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U.S. SECURITIES AND EXCHANGE COMMISSION  FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004 Or [  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 Transition Period From To COMMISSION FILE NUMBER333-105017 VESTIN FUND III, LLC  NEVADA
(State or Other Jurisdiction of
Incorporation or Organization)
    
    87-0693972
(I.R.S. Employer
Identification No.)
 8379 WEST SUNSET ROAD, LAS VEGAS, NEVADA 89113
(Address of Principal Executive Offices) (Zip Code) Registrants Telephone Number: 702.227.0965 2901 EL CAMINO AVENUE, SUITE 206, LAS VEGAS, NEVADA 89102
(Former name, former address and former fiscal year, if changed since last report) Indicate by check whether the registrant: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [  ] Indicate by check whether the registrant is an accelerated filer (as defined in
Rule 12b-2 of the Exchange Act.) Yes [  ] No [ X ] As of June 30, 2004 the Issuer had 1,562,415 of its Units outstanding.




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TABLE OF CONTENTS PAGEPART I
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsBalance sheets as of June 30, 2004 (unaudited), and December 31, 2003
    
    
    3Statements of income for the three and six months ended June 30, 2004 and for the period from April 16, 2003 (inception) through June 30, 2003 (unaudited)
    
    
    4Statement of
members equity for the six months ended June 30, 2004 (unaudited)
    
    
    5Statements of cash flows for the six months ended June 30, 2004 and for the period from April 16, 2003 (inception) through June 30, 2003 (unaudited)
    
    
    6Condensed notes to financial statements (unaudited)
    
    
    7Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    18Item 4.
    
    Controls and Procedures
    
    
    19PART II
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    20Item 2.
    
    Changes in Securities and Use of Proceeds
    
    
    20Item 3.
    
    Defaults Upon Senior Securities
    
    
    20Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    20Item 5.
    
    Other Information
    
    
    21Item 6.
    
    Exhibits and Reports on Form 8-K
    
    
    21SIGNATURES


    
    
    22Exhibit 3.2Exhibit 10.1Exhibit 10.2Exhibit 10.3Exhibit 10.4Exhibit 10.5Exhibit 10.6Exhibit 31.1Exhibit 31.2Exhibit 32
  2




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Vestin Fund III, LLC 
 BALANCE SHEETS JUNE 30, 2004
    
    DECEMBER 31, 2003(UNAUDITED)ASSETSCash
    
    $
    889,081
    
    
    $
    4,952Interest receivable
    
    
    181,504
    
    
    
    Investment in mortgage loans, net of allowance for
loan losses of $72,500 as of June 30, 2004
    
    
    14,586,463
    
    
    
    Deposit on investment in real property
    
    
    125,000
    
    
    
    Assets under secured borrowings
    
    
    10,042,362
    
    
    
    Deferred offering costs
    
    
    848,200
    
    
    
    667,437$
    26,672,610
    
    
    $
    672,389LIABILITIES AND MEMBERS EQUITYLiabilitiesDue to Manager
    
    $
    932,766
    
    
    $
    673,088Due to Vestin Group
    
    
    8,982
    
    
    
    Secured borrowings
    
    
    10,042,362
    
    
    
    Total liabilities
    
    
    10,984,110
    
    
    
    673,088Members equity  Minimum 1,000,000 units, maximum 12,000,000
units issued at $10 per unit, 1,562,415 units outstanding at
June 30, 2004
    
    
    15,688,500
    
    
    
    (699
    )Total members equity
    
    
    15,688,500
    
    
    
    (699
    )Total liabilities and members equity
    
    $
    26,672,610
    
    
    $
    672,389
 The accompanying notes are an integral part of these statements. 3




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Vestin Fund III, LLC 
 STATEMENT OF INCOME (unaudited) For the Period fromFor the Three
    
    For the Six
    
    April 16, 2003 (date ofMonths Ended
    
    Months Ended
    
    inception) throughJune 30, 2004
    
    June 30, 2004
    
    June 30, 2003RevenuesInterest income from investments in
mortgage loans
    
    $
    627,518
    
    
    $
    926,075
    
    
    $
    Other revenues
    
    
    20,389
    
    
    
    26,170
    
    
    
    Total revenues
    
    
    647,907
    
    
    
    952,245
    
    
    
    Operating expensesManagement fees
    
    
    8,654
    
    
    
    11,147
    
    
    
    Interest expense
    
    
    242,451
    
    
    
    359,814
    
    
    
    Provision for loan losses
    
    
    72,500
    
    
    
    72,500
    
    
    
    Legal expenses
    
    
    34,204
    
    
    
    34,204
    
    
    
    Other
    
    
    3,105
    
    
    
    5,700
    
    
    
    381Total operating expenses
    
    
    360,914
    
    
    
    483,365
    
    
    
    381NET INCOME
    
    $
    286,993
    
    
    $
    468,880
    
    
    $
    (381
    )Net income allocated to members
    
    $
    286,993
    
    
    $
    468,880
    
    
    $
    (381
    )Net income allocated to members per
weighted average membership units
    
    $
    0.22
    
    
    $
    0.45
    
    
    $
    Weighted average membership units
    
    
    1,317,948
    
    
    
    1,053,509
    
    
    
    
 The accompanying notes are an integral part of these statements. 4




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Vestin Fund III, LLC 
 STATEMENT OF MEMBERS EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 2004 (unaudited) Units
    
    AmountMembers equity at 12/31/03
    
    
    
    
    
    $
    (699
    )Issuance of units
    
    
    1,546,663
    
    
    
    15,466,633Distributions
    
    
    
    
    
    
    (403,834
    )Reinvestments of distributions
    
    
    15,752
    
    
    
    157,520Net income
    
    
    
    
    
    
    468,880Members equity at 6/30/04
    
    
    1,562,415
    
    
    $
    15,688,500
 The accompanying notes are an integral part of these statements. 5




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Vestin Fund III, LLC 
 STATEMENTS OF CASH FLOWS (unaudited) For the Six
    
    For the period fromMonths Ended
    
    April 16, 2003 (Inception)June 30, 2004
    
    through June 30, 2003Cash flows from operating activities:Net income (loss)
    
    $
    468,880
    
    
    $
    (381
    )Adjustments to reconcile net income (loss) to net
cash provided by operating activities:Change in operating assets and liabilities:Interest receivable
    
    
    (181,504
    )
    
    
    Provision for loan losses
    
    
    72,500
    
    
    
    Due to Manager
    
    
    78,915
    
    
    
    5,381Due to Vestin Group
    
    
    8,982
    
    
    
    Net cash provided by operating activities
    
    
    447,773
    
    
    
    5,000Cash flows from investing activities:Deposit on investment in real property
    
    
    (125,000
    )
    
    
    Proceeds received from sale of mortgage loans to private investor
    
    
    2,113,791
    
    
    
    Proceeds from loan payoff
    
    
    7,732,962
    
    
    
    Purchase of investments in mortgage loans from Fund II
    
    
    (10,000,000
    )
    
    
    Investments in mortgage loans on real estate
    
    
    (14,505,716
    )
    
    
    Net cash used by investing activities
    
    
    (14,783,963
    )
    
    
    Cash flows from financing activities:Proceeds from issuance of member units
    
    
    15,466,633
    
    
    
    Reinvestments of distributions
    
    
    157,520
    
    
    
    Distributions
    
    
    (403,834
    )
    
    
    Net cash provided by financing activities
    
    
    15,220,319
    
    
    
    NET CHANGE IN CASH
    
    
    884,129
    
    
    
    5,000Cash, beginning
    
    
    4,952
    
    
    
    Cash, ending
    
    $
    889,081
    
    
    $
    5,000Interest paid during the period
    
    $
    
    
    
    $
    Non-cash financing activities:Offering
costs paid by Manager and
Vestin Group recorded as deferred offering
costs and due to Manager on the accompanying balance sheet.
    
    $
    180,763
    
    
    $
    129,526Change in loans funded through secured borrowing
    
    $
    14,658,963
    
    
    $
    
 The accompanying notes are an integral part of these statements. 6




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VESTIN FUND III, LLC 
 CONDENSED NOTES TO FINANCIAL STATEMENTS JUNE 30, 2004 (Unaudited) NOTE A  ORGANIZATION Vestin
Fund III, LLC, a Nevada limited liability company (the Company), is
primarily engaged in the business of investing in mortgage loans, where
collateral is real property, and intends to invest in income-producing real
property such as office, industrial and retail properties, multifamily
residential units, and assisted living facilities. The Company was organized on
April 16, 2003 and will continue until December 31, 2023 unless dissolved or
extended under the provisions of the Companys Operating Agreement. As a
company investing in mortgage loans and real estate and raising funds through
a public offering, the Company is subject to the North American Securities
Administration Act Mortgage Program Guidelines and Real Estate Guidelines
(collectively, the NASAA Guidelines) promulgated by the state securities
administrators. The manager of the Company is Vestin Mortgage, Inc. (the Manager), a Nevada
corporation engaged in the business of brokerage, placement and servicing of
commercial loans secured by real property. The Manager is a wholly owned
subsidiary of Vestin Group, Inc. (Vestin Group), a Delaware corporation,
whose common stock is publicly held and traded on the Nasdaq SmallCap Market
under the symbol VSTN. Through its subsidiaries, Vestin Group is engaged in
asset management, real estate lending and other financial services and has
originated over $1.8 billion in real estate loans. The Operating Agreement of
the Company provides that the Manager controls the daily operating activities
of the Company; including the power to assign duties, to determine how to
invest the Companys assets, to sign bills of sale, title documents, leases,
notes, security agreements, mortgage investments and contracts, and to assume
direction of the business operations. As a result, the operating results of
the Company are dependent on the Managers ability and intent to continue to
service the Companys assets. The operating agreement also provides that the
members have certain rights, including the right to terminate the Manager
subject to a majority vote of the members. Vestin Mortgage, Inc. is also the manager of Vestin Fund I, LLC (Fund I),
Vestin Fund II, LLC (Fund II) and in Vestin Nevada, Inc., entities in similar
businesses as the Company. The financial statements have been prepared in accordance with Securities and
Exchange Commission requirements for interim financial statements. Therefore,
they do not include all of the information and footnotes required by accounting
principles generally accepted in the United States (GAAP) for complete
financial statements. The financial statements should be read in conjunction
with the financial statements and notes thereto contained in the Companys
annual report on Form 10-K for the year ended December 31, 2003. The results of
operations for the interim periods shown in this report are not necessarily
indicative of results to be expected for the full year. In the opinion of
management, the information contained herein reflects all adjustments necessary
to make the results of operations for the interim periods a fair statement of
such operation. All such adjustments are of a normal recurring nature. Certain reclassifications have been made to the prior periods financial
statements to conform with current year presentation. 7




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NOTE B  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 1. MANAGEMENT ESTIMATES The preparation of financial statements in conformity with GAAP requires
management 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. Actual results could differ from
those estimates. 2. INVESTMENTS IN MORTGAGE LOANS Investments in mortgage loans are secured by trust deeds and mortgages.
Generally, all of the Companys mortgage loans require interest only payments
with a balloon payment of the principal at maturity. The Company has both the
intent and ability to hold mortgage loans until maturity and therefore,
mortgage loans are classified and accounted for as held for investment and are
carried at amortized cost. Loans sold to or purchased from affiliates are
accounted for at the principal balance and no gain or loss is recognized by the
Company or any affiliate. Loan-to-value ratios are based on appraisals
obtained at the time of loan origination and may not reflect subsequent changes
in value estimates. Such appraisals, which may be commissioned by the
borrower, are generally dated within 12 months of the date of loan origination.
The appraisals may be for the current estimate of the as-if developed value
of the property, which approximates the post-construction value of the
collateralized property assuming that such property is developed. As-if
developed values on raw land loans or acquisition and development loans often
dramatically exceed the immediate sales value and may include anticipated
zoning changes and timely successful development by the purchaser. As most of
the appraisals will be prepared on an as-if developed basis, if a loan goes
into default prior to any development of a project, the market value of the
property may be substantially less than the appraised value. As a result,
there may be less security than anticipated at the time the loan was originally
made. If there is less security and a default occurs, the Company may not
recover the full amount of the loan. 3. DEFERRED OFFERING COSTS Vestin Mortgage will be reimbursed by the Company for out of pocket offering
costs in an amount not to exceed 2% of the gross proceeds of the offering. As
of June 30, 2004, the Company had incurred approximately $848,000 of offering
costs paid by Vestin Mortgage on behalf of the Company, which amounts were
recorded as deferred offering costs. These deferred offering costs, which are
primarily legal, accounting and registration fees, will be converted to
membership units at a price of $10 per unit once the Company receives
sufficient gross proceeds to ensure the deferred offering costs do not exceed
2% of the gross proceeds of the offering. Any additional offering costs
incurred by the Company will be converted to membership units in the Company up
to 2% of the gross proceeds of the offering and any additional costs will be
absorbed by Vestin Mortgage. 4. ALLOWANCE FOR LOAN LOSSES The Company maintains an allowance for loan losses on its investment in
mortgage loans for estimated credit losses in the Companys investment in
mortgage loans portfolio. The Managers estimate of losses is based on a number
of factors including the types and dollar amounts of loans in the portfolio,
adverse situations that may affect the borrowers ability to repay, prevailing
economic conditions and the underlying collateral securing the loan. Additions
to the allowance are provided through a charge to earnings and are based on an
assessment of certain factors which may indicate estimated losses on the loans.
Actual losses on loans are recorded as a charge-off or a reduction to the
allowance for loan losses. Subsequent recoveries of amounts previously charged
off are added back to the allowance or included in income when the property is
sold. 5. SECURED BORROWINGS As of June 30, 2004, the Company had secured borrowings of $10.0 million
related to intercreditor and certain participation agreements with various loan
participants (Investors). Pursuant to the intercreditor agreements, the
Investor may invest in certain loans with Vestin Mortgage, Vestin Fund I,
Vestin Fund II and the Company (collectively, the Lead Lenders). In the event
of borrower non-performance, the intercreditor agreements require 8




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the Lead Lenders to protect the Investor by (i) continuing to remit to the
Investor the interest due on the participation amount; (ii) substituting an
alternative loan acceptable to the Investor; or (iii) repurchasing the
participation from the Investor for the outstanding balance of the
participation plus accrued interest. Additionally, an Investor may participate in certain loans with Lead Lenders
through participation agreements. Pursuant to the participation agreements,
the Investor may invest in one or more loans with the Lead Lenders. In the
event of borrower non-performance, the participation agreement allows the
Investor to be repaid up to the amount of the Investors investment prior to
the Lead Lenders being repaid. Mortgage loan financing under the intercreditor and participation agreements
are accounted for as a secured borrowing in accordance with SFAS No. 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities. NOTE C  INVESTMENTS IN MORTGAGE LOANS Investments in mortgage loans as of June 30, 2004 are as follows: Number
    
    
    
    
    
    WeightedLoan
    
    Of
    
    
    
    
    
    Average
    
    Portfolio
    
    LoanType
    
    Loans
    
    Balance
    
    Interest Rate
    
    Percentage
    
    To Value*Acquisition and development
    
    
    1
    
    
    $
    1,333,748
    
    
    
    13.00
    %
    
    
    9.10
    %
    
    
    52.70
    %Bridge
    
    
    4
    
    
    
    9,761,408
    
    
    
    11.70
    %
    
    
    66.59
    %
    
    
    56.63
    %Commercial
    
    
    1
    
    
    
    1,407,184
    
    
    
    12.00
    %
    
    
    9.60
    %
    
    
    69.28
    %Construction
    
    
    1
    
    
    
    156,623
    
    
    
    11.00
    %
    
    
    1.07
    %
    
    
    63.03
    %Land
    
    
    2
    
    
    
    2,000,000
    
    
    
    12.50
    %
    
    
    13.64
    %
    
    
    72.91
    %9
    
    
    $
    14,658,963
    
    
    
    11.95
    %
    
    
    100.00
    %
    
    
    59.83
    %
 *Loan to value ratios are based on appraisals obtained at the time of loan
origination and may not reflect subsequent changes in value estimates. Such
appraisals, which may be commissioned by the borrower, are generally dated no
greater than 12 months prior to the date of loan origination. The appraisals
may be for the current estimate of the as-if developed value of the property,
which approximates the post-construction value of the collateralized property
assuming that such property is developed. As-if developed values on raw land
loans or acquisition and development loans often dramatically exceed the
immediate sales value and may include anticipated zoning changes, selection by
a purchaser against multiple alternatives, and successful development by the
purchaser; upon which development is dependent on availability of financing.
As most of the appraisals will be prepared on an as-if developed basis, if a
loan goes into default prior to any development of a project, the market value
of the property may be substantially less than the appraised value. As a
result, there may be less security than anticipated at the time the loan was
originally made. If there is less security and a default occurs, the Company
may not recover the full amount of the loan. As of June 30, 2004, all of the Companys loans were secured by first deeds of
trust. The following is a schedule of contractual maturities of investments in
mortgage loans as of June 30, 2004: 2004
    
    $
    5,612,3672005
    
    
    3,490,3712006
    
    
    5,556,225$
    14,658,963
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The following is a schedule by geographic location of investments in mortgage
loans as of: June 30, 2004
    
    PortfolioBalance
    
    PercentageArizona
    
    $
    6,556,225
    
    
    
    44.73
    %Florida
    
    
    4,000,000
    
    
    
    27.29
    %Hawaii
    
    
    1,407,184
    
    
    
    9.60
    %Nevada
    
    
    2,695,554
    
    
    
    18.39
    %$
    14,658,963
    
    
    
    100.00
    %
 The Company has six mortgage loan products consisting of bridge, commercial,
construction, acquisition and development, land, and residential loans. The
effective interest rates on all product categories range from 10% to 14%.
Revenue by product will fluctuate based upon relative balances during the
period. At June 30, 2004, all of the Companys loans were performing (less than 90 days
past due on interest payments). The Companys Manager periodically evaluates
all loans and concluded the underlying collateral is sufficient to protect the
Company. Accordingly, no specific allowance for loan losses was deemed
necessary for any loans in the portfolio. The Companys Manager has evaluated the collectibility of the loans in light of
the types and dollar amounts of loans in the portfolio, adverse situations that
may affect the borrowers ability to repay, prevailing economic conditions and
the underlying collateral securing the loan. The Companys Manager believes
that a general allowance for loan losses totaling $72,500 included in the
accompanying balance sheet as of June 30, 2004 is adequate to address estimated
credit losses in the Companys investment in mortgage loan portfolio as of that
date. Decisions regarding an allowance for loan losses requires managements
judgment. As a result, there is an inherent risk that such judgment will prove
incorrect. In such event, actual losses may exceed (or be less than) the amount
of any allowance. To the extent that the Company experiences losses greater
than the amount of its allowance, the Company may incur a charge to its
earnings that will adversely affect its operating results and the amount of any
distributions payable to its members. The following is a rollforward of the allowance for loan losses for the six
months ended June 30, 2004: Balance at
    
    
    
    
    
    Balance atDescription
    
    January 1, 2004
    
    Provisions
    
    June 30, 2004General Valuation
Allowance
    
    $
    
    
    
    $
    72,500
    
    
    $
    72,500
 NOTE D  DEPOSIT ON INVESTMENT IN REAL PROPERTY As of June 30, 2004, the Company has deposited $125,000 to an escrow account
for the purchase of an approximate 40,000 square foot new office building as
further discussed in Note E. The purchase price is $9.9 million and once the
transaction is consummated, the building will be fully leased earning gross
rents of $71,645 per month beginning on August 1, 2004. NOTE E  RELATED PARTY TRANSACTIONS For the three and six months ended June 30, 2004, the Company recorded
management fees to the Companys Manager of approximately $8,700 and $11,000,
respectively. Additionally, for the three and six months ended June 30, 2004,
the Company recorded pro rata distributions owed to the Companys Manager of
approximately $22,000 and $37,000, respectively. As of June 30, 2004, amounts due to the Manager and Vestin Group approximating
$942,000 are primarily related to deferred offering costs paid on behalf of the
Company. 10




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See also Note J  Subsequent Events. NOTE F  SECURED BORROWINGS As of June 30, 2004, the Company had $10.0 million in secured borrowings
pursuant to intercreditor and certain participation agreements with the related
amounts included in assets under secured borrowings. For the three and six
month periods ended June 30, 2004, the Company recorded interest expense of
approximately $242,000 and $360,000, respectively, related to the secured
borrowings. NOTE G  RECENT ACCOUNTING PRONOUNCEMENTS In December 2003, the Financial Accounting Standards Board revised
Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46).
The Company has evaluated its relationships and interest in entities that might
be considered VIEs and concluded that no prerequisite conditions exist.
Accordingly, the adoption of FIN 46 did not have an effect on the Companys
financial statements. NOTE H  LEGAL MATTERS INVOLVING THE MANAGER Vestin Group, Vestin Mortgage, and Del Mar Mortgage, Inc., a company wholly
owned by Michael Shustek, the largest shareholder and CEO of Vestin
Group, are
defendants in a civil action entitled Desert Land, L.L.C. et al. v. Owens
Financial Group, Inc. et al (the Action). The Action was initiated by Desert
Land, L.L.C. (Desert Land) on various loans arranged by Del Mar Mortgage,
Inc. and/or Vestin Mortgage. On April 10, 2003, the United States District
Court for the District of Nevada (the Court) entered judgment jointly and
severally in favor of Desert Land against Vestin Group, Vestin Mortgage and Del
Mar Mortgage, Inc. Judgment was predicated upon the Courts finding that Del
Mar Mortgage, Inc. received an unlawful penalty fee from the plaintiffs. Defendants subsequently filed a motion for reconsideration. The Court denied
the motion and, on August 13, 2003, held that Vestin Group, Vestin Mortgage,
and Del Mar Mortgage, Inc. are jointly and severally liable for the judgment in
the amount of $5,683,312 (which amount includes prejudgment interest and
attorneys fees). On August 27, 2003, the Court stayed execution of the
judgment against Vestin Group and Vestin Mortgage based upon the posting of a
bond in the amount of $5,830,000. Mr. Shustek personally posted a cash bond
without any cost or obligation to Vestin Group and Vestin Mortgage.
Additionally, Del Mar Mortgage, Inc. has indemnified Vestin Group and Vestin
Mortgage for any losses and expenses in connection with the Action, and Mr.
Shustek has guaranteed the indemnification with his cash bond. On September
12, 2003, all of the defendants held liable to Desert Land appealed the
judgment to the Ninth Circuit United States Court of Appeals. The Company is
not a party to the Action. On
May 30, 2003, Vestin Mortgage filed a civil action for damages
in the amount of approximately $2,000,000 against First American
Title Company in the Utah Third District Court (Case No. 030912242) for various
causes of action in connection with First American Title Companys alleged
failure to note in its title report a bond assessment on certain foreclosed
land in Utah. First American Title Company subsequently filed for dismissal and
the case was dismissed on November 5, 2003. On March 2, 2004, Vestin Mortgage
appealed the judgment to the Utah Court of Appeals. The Companys Manager is involved in a number of legal proceedings concerning
matters arising in connection with the conduct of its business activities. The
Manager believes it has meritorious defenses to each of these actions and
intends to defend them vigorously. The Manager believes that it is not a party
to any pending legal or arbitration proceedings that would have a material
adverse effect on the Managers financial condition or results of operations or
cash flows, although it is possible that the outcome of any such proceedings
could have a material impact on the Managers net income in any particular
period. NOTE I  LEGAL MATTERS INVOLVING THE COMPANY The staff of the Pacific Regional Office of the Securities and Exchange
Commission (SEC) has been conducting an informal inquiry into certain matters
related to the Company, Vestin Group, Vestin Fund I and Vestin Fund II. The
staff of the SEC has not identified the reasons for its inquiry, which remains
ongoing as of August 16, 2004. The Company believes that it has complied with
SEC disclosure requirements and is fully cooperating with the inquiry. The
Company cannot at this time predict the outcome of the inquiry. The Company believes that it is not a party to any pending legal or arbitration
proceedings that would have a material adverse effect on the Companys
financial condition or results of operations or cash flows, although it is 11




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possible that the outcome of any such proceedings could have a material impact
on the Companys net income in any particular period. NOTE J SUBSEQUENT EVENTS On May 19, 2004, the Company entered into an agreement to purchase an office
building located in Las Vegas, Nevada (the Property)
for $9.9 million. Construction on the
approximately 41,000 square foot Property has recently been completed. On
March 31, 2003, the Companys Manager had entered into a ten-year lease
agreement with the unrelated party whereby the Manager will rent the entire
building at a rate of $71,645 per month, which shall increase by 4% each year.
The Company has obtained an analysis of the terms of such lease from
an independent third party, which confirms the lease rate represents
a reasonable market rate reasonable to both the Company
and the Manager. The Company will provide
approximately 50% of the purchase price from its capital and will
borrow approximately $5.0 million. The loan
will have a ten year term at an interest rate of the greater of 5.4% or the sum
of (i) the current ten year U.S. Treasury note as determined by
the lender and (b) 86 basis points. Interest will be paid monthly. The unrelated party purchased the real estate underlying the Property in March
2003 from a company wholly owned by Michael Shustek, the principal stockholder
and Chief Executive Officer of the Manager, who has advised the
Manager that he earned a profit of approximately $1 million in connection with
the sale of such real estate to the unrelated party. The Company expects to close the purchase of the Property in August 2004. 12




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is a financial review and analysis of the Companys financial
condition and results of operations for the three and six months ended June 30,
2004. This discussion should be read in conjunction with the Companys
financial statements and accompanying notes and other detailed information
regarding the Company appearing elsewhere in this Form 10-Q and the Companys
report on Form 10-K for the year ended December 31, 2003. BACKGROUND Vestin Fund III, LLC (the Company) was organized in April 2003 as a Nevada
limited liability company, for the purpose of investing in real property and in
mortgage loans secured by real estate originated by the Companys manager,
Vestin Mortgage, Inc. (the Manager), a licensed mortgage company in the State
of Nevada. Vestin Mortgage is a wholly-owned subsidiary of Vestin Group, Inc.,
a Delaware corporation, whose common stock is traded on the Nasdaq SmallCap
Market under the ticker symbol VSTN. Vestin Mortgage, Inc. is also the
manager of Vestin Fund I, LLC, Vestin Fund II, LLC and inVestin Nevada, Inc.
which are entities in similar businesses to the Company. OVERVIEW On November 7, 2003, the Companys Registration Statement as filed with the
Securities and Exchange Commission became effective for the initial public
offering of up to 10,000,000 units at $10 per unit (Unit). The Company
commenced operations on February 12, 2004. By June 30, 2004, the Company had
sold 1,546,663 units. Members may participate in the Companys Distribution
Reinvestment Plan whereby the members distribution may be used to purchase
additional units at $10.00 per unit. As of June 30, 2004, an additional 15,752
units have been purchased under this plan. SUMMARY OF FINANCIAL RESULTS Three months
    
    Six monthsEnded June 30,
    
    Ended June 30,2004
    
    2004Total revenues
    
    $
    647,907
    
    
    $
    952,245Total expenses
    
    
    360,914
    
    
    
    483,365Net income
    
    $
    286,993
    
    
    $
    468,880Net income allocated to members perweighted average membership units
    
    $
    0.22
    
    
    $
    0.45Annualized rate of return to members (a)
    
    
    8.73
    %
    
    
    11.8
    %Weighted average membership units
    
    
    1,317,948
    
    
    
    1,053,509
  (a)
    
    The annualized rate of return to members is calculated based upon the net
income allocated to members per weighted average units as of June 30, 2004
divided by the number of days during the period (91 days for the three
months ended June 30, 2004 and 138 days from
February 12, 2004, the day the
minimum $10 million was achieved, through June 30, 2004) and multiplied by
three hundred and sixty five (365) days, then divided by ten (the $10 cost
per unit). 13




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Total Revenues. Revenues for the three and six months ended June 30, 2004 of
approximately $648,000 and $952,000, respectively, were derived primarily from
interest income on mortgage loans approximating $628,000 and $926,000,
respectively. Approximately $148,000 of the Companys interest revenue
for the three and six months ended June 30, 2004 was derived from interest
reserves. Total Expenses. For the three months ended June 30, 2004, expenses totaled
approximately $361,000 which is primarily related to management fees of
approximately $8,700, a provision for loan losses totaling $72,500 related to
potential losses in the loan portfolio, and interest expense related to secured
borrowings of approximately $242,000. For the six months ended June 30, 2004,
expenses totaled approximately $483,000 which is primarily related to
management fees of approximately $11,000, a provision for loan losses totaling
$72,500 related to potential losses in the loan portfolio, and interest expense
related to secured borrowings of approximately $360,000. In addition, the Companys Manager will be reimbursed for out of pocket
offering expenses in an amount not to exceed 2% of the gross proceeds of the
offering. As of June 30, 2004, the Company had incurred approximately $848,000
of offering costs paid by the Manager on behalf of the Company, which amounts
were recorded as deferred offering costs. These deferred offering costs, which
are primarily legal, accounting and registration fees, will be converted to
membership units at a price of $10 per unit once the Company receives
sufficient gross proceeds to ensure that the deferred offering costs do not
exceed 2% of the gross proceeds of the offering. Any additional offering costs
incurred by the Company will be converted to membership units in the Company up
to 2% of the gross proceeds of the offering and any additional costs will be
absorbed by Vestin Mortgage. Net Income. Net income for the three and six months ended June 30, 2004
totaled approximately $287,000 and $469,000, respectively. Annualized Rate of Return to Members.For the three months ended June 30,
2004, annualized rate of return to members totaled 8.73%. For the six months
ended June 30, 2004, annualized rate of return to members totaled 11.8%. Distributions to Members. For the six months ended June 30, 2004, members
received distributions totaling $403,834. The foregoing distributions were paid
entirely from Net Income Available for Distribution as defined in the Companys
Operating Agreement. Net Income Available for Distribution is based upon cash
flow from operations, less certain reserves, and may exceed net income as
calculated in accordance with GAAP. INVESTMENTS IN MORTGAGE LOANS SECURED BY REAL ESTATE PORTFOLIO As of June 30, 2004, the Company had investments in mortgage loans secured by
real estate totaling $14.6 million, including nine loans of which all were
secured by first deeds of trust. As of June 30, 2004, the weighted average contractual interest rate on the
Companys investment in mortgage loans is 11.95%. These mortgage loans have
contractual maturities within the next 24 months. Losses may occur from investing in mortgage loans. The amount of losses will
vary as the loan portfolio is affected by changing economic conditions, the
financial position of borrowers, and changes in collateral values from time of
loan origination. The conclusion that a mortgage loan is uncollectible or that collectibility is
doubtful is a matter of judgment. On a quarterly basis, the Manager evaluates
the Companys mortgage loan portfolio for impairment. The fact that a loan is
temporarily past due does not necessarily mean that the loan is impaired.
Rather, all relevant circumstances are considered by the Manager to determine
impairment and the need for specific reserves. This evaluation considers among
other matters:  
    
    prevailing economic conditions; 14




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
    
    historical experience;  
    
    the nature and volume of the loan portfolio;
    
    the borrowers financial condition and adverse situations that may affect the borrowers ability to pay;
    
    evaluation of industry trends;
    
    review and evaluation of loans identified as having loss potential; and
    
    estimated fair value of any underlying collateral. Based upon this evaluation the Companys Manager believes that the allowance
for loan losses totaling $72,500 included in the accompanying balance sheet as
of June 30, 2004 is adequate to meet estimated credit losses. Decisions regarding an allowance for loan losses require judgment about the
probability of future events. As a result, there is an inherent risk that such
judgment will prove incorrect. In such event, actual losses may exceed (or be
less than) the amount of any allowance. To the extent that the Company
experiences losses greater than the amount of its allowance, the Company may
incur a charge to its earnings that will adversely affect its operating results
and the amount of any distributions payable to its members. CRITICAL ACCOUNTING ESTIMATES Revenue Recognition Interest income on loans is accrued by the effective interest method. The
Company does not recognize interest income from loans once they are determined
to be impaired. A loan is impaired when, based on current information and
events, it is probable that the Company will be unable to collect all amounts
due according to the contractual terms of the loan agreement or when the
payment of interest is 90 days past due. Investments in Mortgage Loans Investments in mortgage loans are secured by trust deeds and mortgages.
Generally, all of the Companys mortgage loans require interest only payments
with a balloon payment of the principal at maturity. The Company has both the
intent and ability to hold mortgage loans until maturity and therefore,
mortgage loans are classified and accounted for as held for investment and are
carried at amortized cost. Loans sold to or purchased from affiliates are
accounted for at the principal balance and no gain or loss is recognized by the
Company or any affiliate. Loan to value ratios are based on appraisals
obtained at the time of loan origination and may not reflect subsequent changes
in value estimates. Such appraisals are generally dated within 12 months of the
date of loan origination and may be commissioned by the borrower. The
appraisals may be for the current estimate of the as-if developed value of
the property, which approximates the post-construction value of the
collateralized property assuming that such property is developed. As-if
developed values on raw land loans or acquisition and development loans often
dramatically exceed the immediate sales value and may include anticipated
zoning changes and timely successful development by the purchaser. As most of
the appraisals will be prepared on an as-if developed basis, if a loan goes
into default prior to any development of a project, the market value of the
property may be substantially less than the appraised value. As a result,
there may be less security than anticipated at the time the loan was originally
made. If there is less security and a default occurs, the Company may not
recover the full amount of the loan. Allowance for Loan Losses The Company maintains an allowance for loan losses on its investment in
mortgage loans for estimated credit impairment in the Companys investment in
mortgage loans portfolio. The Managers estimate of losses is based on a number
of factors including the types and dollar amounts of loans in the portfolio,
adverse situations that may affect the borrowers ability to repay, prevailing
economic conditions and the underlying collateral securing the loan. Additions
to the allowance are provided through a charge to earnings and are based on an
assessment of certain factors which may indicate estimated losses on the loans.
Actual losses on loans are recorded as a charge-off 15




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or a reduction to the allowance for loan losses. Subsequent recoveries of
amounts previously charged off are added back to the allowance or included in
income when the property is sold. Secured Borrowing Loans that have been participated to third party investors through
intercreditor agreements (Agreements) are accounted for as secured borrowings
in accordance with SFAS No. 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities(SFAS No. 140). The
Agreements provide the Company additional funding sources for mortgage loans
whereby a third party investor (the Investor) may participate in certain
mortgage loans with the Company, Vestin Mortgage, Vestin Fund I and/or Vestin
Fund II (collectively, the Lead Lenders). In the event of borrower
non-performance, the intercreditor agreements require the Lead Lenders to
protect the Investors by (i) continuing to remit to the Investor the interest
due on the participated loan amount; (ii) substituting an alternative loan
acceptable to the Investor; or (iii) repurchasing the participated loan amount
from the Investor for the outstanding balance plus accrued interest.
Additionally, an Investor may participate in certain loans with Lead Lenders
through participation agreements. Pursuant to the participation agreements,
the Investor may invest in one or more loans with the Lead Lenders. In the
event of borrower non-performance, the participation agreement allows the
Investor to be repaid up to the amount of the Investors investment prior to
the Lead Lenders being repaid. Mortgage loan financing under the
participation arrangement is also accounted for as a secured borrowing in
accordance with SFAS No. 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities. CAPITAL AND LIQUIDITY Liquidity is a measure of a companys ability to meet potential cash
requirements, including ongoing commitments to fund lending activities and for
general operational purposes. The Company does not have any significant capital
expenditures. Accordingly, the Company believes that cash held at bank
institutions will be sufficient to meet the Companys capital requirements in
the next twelve months. The Company does not anticipate the need for hiring any
employees, acquiring fixed assets such as office equipment or furniture, or
incurring material office expenses during the next twelve months because the
Manager will continue to manage the Companys affairs. The Company is charged
by the Manager a monthly management fee of up to 0.25% of the Companys
aggregate capital contributions. Pursuant to the Companys Operating Agreement,
the Company recorded management fees to the Manager during the three and six
months ended June 30, 2004 of approximately $8,700 and $11,100, respectively. During the six months ended June 30, 2004, cash flows provided by operating
activities approximated $0.4 million. Investing activities consisted of cash
provided by loan sales and payoffs of approximately $9.8 million and cash used
in purchases of investments in mortgage loans approximating $24.5 million.
Financing activities consisted of members distributions of $0.2 million (net
of reinvestments) and issuance of member units totaling approximately $15.5
million. As of June 30, 2004, members holding approximately 62% of our outstanding units
have elected to reinvest their dividends. The level of dividend reinvestment
will depend upon our performance as well as the number of our members who
prefer to reinvest rather than receive current distributions of their income. Any significant level of defaults on our outstanding loans could reduce the
funds we have available for investment in new loans. Foreclosure proceedings
may not generate full repayment of our loans and may result in significant
delays in the return of invested funds. This would diminish our capital
resources and would impair our ability to invest in new loans. In addition,
any significant level of redemptions by our members would reduce the capital we
have available for investment. Such redemptions are limited by the terms of
our Operating Agreement to not more than 10% per calendar year and are subject
to other conditions. As of June 30, 2004, the Company did not have any significant non-performing
assets which generally consist of non-performing loans or real estate held for
sale. At June 30, 2004, the Company had $0.9 million in cash and $26.7 million in
total assets. It appears the Company has sufficient working capital to meet
its operating needs in the near term. 16




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##### Table of Contents



As of June 30, 2004, the Company had secured borrowings of $10.0 million
related to intercreditor and certain participation agreements with various
loan participants (Investors). Pursuant to the intercreditor agreements, the
Investor may invest in certain loans with Vestin Mortgage, Vestin Fund I,
Vestin Fund II and the Company (collectively, the Lead Lenders). In the event
of borrower non-performance, the intercreditor agreements require the Lead
Lenders to protect the Investors by (i) continuing to remit to the Investor the
interest due on the participation amount; (ii) substituting an alternative loan
acceptable to the Investor; or (iii) repurchasing the participation from the
Investor for the outstanding balance of the participation plus accrued
interest. Additionally, an Investor may participate in certain loans with Lead
Lenders through participation agreements. Pursuant to the participation
agreements, the Investor may invest in one or more loans with the Lead Lenders.
In the event of borrower non-performance, the participation agreement allows
the Investor to be repaid up to the amount of the Investors investment prior
to the Lead Lenders being repaid. Mortgage loan financing under the
intercreditor and participation agreements are accounted for as a secured
borrowing in accordance with SFAS No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities. The Company maintains working capital reserves of approximately 3% of aggregate
members capital accounts in cash. This reserve is available to pay expenses in
excess of revenues, satisfy obligations of underlying security properties,
expend money to satisfy unforeseen obligations and for other permitted uses of
the working capital. Working capital reserves of up to 3% are included in the
funds committed to loan investments in determining what proportion of the
offering proceeds and reinvested distributions have been invested in mortgage
loans. FACTORS AFFECTING THE COMPANYS OPERATING RESULTS The Companys business is subject to numerous factors affecting its operating
results. In addition to the factors discussed above, the Companys operating
results may be affected by: Risks of Investing in Mortgage Loans  
    
    The Companys underwriting standards and procedures are more lenient
than conventional lenders in that the Company will invest in loans to
borrowers who will not be required to meet the credit standards of
conventional mortgage lenders.
    
    The Company approves mortgage loans more quickly than other mortgage
lenders. Due to the nature of loan approvals, there is a risk that the
credit inquiry the Companys Manager performs will not reveal all
material facts pertaining to the borrower and the security.
    
    Appraisals may be performed on an as-if developed basis, if a loan
goes into default prior to development of a project, the market value of
the property may be substantially less than the appraised value. As a
result, there may be less security than anticipated at the time the loan
was originally made. If there is less security and a default occurs,
the Company may not recover the full amount of the loan.
`
    
    The Companys results of operations will vary with changes in
interest rates and with the performance of the relevant real estate
markets.
    
    If the economy is healthy, the Company expects that more people will
be borrowing money to acquire, develop or renovate real property.
However, if the economy grows too fast, interest rates may increase too
much and the cost of borrowing may become too expensive. This could
result in a slowdown in real estate lending which may mean the Company
will have fewer loans to acquire, thus reducing the Companys revenues
and the distributions to members.
    
    If, at a time of relatively low interest rates, a borrower should
prepay obligations that have a higher interest rate from an earlier
period, investors will likely not be able to reinvest the funds in
mortgage loans earning that higher rate of interest. In the absence of a
prepayment fee, the investors will receive neither the anticipated
revenue stream at the higher rate nor any compensation for their loss.
This in turn could harm the Companys reputation and make it more
difficult for the Company to attract investors willing to acquire
interest in mortgage loans. 17




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##### Table of Contents



Risk of Defaults The Companys performance will be directly impacted by any defaults on the
loans in its portfolio. As noted above, the Company may experience a higher
rate of defaults than conventional mortgage lenders. The Company seeks to
mitigate the risk by estimating the value of the underlying collateral and
insisting on low loan to value ratios. However, no assurance can be given that
these efforts will fully protect the Company against losses on defaulted loans.
Moreover, during the period of time when a defaulted loan is the subject of
foreclosure proceedings, it is likely that the Company will earn less (if any)
income from such loans, thereby reducing the Companys earnings. Competition for Borrowers The Company considers its competitors for borrowers to be the providers of
non-conventional mortgage loans, that is, lenders who offer short-term,
equity-based loans on an expedited basis for higher fees and rates than those
charged by conventional lenders and mortgage loans investors, such as
commercial banks, thrifts, conduit lenders, insurance companies, mortgage
brokers, pension funds and other financial institutions that offer conventional
mortgage loans. Many of the companies against which the Company competes have
substantially greater financial, technical and other resources than the Company
does. Competition in the Companys market niche depends upon a number of
factors including price and interest rates of the loan, speed of loan
processing, cost of capital, reliability, quality of service and support
services. Effect of Fluctuations in the Economy The Companys sole business, making loans secured by real estate, is
particularly vulnerable to changes in macroeconomic conditions. Any significant
decline in economic activity, particularly in the geographical markets in which
the Company concentrates its loans, could result in a decline in the demand for
real estate development loans. In order to stay fully invested during a period
of declining demand for real estate loans, the Company may be required to make
loans on terms less favorable to the Company or to make loans involving greater
risk to the Company. Declines in economic activity are often accompanied by a
decline in prevailing interest rates. Although the Companys lending rates are
not directly tied to the Federal Reserve Boards discount rate, a sustained and
widespread decline in interest rates will impact the interest the Company is
able to earn on its loans. Since the Companys loans generally do not have
prepayment penalties, declining interest rates may also cause the Companys
borrowers to prepay their loans and the Company may not be able to reinvest the
amounts prepaid in loans generating a comparable yield. Moreover, any
significant decline in economic activity could adversely impact the ability of
the Companys borrowers to complete their projects and obtain take out
financing. This in turn could increase the level of defaults the Company may
experience. FORWARD LOOKING STATEMENTS When used in this Quarterly Report on Form 10-Q the words or phrases will
likely result, are expected to, is anticipated, or similar expressions are
intended to identify forward looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements are subject
to certain risks and uncertainties, including but not limited to changes in
interest rates and fluctuations in operating results. Such factors, which are
discussed in Managements Discussion and Analysis of Financial Condition and
Results of Operations, could affect the Companys financial performance and
could cause the Companys actual results for future periods to differ
materially from any opinion or statements expressed herein with respect to
future periods. As a result, the Company wishes to caution readers not to place
undue reliance on any such forward looking statements, which speak only as of
the date made. 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to market risk, primarily from changes in interest
rates. The Company does not have any assets or liabilities denominated in
foreign currencies nor does it own any options, futures or other derivative
instruments. Most of the Companys assets consist of mortgage loans, including those that
are financed under intercreditor agreements. Loans financed under
intercreditor and participation agreements approximated $10.0 million at June 18




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30, 2004 and are classified as assets under secured borrowing. Such financing
is at a weighted average contractual interest rate of 11.95%. These mortgage
loans mature within the next 24 months. All of the outstanding mortgage loans
at June 30, 2004 are fixed rate loans. All of the mortgage loans are held for
investment purposes and are held to their maturity date. None of the mortgage
loans have prepayment penalties. As of June 30, 2004, the Company had cash totaling $0.9 million. The Company
anticipates that approximately 3% of its assets will be held in such accounts
as cash reserves. Additional deposits in such accounts will be made as funds
are received by the Company from new investors and repayment of loans pending
the deployment of such funds in new mortgage loans. The Company believes that
these financial assets do not give rise to significant interest rate risk due
to their short-term nature. 
 ITEM 4. CONTROLS AND PROCEDURES. The Company has evaluated the effectiveness of the design and operation of its
disclosure controls and procedures as of June 30, 2004 (the Evaluation Date).
Such evaluation was conducted under the supervision and with the participation
of the Chief Executive Officer (CEO) and the Chief Financial Officer (CFO)
of Vestin Mortgage, Inc., the Companys Manager, who function as the equivalent
of the CEO and CFO of the Company. Based upon such evaluation, CEO and CFO
have concluded that, as of the Evaluation Date, the Companys disclosure
controls and procedures were effective. There has been no change in the
Companys internal control over financial reporting that occurred during the
Companys most recent fiscal quarter that have materially affected, or are
reasonable likely to materially affect, the Companys internal control over
financial reporting. 19




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##### Table of Contents



PART II OTHER INFORMATION 
 ITEM 1. LEGAL PROCEEDINGS The staff of the Pacific Regional Office of the Securities and Exchange
Commission (SEC) has been conducting an informal inquiry into certain matters
related to the Company, Vestin Group, Vestin Fund I and Vestin Fund II. The
staff of the SEC has not identified the reasons for its inquiry, which remains
ongoing as of August 16, 2004. The Company believes that it has complied with
SEC disclosure requirements and is fully cooperating with the inquiry. The
Company cannot at this time predict the outcome of the inquiry. The Company believes that it is not a party to any pending legal or arbitration
proceedings that would have a material adverse effect on the Companys
financial condition or results of operations or cash flows, although it is
possible that the outcome of any such proceedings could have a material impact
on the Companys net income in any particular period. 
 ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS (a) The Companys Operating Agreement has been amended and restated to allow
for monthly distributions rather than quarterly distributions. (b) On February 12, 2004, the Company raised the required $10,000,000 to break
escrow and commence operations. The units sold under the offering were
registered under the Securities Act of 1933, as amended, on a Registration
Statement on Form S-11 (the Registration Statement) (Reg. No. 333-105017)
that was declared effective by the SEC on November 7, 2003. The Company registered 12 million units, including units
under its Dividend Reinvestment Plan, at a selling price of $10 per unit. The
aggregate price of the offering amount registered was $120 million. In
connection with the offering, a 10% commission was to be paid on all sales of
units sold by selected dealers. However, pursuant to Post Effective Amendment
No. 1 to the Registration Statement, which was declared effective by the SEC on
May 28, 2004, dealers will no longer receive any commissions. Vestin Capital,
Inc., an affiliate of Vestin Mortgage, Inc., the Companys manager (Vestin
Mortgage), will receive 0.5% of the gross proceeds of the offering for due
diligence expenses. In addition, all out of pocket expenses related to this
offering, including expenses incurred in connection with the offer and sale of
units under the Companys Distribution Reinvestment Plan, will be advanced by
Vestin Mortgage and will be reimbursed by the Company for up to 2% of the gross
proceeds received in the offering. As of June 30, 2004, the Company had
incurred approximately $848,000 of offering costs paid by Vestin Mortgage on
behalf of the Company, which are primarily legal, accounting and registration
fees. These deferred offering costs will be converted into membership units at
$10 per unit once the Company receives sufficient gross offering proceeds to
ensure that the offering costs do not exceed 2% of the gross proceeds of the
offering. As of June 30, 2004, the Company had raised $15,466,330 and an
additional $157,520 under its Dividend Reinvestment Plan. The Company has invested in 9 loans totaling approximately $14.7 million as of
June 30, 2004. The Company anticipates that it will invest no less than 82% of
the gross proceeds of the offering and the distributions reinvested under the
Companys Dividend Reinvestment Plan in mortgage loans and real property. Once
the Company is fully funded, the Company anticipates investing approximately
70% of its proceeds in real property and approximately 30% in mortgage loans.
However, such percentages are only a guideline, the actual percentages may
vary. The Company will not invest more than 20% of its proceeds in any one
property once it is fully funded. The Company will retain approximately 3% of
offering proceeds as a working capital reserve. 
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not Applicable. 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 20




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No matter was submitted to a vote of security holders, through the solicitation
of proxies or otherwise, during the second quarter ended June 30, 2004. 
 ITEM 5. OTHER INFORMATION None. 
 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits PageNumber/Exhibit
    
    
    
    FilingNumber
    
    Description
    
    Method3.1
    
    Articles of Organization
    
    
    (1
    )3.2
    
    Amendment to Articles of Organization3.3
    
    Amended and Restated Operating Agreement (included as Exhibit A to the prospectus)
    
    
    (2
    )4
    
    Distribution Reinvestment Plan
    
    
    (3
    )10.1
    
    Mortgage Loan Application, dated June 3, 2004, by Vestin Fund III, LLC to Morgan
Stanley Mortgage Capital Inc.10.2
    
    Assignment Agreement, dated January 23, 2004, by and between Vestin Mortgage,
Inc., Vestin Fund I, LLC, Vestin Fund II, LLC, Owens Financial Group, Inc. and
Owens Mortgage Investment Fund10.3
    
    Intercreditor Agreement, dated January 17, 2003, by and among Vestin Mortgage,
Inc., Vestin Fund I, LLC, Vestin Fund II, LLC and Western United Life Assurance
Company10.4
    
    Intercreditor Agreement, dated April 22, 2004, by and between Vestin Mortgage,
Inc. and Owens Mortgage Investment Fund10.5
    
    Intercreditor Agreement, dated June 24, 2004, by and between Vestin Mortgage,
Inc. and Owens Mortgage Investment Fund10.6
    
    Participation Agreement, dated May 13, 2004, by and among Vestin Fund I, LLC,
Vestin Fund II, LLC, Vestin Fund III, LLC and Royal Bank of America31.1
    
    Section 302 Certification of Michael V. Shustek31.2
    
    Section 302 Certification of Lance K. Bradford32
    
    Certification Pursuant to U.S.C. 18 Section 1350
   (1)
    
    Incorporated herein by reference to our Pre-Effective Amendment No. 3 to Form S-11 Registration Statement filed on
September 2, 2003, File No. 333-105017.(2)
    
    Incorporated herein by reference to our Post-Effective Amendment No. 1 to Form S-11 Registration Statement filed on
April 29, 2004, File No. 333-105017.(3)
    
    Incorporated herein by reference to Exhibit 4.4 of our Pre-Effective Amendment No. 3 to Form S-11 Registration Statement
filed on September 2, 2003, File No. 333-105017. (b) Reports on Form 8-K None. 21




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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. VESTIN FUND III, LLC By: Vestin Mortgage, Inc., its sole manager By:
    
    /s/ Lance K. BradfordLance K. BradfordDirector, Secretary and Treasurer(Chief Financial Officer of the Managerand Duly Authorized Officer)
 Dated: August 16, 2004 22




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##### Table of Contents



VESTIN FUND III, LLC A Nevada Limited Liability Company INDEX TO EXHIBITS PageNumber/Exhibit
    
    
    
    FilingNumber
    
    Description
    
    Method3.1
    
    Articles of Organization
    
    
    (1
    )3.2
    
    Amendment to Articles of Organization3.3
    
    Amended and Restated Operating Agreement (included as Exhibit A to the prospectus)
    
    
    (2
    )4
    
    Distribution Reinvestment Plan
    
    
    (3
    )10.1
    
    Mortgage Loan Application, dated June 3, 2004, by Vestin Fund III, LLC to Morgan
Stanley Mortgage Capital Inc.10.2
    
    Assignment Agreement, dated January 23, 2004, by and between Vestin Mortgage,
Inc., Vestin Fund I, LLC, Vestin Fund II, LLC, Owens Financial Group, Inc. and
Owens Mortgage Investment Fund10.3
    
    Intercreditor Agreement, dated January 17, 2003, by and among Vestin Mortgage,
Inc., Vestin Fund I, LLC, Vestin Fund II, LLC and Western United Life Assurance
Company10.4
    
    Intercreditor Agreement, dated April 22, 2004, by and between Vestin Mortgage,
Inc. and Owens Mortgage Investment Fund10.5
    
    Intercreditor Agreement, dated June 24, 2004, by and between Vestin Mortgage,
Inc. and Owens Mortgage Investment Fund10.6
    
    Participation Agreement, dated May 13, 2004, by and among Vestin Fund I, LLC,
Vestin Fund II, LLC, Vestin Fund III, LLC and Royal Bank of America31.1
    
    Section 302 Certification of Michael V. Shustek31.2
    
    Section 302 Certification of Lance K. Bradford32
    
    Certification Pursuant to U.S.C. 18 Section 1350
   (1)
    
    Incorporated herein by reference to our Pre-Effective Amendment No. 3 to Form S-11 Registration Statement filed on
September 2, 2003, File No. 333-105017.(2)
    
    Incorporated herein by reference to our Post-Effective Amendment No. 1 to Form S-11 Registration Statement filed on
April 29, 2004, File No. 333-105017.(3)
    
    Incorporated herein by reference to Exhibit 4.4 of our Pre-Effective Amendment No. 3 to Form S-11 Registration Statement
filed on September 2, 2003, File No. 333-105017. 23