			—
	Proceeds from sale of real estate owned			604,642			—			—
	Proceeds from loan sale			19,110,000			—			—
	Advances to borrowers			(400,514	)		(741,543	)		(14,333	)
	Net increase in loans			(62,134,543	)		(48,076,058	)		(21,575,000	)

		Net cash used in investing activities		(46,477,690	)		(48,817,601	)		(21,589,333	)
Cash flows from financing activities:
	Contributions from members			44,440,288			55,849,218			25,030,719
	Distributions/withdrawals to members			(24,899,308	)		(11,024,774	)		(2,003,254	)
	(Decrease) increase in investors in applicant status			(2,144,045	)		1,371,108			772,937
	Proceeds from note payable to related party			25,000,000			—			—
	Repayment of note payable to related party			(1,491,489	)		—			—

		Net cash provided by financing activities		40,905,446			46,195,552			23,800,402
Net (decrease) increase in cash and cash equivalents				(418,043	)		3,244,099			1,312,892
Cash and cash equivalents at beginning of year				4,556,991			1,312,892			—

Cash and cash equivalents at end of year			$	4,138,948		$	4,556,991		$	1,312,892

Supplemental disclosure of cash flow information:
	Cash paid during the year for:
		Interest expense	$	1,715,177			—			—
		Franchise taxes	$	12,590		$	6,800		$	3,300
	Non-cash investing activities:
		Real estate acquired through foreclosure	$	(2,347,367	)		—			—
		Note receivable from Manager for sale of real estate owned	$	5,400,000			—			—

		First Trust Deeds		Second Trust Deeds		Third Trust Deeds		Mixed Trust Deeds		Totals
Commercial real estate		$	5,430,000	$	830,000	$	—	$	103,271	$	6,363,271
Residential real estate			—		1,090,000		—		—		1,090,000
Improved and unimproved land			6,395,555		16,214,227		12,891,744		61,299,794		96,801,320
Mixed use Properties			—		100,000		—		11,592,932		11,692,932

	Total	$	11,825,555	$	18,234,227	$	12,891,744	$	72,995,997	$	115,947,523

		First Trust Deeds		Second Trust Deeds		Third Trust Deeds		Mixed Trust Deeds		Totals
Commercial real estate		$	7,770,621	$	9,172,000	$	550,000	$	1,842,604	$	19,335,225
Residential real estate			—		200,000		—		—		200,000
Improved and unimproved land			12,143,333		15,308,333		—		—		27,451,666
Mixed use Properties			10,400,000		—		—		12,264,167		22,664,167

	Total	$	30,313,954	$	24,680,333	$	550,000	$	14,106,771	$	69,651,058

		2006					2005
		First Trust Deeds	Second Trust Deeds	Third Trust Deeds	Mixed Trust Deeds	Totals	First Trust Deeds	Second Trust Deeds	Third Trust Deeds	Mixed Trust Deeds	Totals
Commercial real estate		3	4	—	2	9	3	7	1	1	12
Residential real estate		—	1	—	—	1	—	1	—	—	1
Improved and unimproved land		6	5	2	5	18	5	2	—	—	7
Mixed use Properties		—	1	—	7	8	2	—	—	7	9

	Total	9	11	2	14	36	10	10	1	8	29

		First Trust Deeds		Second Trust Deeds		Third Trust Deeds		Mixed Trust Deeds		Totals
December 31,
2006		$	7,593,121	$	2,137,000	$	550,000	$	2,250,000	$	12,530,121
2007			75,000		620,000		—		—		695,000
2008			21,185,833		9,058,333		—		2,714,167		32,958,333
2009			50,000		9,900,000		—		2,000,000		11,950,000
2010			1,410,000		2,965,000		—		7,142,604		11,517,604

	Total	$	30,313,954	$	24,680,333	$	550,000	$	14,106,771	$	69,651,058

	2006							2005
Quartile	Count	Total		Average		Percent of Total		Count	Total		Average	Percent of Total
1	9	$	185,186		20,576	0.16	%	8	$	1,795,000	224,375	2.58	%
2	9		2,100,000		233,333	1.81	%	7		6,177,500	882,500	8.87	%
3	9		15,539,716		1,726,635	13.40	%	7		13,803,771	1,971,967	19.82	%
4	9		98,122,621		10,902,513	84.63	%	7		47,874,787	6,839,255	68.73	%

Total	36	$	115,947,523	$	3,220,765	100.00	%	29		69,651,058	2,401,761	100.00	%

		2006				2005
		Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets:
	Cash and cash equivalents	$	4,138,948	$	4,138,948	$	4,556,991	$	4,556,991
	Loans	$	115,262,678	$	115,262,678	$	69,290,973	$	69,290,973
	Accrued interest receivable	$	2,240,024	$	2,240,024	$	926,398	$	926,398
Financial liabilities:
	Note payable	$	23,508,511	$	23,627,773	$	—	$	—
	Accrued interest payable	$	232,500	$	232,500	$	—	$	—

			June 30, 2007		December 31, 2006
ASSETS
Cash and cash equivalents			$	364,880	$	4,138,948
Loans, secured by deeds of trust, net of allowance for loan losses of $1,360,160 in 2007 and $684,845 in 2006				108,915,862		115,262,678
Advances to borrowers				2,163,035		1,156,390
Due from related parties				904,869		2,365,375
Accrued interest receivable and other assets				3,185,959		2,779,409
Real estate owned				6,600,000		—

		Total Assets	$	122,134,605	$	125,702,800

LIABILITIES AND MEMBERS' CAPITAL
Liabilities:
	Accounts payable		$	104,712	$	5,959
	Accrued expenses			289,840		55,090
	Accrued distributions			724,746		749,501
	Due to related party			1,096,440		341,412
	Deferred gain on sale of real estate to related party			1,263,195		1,263,195
	Note payable to related party			21,704,279		23,508,511
	Notes Payable			6,000,000		—

		Total Liabilities		31,183,212		25,923,668
Commitments and contingencies
Members' capital				90,951,393		99,779,132

		Total Liabilities and Members' Capital	$	122,134,605	$	125,702,800

			For the Six Months Ended June 30,
			2007			2006
Cash flows from operating activities:
	Net income		$	851,838		$	4,718,206
	Adjustments to reconcile net income to net cash provided by operating activities:
		Provision for loan losses		2,629,250			221,000
	Net changes in operating assets and liabilities:
		Accrued interest receivable and other assets		(406,550	)		(1,327,245	)
		Accounts payable and accrued expenses		333,503			47,531
		Due from related parties		1,460,506			(13,586,924	)
		Due to related parties		755,028			79,666

	Net cash provided by (used in) operating activities			5,623,575			(9,847,766	)
Cash flows from investing activities:
	Net decrease (increase) advances to borrowers			(1,006,645	)		425,287
	Net decrease (increase) in loans			3,117,566			(42,644,371	)

		Net cash provided by (used in) investing activities		2,110,921			(42,219,084	)
Cash flows from financing activities:
	Contributions from members			2,405,133			38,804,751
	Distributions/withdrawals to members			(12,109,465	)		(8,459,443	)
	(Decrease) increase in investors in applicant status			—			2,311,986
	Proceeds from note payable to related party			—			25,386,006
	Repayment of note payable to related party			(1,804,232	)		—

		Net cash provided by (used in) financing activities		(11,508,564	)		58,043,300
Net (decrease) increase in cash and cash equivalents				(3,774,068	)		5,976,450
Cash and cash equivalents at beginning of period				4,138,948			4,556,991

Cash and cash equivalents at end of period			$	364,880		$	10,533,441

		First Trust Deeds		Second Trust Deeds		Third Trust Deeds		Mixed Trust Deeds		Totals
Commercial real estate		$	2,820,000	$	3,838,296	$	—	$	—	$	6,658,296
Residential real estate			—		3,100,000		—		—		3,100,000
Improved and unimproved land			6,760,425		12,315,000		13,791,744		57,378,450		90,245,619
Mixed use Properties			10,000,000		40,000		—		988,000		11,028,000

	Total	$	19,580,425	$	19,293,296	$	13,791,744	$	58,366,450	$	111,031,915

		First Trust Deeds		Second Trust Deeds		Third Trust Deeds		Mixed Trust Deeds		Totals
Commercial real estate		$	701,000	$	2,120,000	$	—	$	528,271	$	3,349,271
Residential real estate			—		—		—		—		—
Improved and unimproved land			13,271,025		10,405,000		13,550,000		1,500,000		38,726,025
Mixed use Properties			10,000,000		100,000		—		64,108,000		74,208,000

	Total	$	23,972,025	$	12,625,000	$	13,550,000	$	66,136,271	$	116,283,296

December 31,		First Trust Deeds		Second Trust Deeds		Third Trust Deeds		Mixed Trust Deeds		Totals
2006		$	—	$	60,000	$	—	$	2,250,000	$	2,310,000
2007			55,000		130,000		—		2,700,000		2,885,000
2008			10,045,000		7,835,000		4,000,000		2,755,000		24,635,000
2009			11,562,600		2,700,000		9,550,000		57,850,000		81,662,600
2010			2,305,425		—		—		581,271		2,886,696
2011			4,000		1,900,000		—		—		1,904,000

	Total	$	23,972,025	$	12,625,000	$	13,550,000	$	66,136,271	$	116,283,296

		CMR Mortgage Fund II, LLC
		By:	California Mortgage and Realty, Inc., its Manager
		By:	/s/ DAVID CHOO Name: David Choo Title: President