**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** **SEPTEMBER
      30, 2006**





**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
      November 8, 2006, 2,783,533 Units of interest in the Company were
      outstanding.








**TABLEOF
      CONTENTS**





PAGEPart
                I
            FINANCIAL
                INFORMATIONItem
                1.
            Consolidated
                Financial StatementsConsolidated
                Balance Sheets as of September 30, 2006
                (unaudited) and December 31, 2005
            2Consolidated
                Statements of Income (unaudited) for the
                Three and Nine Months Ended September 30, 2006 and
                2005
            3Consolidated
                Statement of Members’ Equity andComprehensiveIncome (unaudited) for the Nine Months Ended September 30,
                2006
            4Consolidated
                Statements of Cash Flows (unaudited) for the
                Nine Months Ended September 30, 2006 and 2005
            5Notes
                to Consolidated Financial Statements
                (unaudited)
            7Report
                of Independent Registered Public Accounting
                Firm
            26Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition
                and Results of Operations
            27Item
                3.
            Quantitative
                and Qualitative Disclosures About Market
                Risk
            38Item
                4.
            Control
                and Procedures
            39Part
                II
            OTHER
                INFORMATIONItem
                1.
            Legal
                Proceedings
            41Item
                1A.
            Risk
                Factors
            41Item
                2.
            Unregistered
                Sales of Equity - Securities and Use of
                Proceeds
            41Item
                3.
            Defaults
                Upon Senior Securities
            42Item
                4.
            Submission
                of Matters to a Vote of Security
                Holders
            42Item
                5.
            Other
                Information
            42Item
                6.
            Exhibits
            43SIGNATURES
            44Exhibit
                31.1Exhibit
                31.2Exhibit
                32Exhibit
                10.10




-
          1
          -
 *Table
          of Content*


**PARTI
      - FINANCIAL INFORMATION**





**ITEM1.**  **CONSOLIDATED
      FINANCIAL STATEMENTS**





**VESTINFUND
                III, LLC****CONSOLIDATED
                BALANCE SHEETS****ASSETS****September
                30, 2006**
            
            **December
                31, 2005****(UNAUDITED)**AssetsCash
            
            $
            459,000
            
            $
            1,167,000Investment
                in marketable securities - related party
            
            
            832,000
            
            
            --Interest
                and other receivables
            
            
            191,000
            
            
            194,000Investment
                in real estate loans, net of allowance for loan losses of $73,000
                at
                September 30, 2006 and December 31, 2005
            
            
            20,747,000
            
            
            22,964,000Investment
                in real property, net of accumulated depreciation of $445,000 at
                September
                30, 2006 and $287,000 at December 31, 2005
            
            
            9,433,000
            
            
            9,591,000Capitalized
                loan fees, net of amortization of $24,000 at September 30, 2006 and
                $16,000 at December 31, 2005
            
            
            91,000
            
            
            99,000Assets
                under secured borrowings
            
            
            --
            
            
            527,000Deferred
                rent receivable - related party
            
            
            269,000
            
            
            168,000Total
                assets
            
            $
            32,022,000
            
            $
            34,710,000**LIABILITIES
                AND MEMBERS' EQUITY**LiabilitiesAccounts
                payable and accrued liabilities
            
            $
            114,000
            
            $
            156,000Due
                to Manager
            
            
            --
            
            
            38,000Secured
                borrowings
            
            
            --
            
            
            527,000Note
                payable
            
            
            4,766,000
            
            
            4,830,000Total
                liabilities
            
            
            4,880,000
            
            
            5,551,000Commitments
                and ContingenciesMembers'
                equity - authorized 10,000,000 units, 2,772,439 units and 2,974,419
                units
                issued and outstanding at September 30, 2006 and December 31, 2005
                respectively
            
            
            27,142,000
            
            
            29,159,000Total
                members' equity
            
            
            27,142,000
            
            
            29,159,000Total
                liabilities and members' equity
            
            $
            32,022,000
            
            $
            34,710,000




The
          accompanying notes are an intergral part of these statements.
 See
          review report of Independent Registered Public Accounting Firm.
 -
          2
          -
 *Table
          of Content*





**VESTINFUND
                III, LLC****CONSOLIDATED
                STATEMENTS OF INCOME****(UNAUDITED)****FOR
                THE THREE MONTHS ENDED SEPTEMBER 30,**
            
            **FOR
                THE NINE MONTHS ENDED SEPTEMBER 30,****2006**
            
            **2005**
            
            **2006**
            
            **2005****Revenues**Interest
                income from investment in real estate loans
            
            $
            567,000
            
            $
            599,000
            
            $
            1,703,000
            
            $
            1,909,000Rental
                Income - related party
            
            
            263,000
            
            
            215,000
            
            
            777,000
            
            
            645,000Other
                income
            
            
            22,000
            
            
            45,000
            
            
            85,000
            
            
            63,000Total
                revenues
            
            
            852,000
            
            
            859,000
            
            
            2,565,000
            
            
            2,617,000**Operating
                expenses**Management
                fees - related party
            
            
            12,000
            
            
            8,000
            
            
            36,000
            
            
            42,000Interest
                expense related to secured borrowings
            
            
            --
            
            
            10,000
            
            
            14,000
            
            
            130,000Interest
                expense related to investment in real estate
            
            
            69,000
            
            
            92,000
            
            
            205,000
            
            
            231,000Provision
                for loan losses
            
            
            --
            
            
            --
            
            
            --
            
            
            37,000Depreciation
                and amortization
            
            
            56,000
            
            
            56,000
            
            
            166,000
            
            
            167,000Professional
                fees
            
            
            59,000
            
            
            20,000
            
            
            156,000
            
            
            169,000Professional
                fees - related party
            
            
            10,000
            
            
            27,000
            
            
            14,000
            
            
            90,000Other
            
            
            3,000
            
            
            3,000
            
            
            11,000
            
            
            19,000Total
                operating expenses
            
            
            209,000
            
            
            216,000
            
            
            602,000
            
            
            885,000**NET
                INCOME**
            
            $
            643,000
            
            $
            643,000
            
            $
            1,963,000
            
            $
            1,732,000Net
                income allocated to members
            
            $
            643,000
            
            $
            643,000
            
            $
            1,963,000
            
            $
            1,732,000Net
                income allocated to members per weighted average membership
                units
            
            $
            0.22
            
            $
            0.22
            
            $
            0.67
            
            $
            0.63Weighted
                average membership units
            
            
            2,878,643
            
            
            2,865,842
            
            
            2,934,344
            
            
            2,769,380




The
          accompanying notes are an intergral part of these statements.
 See
          review report of Independent Registered Public Accounting Firm.
 -
          3
          -
 *Table
          of Content*





**VESTINFUND
                III, LLC****CONSOLIDATED
                STATEMENT OF MEMBERS' EQUITY AND COMPREHENSIVE
                INCOME****FOR
                THE NINE MONTHS ENDED SEPTEMBER 30, 2006****(UNAUDITED)****Units**
            
            **Amount**Members'
                equity at December 31, 2005
            
            
            2,974,419
            
            $
            29,159,000Comprehensive
                income:Net
                income
            
            
            
            
            
            1,963,000Unrealized
                loss on marketable securities
            
            
            
            
            
            (16,000
            )Total
                comprehensive income
            
            
            
            
            
            1,947,000Distributions
            
            
            
            
            
            (1,929,000
            )Reinvestments
                of distributions
            
            
            61,085
            
            
            642,000Members'
                redemptions
            
            
            (263,065
            )
            
            (2,741,000
            )Capital
                contribution by manager for forgiveness of debt
            
            
            
            
            
            64,000Members'
                equity at September 30, 2006 (Unaudited)
            
            
            2,772,439
            
            $
            27,142,000




The
          accompanying notes are an intergral part of these statements.
 See
          review report of Independent Registered Public Accounting Firm.
 -
          4
          -
 *Table
          of Content*





**VESTIN
                FUNDIII, LLC****CONSOLIDATED
                STATEMENTS OF CASH FLOWS****(UNAUDITED)****FOR
                THE NINE MONTHS**
              **ENDED
                SEPTEMBER 30,****2006**
            
            **2005****Cash
                flows from operating activities:**Net
                income
            
            $
            1,963,000
            
            $
            1,732,000Adjustments
                to reconcile net income to net cash provided by operating
                activities:Depreciation
            
            
            158,000
            
            
            158,000Amortization
                of capitalized loan fees
            
            
            8,000
            
            
            9,000Provision
                for loan losses
            
            
            --
            
            
            37,000Change
                in operating assets and liabilities:Interest
                receivable
            
            
            3,000
            
            
            (61,000
            )Deferred
                rent receivable
            
            
            (101,000
            )
            
            --Accounts
                payable
            
            
            (42,000
            )
            
            68,000Due
                to VRM I
            
            
            --
            
            
            (6,000
            )Due
                to Manager
            
            
            26,000
            
            
            (246,000
            )Net
                cash provided by operating activities
            
            
            2,015,000
            
            
            1,691,000**Cash
                flows from investing activities:**Investments
                in real estate loans
            
            
            (19,423,000
            )
            
            (14,737,000
            )Proceeds
                from loan payoff
            
            
            16,740,000
            
            
            5,391,000Purchase
                of marketable securities - related party
            
            
            (848,000
            )
            
            --Proceeds
                from title settlement on investment in real property
            
            
            --
            
            
            13,000Proceeds
                received from sale of real estate loans to VRM II
            
            
            4,900,000
            
            
            500,000Net
                cash provided (used) by investing activities
            
            
            1,369,000
            
            
            (8,833,000
            )**Cash
                flows from financing activities:**Proceeds
                from issuance of member units
            
            
            --
            
            
            3,857,000Payments
                on notes payable
            
            
            (64,000
            )
            
            (76,000
            )Members'
                redemptions
            
            
            (2,741,000
            )
            
            (167,000
            )Members'
                distributions, net of reinvestments
            
            
            (1,228,000
            )
            
            (1,062,000
            )Members'
                distributions, net of reinvestments related party
            
            
            (59,000
            )
            
            (81,000
            )Net
                cash (used) provided by financing activities
            
            
            (4,092,000
            )
            
            2,471,000**NET
                CHANGE IN CASH**
            
            
            (708,000
            )
            
            (4,671,000
            )**Cash,
                beginning of period**
            
            
            1,167,000
            
            
            6,286,000**Cash,
                end of period**
            
            $
            459,000
            
            $
            1,615,000




The
          accompanying notes are an intergral part of these statements.
 See
          review report of Independent Registered Public Accounting Firm.
 -
          5
          -
 *Table
          of Content*





**VESTIN
                FUND III, LLC****CONSOLIDATED
                STATEMENTS OF CASH FLOWS****(UNAUDITED)****FOR
                THE NINE MONTHS**
              **ENDED
                SEPTEMBER 30,****2006**
            
            **2005****Supplemental
                disclosures of cash flows information:**Interest
                paid during the period
            
            $
            219,000
            
            $
            241,000**Non-cash
                investing and financing activities:**Unrealized
                loss on marketable securities - related party
            
            $
            16,000
            
            $
            --Loans
                paid in full funded through secured borrowings
            
            $
            527,000
            
            $
            --Capital
                contribution by Manager through forgiveness of liability due to our
                Manager
            
            $
            64,000
            
            $
            --Offering
                costs paid by Vestin Mortgage, Inc. recorded as deferred offering
                costs
                and due to manager on the accompanying balance sheet
            
            $
            --
            
            $
            94,000Loans
                funded through secured borrowings
            
            $
            --
            
            $
            2,374,000











The
          accompanying notes are an intergral part of these statements.
 See
          review report of Independent Registered Public Accounting Firm.
 -
          6
          -
 *Table
          of Content*


**VESTIN
      FUNDIII, LLC**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS** ****





**SEPTEMBER
      30, 2006**





**(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 .
      In this
      report we refer to Vestin Fund III, LLC as “the Company”, “our Company”, the
“Fund”, “we”, “us”, or “our”. 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 secured by real estate through deeds
      of
      trust or mortgages (hereafter referred to as “deeds of trust”), investments in
      real estate and raising funds through our Distribution Reinvestment Plan, we
      are
      subject to the North American Securities Administration Act Mortgage Program
      Guidelines and Real Estate Guidelines (collectively, the “NASAA Guidelines”)
      promulgated by the state securities administrators.





On
      November 7, 2003, our Registration Statement as filed with the Securities and
      Exchange Commission became effective for the initial public offering of up
      to
      10,000,000 units at $10 per unit (“Unit”). On November 7, 2005, we discontinued
      the offering, having sold 2,865,921 Units. Members may participate in our
      Distribution Reinvestment Plan whereby the members’ distributions may be used to
      purchase additional Units at the current value. As of September 30, 2006,
      approximately 204,998 Units had been purchased under this plan.





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 the
      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. which
      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, the 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 the Manager subject to a majority vote of
      the
      members.





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.


See
          review report of Independent Registered Public Accounting Firm.
 -
          7
          -
 *Table
          of Content*


The
      consolidated 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.





The
      results of operations for the interim periods shown in this report are not
      necessarily indicative of results to be expected for the full year. In the
      opinion of management, the information contained herein reflects all adjustments
      necessary to make the results of operations for the interim periods a fair
      statement of such operation. All such adjustments are of a normal recurring
      nature.





**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.





**Revenue
      Recognition**





Interest
      is recognized as revenue when earned according to the terms of the loans, using
      the effective interest method. We do not recognize 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.





Our
      lease
      provides for tenant occupancy during periods for which no rent is due or where
      minimum rent payments increase during the term of the lease. Rental revenue
      is
      recorded for the full term of the lease on a straight-line basis. Accordingly,
      the Company records a receivable from tenants for rents that it expects to
      collect over the remaining lease term as deferred rents receivable. When the
      Company acquires a property, the term of the existing lease is considered to
      commence as of the acquisition date for the purposes of this calculation.
      Revenue recognition is considered to be critical because the evaluation of
      the
      reliability of such deferred rent receivable involves management’s assumptions
      relating to such tenant’s viability.





We
      recognize income from rent once all of the following criteria are met in
      accordance with the Statement of Financial Accounting Standards (“FAS”) 13 *Accounting
      for Leases* (“FAS
      13”):





·
            The
                agreement has been fully executed and
                delivered;





·
            Services
                have been rendered;





·
            The
                amount is fixed or determinable;
                and





·
            The
                collectibility is reasonably
                assured.




See
          review report of Independent Registered Public Accounting Firm.
 -
          8
          -
 *Table
          of Content*


**Investments
      in Real Estate Loans**





We
      may
      from time to time acquire or sell investments in real estate loans from or
      to
      the Manager or other related parties pursuant to the terms of our Operating
      Agreement provided the price does not exceed the original cost. 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. For example, our Operating Agreement provides certain
      guidelines with respect to loan concentration by dollar amount, loan type and
      lien position. 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.





Investments
      in real estate loans are secured by deeds of trust or mortgages (hereafter
      referred to as “deeds of trust”). 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 made. If there is less security
      and a default occurs, we may not recover the full amount of the
      loan.





As
      of
      September 30, 2006, 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 also invest in real estate loans that have interest reserves.
      Loans
      with interest reserves require the borrowers to maintain interest reserves
      funded from the principal amount of the loan for a period of time. At September
      30, 2006, we had $12.3 million in investments in real estate loans that had
      interest reserves where the total outstanding principal was approximately $134.0
      million, including participating lenders. These loans had interest reserves
      of
      approximately $7.2 million, of which our portion was $0.7 million. At December
      31, 2005, we had $3.9 million invested in real estate loans that had interest
      reserves where the total outstanding principal was approximately $25.1 million,
      including participating lenders. These loans had interest reserves of
      approximately $2.4 million, of which our portion was $0.7 million.





**Allowance
      for Loan Losses**





We
      maintain an allowance for loan losses on our investments in real estate loans
      for estimated credit impairment. The Manager’s estimate of losses is based on a
      number of factors including the types and dollar amounts of loans in the
      portfolio, adverse situations that may affect the borrower’s ability to repay,
      prevailing economic conditions and the underlying collateral securing the loan.
      Additions to the allowance are provided through a charge to earnings and are
      based on an assessment of certain factors, which may indicate estimated losses
      on the loans. Actual losses on loans are recorded as a charge-off or a reduction
      to the allowance for loan losses. Subsequent recoveries of amounts previously
      charged off are added back to the allowance or included as
      income.


See
          review report of Independent Registered Public Accounting Firm.
 -
          9
          -
 *Table
          of Content*


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 non-conventional
      lender willing to invest in loans to borrowers who may not meet the credit
      standards of conventional lenders, the default rate on our loans could be higher
      than those generally experienced in the real estate lending industry. We
      generally approve 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 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 property;
                and





·
            Appraisals,
                which are only opinions of value at the time of the appraisal, may not
                accurately reflect the value of the
                property.





**Investments
      in Real Property**





Real
      property is stated at cost, less accumulated depreciation. Amounts capitalized
      as investments in real property consist of the cost of acquisition or
      construction and any tenant improvements or major improvements that extend
      the
      useful life of the related asset. All repairs and maintenance are expensed
      as
      incurred. Upon acquisition, the purchase price of the property is allocated
      to
      land, building and improvements and other intangible assets and associated
      liabilities as required by FAS 141 - *Business
      Combinations* (“FAS
      141”). The allocation to land is based on an estimate of its fair value based on
      available information, including appraisals. The allocation to other intangible
      assets represents the value associated with the in-place leases, including
      leasing commissions, legal and other related costs.





Real
      property is depreciated using the straight-line method over the useful lives
      of
      the assets by class generally as follows:





Land
            
            Not
                DepreciatedBuilding
            
            40
                YearsBuilding
                Improvements
            
            10-25
                YearsLand
                Improvements
            
            20-25
                YearsTenant
                Improvements
            
            Lease
                TermIntangible
                Lease Assets including capitalized loan fees
            
            Lease
                Term




See
          review report of Independent Registered Public Accounting Firm.
 -
          10
          -
 *Table
          of Content*


Our
      Manager continually monitors events and changes in circumstances that could
      indicate carrying amounts of real estate and related intangible assets may
      not
      be recoverable. When indicators of potential impairment are present, our Manager
      assesses the recoverability of the assets by determining whether the carrying
      value of the real estate and related intangible assets will be recovered through
      the undiscounted future cash flows expected from the use and eventual
      disposition of the asset. In the event the expected undiscounted future cash
      flows do not exceed the carrying value, we adjust the real estate and intangible
      assets to their fair value and recognize an impairment loss. Our Manager has
      determined there has been no impairment in the carrying value of real property
      held by us during the nine months ended September 30, 2006.





**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 revenues for entering into secured borrowing arrangements.
      Loans
      in which third party investors have participated through inter-creditor
      agreements (“Inter-creditor Agreements”) are accounted for as secured borrowings
      in accordance with 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 a third party investor (the “Investor”) may
      participate on a senior 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 borrowing arrangements. As of September 30, 2006, we
      have
      no outstanding 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
      September 30, 2006. All securities are classified as available-for-sale under
      the provisions of FAS No. 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 the Company’s 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.




See
          review report of Independent Registered Public Accounting Firm.
 -
          11
          -
 *Table
          of Content*


At
      September 30, 2006 and December 31, 2005, the estimated fair value of the real
      estate loans was approximately $20.8 million and $23.0 million, respectively.
      At
      September 30, 2006 we had no assets under secured borrowings. The estimated
      fair
      value of assets under secured borrowings, as of December 31, 2005, was
      approximately $0.5 million. 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.





**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.





**Reclassifications**





Certain
      reclassifications have been made to the prior periods’ 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 trust deeds.





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 on cash.
      As of September 30, 2006 and December 31, 2005, we had approximately $1.4
      million and $1.2 million, respectively, in excess of the federally insured
      limits.





As
      of
      September 30, 2006, 30.1%, 18.3%, 12.8%, 11.9% and 11.2% of our loans were
      in
      Nevada, California, Oregon, Arizona and Texas, respectively, compared to 18.2%,
      23.8%, 5.9%, 25.2% and 11.0% at December 31, 2005, 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
      September 30, 2006, the aggregate amount of loans to our three largest borrowers
      represented 21.2% of our total investment in real estate loans. These real
      estate loans consisted of land, commercial and construction loans, located
      in
      Nevada, Oregon, and Washington with first lien positions earning between 9%
      and
      12%, and an outstanding balance of approximately $4.4 million. At December
      31,
      2005, the aggregate amount of loans to our three largest borrowers represented
      41% of our total investment in real estate loans. These real estate loans
      consisted of commercial and land loans, located in Arizona, California and
      Nevada, with a first lien position, earning between 10% and 12%, with an
      aggregate outstanding balance of approximately $9.2 million. Because we have
      a
      significant concentration of credit risk with our three largest borrowers,
      a
      default by any of such borrowers could have a material adverse effect on
      us.





As
      of
      September 30, 2006, 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. The
      success of a borrower’s ability to repay our 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.




See
          review report of Independent Registered Public Accounting Firm.
 -
          12
          -
 *Table
          of Content*


**NOTE
      D — INVESTMENTS IN REAL ESTATE LOANS**





As
      of
      September 30, 2006 and December 31, 2005, we have four real estate loan products
      consisting of commercial, construction, acquisition and development and land
      loans. The effective interest rates on all product categories range from 9%
      to
      13%. Revenue by product will fluctuate based upon relative balances during
      the
      period.





Investments
      in real estate loans as of September 30, 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
            
            
            5
            
            $
            2,885,000
            
            
            12.07%
            
            
            13.86%
            
            
            65.89%Commercial
            
            
            8
            
            
            8,231,000
            
            
            10.50%
            
            
            39.53%
            
            
            72.59%Construction
            
            
            3
            
            
            2,643,000
            
            
            12.00%
            
            
            12.70%
            
            
            61.47%Land
            
            
            8
            
            
            7,061,000
            
            
            11.25%
            
            
            33.91%
            
            
            59.93%24
            
            $
            20,820,000
            
            
            11.16%
            
            
            100.00%
            
            
            65.96%





Investments
      in real estate loans as of December 31, 2005 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
            
            $
            3,806,000
            
            
            11.30%
            
            
            16.52%
            
            
            47.74%Commercial
            
            
            12
            
            
            12,244,000
            
            
            9.63%
            
            
            53.15%
            
            
            65.33%Construction
            
            
            2
            
            
            1,231,000
            
            
            12.00%
            
            
            5.34%
            
            
            64.50%Land
            
            
            3
            
            
            5,756,000
            
            
            11.01%
            
            
            24.99%
            
            
            56.44%20
            
            $
            23,037,000
            
            
            10.38%
            
            
            100.00%
            
            
            60.16%





(1)
            Loan
                to value ratios are based on the most recent appraisals and may not
                reflect subsequent changes in value estimates. Such appraisals, which
                may
                be commissioned by the borrower, are generally dated no greater than
                12
                months prior to the date of loan origination. The appraisals may
                be for
                the current estimate of the “as-if developed” value of the property, which
                approximates the post-construction value of the collateralized property
                assuming that such property is developed. “As-if developed” values on raw
                land loans or acquisition and development loans often dramatically
                exceed
                the immediate sales value and may include anticipated zoning changes,
                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 Consolidated Balance
                Sheets:





**September
                30, 2006**
              **Balance**
            
            **December
                31, 2005**
              **Balance**Balance
                Per Loan Portfolio
            
            $
            20,820,000
            
            $
            23,037,000Less:Allowance
                for Loan Losses
            
            
            (73,000
            )
            
            (73,000
            )Balance
                per Balance Sheet
            
            $
            20,747,000
            
            $
            22,964,000




See
          review report of Independent Registered Public Accounting Firm.
 -
          13
          -
 *Table
          of Content*


The
      following is a schedule of priority of real estate loans as of September 30,
      2006 and December 31, 2005.





**Loan
                Type**
            
            **Number
                of Loans**
            
            **September
                30, 2006**
              **Balance***
            
            **Portfolio**
              **Percentage**
            
            **Number
                of Loans**
            
            **December
                31, 2005**
              **Balance***
            
            **Portfolio**
              **Percentage**First
                Deeds of Trust
            
            
            23
            
            $
            20,520,000
            
            
            98.56%
            
            
            18
            
            $
            21,527,000
            
            
            93.45%Second
                Deeds of Trust**
            
            
            1
            
            
            300,000
            
            
            1.44%
            
            
            2
            
            
            1,510,000
            
            
            6.55%24
            
            $
            20,820,000
            
            
            100.00%
            
            
            20
            
            $
            23,037,000
            
            
            100.00%





*
      Please
      see note (2) above


**
      Generally, our second trust deeds are junior to first trust deed positions
      held
      by either us or our Manager.





The
      following is a schedule of contractual maturities of investments in real estate
      loans as of September 30, 2006:





October
                2006 - December 2006
            
            $
            5,300,000January
                2007 - March 2007
            
            
            1,168,000April
                2007 - June 2007
            
            
            6,070,000July
                2007 - September 2007
            
            
            4,800,000October
                2007 - December 2007
            
            
            3,482,000Thereafter
            
            
            --Total
            
            $
            20,820,000





The
      following is a schedule by geographic location of investments in real estate
      loans as of September 30, 2006 and December 31, 2005:





**September
                30, 2006**
              **Balance***
            
            **Portfolio
                Percentage**
            
            **December
                31, 2005**
              **Balance***
            
            **Portfolio
                Percentage**Arizona
            
            $
            2,469,000
            
            
            11.86%
            
            $
            5,807,000
            
            
            25.21%California
            
            
            3,817,000
            
            
            18.33%
            
            
            5,490,000
            
            
            23.83%Mississippi
            
            
            875,000
            
            
            4.20%
            
            
            --
            
            
            --%Nevada
            
            
            6,260,000
            
            
            30.07%
            
            
            4,194,000
            
            
            18.21%North
                Carolina
            
            
            --
            
            
            --%
            
            
            102,000
            
            
            0.44%Oklahoma
            
            
            1,000,000
            
            
            4.80%
            
            
            1,000,000
            
            
            4.34%Oregon
            
            
            2,656,000
            
            
            12.76%
            
            
            1,356,000
            
            
            5.89%Texas
            
            
            2,330,000
            
            
            11.19%
            
            
            2,525,000
            
            
            10.96%Washington
            
            
            1,413,000
            
            
            6.79%
            
            
            1,360,000
            
            
            5.90%Wisconsin
            
            
            --
            
            
            --%
            
            
            1,203,000
            
            
            5.22%Total
            
            $
            20,820,000
            
            
            100.00%
            
            $
            23,037,000
            
            
            100.00%





*
      Please
      see note (2) above





At
      September 30, 2006, the following two 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, L.P. and
      Rio
      Vista Nevada, LLC. These loans are currently carried on our books at a value
      of
      approximately $1.6 million. These loans have been placed on non-accrual of
      interest status and are the subject of pending foreclosure proceedings. The
      following two real estate loans were classified as non-performing during the
      nine months ended September 30, 2006:




See
          review report of Independent Registered Public Accounting Firm.
 -
          14
          -
 *Table
          of Content*




·
            Monterrey
                Associates, L.P., 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 two 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.
                An
                independent receiver has been appointed to manage the property. 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.





·
            Rio
                Vista Nevada, LLC, a loan secured by 480 residential building lots
                located
                within the Rio Vista Master Planned Community in Cathedral City,
                CA with
                an outstanding balance of approximately $30 million of which our
                portion
                is approximately $0.6 million. The loan is one month in arrears in
                payment
                of interest. Our Manager is assisting the borrower in selling the
                property
                to satisfy the principal balance of the loan and accrued interest.
                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:





**Description
                of Collateral**
            
            **Balance
                at**
              **September
                30, 2006**
            
            **Maturity
                Date**
            
            **Number
                of Months Non-Performing**
            
            **Percentage
                of Total Loan Balance**248-unit
                apartment complex in Oklahoma City, OK
            
            $
            1,000,000
            
            
            09/01/2006
            
            
            1
            
            
            23%480
                residential building lots in Rio Vista Master Planned Community in
                Cathedral City, CA
            
            
            577,000
            
            
            10/25/2006
            
            
            1
            
            
            2%$
            1,577,000





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 September 30, 2006, we have provided an allowance for loan losses of $73,000.
      Our Manager evaluated the loans and concluded that the 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.





The
      following is a roll-forward of the allowance for loan losses for the nine months
      ended September 30, 2006:





**Description**
            
            **Balance
                at**
              **December
                31, 2005**
            
            **Provisions**
            
            **Deductions**
            
            **Balance
                at**
              **September
                30, 2006**Valuation
                Allowance
            
            $
            73,000
            
            
            --
            
            
            --
            
            $
            73,000





In
      addition, our Manager had granted extensions on four 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 September 30, 2006 was approximately $4.2 million. Our
      Manager concluded that no allowance for loan loss was necessary with respect
      to
      these loans as of September 30, 2006.




See
          review report of Independent Registered Public Accounting Firm.
 -
          15
          -
 *Table
          of Content*


**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 quarterly basis, the 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 was made as to whether the allowance
      for
      loan losses was 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. As of September 30, 2006, our Manager had
      provided $73,000 for an allowance for loan losses.





**NOTE
      E — INVESTMENT IN REAL PROPERTY**





Investment
      in real property consists of an approximately 42,000 square foot office building
      located at 8379 West Sunset Road in Las Vegas, Nevada. The purchase price and
      related closing costs was approximately $9,800,000. As of September 30, 2006,
      the building was fully leased by Vestin Group, earning us monthly rent revenue
      of approximately $87,000. Vestin Group has sub-leased office space in the
      building as permitted by the lease agreement at rates equal to or less than
      rates we receive. We provided $4,850,000 of the purchase price from our capital
      and borrowed $4,950,000 for the remainder of the purchase price. We subsequently
      conveyed the real property to our wholly-owned subsidiary, VF III HQ,
      LLC.





Subsequent
      to the purchase of this property we invested an additional $90,000 in tenant
      improvements. As of September 30, 2006, the carrying value of this property
      was
      $9.4 million, net of accumulated depreciation of $445,000.





We
      have
      entered into a purchase agreement to sell the building to a third party at
      a
      sales price of $14,250,000, recognizing a gain of approximately $3.1 million,
      net of sales expenses. Included in sales expense is a 3.0% commission fee to
      our
      Manager. Escrow is scheduled to close in November 2006. No assurance can be
      given that the foregoing sale will be completed.





As
      further discussed in Note N - *Segment
      Information* below,
      net income on this segment of our business was approximately $342,000, which
      represents nine months of operating activity. The following represents our
      estimated yield on this investment from a cash flow perspective.




See
          review report of Independent Registered Public Accounting Firm.
 -
          16
          -
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          of Content*





**For
                the Nine Months Ended****September
                30, 2006**
            
            **September
                30, 2005**Net
                Income From Real Estate Segment
            
            $
            342,000
            
            $
            153,000Less
                Principal Payments
            
            
            (64,000
            )
            
            (76,000
            )Less
                Deferred Rent Receivable - Related Party
            
            
            (101,000
            )
            
            --Add
                Back Depreciation and Amortization
            
            
            166,000
            
            
            167,000Yield
            
            $
            343,000
            
            $
            244,000Investment
                Provided from Capital
            
            $
            4,850,000
            
            $
            4,850,000Months
                of Operation
            
            
            9
            
            
            9Annualized
                Yield on Real Estate Segment
            
            
            9.43%
            
            
            6.71%





Annualized
      yield on real estate segment is a non-GAAP measure. We have presented this
      annualized yield on real estate segment because management believes this
      information is useful and important to members. 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.





**NOTE
      F — LEASING ACTIVITY**





We
      lease
      a facility, described in Note E- *Investment in Real Property* above,
      to
      Vestin Group under a 10 year non-cancelable lease agreement, expiring March
      2014, with two, five-year optional extensions. The agreement calls for an annual
      base rent of approximately $894,000, plus a 4% annual increase. Rental income
      recognized for the leased facility is recognized on a straight line basis over
      the term of the lease. For the nine months ended September 30, 2006 and 2005,
      rental income totaled $777,000 and $645,000, respectively. Deferred rent
      receivable - related party as of September 30, 2006 was $269,000.





Future
      minimum base rent to be received, due under non-cancelable leases with Vestin
      Group in effect as of September 30, 2006 are as follows:





October
                1, 2006 Through September 30, 2007
            
            $
            933,000October
                1, 2007 Through September 30, 2008
            
            
            970,000October
                1, 2008 Through September 30, 2009
            
            
            1,009,000October
                1, 2009 Through September 30, 2010
            
            
            1,049,000October
                1, 2010 Through September 30, 2011
            
            
            1,091,000Thereafter:
            
            
            3,386,000Total:
            
            $
            8,438,000





We
      have
      entered into a purchase agreement to sell the building we lease to Vestin Group
      to a third party at a sales price of $14,250,000, recognizing a gain of
      approximately $3.1 million, net of sales expenses. Included in sales expense
      is
      a 3.0% commission fee to our Manager. Escrow is scheduled to close in November
      2006. Upon the sale of the building we will no longer recognize rental income
      related to the building.  No assurance can be given that the foregoing sale
      will be completed.





**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 original cost. 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.




See
          review report of Independent Registered Public Accounting Firm.
 -
          17
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          of Content*


**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 nine months ended September 30, 2006 we recorded fees to
      our
      Manager of approximately $12,000 and $36,000, respectively, compared to $8,000
      and $42,000 respectively, for the same periods in 2005. During April 2006,
      we
      recognized a capital contribution from our Manager related to a forgiveness
      of
      management fee incurred in the amount of $64,000.





For
      the
      nine months ended, September 30, 2006 and 2005, we paid pro rata distributions
      owed to our manager of approximately $36,000 and $70,000, respectively based
      upon 54,862 units owned by our manager.





We
      lease
      an office building, located in Las Vegas, NV, to Vestin Group, earning us
      monthly rent revenue of approximately $87,000. During the three and nine months
      ended September 30, 2006 we earned rental income of $263,000 and $777,000,
      respectively, as compared to $215,000 and $645,000 for the three and nine months
      ended September 30, 2005.





**Transactions
      with Other Related Parties**





As
      of
      September 30, 2006, we owned 121,685 common shares of VRM II. For the nine
      months ended September 30, 2006 we received approximately $7,000 in dividends
      from VRM II based on the number of shares we held on the dividend record
      date.





During
      the nine months ended September 30, 2006 and 2005, VRM II purchased $4.9 million
      and $0.5 million in real estate loans from us. No gain or loss resulted from
      these transactions.





For
      the
      nine months ended September 30, 2006 and 2005, we paid pro rata distributions
      owed to inVestin of approximately $23,000 and $11,000 respectively, based upon
      34,856 units owned by inVestin.





During
      the three and nine months ended September 30, 2006, we incurred expense of
      $10,000 and $14,000, respectively, for legal fees to the law firm of Levine,
      Garfinkel, and Katz, as compared to $27,000 and $90,000 for the three and nine
      months ended September 30, 2005. The Secretary of Vestin Group is an equity
      member of this law firm.





**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 revenues for entering into secured borrowing arrangements.
      Loans
      in which third party investors have participated through Inter-creditor
      Agreements are accounted for as secured borrowings in accordance with 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
      mortgage loans whereby a third party investor (the “Investor”) may participate
      on a senior basis in certain mortgage 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 borrowing arrangements.




See
          review report of Independent Registered Public Accounting Firm.
 -
          18
          -
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          of Content*


As
      of
      September 30, 2006, we had no Inter-creditor Agreements as compared to December
      31, 2005, where we had $527,000 in funds being used under Inter-creditor
      Agreements where we have potential obligations as defined above.





**NOTE
      I — NOTE PAYABLE**





Note
      payable consists of the following:





**Balance
                at**
              **September
                30, 2006**10-
                year note payable secured by real property, bearing interest at 5.6%
                per
                annum, payable in monthly principal and interest installments of
                $31,000
            
            $
            4,766,000





As
      of
      September 30, 2006, the scheduled principal reduction of the note payable was
      as
      follows:





October
                1, 2006 Through September 30, 2007
            
            $
            105,000October
                1, 2007 Through September 30, 2008
            
            
            111,000October
                1, 2008 Through September 30, 2009
            
            
            117,000October
                1, 2009 Through September 30, 2010
            
            
            124,000October
                1, 2010 Through September 30, 2011
            
            
            131,000Thereafter:
            
            
            4,178,000Total
            
            $
            4,766,000





**NOTE
      J — MEMBERS’ EQUITY**





**Membership
      Units**





During
      the nine months ended September 30, 2006, members received 61,085 units as
      a
      result of reinvestments of distributions.





**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. Members may elect to reinvest their distributions.
      For the nine months ended September 30, 2006, distributions to members were
      approximately $1,287,000, net of reinvestments of $642,000.





**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 or cash equivalents 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.




See
          review report of Independent Registered Public Accounting Firm.
 -
          19
          -
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          of Content*


**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 2005. Based on this
      review, as a result of an increase in the value of our assets, the value of
      members’ capital accounts was adjusted from $10.30 per unit to $10.50 per unit.
      As a result, new units sold through our Distribution Reinvestment Plan and
      units
      redeemed on or after December 15, 2005 have been sold or redeemed at $10.50
      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.





**Redemption
      Limitation**





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
      September 30, 2006, the total of redemptions made from inception was $3.1
      million. Balances in Members’ capital accounts as of January 1, 2006 were $29.2
      million, which limited redemptions to $2.9 million for calendar 2006. Total
      redemptions during the nine months ended September 30, 2006 were approximately
      $2.7 million. The remaining requests to redeem are approximately $0.2 million
      in
      2006, $2.6 million in 2007 and $1.7 million in 2008, subject to unit valuation
      adjustments.





In
      order
      to satisfy these redemption requests, in the past, we have accumulated a cash
      reserve. This is in addition to the 3% reserve we maintained for working capital
      purposes. This reserve is generally accumulated by retaining funds received
      upon
      the pay-off of loans and not reinvesting them in new loans or through
      borrowings. This has the effect of reducing the amount of capital we deploy
      in
      real estate loans, which in turn reduces our revenues and distributions to
      members.





**NOTE
      K — RECENT ACCOUNTING PRONOUNCEMENTS**





On
      September 13, 2006, the SEC issued Staff Accounting Bulletin 108 (“SAB 108”),
“Considering the Effects of Prior Year Misstatements when Qualifying
      Misstatements in Current Year Financial Statements,” which provides interpretive
      guidance on the consideration of the effects of prior year misstatements in
      quantifying current year misstatements for the purpose of a materiality
      assessment. SAB 108 is effective for companies with fiscal years ending after
      November 15, 2006 and is required to be adopted by the Company in its fiscal
      year ending December 31, 2006. However, early application is encouraged in
      any
      report for an interim period of the first fiscal year ending after November
      15,
      2006, filed after the publication of this guidance. The Company is currently
      assessing the impact of the adoption of SAB 108.





In
      September 2006, the Financial Accounting Standards Board (FASB) issued FAS
      157 - *Fair
      Value Measurements* (“FAS
      157”), which defines fair value, establishes a framework for measuring fair
      value in generally accepted accounting principles, and expands disclosures
      about
      fair value measurements. This Statement applies under other accounting
      pronouncements that require or permit fair value measurements, the FASB having
      previously concluded in those accounting pronouncements that fair value is
      the
      relevant measurement attribute. Accordingly, this Statement does not require
      any
      new fair value measurements. FAS 157 is effective for financial statements
      issued for fiscal years beginning after November 15, 2007, and interim periods
      within those fiscal years. This Statement is required to be adopted by the
      Company in the first quarter of its fiscal year 2008. The Company is currently
      assessing the impact of the adoption of this Statement.




See
          review report of Independent Registered Public Accounting Firm.
 -
          20
          -
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          of Content*


**NOTE
      L — LEGAL MATTERS INVOLVING THE MANAGER**





Vestin
      Group, Vestin Mortgage, and Del Mar Mortgage, Inc., a company wholly owned
      by
      Michael V. Shustek, the sole stockholder and CEO of Vestin Group, are defendants
      in a civil action entitled Desert Land, LLC et al. v. Owens Financial Group,
      Inc. et al (the “Action”). 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, prior to the formation of Vestin Fund III, LLC. Desert
      Land sought in excess of $10 million in monetary damages. On April 10, 2003,
      the
      United States District Court for the District of Nevada (the “Court”) entered
      judgment jointly and severally in favor of Desert Land against Vestin Group,
      Vestin Mortgage and Del Mar Mortgage, Inc. Judgment was predicated upon the
      Court’s finding that Del Mar Mortgage, Inc. received an unlawful penalty fee
      from the plaintiffs.





The
      defendants subsequently filed a motion for reconsideration. The Court denied
      the
      motion and, on August 13, 2003, held that Vestin Group, Vestin Mortgage, and
      Del
      Mar Mortgage, Inc. were jointly and severally liable for the judgment in the
      amount of $5,683,312 (which amount includes prejudgment interest and attorney’s
      fees). On August 27, 2003, the Court stayed execution of the judgment against
      Vestin Group and Vestin Mortgage based upon the posting of a bond in the amount
      of $5,830,000. Mr. Shustek personally posted a cash bond without any cost or
      obligation to Vestin Group and Vestin Mortgage. Additionally, Del Mar Mortgage,
      Inc. had indemnified Vestin Group and Vestin Mortgage for any losses and
      expenses in connection with the Action, and Mr. Shustek had guaranteed the
      indemnification with his cash bond. On September 12, 2003, all of the defendants
      held liable to Desert Land appealed the judgment to the United States Court
      of
      Appeals for the Ninth Circuit, which heard the case on October 18, 2005. On
      November 15, 2005, the Ninth Circuit vacated the judgment of the District Court
      and dismissed the state law claims against the defendants without prejudice
      on
      the basis that the District Court lacked subject matter jurisdiction in the
      case. On November 29, 2005, Desert Land petitioned the Ninth Circuit Court
      for
      rehearing with a suggestion that the matter be heard en banc. On December 16,
      2005, the District Court issued an Order releasing the bond, and on January
      6,
      2006, the Ninth Circuit denied Desert Land’s petition and the matter remains
      dismissed.





On
      or
      about April 6, 2006, Desert Land filed a Writ of Certiorari seeking review
      of
      the 9th Circuit’s decision by the United States Supreme Court. The U.S. Supreme
      Court denied Desert Land’s Writ of Certiorari on June 12, 2006, effectively
      ending this action.





On
      November 21, 2005, Desert Land filed a complaint in the state courts of Nevada,
      which complaint is substantially similar to the original complaint previously
      filed by Desert Land in the United States District Court, with the exception
      of
      claiming Nevada State Law violations and seeking Nevada State Law remedies
      rather than claiming Federal Law violations and seeking Federal Law remedies.
      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. Our Manager believes these claims
      to
      be without merit and intend to vigorously defend those allegations. The outcome
      of this litigation is unforeseeable at this time.





On
      April
      21, 2006, our Manager, Vestin Mortgage Inc., filed a complaint in the Circuit
      Court of the First Circuit in Hawaii to expedite VRM I and VRM II’s efforts to
      foreclose upon first trust deeds secured by the assets of Rightstar
      International, Inc. (the “Rightstar Trust Deeds”). In the filing, Vestin
      Mortgage Inc. alleges that the State of Hawaii has unreasonably blocked the
      foreclosure without any legal basis for doing so. On April 24, 2006, 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 Vestin. Our Manager believes
      these
      claims to be without merit and intend to vigorously defend those allegations.
      The outcome of this litigation is unforeseeable at this time.




See
          review report of Independent Registered Public Accounting Firm.
 -
          21
          -
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          of Content*


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 units in us and in VRM II’s predecessor, Vestin Fund
      II, LLC. 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. 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.





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 Vestin Fund II, LLC 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. Under
      the terms of our management agreement and Fund II’s operating agreement, Vestin
      Mortgage and Michael V. Shustek may be eligible for indemnification by the
      Company 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 Vestin Fund II, LLC into VRM II. 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.





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. Other
      than the matters described above, the Manager believes that it is not a party
      to
      any pending legal or arbitration proceedings that would have a material adverse
      effect on the Manager’s financial condition or results of operations or cash
      flows, although it is possible that the outcome of any such proceedings could
      have a material impact on the Manager’s net income in any particular
      period.





**NOTE
      M — 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.





**NOTE
      N — SEGMENT INFORMATION**





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.




See
          review report of Independent Registered Public Accounting Firm.
 -
          22
          -
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          of Content*


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.





Our
      two
      reportable segments are investments in real estate loans and investments in
      real
      estate.





Financial
      information concerning our reportable segments is presented as follows for
      the
      nine months ended September 30, 2006 and 2005:





**For
                the**
              **Nine
                Months Ended**
              **September
                30, 2006**
            
            **Investment
                in**
              **Real
                Estate Loans**
            
            **Investment
                in**
              **Real
                Estate****Revenues**Interest
                income from investments in real estate loans
            
            $
            1,688,000
            
            $
            1,688,000
            
            $
            --Interest
                income from secured borrowings
            
            
            15,000
            
            
            15,000
            
            
            --Rental
                income-related party
            
            
            777,000
            
            
            --
            
            
            777,000Other
            
            
            85,000
            
            
            85,000
            
            
            -Total
                revenues
            
            
            2,565,000
            
            
            1,788,000
            
            
            777,000**Operating
                expenses**Management
                fees - related party
            
            
            36,000
            
            
            25,000
            
            
            11,000Provision
                for loan losses
            
            
            --
            
            
            --
            
            
            --Professional
                fees
            
            
            156,000
            
            
            110,000
            
            
            46,000Professional
                fees-related party
            
            
            14,000
            
            
            10,000
            
            
            4,000Other
            
            
            11,000
            
            
            8,000
            
            
            3,000Total
                operating expenses
            
            
            217,000
            
            
            153,000
            
            
            64,000**EBITDA***
            
            
            2,348,000
            
            
            1,635,000
            
            
            713,000Less:Depreciation
                and Amortization
            
            
            166,000
            
            
            --
            
            
            166,000Interest
                expense related to secured borrowings
            
            
            14,000
            
            
            14,000
            
            
            --Interest
                expense related to investment in real estate
            
            
            205,000
            
            
            --
            
            
            205,000**NET
                INCOME**
            
            $
            1,963,000
            
            $
            1,621,000
            
            $
            342,000




See
          review report of Independent Registered Public Accounting Firm.
 -
          23
          -
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          of Content*





**For
                the**
              **Nine
                Months Ended**
              **September
                30, 2005**
            
            **Investment
                in**
              **Real
                Estate Loans**
            
            **Investment
                in**
              **Real
                Estate****Revenues**Interest
                income from investments in real estate loans
            
            $
            1,757,000
            
            $
            1,757,000
            
            $
            --Interest
                income from secured borrowings
            
            
            152,000
            
            
            152,000
            
            
            --Rental
                income-related party
            
            
            645,000
            
            
            --
            
            
            645,000Other
            
            
            63,000
            
            
            63,000
            
            
            --Total
                revenues
            
            
            2,617,000
            
            
            1,972,000
            
            
            645,000**Operating
                expenses**Management
                fees - related party
            
            
            42,000
            
            
            23,000
            
            
            19,000Provision
                for loan losses
            
            
            37,000
            
            
            37,000
            
            
            --Professional
                fees
            
            
            169,000
            
            
            124,000
            
            
            45,000Professional
                fees-related party
            
            
            90,000
            
            
            65,000
            
            
            25,000Other
            
            
            19,000
            
            
            14,000
            
            
            5,000Total
                operating expenses
            
            
            357,000
            
            
            263,000
            
            
            94,000**EBITDA***
            
            
            2,260,000
            
            
            1,709,000
            
            
            551,000Less:Depreciation
                and Amortization
            
            
            167,000
            
            
            --
            
            
            167,000Interest
                expense related to secured borrowings
            
            
            130,000
            
            
            130,000
            
            
            --Interest
                expense related to investment in real estate
            
            
            231,000
            
            
            --
            
            
            231,000**NET
                INCOME**
            
            $
            1,732,000
            
            $
            1,579,000
            
            $
            153,000





*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
      O — SUBSEQUENT EVENTS**





During
      October 2006, we, Vestin Origination, Inc., VRM I and VRM II entered into an
      intercreditor agreement with a third party totaling $20 million related to
      the
      funding of a $31.3 million construction real estate loan, of which approximately
      $22.0 million has been funded through November 7, 2006. 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. As of November 7, 2006, our portion is
      approximately $1.7 million. In the event VRM I and VRM II were unable to pay
      there pro rata share of the secured borrowing, we would be liable for the full
      outstanding balance. Our Manager believes this to be a remote
      possibility.




See
          review report of Independent Registered Public Accounting Firm.
 -
          24
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We
      have
      entered into a purchase agreement to sell the building we lease to Vestin Group
      to a third party at a sales price of $14,250,000, recognizing a gain of
      approximately $3.1 million, net of sales expenses. Included in sales expense
      is
      a 3.0% commission fee to our Manager. Escrow is scheduled to close in November
      2006. Upon the sale of the building we will no longer recognize rental income
      related to the building. No assurance can be given that the foregoing sale
      will
      be completed.











See
          review report of Independent Registered Public Accounting Firm.
 -
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REPORT
      OF
INDEPENDENTREGISTERED PUBLIC ACCOUNTING
      FIRM








To
      the
      Board of Directors and the members of Vestin Fund III, LLC:





We
      have
      reviewed the accompanying consolidated balance sheet of Vestin Fund III, LLC
      and
      its subsidiary as of September 30, 2006, and the related consolidated statements
      of income for the three-month and nine-month periods ended September 30, 2006
      and 2005, members’ equity and comprehensive income for the nine-month period
      ended September 30, 2006, and cash flows for the nine-month periods ended
      September 30, 2006 and 2005. All information included in these consolidated
      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 consolidated 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, 2005 and the related consolidated
      statements of operations, members’ equity and cash flows for the year then
      ended. In our report dated March 9, 2006, we expressed an unqualified opinion
      on
      those consolidated financial statements. In our opinion, the information set
      forth in the accompanying consolidated balance sheet as of December 31, 2005,
      is
      fairly stated, in all material respects, in relation to the consolidated balance
      sheet from which it has been derived.











/s/Moore
      Stephens Wurth Frazer and Torbet, LLP








Orange,
      California


November
      7, 2006











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**ITEM2.**  **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 nine months ended September 30, 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 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, 2005.





**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 our
      Quarterly Report on Form 10-Q for the three months ended March 31, 2006, Part
      I
      Item 1A *Risk
      Factors* of our
      Annual Report on Form 10-K for the year ended December 31, 2005 and in our
      other
      securities filings with the Securities and Exchange Commission. 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.





**Overview**





Our
      real
      estate loan program objective is to generate income by investing in real estate
      loans and income producing real property. 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 traditional real estate lenders.
      The loan underwriting standards our Manager utilizes are less strict than
      traditional real estate lenders. In addition, we believe one of our competitive
      advantages is our ability to approve loan applications more quickly than
      traditional lenders. As a result, in certain cases, we may make real estate
      loans, which are riskier than real estate loans made by 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 traditional real estate lenders, in return, we
      seek
      to generate higher yields from our real estate loans.





Our
      real
      estate program objective has been 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. To date, our investments
      in real estate have been limited to a single office building.




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Our
      operating results depend primarily upon (i) the amount of capital we have to
      invest in real estate loans and income producing real estate, (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, (v) our ability to identify and acquire suitable
      income-producing properties, (vi) the level of rents or other income we are
      able
      to generate from our acquired properties, (vii) the level of non-performing
      assets and loan losses which we experience, and (viii) negative fluctuations
      in
      the fair market value of income-producing properties that we own. At September
      30, 2006, two 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 and Rio Vista Nevada. These
      loans are currently carried on our books at a value of approximately $1.6
      million. These loans have been placed on non-accrual of interest status and
      are
      the subject of pending foreclosure proceedings. For additional information
      see
      Note D - *Investment
      Real Estate Loans* of the
      Notes to Financial Statements included in Part I, Item 1 *Financial
      Statements* of
      this
      Report Form 10-Q. Our capital, subject to an approximate 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.”





The
      recent increase in non-performing assets may reflect the risk inherent in our
      business strategy which 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 distributions to our members. Such conditions may also require
      us to
      restructure loans. The weighted average term of our outstanding loans as of
      September 30, 2006 was 14 months, compared to 16 months at December 31,
      2005.





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. Recognizing
      the
      risk, we seek to maintain an adequate loan-to-value ratio which, as of September
      30, 2006, was 65.96% on a weighted average basis, generally using appraisals
      prepared on an “as-if developed basis” in connection with the loan origination.
      The increase in the weighted average loan to value ratio from 60.16%, as of
      December 31, 2005, to 65.96%, as of September 30, 2006, is primarily due to
      seven loans being funded during the nine month period, totaling approximately
      $7.6 million, with a loan to value ratios ranging from 72.86% to 78.86%. The
      majority of these loans were to repeat borrowers with a history of good standing
      with us. In addition the terms of these loans are 18 months or less. In this
      manner, 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.





We
      generally invest in real estate loans throughout the areas in which Vestin
      Mortgage and its correspondents have experience. As of September 30, 2006 our
      loans were in the following states; Arizona, California, Mississippi, Nevada,
      Oklahoma, Oregon, Texas and Washington.




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**SUMMARY
      OF FINANCIAL RESULTS**





**FOR
                THE THREE MONTHS**
              **ENDED
                SEPTEMBER 30,**
            
            **FOR
                THE NINE MONTHS**
              **ENDED
                SEPTEMBER 30,****2006**
            
            **2005**
            
            **2006**
            
            **2005**Total
                revenues
            
            $
            852,000
            
            $
            859,000
            
            $
            2,565,000
            
            $
            2,617,000Total
                operating expenses
            
            $
            209,000
            
            $
            216,000
            
            $
            602,000
            
            $
            885,000**NET
                INCOME**
            
            $
            643,000
            
            $
            643,000
            
            $
            1,963,000
            
            $
            1,732,000Net
                income allocated to members
            
            $
            643,000
            
            $
            643,000
            
            $
            1,963,000
            
            $
            1,732,000Net
                income allocated to members per weighted average membership
                units
            
            $
            0.22
            
            $
            0.22
            
            $
            0.67
            
            $
            0.63Weighted
                average membership units
            
            
            2,878,643
            
            
            2,865,842
            
            
            2,934,344
            
            
            2,769,380Annualized
                rate of return to members**(a)**
            
            
            8.44%
            
            
            8.64%
            
            
            8.52%
            
            
            8.12%Cash
                distributions
            
            $
            637,000
            
            $
            539,000
            
            $
            1,929,000
            
            $
            1,885,000Cash
                distributions per weighted average membership units
            
            $
            0.22
            
            $
            0.19
            
            $
            0.66
            
            $
            0.68Weighted
                average term of outstanding loans
            
            
            14
                months
            
            
            16
                months
            
            
            14
                months
            
            
            16
                months





**(a)**
            The
                annualized rate of return to members is calculated based upon the
                GAAP net
                income allocated to members per weighted average units as of September
                30,
                divided by the number of days during the period (92 and 273 days
                for the
                three and nine months ended September 30, 2006 and 2005) and multiplied
                by
                three hundred and sixty five (365) days, then divided by the cost
                per unit
                ($10.50 and $10.30 for 2006 and 2005,
                respectively).





*Comparison
      of Operating Results for the three months ended September 30, 2006 to the three
      months ended September 30, 2005.*





*Total
      Revenues:* Revenues
      for the three months ended September 30, 2006 decreased compared to the same
      period in 2005, by approximately $7,000 or 0.81% primarily due to the following
      factors:





·
            Interest
                income from investment in real estate loans decreased approximately
                $32,000 or 5.34% as a result of a decrease in investment in real
                estate
                loans. Investment in real estate loans declined by approximately
                $1.6
                million from $22.4 million at September 30, 2005 to $20.8 million
                as of
                September 30, 2006. The decline in investment in real estate loans
                is
                attributable in part to the reduction in capital, resulting from
                membership unit redemptions, we had available for investments. Our
                capital
                was reduced by redemption of membership units of approximately $2.7
                million from September 30, 2005 to September 30,
                2006.





·
            Included
                in other income during the three months ended September 30, 2005,
                is a
                loan origination fee of $25,000 from an investment in a real estate
                loan.
                No such income was recorded during the three months ended September
                30,
                2006.




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These
      decreases were offset by the increase in rental income of approximately $48,000
      due to the recognition of deferred rental income during the three months ended
      September 30, 2006





*Total
      Operating Expenses:* For the
      three months ended September 30, 2006, total expenses were approximately
      $209,000 compared to approximately $216,000 for the same period in 2005, a
      decrease of approximately $7,000 or 3.24%. Expenses were primarily affected
      by
      the following factors:





·
            Our
                interest expense related to secured borrowings decreased approximately
                $10,000 due to the decrease in the amount of loans financed under
                secured
                borrowings during the nine months ended September 30,
                2006.





·
            Expenses
                related to professional fees increased by approximately $22,000.
                Primarily
                due to the increase in legal fees relating to the sale of the building
                and
                other legal expenses related to our public filings during the three
                months
                ended September 30, 2006.





*Comparison
      of Operating Results for the nine months ended September 30, 2006 to the nine
      months ended September 30, 2005.*





*Total
      Revenues:* Revenues
      for the nine months ended September 30, 2006 decreased compared to the same
      period in 2005, by approximately $52,000 or 1.99% primarily due to the following
      factors:





·
            Interest
                income from investment in real estate loans for the nine months ended
                September 30, 2006 compared to the same period in 2005 decreased
                approximately $206,000 or 10.79% as a result of a decrease in investment
                in real estate loans. The decline in investment in real estate loans
                is
                attributable in part to the reduction in capital, resulting from
                membership unit redemptions, we had available for investments. Our
                capital
                was reduced by redemption of membership units of approximately $2.7
                million from September 30, 2005 to September 30,
                2006.





This
      decrease was partially offset by an increase in rental income by approximately
      $132,000 due to the increase in deferred rent receivable during the nine months
      ended September 30, 2006.





*Total
      Operating Expenses:* For the
      nine months ended September 30, 2006, total expenses were approximately $602,000
      compared to approximately $885,000 for the same period in 2005, a decrease
      of
      approximately $283,000 or 31.98%. Expenses were primarily affected by the
      following factors:





·
            Interest
                expense related to secured borrowings decreased approximately $116,000
                during the nine months ended September 30, 2006 compared to the same
                period in 2005 due to the decrease in the amount of loans financed
                under
                secured borrowing referred to
                above.





·
            Expenses
                related to professional fees decreased by approximately $89,000.
                During
                the 2005 period, we incurred accounting fees related to the preparation
                of
                our public filings. In addition, our manager undertook a number of
                measures to contain costs, including an enhancement of its internal
                accounting capabilities.





*Net
      Income* :
      Overall
      net income for the three and nine months ended September 30, 2006, totaled
      approximately $643,000 and $1,963,000, respectively, as compared to $643,000
      and
      $1,732,000 for the three and nine months ended September 30, 2005.





*Annualized
      Rate of Return to Members:* For the
      three and nine months ended September 30, 2006, the annualized rate of return
      to
      members as calculated based on GAAP net income was 8.44% and 8.52%,
      respectively, as compared to 8.64%, and 8.12% for the three and nine months
      ended September 30, 2005.




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*Distributions
      to Members* :
      The
      following is a schedule of distributions made to members for the nine months
      ended September 30, 2006 and 2005.





**For
                the Nine Months**
              **Ended
                September 30,****2006**
            
            **2005**Distribution
                of Net Income Available for Distribution
            
            $
            1,929,000
            
            $
            1,885,000Distribution
                in Excess of Net Income Available for Distribution
            
            
            --
            
            
            --Total
                Distributions
            
            $
            1,929,000
            
            $
            1,885,000





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 Nine Months**
              **Ended
                September 30,****2006**
            
            **2005**Distribution
                of net income available for distribution
            
            $
            1,929,000
            
            $
            1,885,000Additions
                to working capital reserves (amount not distributed)
            
            
            200,000
            
            
            51,000Change
                in operating assets and liabilities:Interest
                receivable
            
            
            3,000
            
            
            (61,000
            )Deferred
                rent receivable - related party
            
            
            (101,000
            )
            
            --Accounts
                payable
            
            
            (42,000
            )
            
            68,000Due
                from Fund I
            
            
            --
            
            
            (6,000
            )Due
                to Manager
            
            
            26,000
            
            
            (246,000
            )Net
                cash provided by operating activities
            
            $
            2,015,000
            
            $
            1,691,000Net
                cash provided (used) by investing activities
            
            $
            1,369,000
            
            $
            (8,833,000
            )Net
                cash (used) provided by financing activities
            
            $
            (4,092,000
            )
            $
            2,471,000





*Stated
      Unit Value Adjustment* :
      Following a periodic review by our Manager as required pursuant to the Operating
      Agreement, as a result of a the increase in the estimated fair value of real
      estate held for investment, effective December 15, 2005 we adjusted the stated
      unit value from $10.30 per unit to $10.50 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.




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*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 September 30, 2006, the total of redemptions made from inception
      was
      $3.1 million. Balances in Members’ capital accounts as of January 1, 2006 were
      $29.2 million, which limited redemptions to $2.9 million for calendar 2006.
      Total redemptions during the nine months ended September 30, 2006 were
      approximately $2.7 million. The remaining requests to redeem are approximately
      $0.2 million in 2006, $2.6 million in 2007 and $1.7 million in 2008, 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 investing activities and for general
      operating purposes. Subject to an approximate 3% reserve, we seek to use most
      of
      our available funds to invest in real estate loans or purchase income producing
      property. Distributable cash flow generated from such investments 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 Vestin Mortgage will manage our affairs. With respect
      to real estate that we acquire, Vestin Mortgage may charge a monthly management
      fee of up to 3% of our gross rental revenues. In addition, Vestin Mortgage
      may
      charge acquisition and advisory fees in connection with real estate acquisition,
      provided that such amounts do not exceed 2.5% of our gross offering
      proceeds.





During
      the nine months ended September 30, 2006, cash flows provided by our operating
      activities approximated $2.0 million. Our investing activities for the nine
      months ended September 30, 2006 consisted of cash used from the purchase of
      new
      investments in loans secured by real estate in the amount of $19.4 million
      and
      cash proceeds from loan payoffs of investment in real estate loans of
      approximately $16.7 million. We also purchased $0.8 million in marketable
      securities - related party and sold $4.9 million in investments in real estate
      loans to VRM II. Our financing activities primarily consisted of cash used
      for
      members’ distributions, net of reinvestments, of approximately $1.3 million,
      members’ redemptions of approximately $2.7 million and payments from a note
      payable of approximately $64,000.





Since
      we
      distribute most or all of our operating income, our sources of liquidity
      include: repayments of outstanding loans, sale of real property, distribution
      reinvestments by our members and arrangements with third parties to participate
      in our loans. Effective November 7, 2005, we discontinued the offering of our
      Units, except for Units sold through our Distribution Reinvestment Plan. In
      the
      future, we may also generate liquidity through the sale of our real property
      investments. However, under our Operating Agreement, the proceeds from any
      sale
      of real property occurring after November 2010 must be distributed to members
      and will not be available for reinvestment.





We
      rely
      primarily upon repayment of outstanding loans to provide capital for investment
      in new loans and real estate properties. 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 include loans in non-accrual status of
      approximately $1.6 million, as of September 30, 2006 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. Additionally, if there is a downturn in the economies in which
      we
      invest in real estate, the level of rents we can charge to lease our properties
      can diminish our capital resources and would diminish our ability to invest
      in
      new properties or service any related debt.




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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 September 30, 2006, the
      total of redemptions made from inception was $3.1 million. Balances in Members’
capital accounts as of January 1, 2006 were $29.2 million, which limited
      redemptions to $2.9 million for calendar 2006. Total redemptions during the
      nine
      months ended September 30, 2006 were approximately $2.7 million. The remaining
      requests to redeem are approximately $0.2 million in 2006, $2.6 million in
      2007
      and $1.7 million in 2008, subject to unit valuation adjustments.





In
      order
      to satisfy these redemption requests, in the past, we have accumulated by the
      end of a calendar year a cash reserve equal to approximately 10% of our total
      capital. This is in addition to the 3% reserve we maintained for working capital
      purposes. This reserve is generally accumulated by retaining funds received
      upon
      the pay-off of loans and not reinvesting them in new loans or through
      borrowings. This has the effect of reducing the amount of capital we deploy
      in
      real estate loans, which in turn reduces our revenues and distributions to
      members.





We
      have
      entered into a purchase agreement to sell the building to a third party at
      a
      sales price of $14,250,000, recognizing a gain of approximately $3.1 million,
      net of sales expenses. Included in sales expense is a 3.0% commission fee to
      our
      Manager. Escrow is scheduled to close in November 2006. Upon the sale of the
      building we will no longer recognize rental income related to the building.
      No
      assurance can be given that the foregoing sale will be completed. Proceeds
      for
      the sale of the building will be used for new investments in real estate
      loans.





Any
      significant level of redemptions by our members would reduce the amount of
      capital available for investment. 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. Our Operating Agreement also
      provides other conditions limiting redemptions.





Approximately
      45% of our members currently reinvest their distributions. The level of
      reinvested distributions is likely to be affected by our operating performance.
      If our performance does not meet the expectations of our members, the level
      of
      reinvestment may decline.





Loans
      in
      which third party investors have participated through inter-creditor agreements
      (“Inter-creditor Agreements”) are accounted for as secured borrowings in
      accordance with 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 a third party investor (the “Investor”) may
      participate on a senior 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.





As
      of
      September 30, 2006, we had no Inter-creditor Agreements as compared to December
      31, 2005, where we had $527,000 in funds being used under Inter-creditor
      Agreements where we have potential obligations as defined above.





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.




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During
      October 2006, we, Vestin Origination, Inc., VRM I and VRM II entered into an
      intercreditor agreement with a third party totaling $20 million related to
      the
      funding of a $31.3 million construction real estate loan, of which approximately
      $22.0 million has been funded through November 7, 2006. 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. As of November 7, 2006, our portion is
      approximately $1.7 million. In the event VRM I and VRM II were unable to pay
      there pro rata share of the secured borrowing, we would be liable for the full
      outstanding balance. Our Manager believes this to be a remote
      possibility.





**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% to 13%. Revenue by product will
      fluctuate based upon relative balances during the period. We had investments
      in
      24 real estate loans as of September 30, 2006, with a balance of $20.8 million
      as compared to investments in 20 real estate loans as of December 31, 2005,
      with
      a balance of $23.0 million.





At
      September 30, 2006, two 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 and Rio Vista Nevada. These
      loans are currently carried on our books at a value of approximately $1.6
      million. These loans have been placed on non-accrual of interest status and
      are
      the subject of pending foreclosure proceedings.





The
      weighted average contractual term of outstanding loans at September 30, 2006
      was
      14 months. As of September 30, 2006, our real estate loans mature during the
      next 18 months. All but one of the outstanding real estate loans at September
      30, 2006 were fixed rate loans. 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 have prepayment penalties.
      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 Statements* of this
      Interim Report Form 10-Q.





**INVESTMENT
      IN REAL PROPERTY**





Investment
      in real property consists of an approximately 42,000 square foot office building
      located at 8379 West Sunset Road in Las Vegas, Nevada. The purchase price and
      related closing costs were approximately $9,800,000. As of September 30, 2006,
      the building was fully leased by Vestin Group, earning us monthly rent revenue
      of approximately $87,000. Vestin Group has sub-leased office space in the
      building as permitted by the lease agreement at rates equal to or less than
      rates we receive. We have entered into a purchase agreement to sell the building
      to a third party at a sales price of $14,250,000, recognizing a gain of
      approximately $3.1 million, net of sales expenses. Included in sales expense
      is
      a 3.0% commission fee to our Manager. Escrow is scheduled to close in November
      2006. Upon the sale of the building we will no longer recognize rental income
      related to the building. No assurance can be given that the foregoing sale
      will
      be completed. For additional information on our investments in real property,
      refer to Note E - *Investments
      In Real Property,* Note
      F - *Leasing
      Activity* and
      Note
      N - *Segment
      Information* of
      the
      Notes to the Financial Statements included in Part I, Item 1 *Financial Statements* of this
      Interim 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 quarterly basis, the 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:




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·
            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 Statements* of this
      Interim Report Form 10-Q.





**Segment
      Information**





Operating
      segments are components of an enterprise about 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 additional information
      on our investments in real property, refer to Note N - *Segment
      Information* of
      the
      Notes to the Financial Statements included in Part I, Item 1 *Financial Statements* of this
      Interim Report Form 10-Q.





**OFF-BALANCE
      SHEET ARRANGEMENTS**





We
      do not
      currently have any interest in any special purpose entities, which are not
      reflected on our balance sheet nor do we have any commitments or obligations,
      which are not reflected on our balance sheet. We do not have any interest in
      derivative contracts.





We
      maintain working capital reserves of approximately 3% of aggregate members’
capital accounts in cash and cash equivalents. 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 September 30, 2006, we had $0.5
      million in cash, $0.8 million invested in marketable securities - related party
      and $32.0 million in total assets.





**CONTRACTUAL
      OBLIGATIONS**





Our
      contractual obligations as of September 30, 2006 consisted of a 10 year note
      payable secured by real property.





**Contractual
                Obligation**
            
            **Total**
            
            **Less
                Than 1 Year**
            
            **1-3
                Years**
            
            **3-5
                Years**
            
            **More
                Than**
              **5
                Years**Note
                Payable
            
            $
            4,766,000
            
            $
            105,000
            
            $
            228,000
            
            $
            255,000
            
            $
            4,178,000Total
            
            $
            4,766,000
            
            $
            105,000
            
            $
            228,000
            
            $
            255,000
            
            $
            4,178,000




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Cash
      provided by the operating activities of our investments in real estate segment
      is primarily dependent on the occupancy level of our properties, the rental
      rates on our leases, the collectibility of rents from our tenants, and the
      level
      of operating and other expenses. Since we intend on leveraging our capital
      for
      property acquisitions, we will depend on cash provided by operating activities
      to service such debt. The following table summarizes future minimum base rent
      to
      be received from our Manager under a non-cancelable lease on our sole real
      estate property at September 30, 2006:





October
                1, 2006 Through September 30, 2007
            
            $
            933,000October
                1, 2007 Through September 30, 2008
            
            
            970,000October
                1, 2008 Through September 30, 2009
            
            
            1,009,000October
                1, 2009 Through September 30, 2010
            
            
            1,049,000October
                1, 2010 Through September 30, 2011
            
            
            1,091,000Thereafter:
            
            
            3,386,000Total:
            
            $
            8,438,000





We
      have
      entered into a purchase agreement to sell the building we lease to Vestin Group
      to a third party at a sales price of $14,250,000, recognizing a gain of
      approximately $3.1 million, net of sales expenses. Included in sales expense
      is
      a 3.0% commission fee to our Manager. Escrow is scheduled to close in November
      2006. Upon the sale of the building we will no longer recognize rental income
      reltated to the building. No assurance can be given that the foregoing sale
      will
      be completed.





**CRITICAL
      ACCOUNTING ESTIMATES**





**Revenue
      Recognition**





Interest
      income on loans is accrued by the effective interest method. We do not recognize
      interest income from loans once they are determined to be impaired. A loan
      is
      impaired when, based on current information and events, it is probable that
      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 September 30, 2006 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
            
            $
            193,000Weighted
                average interest rate assumption increased by 5.0% or 500 basis
                points
            
            $
            965,000Weighted
                average interest rate assumption decreased by 1.0% or 100 basis
                points
            
            $
            (193,000
            )Weighted
                average interest rate assumption decreased by 5.0% or 500 basis
                points
            
            $
            (965,000
            )





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.





Our
      lease
      provides for tenant occupancy during periods for which no rent is due or where
      minimum rent payments increase during the term of the lease. Rental revenue
      is
      recorded for the full term of the lease on a straight-line basis. Accordingly,
      the Company records a receivable from tenants for rents that it expects to
      collect over the remaining lease term as deferred rent receivable. When the
      Company acquires a property, the term of the existing lease is considered to
      commence as of the acquisition date for the purposes of this calculation.
      Revenue recognition is considered to be critical because the evaluation of
      the
      reliability of such deferred rent receivable involves management’s assumptions
      relating to such tenant’s viability.




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We
      recognize income from rent once all of the following criteria are met in
      accordance with the FAS 13 - *Accounting
      for Leases* (“FAS
      13”):





·
            The
                agreement has been fully executed and
                delivered;





·
            Services
                have been rendered;





·
            The
                amount is fixed or determinable,
                and





·
            The
                collectibility is reasonable
                assured.





**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. The Manager’s estimate of losses is based on a number of factors
      including the types and dollar amounts of loans in the portfolio, adverse
      situations that may affect the borrower’s ability to repay, prevailing economic
      conditions and the underlying collateral securing the loan. Additions to the
      allowance are provided through a charge to earnings and are based on an
      assessment of certain factors, which may indicate estimated losses on the loans.
      Actual losses on loans are recorded as a charge-off or a reduction to the
      allowance for loan losses. Subsequent recoveries of amounts previously charged
      off are added back to the allowance or included as income.





The
      following table presents a sensitivity analysis to show the impact on our
      financial condition at September 30, 2006 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
            
            $
            208,000Allowance
                for loan losses assumption increased by 5.0% of loan
                portfolio
            
            $
            1,041,000Allowance
                for loan losses assumption decreased by 0.4% of loan
                portfolio
            
            $
            (73,000
            )





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 non-conventional
      lender willing to invest in loans to borrowers who may not meet the credit
      standards of conventional lenders, the default rate on our loans could be higher
      than those generally experienced in the mortgage lending industry. We generally
      approve 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 are 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;




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·
            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.





**ITEM3.**  **QUANTITATIVE
      AND QUALITATIVE DISCLOSURES 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 consist of investments in real estate loans, which from time to
      time
      include those that are financed under Inter-creditor Agreements. At September
      30, 2006, our aggregate investment in real estate loans was approximately $20.7
      million, net of allowance, with a weighted average effective interest rate
      of
      11.16%. We had no loans financed under Inter-creditor Agreements at September
      30, 2006 which would be classified as assets under secured borrowing. Most
      of
      the real estate loans have an initial term of 12 months; the weighted average
      term of outstanding loans at September 30, 2006 was 14 months. All but one
      of
      the outstanding real estate loans at September 30, 2006 were fixed rate loans.
      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 have prepayment penalties and five loans have an exit
      fee.





As
      of
      September 30, 2006, approximately $9.4 million or 29.5% of our assets consist
      of
      investment in income producing real property, net of accumulated depreciation.
      This property is located in Las Vegas, Nevada and is leased entirely by our
      Manager, earning us monthly rent revenue of approximately $87,000. Vestin Group
      has sub-leased office space in the building as permitted by the lease agreement
      at rates equal to or less than rates we receive.





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, which 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 September 30, 2006. The presentation aggregates
      the
      investment in real estate loans by their maturity dates for maturities occurring
      in each of the years 2006 through 2009 and separately aggregates the information
      for all maturities arising after 2009. The carrying values of these assets
      approximate their fair value as of September 30, 2006.





**Interest
                Earning Assets**
              **Aggregated
                by Maturity at September 30, 2006****Interest
                Earning Assets**
            
            **2006**
            
            **2007**
            
            **2008**
            
            **2009**
            
            **Thereafter**
            
            **Total**Investments
                In Real Estate Loans
            
            $
            5,300,000
            
            $
            15,520,000
            
            $
            --
            
            $
            --
            
            $
            --
            
            $
            20,820,000Weighted
                Average Interest Rates
            
            
            10.98%
            
            
            11.22%
            
            
            --%
            
            
            --%
            
            
            --%
            
            
            11.16%




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At
      September 30, 2006, we also had approximately $0.5 million invested in cash
      and
      cash equivalents and $0.8 million invested in marketable securities - related
      party. Approximately 3% of our assets 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.





**ITEM4.**  **CONTROLS
      AND PROCEDURES**





**Disclosure
      Controls and Procedures**





Our
      Manager’s Chief Executive Officer and Chief Financial Officer have reviewed and
      evaluated the effectiveness of the design and operation of our Company’s
      disclosure controls and procedures (as defined in the Securities Exchange Act
      of
      1934 Rules 13a-15(e) and 15d-15(e)) as of September 30, 2006.





Our
      Manager’s Chief Executive Officer and Chief Financial Officer concluded that our
      Company’s disclosure controls and procedures as of the end of the period covered
      by this report were not effective as a result of material weaknesses in internal
      controls discussed below.





**Management’s
      Report on Internal Control Over Financial Reporting**





Our
      Manager is responsible for establishing and maintaining adequate internal
      control over financial reporting for our Company, as such term is defined in
      Rules 13a−15(f) and 15d−15(f) under the Exchange Act. Our internal control over
      financial reporting is a process designed to provide reasonable assurance
      regarding the reliability of financial reporting and the preparation of
      financial statements for external reporting purposes in accordance with
      accounting principles generally accepted in the United States. Internal control
      over financial reporting includes those policies and procedures that: pertain
      to
      the maintenance of records that, in reasonable detail, accurately and fairly
      reflect the transactions and dispositions of the assets of our Company; provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with accounting principles
      generally accepted in the United States, and that receipts and expenditures
      of
      our Company are being made only in accordance with authorizations of our
      Manager; and provide reasonable assurance regarding prevention or timely
      detection of unauthorized acquisition, use or disposition of our Company’s
      assets that could have a material effect on our financial statements. Because
      of
      its inherent limitations, internal control over financial reporting may not
      prevent or detect misstatements. Also, projections of any evaluation of
      effectiveness to future periods are subject to the risk that controls may become
      inadequate because of changes in conditions, or that the degree of compliance
      with the policies or procedures may deteriorate.





A
      material weakness is a control deficiency, or combination of control
      deficiencies, that results in more than a remote likelihood that a material
      misstatement of the annual or interim financial statements will not be prevented
      or detected. As of September 30, 2006, our Manager had identified the following
      material weaknesses in their assessment of the effectiveness of our internal
      control over financial reporting:





·
            *Controls
                over computer database of investments in real estate loans:*Our
                Manager did not establish effective controls over investments in
                real
                estate loans, specifically relating to the access to the computer
                database
                of investments in real estate loans which summarizes information
                used to
                prepare the related disclosures, including the classification of
                types of
                loan, portfolio percentage, loan to value percentage, and the geographical
                location of the investment in real estate loans. During the period
                ended
                September 30, 2006, our Manager established and implemented controls,
                policies and procedures within our information technology department
                that
                are intended to provide monitoring and management of the computer
                systems
                access rights. Such procedures provide for various levels of access
                by
                certain individuals as deemed appropriate by our Manager. These procedures
                also provide for appropriate approvals for programming changes, along
                with
                supporting documentation of such approvals. Our Manager has reviewed
                all
                individuals and their functions and duties within our information
                technology department to establish these access and approval
                controls.




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·
            *Controls
                over information recorded in the computer database of investments
                in real
                estate loans:*Our
                Manager identified errors in recording information in the computer
                database of investments in real estate loans related to the origination
                of
                new loans and loan servicing which summarizes information used to
                prepare
                the related disclosures, including the classification of types of
                loan,
                portfolio percentage, loan to value percentage, and the geographical
                location of the investment in real estate loans. During the period
                ended
                September 30, 2006, our Manager established and implemented additional
                controls, policies and procedures within our loan origination department
                which require critical information recorded in the computer database
                to be
                reviewed and documented by an additional person following the information
                being recorded in the database.





·
            *Controls
                over recording interest income from investments in real estate:*Our
                Manager identified errors in recording transactions specifically
                related
                to interest income from investments in real estate loans. During
                the
                review and evaluation of the design and operation of our controls
                related
                to recording interest income from investments in real estate loans,
                our
                Manager recognized that controls and procedures were generally manual
                rather than automated and required additional manual controls including
                documented sign-offs by preparers and reviewers of various reports.
                During
                the period ended September 30, 2006, our Manager established and
                implemented additional controls, policies and procedures within our
                loan
                servicing department which require documented sign-offs by the preparers
                and reviewers of these reports.





**Remediation
      Plan**





To
      remediate our material weakness over the computer database of investments in
      real estate loans, our Manager established and implemented controls, policies
      and procedures within our information technology department that are intended
      to
      provide monitoring and management of the computer systems access rights. Such
      procedures provide for various levels of access by certain individuals as deemed
      appropriate by our Manager. These procedures also provide for appropriate
      approvals for programming changes, along with supporting documentation of such
      approvals. Our Manager has reviewed all individuals and their functions and
      duties within our information technology department to establish these access
      and approval controls. Our Manager will continue to test the design and
      operation of these controls and procedures to verify their
      effectiveness.





To
      remediate our material weakness over information recorded in the computer
      database of investments in real estate loans, our Manager established and
      implemented additional controls, policies and procedures within our loan
      origination and servicing departments which require critical information
      recorded in the computer database to be reviewed and documented by an additional
      person following the information being recorded in the database. Our Manager
      will continue to test the design and operation of these controls and procedures
      to verify their effectiveness.





To
      remediate our material weakness over recording interest income from investments
      in real estate loans, our Manager established and implemented additional
      controls, policies and procedures within our loan servicing department which
      require documented sign-offs by the preparers and reviewers of monthly reports
      that reconcile subsidiary records to the general ledger. Our Manager will
      continue to test the design and operation of these controls and procedures
      to
      verify their effectiveness.





**Changes
      in Internal Control Over Financial Reporting**





Our
      Manager has commenced with the remediation plan discussed above which includes establishing
      and implementing controls, policies and procedures within our information
      technology, loan origination and loan servicing departments. These controls
      have
      been implemented and will continue to be tested during our quarter ending
      December 31, 2006 to determine their effectiveness.





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 Manager does not expect that our controls and procedures will prevent all
      errors.




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Notwithstanding
      the above, nothing has come to the attention of our Manager which would cause
      our Manager to believe that the material weaknesses noted above have resulted
      in
      material misstatements or errors in our financial statements as of September
      30,
      2006, or for any prior periods.





**PARTII
      - OTHER INFORMATION**





**ITEM1.**  **LEGAL
      PROCEEDINGS**





Please
      refer to Note L *Legal
      Matters Involving the Manager* and Note
      M *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.





**ITEM1A.**  **RISK
      FACTORS**





Except
      as
      set forth below, there have been no material changes to the risk factors
      disclosed in Part II Other Item 1A - *Risk
      Factors* of the
      Company’s Quarterly Report on Form 10-Q for the three months ended March 31,
      2006 (the “Form 10-Q”) and Form 10-K for the year ended December 31, 2005 (the
“Form 10-K”). The materialization of any risks and uncertainties identified in
      the Company’s Forward Looking Statements contained herein together with those
      previously disclosed in the Form 10-Q, Form 10-K or those that are presently
      unforeseen could result in significant adverse effects on the Company’s
      financial condition, results of operations and cash flows. See Item 2. *Management’s
      Discussion and Analysis of Financial Condition and Results of Operations -
      Forward Looking Statements* in this
      Quarterly Report on Form 10-Q.





**SEC
      Investigation Resolved.**





The
      SEC
      investigation disclosed in our previous filings has been resolved without any
      adverse action against us. For further information, please see Note L to our
      Financial Statements.





**ITEM2.**  **UNREGISTERED
      SALES OF EQUITY AND USE OF PROCEEDS**





**Market
      Information**





There
      is
      no established public trading market for the trading of Units.





**Holders**





As
      of
      September 30, 2006, 735 accounts held 2,772,439 Units of interest in the
      Company.





**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 $1,929,000 (prior to reinvested distributions) during the nine
      months ended September 30, 2006, 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.





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**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**July
                2006
            
            
            6,348
            
            $
            10.50
            
            
            None
            
            
            NoneAugust
                2006
            
            
            6,503
            
            $
            10.50
            
            
            None
            
            
            NoneSeptember
                2006
            
            
            6,332
            
            $
            10.50
            
            
            None
            
            
            None





(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, 2006 were approximately $29.2 million,
                which
                limited redemptions to approximately $2.9 million for calendar year
                2006.





**ITEM3.**  **DEFAULTS
      UPON SENIOR SECURITIES**





None.





**ITEM4.**  **SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS**





None.





**ITEM5.**
            **OTHER
                INFORMATION**





None.




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**ITEM6.**
            **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
            
            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 John
                Alderfer32
            
            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.








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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, LLC**By:
            Vestin
                Mortgage, Inc., its Sole ManagerBy:
            /s/
                Michael V. ShustekMichael
                V. ShustekChief
                Executive Office and Director of the Manager(Principal
                Executive Officer of the Manager)By:
            /s/
                John AlderferJohn
                AlderferChief
                Financial Officer of the Manager(Principal
                Financial and Accounting Officer of the
                Manager)





Dated:
      November 8, 2006




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