**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 WASHINGTON,
        D.C. 20549
 
 **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, 2007
 
 **Or**
 
 **[   ]  TRANSITION
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE****SECURITIES
                  EXCHANGE ACT OF 1934**
 
 Transition
        Period From _______ To ________
 
 *COMMISSION
        FILE NUMBER 333-105017*
 
 **VESTIN
                  FUND III, LLC**(Exact
                  name of registrant as specified in its
                  charter)
 
 
 NEVADA
              
              87-0693972(State
                  or Other Jurisdiction of
              
              (I.R.S.
                  EmployerIncorporation
                  or Organization)
              
              Identification
                  No.)
 
 **8379
        WEST SUNSET ROAD, LAS VEGAS,
        NEVADA**  **89113**
 (Address
        of Principal Executive Offices) (Zip Code)
 
 Registrant’s
        Telephone Number: 702.227.0965
 
 Indicate
        by check mark 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 mark whether the registrant is a large accelerated filer, an
        accelerated filer, or a non-accelerated filer.  See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
        Act.  (Check one):
 
 Large
                  accelerated filer [   ]
              Accelerated
                  filer [   ]
              Non-accelerated
                  filer [X]
 
 Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Securities Exchange Act).
 
 Yes  [   ]     No  [X]
 
 As
        of
        August 6, 2007, 2,525,561 units of interest in the Company were
        outstanding.
 
 
  *Table
            of Contents*
  **TABLEOF
        CONTENTS**
 
 PagePart
                  I
              FINANCIAL
                  INFORMATIONItem
                  1.
              Financial
                  StatementsBalance
                  Sheets as of June 30, 2007 (unaudited) and December 31,
                  2006
              1Statements
                  of Income (unaudited) for the Three and Six Months
                  Ended June 30, 2007 and 2006
              2Statements
                  of Members’ Equity and Other Comprehensive
                  Income (unaudited) for the Six Months Ended June 30,
                  2007
              3Statements
                  of Cash Flows (unaudited) for the Six Months
                  Ended June 30, 2007 and 2006
              4Notes
                  to Financial Statements
                  (unaudited)
              5Report
                  of Independent Registered Public Accounting
                  Firm
              22Item
                  2.
              Management’s
                  Discussion and Analysis of Financial
                  Condition and Results of Operations
              23Item
                  3.
              Quantitative
                  and Qualitative Disclosures About Market
                  Risk
              33Item
                  4.
              Controls
                  and Procedures
              34Item
                  4T
              Controls
                  and Procedures
              34Part
                  II
              OTHER
                  INFORMATIONItem
                  1.
              Legal
                  Proceedings
              34Item
                  1A.
              Risk
                  Factors
              34Item
                  2.
              Unregistered
                  Sales of Equity – Securities and Use of
                  Proceeds
              44Item
                  3.
              Defaults
                  Upon Senior Securities
              45Item
                  4.
              Submission
                  of Matters to a Vote of Security
                  Holders
              45Item
                  5.
              Other
                  Information
              45Item
                  6.
              Exhibits
              46SIGNATURES
              47Exhibit
                  31.1Exhibit
                  31.2Exhibit
                  32
 
 
  *Table
            of Contents*
  **PART
        I - FINANCIALINFORMATION**
 
 **ITEM
                  1.**
              **FINANCIALSTATEMENTS**
 
 **VESTINFUND
                  III, LLC****BALANCE
                  SHEETS****ASSETS****June
                  30, 2007**
              
              
              **December
                  31, 2006****(Unaudited)**AssetsCash
                  and cash equivalents
              
              $
              416,000
              
              
              $
              821,000Cash
                  - restricted
              
              
              985,000
              
              
              
              985,000Marketable
                  securities - related party
              
              
              1,712,000
              
              
              
              829,000Interest
                  and other receivables
              
              
              264,000
              
              
              
              270,000Real
                  estate held for sale
              
              
              517,000
              
              
              
              575,000Investment
                  in real estate loans, net of allowance for loan losses of $73,000
                  at June
                  30, 2007 and December 31, 2006
              
              
              24,021,000
              
              
              
              26,999,000Assets
                  under secured borrowings
              
              
              --
              
              
              
              4,430,000Due
                  from related party
              
              
              --
              
              
              
              10,000Other
                  assets
              
              
              --
              
              
              
              6,000Total
                  assets
              
              $
              27,915,000
              
              
              $
              34,925,000**LIABILITIES
                  AND MEMBERS' EQUITY**LiabilitiesAccounts
                  payable and accrued liabilities
              
              $
              111,000
              
              
              $
              93,000Due
                  to related parties
              
              
              1,000
              
              
              
              --Secured
                  borrowings
              
              
              --
              
              
              
              4,430,000Deferred
                  income
              
              
              985,000
              
              
              
              985,000Total
                  liabilities
              
              
              1,097,000
              
              
              
              5,508,000Commitments
                  and contingenciesMembers'
                  equityMembership
                  units, 10,000,000 units authorized; 2,525,561 units and 2,775,376
                  units
                  issued and outstanding at June 30, 2007 and December 31, 2006,
                  respectively
              
              
              26,758,000
              
              
              
              29,434,000Accumulated
                  other comprehensive income (loss)
              
              
              60,000
              
              
              
              (17,000
              )Total
                  members' equity
              
              
              26,818,000
              
              
              
              29,417,000Total
                  liabilities and members' equity
              
              $
              27,915,000
              
              
              $
              34,925,000
 
 
  See
            review report of Independent Registered Public Accounting Firm
 The
            accompanying notes are an integral part of these statements
 -
            1
            -
 *Table
            of Contents*
  
 **VESTINFUND
                  III, LLC****STATEMENTS
                  OF INCOME****(UNAUDITED)****For
                  The Three**
                **Months
                  Ended**
              
              
              **For
                  The Three**
                **Months
                  Ended**
              
              
              **For
                  The Six**
                **Months
                  Ended**
              
              
              **For
                  The Six**
                **Months
                  Ended****June
                  30, 2007**
              
              
              **June
                  30, 2006**
              
              
              **June
                  30, 2007**
              
              
              **June
                  30, 2006****Revenues**Interest
                  income from investment in real estate loans
              
              $
              671,000
              
              
              $
              542,000
              
              
              $
              1,454,000
              
              
              $
              1,136,000Rental
                  income - related party
              
              
              --
              
              
              
              257,000
              
              
              
              --
              
              
              
              514,000Dividend
                  income - related party
              
              
              32,000
              
              
              
              --
              
              
              
              48,000
              
              
              
              --Other
              
              
              18,000
              
              
              
              44,000
              
              
              
              43,000
              
              
              
              62,000Total
                  revenues
              
              
              721,000
              
              
              
              843,000
              
              
              
              1,545,000
              
              
              
              1,712,000**Operating
                  expenses**Management
                  fees - related party
              
              
              3,000
              
              
              
              12,000
              
              
              
              7,000
              
              
              
              24,000Interest
                  expense
              
              
              39,000
              
              
              
              69,000
              
              
              
              118,000
              
              
              
              149,000Depreciation
                  and amortization
              
              
              --
              
              
              
              56,000
              
              
              
              --
              
              
              
              111,000Professional
                  fees
              
              
              51,000
              
              
              
              31,000
              
              
              
              92,000
              
              
              
              96,000Professional
                  fees - related party
              
              
              2,000
              
              
              
              3,000
              
              
              
              5,000
              
              
              
              4,000Other
              
              
              15,000
              
              
              
              3,000
              
              
              
              22,000
              
              
              
              9,000Total
                  operating expenses
              
              
              110,000
              
              
              
              174,000
              
              
              
              244,000
              
              
              
              393,000**Income
                  from operations**
              
              
              611,000
              
              
              
              669,000
              
              
              
              1,301,000
              
              
              
              1,319,000**Income
                  (loss) from real estate held for sale**Write
                  down of real estate held for sale
              
              
              (58,000
              )
              
              
              --
              
              
              
              (58,000
              )
              
              
              --Expenses
                  related to real estate held for sale
              
              
              (4,000
              )
              
              
              --
              
              
              
              (7,000
              )
              
              
              --Total
                  loss from real estate held for sale
              
              
              (62,000
              )
              
              
              --
              
              
              
              (65,000
              )
              
              
              --**NET
                  INCOME**
              
              $
              549,000
              
              
              $
              669,000
              
              
              $
              1,236,000
              
              
              $
              1,319,000Net
                  income allocated to members
              
              $
              549,000
              
              
              $
              669,000
              
              
              $
              1,236,000
              
              
              $
              1,319,000Net
                  income allocated to members per weighted average membership
                  unit
              
              $
              0.22
              
              
              $
              0.23
              
              
              $
              0.47
              
              
              $
              0.45Weighted
                  average membership unit
              
              
              2,523,618
              
              
              
              2,938,962
              
              
              
              2,633,958
              
              
              
              2,962,657
 
 
  See
            review report of Independent Registered Public Accounting Firm
 The
            accompanying notes are an integral part of these statements
 -
            2
            -
 *Table
            of Contents*
  
 **VESTINFUND
                  III, LLC****STATEMENTS
                  OF MEMBERS' EQUITY AND OTHER COMPREHENSIVE INCOME****FOR
                  THE SIX MONTHS ENDED JUNE 30, 2007****(UNAUDITED)****Units**
              
              
              **Amount**Members'
                  equity at December 31, 2006
              
              
              2,775,376
              
              
              $
              29,417,000Comprehensive
                  income:Net
                  income
              
              
              
              
              
              
              1,236,000Unrealized
                  gain on marketable securities
              
              
              
              
              
              
              76,000Total
                  comprehensive income
              
              
              
              
              
              
              1,312,000Distributions
              
              
              
              
              
              
              (1,164,000
              )Reinvestments
                  of distributions
              
              
              25,602
              
              
              
              282,000Members'
                  redemptions
              
              
              (275,417
              )
              
              
              (3,029,000
              )Members'
                  equity at June 30, 2007 (unaudited)
              
              
              2,525,561
              
              
              $
              26,818,000
 
 
  See
            review report of Independent Registered Public Accounting Firm
 The
            accompanying notes are an integral part of these statements
 -
            3
            -
 *Table
            of Contents*
  
 **VESTINFUND
                  III, LLC****STATEMENTS
                  OF CASH FLOWS****(UNAUDITED)****For
                  The Six**
                **Months
                  Ended**
              
              
              **For
                  The Six**
                **Months
                  Ended****June
                  30, 2007**
              
              
              **June
                  30, 2006****Cash
                  flows from operating activities:**Net
                  income
              
              $
              1,236,000
              
              
              $
              1,319,000Adjustments
                  to reconcile net income to net cash provided by operating
                  activities:Depreciation
              
              
              --
              
              
              
              106,000Amortization
                  of capitalized loan fees
              
              
              --
              
              
              
              5,000Write
                  down of real estate held for sale
              
              
              58,000
              
              
              
              --Change
                  in operating assets and liabilities:Interest
                  receivable
              
              
              6,000
              
              
              
              47,000Deferred
                  rent receivable - related party
              
              
              --
              
              
              
              (67,000
              )Accounts
                  payable and accrued liabilities
              
              
              18,000
              
              
              
              (100,000
              )Due
                  to related parties
              
              
              11,000
              
              
              
              (26,000
              )Other
                  assets
              
              
              6,000
              
              
              
              --Net
                  cash provided by operating activities
              
              
              1,335,000
              
              
              
              1,284,000**Cash
                  flows from investing activities:**Investments
                  in real estate loans
              
              
              (1,590,000
              )
              
              
              (10,216,000
              )Proceeds
                  from loan payoff
              
              
              3,268,000
              
              
              
              13,786,000Sale
                  of investments in real estate loans to VRM II
              
              
              1,300,000
              
              
              
              --Purchase
                  of marketable securities - related party
              
              
              (807,000
              )
              
              
              --Net
                  cash provided by investing activities
              
              
              2,171,000
              
              
              
              3,570,000**Cash
                  flows from financing activities:**Payments
                  on notes payable
              
              
              --
              
              
              
              (49,000
              )Capital
                  contribution by Manager
              
              
              --
              
              
              
              64,000Members'
                  redemptions
              
              
              (3,029,000
              )
              
              
              (1,523,000
              )Members'
                  distributions, net of reinvestments
              
              
              (796,000
              )
              
              
              (813,000
              )Members'
                  distributions - related party
              
              
              (86,000
              )
              
              
              (39,000
              )Net
                  cash used in financing activities
              
              
              (3,911,000
              )
              
              
              (2,360,000
              )**NET
                  CHANGE IN CASH**
              
              
              (405,000
              )
              
              
              2,494,000**Cash,
                  beginning of period**
              
              
              821,000
              
              
              
              1,167,000**Cash,
                  end of period**
              
              $
              416,000
              
              
              $
              3,661,000**Supplemental
                  disclosures of cash flows information:**Interest
                  paid during the period
              
              $
              118,000
              
              
              $
              149,000**Non-cash
                  investing and financing activities:**Unrealized
                  gain on marketable securities - related party
              
              $
              76,000
              
              
              $
              --Loans
                  funded through secured borrowings
              
              $
              --
              
              
              $
              527,000Payoffs
                  of loans funded through secured borrowings
              
              $
              4,430,000
              
              
              $
              --
 
 
  See
            review report of Independent Registered Public Accounting Firm
 The
            accompanying notes are an integral part of these statements
 -
            4
            -
 *Table
            of Contents*
  
 **VESTINFUND
        III, LLC**
 
 **NOTES
        TO FINANCIAL STATEMENTS**
 
 **JUNE
        30, 2007**
 
 **(UNAUDITED)**
 
 
 **NOTE
        A — ORGANIZATION**
 
 Vestin
        Fund III, LLC was organized in April 2003 as a Nevada limited liability company
        for the purpose of investing in real estate loans and income-producing real
        property.  On March 5, 2007, a majority of our members approved the
        Third Amended and Restated Operating Agreement, which limits the Company’s
        investment objectives to investments in real estate loans.  Prior to
        adopting this amendment, we also invested in revenue-generating commercial
        real
        estate.  We sold our last real estate investment in November
        2006.  In this report, we refer to Vestin Fund III, LLC as “the
        Company”, “our Company”, the “Fund”, “we”, “us”, or “our”.
 
 We
        invest
        in loans secured by real estate through deeds of trust or mortgages (hereafter
        referred to collectively as “deeds of trust” and as defined in our Operating
        Agreement as “Mortgage Assets”).  We commenced operations in February
        2004.  We will continue our operations until December 2023 unless
        dissolved prior thereto or extended by vote of the members under the provisions
        of our Operating Agreement.
 
 We
        are
        not a mutual fund or an investment company within the meaning of the Investment
        Company Act of 1940, nor are we subject to any regulation
        thereunder.  As a company investing in real estate loans we are
        subject to the North American Securities Administration Act Mortgage Program
        Guidelines (the “NASAA Guidelines”) promulgated by the state securities
        administrators.  Prior to March 5, 2007, we also invested in real
        estate and were subject to the North American Securities Administration Act
        Real
        Estate Guidelines.
 
 On
        November 7, 2003, our Registration Statement as filed with the United States
        Securities and Exchange Commission (“SEC”) became effective for the initial
        public offering of up to 10,000,000 units at $10 per unit
        (“unit”).  On November 7, 2005, we discontinued the offering of our
        units; however, members continued to purchase additional Units through our
        Distribution Reinvestment Plan whereby the members’ distributions were used to
        purchase additional units at the current value.  As of June 30, 2007,
        we had sold approximately 3,113,166 units, which includes 247,245 units
        purchased through our Distribution Reinvestment Plan.  On April 2,
        2007, our manager decided to terminate our Distribution Reinvestment Plan
        effective May 7, 2007, pursuant to Section 8.5 of our Operating
        Agreement.  A letter was sent on April 2, 2007 to our members
        notifying them of the Distribution Reinvestment plan’s termination.
 
 Our
        manager is Vestin Mortgage, Inc. (the “manager” or “Vestin Mortgage”), a Nevada
        corporation, which is a wholly owned subsidiary of Vestin Group, Inc. (“Vestin
        Group”), a Delaware corporation.  Michael Shustek, the CEO and
        director of our manager, wholly owns Vestin Group, Inc., which is engaged
        in
        asset management, real estate lending and other financial services though
        its
        subsidiaries.  Our manager, prior to June 30, 2006, also operated as a
        licensed Nevada mortgage broker and was engaged in the business of brokerage,
        placement and servicing of commercial loans secured by real
        property.  On July 1, 2006, the mortgage broker license was issued to
        an affiliated company, Vestin Originations, Inc. that has continued the business
        of brokerage, placement and servicing of commercial real estate
        loans.  Vestin Originations, Inc. is a wholly owned subsidiary of
        Vestin Group.
 
 Pursuant
        to our Operating Agreement, our manager controls the daily operating activities
        of the Company, including the power to assign duties, to determine how to
        invest
        our assets, to sign bills of sale, title documents, leases, notes, security
        agreements, real estate loan investments and contracts, and to direct our
        business operations.  Consequently, our operating results are
        dependent on our 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 our manager
        subject to a majority vote of the members.
 
  See
            review report of Independent Registered Public Accounting Firm
 -
            5
            -
 *Table
            of Contents*
  Vestin
        Mortgage, Inc. is also the manager of Vestin Realty Mortgage I, Inc., as
        the
        successor by merger to Vestin Fund I, LLC, (“VRM I”), Vestin Realty Mortgage II,
        Inc., as the successor by merger to Vestin Fund II, LLC, (“VRM II) and inVestin
        Nevada, Inc., (“inVestin”) a company wholly owned by our manager’s
        CEO.  These entities also invest in commercial real estate
        loans.
 
 For
        the
        six months ended June 30, 2006, the financial statements include the accounts
        of
        the Company and its wholly owned subsidiary, VF III HQ, LLC.  All
        significant inter-company transactions and balances have been eliminated
        in
        consolidation.  During December 2006, VF III HQ, LLC was
        dissolved.
 
 **NOTE
        B — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**
 
 **Management
        Estimates**
 
 The
        preparation of financial statements in conformity with accounting principles
        generally accepted in the United States of America (“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.
 
 **Cash
        and Cash Equivalents**
 
 Cash
        and
        cash equivalents include interest-bearing and non-interest-bearing bank
        deposits, money market accounts, short-term certificates of deposit with
        original maturities of three months or less, and short-term instruments with
        a
        liquidation provision of one month or less.
 
 **Restricted
        Cash**
 
 We
        have
        restricted cash, which relates to a cash deposit held as collateral by a
        banking
        institution to support rent payments on the property we sold during November
        2006.  The requirement for the deposit expires in November 2007, which
        may be extended for an additional year at the option of the buyer.
 
 **Revenue
        Recognition**
 
 Interest
        is recognized as revenue when earned according to the terms of the loans,
        using
        the effective interest method.  We do not accrue interest income on
        loans once they are determined to be impaired.  A loan is impaired
        when based on current information and events, it is probable that we will
        be
        unable to collect all amounts due according to the contractual terms of the
        loan
        agreement or when the payment of interest is 90 days past due.  Cash
        receipts will be allocated to interest income, except when such payments
        are
        specifically designated by the terms of the loan as principal reduction or
        when
        management does not believe our investment in the loan is fully
        recoverable.
 
 **Investments
        in Real Estate Loans**
 
 We
        may
        from time to time acquire or sell investments in real estate loans from or
        to
        our manager or other related parties pursuant to the terms of our Operating
        Agreement provided the price does not exceed the par value of the
        loan.  The primary purpose is to either free up capital to provide
        liquidity for various reasons, such as loan diversification, or place excess
        capital in investments to maximize the use of our capital.  Selling or
        buying loans allows us to diversify our loan portfolio within these
        parameters.  Due to the short-term nature of the loans we make and the
        similarity of interest rates in loans we normally would invest in, the fair
        value of a loan typically approximates its carrying
        value.  Accordingly, discounts or premiums typically do not apply upon
        sales of loans and therefore, generally no gain or loss is recorded on these
        transactions, regardless of whether to a related or unrelated
        party.
 
  See
            review report of Independent Registered Public Accounting Firm
 -
            6
            -
 *Table
            of Contents*
  Investments
        in real estate loans are secured by deeds of trust or
        mortgages.  Generally, our real estate loans require interest only
        payments with a balloon payment of the principal at maturity.  We have
        both the intent and ability to hold real estate loans until maturity and
        therefore, real estate 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 us 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
        funded.  If there is less security and a default occurs, we may not
        recover the full amount of the loan.
 
 **Allowance
        for Loan Losses**
 
 We
        maintain an allowance for loan losses on our investments in real estate loans
        for estimated credit impairment.  Our manager’s estimate of losses is
        based on a number of factors including the types and dollar amounts of loans
        in
        the portfolio, adverse situations that may affect the borrower’s ability to
        repay, prevailing economic conditions and the underlying collateral securing
        the
        loan.  Additions to the allowance are provided through a charge to
        earnings and are based on an assessment of certain factors, which may indicate
        estimated losses on the loans.  Actual losses on loans are recorded as
        a charge-off or a reduction to the allowance for loan
        losses.  Subsequent recoveries of amounts previously charged off are
        added back to the allowance or included as income.
 
 Estimating
        allowances for loan losses requires significant judgment about the underlying
        collateral, including liquidation value, condition of the collateral, competency
        and cooperation of the related borrower and specific legal issues that affect
        loan collections or taking possession of the property.  As a
        commercial real estate lender willing to invest in loans to borrowers who
        may
        not meet the credit standards of other financial institutional lenders, the
        default rate on our loans could be higher than those generally experienced
        in
        the real estate lending industry.  We, our manager and Vestin
        Originations generally approves loans more quickly than other real estate
        lenders and, due to our expedited underwriting process, there is a risk that
        the
        credit inquiry we perform will not reveal all material facts pertaining to
        a
        borrower and the security.
 
 Additional
        facts and circumstances are discovered as we continue our efforts in the
        collection and foreclosure processes.  This additional information
        often causes management to reassess its estimates.  Circumstances that
        may cause significant changes in our estimated allowance include, but are
        not
        limited to:
 
 ·
              Declines
                  in real estate market conditions, which can cause a decrease in
                  expected
                  market value;
 
 ·
              Discovery
                  of undisclosed liens for community improvement bonds, easements
                  and
                  delinquent property taxes;
 
 ·
              Lack
                  of progress on real estate developments after we advance
                  funds.  We customarily utilize disbursement agents to monitor
                  the progress of real estate developments and approve loan
                  advances.  After further inspection of the related property,
                  progress on construction occasionally does not substantiate an
                  increase in
                  value to support the related loan
                  advances;
 
 ·
              Unanticipated
                  legal or business issues that may arise subsequent to loan origination
                  or
                  upon the sale of foreclosed upon property;
                  and
 
 ·
              Appraisals,
                  which are only opinions of value at the time of the appraisal,
                  may not
                  accurately reflect the value of the
                  property.
 
  See
            review report of Independent Registered Public Accounting Firm
 -
            7
            -
 *Table
            of Contents*
  **Investments
        in Real Property**
 
 As
        of
        June 30, 2007 and December 31, 2006, we had no investments in real
        property.  A Special Meeting of our members was held on March 5, 2007
        to vote on approval of the Third Amended and Restated Operating Agreement,
        which
        limits the Company’s investment objectives to investment in real estate
        loans.  A majority of our members approved the Third Amended and
        Restated Operating Agreement.
 
 **Real
        Estate Held For Sale**
 
 Real
        estate held for sale includes real estate acquired through foreclosure and
        will
        be carried at the lower of the recorded amount, inclusive of any senior
        indebtedness, or the property's estimated fair value, less estimated costs
        to
        sell, with fair value based on appraisals and knowledge of local market
        conditions.  While pursuing foreclosure actions, we seek to identify
        potential purchasers of such property.  It is not our intent to invest
        in or own real estate as a long-term investment.  In accordance with
        Statement of Financial Accounting Standards (“FAS”) 144 – *Accounting for the
        Impairment or Disposal of Long Lived Assets*(“FAS 144”), we seek to sell
        properties acquired through foreclosure as quickly as circumstances
        permit.  The carrying values of real estate held for sale are assessed
        on a regular basis from updated appraisals, comparable sales values or purchase
        offers.
 
 Management
        classifies real estate held for sale when the following criteria are
        met:
 
 ·
              Management
                  commits to a plan to sell the
                  properties;
 
 ·
              The
                  property is available for immediate sale in its present condition
                  subject
                  only to terms that are usual and
                  customary;
 
 ·
              An
                  active program to locate a buyer and other actions required to
                  complete a
                  sale have been initiated;
 
 ·
              The
                  sale of the property is probable;
 
 ·
              The
                  property is being actively marketed for sale at a reasonable price;
                  and
 
 ·
              Withdrawal
                  or significant modification of the sale is not
                  likely.
 
 **Classification
        of Operating Results from Real Estate Held for Sale**
 
 FAS
        144 –
*Accounting for the Impairment or Disposal of Long-Lived Assets* ("FAS
        144'') generally requires operating results from long lived assets held for
        sale
        to be classified as discontinued operations as a separately stated component
        of
        net income.  Our operations related to real estate held for sale are
        separately identified in the accompanying statements of income.
 
 **Secured
        Borrowings**
 
 Secured
        borrowings provide an additional source of capital for our lending
        activity.  Secured borrowings allow us to increase the diversification
        of our loan portfolio and to invest in loans that we might not otherwise
        invest
        in.  We do not receive any fees for entering into secured borrowing
        arrangements; however, we may receive revenue in any differential of the
        interest spread, if applicable.  Loans in which unaffiliated investors
        have participated through inter-creditor agreements (“Inter-creditor
        Agreements”) are accounted for as secured borrowings in accordance with
        Statement of Financial Accounting Standards (“FAS”) 140 – *Accounting for
        Transfers and Servicing of Financial Assets and Extinguishments of Liabilities*(“FAS 140”).  The Inter-creditor Agreements provide us additional
        funding sources for real estate loans whereby an unaffiliated investor (the
        “Investor”) may participate on a non-pari passu basis in certain real estate
        loans with us and/or VRM I and/or VRM II (collectively, the “Lead
        Lenders”).  In the event of borrower non-performance, the
        Inter-creditor Agreements generally provide that the Lead Lenders must repay
        the
        Investor’s loan amount either 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 participation
        from
        the Investor for the outstanding balance plus accrued interest.
  See
            review report of Independent Registered Public Accounting Firm
 -
            8
            -
 *Table
            of Contents*
  Additionally,
        an Investor may participate in certain loans with the Lead Lenders through
        Participation Agreements.  In the event of borrower non-performance,
        the Participation Agreement may allow the Investor to be repaid up to the
        amount
        of the Investor’s investment prior to the Lead Lender being
        repaid.  Real estate loan financing under the Participation Agreements
        are also accounted for as a secured borrowing in accordance with FAS
        140.  We do not receive any revenues for entering into secured
        borrowing arrangements.
 
 **Investment
        in Marketable Securities – Related Party**
 
 Investment
        in marketable securities – related party consists of stock in VRM
        II.  The securities are stated at fair value as determined by the
        market price as of June 30, 2007.  All securities are classified as
        available-for-sale under the provisions of FAS 115 *Accounting for Certain
        Investments in Debt and Equity Securities*.
 
 **Fair
        Value of Financial Instruments**
 
 FAS
        107 –
*Disclosures about Fair Value of Financial Instruments*(“FAS 107”),
        requires the determination of fair value of our financial assets.  The
        following methods and assumptions were used to estimate the fair value of
        financial instruments included in the following categories:
 
 (a)
              Certificate
                  of Deposits and Short-Term Investments:  The carrying amounts of
                  these instruments are at amortized cost, which approximates fair
                  value.
 
 (b)
              Investment
                  in Real Estate Loans:  The carrying value of these instruments,
                  net of the allowance for loan losses, approximates the fair value
                  due to
                  their short-term maturities.  Fair values for loans, which are
                  delinquent and/or in foreclosure are determined by underlying collateral
                  securing the loans.
 
 (c)
              Assets
                  under Secured Borrowing:  The carrying amount of these
                  instruments approximate fair value.  The fair value is estimated
                  based upon projected cash flows discounted at the estimated current
                  interest rates at which similar loans would be
                  made.
 
 At
        June
        30, 2007 and December 31, 2006, the estimated fair values of the real estate
        loans were approximately $24.0 million and $27.0 million,
        respectively.  At June 30, 2007 and December 31, 2006, we had
        approximately $0 and $4.4 million, respectively, in assets under secured
        borrowings.  These estimates were based upon the present value of
        expected cash flows discounted at rates currently available for similar
        loans.  Fair value estimates are made at a specific point in time;
        based on relevant market information; are subjective in nature; and involve
        uncertainties and matters of significant judgment.  Accordingly, the
        estimates presented herein are not necessarily indicative of the amounts
        that
        would be collected upon maturity or disposition of the loans.
 
 **Net
        Income Allocated to Members Per Weighted Average Membership
        Unit**
 
 Net
        income allocated to members per weighted average membership unit is computed
        by
        dividing net income calculated in accordance with GAAP by the weighted average
        number of membership units outstanding for the period.
 
 **Segments**
 
 As
        of
        June 30, 2007 and December 31, 2006, we had no investments in real
        property.  A Special Meeting of our members was held on March 5, 2007
        to vote on approval of the Third Amended and Restated Operating Agreement,
        which
        limits the Company’s investment objectives to investment in real estate
        loans.  Accordingly, we now operate as one business
        segment.
 
 **Income
        Taxes**
 
 Income
        tax effects resulting from our operations pass through to our members
        individually and, accordingly, no provision for income taxes is included
        in the
        financial statements.
 
  See
            review report of Independent Registered Public Accounting Firm
 -
            9
            -
 *Table
            of Contents*
  **Reclassifications**
 
 Certain
        reclassifications have been made to the prior periods’ consolidated financial
        statements to conform to the current period presentation.
 
 **NOTE
        C — FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT
        RISK**
 
 Financial
        instruments with concentration of credit and market risk include cash and
        loans
        secured by deeds of trust.
 
 We
        maintain cash deposit accounts and certificates of deposit, which at times
        may
        exceed federally insured limits.  We have not experienced any losses
        in such accounts and believe we are not exposed to any significant credit
        risk
        related to cash deposits.  As of June 30, 2007 and December 31, 2006,
        we had approximately $1.3 million and $1.9 million, respectively, in excess
        of
        the federally insured limits.
 
 As
        of
        June 30, 2007, 48.7%, 16.4%, 12.2% and 9.7% of our loans were in Nevada,
        Arizona, Oregon and Texas, respectively, compared to 43.5%, 16.2%, 10.8%
        and
        8.6% at December 31, 2006, respectively.  As a result of this
        geographical concentration of our real estate loans, a downturn in the local
        real estate markets in these states could have a material adverse effect
        on
        us.
 
 At
        June
        30, 2007, the aggregate amount of loans to our largest borrowers represented
        13.77% of our total investment in real estate loans.  These two real
        estate loans consisted of commercial and construction loans, located in Nevada
        and Oregon, with a first lien position, earning between 9% and 10%, with
        an
        aggregate outstanding balance of approximately $3.3 million.  At
        December 31, 2006, the aggregate amount of loans to our largest borrowers
        represented 17.48% of our total investment in real estate
        loans.  These three real estate loans consisted of commercial and
        construction loans, located in Nevada, Oregon, and Washington with first
        lien
        positions earning between 9% and 12%, with an aggregate outstanding balance
        of
        approximately $4.7 million.  Because we have a significant
        concentration of credit risk with our two largest borrowers, a default by
        any of
        such borrowers could have a material adverse effect on us.
 
 The
        success of a borrower’s ability to repay its real estate loan obligation in a
        large lump-sum payment may be dependent upon the borrower’s ability to refinance
        the obligation or otherwise raise a substantial amount of cash.  An
        increase in interest rates over the loan rate applicable at origination of
        the
        loan may have an adverse effect on the borrower’s ability to
        refinance.
 
 **NOTE
        D — INVESTMENTS IN REAL ESTATE LOANS**
 
 As
        of
        June 30, 2007, all of our loans provided for payments of interest only with
        a
“balloon” payment of principal payable in full at the end of the
        term.
 
 In
        addition, we may invest in real estate loans that require borrowers to maintain
        interest reserves funded from the principal amount of the loan for a period
        of
        time.  At June 30, 2007, we had approximately $3.0 million in
        investments in real estate loans that had interest reserves where the total
        outstanding principal due to our co-lenders and us was approximately $56.2
        million.  These loans had interest reserves of approximately $1.8
        million, of which our portion was approximately $67,000.  At December
        31, 2006, we had approximately $12.3 million in investments in real estate
        loans
        that had interest reserves where the total outstanding principal due to us
        and
        our co-lenders was approximately $120.3 million.  These loans had
        interest reserves of approximately $5.6 million, of which our portion was
        approximately $0.6 million.
 
 As
        of
        June 30, 2007, we had five real estate loan products consisting of commercial,
        construction, acquisition and development, land and residential
        loans.  The effective interest rates on all product categories range
        from 9.00% to 13.75%.  Revenue by product will fluctuate based upon
        relative balances during the period.
 
  See
            review report of Independent Registered Public Accounting Firm
 -
            10
            -
 *Table
            of Contents*
  Investments
        in real estate loans as of June 30, 2007, were as follows:
 
 **Loan
                  Type**
              
              **Number
                  Of Loans**
              
              
              **Fund
                  Balance (2)**
              
              
              **Weighted
                  Average Interest Rate**
              
              
              **Portfolio
                  Percentage**
              
              
              **Weighted
                  Average Loan To Value (1)**Acquisition
                  and development
              
              
              3
              
              
              $
              3,138,000
              
              
              
              12.77%
              
              
              
              13.02%
              
              
              
              64.34%Commercial
              
              
              10
              
              
              
              8,452,000
              
              
              
              10.53%
              
              
              
              35.08%
              
              
              
              74.71%Construction
              
              
              4
              
              
              
              3,929,000
              
              
              
              11.07%
              
              
              
              16.31%
              
              
              
              73.36%Land
              
              
              7
              
              
              
              8,075,000
              
              
              
              12.09%
              
              
              
              33.51%
              
              
              
              61.37%Residential
              
              
              1
              
              
              
              500,000
              
              
              
              12.00%
              
              
              
              2.08%
              
              
              
              80.00%25
              
              
              $
              24,094,000
              
              
              
              11.46%
              
              
              
              100.00%
              
              
              
              68.78%
 
 Investments
        in real estate loans as of December 31, 2006 were as follows:
 
 **Loan
                  Type**
              
              **Number
                  Of Loans**
              
              
              **Fund
                  Balance (2)**
              
              
              **Weighted
                  Average Interest Rate**
              
              
              **Portfolio
                  Percentage**
              
              
              **Weighted
                  Average Loan To Value (1)**Acquisition
                  and development
              
              
              4
              
              
              $
              3,408,000
              
              
              
              12.08
              
              
              
              12.59%
              
              
              
              62.78%Commercial
              
              
              9
              
              
              
              8,420,000
              
              
              
              10.39
              
              
              
              31.10%
              
              
              
              72.51%Construction
              
              
              5
              
              
              
              5,843,000
              
              
              
              11.38
              
              
              
              21.58%
              
              
              
              70.26%Land
              
              
              9
              
              
              
              9,401,000
              
              
              
              11.81
              
              
              
              34.73%
              
              
              
              55.98%27
              
              
              $
              27,072,000
              
              
              
              11.31
              
              
              
              100.00%
              
              
              
              65.06%
 
 (1)
              Loan
                  to value ratios are based on the most recent appraisals and may
                  not
                  reflect subsequent changes in value.  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, 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 completion of the development of the 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, we may not recover the full amount of the
                  loan.
 
 (2)
              The
                  following table reconciles the balance of the loan portfolio to
                  the amount
                  shown on the accompanying Balance
                  Sheets:
 
 **June
                  30, 2007**
                **Balance**
              
              
              **December
                  31, 2006 Balance**Balance
                  per loan portfolio
              
              $
              24,094,000
              
              
              $
              27,072,000Less:Allowance
                  for loan losses
              
              
              (73,000
              )
              
              
              (73,000
              )Balance
                  per balance sheet
              
              $
              24,021,000
              
              
              $
              26,999,000
 
  See
            review report of Independent Registered Public Accounting Firm
 -
            11
            -
 *Table
            of Contents*
  The
        following is a schedule of priority of real estate loans as of June 30, 2007
        and
        December 31, 2006.
   **Loan
                  Type**
              
              **Number
                  of Loans**
              
              
              **June
                  30, 2007**
                **Balance***
              
              
              **Portfolio**
                **Percentage**
              
              
              **Number
                  of Loans**
              
              
              **December
                  31, 2006**
                **Balance***
              
              
              **Portfolio**
                **Percentage**First
                  deeds of trust
              
              
              24
              
              
              $
              23,794,000
              
              
              
              98.75%
              
              
              
              26
              
              
              $
              26,772,000
              
              
              
              98.89%Second
                  deeds of trust
              
              
              1
              
              
              
              300,000
              
              
              
              1.25%
              
              
              
              1
              
              
              
              300,000
              
              
              
              1.11%25
              
              
              $
              24,094,000
              
              
              
              100.00%
              
              
              
              27
              
              
              $
              27,072,000
              
              
              
              100.00%
 
 *  Please
        see (2) above
 
 The
        following is a schedule of contractual maturities of investments in real
        estate
        loans as of June 30, 2007:
 
 July
                  2007 – September 2007
              
              $
              17,031,000October
                  2007 – December 2007
              
              
              5,563,000January
                  2007 – March 2008
              
              
              1,500,000Thereafter
              
              
              --Total
              
              $
              24,094,000
 
 The
        following is a schedule by geographic location of investments in real estate
        loans as of June 30, 2007 and December 31, 2006:
 
 **June
                  30, 2007**
                **Balance***
              
              
              **Portfolio
                  Percentage**
              
              
              **December
                  31, 2006**
                **Balance***
              
              
              **Portfolio
                  Percentage**Arizona
              
              $
              3,950,000
              
              
              
              16.40%
              
              
              $
              4,390,000
              
              
              
              16.22%California
              
              
              2,150,000
              
              
              
              8.92%
              
              
              
              3,240,000
              
              
              
              11.97%Nevada
              
              
              11,731,000
              
              
              
              48.69%
              
              
              
              11,766,000
              
              
              
              43.46%Oklahoma
              
              
              1,000,000
              
              
              
              4.15%
              
              
              
              1,000,000
              
              
              
              3.69%Oregon
              
              
              2,933,000
              
              
              
              12.17%
              
              
              
              2,933,000
              
              
              
              10.83%Texas
              
              
              2,330,000
              
              
              
              9.67%
              
              
              
              2,330,000
              
              
              
              8.61%Washington
              
              
              --
              
              
              
              0.00%
              
              
              
              1,413,000
              
              
              
              5.22%Total
              
              $
              24,094,000
              
              
              
              100.00%
              
              
              $
              27,072,000
              
              
              
              100.00%
 
 *  Please
        see (2) above
 
 At
        June
        30, 2007, the following loans were non-performing (based on current information
        and events, it is probable that we will be unable to collect all amounts
        due
        according to the contractual terms of the loan agreement or when the payment
        of
        interest is 90 days past due); Monterrey Associates LP, Forest Development
        LLC
        and Pirates Lake, LTD.  These loans are currently carried on our books
        at a value of approximately $2.7 million.  These loans have been
        placed on non-accrual of interest status and are the subject of pending
        foreclosure proceedings.
 
 ·
              Monterrey
                  Associates, L.P., is a loan secured by a 248 Unit apartment complex
                  in
                  Oklahoma City, OK, along with other real estate collateral, with
                  an
                  outstanding balance of approximately $4.4 million of which our
                  portion is
                  approximately $1.0 million.  The loan is ten months in arrears
                  in payments of interest.  Our manager has commenced foreclosure
                  proceedings and is filing litigation to enforce the personal guarantee
                  on
                  the loan.  Our manager has evaluated this loan and believes that
                  the value of the underlying collateral is sufficient to protect
                  us from
                  loss of principal.  No specific allowance was deemed
                  necessary.  In addition, our manager completed foreclosure
                  proceedings on a second mortgage on a 233 unit apartment complex
                  during
                  the three months ended March 31, 2007.  We obtained title to the
                  property subject to a non-recourse first mortgage, which was held
                  by an
                  unrelated third party.  During the three months ended March 31,
                  2007, we sold this property to an unrelated third party who is
                  subject to
                  the non-recourse first mortgage.  This transaction did not
                  result in any gain or loss.
 
  See
            review report of Independent Registered Public Accounting Firm
 -
            12
            -
 *Table
            of Contents*
  ·
              Forest
                  Development, LLC, is a loan secured by two 4,000 square foot single
                  family
                  residences, together with the four remaining lots in a subdivision,
                  located on Mt. Charleston, NV with an outstanding balance of approximately
                  $2.6 million of which our portion is approximately $0.3
                  million.  The loan is eight months in arrears in payment of
                  interest.  Our manager has commenced foreclosure proceedings and
                  has filed litigation to enforce the personal guarantee on the
                  loan.  Forest Development subsequently counterclaimed and also
                  filed a separate lawsuit against us, VRM I, VRM II, Fund I, Fund
                  II,
                  Vestin Mortgage, Inc. and Vestin Originations, Inc. (the “Defendants”)
                  alleging that the Defendants breached the construction loan agreement
                  and
                  thus jeopardized the completion of the project alleging actions
                  for fraud,
                  breach of fiduciary duty, breach of Construction Loan Agreement,
                  negligence, intentional interference with contractual relations,
                  bad faith
                  breach of contract, conversion, undue and improper control and
                  interference over borrower’s business, joint venture or de facto
                  partnership, and injunctive relief.  The lawsuit seeks monetary
                  damages, punitive damages, and seeks an injunction to stop the
                  foreclosure.  The Defendants believe that the allegations are
                  without merit and that they have adequate defenses.  The
                  Defendants intend to undertake a vigorous defense.  In April
                  2007, the borrower filed for protection under Chapter 11 of the
                  United
                  State Bankruptcy Code.  Our manager has evaluated this loan and
                  believes that the value of the underlying collateral is sufficient
                  to
                  protect us from loss of principal.  No specific allowance was
                  deemed necessary.
 
 ·
              Pirates
                  Lake, LTD., is a loan to provide bridge financing for approximately
                  46.75
                  acres of land in Galveston, TX, with an outstanding balance of
                  approximately $8.5 million of which our portion is approximately
                  $1.4
                  million.  The loan is secured by a first lien on the property
                  and guaranteed by the borrower.  Additionally, the loan is
                  secured by a second position lien on approximately 0.5 acres of
                  land
                  located in Houston, Texas.  The loan is two months in arrears in
                  payments of interest.  Our manager has commenced foreclosure
                  proceedings.  On August 7, 2007, we, VRM I and VRM II entered
                  into a settlement agreement with the borrower whereby the foreclosure
                  was
                  postponed.  Principal, accrued interest and $75,000 for expenses
                  incurred by us, VRM I and VRM II relating to the loan is now due
                  on
                  October 1, 2007.  Our manager has evaluated this loan and
                  concluded that the value of the underlying collateral is sufficient
                  to
                  protect us from loss of principal.  No specific allowance was
                  deemed necessary.
 
 The
        following schedule summarizes the non-performing loans as of June 30,
        2007:
 
 **Description
                  of Collateral**
              
              **Balance
                  at**
                **June
                  30, 2007**
              
              **Maturity
                  Date**
              
              **Number
                  of Months Non-Performing**
              
              
              **Percentage
                  of Total Loan Balance**248-unit
                  apartment complex in Oklahoma City, OK
              
              $
              1,000,000
              
              9/1/2006
              
              
              10
              
              
              
              23%2
                  single family residences and 4 lots in Mt. Charleston, NV
              
              
              301,000
              
              10/27/2006
              
              
              8
              
              
              
              12%46.75
                  acres of land located in Galveston, TX
              
              
              1,400,000
              
              3/17/2007
              
              
              2
              
              
              
              16%$
              2,701,000
 
 Our
        manager periodically reviews and makes a determination as to whether the
        allowance for loan losses is adequate to cover any potential
        losses.  Additions to the allowance for loan losses are made by
        charges to the provision for loan losses.  Recoveries of previously
        charged off amounts are credited to the allowance for loan losses or included
        as
        income when the asset is disposed.  As of June 30, 2007 and December
        31, 2006, we had provided a general allowance for loan losses of
        $73,000.  As of June 30, 2007 and December 31, 2006 approximately $2.7
        million, in non-performing loans had no specific allowance for loan
        losses.  Our manager evaluated the loans and concluded that the
        remaining underlying collateral was sufficient to protect us against further
        losses of principal.  Our manager will continue to evaluate these
        loans in order to determine if any other allowance for loan losses should
        be
        recorded.
 
 Because
        any decision regarding the allowance for loan losses reflects a judgment
        about
        the probability of future events, there is an inherent risk that such judgments
        will prove incorrect.  In such event, actual losses may exceed (or be
        less than) the amount of any reserve.  To the extent that we
        experience losses greater than the amount of our reserves, we may incur a
        charge
        to our earnings that will adversely affect our operating results and the
        amount
        of any distributions payable to our members.
  See
            review report of Independent Registered Public Accounting Firm
 -
            13
            -
 *Table
            of Contents*
  The
        following is a roll-forward of the allowance for loan losses for the six
        months
        ended June 30, 2007:
 
 **Description**
              
              **Balance
                  at**
                **December
                  31, 2006**
              
              
              **Provisions**
              
              
              **Deductions**
              
              
              **Balance
                  at**
                **June
                  30, 2007**Valuation
                  allowance
              
              $
              73,000
              
              
              
              --
              
              
              
              --
              
              
              $
              73,000
 
 In
        addition, our manager granted extensions on 12 loans pursuant to the terms
        of
        the original loan agreements, which permit extensions by mutual
        consent.  Such extensions are generally provided on loans where the
        original term was 12 months or less and where a borrower requires additional
        time to complete a construction project or negotiate take-out
        financing.  However, our manager only grants extensions when a
        borrower is in full compliance with the terms of the loan, including, but
        not
        limited to, the borrower’s obligation to make interest payments on the
        loan.  The aggregate amount due from borrowers whose loans had been
        extended as of June 30, 2007, was approximately $7.6 million.  Our
        manager believes that no allowance for loan loss was necessary with respect
        to
        these loans as of June 30, 2007.
 
 **Asset
        Quality and Loan Reserves**
 
 Losses
        may occur from investing in real estate loans.  The amount of losses
        will vary as the loan portfolio is affected by changing economic conditions
        and
        the financial condition of borrowers.
 
 The
        conclusion that a real estate loan is uncollectible or that collectibility
        is
        doubtful is a matter of judgment.  On a regular basis, our manager
        evaluates our real estate 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 our
        manager to determine impairment and the need for specific
        reserves.  Such evaluation, which includes a review of all loans on
        which full collectibility may not be reasonably assured, considers among
        other
        matters:
 
 ·
              Prevailing
                  economic conditions;
 
 ·
              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; and
 
 ·
              Estimated
                  net realizable value of any underlying collateral in relation to
                  the loan
                  amount.
 
 Based
        upon this evaluation, a determination is made as to whether the allowance
        for
        loan losses is adequate to cover any potential losses.  Additions to
        the allowance for loan losses are made by charges to the provision for loan
        losses.  As of June 30, 2007 and December 31, 2006, none of the
        non-performing loans had a specific allowance for loan losses.  At
        June 30, 2007, the following loans were non-performing (based on current
        information and events, it is probable that we will be unable to collect
        all
        amounts due according to the contractual terms of the loan agreement or when
        the
        payment of interest is 90 days past due); Monterrey Associates LP, Forest
        Development LLC and Pirates Lake, LTD.  These loans are currently
        carried on our books at a value of approximately $2.7 million.  These
        loans have been placed on non-accrual of interest status and are the subject
        of
        pending foreclosure proceedings.  Our manager evaluated the loans and
        believes that the underlying collateral was sufficient to protect us against
        further losses of principal or interest.  Our manager will continue to
        evaluate these loans in order to determine if any other allowance for loan
        losses should be recorded.
 
 **NOTE
        E — INVESTMENT IN MARKETABLE SECURITIES – RELATED PARTY**
 
 As
        of
        June 30, 2007, we owned 296,707 shares of VRM II’s common stock, representing
        approximately 0.76% of their total outstanding common stock.
  See
            review report of Independent Registered Public Accounting Firm
 -
            14
            -
 *Table
            of Contents*
  **NOTE
        F — REAL ESTATE HELD FOR SALE**
 
 At
        June
        30, 2007, we
        held one
        property with a total carrying value of approximately $0.5 million, which
        was
        acquired through foreclosure and recorded as investments in real estate held
        for
        sale.  The summary below includes our percentage ownership in
        the property.  Our investments in real estate held for sale are
        accounted for at the lower of cost or fair value less costs to sell with
        fair
        value based on appraisals and knowledge of local market
        conditions.  It is not our intent to invest in or own real estate as a
        long-term investment.  We seek to sell properties acquired through
        foreclosure as quickly as circumstances permit.  The following is a
        roll-forward of investments in real estate held for sale during the six months
        ended June 30, 2007:
 
 **Description**
              **Date
                  Acquired**
              
              **Percentage
                  of Ownership**
              
              
              **Balance
                  at**
                **December
                  31, 2006**
              
              
              **Acquisitions
                  (Reductions)**
              
              
              **Proceeds**
                **from
                  Sales**
              
              
              **Balance
                  at**
                **June
                  30, 2007**480
                  residential building lots and 2 single family dwellings in Rio
                  Vista
                  Village Subdivision in Cathedral City, CA
              12/21/2006
              
              
              2%
              
              
              $
              575,000
              
              
              $
              (58,000
              )
              
              $
              --
              
              
              $
              517,000$
              575,000
              
              
              $
              (58,000
              )
              
              $
              --
              
              
              $
              517,000
 
 During
        December 2006, we, VRM I and VRM II acquired the collateral of a loan, 480
        residential building lots and two single family dwellings in Rio Vista Village
        Subdivision in Cathedral City, CA, through foreclosure.  As of June
        30, 2007, our manager evaluated the carrying value of the acquired property
        and
        based on its estimate, our manager has written down the value of the property
        $3,000,000, of which our portion was $58,000.
 
 **NOTE
        G — RELATED PARTY TRANSACTIONS**
 
 From
        time
        to time, we may acquire or sell investments in real estate loans from/to
        our
        manager or other related parties pursuant to the terms of our Operating
        Agreement provided the price does not exceed the par value of the
        loan.  No gain or loss is recorded on these transactions, as it is not
        our intent to make a profit on the purchase or sale of such
        investments.  The purpose is generally to diversify our portfolio by
        syndicating loans, thereby providing us with additional capital to make
        additional loans.
 
 **Transactions
        with the Manager**
 
 Our
        manager is entitled to receive from us a management (acquisition and advisory)
        fee up to 2.5% of the gross offering proceeds and up to 3% of our rental
        income.  For the three and six months ended June 30, 2007, we recorded
        fees to our manager of $3,000 and $7,000, respectively.  For the three
        and six months ended June 30, 2006, we recorded fees to our manager of $12,000
        and $24,000, respectively.
 
 We
        paid
        pro rata distributions owed to our manager totaling $24,000, during the six
        months ended June 30, 2007 and 2006, respectively, based upon 54,862 units
        owned
        by our manager.
 
 We
        recognized $257,000 and $514,000 in rental income for the three and six months
        ended June 30, 2006, from Vestin Group related to an office building located
        in
        Las Vegas, Nevada.  This building was sold to an unrelated third party
        during November 2006.
 
 **Transactions
        with Other Related Parties**
 
 During
        the six months ended June 30, 2007, we sold $1.3 million in real estate loans
        to
        VRM II.  There was no gain or loss associated with this
        transaction.
 
 As
        of
        June 30, 2007, we owned 296,707 common shares of VRM II, representing
        approximately 0.76% of their total outstanding common stock.  For the
        three and six months ended June 30, 2007, we recorded $32,000 and $48,000,
        respectively, in dividend income based on the number of shares we held on
        the
        dividend record dates.
 
  See
            review report of Independent Registered Public Accounting Firm
 -
            15
            -
 *Table
            of Contents*
  We
        paid
        pro rata distributions owed to inVestin totaling $15,000, during the six
        months
        ended June 30, 2007 and 2006, respectively, based upon 34,856 units owned
        by
        inVestin.
 
 During
        the six months ended June 30, 2007, we paid pro rata distributions owed to
        Shustek Investments, a company wholly owned by our manager’s CEO, totaling
        $47,000 based upon the 110,349 units owned by them.  Shustek
        Investments did not own any membership units during the six months ended
        June
        30, 2006.
 
 As
        of
        June 30, 2007, we owed related parties, under common management, $1,000 and
        as
        of December 31, 2006, we had receivables from related parties, under common
        management, of $10,000.
 
 During
        the three and six months ended June 30, 2007, we incurred $2,000 and $5,000,
        respectively, for legal fees to the law firm of Levine, Garfinkel & Katz in
        which the Secretary of Vestin Group has an equity ownership interest in the
        law
        firm.  During the three and six months ended June 30, 2006, we
        incurred $3,000 and $4,000, respectively, for legal fees to the law firm
        of
        Levine, Garfinkel & Katz.
 
 **NOTE
        H — SECURED BORROWINGS**
 
 Secured
        borrowings provide an additional source of capital for our lending
        activity.  Secured borrowings allow us to increase the diversification
        of our loan portfolio and to invest in loans that we might not otherwise
        invest
        in.  We do not receive any fees for entering into secured borrowing
        arrangements; however, we may receive revenue in any differential of the
        interest spread, if applicable.  Loans in which unaffiliated investors
        have participated through inter-creditor agreements (“Inter-creditor
        Agreements”) are accounted for as secured borrowings in accordance with
        Statement of Financial Accounting Standards (“FAS”) 140 – *Accounting for
        Transfers and Servicing of Financial Assets and Extinguishments of Liabilities*(“FAS 140”).  The Inter-creditor Agreements provide us additional
        funding sources for real estate loans whereby an unaffiliated investor (the
        “Investor”) may participate on a non-pari passu basis in certain real estate
        loans with us and/or VRM I and/or VRM II (collectively, the “Lead
        Lenders”).  In the event of borrower non-performance, the
        Inter-creditor Agreements generally provide that the Lead Lenders must repay
        the
        Investor’s loan amount either 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 participation
        from
        the Investor for the outstanding balance plus accrued interest.
 
 Additionally,
        an Investor may participate in certain loans with the Lead Lenders through
        Participation Agreements.  In the event of borrower non-performance,
        the Participation Agreement may allow the Investor to be repaid up to the
        amount
        of the Investor’s investment prior to the Lead Lender being
        repaid.  Real estate loan financing under the Participation Agreements
        are also accounted for as a secured borrowing in accordance with FAS
        140.  We do not receive any revenues for entering into secured
        borrowings arrangements.
 
 During
        October 2006, we, our manager, Vestin Origination, Inc., VRM I and VRM II
        entered into an intercreditor agreement with an unrelated third party related
        to
        the funding of a construction real estate loan.  (See exhibit 10.10
        Intercreditor Agreement  under the Exhibit Index included in Part II –
Other Information, Item 6 Exhibits of this Report Form 10-Q).  The
        secured borrowing was recognized pro rata between us, VRM I and VRM II for
        the
        amount each entity has funded for the loan.  During May 2007, the
        secured borrowings were paid in full.  As of June 30, 2007, we did not
        have any funds used under Inter-creditor Agreements as compared to approximately
        $4.4 million used under Inter-creditor Agreements as of December 31,
        2006.
 
 **NOTE
        I — MEMBERS’ EQUITY**
 
 **Membership
        Units**
 
 During
        the six months ended June 30, 2007, members received 25,602 units as a result
        of
        reinvestments of distributions.  On April 2, 2007, our manager decided
        to terminate our Distribution Reinvestment Plan effective May 7, 2007, pursuant
        to Section 8.5 of our Operating Agreement.
 
  See
            review report of Independent Registered Public Accounting Firm
 -
            16
            -
 *Table
            of Contents*
  **Allocations
        and Distributions**
 
 In
        accordance with our Operating Agreement, profits, gains and losses are to
        be
        credited to and charged against each member’s capital account in proportion to
        their respective capital accounts as of the close of business on the last
        day of
        each calendar month.
 
 Distributions
        are paid monthly to members.  For the six months ended June 30, 2007,
        distributions to members were $882,000, net of reinvestments of
        $282,000.
 
 **Working
        Capital Reserves**
 
 We
        are
        required by our Operating Agreement to maintain working capital reserves
        of
        approximately 3% of the aggregate capital accounts of the
        members.  This reserve is available to pay any future expenses in
        excess of revenues, satisfy obligations of underlying secured properties,
        expend
        money to satisfy our unforeseen obligations and other permitted uses of our
        working capital.  Working capital reserves up to 3% in cash, cash
        equivalents, certificates of deposit, short term investments and marketable
        securities are excluded from the funds committed to investments in determining
        what proportion of the offering proceeds and reinvested distributions have
        been
        invested in real estate loans or real property.
 
 **Value
        of Members’ Capital Accounts**
 
 In
        accordance with Section 7.8 of our Operating Agreement, our manager reviewed
        the
        value of our assets during the last quarter of fiscal year
        2006.  Based on this review, as a result the gain on sale of our real
        estate held for investment, the value of members’ capital accounts was adjusted
        from $10.50 per unit to $11.00 per unit.  As a result, new units sold
        through our Distribution Reinvestment Plan and units redeemed on or after
        December 15, 2006 have been sold or redeemed at $11.00 per unit.  The
        change in valuation is primarily for tax and capital account purposes and
        does
        not reflect the change in the value of the units calculated in accordance
        with
        GAAP.  Accordingly, unit prices calculated under GAAP may be different
        than the adjusted price per unit.  On April 2, 2007, our manager
        decided to terminate our Distribution Reinvestment Plan effective May 7,
        2007,
        pursuant to Section 8.5 of our Operating Agreement.  A letter was sent
        on April 2, 2007 to our members notifying them of the Distribution Reinvestment
        plan’s termination.
 
 **Redemption
        Limitation**
 
 In
        order
        to comply with our Operating Agreement and the Internal Revenue Code, we
        may
        redeem no more than 10% of the aggregate Members’ capital in any calendar
        year.  As of June 30, 2007, the total of redemptions made from
        inception was approximately $6.3 million.  Balances in Members’
capital accounts as of January 1, 2007 were approximately $30.4 million,
        which
        limited redemptions to approximately $3.0 million for calendar
        2007.  Total redemptions during the six months ended June 30, 2007,
        were approximately $3.0 million.  The remaining requests to redeem, as
        of June 30, 2007, were approximately $2.5 million in 2008, $2.0 million in
        2009,
        $750,000 in 2010 and $58,000 in 2011, subject to unit valuation
        adjustments.
 
 **NOTE
        J— RECENT ACCOUNTING PRONOUNCEMENTS**
 
 In
        February 2007, the Financial Accounting Standards Board (FASB) issued FAS
        159,
*The Fair Value Option for Financial Assets and Financial
        Liabilities*.  FAS 159 permits entities to choose to measure
        financial assets and liabilities (except for those that are specifically
        scoped
        out of the Statement) at fair value.  The election to measure a
        financial asset or liability at fair value can be made on an
        instrument-by-instrument basis and is irrevocable.  The difference
        between carrying value and fair value at the election date is recorded as
        a
        transition adjustment to opening retained earnings.  Subsequent
        changes in fair value are recognized in earnings.  The effective date
        for FAS 159 is as of the beginning of an entity's first fiscal year that
        begins
        after November 15, 2007.  We are evaluating FAS 159 and have not yet
        determined the impact the adoption will have on our financial statements,
        but it
        is not expected to be significant.
 
  See
            review report of Independent Registered Public Accounting Firm
 -
            17
            -
 *Table
            of Contents*
  **NOTE
        K— LEGAL MATTERS INVOLVING THE MANAGER**
 
 The
        United States Securities and Exchange Commission (the “Commission”), conducted
        an investigation of certain matters related to us, our manager, Vestin Capital,
        VRM I and VRM II.  We fully cooperated during the course of the
        investigation.  On September 27, 2006, the investigation was resolved
        through the entry of an Administrative Order by the Commission (the
“Order”).  Our manager, Vestin Mortgage and its Chief Executive
        Officer, Michael Shustek, as well as Vestin Capital (collectively, the
“Respondents”), consented to the entry of the Order without admitting or denying
        the findings therein.  In the Order, the Commission finds that the
        Respondents violated Sections 17(a)(2) and 17(a)(3) of the Securities Act
        of
        1933 through the use of certain slide presentations in connection with the
        sale
        of our units and units in Fund II, the predecessor to VRM II.  The
        Respondents consented to the entry of a cease and desist order, the payment
        by
        Mr. Shustek of a fine of $100,000 and Mr. Shustek’s suspension from association
        with any broker or dealer for a period of six months, which expired in March
        2007.  In addition, the Respondents agreed to implement certain
        undertakings with respect to future sales of securities.  We are not a
        party to the Order and we do not expect that the sanctions imposed upon the
        Respondents will have any material affect upon our operations.
 
 On
        November 21, 2005, Desert Land filed a complaint in the state District court
        of
        Nevada against Vestin Group, Vestin Mortgage and Del Mar Mortgage, Inc. which
        complaint is substantially similar to a complaint previously filed by Desert
        Land in the United States District Court, which complaint was dismissed by
        the
        Ninth Circuit United Court of Appeals, which dismissal was upheld when the
        United States Supreme Court denied Desert Land’s Writ of
        Certiorari.  The action is based upon allegations that Del Mar
        Mortgage, Inc. and/or Vestin Mortgage charged unlawful fees on various loans
        arranged by them in 1999.  On March 6, 2006, Desert Land amended the
        state court complaint to name VRM I.  Desert Land alleges that one or
        more of the defendants have transferred assets to other entities without
        receiving reasonable value therefore; alleges plaintiffs are informed and
        believe that defendants have made such transfers with the actual intent to
        hinder, delay or defraud Desert Land; that such transfers made the transferor
        insolvent and that sometime between February 27 and April 1, 2003, Vestin
        Group
        transferred $1.6 million to VRM I for that purpose.  The state court
        complaint further alleges that Desert Land is entitled to avoid such transfers
        and that pursuant to NRS 112.20, Desert Land is entitled to an injunction
        to
        enjoin defendants from further disposition of assets.  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.  The Defendants believe that the
        allegations are without merit and that they have adequate
        defenses.  The Defendants intend to undertake a vigorous
        defense.
 
 In
        April
        2006, the lenders filed suit against the State of Hawaii listing 26 causes
        of
        action, including allegations that the State of Hawaii has illegally blocked
        the
        lender’s right to foreclose and take title to its collateral by inappropriately
        attaching conditions to the granting of licenses needed to operate the business,
        the pre-need trust funds and the perpetual care trust funds and that the
        State
        of Hawaii has attempted to force the lenders to accept liability for any
        statutory trust fund deficits while no such lender liability exists under
        the
        laws of the State of Hawaii.  The State of Hawaii responded by filing
        allegations against Vestin Mortgage, Inc. and VRM II alleging that these
        Vestin
        entities improperly influenced the former RightStar trustees to transfer
        trust
        funds to VRM II.
 
 On
        May 9,
        2007, The State of Hawaii, VRM I, VRM II, Vestin Mortgage and Comerica
        Incorporated announced that an arrangement has been reached to auction the
        RightStar assets.  On June 12, 2007 the court approved the resolution
        agreement which provides that the proceeds of the foreclosure sale will be
        allocated to fund the trusts statutory minimum balances, and to VRM I, VRM II
        and Vestin Mortgage.  The State of Hawaii, VRM I, VRM II, Vestin
        Mortgage and Comerica have pledged to cooperate to recover additional amounts
        owed to the trusts and the creditors from others, while mutually releasing
        each
        other and RightStar from all claims.  The outcome of this auction
        cannot be determined at this time.
 
  See
            review report of Independent Registered Public Accounting Firm
 -
            18
            -
 *Table
            of Contents*
  VRM
        I and
        Vestin Mortgage, Inc. (“Defendants”) are defendants in a breach of contract
        action filed in San Diego Superior Court by certain plaintiffs who allege,
        among
        other things, that they were wrongfully denied appraisal rights in connection
        with the merger of Fund I into Vestin Realty Mortgage I, Inc.  The
        action is being brought as a purported class action on behalf of all members
        of
        Vestin Fund I who did not vote in favor of the merger.  The Defendants
        believe that the allegations are without merit and that they have adequate
        defenses.  The Defendants intend to undertake a vigorous
        defense.  The terms of VRM I’s management agreement and Fund I’s
        Operating Agreement contain indemnity provisions whereby, Vestin Mortgage
        and
        Michael V. Shustek may be eligible for indemnification by us with respect
        to the
        above actions.
 
 VRM
        II
        and Vestin Mortgage, Inc. (“Defendants”) are defendants in a breach of contract
        action filed in San Diego Superior Court by certain plaintiffs who allege,
        among
        other things, that they were wrongfully denied appraisal rights in connection
        with the merger of Fund II into Vestin Realty Mortgage II, Inc.  The
        action is being brought as a purported class action on behalf of all members
        of
        Vestin Fund II who did not vote in favor of the merger.  The Defendants
        believe that the allegations are without merit and that they have adequate
        defenses.  The Defendants intend to undertake a vigorous
        defense.  The terms of VRM II’s management agreement and Fund II’s
        Operating Agreement contain indemnity provisions whereby, Vestin Mortgage
        and
        Michael V. Shustek may be eligible for indemnification by VRM II with respect
        to
        the above actions.
 
 VRM
        I,
        Michael V. Shustek and Vestin Mortgage, Inc. (“Defendants”) are defendants in a
        civil action filed by 25 separate plaintiffs (“Plaintiffs”) in District Court
        for Clark County, Nevada.  The Plaintiffs allege, among other things,
        that Defendants: breached certain alleged contractual obligations owed to
        Plaintiffs; breached fiduciary duties supposedly owed to Plaintiffs; and
        misrepresented or omitted material facts regarding the conversion of Fund
        I into
        VRM I.  The action seeks monetary damages, punitive damages and a
        rescission of the REIT conversion.  The Defendants believe that the
        allegations are without merit and that they have adequate
        defenses.  The Defendants intend to undertake a vigorous
        defense.  The terms of VRM I’s management agreement and Fund I’s
        operating agreement contain indemnity provisions whereby, Vestin Mortgage
        and
        Michael V. Shustek may be eligible for indemnification by us with respect
        to the
        above actions.
 
 VRM
        II,
        Vestin Mortgage, Inc. and Michael V. Shustek (“Defendants”) are defendants in a
        civil action filed by 88 separate plaintiffs (“Plaintiffs”) in District Court
        for Clark County, Nevada.  The Plaintiffs allege, among other things,
        that Defendants: breached certain alleged contractual obligations owed to
        Plaintiffs; breached fiduciary duties supposedly owed to Plaintiffs; and
        misrepresented or omitted material facts regarding the conversion of Fund
        II
        into VRM II.  The action seeks monetary damages and a rescission of
        the REIT conversion.  The Defendants believe that the allegations are
        without merit and that they have adequate defenses.  The Defendants
        intend to undertake a vigorous defense.  The terms of VRM II’s
        management agreement and Fund II’s operating agreement contain indemnity
        provisions whereby, Vestin Mortgage and Michael V. Shustek may be eligible
        for
        indemnification by VRM II with respect to the above actions.
 
 In
        addition to the matters described above, our manager is involved in a number
        of
        other legal proceedings concerning matters arising in connection with the
        conduct of its business activities.  Our manager believes it has
        meritorious defenses to each of these actions and intends to defend them
        vigorously.  Our manager believes that it is not a party to any other
        pending legal or arbitration proceedings that would have a material adverse
        effect on our 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
        L — LEGAL MATTERS INVOLVING THE COMPANY**
 
 We
        believe that we are not a party to any pending legal or arbitration proceedings
        that would have a material adverse effect on our 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 our net income in any
        particular period.
 
  See
            review report of Independent Registered Public Accounting Firm
 -
            19
            -
 *Table
            of Contents*
  **NOTE
        M — SEGMENT INFORMATION**
 
 In
        November 2006, we sold our investment in real property to an unrelated third
        party.  As of June 30, 2007 and December 31, 2006, we had no
        investments in real property.  A Special Meeting of our members was
        held on March 5, 2007 to vote on approval of the Third Amended and Restated
        Operating Agreement, which limits the Company’s investment objectives to
        investment in real estate loans.  Accordingly, we now operate as one
        business segment.
 
 Operating
        segments are components of an enterprise in which separate financial information
        is available that is regularly reviewed by the chief operating decision makers
        in assessing performance and deciding how to allocate
        resources.  Reportable segments consist of one or more operating
        segments with similar economic characteristics, products and services,
        production processes, type of customer, distribution system and regulatory
        environment.
 
 The
        information provided for Segment Reporting is based on internal reports utilized
        by management.  The presentation and allocation of overhead and the
        net contribution for the operating segments may not reflect the actual economic
        costs, contribution or results of operations of the segments as stand-alone
        businesses.  If a different basis of allocation were utilized, the
        relative contributions of the segments might differ, but the relative trends
        in
        segments would, in management’s view, likely not be impacted.
 
 For
        the
        six months ended June 30, 2006, our two reportable segments were investments
        in
        real estate loans and investments in real estate.  Financial
        information concerning our reportable segments is presented as
        follows:
 
 **For
                  the Six Months Ended June 30, 2006**
              
              
              **Investment
                  in Real Estate Loans**
              
              
              **Investment
                  in Real Estate****Revenues**Interest
                  income from investments in real estate loans
              
              $
              1,121,000
              
              
              $
              1,121,000
              
              
              $
              --Interest
                  income from secured borrowings
              
              
              15,000
              
              
              
              15,000
              
              
              
              --Rental
                  income
              
              
              514,000
              
              
              
              --
              
              
              
              514,000Other
              
              
              62,000
              
              
              
              62,000
              
              
              
              --Total
                  revenues
              
              
              1,712,000
              
              
              
              1,198,000
              
              
              
              514,000**Operating
                  expenses**Management
                  fees
              
              
              24,000
              
              
              
              17,000
              
              
              
              7,000Professional
                  fees
              
              
              96,000
              
              
              
              69,000
              
              
              
              27,000Professional
                  fees-related party
              
              
              4,000
              
              
              
              3,000
              
              
              
              1,000Other
              
              
              9,000
              
              
              
              6,000
              
              
              
              3,000Total
                  operating expenses
              
              
              133,000
              
              
              
              95,000
              
              
              
              38,000**EBITDA***
              
              
              1,579,000
              
              
              
              1,103,000
              
              
              
              476,000Less:Depreciation
                  and amortization
              
              
              111,000
              
              
              
              --
              
              
              
              111,000Interest
                  expense related to secured borrowings
              
              
              14,000
              
              
              
              14,000
              
              
              
              --Interest
                  expense related to investment in real estate
              
              
              135,000
              
              
              
              --
              
              
              
              135,000**NET
                  INCOME**
              
              $
              1,319,000
              
              
              $
              1,089,000
              
              
              $
              230,000
 
  See
            review report of Independent Registered Public Accounting Firm
 -
            20
            -
 *Table
            of Contents*
  *EBITDA
        represents Earnings Before Interest, Taxes, Depreciation, and
        Amortization.  We present EBITDA because we consider it an important
        supplemental measure of our performance but it does not represent cash
        flows.  EBITDA is a measure of our performance that is not required
        by, or presented in accordance with, GAAP.  EBITDA is not a
        measurement of our financial performance under GAAP and should not be considered
        as an alternative to net earnings, operating income or any other performance
        measures derived in accordance with GAAP or as an alternative to cash flow
        from
        operating activities as a measure of our liquidity.  We compensate for
        these limitations by relying primarily on our GAAP results and using EBITDA
        only
        supplementally.  A reconciliation of EBITDA to net income is set forth
        above.
 
 Although
        depreciation and amortization are non-cash charges, the assets being depreciated
        or amortized often will have to be replaced in the future, and EBITDA does
        not
        reflect any cash requirements for such replacements.  Other companies
        in our industry may calculate EBITDA differently than we do, limiting its
        usefulness as a comparative measure.  In addition, EBITDA does not
        reflect the impact of earnings or charges resulting from matters we consider
        not
        to be indicative of our ongoing operations.
 
 **NOTE
        N — SUBSEQUENT EVENT**
 
 On
        August
        7, 2007, we, VRM I and VRM II entered into a settlement agreement with the
        borrower of Pirates Lake, LTD. whereby the foreclosure was
        postponed.  Principal, accrued interest and $75,000 for expenses
        incurred by us, VRM I and VRM II relating to the loan is now due on October
        1,
        2007.
 
 
 
 
  See
            review report of Independent Registered Public Accounting Firm
 -
            21
            -
 *Table
            of Contents*
  REPORTOF
        INDEPENDENT REGISTERED PUBLIC ACCOUNTING
        FIRM
 
 
 To
        the
        Board of Directors and Members of Vestin Fund III, LLC:
 
 We
        have
        reviewed the accompanying balance sheet of Vestin Fund III, LLC as of June
        30,
        2007, and the related statements of income for the three-month and six-month
        periods ended June 30, 2007 and 2006, members’ equity and other comprehensive
        income for the six-month period ended June 30, 2007, and cash flows for the
        six-month periods ended June 30, 2007 and 2006. All information included
        in
        these financial statements is the representation of the management of Vestin
        Fund III, LLC.
 
 We
        conducted our review in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). A review of interim financial
        information consists principally of applying analytical procedures and making
        inquiries of persons responsible for financial and accounting
        matters.  It is substantially less in scope than an audit conducted in
        accordance with the standards of the Public Company Accounting Oversight
        Board,
        the objective of which is the expression of an opinion regarding the financial
        statements taken as a whole.  Accordingly, we do not express such an
        opinion.
 
 Based
        on
        our review, we are not aware of any material modifications that should be
        made
        to the accompanying financial statements referred to above for them to be
        in
        conformity with accounting principles generally accepted in the United States
        of
        America.
 
 We
        have
        previously audited, in accordance with the standards of the Public Company
        Accounting Oversight Board (United States), the consolidated balance sheet
        of
        Vestin Fund III, LLC as of December 31, 2006 and the related consolidated
        statements of income, members’ equity and other comprehensive income and cash
        flows for the year then ended (not presented herein); and in our report dated
        March 28, 2007, we expressed an unqualified opinion on those financial
        statements.  In our opinion, the information set forth in the
        accompanying balance sheet as of December 31, 2006, is fairly stated, in
        all
        material respects, in relation to the balance sheet from which it has been
        derived.
 
 
  /s/Moore
          Stephens Wurth Frazer and Torbet, LLP
 
 
 Orange,
        California
 August
        10, 2007
 
 
 
 
 
  -
            22
            -
 *Table
            of Contents*
  **ITEM
                  2.**
              **MANAGEMENT’S
                  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                  OPERATIONS**
 
 The
        following is a financial review and analysis of our financial condition and
        results of operations for the three and six months ended June 30, 2007 and
        2006.  This discussion should be read in conjunction with our
        financial statements and accompanying notes and other detailed information
        regarding us appearing elsewhere in this report on Form 10-Q and our report
        on
        Form 10-K, Part II, Item 7 *Management’s Discussion and Analysis of Financial
        Conditions and Results of Operations* for the year ended December 31,
        2006.
 
 **FORWARD
        LOOKING STATEMENTS**
 
 Certain
        statements in this report, including, without limitation, matters discussed
        under this Item 2, “Management’s Discussion and Analysis of Financial Condition
        and Results of Operations,” should be read in conjunction with the financial
        statements, related notes, and other detailed information included elsewhere
        in
        this Quarterly Report on Form 10-Q.  We are including this cautionary
        statement to make applicable and take advantage of the safe harbor provisions
        of
        the Private Securities Litigation Reform Act of 1995.  Statements that
        are not historical fact are forward-looking statements.  Certain of
        these forward-looking statements can be identified by the use of words such
        as
“believes,” “anticipates,” “expects,” “intends,” “plans,” “projects,”
“estimates,” “assumes,” “may,” “should,” “will,” or other similar
        expressions.  Such forward-looking statements involve known and
        unknown risks, uncertainties and other important factors, which could cause
        actual results, performance or achievements to differ materially from future
        results, performance or achievements.  These forward-looking
        statements are based on our current beliefs, intentions and
        expectations.  These statements are not guarantees or indicative of
        future performance.  Important assumptions and other important factors
        that could cause actual results to differ materially from those forward-looking
        statements include, but are not limited to, those factors, risks and
        uncertainties described in Part II Item 1A *Risk Factors* of this
        Quarterly Report on Form 10-Q and in our other securities filings with the
        Securities and Exchange Commission (“SEC”).  Our future financial
        condition and results of operations, as well as any forward-looking statements,
        are subject to change and involve inherent risks and
        uncertainties.  The forward-looking statements contained in this
        report are made only as of the date hereof.  We undertake no
        obligation to update or revise information contained herein to reflect events
        or
        circumstances after the date hereof or to reflect the occurrence of
        unanticipated events.
 
 **RESULTS
        OF OPERATIONS**
 
 **OVERVIEW**
 
 Our
        primary business objective is to generate income by investing in real estate
        loans.  We believe there is a significant market opportunity to make
        real estate loans to owners and developers of real property whose financing
        needs are not met by other financial institutional real estate
        lenders.  The loan underwriting standards utilized by our manager and
        Vestin Originations are less strict than other financial institutional real
        estate lenders.  In addition, one of our competitive advantages is our
        ability to approve loan applications more quickly than other financial
        institutional lenders.  As a result, in certain cases, we may make
        real estate loans that are riskier than real estate loans made by other
        financial institutional lenders such as commercial banks.  However, in
        return, we seek a higher interest rate and our manager takes steps to mitigate
        the lending risks such as imposing a lower loan to value ratio.  While
        we may assume more risk than other financial institutional real estate lenders,
        in return, we seek to generate higher yields from our real estate
        loans.
 
 Prior
        to
        March 5, 2007, our mortgage program was combined with a real estate program
        whose objective was to invest in income-producing multifamily residential
        units,
        assisted living facilities, office buildings, industrial and retail properties
        and other income-producing real property, such as hotels and resorts,
        restaurants, parking lots and amusement parks.  We disposed of our
        only investment in real estate in November 2006 and on March 5, 2007, our
        members voted to amend our operating agreement so that in the future we will
        only invest in loans secured by mortgages on real estate.
 
  -
            23
            -
 *Table
            of Contents*
  Our
        operating results are affected primarily by: (i) the amount of capital we
        have
        to invest in real estate loans, (ii) the level of real estate lending activity
        in the markets we service, (iii) our ability to identify and work with suitable
        borrowers, (iv) the interest rates we are able to charge on our loans and
        (v)
        the level of non-performing assets, foreclosures and related loan losses
        which
        we may experience.  Our capital, subject to a 3% reserve, will
        constitute the bulk of the funds we have available for investment in real
        estate
        loans.  We do not have any arrangements in place to materially
        increase the funds we will have available to invest from any other
        sources.  See discussion under – “Capital and Liquidity.”
 
 Our
        operating results during the past several months have been adversely affected
        by
        our non-performing loans.  At June 30, 2007, the following loans were
        non-performing (based on current information and events, it is probable that
        we
        will be unable to collect all amounts due according to the contractual terms
        of
        the loan agreement or when the payment of interest is 90 days past due);
        Monterrey Associates LP, Forest Development LLC and Pirates Lake,
        LTD.  These loans are currently carried on our books at a value of
        approximately $2.7 million.  These loans have been placed on
        non-accrual of interest status and are the subject of pending foreclosure
        proceedings.  On August 7, 2007, we, VRM I and VRM II entered into a
        settlement agreement with the borrower of Pirates Lake, LTD. whereby the
        foreclosure was postponed.  Principal, accrued interest and $75,000
        for expenses incurred by us, VRM I and VRM II relating to the loan is now
        due on
        October 1, 2007.  For additional information see Note D –
*Investments In Real Estate Loans* of the Notes to the Financial
        Statements included in Part I, Item 1 *Financial Statement*of this
        report Form 10-Q.  Non-performing assets totaled approximately $3.2
        million or 11.5% of our total assets as of June 30, 2007, as compared to
        $2.2
        million or 6.2% of our total assets as of December 31, 2006.  At June
        30, 2007, non-performing assets consisted of approximately $0.5 million of
        real
        estate held for sale and approximately $2.7 million of non-performing
        loans.  During the six months ended June 30, 2007, our manager
        evaluated the carrying value of the acquired properties located in Cathedral
        City, CA and based on its estimate, our manager has written down the value
        of
        the property by $3,000,000, of which our portion was $58,000.
 
 The
        level
        of non-performing assets may reflect the continuing weakness in certain sectors
        of the economy and the risk inherent in our business strategy that entails
        more
        lenient underwriting standards and expedited loan approval
        procedures.  If the economy weakens and our borrowers who develop and
        sell commercial real estate projects are unable to complete their projects
        or
        obtain takeout financing or are otherwise adversely impacted, we may experience
        an increase in loan defaults, which may reduce the amount of funds we have
        to
        pay dividends to our stockholders.  Such conditions may also require
        us to restructure loans.  The weighted average term of our outstanding
        loans, including extensions, as of June 30, 2007 and December 31, 2006, was
        15
        and 14 months, respectively.
 
 Uncertain
        economic conditions during the next year could have a material impact on
        the
        collectibility of our loans.  A downturn in the real estate markets
        where we conduct business might increase defaults on our loans and might
        require
        us to record additional reserves with respect to non-performing
        loans.  To date, the problems experienced by some lenders in the
        sub-prime residential mortgage market have not had any material adverse affect
        upon the commercial mortgage markets in which we
        operate.  Nonetheless, we are aware that weakness in residential
        lending could at some point have an adverse impact upon our
        markets.  Recognizing the risk, we seek to maintain an adequate
        loan-to-value ratio.  The weighted average loan to value ratio
        increased from 65.06%, as of December 31, 2006, to 68.78%, as of June 30,
        2007,
        primarily due to two loans that were funded during the six month period,
        totaling $1.5 million, with loan to value ratios ranging from 76.96% to
        80.00%.  We generally use appraisals prepared on an “as-if developed”
basis in connection with the loan origination.  We hope to retain
        sufficient cushion in the underlying equity position to protect the value
        of our
        loans in the event of a default.  Nevertheless, no assurances can be
        given that a marked increase in loan defaults accompanied by a rapid decline
        in
        real estate values will not have a material adverse effect upon our financial
        condition and operating results.
 
 From
        time
        to time, we may acquire or sell investments in real estate loans from/to
        our
        manager or other related parties pursuant to the terms of our Operating
        Agreement provided the price does not exceed the par value of the
        loan.  No gain or loss is recorded on these transactions, as it is not
        our intent to make a profit on the purchase or sale of such
        investments.  The purpose is generally to diversify our portfolio by
        syndicating loans, thereby providing us with additional capital to make
        additional loans.  For further information regarding related party
        transactions, refer to Note G – *Related Party Transactions* in the notes
        to our financials statements in Item 1 *Financial Statements* in Part I
        of this report Form 10-Q.
 
  -
            24
            -
 *Table
            of Contents*
  As
        of
        June 30, 2007, our loans were in the following states: Arizona, California,
        Nevada, Oklahoma, Oregon and Texas.
 
 **Comparison
        of Operating Results for the three and six months ended June 30, 2007 to
        the
        three and six months ended June 30, 2006.**
 
 **For
                  the Three Months**
                **Ended
                  June 30,**
              
              
              **For
                  the Six Months**
                **Ended
                  June 30,****2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006**Total
                  revenues
              
              $
              721,000
              
              
              $
              843,000
              
              
              $
              1,545,000
              
              
              $
              1,712,000Total
                  operating expenses
              
              
              110,000
              
              
              
              174,000
              
              
              
              244,000
              
              
              
              393,000Loss
                  from real estate held for sale
              
              
              (62,000
              )
              
              
              --
              
              
              
              (65,000
              )
              
              
              --**NET
                  INCOME**
              
              $
              549,000
              
              
              $
              669,000
              
              
              $
              1,236,000
              
              
              $
              1,319,000Net
                  income allocated to members per weighted average membership
                  units
              
              $
              0.22
              
              
              $
              0.23
              
              
              $
              0.47
              
              
              $
              0.45Weighted
                  average common shares / membership units
              
              
              2,523,618
              
              
              
              2,938,692
              
              
              
              2,633,958
              
              
              
              2,962,657Annualized
                  rate of return to members **(a)**
              
              
              7.93%
              
              
              
              8.70%
              
              
              
              8.60%
              
              
              
              8.55%Cash
                  Distributions
              
              $
              546,000
              
              
              $
              647,000
              
              
              $
              1,164,000
              
              
              $
              1,292,000Cash
                  Distributions Per Weighted Average Membership Units
              
              $
              0.22
              
              
              $
              0.22
              
              
              $
              0.44
              
              
              $
              0.44Weighted
                  average term of outstanding loans
              
              15
                  months
              
              
              16
                  months
              
              
              15
                  months
              
              
              16
                  months
 
 **(a)**
              The
                  annualized rate of return to members is calculated based upon the
                  net GAAP
                  income allocated to members per weighted average unit as of June
                  30, 2007
                  and 2006, divided by the number of days during the period (91 and
                  181 days
                  for the three and six months ended June 30, 2007 and 2006) and
                  multiplied
                  by three hundred and sixty five (365) days, then divided by the
                  cost per
                  unit ($11.00 and $10.50 for 2007 and 2006,
                  respectively).
 
 
 *Total
        Revenues*:  For three months ended June 30, 2007, total revenues
        decreased by $122,000 or 14.47% compared to the same period in 2006 due in
        significant part to the following factors:
 
 ·
              We
                  recognized rental income during the three months ended June 30,
                  2006, of
                  $257,000 from a building we sold in November 2006.  No
                  comparable income was realized during the three months ended June
                  30,
                  2007, and we will no longer earn rental income because our Operating
                  Agreement was amended by a vote of our Members on March 5, 2007,
                  limiting
                  our investment objectives to investment in real estate
                  loans.
 
 ·
              The
                  decrease in rental income was offset by the increase of interest
                  income
                  from investments in real estate loans of $671,000 during the three
                  months
                  ended June 30, 2007 compared to $542,000 during the same period
                  in
                  2006.  Our revenue is dependent upon the balance of our
                  investment in real estate loans and the interest earned on these
                  loans.  As of June 30, 2007, our investment in real estate loans
                  was approximately $24.1 million with a weighted average interest
                  rate of
                  11.46%.  As of June 30, 2006, our investment in real estate
                  loans was approximately $19.5 million with a weighted average interest
                  rate of 10.44%.  The increase in our investment in real estate
                  loans is primarily from the proceeds received from the sale of
                  the
                  building during November 2006.
 
  -
            25
            -
 *Table
            of Contents*
  *Total
        Operating Expenses*:  For the three months ended June 30, 2007,
        total operating expenses were $110,000 compared to $174,000 during the three
        months ended June 30, 2006, a decrease of $64,000 or 36.78%.  Expenses
        were primarily affected by the following factors:
 
 ·
              During
                  the three months ended June 30, 2006, we incurred depreciation
                  expense of
                  $56,000 on the building that was sold in November 2006.  No
                  comparable depreciation expense was recorded during the three months
                  ended
                  June 30, 2007.
 
 ·
              Interest
                  expense decreased by approximately $30,000 or 43.48%.  While we
                  did not incur any interest on loans related to investment in real
                  estate,
                  compared to $68,000 of such interest during the three months ended
                  June
                  30, 2006, we incurred interest expense on secured borrowings of
                  $36,000
                  during the three months ended June 30, 2007.  The secured
                  borrowings were paid in full in May
                  2007.
 
 *Total
        Income(Loss) from Real Estate Held for Sale*:  For the three
        months ended June 30, 2007, total loss from real estate held for sale was
        $62,000. No comparable loss was realized during the three months ended June
        30,
        2006.  During the three months ended June 30, 2007, our manager
        evaluated the carrying value of the acquired property located in Cathedral
        City,
        CA and based on its estimate, our manager has written down the value of the
        property by $3,000,000, of which our portion was $58,000.  See Note F
– *Real Estate Held for Sale* in the notes of Part I, Item 1 -
*Consolidated Financial Statements* to this interim report Form
        10-Q.
 
 *Comparison
        of Operating Results for the six months ended June 30, 2007 to the six months
        ended June 30. 2006*
 *Total
        Revenues*:
 
 *Total
        Revenues*:  For the six months ended June 30, 2007, total revenues
        decreased by $167,000 or 9.75% compared to the same period in 2006 due in
        significant part to the following factors:
 ·
                We
                    recognized rental income during the six months ended June 30,
                    2006 of
                    $514,000 from a building we sold in November 2006.  No
                    comparable income was realized during the six months ended June
                    30,
                    2007.
 ·
              We
                  recognized interest income from investments in real estate loans
                  of
                  approximately $1.5 million during the six months ended June 30,
                  2007
                  compared to approximately $1.1 million during the same period in
                  2006.
 
 *Total
        Operating Expenses*:  For the six months ended June 30, 2007,
        total operating expenses were $244,000 compared to $393,000 during the six
        months ended June 30, 2006, a decrease of $149,000 or
        37.91%.  Expenses were primarily affected by the following
        factors:
 
 ·
              During
                  the six months ended June 30, 2006, we incurred depreciation expense
                  of
                  $111,000 on the building that was sold in November 2006.  No
                  comparable depreciation expense was recorded during the six months
                  ended
                  June 30, 2007.
 
 ·
              Interest
                  expense decreased by approximately $31,000 or 20.81%.  While we
                  did not incur any interest on loans related to investment in real
                  estate,
                  compared to $135,000 of such interest during the six months ended
                  June 30,
                  2006, we incurred interest expense on secured borrowings of
                  $115,000.
 
 *Total
        Income(Loss) from Real Estate Held for Sale*:  For the six months
        ended June 30, 2007, total loss from real estate held for sale was $65,000.
        No
        comparable loss was realized during the three months ended June 30,
        2006.  During the three months ended June 30, 2007, our manager
        evaluated the carrying value of the acquired property located in Cathedral
        City,
        CA and based on its estimate, our manager has written down the value of the
        property by $3,000,000, of which our portion was $58,000.  See Note F
– *Real Estate Held for Sale* in the notes of Part I, Item 1 -
*Consolidated Financial Statements* to this interim report Form
        10-Q.
 
  -
            26
            -
 *Table
            of Contents*
  *Distributions
        to Members*:  The following is a schedule of distributions made to
        members for the six months ended June 30, 2007 and 2006.
 
 **For
                  the Six Months**
                **Ended
                  June 30,****2007**
              
              
              **2006**Distributions
                  of net income available for distribution
              
              $
              1,164,000
              
              
              $
              1,292,000Distributions
                  in excess of net Income available for distribution generated during
                  the
                  period
              
              
              --
              
              
              
              --Total
                  distributions
              
              $
              1,164,000
              
              
              $
              1,292,000
 
 Net
        Income Available for Distributions is a non-GAAP financial measure that is
        defined in our Operating Agreement as cash flows from operations, less certain
        reserves, and may exceed net income as calculated in accordance with
        GAAP.  We have presented net income available for distribution because
        management believes this financial measure is useful and important to
        members.  Although we generally do not plan to make distributions in
        excess of net income available for distribution, we may do so from time to
        time.  Any such distribution will be treated as a return of capital
        for income tax purposes.  In addition, cash flows from operations,
        which are the significant component of net income available for distribution,
        affect the capital available for investment in new loans.  This
        non-GAAP financial measure should not be considered in isolation or as a
        substitute for measures of performance prepared in accordance with GAAP or
        as an
        alternative to cash flows from operating activities as a measure of our
        liquidity.  We compensate for these limitations by relying primarily
        on our GAAP results and using net income available for distribution only
        supplementally.
 
 The
        most
        directly comparable GAAP measure to net income available for distribution
        is
        cash flows from operating activities.  The following table reconciles
        net income available for distribution to cash flows from operating activities
        and presents the two other major categories of our statement of cash
        flows:
 
 **For
                  the Six Months**
                **Ended
                  June 30,****2007**
              
              
              **2006**Distribution
                  of net income available for distribution
              
              $
              1,164,000
              
              
              $
              1,292,000Additions
                  to working capital reserves (amount not distributed)
              
              
              130,000
              
              
              
              138,000Change
                  in operating assets and liabilities:Interest
                  receivable
              
              
              6,000
              
              
              
              47,000Deferred
                  rent receivable - related party
              
              
              --
              
              
              
              (67,000
              )Accounts
                  payable
              
              
              18,000
              
              
              
              (100,000
              )Due
                  to manager
              
              
              11,000
              
              
              
              (26,000
              )Other
                  assets
              
              
              6,000
              
              
              
              --Net
                  cash provided by operating activities
              
              $
              1,335,000
              
              
              $
              1,284,000Net
                  cash provided (used) by investing activities
              
              $
              2,171,000
              
              
              $
              3,570,000Net
                  cash (used) provided by financing activities
              
              $
              (3,911,000
              )
              
              $
              (2,360,000
              )
 
 *Stated
        Unit Value Adjustment*:  Following a periodic review by our
        manager as required pursuant to the Operating Agreement, as a result of the
        gain
        on sale of our real estate held for investment, effective December 15, 2006
        we
        adjusted the stated unit value from $10.50 per unit to $11.00 per unit to
        reflect the estimated net unit value of each unit at that date.  The
        periodic review of the estimated net unit value includes an analysis of
        unrealized gains that our manager reasonably believes exist at the time of
        the
        review, but that cannot be added to net asset value under GAAP.
 
  -
            27
            -
 *Table
            of Contents*
  *Redemptions*:  In
        accordance with the terms of our Operating Agreement and Internal Revenue
        Code,
        we may redeem no more than 10% of the aggregate Members’ capital in any calendar
        year.  As of June 30, 2007, the total of redemptions made from
        inception was approximately $6.3 million.  Balances in Members’
capital accounts as of January 1, 2007 were approximately $30.4 million,
        which
        limited redemptions to approximately $3.0 million for calendar
        2007.  Total redemptions during the six months ended June 30, 2007,
        were approximately $3.0 million.  The remaining requests to redeem, as
        of June 30, 2007, were approximately $2.5 million in 2008, $2.0 million in
        2009,
        $750,000 in 2010 and $58,000 in 2011, subject to unit valuation
        adjustments.
 
 **CAPITAL
        AND LIQUIDITY**
 
 Liquidity
        is a measure of a company’s ability to meet potential cash requirements,
        including ongoing commitments to fund lending activities and general operating
        purposes.  Subject to a 3% reserve, we generally use all of our
        available funds to invest in real estate loans.  Distributable cash
        flow generated from such loans is paid out to our members unless they have
        elected to reinvest their distributions.  We do not anticipate the
        need for hiring any employees, acquiring fixed assets such as office equipment
        or furniture, or incurring material office expenses during the next twelve
        months because our manager will manage our affairs.
 
 During
        the six months ended June 30, 2007, cash flows provided by operating activities
        approximated $1.3 million.  Investing activities consisted of cash
        provided by loan payoffs and sales of investments in real estate loans of
        approximately $4.6 million.  Cash used for new investments and
        purchases of real estate loans totaled $1.6 million.  Our financing
        activities primarily consisted of cash used for members’ distributions, net of
        reinvestments, of approximately $0.9 million and members’ redemptions of
        approximately $3.0 million.
 
 Our
        sources of liquidity include:  repayments of outstanding loans and
        arrangements with third parties to participate in our loans, since we distribute
        most or all of our operating income, discontinued the offering of our units,
        effective November 7, 2005, and terminated our Distribution Reinvestment
        Plan
        effective May 7, 2007.
 
 We
        rely
        primarily upon repayment of outstanding loans to provide capital for investment
        in new loans.  Any significant level of defaults on outstanding loans
        could reduce the funds we have available for investment in new
        loans.  Resulting foreclosure proceedings may not generate full
        repayment of our loans and may result in significant delays in the return
        of
        invested funds.  This would diminish our capital resources and would
        impair our ability to invest in new loans.  Non-performing assets
        totaled approximately $3.2 million or 11.6% of our total assets as of June
        30,
        2007, as compared to $2.2 million or 6.2% of our total assets as of December
        31,
        2006.  At June 30, 2007, non-performing assets consisted of
        approximately $0.5 million of real estate held for sale and approximately
        $2.7
        million of non-performing loans.  It is possible that no earnings will
        be recognized from these assets until they are disposed of, or that no earnings
        will be recognized at all, and the time it will take to dispose of these
        assets
        cannot be predicted.  Our manager believes that these non-performing
        assets are a result of factors unique to specific borrowers and
        properties.  Because of the estimated value of the underlying
        properties, we do not currently believe that any losses beyond those already
        recognized will be incurred from these assets upon final
        disposition.  However, it is possible that we will not be able to
        realize the full estimated carrying values upon disposition.
 
 In
        addition, any significant level of redemptions by our members would reduce
        the
        capital we have available for investment.  In order to comply with our
        Operating Agreement and Internal Revenue Code, we may redeem no more than
        10% of
        the aggregate Members’ capital in any calendar year.  As of June 30,
        2007, the total of redemptions made from inception was approximately $6.3
        million.  Balances in Members’ capital accounts as of January 1, 2007
        were approximately $30.4 million, which limited redemptions to approximately
        $3.0 million for calendar year 2007.  Total redemptions during the six
        months ended June 30, 2007, were approximately $3.0 million.  The
        remaining requests to redeem, as of June 30, 2007, were approximately $2.5
        million in 2008, $2.0 million in 2009, $750,000 in 2010 and $58,000 in 2011,
        subject to unit valuation adjustments.
 
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            28
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            of Contents*
  Loans
        in
        which unaffiliated investors have participated through inter-creditor agreements
        (“Inter-creditor Agreements”) are accounted for as secured borrowings in
        accordance with Statement of Financial Accounting Standards (“FAS”) 140 –
*Accounting for Transfers and Servicing of Financial Assets and
        Extinguishments of Liabilities*(“FAS 140”).  The Inter-creditor
        Agreements provide us additional funding sources for real estate loans whereby
        an unaffiliated investor (the “Investor”) may participate on a non-pari passu
        basis in certain real estate loans with us and/or VRM I and/or VRM II
        (collectively, the “Lead Lenders”).  In the event of borrower non-
        performance, the Inter-creditor Agreements generally provide that the Lead
        Lenders must repay the Investor’s loan amount either 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 participation from the Investor for the outstanding balance
        plus accrued interest.
 
 During
        October 2006, we, our manager, Vestin Origination, Inc., VRM I and VRM II
        entered into an intercreditor agreement with an unrelated third party related
        to
        the funding of a construction real estate loan.  (See exhibit 10.10
        Intercreditor Agreement  under the Exhibit Index included in Part II –
Other Information, Item 6 Exhibits of this Report Form 10-Q).  The
        secured borrowing was recognized pro rata between us, VRM I and VRM II for
        the
        amount each entity has funded for the loan.  During May 2007, the
        secured borrowings were paid in full.  As of June 30, 2007, we did not
        have any funds used under Inter-creditor Agreements as compared to approximately
        $4.4 million used under Inter-creditor Agreements as of December 31,
        2006.
 
 At
        June
        30, 2007, we had restricted cash totaling $985,000, which relates to a cash
        deposit held as collateral by a banking institution to support rent payments
        on
        the property we sold during November 2006.  The requirement for the
        deposit expires in November 2007, which may be extended for an additional
        year
        at the option of the buyer.
 
 We
        maintain working capital reserves of approximately 3% of aggregate members’
capital accounts in cash and cash equivalents, certificates of deposits and
        short-term investments or liquid marketable securities.  This reserve
        is available to pay expenses in excess of revenues, satisfy obligations of
        underlying secured properties, expend money to satisfy our unforeseen
        obligations and for other permitted uses of the working capital.  At
        June 30, 2007, we had $416,000 in cash, approximately $1.7 million invested
        in
        marketable securities – related party and approximately $27.9 million in total
        assets.
 
 We
        may
        seek to expand our capital resources through borrowings from institutional
        lenders or through securitization of our loan portfolio or similar
        arrangements.  We currently do not have in place any commitments to
        borrow any funds or securitize any of our assets.  No assurance can be
        given that, if we should seek to borrow funds or to securitize our assets
        we
        would be able to do so on commercially attractive terms.  Our ability
        to expand our capital resources in this manner is subject to many factors,
        some
        of which are beyond our control, including the state of the economy, the
        state
        of the capital markets and the perceived quality of our loan
        portfolio.
 
 **Investments
        in Real Estate Loans Secured by Real Estate Portfolio**
 
 We
        offer
        five real estate loan products consisting of commercial, construction,
        acquisition and development, land, and residential loans.  The
        effective interest rates on all product categories range from 9.00% to
        13.75%.  Revenue by product will fluctuate based upon relative
        balances during the period.  We had investments in 25 real estate
        loans as of June 30, 2007, with a balance of approximately $24.1 million
        as
        compared to investments in 27 real estate loans as of December 31, 2006,
        with a
        balance of approximately $27.1 million.
 
 At
        June
        30, 2007, the following loans were non-performing (based on current information
        and events, it is probable that we will be unable to collect all amounts
        due
        according to the contractual terms of the loan agreement or when the payment
        of
        interest is 90 days past due); Monterrey Associates LP, Forest Development
        LLC
        and Pirates Lake, LTD.  These loans are currently carried on our books
        at a value of approximately $2.7 million.  These loans have been
        placed on non-accrual of interest status and are the subject of pending
        foreclosure proceedings.  On August 7, 2007, we, VRM I and VRM II
        entered into a settlement agreement with the borrower of Pirates Lake, LTD.
        whereby the foreclosure was postponed.  Principal, accrued interest
        and $75,000 for expenses incurred by us, VRM I and VRM II relating to the
        loan
        is now due on October 1, 2007.
 
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            29
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 *Table
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  Our
        manager periodically reviews and makes a determination as to whether the
        allowance for loan losses is adequate to cover any potential
        losses.  Additions to the allowance for loan losses are made by
        charges to the provision for loan losses.  Recoveries of previously
        charged off amounts are credited to the allowance for loan losses or included
        as
        income when the asset is disposed.  As of June 30, 2007, we have
        provided a general reserve of $73,000.  Our manager evaluated the
        loans and believes that the remaining underlying collateral was sufficient
        to
        protect us against further losses of principal or interest.  Our
        manager will continue to evaluate these loans in order to determine if any
        other
        allowance for loan losses should be recorded.  For additional
        information on our investments in real estate loans, refer to Note D –
*Investments In Real Estate Loans* of the Notes to the Financial
        Statements included in Part I, Item 1*Financial Statement*of this
        Report Form 10-Q.
 
 **Asset
        Quality and Loan Reserves**
 
 Losses
        may occur from investing in real estate loans.  The amounts of losses
        will vary as the loan portfolio is affected by changing economic conditions
        and
        the financial condition of borrowers.
 
 The
        conclusion that a real estate loan is uncollectible or that collectibility
        is
        doubtful is a matter of judgment.  On a periodic basis, our manager
        evaluates our real estate 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 our
        manager to determine impairment and the need for specific
        reserves.  Such evaluation, which includes a review of all loans on
        which full collectibility may not be reasonably assured, considers among
        other
        matters:
 
 ·
              Prevailing
                  economic conditions;
 
 ·
              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; and
 
 ·
              Estimated
                  net realizable value of any underlying collateral in relation to
                  the real
                  estate loan amount.
 
 Based
        upon this evaluation, a determination is made as to whether the allowance
        for
        loan losses is adequate to cover any potential losses.  Additions to
        the allowance for loan losses are made by charges to the provision for loan
        losses.  Recoveries of previously charged off amounts would be
        credited to the provision for loan losses or included in income.  For
        additional information on asset quality and loan reserve, refer to Note D
–
*Investments In Real Estate Loans* of the Notes to the Financial
        Statements included in Part I, Item 1*Financial Statement*of this
        Report Form 10-Q.
 
 **Investments
        in Real Estate Held for Sale**
 
 At
        June
        30, 2007, we
        held one
        property with a total carrying value of approximately $0.5 million, which
        was
        acquired through foreclosure and recorded as investments in real estate held
        for
        sale.  Our investments in real estate held for sale are
        accounted for at the lower of cost or fair value less costs to sell with
        fair
        value based on appraisals and knowledge of local market
        conditions.  It is not our intent to invest in or own real estate as a
        long-term investment.  We seek to sell properties acquired through
        foreclosure as quickly as circumstances permit.  During the six months
        ended June 30, 2007, our manager evaluated the carrying value of the acquired
        properties located in Cathedral City, CA and based on its estimate, our manager
        has written down the value of the property by $3,000,000, of which our portion
        was $58,000.
 
 For
        additional information on our investments in real estate held for sale, refer
        to
        Note F –*Real Estate Held for Sale* of the Notes to the Financial
        Statements included in Part I, Item 1*Financial Statements*of this
        Report Form 10-Q.
 
  -
            30
            -
 *Table
            of Contents*
  **OFF-BALANCE
        SHEET ARRANGEMENTS**
 
 We
        do not
        have any interests in off-balance sheet special purpose entities nor do we
        have
        any interests in non-exchange traded commodity contracts.
 
 **CONTRACTUAL
        OBLIGATIONS**
 
 As
        of
        June 30, 2007, we did not have any contractual obligations.
 
 **CRITICAL
        ACCOUNTING ESTIMATES**
 
 **Revenue
        Recognition**
 
 Interest
        income on loans is accrued by the effective interest method.  We do
        not accrue interest income from loans once they are determined to be
        impaired.  A loan is impaired when, based on current information and
        events, it is probable that we will be unable to collect all amounts due
        according to the contractual terms of the loan agreement or when the payment
        of
        interest is 90 days past due.
 
 The
        following table presents a sensitivity analysis to show the impact on our
        financial condition at June 30, 2007 from fluctuations in weighted average
        interest rate charged on loans as a percentage of the loan
        portfolio:
 
 **Changed
                  Assumption**
              
              **Increase
                  (Decrease) in Interest Income**Weighted
                  average interest rate assumption increased by 1.0% or 100 basis
                  points
              
              $
              208,000Weighted
                  average interest rate assumption increased by 5.0% or 500 basis
                  points
              
              $
              1,040,000Weighted
                  average interest rate assumption decreased by 1.0% or 100 basis
                  points
              
              $
              (208,000
              )Weighted
                  average interest rate assumption decreased by 5.0% or 500 basis
                  points
              
              $
              (1,040,000
              )
 
 The
        purpose of this analysis is to provide an indication of the impact that the
        weighted average interest rate fluctuations would have on our financial
        results.  It is not intended to imply our expectation of future
        revenues or to estimate earnings.  We believe that the assumptions
        used above are appropriate to illustrate the possible material impact on
        the
        financial statements.
 
 **Allowance
        for Loan Losses**
 
 We
        maintain an allowance for loan losses on our investments in real estate loans
        for estimated credit impairment in our investment in real estate loans
        portfolio.  Our manager’s estimate of losses is based on a number of
        factors including the types and dollar amounts of loans in the portfolio,
        adverse situations that may affect the borrower’s ability to repay, prevailing
        economic conditions and the underlying collateral securing the
        loan.  Additions to the allowance are provided through a charge to
        earnings and are based on an assessment of certain factors, which may indicate
        estimated losses on the loans.  Actual losses on loans are recorded as
        a charge-off or a reduction to the allowance for loan
        losses.  Subsequent recoveries of amounts previously charged off are
        added back to the allowance or included as income.
 
 The
        following table presents a sensitivity analysis to show the impact on our
        financial condition at June 30, 2007 from increases and decreases to our
        allowance for loan losses as a percentage of the loan portfolio:
 
 **Changed
                  Assumption**
              
              **Increase
                  (Decrease) in Allowance for Loan Losses**Allowance
                  for loan losses assumption increased by 1.0% of loan
                  portfolio
              
              $
              241,000Allowance
                  for loan losses assumption increased by 5.0% of loan
                  portfolio
              
              $
              1,205,000Allowance
                  for loan losses assumption decreased by 0.3% of loan
                  portfolio
              
              $
              (73,000
              )
 
  -
            31
            -
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  Estimating
        allowances for loan losses requires significant judgment about the underlying
        collateral, including liquidation value, condition of the collateral, competency
        and cooperation of the related borrower and specific legal issues that affect
        loan collections or taking possession of the property.  As a
        commercial real estate lender willing to invest in loans to borrowers who
        may
        not meet the credit standards of other financial institutional lenders, the
        default rate on our loans could be higher than those generally experienced
        in
        the mortgage lending industry.  We, our manager and Vestin
        Originations generally approves loans more quickly than other real estate
        lenders and, due to our expedited underwriting process, there is a risk that
        the
        credit inquiry we perform will not reveal all material facts pertaining to
        a
        borrower and the security.
 
 We
        may
        discover additional facts and circumstances as we continue our efforts in
        the
        collection and foreclosure processes.  This additional information
        often causes management to reassess its estimates.  Circumstances that
        may cause significant changes in our estimated allowance include, but not
        limited to:
 
 ·
              Declines
                  in real estate market conditions that can cause a decrease in expected
                  market value;
 
 ·
              Discovery
                  of undisclosed liens for community improvement bonds, easements
                  and
                  delinquent property taxes;
 
 ·
              Lack
                  of progress on real estate developments after we advance
                  funds.  We customarily utilize disbursement agents to monitor
                  the progress of real estate developments and approve loan
                  advances.  After further inspection of the related property,
                  progress on construction occasionally does not substantiate an
                  increase in
                  value to support the related loan
                  advances;
 
 ·
              Unanticipated
                  legal or business issues that may arise subsequent to loan origination
                  or
                  upon the sale of foreclosed upon property;
                  and
 
 ·
              Appraisals,
                  which are only opinions of value at the time of the appraisal,
                  may not
                  accurately reflect the value of the
                  property.
 
 **Real
        Estate Held For Sale**
 
 Real
        estate held for sale includes real estate acquired through foreclosure and
        will
        be carried at the lower of the recorded amount, inclusive of any senior
        indebtedness, or the property's estimated fair value, less estimated costs
        to
        sell, with fair value based on appraisals and knowledge of local market
        conditions.  While pursuing foreclosure actions, we seek to identify
        potential purchasers of such property.  It is not our intent to invest
        in or own real estate as a long-term investment.  In accordance with
        FAS 144 - *Accounting for the Impairment or Disposal of Long Lived Assets,*we seek to sell properties acquired through foreclosure as quickly
        as
        circumstances permit.  The carrying values of real estate held for
        sale are assessed on a regular basis from updated appraisals, comparable
        sales
        values or purchase offers.
 
 Management
        classifies real estate held for sale when the following criteria are
        met:
 
 ·
              Management
                  commits to a plan to sell the
                  properties;
 
 ·
              The
                  property is available for immediate sale in its present condition
                  subject
                  only to terms that are usual and
                  customary;
 
 ·
              An
                  active program to locate a buyer and other actions required to
                  complete a
                  sale have been initiated;
 
 ·
              The
                  sale of the property is probable;
 
 ·
              The
                  property is being actively marketed for sale at a reasonable price;
                  and
 
 ·
              Withdrawal
                  or significant modification of the sale is not
                  likely.
 
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            32
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 *Table
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 **ITEM
                  3.**
              **QUANTITATIVE
                  AND QUALITATIVEDISCLOSURES ABOUT MARKET
                  RISK**
 
 We
        are
        exposed to market risk, primarily from changes in interest rates.  We
        do not deal in any foreign currencies and do not own any options, futures
        or
        other derivative instruments.  We do not have a significant amount of
        debt.
 
 Most
        of
        our assets consisted of investments in real estate loans, which from time
        to
        time include those that are financed under Inter-creditor
        Agreements.  At June 30, 2007, our aggregate investment in real estate
        loans was approximately $24.0 million, net of allowance, with a weighted
        average
        effective interest rate of 11.46%.  Most of the real estate loans had
        an initial term of 12 months.  The weighted average term of
        outstanding loans, including extensions, at June 30, 2007, was 15
        months.  All but two of the outstanding real estate loans at June 30,
        2007, was a fixed rate loan.  All of the real estate loans are held
        for investment purposes; none are held for sale.  We intend to hold
        such real estate loans to maturity.  None of the real estate loans had
        prepayment penalties and 12 had an exit fee.
 
 Market
        fluctuations in interest rates generally do not affect the carrying value
        of our
        investment in real estate loans.  However, significant and sustained
        changes in interest rates could affect our operating results.  If
        interest rates decline significantly, some of the borrowers could prepay
        their
        loans with the proceeds of a refinancing at lower interest
        rates.  This would reduce our earnings and funds available for
        distribution to members.  On the other hand, a significant increase in
        interest rates could result in a slowdown in real estate development activity
        that would reduce the demand for commercial real estate loans.  As a
        result, we might encounter greater difficulty in identifying appropriate
        borrowers.  We are not in a position to quantify the potential impact
        on our operating results from a material change in interest rates.
 
 The
        following table contains information about the investment in real estate
        loans
        held in our portfolio as of June 30, 2007.  The presentation
        aggregates the investment in real estate loans by their maturity dates for
        maturities occurring in each of the years 2007 through 2010 and thereafter
        and
        separately aggregates the information for all maturities arising after
        2010.  The carrying values of these assets approximate their fair
        value as of June 30, 2007.
 
 **Interest
                  Earning Assets**
                **Aggregated
                  by Maturity at June 30, 2007****Interest
                  Earning Assets**
              
              **2007**
              
              
              **2008**
              
              
              **2009**
              
              
              **2010**
              
              
              **Thereafter**
              
              
              **Total**Investments
                  in real estate loans
              
              $
              22,594,000
              
              
              $
              1,500,000
              
              
              $
              --
              
              
              $
              --
              
              
              $
              --
              
              
              $
              24,094,000Weighted
                  average interest rates
              
              
              11.38%
              
              
              
              12.67%
              
              
              
              --%
              
              
              
              --%
              
              
              
              --%
              
              
              
              11.46%
 
 At
        June
        30, 2007, we also had approximately $2.1 million invested in cash and marketable
        securities – related party (VRM II).  Approximately 3% of our
        aggregate members capital accounts will be held in such accounts as a cash
        reserve; additional deposits in such accounts will be made as funds are received
        from investors and repayment of loans pending the deployment of such funds
        in
        new real estate loans.  We believe that these financial assets do not
        give rise to significant interest rate risk due to their short-term
        nature.
 
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            33
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 *Table
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 **ITEM
                  4.**
              **CONTROLS
                  ANDPROCEDURES**
 
 **Evaluation
        of Disclosure Controls and Procedures**
 
 We
        maintain disclosure controls and procedures that are designed to ensure that
        information required to be disclosed in our reports under the Exchange Act
        is
        recorded, processed, summarized and reported within the time periods specified
        in the SEC's rules and forms, and that such information is accumulated and
        communicated to our management, including our manager’s Chief Executive Officer
        (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely
        decisions regarding required financial disclosure. In connection with the
        preparation of this Report on Form 10-Q, our management carried out an
        evaluation, under the supervision and with the participation of the our
        management, including our manager’s CEO and CFO, as of June 30, 2007, of the
        effectiveness of the design and operation of our disclosure controls and
        procedures, as such term is defined under Rule 13a-15(e) under the Exchange
        Act.  Based upon this evaluation, our manager’s CEO and CFO believe
        that these controls and procedures are adequate to ensure we are able to
        collect, process and disclose within the required time periods the information
        we are required to disclose in the reports we file with the SEC.
 
 The
        certifications of the our manager’s Chief Executive Officer and Chief Financial
        Officer required under Section 302 of the Sarbanes-Oxley Act have been filed
        as
        Exhibits 31.1 and 31.2 to this report.
 
 **Changes
        in Internal Control Over Financial Reporting**
 
 Our
        management has identified the following change in our internal controls over
        financial reporting during the Quarter ended June 30, 2007.  During
        April 2007, our manager appointed a Corporate Controller with the requisite
        experience to assist and work directly with our Chief Financial
        Officer.
 
 Because
        of the inherent limitations in all control systems, no evaluation of controls
        can provide absolute assurance that all control issues within our company
        have
        been or will be detected.  Even effective internal control over
        financial reporting can only provide reasonable assurance with respect to
        financial statement preparation.  Furthermore, because of changes in
        conditions, the effectiveness of internal control over financial reporting
        may
        vary over time.  Our management, including our manager’s Chief
        Executive Officer and Chief Financial Officer, does not expect that our controls
        and procedures will prevent all errors.
   **ITEM
                  4T.**
              **CONTROLSAND
                  PROCEDURES**
 
 See
        Item
        4 – *Controls and Procedures* above.
 
 **PART
        II – OTHER INFORMATION**
 
 **ITEM
                  1.**
              **LEGALPROCEEDINGS**
 
 Please
        refer to Note K *Legal Matters Involving the Manager* and Note L
*Legal Matters Involving the Company* in Part I Item 1 *Financial
        Statements* of this Form 10-Q for information regarding our legal
        proceedings, which are incorporated herein by reference.
   **ITEM
                  1A.**
              **RISKFACTORS**
 
 In
        considering our future performance and any forward-looking statements made
        in
        this report, the material risks described below should be considered
        carefully.  These factors should be considered in conjunction with the
        other information included elsewhere in this report.
 
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            34
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  **RISKS
        RELATED TO OUR BUSINESS**
 
 **Defaults
        on our real estate loans will decrease our revenues and members’
distributions.**
 
 We
        are in
        the business of investing in real estate loans and, as such, we are subject
        to
        risk of defaults by borrowers.  Our performance will be directly
        impacted by any defaults on the loans in our portfolio.  As a
        commercial real estate lender willing to invest in loans to borrowers who
        may
        not meet the credit standards of other financial institutional lenders, the
        rate
        of default on our loans could be higher than those generally experienced
        in the
        real estate lending industry.  Any sustained period of increased
        defaults could adversely affect our business, financial condition, liquidity
        and
        the results of our operations.  We seek to mitigate the risk by
        estimating the value of the underlying collateral and insisting on adequate
        loan-to-value ratios.  However, we cannot be assured that these
        efforts will fully protect us against losses on defaulted loans.  Any
        subsequent decline in real estate values on defaulted loans could result
        in less
        security than anticipated at the time the loan was originally made, which
        may
        result in our not recovering the full amount of the loan.  Any failure
        of a borrower to repay loans or interest on loans will reduce our revenues
        and
        members’ distributions and the value of members’ units.  Our weighted
        average loan-to-value ratio, as of June 30, 2007, was 68.78% as compared
        to
        65.06% as of December 31, 2006.  Our appraisals are generally dated
        within 12 months of the date of loan origination and may not reflect a decrease
        in the value of the real estate due to events subsequent to the date of the
        appraisals.
 
 As
        of
        June 30, 2007, we had in our portfolio approximately $2.7 million in delinquent
        loans and approximately $0.5 million of real estate held for sale for a total
        of
        approximately $3.2 million in non-performing assets, which represented
        approximately 12.00% of our members’ equity.  We do not believe that a
        rising interest rate environment will increase or accelerate our delinquency
        rate because all of our loans are short term.
 
 **Our
        underwriting standards and procedures are more lenient than other financial
        institutional lenders, which may result in a higher level of non-performing
        assets and less amounts available for distribution.**
 
 Our
        underwriting standards and procedures are more lenient than other financial
        institutional lenders in that we will invest in loans to borrowers who may
        not
        be required to meet the credit standards of other financial institutional
        real
        estate lenders, which may lead to an increase in non-performing assets in
        our
        loan portfolio and create additional risks of return.  We approve real
        estate loans more quickly than other lenders.  We rely heavily on
        third-party reports and information such as appraisals and environmental
        reports.  Because of our accelerated due diligence process, we may
        accept documentation that was not specifically prepared for us or commissioned
        by us.  This creates a greater risk of the information contained
        therein being out of date or incorrect.  Generally, we will not spend
        more than 20 days assessing the character and credit history of our
        borrowers.  Due to the nature of loan approvals, there is a risk that
        the credit inquiry we perform will not reveal all material facts pertaining
        to
        the borrower and the security.  There may be a greater risk of default
        by our borrowers, which may impair our ability to make timely distributions
        and
        which may reduce the amount we have available to distribute.
 
 **We
        depend upon our real estate security to secure our real estate loans, and
        we may
        suffer a loss if the value of the underlying property
        declines.**
 
 We
        depend
        upon our real estate security to protect us on the loans that we
        make.  We depend upon the skill of independent appraisers to value the
        security underlying our loans.  However, notwithstanding the
        experience of the appraisers, they may make mistakes, or the value of the
        real
        estate may decrease due to subsequent events.  Our appraisals are
        generally dated within 12 months of the date of loan origination and may
        have
        been commissioned by the borrower.  Therefore, the appraisals may not
        reflect a decrease in the value of the real estate due to events subsequent
        to
        the date of the appraisals.  In addition, most of the appraisals are
        prepared on an as-if developed basis, which approximates the post-construction
        value of the collateralized property assuming 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 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 the loan goes into default prior to completion of the
        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, we may not recover the full amount of
        our
        loan, thus reducing the amount of funds available to
        distribute.
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  **We
        typically make “balloon payment” loans, which are riskier than loans with
        payments of principal over an extended period of time.**
 
 The
        loans
        we invest in or purchase generally require the borrower to make a “balloon
        payment” on the principal amount upon maturity of the loan.  A balloon
        payment is a large principal balance that is payable after a period of time
        during which the borrower has repaid none or only a small portion of the
        principal balance.  As of June 30, 2007, all of our loans provided for
        payments of interest only with a “balloon” payment of principal payable in full
        at the end of the term.  Loans with balloon payments are riskier than
        loans with even payments of principal over an extended time period such as
        15 or
        30 years because the borrower’s repayment depends on its ability to sell the
        property profitably, obtain suitable refinancing or otherwise raise a
        substantial amount of cash when the loan comes due.  There are no
        specific criteria used in evaluating the credit quality of borrowers for
        loans
        requiring balloon payments.  Furthermore, a substantial period of time
        may elapse between the review of the financial statements of the borrower
        and
        the date when the balloon payment is due.  As a result, there is no
        assurance that a borrower will have sufficient resources to make a balloon
        payment when due.
 
 **Our
        loans are not guaranteed by any governmental agency.**
 
 Our
        loans
        are not insured or guaranteed by a federally owned or guaranteed mortgage
        agency.  Consequently, our recourse, if there is a default, may be to
        foreclose upon the real property securing a loan and/or pursuing the borrower’s
        guarantee of the principal.  The value of the foreclosed property may
        have decreased and may not be equal to the amount outstanding under the
        corresponding loan, resulting in a decrease of the amount available to
        distribute.
 
 **Our
        real estate loans may not be marketable, and we expect no secondary market
        to
        develop.**
 
 We
        do not
        expect our real estate loans to be marketable, and we do not expect a secondary
        market to develop for them.  As a result, we will generally bear all
        the risk of our investment until the loans mature.  This will limit
        our ability to hedge our risk in changing real estate markets and may result
        in
        reduced returns to our members.
 
 **Any
        borrowing by us will increase members risk and may reduce the amount we have
        available to distribute.**
 
 We
        may
        borrow funds to expand our capacity to invest in real estate
        loans.  We may borrow up to 70% of the fair market value of our
        outstanding real estate loans at any time.  Any such borrowings will
        require us to carefully manage our cost of funds.  No assurance can be
        given that we will be successful in this effort.  Should we be unable
        to repay the indebtedness and make the interest payments on the loans, the
        lender will likely declare us in default and require that we repay all amounts
        owing under the loan facility.  Even if we are repaying the
        indebtedness in a timely manner, interest payments owing on the borrowed
        funds
        may reduce our income and the distributions members receive.
 
 We
        may
        borrow funds from several sources, and the terms of any indebtedness we incur
        may vary.  However, some lenders may require as a condition of making
        a loan to us that the lender will receive a priority on loan repayments received
        by us.  As a result, if we do not collect 100% on our investments, the
        first dollars may go to our lenders and we may incur a loss that will result
        in
        a decrease of the amount available for distribution.  In addition, we
        may enter into securitization arrangements in order to raise additional
        funds.  Such arrangements could increase our leverage and adversely
        affect our cash flow and our ability to make distributions.
 
 During
        October 2006, we, our manager, Vestin Origination, Inc., VRM I and VRM II
        entered into an intercreditor agreement with an unrelated third party related
        to
        the funding of a construction real estate loan.  The secured borrowing
        will be recognized pro rata between us, VRM I and VRM II for the amount each
        entity has funded for the loan.  During May 2007, the secured
        borrowings were paid in full.
 
 Lenders
        may require us to enter into restrictive covenants that may have an adverse
        effect on our operations.****In connection with obtaining
        certain financing, a lender could impose restrictions on us that affect our
        ability to incur additional debt and our distribution and operating
        policies.
 
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  Increases
        in interest rates could increase the amount of our debt payments and adversely
        affect our ability to pay distributions to our members.****In
        addition, if rising interest rates cause us to need additional capital to
        repay
        indebtedness in accordance with its terms or otherwise, we would be required
        to
        liquidate one or more of our investments at times, which may not permit
        realization of the maximum return on such investments.
 
 **We
        may have difficulty protecting our rights as a secured
        lender.**
 
 We
        believe that our loan documents will enable us to enforce our commercial
        arrangements with borrowers.  However, the rights of borrowers and
        other secured lenders may limit our practical realization of those
        benefits.  For example:
 
 ·
              Judicial
                  foreclosure is subject to the delays of protracted
                  litigation.  Although we expect non-judicial foreclosure to be
                  quicker, our collateral may deteriorate and decrease in value during
                  any
                  delay in foreclosing on it;
 
 ·
              The
                  borrower’s right of redemption during foreclosure proceedings can deter
                  the sale of our collateral and can for practical purposes require
                  us to
                  manage the property;
 
 ·
              Unforeseen
                  environmental hazards may subject us to unexpected liability and
                  procedural delays in exercising our
                  rights;
 
 ·
              The
                  rights of senior or junior secured parties in the same property
                  can create
                  procedural hurdles for us when we foreclose on
                  collateral;
 
 ·
              We
                  may not be able to pursue deficiency judgments after we foreclose
                  on
                  collateral; and
 
 ·
              State
                  and federal bankruptcy laws can prevent us from pursuing any actions,
                  regardless of the progress in any of these suits or
                  proceedings.
 
 **By
        becoming the owner of property, we may incur additional obligations, which
        may
        reduce the amount of funds available for distribution.**
 
 We
        intend
        to own real property only if we foreclose on a defaulted loan and purchase
        the
        property at the foreclosure sale.  Acquiring a property at a
        foreclosure sale may involve significant costs.  If we foreclose on
        the security property, we expect to obtain the services of a real estate
        broker
        and pay the broker’s commission in connection with the sale of the
        property.  We may incur substantial legal fees and court costs in
        acquiring a property through contested foreclosure and/or bankruptcy
        proceedings.  In addition, significant expenditures, including
        property taxes, maintenance costs, mortgage payments, insurance costs and
        related charges, must be made on any property we own regardless of whether
        the
        property is producing any income.
 
 Under
        applicable environmental laws, any owner of real property may be fully liable
        for the costs involved in cleaning up any contamination by materials hazardous
        to the environment.  Even though we might be entitled to
        indemnification from the person that caused the contamination, there is no
        assurance that the responsible person would be able to indemnify us to the
        full
        extent of our liability.  Furthermore, we would still have court and
        administrative expenses for which we may not be entitled to
        indemnification.
 
 **A
        prolonged economic slowdown, lengthy or severe recession or significant increase
        in interest rates could harm our business.**
 
 The
        risks
        associated with our business are more acute during periods of economic slowdown
        or recession because these periods can be accompanied by decreased demand
        for
        consumer credit and declining real estate values.  As a commercial
        real estate lender willing to invest in riskier loans, rates of delinquencies,
        foreclosures and losses on our loans could be higher than those generally
        experienced in the commercial mortgage lending industry during periods of
        economic slowdown or recession.  Problems in the sub-prime residential
        mortgage market could adversely affect the general economy or the availability
        of funds for commercial real estate developers.
 
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  This
        in
        turn could lead to an increase in defaults on our loans.  Furthermore,
        if interest rates were to increase significantly, the costs of borrowing
        may
        become too expensive, which may negatively impact the refinance market by
        reducing demand for real estate lending.  For the six months ended
        June 30, 2007, loan originations accounted for all loans funded during that
        period.  Any sustained period of increased delinquencies, foreclosures
        or losses or a significant increase in interest rates could adversely affect
        our
        ability to originate, purchase and securitize loans, which could significantly
        harm our business, financial condition, liquidity and results of
        operations.
 
 As
        of
        June 30, 2007, none of our loans had a prepayment penalty and 12 loans had
        an
        exit fee.  Based on our manager’s historical experience, we expect
        that our loans will include exit fees.  Should interest rates
        decrease, our borrowers may prepay their outstanding loans with us in order
        to
        receive a more favorable rate.  This may reduce the amount of funds we
        have available to distribute.
 
 **Our
        results are subject to fluctuations in interest rates and other economic
        conditions.**
 
 Our
        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, we expect 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.  Alternatively, if the economy enters a recession, real
        estate development may slow.  A slowdown in real estate lending may
        mean we will have fewer loans to acquire, thus reducing our revenues and
        the
        distributions.
 
 One
        of
        the results of interest rate fluctuations is that borrowers may seek to extend
        their low-interest-rate loans after market interest rates have
        increased.  This creates two risks for us:
 
 ·
              If
                  interest rates rise, borrowers under loans with monthly or quarterly
                  principal payments may be compelled to extend their loans to decrease
                  the
                  principal paid with each payment because the interest component
                  has
                  increased.  If this happens, we are likely to be at a greater
                  risk of the borrower defaulting on the extended loan, and the increase
                  in
                  the interest rate on our loan may not be adequate compensation
                  for the
                  increased risk.  Additionally, any fees paid to extend the loan
                  are paid to Vestin Originations, not to us.  Our revenues and
                  distributions will decline if we are unable to reinvest at higher
                  rates or
                  if an increasing number of borrowers default on their loans;
                  and
 
 ·
              If,
                  at a time of relatively low interest rates, a borrower should prepay
                  obligations that have a higher interest rate from an earlier period,
                  we
                  will likely not be able to reinvest the funds in real estate loans
                  earning
                  that higher rate of interest.  In the absence of a prepayment
                  fee, we will receive neither the anticipated revenue stream at
                  the higher
                  rate nor any compensation for its loss.  This is a risk if the
                  loans we invest in do not have prepayment penalties or exit
                  fees.
 
 Our
        results will also reflect other economic conditions, such as a particular
        industry migrating to or from one of the states into which we make
        loans.
 
 **We
        face competition for real estate loans that may reduce available yields and
        fees
        available.**
 
 We
        consider our direct competitors to be the providers of real estate loans
        who
        offer short-term, equity-based loans on an expedited basis for higher fees
        and
        rates than those charged by other financial institutional lenders such as
        commercial banks, insurance companies, mortgage brokers and pension
        funds.  Many of the companies against which we compete have
        substantially greater financial, technical and other resources than either
        our
        company or our manager.  Competition in our 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.  If our competition decreases interest rates on their loans
        or makes funds more easily accessible, yields on our loans could decrease
        and
        the costs associated with making loans could increase, both of which would
        reduce our revenues and the distributions.
 
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  **We
        may invest in unimproved land loans that do not generate
        income.**
 
 Generally,
        15% to 25% of the loans invested in by us may be loans made for the purchase
        or
        development of raw, unimproved land.  Our manager, however, may
        deviate from these guidelines at its discretion, subject to the terms of
        our
        Operating Agreement.  Generally, we will determine whether to invest
        in these loans based upon the appraised value of the property and the borrower’s
        actual capital investment in the property.  We intend to invest in
        loans with a face value of up to 60% of the as-if developed appraised value
        of
        the property and we will usually require that the borrower have invested
        in the
        property actual capital expenditures of at least 25% of the property’s value;
        however, we may deviate from these guidelines under certain
        circumstances.  As-if developed values on raw and unimproved land
        loans often dramatically exceed the immediate sales value and may include
        anticipated zoning changes, and successful development by the purchaser;
        upon
        which development is dependent on availability of financing.  These
        loans are riskier because the property is not capable of generating any income,
        as compared to a commercial property.  As of June 30, 2007, 34% of our
        loans were secured by unimproved land.
 
 **We
        may invest in acquisition and development loans that do not generate
        income.**
 
 Generally,
        10% to 25% of the loans invested in by us may be acquisition and development
        loans.  Our manager, however, may deviate from these guidelines at its
        discretion, subject to the terms of our Operating Agreement.  These
        loans enable borrowers to acquire and/or complete the basic infrastructure
        and
        development of their property prior to the construction of buildings or
        structures.  Such development may include installing utilities,
        sewers, water pipes, and/or streets.  Generally, we may invest in
        loans with a face value of up to 60% of the as-if developed appraised value
        of
        the property; however, we may deviate from these guidelines under certain
        circumstances.  Such appraisals have the same valuation limitations as
        raw and unimproved land loans, described above.  As of June 30, 2007,
        13% of our loans were acquisition and development loans.
 
 **We
        may invest in construction loans that do not generate
        income.**
 
 Generally,
        10% to 70% of our loans may be construction loans.  Our manager,
        however, may deviate from these guidelines at its discretion, subject to
        the
        terms of our Operating Agreement.  These are loans generally made to
        real estate developers to fund the construction of one or more buildings
        on real
        property.  Funds under this type of loan will generally not be
        forwarded to the borrower until work in the previous phase of the project
        has
        been completed and an independent inspector has verified certain aspects
        of the
        construction and its costs.  We will typically require material and
        labor lien releases by the borrower per completed phase of the
        project.  We will review the appraised value of the property and
        proposed improvements, and will arrange loans for up to 75% of the as-if
        developed appraised value; however, we may deviate from these guidelines
        under
        certain circumstances.  Such appraisals have the same valuation
        limitations as raw and unimproved land loans, described above.  These
        loans are riskier than loans secured by income producing properties because
        during construction the borrower does not receive income from the property
        to
        make payments on the loan.  As of June 30, 2007, 16% of our loans were
        construction loans.
 
 **Our
        investments in commercial property loans may not yield the anticipated increase
        in value and income.**
 
 Generally,
        20% to 50% of the loans we invest in may be commercial property
        loans.  Our manager, however, may deviate from these guidelines at its
        discretion, subject to the terms of our Operating Agreement.  These
        loans provide funds to allow commercial borrowers to acquire income-producing
        property or to improve or renovate property to increase the value or net
        operating income of the property so that it may qualify for institutional
        refinancing.  Bridge loans are a subcategory of commercial loans in
        which we provide interim financing to enable commercial borrowers to qualify
        for
        permanent refinancing.  We will review the appraised value of the
        property and will invest in loans for up to 75% of such appraised value;
        however, we may deviate from these guidelines under certain
        circumstances.  To the extent such loans include renovations,
        appraisals may include as-if developed valuations with the limitations described
        above.  These loans are riskier because there is no assurance that the
        commercial borrower will qualify for the refinancing or that the improvements
        will yield the anticipated increase in value and income.  As of June
        30, 2007, 35% of our loans were commercial loans.
 
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  **We
        may invest in residential loans.**
 
 A
        small
        percentage of the loans invested in by us may be residential
        loans.  Our manager, however, may deviate from these guidelines at its
        discretion, subject to the terms of our Operating Agreement.  Such
        loans facilitate the purchase or refinance of one to four family residential
        property units provided the borrower used one of the units on the property
        as
        such borrower’s principal residence.  We will review the appraisal of
        the value of the property and will invest in loans for up to 75% of such
        appraised value; however, we may deviate from these guidelines under certain
        circumstances.  As of June 30, 2007, 2% of our loans were residential
        loans.
 
 **Investments
        in second deeds of trust and wraparound loans are subject to the rights of
        the
        first deed of trust.**
 
 We
        may
        also invest up to 10% of our total real estate loan assets in deeds of trust
        and, in rare instances, wraparound, or all-inclusive, real estate
        loans.  In a second deed of trust, our rights as a lender, including
        our rights to receive payment on foreclosure, will be subject to the rights
        of
        the first deed of trust.  In a wraparound real estate loan, our rights
        will be similarly subject to the rights of a first deed of trust, but the
        aggregate indebtedness evidenced by our loan documentation will be the first
        deed of trust plus the new funds we invest.  We would receive all
        payments from the borrower and forward to the senior lender its portion of
        the
        payments we receive.  Because both of these types of loans are subject
        to the first deed of trust’s right to payment on foreclosure, we incur a greater
        risk when we invest in each of these types of loans.  As of June 30,
        2007, 1% of our loans were secured by second deeds of trust.
 
 **Investment
        in large loans may reduce our ability to diversify our loan
        portfolio.**
 
 We
        will
        generally invest in loans that constitute an amount equal to less than 5%
        of our
        total capital.  However, we may invest in a larger loan depending on
        such factors as the performance of the Fund and the value of the
        collateral.  These larger loans have greater risk because they may
        reduce our ability to diversify our loan portfolio.  As of June 30,
        2007, our two largest loans comprised 14% or our total loan
        portfolio.
 
 **Taking
        a lease interest as collateral only provides a right to assume the borrower’s
        obligations under the lease.**
 
 We
        may
        invest up to 20% of our total real estate loan assets in loans where the
        collateral is an interest in a lease.  These loans are riskier because
        the only rights we will have are to assume the borrower’s obligations under the
        lease and to use the property for the length of time and in the limited manner
        permitted under the lease.  As of June 30, 2007, none of our loans
        were collateralized by leases.
 
 **As
        a result of our small size, we will not be able to build a diversified loan
        portfolio, thereby increasing our risk that defaults on one or more loans
        could
        have a material adverse effect upon our operating results.**
 
 We
        are
        limited in the number of real estate loans in which we may invest and the
        value
        of members’ investment will fluctuate with the performance of the specific
        investments we make.  As of June 30, 2007, we had approximately $26.9
        million in members’ equity and $24.0 million in outstanding loans, net of
        allowance, and we currently are not raising additional funds through the
        sale of
        units.  Accordingly, we are a relatively small fund and will make a
        limited number of investments resulting in less diversification in terms
        of the
        number of investments owned, the geographic regions in which our investments
        are
        located and the types of investments that we make as compared with larger
        funds.  As a result, our performance will be closely tied to the
        performance of each loan we invest in and a default on a loan could materially
        reduce the funds available for distribution.  Our profitability may be
        affected by the performance of any one of our investments and members’
investment in our units will be subject to greater risk.
 
 **Our
        loan portfolio may exhibit greater risk if it is not diversified
        geographically.**
 
 As
        of
        June 30, 2007, our loans were in the following states: Arizona, California,
        Nevada, Oklahoma, Oregon and Texas, with nearly half of our loans in
        Nevada.  Depending on the market and on our company’s performance, we
        plan to expand our investments throughout the United States.  However,
        our manager has limited experience outside of the Western and Southern United
        States.  Real estate markets vary greatly from location to location
        and the rights of secured real estate lenders vary considerably from state
        to
        state.
 
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  Our
        manager’s limited experience in most U.S. real estate markets may impact its
        ability to make prudent investment decisions on our
        behalf.  Accordingly, where our manager deems it necessary, it plans
        to utilize independent real estate advisors and local legal counsel located
        in
        markets where it lacks experience for consultation prior to making investment
        decisions.  Members will not have an opportunity to evaluate the
        qualifications of such advisors and no assurance can be given that they will
        render prudent advice to our manager.
 
 **Our
        lending operations are subject to certain regulatory
        requirements.**
 
 As
        a
        company investing in real estate loans and having raised funds through a
        public
        offering, we are subject to the NASAA Guidelines promulgated by the state
        securities administrators.  The NASAA Guidelines govern, among other
        things, our debt to equity ratio and the diversity and composition of our
        investments.  For example, the NASAA Guidelines provide that we may
        not invest in or make real estate loans to or from any one borrower that
        would
        exceed, in the aggregate, an amount greater than 20% of the capital
        contributions that we have raised.  Additionally, the NASAA Guidelines
        require reserves of not less than 1% of the offering proceeds.  The
        NASAA Guidelines are intended to protect the interests of
        investors.  However, our flexibility in making business decisions may
        be limited by our obligation to comply with the NASAA Guidelines.
 
 **We
        may have a lack of control over participations.**
 
 We
        will
        consider investing in or purchasing loans jointly with other lenders and
        purchasers, some of whom might be affiliates of Vestin Mortgage.  We
        will initially have, and will maintain a controlling interest as lead lender
        in
        participations with non-affiliates.  Although it is not our intention
        to lose control, there is a risk that we will be unable to remain as the
        lead
        lender in the loans in which we participate in the future.  In the
        event of participation with a publicly registered affiliate, the investment
        objectives of the participants shall be substantially
        identical.  There shall be no duplicate fees.  The
        compensation to the sponsors must be substantially identical, and the investment
        of each participant must be on substantially the same terms and
        conditions.  Each participant shall have a right of first refusal to
        buy the other's interest if the co-participant decides to sell its
        interest.  We will not participate in joint ventures or partnerships
        with affiliates that are not publicly registered except as permitted in the
        NASAA Guidelines.  If our co-participant affiliate determines to sell
        its interest in the loan, there is no guarantee that we will have the resources
        to purchase such interest and we will have no control over a sale to a third
        party purchaser.
 
 **MANAGEMENT
        AND CONFLICTS OF INTEREST RISKS**
 
 **We
        rely on our manager to manage our day-to-day operations and select our loans
        for
        investment.**
 
 Our
        ability to achieve our investment objectives and to make distributions depends
        upon our manager’s and its affiliate’s performance in obtaining, processing,
        making and brokering loans for us to invest in and determining the financing
        arrangements for borrowers.  Members have no opportunity to evaluate
        the financial information or creditworthiness of borrowers, the terms of
        mortgages, the real property that is our collateral or other economic or
        financial data concerning our loans.  Our manager has no fiduciary
        obligations to our members, is not required to devote its employees’ full time
        to our business and may devote time to business interests competitive to
        our
        business.
 
 **Our
        manager’s lack of experience with certain real estate markets could impact its
        ability to make prudent investments on our behalf.**
 
 As
        of
        June 30, 2007, our loans were in the following states:  Arizona,
        California, Nevada, Oklahoma, Oregon and  Texas.  Depending
        on the market and on our company’s performance, we plan to expand our
        investments throughout the United States.  However, our manager has
        limited experience outside of the Western and Southern United
        States.  Real estate markets vary greatly from location to location
        and the rights of secured real estate lenders vary considerably from state
        to
        state.  Our manager’s limited experience in most U.S. real estate
        markets may impact its ability to make prudent investment decisions on our
        behalf.  Accordingly, where our manager deems it necessary, it plans
        to utilize independent real estate advisors and local legal counsel located
        in
        markets where it lacks experience for consultation prior to making investment
        decisions.  Members will not have an opportunity to evaluate the
        qualifications of such advisors and no assurance can be given that they will
        render prudent advice to our manager.
 
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  **Our
        success depends on key personnel of our manager, the loss of whom could
        adversely affect our operating results, and on our manager’s ability to attract
        and retain qualified personnel.**
 
 Our
        success depends in part upon the continued contributions of certain key
        personnel of our manager, including; Michael V. Shustek (Chief Executive
        Officer
        and President), Rocio Revollo (Chief Financial Officer), James M. Townsend
        (Chief Operating Officer) and Daniel B. Stubbs (Senior Vice President,
        Underwriting) some of whom would be difficult to replace because of their
        extensive experience in the field, extensive market contacts and familiarity
        with our company.  If any of these key employees were to cease
        employment, our operating results could suffer.  None of the key
        personnel of our manager are subject to an employment, non-competition or
        confidentiality agreement with our manager, or us and we do not maintain
“key
        man” life insurance policies on any of them.  Our future success also
        depends in large part upon our manager’s ability to hire and retain additional
        highly skilled managerial, operational and marketing personnel.  Our
        manager may require additional operations and marketing people who are
        experienced in obtaining, processing, making and brokering loans and who
        also
        have contacts in the relevant markets.  Competition for personnel is
        intense, and we cannot be assured that we will be successful in attracting
        and
        retaining skilled personnel.  If our manager were unable to attract
        and retain key personnel, the ability of our manager to make prudent investment
        decisions on our behalf may be impaired.
 
 Any
        indemnification of our manager by us will decrease the amount available for
        distribution.  Pursuant to our Operating Agreement, we may be required
        to indemnify our manager or any of its affiliates, agents, or attorneys from
        any
        action, claim or liability arising from any act or omission made in good
        faith
        and in performance of its duties under the Operating Agreement.  The
        availability of such indemnification may reduce the amount of funds we have
        available for distribution.
 
 **Vestin
        Mortgage serves as our manager pursuant to our Operating
        Agreement.  It may be difficult to terminate Vestin Mortgage and our
        Operating Agreement does not reflect arm’s length
        negotiations.**
 
 Pursuant
        to the terms of our Operating Agreement, Vestin Mortgage acts as our
        manager.  The term of the Operating Agreement is for the duration of
        our existence.  Vestin Mortgage may only be terminated as manager upon
        the affirmative vote of a majority of members entitled to vote on the
        matter.  Consequently, it may be difficult to replace our manager in
        the event that our performance does not meet expectations or for other
        reasons.  The Operating Agreement was negotiated by related parties
        and may not reflect terms as favorable as those subject to arm’s length
        bargaining.
 
 **Our
        manager will face conflicts of interest concerning the allocation of its
        personnel’s time.**
 
 Our
        manager is also the manager of VRM I, VRM II and inVestin, companies with
        investment objectives similar to ours.  Our manager and Mr. Shustek,
        who indirectly owns 100% of our manager, anticipate that they may also sponsor
        other real estate programs having investment objectives similar to
        ours.  As a result, our manager and Mr. Shustek may have conflicts of
        interest in allocating their time and resources between our business and
        other
        activities.  During times of intense activity in other programs and
        ventures, our manager and its key people will likely devote less time and
        resources to our business than they ordinarily would.  Our Operating
        Agreement does not specify a minimum amount of time and attention that our
        manager and its key people are required to devote to our
        company.  Thus, our manager may not spend sufficient time managing our
        operations, which could result in our not meeting our investment
        objectives.
 
 **Our
        manager and its affiliates will face conflicts of interest arising from our
        fee
        structure.**
 
 Vestin
        Originations, an affiliate of our manager, will receive substantial fees
        from
        borrowers for transactions involving real estate loans.  Many of these
        fees are paid on an up-front basis.  In some cases, Vestin
        Originations is entitled to additional fees for loan extensions or modifications
        and loan assumptions and reconveyances.  Vestin Originations’
compensation is based on the volume and size of the real estate loans selected
        for us, regardless of their performance, which could create an incentive
        to make
        or extend riskier loans.  Our interests may diverge from those of our
        manager, Vestin Originations and Mr. Shustek to the extent that Vestin
        Originations benefits from up-front fees that are not shared with
        us.
 
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  Vestin
        Originations will be receiving fees from borrowers that would otherwise increase
        our returns.  Because Vestin Originations receives all of these fees,
        our interests will diverge from those of our manager, Vestin Originations
        and
        Mr. Shustek when our manager decides whether we should charge the borrower
        higher interest rates or our manager’ affiliates should receive higher fees from
        borrowers.
 
 We
        paid
        our manager a total of $7,000 for the six months ended June 30, 2007, for
        managing us.  In addition, Vestin Mortgage and Vestin Originations
        received a total of $72,000 and approximately $5.7 million, respectively
        in fees
        directly from borrowers for the six months ended June 30, 2007.  The
        amounts received from borrowers represent fees earned by Vestin Mortgage
        and
        Vestin Originations for loans originated for all funds managed by Vestin
        Mortgage, including us, VRM I, VRM II and inVestin.  Our assets
        represented approximately 6% of the assets managed by Vestin Mortgage as
        of June
        30, 2007.
 
 **Our
        manager will face conflicts of interest relating to other investments in
        real
        estate loans.**
 
 We
        expect
        to invest in real estate loans where our manager or one or more other companies
        managed by our manager are also investing in real estate loans.  There
        is a risk that our manager may select for us a real estate loan investment
        that
        provides lower returns than a real estate loan investment purchased by another
        program or entity managed by our manager.  Our manager also serves as
        the manager for VRM I, VRM II and inVestin, which have similar investment
        objectives as our company.  There are no restrictions or guidelines on
        how our manager will determine which loans are appropriate for us and which
        are
        appropriate for VRM I, VRM II, inVestin or another company that our manager
        manages.  Moreover, our manager has no obligation to provide us with
        any particular opportunities or even a pro rata share of opportunities afforded
        to other companies it manages.
 
 **INVESTMENT
        RISKS**
 
 **Units
        lack liquidity and marketability.**
 
 There
        is
        no public trading market for units, and members cannot freely sell or transfer
        units or use them as collateral for a loan.  Currently, we do not
        intend to list the units on any national exchange or on Nasdaq.  Our
        Operating Agreement restricts the transfer of units so that we may avoid
        being
        classified as a “publicly traded partnership” under Section 7704 of the Internal
        Revenue Code.  If we were classified as a publicly traded partnership
        taxable as a corporation, the taxable income derived from our operations
        would
        be subject to the double tax system applicable to corporations and shareholders
        for federal income tax purposes (i.e., the taxable income would be subject
        to
        tax at the entity level at regular corporate tax rates and members would
        be
        subject to tax at distribution or capital gain rates on our share of our
        taxable
        income to the extent we distribute).  As a result of this entity level
        tax, cash available for distribution to unit holders would be significantly
        reduced which in turn would result in a significant reduction in the value
        of
        members’ units.  In order to attempt to avoid these adverse income tax
        consequences, members may not sell or assign their units and will not be
        entitled to have their units redeemed without the consent of our
        manager.  Our manager will withhold its consent to any sale,
        assignment or redemption of units to the extent necessary to prohibit transfers
        that could cause us to be classified as a publicly traded
        partnership.  Further, the resale of units may be restricted by state
        securities laws.
 
 **Members
        have limited ability to have units redeemed**.
 
 Members
        have a limited ability to have their units redeemed by us.  Requests
        by members for redemptions are honored in the order in which they are received
        by the manager.  The significant limitations on the ability to have
        units redeemed are the following:
 
 ·
              There
                  is no reserve fund for redemptions.
 
 **·**
              Redemption
                  payments are made only to the extent we have available cash from
                  proceeds
                  of repayments of principal on real estate loans and capital contributions;
                  and the redemption would not impair the capital or operation of
                  the
                  Fund.  Accordingly, a significant amount of redemption requests
                  may delay the payment of subsequent
                  redemptions**.**
 
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 ·
              The
                  total amount withdrawn by all members during any calendar year
                  cannot
                  exceed 10% of the amount of capital accounts of all the members
                  with a
                  yearly limit of $100,000 per member subject to the manager’s discretion to
                  allow a greater amount.
 
 ·
              We
                  will only make redemption payments once a
                  quarter.
 
 Because
        a
        substantial portion of our loans are made on an “interest only” basis, we will
        not receive proceeds from the repayment of principal as frequently as we
        would
        with loans where the principal is repaid in periodic installments.  To
        help permit redemptions, we will not refinance or invest in new loans using
        payments of loan principal by borrowers or new invested capital of members
        unless we have sufficient funds to cover permitted withdrawals.
 
 **ITEM
                  2.**
              **UNREGISTEREDSALES
                  OF EQUITY AND USE OF
                  PROCEEDS**
 
 **Market
        Information**
 
 There
        is
        no established public trading market for the trading of Units.
 
 **Holders**
 
 As
        of
        July 31, 2007, 676 accounts held 2,525,561 of our units.
 
 **Distribution
        Policy**
 
 We
        generally distribute to Unit holders on a monthly basis most of our Net Income
        Available for Distribution (as defined in our 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 accounting principles generally accepted in
        the
        United States (“GAAP”).  Our Operating Agreement also permits
        distributions of capital.  We made distributions of approximately $1.2
        million (prior to reinvested distributions) during the six months ended June
        30,
        2007, all of which were paid from Net Income Available for
        Distribution.  It is our intention to continue to distribute our Net
        Income Available for Distribution to our Unit holders.
 
 **Recent
        Sales of Unregistered Securities**
 
 None.
 
 **Equity
        Compensation Plan Information**
 
 None.
 
 **Purchases
        of Equity Securities by the Issuer and Affiliated
        Purchasers**
 
 **Period**
              
              **Total
                  Number of Units Purchased (1)**
              
              
              **Average
                  Price Paid per Unit**
              
              **Total
                  Number of Units Purchased as Part of Publicly Announced Plans or
                  Programs**
              **Maximum
                  Number (or Approximate Dollar Value) of Units that May Yet be Purchased
                  under the Plans or Programs**April
                  2007
              
              
              4,999
              
              
              $
              11.00
              
              None
              NoneMay
                  2007
              
              
              4,612
              
              
              $
              11.00
              
              None
              NoneJune
                  2007
              
              
              --
              
              
              $
              11.00
              
              None
              None
 
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 (1)
              Pursuant
                  to our Operating Agreement, members may request to have their units
                  redeemed.  However, in order to comply with our Operating
                  Agreement and Internal Revenue Code, we may redeem no more than
                  10% of the
                  aggregate Members’ capital in any calendar year.  Balances in
                  Members’ capital accounts as of January 1, 2007 were approximately $30.4
                  million, which limits redemptions to approximately $3.0 million
                  for
                  calendar year 2007.
 
 **ITEM
                  3.**
              **DEFAULTS
                  UPONSENIOR
                  SECURITIES**
 
 None.
 
 **ITEM
                  4.**
              **SUBMISSIONOF
                  MATTERS TO A VOTE OF SECURITY
                  HOLDERS**
 
 None.
 
 **ITEM
                  5.**
              **OTHERINFORMATION**
 
 None.
 
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 **ITEM
                  6.**
              **EXHIBITS**
 
 **EXHIBIT
        INDEX**
 
 **Exhibit
                  No.**
              
              **Description
                  of Exhibits**3.1(1)
              
              Articles
                  of Organization3.2(2)
              
              Certificate
                  of Amendment to Articles of Organization3.3(3)
              
              Amended
                  and Restated Operating Agreement (included as Exhibit A to the
                  prospectus)4(4)
              
              Distribution
                  Reinvestment Plan10.7
                  (5)
              
              Purchase
                  and Sale Agreement, dated August 1, 2004, by and between Luke Properties,
                  LLC and Vestin Fund III, LLC10.8
                  (5)
              
              Assignment
                  and Assumption Agreement dated August 16, 2004 by and between Vestin
                  Fund
                  III, LLC and VF III HQ, LLC10.9(6)
              
              Office
                  lease agreement dated March 31, 2003 by and between Luke Properties,
                  LLC
                  and Vestin Group, Inc.10.10(7)
              
              Intercreditor
                  Agreement, dated October 13, 2006, by and between Vestin Originations,
                  Inc., Vestin Mortgage, Inc. Vestin Realty Mortgage I, Inc., Vestin
                  Realty
                  Mortgage II, Inc., Vestin Fund III, LLC, Owens Financial Group,
                  Inc. and
                  Owens Mortgage Investment Fund31.1
              
              Section
                  302 Certification of Michael V.
                  Shustek31.2
              
              Section
                  302 Certification of Rocio
                  Revollo32
              
              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 Form 10-Q filed on August 16, 2004,
                  File No.
                  333-105017.(3)
              
              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.(4)
              
              Incorporated
                  herein by reference to Exhibit 4.4 of our Post-Effective Amendment
                  No. 5
                  to Form S-11 Registration Statement filed on April 28, 2006, File
                  No.
                  333-105017.(5)
              
              Incorporated
                  herein by reference to our Form 10-Q filed on November 15, 2004,
                  File No.
                  333-105017.(6)
              
              Incorporated
                  herein by reference to our Form 10-KSB filed on March 30, 2005,
                  File No.
                  333-105017.(7)
              
              Incorporated
                  herein by reference to the Quarterly Report on Form 10-Q for the
                  three
                  months ended September 30, 2006 filed on November 8, 2006 (File
                  No.
                  000-51301)
 
 
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 **SIGNATURES**
 Pursuant
        to the requirements of Section 13 or 15(d) 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, LLCBy:
              
              Vestin
                  Mortgage, Inc., its sole ManagerBy:
              
              */s/
                  Michael V. Shustek*Michael
                  V. ShustekChief
                  Executive Officer and Sole Director of the Manager(Principal
                  Executive Officer of Manager)By:
              
              */s/ Rocio
                  Revollo*Rocio
                  RevolloChief
                  Financial Officer of the Manager(Principal
                  Financial and Accounting Officer of the
                  Manager)
 
 Dated:
        August 10, 2007
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