##### Table of Contents









U.S. SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


Form 10-Q


|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934 
|          
|           |  | FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2005                                           
|          
|Or        
|          
|o          |  | 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
    Incorporation or Organization) |  | (I.R.S. Employer
    Identification No.)
|                                                                  
|8379 WEST SUNSET ROAD, LAS VEGAS, NEVADA                           |  | 89113                                   
|(Address of Principal Executive Offices)                           |  | (Zip Code)                              

Registrants Telephone Number: 702.227.0965


þ o


o þ


o þ












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TABLE OF CONTENTS


|                             |  |                                                                                                                                  |    |      |    | 
|---------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|                             |  |                                                                                                                                  |    | Page |   
|                             |  |                                                                                                                                  |    |      |   
|PART I FINANCIAL INFORMATION
|Item 1.                      |  | Consolidated Financial Statements                                                                                                |    |      |    | 
|                             |  | Consolidated Balance Sheets as of
    September 30, 2005 (unaudited), and December 31,
    2004                                  |    |      | 3  | 
|                             |  | Consolidated Statements of Income for the
    Three months and the Nine Months Ended September 30, 2005
    and 2004 (unaudited) |    |      | 4  | 
|                             |  | Consolidated Statement of Members
    Equity for the Nine Months Ended September 30, 2005
    (unaudited)                       |    |      | 5  | 
|                             |  | Consolidated Statements of Cash Flows for
    the Nine Months Ended September 30, 2005 and 2004
    (unaudited)                  |    |      | 6  | 
|                             |  | Condensed Notes to Consolidated Financial
    Statements (unaudited)                                                             |    |      | 7  | 
|Item 2.                      |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                                        |    |      | 23 | 
|Item 3.                      |  | Quantitative and Qualitative Disclosures
    about Market Risk                                                                   |    |      | 38 | 
|Item 4.                      |  | Controls and Procedures                                                                                                          |    |      | 39 | 
|PART II OTHER INFORMATION   
|Item 1.                      |  | Legal Proceedings                                                                                                                |    |      | 41 | 
|Item 2.                      |  | Unregistered Sales of Equity Securities and
    Use of Proceeds                                                                  |    |      | 42 | 
|Item 3.                      |  | Defaults Upon Senior Securities                                                                                                  |    |      | 43 | 
|Item 4.                      |  | Submission of Matters to a Vote of Security
    Holders                                                                          |    |      | 43 | 
|Item 5.                      |  | Other Information                                                                                                                |    |      | 43 | 
|Item 6.                      |  | Exhibits                                                                                                                         |    |      | 43 | 
|SIGNATURES                   |  |                                                                                                                                  | 45 |     
|Exhibit 31.1                
|Exhibit 31.2                
|Exhibit 32                  





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##### Table of Contents



VESTIN FUND III, LLC





CONSOLIDATED BALANCE SHEETS


|                                                                                                                                                                                        |                    |                                       |            |           |              |   |            |           |            | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------ | ------------------------------------- | ---------- | --------- | ------------ | - | ---------- | --------- | ---------- | 
|                                                                                                                                                                                        |                    | September 30,                         |            |           | December 31, |  
|                                                                                                                                                                                        |                    | 2005                                  |            |           | 2004         |  
|                                                                                                                                                                                        |                    |                                       |            |           |              |  
|                                                                                                                                                                                        |                    | (Unaudited)                           |            |           |             
|ASSETS                                                                                                                                                                                 
|Cash                                                                                                                                                                                    |                    | $                                     | 1,615,000  |           |              | $ | 6,286,000  |          
|Interest receivable                                                                                                                                                                     |                    |                                       | 188,000    |           |              |   | 127,000    |          
|Investment in real estate loans, net of allowance for loan
    losses of $110,000 and $73,000 as of September 30, 2005 and
    December 31, 2004, respectively                          |                    |                                       | 22,329,000 |           |              |   | 13,520,000 |          
|Investment in real property, net of accumulated depreciation of
    $235,000 and $77,000 as of September 30, 2005 and
    December 31, 2004, respectively                               |                    |                                       | 9,643,000  |           |              |   | 9,814,000  |          
|Capitalized loan fees, net of amortization of $13,000 and $4,000
    September 30, 2005 and December 31, 2004, respectively                                                             |                    |                                       | 102,000    |           |              |   | 111,000    |          
|Assets under secured borrowings                                                                                                                                                         |                    |                                       | 216,000    |           |              |   | 2,590,000  |          
|Due from Vestin Fund I                                                                                                                                                                  |                    |                                       | 6,000      |           |              |   |           |          
|Deferred offering costs                                                                                                                                                                 |                    |                                       | 1,020,000  |           |              |   | 926,000    |          
|                                                                                                                                                                                        |                    |                                       |            |           |              |  
|                                                                                                                                                                                        |                    | $                                     | 35,119,000 |           |              | $ | 33,374,000 |          
|                                                                                                                                                                                        |                    |                                       |            |           |              |  
|                                                                                                                                                                                       
|LIABILITIES AND MEMBERS EQUITY                                                                                                                                                        
|Liabilities                                                                                                                                                                             |                    |                                       |            |           |              |   |            |          
|                                                                                                                                                                                        | Accounts payable   |                                       | $          | 68,000    |              |   | $          |          |           
|                                                                                                                                                                                        | Due to Manager     |                                       |            | 942,000   |              |   |            | 1,094,000 |           
|                                                                                                                                                                                        | Secured borrowings |                                       |            | 216,000   |              |   |            | 2,590,000 |           
|                                                                                                                                                                                        | Note payable       |                                       |            | 4,852,000 |              |   |            | 4,928,000 |           
|                                                                                                                                                                                        |                    |                                       |            |           |              |  
|                                                                                                                                                                                        |                    | Total liabilities                     |            |           | 6,078,000    |   |            |           | 8,612,000  | 
|Members equity  Authorized
    12,000,000 units, 2,900,887 units issued and
    outstanding at September 30, 2005 and 2,471,658 units
    issued and outstanding at December 31, 2004 |                    |                                       | 29,041,000 |           |              |   | 24,762,000 |          
|                                                                                                                                                                                        |                    |                                       |            |           |              |  
|                                                                                                                                                                                        |                    | Total members equity                 |            |           | 29,041,000   |   |            |           | 24,762,000 | 
|                                                                                                                                                                                        |                    |                                       |            |           |              |  
|                                                                                                                                                                                        |                    | Total liabilities and members equity |            | $         | 35,119,000   |   |            | $         | 33,374,000 | 
|                                                                                                                                                                                        |                    |                                       |            |           |              |  



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VESTIN FUND III, LLC





CONSOLIDATED STATEMENTS OF INCOME


|                                                                          |                                                       |                          |           |         |                    |   |           |                    |         |   |                    |           |           |   |           |         |           | 
|------------------------------------------------------------------------- | ----------------------------------------------------- | ------------------------ | --------- | ------- | ------------------ | - | --------- | ------------------ | ------- | - | ------------------ | --------- | --------- | - | --------- | ------- | --------- | 
|                                                                          |                                                       | For the                  |           |         | For the            |   |           | For the            |         |   | For the            |          
|                                                                          |                                                       | Three Months Ended       |           |         | Three Months Ended |   |           | Nine Months Ended  |         |   | Nine Months Ended  |          
|                                                                          |                                                       | September 30, 2005       |           |         | September 30, 2004 |   |           | September 30, 2005 |         |   | September 30, 2004 |          
|                                                                          |                                                       |                          |           |         |                    |   |           |                    |         |   |                    |          
|                                                                          |                                                       | (Unaudited)              |          
|Revenues                                                                  |                                                       |                          |           |         |                    |   |           |                    |         |   |                    |           |           |   |           |        
|                                                                          | Interest income from investments in real estate loans |                          | $         | 586,000 |                    |   | $         | 378,000            |         |   | $                  | 1,757,000 |           |   | $         | 906,000 |          
|                                                                          | Interest income related to secured borrowings         |                          |           | 13,000  |                    |   |           | 202,000            |         |   |                    | 152,000   |           |   |           | 600,000 |          
|                                                                          | Rental income                                         |                          |           | 215,000 |                    |   |           | 102,000            |         |   |                    | 645,000   |           |   |           | 102,000 |          
|                                                                          | Other                                                 |                          |           | 45,000  |                    |   |           | 4,000              |         |   |                    | 63,000    |           |   |           | 30,000  |          
|                                                                          |                                                       |                          |           |         |                    |   |           |                    |         |   |                    |          
|                                                                          |                                                       | Total revenues           |           |         | 859,000            |   |           |                    | 686,000 |   |                    |           | 2,617,000 |   |           |         | 1,638,000 | 
|                                                                          |                                                       |                          |           |         |                    |   |           |                    |         |   |                    |          
|Operating expenses                                                        |                                                       |                          |           |         |                    |   |           |                    |         |   |                    |           |           |   |           |        
|                                                                          | Management fees                                       |                          |           | 8,000   |                    |   |           | 11,000             |         |   |                    | 42,000    |           |   |           | 22,000  |          
|                                                                          | Interest expense related to secured borrowings        |                          |           | 10,000  |                    |   |           | 178,000            |         |   |                    | 130,000   |           |   |           | 537,000 |          
|                                                                          | Interest expense related to investment in real estate |                          |           | 92,000  |                    |   |           | 10,000             |         |   |                    | 231,000   |           |   |           | 10,000  |          
|                                                                          | Provision for loan losses                             |                          |           |        |                    |   |           |                   |         |   |                    | 37,000    |           |   |           | 73,000  |          
|                                                                          | Depreciation and amortization                         |                          |           | 56,000  |                    |   |           | 31,000             |         |   |                    | 167,000   |           |   |           | 30,000  |          
|                                                                          | Professional fees                                     |                          |           | 47,000  |                    |   |           | 4,000              |         |   |                    | 259,000   |           |   |           | 4,000   |          
|                                                                          | Other                                                 |                          |           | 3,000   |                    |   |           | 19,000             |         |   |                    | 19,000    |           |   |           | 60,000  |          
|                                                                          |                                                       |                          |           |         |                    |   |           |                    |         |   |                    |          
|                                                                          |                                                       | Total operating expenses |           |         | 216,000            |   |           |                    | 253,000 |   |                    |           | 885,000   |   |           |         | 736,000   | 
|                                                                          |                                                       |                          |           |         |                    |   |           |                    |         |   |                    |          
|                                                                          |                                                       | NET INCOME               |           | $       | 643,000            |   |           | $                  | 433,000 |   |                    | $         | 1,732,000 |   |           | $       | 902,000   | 
|                                                                          |                                                       |                          |           |         |                    |   |           |                    |         |   |                    |          
|Net income allocated to members                                           |                                                       | $                        | 643,000   |         |                    | $ | 433,000   |                    |         | $ | 1,732,000          |           |           | $ | 902,000   |        
|                                                                          |                                                       |                          |           |         |                    |   |           |                    |         |   |                    |          
|Net income allocated to members per weighted average membership
    units |                                                       | $                        | 0.22      |         |                    | $ | 0.25      |                    |         | $ | 0.63               |           |           | $ | 0.59      |        
|                                                                          |                                                       |                          |           |         |                    |   |           |                    |         |   |                    |          
|Weighted average membership units                                         |                                                       |                          | 2,865,352 |         |                    |   | 1,712,296 |                    |         |   | 2,769,362          |           |           |   | 1,519,198 |        
|                                                                          |                                                       |                          |           |         |                    |   |           |                    |         |   |                    |          



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VESTIN FUND III, LLC





CONSOLIDATED STATEMENT OF MEMBERS EQUITY


FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005


|                                                  |  |       |           |   |        |   |            |  
|------------------------------------------------- |  | ----- | --------- | - | ------ | - | ---------- | -
|                                                  |  | Units |           |   | Amount |  
|                                                  |  |       |           |   |        |  
|Members equity at December 31, 2004              |  |       | 2,471,658 |   |        | $ | 24,762,000 |  
|Issuance of units                                 |  |       | 374,272   |   |        |   | 3,857,000  |  
|Distributions                                     |  |       |          |   |        |   | (1,885,000 | )
|Reinvestments of distributions                    |  |       | 72,752    |   |        |   | 742,000    |  
|Members redemptions                              |  |       | (17,795   | ) |        |   | (167,000   | )
|Net income                                        |  |       |          |   |        |   | 1,732,000  |  
|                                                  |  |       |           |   |        |  
|Members equity at September 30, 2005 (Unaudited) |  |       | 2,900,887 |   |        | $ | 29,041,000 |  
|                                                  |  |       |           |   |        |  



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VESTIN FUND III, LLC





CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                      |                                                                                                                                               |                                             |                                           |             |                    |            |           |             |        |             |  
|------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------- | ----------------------------------------- | ----------- | ------------------ | ---------- | --------- | ----------- | ------ | ----------- | -
|                                      |                                                                                                                                               | For the                                     |                                           |             | For the            |           
|                                      |                                                                                                                                               | Nine Months Ended                           |                                           |             | Nine Months Ended  |           
|                                      |                                                                                                                                               | September 30, 2005                          |                                           |             | September 30, 2004 |           
|                                      |                                                                                                                                               |                                             |                                           |             |                    |           
|                                      |                                                                                                                                               | (Unaudited)                                 |                                          
|Cash flows from operating activities: |                                                                                                                                               |                                             |                                           |             |                    |            |           |            
|                                      | Net income                                                                                                                                    |                                             | $                                         | 1,732,000   |                    |            | $         | 902,000     |       
|                                      | Adjustments to reconcile net income to net cash provided by
    operating activities:                                                         |                                             |                                           |             |                    |            |           |             |       
|                                      |                                                                                                                                               | Depreciation                                |                                           |             | 158,000            |            |           |             | 29,000 |            
|                                      |                                                                                                                                               | Amortization of capitalized loan fees       |                                           |             | 9,000              |            |           |             | 1,000  |            
|                                      |                                                                                                                                               | Provision for loan losses                   |                                           |             | 37,000             |            |           |             | 73,000 |            
|                                      |                                                                                                                                               | Change in operating assets and liabilities: |                                           |             |                    |            |           |             |        |            
|                                      |                                                                                                                                               |                                             | Interest receivable                       |             |                    | (61,000    | )         |             |        | (100,000    | )
|                                      |                                                                                                                                               |                                             | Rents due from Manager                    |             |                    |           |           |             |        | (72,000     | )
|                                      |                                                                                                                                               |                                             | Capitalized loan fees                     |             |                    |           |           |             |        | (115,000    | )
|                                      |                                                                                                                                               |                                             | Accounts payable                          |             |                    | 68,000     |           |             |        |            |  
|                                      |                                                                                                                                               |                                             | Due from Fund I                           |             |                    | (6,000     | )         |             |        |            |  
|                                      |                                                                                                                                               |                                             | Due to Manager                            |             |                    | (246,000   | )         |             |        | 125,000     |  
|                                      |                                                                                                                                               |                                             |                                           |             |                    |           
|                                      |                                                                                                                                               |                                             | Net cash provided by operating activities |             |                    | 1,691,000  |           |             |        | 843,000     |  
|                                      |                                                                                                                                               |                                             |                                           |             |                    |           
|Cash flows from investing activities: |                                                                                                                                               |                                             |                                           |             |                    |            |           |            
|                                      | Investments in real estates loans                                                                                                             |                                             |                                           | (14,737,000 | )                  |            |           | (16,802,000 | )     
|                                      | Sale of investments in real estate loans                                                                                                      |                                             |                                           |            |                    |            |           | 2,114,000   |       
|                                      | Proceeds from loan payoff                                                                                                                     |                                             |                                           | 5,391,000   |                    |            |           | 9,564,000   |       
|                                      | Proceeds from title settlement on investment in real property                                                                                 |                                             |                                           | 13,000      |                    |            |           |            |       
|                                      | Purchase of investments in mortgage loans from Fund II                                                                                        |                                             |                                           |            |                    |            |           | (10,000,000 | )     
|                                      | Proceeds received from sale of real estate loans to Vestin
    Fund II, LLC                                                                   |                                             |                                           | 500,000     |                    |            |           | 5,000,000   |       
|                                      | Purchase of investment in real property                                                                                                       |                                             |                                           |            |                    |            |           | (4,850,000  | )     
|                                      |                                                                                                                                               |                                             |                                           |             |                    |           
|                                      |                                                                                                                                               |                                             | Net cash used by investing activities     |             |                    | (8,833,000 | )         |             |        | (14,974,000 | )
|                                      |                                                                                                                                               |                                             |                                           |             |                    |           
|Cash flows from financing activities: |                                                                                                                                               |                                             |                                           |             |                    |            |           |            
|                                      | Proceeds from issuance of member units                                                                                                        |                                             |                                           | 3,857,000   |                    |            |           | 18,123,000  |       
|                                      | Payments on notes payable                                                                                                                     |                                             |                                           | (76,000     | )                  |            |           |            |       
|                                      | Members redemptions                                                                                                                          |                                             |                                           | (167,000    | )                  |            |           |            |       
|                                      | Distributions, net of reinvestments                                                                                                           |                                             |                                           | (1,143,000  | )                  |            |           | (534,000    | )     
|                                      |                                                                                                                                               |                                             |                                           |             |                    |           
|                                      | Net cash provided by financing activities                                                                                                     |                                             |                                           | 2,471,000   |                    |            |           | 17,589,000  |       
|                                      |                                                                                                                                               |                                             |                                           |             |                    |           
|                                      |                                                                                                                                               |                                             | NET CHANGE IN CASH                        |             |                    | (4,671,000 | )         |             |        | 3,458,000   |  
|Cash, beginning                       |                                                                                                                                               |                                             | 6,286,000                                 |             |                    |            | 5,000     |            
|                                      |                                                                                                                                               |                                             |                                           |             |                    |           
|Cash, ending                          |                                                                                                                                               | $                                           | 1,615,000                                 |             |                    | $          | 3,463,000 |            
|                                      |                                                                                                                                               |                                             |                                           |             |                    |           
|Interest paid during the period       |                                                                                                                                               | $                                           | 241,000                                   |             |                    | $          |          |            
|                                      |                                                                                                                                               |                                             |                                           |             |                    |           
|Non-cash financing activities:        |                                                                                                                                               |                                             |                                           |             |                    |            |           |            
|                                      | Offering costs paid by Vestin Mortgage, Inc. recorded as
    deferred offering costs and due to manager on the accompanying
    balance sheet |                                             | $                                         | 94,000      |                    |            | $         | 202,000     |       
|                                      |                                                                                                                                               |                                             |                                           |             |                    |           
|                                      | Change in loans funded through secured borrowing                                                                                              |                                             | $                                         | 2,374,000   |                    |            | $         | 4,134,000   |       
|                                      |                                                                                                                                               |                                             |                                           |             |                    |           
|                                      | Note payable related to acquisition of investment in real estate                                                                              |                                             | $                                         |            |                    |            | $         | 4,950,000   |       
|                                      |                                                                                                                                               |                                             |                                           |             |                    |           



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VESTIN FUND III, LLC





CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


September 30, 2005


(UNAUDITED)


NOTE A  ORGANIZATION




















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VESTIN FUND III, LLC


CONDENSED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








NOTE B  SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES




| |                     
| | --------------------
| | Management Estimates





| |                          
| | -------------------------
| | Cash and Cash Equivalents





| |                    
| | -------------------
| | Revenue Recognition





| |                                 
| | --------------------------------
| | Investments in Real Estate Loans



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VESTIN FUND III, LLC


CONDENSED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










| |                          
| | -------------------------
| | Allowance for Loan Losses





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VESTIN FUND III, LLC


CONDENSED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |   |                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.



| |                             
| | ----------------------------
| | Investments in Real Property





|                        |  |                
|----------------------- |  | ---------------
|Land                    |  | Not Depreciated
|Building                |  | 40 Years       
|Building Improvements   |  | 10-25 Years    
|Land Improvements       |  | 20-25 Years    
|Tenant Improvements     |  | Lease Term     
|Intangible Lease Assets |  | Lease Term     





| |                        
| | -----------------------
| | Deferred Offering Costs



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VESTIN FUND III, LLC


CONDENSED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                   
| | ------------------
| | Secured Borrowings

Accounting for
Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities






| |                                    
| | -----------------------------------
| | Fair Value of Financial Instruments

Disclosures about Fair Value of Financial
Instruments




| |                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) Certificate of Deposits and Short-Term
    Investments: The carrying amount of these instruments is 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 indeterminable at this time as no ready
    market exists for these loans, but fair value may be
    significantly below the current carrying value.
|
| | (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.                                                                                                                                                     



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VESTIN FUND III, LLC


CONDENSED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                                                                         
| | ------------------------------------------------------------------------
| | Net Income Allocated to Members Per Weighted Average
    Membership Unit





| |             
| | ------------
| | Income Taxes





| |                  
| | -----------------
| | Reclassifications



NOTE C  FINANCIAL INSTRUMENTS AND CONCENTRATIONS
OF CREDIT RISK














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VESTIN FUND III, LLC


CONDENSED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


NOTE D  INVESTMENTS IN REAL ESTATE LOANS






|                            |  |           |    |  |            |          |            |               |  |           |            |   |         |          |        |   |  |  |       |  
|--------------------------- |  | --------- | -- |  | ---------- | -------- | ---------- | ------------- |  | --------- | ---------- | - | ------- | -------- | ------ | - |  |  | ----- | -
|                            |  |           |    |  |            | Weighted |            |               |  |           |           
|                            |  | Number of |    |  |            |          | Average    |               |  | Portfolio |            |   | Loan to |         
|Loan Type                   |  | Loans     |    |  | Balance(3) |          |            | Interest Rate |  |           | Percentage |   |         | Value(2) |       
|                            |  |           |    |  |            |          |            |               |  |           |            |   |         |          |       
|Acquisition and development |  |           | 2  |  |            | $        | 3,091,000  |               |  |           | 11.13      | % |         |          | 13.77  | % |  |  | 56.84 | %
|Commercial(1)               |  |           | 13 |  |            |          | 12,081,000 |               |  |           | 9.78       | % |         |          | 53.84  | % |  |  | 66.64 | %
|Construction                |  |           | 2  |  |            |          | 1,231,000  |               |  |           | 12.00      | % |         |          | 5.48   | % |  |  | 64.50 | %
|Land                        |  |           | 5  |  |            |          | 6,036,000  |               |  |           | 11.03      | % |         |          | 26.91  | % |  |  | 56.84 | %
|                            |  |           |    |  |            |          |            |               |  |           |            |   |         |          |       
|                            |  |           | 22 |  |            | $        | 22,439,000 |               |  |           | 10.42      | % |         |          | 100.00 | % |  |  | 62.54 | %
|                            |  |           |    |  |            |          |            |               |  |           |            |   |         |          |       



|                            |  |           |    |  |            |          |            |               |  |           |            |   |         |          |        |   |  |  |       |  
|--------------------------- |  | --------- | -- |  | ---------- | -------- | ---------- | ------------- |  | --------- | ---------- | - | ------- | -------- | ------ | - |  |  | ----- | -
|                            |  |           |    |  |            | Weighted |            |               |  |           |           
|                            |  | Number of |    |  |            |          | Average    |               |  | Portfolio |            |   | Loan to |         
|Loan Type                   |  | Loans     |    |  | Balance(3) |          |            | Interest Rate |  |           | Percentage |   |         | Value(2) |       
|                            |  |           |    |  |            |          |            |               |  |           |            |   |         |          |       
|Acquisition and development |  |           | 3  |  |            | $        | 6,319,000  |               |  |           | 10.90      | % |         |          | 46.49  | % |  |  | 56.74 | %
|Commercial(1)               |  |           | 3  |  |            |          | 4,849,000  |               |  |           | 12.26      | % |         |          | 35.67  | % |  |  | 66.27 | %
|Construction                |  |           | 1  |  |            |          | 265,000    |               |  |           | 12.00      | % |         |          | 1.95   | % |  |  | 66.53 | %
|Land                        |  |           | 3  |  |            |          | 2,160,000  |               |  |           | 12.81      | % |         |          | 15.89  | % |  |  | 71.82 | %
|                            |  |           |    |  |            |          |            |               |  |           |            |   |         |          |       
|                            |  |           | 10 |  |            | $        | 13,593,000 |               |  |           | 11.71      | % |         |          | 100.00 | % |  |  | 62.73 | %
|                            |  |           |    |  |            |          |            |               |  |           |            |   |         |          |       






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Bridge loans are a subcategory of commercial loans in which we
    provide interim financing for borrowers seeking long-term,
    permanent financing.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|(2) | Loan to value ratios are based on appraisals obtained at the
    time of loan origination and may not reflect subsequent changes
    in value estimates. Such appraisals, which may be commissioned
    by the borrower, are generally dated no greater than
    12 months prior to the date of loan origination. The
    appraisals may be for the current estimate of the as-if
    developed value of the property, which approximates the
    post-construction value of the collateralized property assuming
    that such property is developed. As-if developed
    values on raw land loans or acquisition and development loans
    often dramatically exceed the immediate sales value and may
    include anticipated zoning changes, and successful development
    by the purchaser; upon which development is dependent on
    availability of financing. As most of the appraisals will be
    prepared on an as-if developed basis, if a loan goes
    into default prior to any development of a project, the market
    value of the property may be substantially less than the
    appraised value. As a result, there may be less security than
    anticipated at the time the loan was originally made. If there
    is less security and a default occurs, we may not recover the
    full amount of the loan.
|   
|(3) | The following table reconciles the balance of the loan portfolio
    to the amount shown on the accompanying Balance Sheet:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

|                           |  |               |            |   |              |   |            |  
|-------------------------- |  | ------------- | ---------- | - | ------------ | - | ---------- | -
|                           |  | September 30, |            |   | December 31, |  
|                           |  | 2005          |            |   | 2004         |  
|                           |  |               |            |   |              |  
|Balance Per Loan portfolio |  | $             | 22,439,000 |   |              | $ | 13,593,000 |  
|Less:                      |  |               |            |   |              |   |            |  
|Allowance for Loan Losses  |  |               | (110,000   | ) |              |   | (73,000    | )
|                           |  |               |            |   |              |  
|Balance Per Balance Sheet  |  | $             | 22,329,000 |   |              | $ | 13,520,000 |  
|                           |  |               |            |   |              |  

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VESTIN FUND III, LLC


CONDENSED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                        |  |               |            |  |            |  |              |          |  |   |            |  |  |  |        |  
|----------------------- |  | ------------- | ---------- |  | ---------- |  | ------------ | -------- |  | - | ---------- |  |  |  | ------ | -
|                        |  | September 30, |            |  |            |  | December 31, |          |  |  
|                        |  | 2005          |            |  | Portfolio  |  |              | 2004     |  |   | Portfolio  | 
|Loan Type               |  | Balance*      |            |  | Percentage |  |              | Balance* |  |   | Percentage | 
|                        |  |               |            |  |            |  |              |          |  |   |            | 
|First Trust Deed        |  | $             | 20,595,000 |  |            |  | 91.78        | %        |  | $ | 11,015,000 |  |  |  | 81.03  | %
|Second Deeds of Trust** |  |               | 1,844,000  |  |            |  | 8.22         | %        |  |   | 2,578,000  |  |  |  | 18.97  | %
|                        |  |               |            |  |            |  |              |          |  |   |            | 
|                        |  | $             | 22,439,000 |  |            |  | 100.00       | %        |  | $ | 13,593,000 |  |  |  | 100.00 | %
|                        |  |               |            |  |            |  |              |          |  |   |            | 






|  |                    
|- | -------------------
|* | See note (3) above.



|   |                                                                                                                     
|-- | --------------------------------------------------------------------------------------------------------------------
|** | Generally, our second deeds of trust are junior to a first trust
    deed position held by either us or our Manager.



|     |  |   |            | 
|---- |  | - | ---------- | 
|2005 |  | $ | 20,180,000 | 
|2006 |  |   | 2,259,000  | 
|     |  |   |           
|     |  | $ | 22,439,000 | 
|     |  |   |           



|               |  |               |            |  |            |  |              |          |  |   |            |  |  |  |        |  
|-------------- |  | ------------- | ---------- |  | ---------- |  | ------------ | -------- |  | - | ---------- |  |  |  | ------ | -
|               |  | September 30, |            |  |            |  | December 31, |          |  |  
|               |  | 2005          |            |  | Portfolio  |  |              | 2004     |  |   | Portfolio  | 
|               |  | Balance*      |            |  | Percentage |  |              | Balance* |  |   | Percentage | 
|               |  |               |            |  |            |  |              |          |  |   |            | 
|Arizona        |  | $             | 5,807,000  |  |            |  | 25.88        | %        |  | $ | 6,865,000  |  |  |  | 50.50  | %
|California     |  |               | 5,490,000  |  |            |  | 24.47        | %        |  |   | 1,648,000  |  |  |  | 12.12  | %
|Colorado       |  |               | 170,000    |  |            |  | 0.76         | %        |  |   |           |  |  |  |       |  
|Nevada         |  |               | 4,926,000  |  |            |  | 21.95        | %        |  |   | 4,080,000  |  |  |  | 30.02  | %
|North Carolina |  |               | 102,000    |  |            |  | 0.45         | %        |  |   |           |  |  |  |       |  
|Oklahoma       |  |               | 1,000,000  |  |            |  | 4.46         | %        |  |   | 1,000,000  |  |  |  | 7.36   | %
|Oregon         |  |               | 1,356,000  |  |            |  | 6.04         | %        |  |   |           |  |  |  |       |  
|Texas          |  |               | 1,025,000  |  |            |  | 4.57         | %        |  |   |           |  |  |  |       |  
|Washington     |  |               | 1,360,000  |  |            |  | 6.06         | %        |  |   |           |  |  |  |       |  
|Wisconsin      |  |               | 1,203,000  |  |            |  | 5.36         | %        |  |   |           |  |  |  |       |  
|               |  |               |            |  |            |  |              |          |  |   |            | 
|               |  | $             | 22,439,000 |  |            |  | 100.00       | %        |  | $ | 13,593,000 |  |  |  | 100.00 | %
|               |  |               |            |  |            |  |              |          |  |   |            | 






|  |                    
|- | -------------------
|* | See note (3) above.



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##### Table of Contents



VESTIN FUND III, LLC


CONDENSED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                            |  |              |        |  |            |   |        |            |               |  |      |  |  |   |         | 
|--------------------------- |  | ------------ | ------ |  | ---------- | - | ------ | ---------- | ------------- |  | ---- |  |  | - | ------- | 
|                            |  | Balance at   |        |  |            |   |        |            | Balance at    | 
|                            |  | December 31, |        |  |            |   |        |            | September 30, | 
|Description                 |  | 2004         |        |  | Provisions |   |        | Deductions |               |  | 2005 | 
|                            |  |              |        |  |            |   |        |            |               |  |      | 
|General Valuation Allowance |  | $            | 73,000 |  |            | $ | 37,000 |            |               |  |     |  |  | $ | 110,000 | 
|                            |  |              |        |  |            |   |        |            |               |  |      | 





| |                                
| | -------------------------------
| | Asset Quality and Loan Reserves







| |   |                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------
| |  | 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.             



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##### Table of Contents



VESTIN FUND III, LLC


CONDENSED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


NOTE E  INVESTMENT IN REAL PROPERTY






NOTE F  LEASING ACTIVITY






|                                    |  |   |           | 
|----------------------------------- |  | - | --------- | 
|October 1 Through December 31, 2005 |  | $ | 223,000   | 
|January 1 Through December 31, 2006 |  |   | 906,000   | 
|January 1 Through December 31, 2007 |  |   | 942,000   | 
|January 1 Through December 31, 2008 |  |   | 980,000   | 
|January 1 Through December 31, 2009 |  |   | 1,020,000 | 
|Thereafter                          |  |   | 5,367,000 | 
|                                    |  |   |          
|                                    |  | $ | 9,438,000 | 
|                                    |  |   |          

NOTE G  RELATED PARTY TRANSACTIONS




| |                              
| | -----------------------------
| | Transactions with the Manager







| |                            
| | ---------------------------
| | Transactions with the Funds







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##### Table of Contents



VESTIN FUND III, LLC


CONDENSED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








| |                                        
| | ---------------------------------------
| | Transactions with Other Related Parties





NOTE H  SECURED BORROWINGS


Accounting for
Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities






NOTE I  NOTE PAYABLE




|                                                                                                                                                              |  |               |           | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | --------- | 
|                                                                                                                                                              |  | Balance at    |          
|                                                                                                                                                              |  | September 30, |          
|                                                                                                                                                              |  | 2005          |          
|                                                                                                                                                              |  |               |          
|10- year note payable secured by real property, bearing interest
    at 5.6% per annum, payable in monthly principal and
    interest installments of $30,694 |  | $             | 4,852,000 | 
|                                                                                                                                                              |  |               |          

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VESTIN FUND III, LLC


CONDENSED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                           |  |   |           | 
|------------------------------------------ |  | - | --------- | 
|October 1, 2005 Through September 30, 2006 |  | $ | 99,000    | 
|October 1, 2006 Through September 30, 2007 |  |   | 105,000   | 
|October 1, 2007 Through September 30, 2008 |  |   | 111,000   | 
|October 1, 2008 Through September 30, 2009 |  |   | 118,000   | 
|October 1, 2009 Through September 30, 2010 |  |   | 125,000   | 
|Thereafter                                 |  |   | 4,294,000 | 
|                                           |  |   |          
|                                           |  | $ | 4,852,000 | 
|                                           |  |   |          

NOTE J  MEMBERS EQUITY




| |                 
| | ----------------
| | Membership Units







| |                              
| | -----------------------------
| | Allocations and Distributions









| |                         
| | ------------------------
| | Working Capital Reserves



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##### Table of Contents



VESTIN FUND III, LLC


CONDENSED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                                   
| | ----------------------------------
| | Value of Members Capital Accounts



NOTE K  RECENT ACCOUNTING PRONOUNCEMENTS






NOTE L  LEGAL MATTERS INVOLVING THE MANAGER






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##### Table of Contents



VESTIN FUND III, LLC


CONDENSED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






NOTE M  LEGAL MATTERS INVOLVING THE COMPANY








NOTE N  SEGMENT INFORMATION








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VESTIN FUND III, LLC


CONDENSED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                         |                                                       |                |           |           |                |   |         |         |  |   |           |           | 
|------------------------ | ----------------------------------------------------- | -------------- | --------- | --------- | -------------- | - | ------- | ------- |  | - | --------- | --------- | 
|                         |                                                       | Investments in |           |           |                |   |        
|                         |                                                       | Real Estate    |           |           | Investments in |   |         |        
|                         |                                                       | Loans          |           |           | Real Estate    |   |         | Total   | 
|                         |                                                       |                |           |           |                |   |         |         | 
|Revenues:                |                                                       |                |           |           |                |   |         |         |  |   |           |          
|                         | Interest Income From Investments in Real Estate Loans |                | $         | 1,757,000 |                |   | $       |        |  |   | $         | 1,757,000 | 
|                         | Interest Income Related to Secured Borrowings         |                |           | 152,000   |                |   |         |        |  |   |           | 152,000   | 
|                         | Rental Income                                         |                |           |          |                |   |         | 645,000 |  |   |           | 645,000   | 
|                         | Other                                                 |                |           | 63,000    |                |   |         |        |  |   |           | 63,000    | 
|                         |                                                       |                |           |           |                |   |         |         | 
|Total Revenues           |                                                       | $              | 1,972,000 |           |                | $ | 645,000 |         |  | $ | 2,617,000 |          
|Operating Expenses:      |                                                       |                |           |           |                |   |         |         |  |   |           |          
|                         | Management Fees                                       |                |           | 23,000    |                |   |         | 19,000  |  |   |           | 42,000    | 
|                         | Interest Related to Secured Borrowings                |                |           | 130,000   |                |   |         |        |  |   |           | 130,000   | 
|                         | Provision for Loan Losses                             |                |           | 37,000    |                |   |         |        |  |   |           | 37,000    | 
|                         | Professional Fees                                     |                |           | 189,000   |                |   |         | 70,000  |  |   |           | 259,000   | 
|                         | Other                                                 |                |           | 14,000    |                |   |         | 5,000   |  |   |           | 19,000    | 
|                         |                                                       |                |           |           |                |   |         |         | 
|Total Operating Expenses |                                                       | $              | 393,000   |           |                | $ | 94,000  |         |  | $ | 487,000   |          
|EBITDA*                  |                                                       | $              | 1,579,000 |           |                | $ | 551,000 |         |  | $ | 2,130,000 |          
|                         |                                                       |                |           |           |                |   |         |         | 
|Less:                    |                                                       |                |           |           |                |   |         |         |  |   |           |          
|                         | Depreciation and Amortization                         |                |           |          |                |   |         | 167,000 |  |   |           | 167,000   | 
|                         | Interest Expense                                      |                |           |          |                |   |         | 231,000 |  |   |           | 231,000   | 
|                         |                                                       |                |           |           |                |   |         |         | 
|Net Income               |                                                       | $              | 1,579,000 |           |                | $ | 153,000 |         |  | $ | 1,732,000 |          
|                         |                                                       |                |           |           |                |   |         |         | 






|  |                                                                                                                                                                                                                                                     
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | EBITDA represents net earnings before interest expense, income
    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.





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VESTIN FUND III, LLC


CONDENSED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


NOTE O  OTHER MATTERS




NOTE P  SUBSEQUENT EVENTS




22



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##### Table of Contents








|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
    CONDITION AND RESULTS OF OPERATIONS





| |           
| | ----------
| | Background















23



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##### Table of Contents











| |   |                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------
| |  | Realize growth in the value of our properties upon our ultimate
    sale of such properties;                                 
|
| |  | Produce revenues from the interest income on our real estate
    loans and investments in real property;                     
|
| |  | Provide monthly cash distributions from the revenues generated
    by our real estate loans and investments in real property;
|
| |  | Preserve capital contributions; and                                                                                          
|
| |  | Reinvest, to the extent permissible, payments of principal and
    sales (net of expenses).                                  



| |         
| | --------
| | Overview











24



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##### Table of Contents







| |                             
| | ----------------------------
| | Summary of Financial Results

|                                                                          |  |                      |           |   |                     |   |           |      |  |   |           |   |  |   |           |  
|------------------------------------------------------------------------- |  | -------------------- | --------- | - | ------------------- | - | --------- | ---- |  | - | --------- | - |  | - | --------- | -
|                                                                          |  | For the Three Months |           |   | For the Nine Months |  
|                                                                          |  | Ended September 30,  |           |   | Ended September 30, |  
|                                                                          |  |                      |           |   |                     |  
|                                                                          |  | 2005                 |           |   | 2004                |   |           | 2005 |  |   | 2004      |  
|                                                                          |  |                      |           |   |                     |   |           |      |  |   |           |  
|Total Revenues                                                            |  | $                    | 859,000   |   |                     | $ | 686,000   |      |  | $ | 2,617,000 |   |  | $ | 1,638,000 |  
|Total Expenses                                                            |  |                      | 216,000   |   |                     |   | 253,000   |      |  |   | 885,000   |   |  |   | 736,000   |  
|                                                                          |  |                      |           |   |                     |   |           |      |  |   |           |  
|Net Income                                                                |  | $                    | 643,000   |   |                     | $ | 433,000   |      |  | $ | 1,732,000 |   |  | $ | 902,000   |  
|                                                                          |  |                      |           |   |                     |   |           |      |  |   |           |  
|Net Income Allocated to Members Per Weighted Average Membership
    Units |  | $                    | 0.22      |   |                     | $ | 0.25      |      |  | $ | 0.63      |   |  | $ | 0.59      |  
|                                                                          |  |                      |           |   |                     |   |           |      |  |   |           |  
|Annualized Rate of Return to Members(a)(b)                                |  |                      | 8.64      | % |                     |   | 10.03     | %    |  |   | 8.15      | % |  |   | 9.34      | %
|                                                                          |  |                      |           |   |                     |   |           |      |  |   |           |  
|Weighted Average Membership Units                                         |  |                      | 2,865,352 |   |                     |   | 1,712,296 |      |  |   | 2,769,362 |   |  |   | 1,519,198 |  
|                                                                          |  |                      |           |   |                     |   |           |      |  |   |           |  
|Cash Distribution                                                         |  | $                    | 539,000   |   |                     | $ | 420,000   |      |  | $ | 1,885,000 |   |  | $ | 824,000   |  
|                                                                          |  |                      |           |   |                     |   |           |      |  |   |           |  
|Cash Distribution per Weighted Average Membership Unit                    |  | $                    | 0.19      |   |                     | $ | 0.25      |      |  | $ | 0.68      |   |  | $ | 0.54      |  
|                                                                          |  |                      |           |   |                     |   |           |      |  |   |           |  
|Weighted Average Term of Outstanding Loans                                |  |                      | 16        |   |                     |   | 18        |      |  |   | 16        |   |  |   | 18        |  
|                                                                          |  |                      |           |   |                     |   |           |      |  |   |           |  






|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | The annualized rate of return to members in 2005 is calculated
    based upon the GAAP net income allocated to members per weighted
    average units as of September 30, 2005 divided by the
    number of days during the period (92 days for the three
    months ended September 30, 2005 and 272 days for the
    nine months ended September 30, 2005) and multiplied by
    three hundred and sixty five (365) days, then divided by
    10.30 (the $10.30 cost per unit).                                                
|   
|(b) |  | The annualized rate of return to members in 2004 is calculated
    based upon the GAAP net income allocated to members per weighted
    average units as of September 30, 2004 divided by the
    number of days during the period (92 days for the three
    months ended September 30, 2005 and 232 days from
    February 12, 2004, the day we commenced operations after
    raising the minimum $10 million) and multiplied by three
    hundred and sixty five (365) days, then divided by ten (the $10
    cost per unit).

Total Revenues.




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Revenues for the three months ended September 30, 2005
    increased by approximately $173,000 or 25% primarily due to
    revenues of approximately $215,000 derived from income producing
    real property compared to $102,000 for this period in 2004.
    Additionally, interest income from investments in real estate
    loans increased by approximately $208,000 due to an increase in
    investments in real estate loans of approximately
    $12.4 million. This increase was offset by a decrease of
    approximately $189,000 in interest income related to secured
    borrowings.
|
| | Revenues for the nine months ended September 30, 2005
    increased by approximately $979,000 or 60%. Revenues of
    approximately $645,000 were derived from income producing real
    property compared to $102,000 for this period in 2004.
    Additionally, interest income from investments in real estate
    loans increased by approximately $851,000 due to an increase in
    investments in real estate loans of                                                                                                                                                                        

25



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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | approximately $12.4 million. This increase was offset by a
    decrease of approximately $448,000 in interest income related to
    secured borrowings.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | Approximately $739,000 of our interest revenue for the nine
    months ended September 30, 2005 was derived from interest
    reserves, compared to $368,000 for the same period in the prior
    year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | As of September 30, 2005, our Manager had granted
    extensions on three 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, 2005 was approximately $1.5 million. Our
    Manager concluded that no allowance for loan loss was necessary
    with respect to these loans as of that date.

Total Expenses.




| |   |                                                                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Interest expense related to secured borrowings decreased by
    approximately $168,000 due to a decrease in the amount of loans
    financed under secured borrowings of $4 million compared to
    the same period in the prior year.
|
| |  | Interest expense related to investment in real property
    increased by approximately $82,000, as we did not acquire the
    real property associated with the debt until August 2004.                                               
|
| |  | Depreciation and amortization on our investment in real property
    totaled approximately $56,000 for the three months ended
    September 30, 2005. This real property was acquired in
    August 2004.                             
|
| |  | Expenses related to professional fees incurred increased by
    approximately $43,000 due to an increase in accounting and legal
    costs related to the preparation of our public filings.                                          





| |   |                                                                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Interest expense related to secured borrowings decreased by
    approximately $407,000 due to a decrease in the amount of loans
    financed under secured borrowings of $4 million compared to
    the same period in the prior year.      
|
| |  | Interest expense related to investment in real property
    increased by approximately $221,000, as we did not acquire the
    real property associated with the debt until August 2004.                                                    
|
| |  | Provisions for loan losses increased by approximately $37,000,
    as our general allowance for loan losses was generally
    sufficient to cover inherent losses in our loan portfolio during
    the nine months ended September 30, 2005.
|
| |  | Depreciation and amortization on our investment in real property
    totaled approximately $167,000 for the nine months ended
    September 30, 2005. This real property was acquired in
    August 2004.                                   
|
| |  | Expenses related to professional fees incurred increased by
    approximately $255,000 due to an increase in accounting and
    legal costs related to the preparation of our public filings.                                               

Net Income.


Annualized Rate of Return to Members.


26



---



##### Table of Contents



Distributions to Members.


|                                                                                                  |  |               |           |  |               |   |         | 
|------------------------------------------------------------------------------------------------- |  | ------------- | --------- |  | ------------- | - | ------- | 
|                                                                                                  |  | For the Nine  |           |  | For the Nine  |  
|                                                                                                  |  | Months        |           |  | Months        |  
|                                                                                                  |  | Ended         |           |  | Ended         |  
|                                                                                                  |  | September 30, |           |  | September 30, |  
|                                                                                                  |  | 2005          |           |  | 2004          |  
|                                                                                                  |  |               |           |  |               |  
|Distributions from Net Income Available for Distribution                                          |  | $             | 1,885,000 |  |               | $ | 824,000 | 
|Distributions in Excess of Net Income Available for
    Distributions Generated During the Period |  |               |          |  |               |   |        | 
|                                                                                                  |  |               |           |  |               |  
|Total Distributions                                                                               |  | $             | 1,885,000 |  |               | $ | 824,000 | 
|                                                                                                  |  |               |           |  |               |  



|                                                                               |  |               |           |   |               |   |          |  
|------------------------------------------------------------------------------ |  | ------------- | --------- | - | ------------- | - | -------- | -
|                                                                               |  | For the Nine  |           |   | For the Nine  |  
|                                                                               |  | Months        |           |   | Months        |  
|                                                                               |  | Ended         |           |   | Ended         |  
|                                                                               |  | September 30, |           |   | September 30, |  
|                                                                               |  | 2005          |           |   | 2004          |  
|                                                                               |  |               |           |   |               |  
|Net Income                                                                     |  | $             | 1,732,000 |   |               | $ | 902,000  |  
|Provision for Loan Losses and Depreciation and Amortization
    Included Above |  |               | 204,000   |   |               |   | 104,000  |  
|Working Capital Reserves                                                       |  |               | (51,000   | ) |               |   | (182,000 | )
|                                                                               |  |               |           |   |               |  
|Distributions of Net Income Available for Distribution                         |  | $             | 1,885,000 |   |               | $ | 824,000  |  
|                                                                               |  |               |           |   |               |  

Redemptions.




INVESTMENTS IN REAL ESTATE LOANS SECURED BY REAL ESTATE
PORTFOLIO








| |                                
| | -------------------------------
| | Asset Quality and Loan Reserves



27



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##### Table of Contents







| |   |                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------
| |  | 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;                                                                              
|
| |  | Review and evaluation of loans identified as having loss
    potential; and                                 
|
| |  | Estimated fair value of any underlying collateral in relation to
    the loan amount.                       





| |                            
| | ---------------------------
| | Investment In Real Property





|                                             |  |   |           |  
|-------------------------------------------- |  | - | --------- | -
|Net income from real estate segment          |  | $ | 153,000   |  
|Deduct: principal payments on debt           |  |   | 76,000    |  
|Add back depreciation and amortization       |  |   | 167,000   |  
|                                             |  |   |          
|Cash yield                                   |  | $ | 244,000   |  
|                                             |  |   |          
|Cash investment                              |  | $ | 4,850,000 |  
|                                             |  |   |          
|Number of months                             |  |   | 9         |  
|                                             |  |   |          
|Annualized cash yield on real estate segment |  |   | 6.71      | %
|                                             |  |   |          



28



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##### Table of Contents



OFF-BALANCE SHEET ARRANGEMENTS




CONTRACTUAL OBLIGATIONS




|                       |  |                       |           |           |        |   |         |           |           |   |           |  |  |         |         |  |  |   |           | 
|---------------------- |  | --------------------- | --------- | --------- | ------ | - | ------- | --------- | --------- | - | --------- |  |  | ------- | ------- |  |  | - | --------- | 
|                       |  | Payment Due by Period |          
|                       |  |                       |          
|                       |  |                       |           | Less Than |        |   |         |           | More Than |  
|Contractual Obligation |  | Total                 |           |           | 1 Year |   |         | 1-3 Years |           |   | 4-5 Years |  |  | 5 Years |        
|                       |  |                       |           |           |        |   |         |           |           |   |           |  |  |         |        
|Note Payable           |  | $                     | 4,852,000 |           |        | $ | 99,000  |           |           | $ | 334,000   |  |  | $       | 257,000 |  |  | $ | 4,162,000 | 
|Secured Borrowings     |  | $                     | 216,000   |           |        | $ | 216,000 |           |           | $ |          |  |  | $       |        |  |  | $ |          | 

CRITICAL ACCOUNTING ESTIMATES




| |                    
| | -------------------
| | Revenue Recognition





|                                                                                  |  |                        |          |  
|--------------------------------------------------------------------------------- |  | ---------------------- | -------- | -
|                                                                                  |  | Increase (Decrease) in |         
|Changed Assumption                                                                |  | Interest Income        |         
|                                                                                  |  |                        |         
|Weighted average interest rate assumption increased by 1% or
    100 basis points |  | $                      | 178,000  |  
|Weighted average interest rate assumption increased by 5% or
    500 basis points |  | $                      | 889,000  |  
|Weighted average interest rate assumption decreased by 1% or
    100 basis points |  | $                      | (178,000 | )
|Weighted average interest rate assumption decreased by 5% or
    500 basis points |  | $                      | (889,000 | )





| |                                 
| | --------------------------------
| | Investments in Real Estate Loans



29



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##### Table of Contents







| |                          
| | -------------------------
| | Allowance for Loan Losses





|                                                                           |  |                           |            |  
|-------------------------------------------------------------------------- |  | ------------------------- | ---------- | -
|                                                                           |  | Increase (Decrease) in    |           
|Changed Assumption                                                         |  | Allowance for Loan Losses |           
|                                                                           |  |                           |           
|Allowance for loan losses assumption increased by 1% of loan
    portfolio |  | $                         | 224,000    |  
|Allowance for loan losses assumption increased by 5% of loan
    portfolio |  | $                         | 1,122,000  |  
|Allowance for loan losses assumption decreased by 1% of loan
    portfolio |  | $                         | (224,000   | )
|Allowance for loan losses assumption decreased by 5% of loan
    portfolio |  | $                         | (1,122,000 | )







| |   |                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------
| |  | 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.

30



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##### Table of Contents





| |   |                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Lack of progress on real estate developments after we advance
    funds. We customarily utilize disbursement agents to monitor the
    progress of real estate developments and approve loan advances.
    After further inspection of the related property, progress on
    construction occasionally does not substantiate an increase in
    value to support the related loan advances.
|
| |  | Unanticipated legal or business issues that may arise subsequent
    to loan origination or upon the sale of foreclosed upon property.                                                                                                                                                                                                                                                     
|
| |  | 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





|                        |  |                
|----------------------- |  | ---------------
|Land                    |  | Not depreciated
|Building                |  | 40 years       
|Building improvements   |  | 10-25 years    
|Land improvements       |  | 20-25 years    
|Tenant improvements     |  | Lease term     
|Intangible lease assets |  | Lease term     





| |                   
| | ------------------
| | Secured Borrowings

Accounting for
Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities


31



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##### Table of Contents







RELATED PARTY TRANSACTIONS




| |                              
| | -----------------------------
| | Transactions with the Manager







| |                            
| | ---------------------------
| | Transactions with the Funds











| |                                        
| | ---------------------------------------
| | Transactions with Other Related Parties





FACTORS AFFECTING THE COMPANYS OPERATING RESULTS






| |                                        
| | ---------------------------------------
| | Risks of Investing in Real Estate Loans



| |   |                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our Managers underwriting standards and procedures are
    more lenient than conventional lenders in that we will invest in
    loans to borrowers who will not be required to meet the credit
    standards of conventional mortgage lenders.

32



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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our Manager approves real estate loans more quickly than other
    mortgage lenders. Due to the nature of loan approvals, there is
    a risk that the credit inquiry our Manager performs will not
    reveal all material facts pertaining to the borrower and the
    security.                                                                                                                                                                                                                                                                                                                            
|
| |  | Our appraisals are generally dated within 12 months of the
    date of the loan origination and may have been commissioned by
    the borrower. Therefore, the appraisals may not reflect a
    decrease in the value of the real estate due to events
    subsequent to the draft of the appraisal.                                                                                                                                                                                                                                                                                                          
|
| |  | Appraisals may be performed on an as-if developed
    basis, which appraised values approximates the post-construction
    value of the collateralized property and therefore may
    dramatically exceed immediate sales values. Therefore there is a
    risk that the borrower will not complete development of the
    project, which may affect the expected value of the property and
    the loan to value ratio.                                                                                                                                                                                    
|
| |  | Our results of operations will vary with changes in interest
    rates and with the performance of the relevant real estate
    markets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | If the economy is healthy, we expect that more people will be
    borrowing money to acquire, develop or renovate real property.
    However, if the economy grows too fast, interest rates may
    increase too much and the cost of borrowing may become too
    expensive. This could result in a slowdown in real estate
    lending in which we will have fewer loans to acquire, thus
    reducing our revenues and the distributions to our members.                                                                                                                                                   
|
| |  | If, at a time of relatively low interest rates, a borrower
    should prepay obligations that have a higher interest rate from
    an earlier period, investors will likely not be able to reinvest
    the funds in real estate loans earning that higher rate of
    interest. In the absence of a prepayment fee, the investors will
    receive neither the anticipated revenue stream at the higher
    rate nor any compensation for their loss. This in turn could
    harm our reputation and make it more difficult for us to attract
    investors willing to acquire interest in real estate loans.



| |                 
| | ----------------
| | Risk of Defaults











| |   |                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We may incur substantial legal fees and court costs in acquiring
    a mortgaged property through a foreclosure sale and/or
    bankruptcy proceedings.                                                      
|
| |  | During the period of time when a defaulted loan is the subject
    of foreclosure proceedings, it is likely that we will earn less,
    if any, income from such loans, thereby reducing our earnings.       
|
| |  | Properties foreclosed upon may not generate sufficient income
    from operations to meet expenses, such as property taxes,
    maintenance costs, mortgage payments, insurance cost and related
    charges.
|
| |  | Operation of foreclosed properties may require us to spend
    substantial funds for an extended period until we are able to
    find a suitable buyer.                                                      

33



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##### Table of Contents





| |   |                                                                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We incur liability risks in owning and operating real property
    such as possible liability for injury to persons and property or
    for the cost involved in cleaning up any contamination by
    materials hazardous to the environment.            
|
| |  | Proceeds from the sale of foreclosed property may not generate
    full repayment of our loans and, in connection with such sale,
    we may be required to provide seller financing and incur the
    risk that the buyer may default on such financing.



| |                               
| | ------------------------------
| | Risks of Interest Rate Changes









| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i) There can be no assurance that permitted rate
    increases, if any, will be adequate if interest rates have
    increased beyond the range contemplated by our loan documents.                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | (ii) If interest rates rise, borrowers under loans with
    monthly or quarterly principal payments may be compelled to
    extend their loans to decrease the principal paid with each
    payment because the interest component has increased. If this
    happens, there is a higher risk that the borrower may default on
    the extended loan, and the increase in the interest rate on the
    loan may not be adequate compensation for the increased risk.
    Distributions from real estate loans we own may decline if
    lenders are unable to reinvest at higher rates or if an
    increasing number of borrowers default on their loans.
|
| | (iii) If, at a time of relatively low interest rates, a
    borrower prepays obligations that have a higher interest rate
    from an earlier period, investors will likely not be able to
    reinvest the funds in real estate loans earning that higher rate
    of interest. In the absence of a prepayment fee, the investors
    will receive neither the anticipated revenue stream at the
    higher rate nor compensation for their loss. This in turn could
    harm our business reputation.                                                                                                                                                   



| |                                         
| | ----------------------------------------
| | Competition for Borrowers and Properties





34



---



##### Table of Contents





| |                                    
| | -----------------------------------
| | Risks of Investing in Real Property



| |   |                                                                                                                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Changes in the general economic or local conditions could have
    an adverse impact on the real estate market in general.                                                                                                                                                                                               
|
| |  | Changes in the supply of or demand for similar or competing
    properties in an area. If we pay a higher price, our
    profitability will be reduced. Additionally, if we are unable to
    sell a property when we determine to do so, it could have a
    significant adverse affect on our cash flow and operations.
|
| |  | Changes in interest rates and availability of permanent mortgage
    funds may render the sale of a property difficult or
    unattractive.                                                                                                                                                                              
|
| |  | Changes in tax, real estate, environmental and zoning laws may
    require additional material expenditures by us in order to be in
    compliance.                                                                                                                                                                      
|
| |  | Periods of high interest rates and tight money supply may make
    the sale of property more difficult.                                                                                                                                                                                                                  
|
| |  | Tenant turnover could cause us to lose revenue associated with
    that lease and increase costs for tenant improvements.                                                                                                                                                                                                
|
| |  | General overbuilding or excess supply in the market area could
    lead to vacancies. If vacancies occur for a long period of time,
    we may suffer reduced revenues and could diminish the market
    value of the property.                                                                                          



| |                                      
| | -------------------------------------
| | Effect of Fluctuations in the Economy



CAPITAL AND LIQUIDITY




35



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##### Table of Contents



















Accounting for
Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities




36



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##### Table of Contents









| |                    
| | -------------------
| | Segment Information









|                         |                                                       |                |           |           |                |   |         |         |  |   |           |           | 
|------------------------ | ----------------------------------------------------- | -------------- | --------- | --------- | -------------- | - | ------- | ------- |  | - | --------- | --------- | 
|                         |                                                       | Investments in |           |           |                |   |        
|                         |                                                       | Real Estate    |           |           | Investments in |   |         |        
|                         |                                                       | Loans          |           |           | Real Estate    |   |         | Total   | 
|                         |                                                       |                |           |           |                |   |         |         | 
|Revenues:                |                                                       |                |           |           |                |   |         |         |  |   |           |          
|                         | Interest Income From Investments in Real Estate Loans |                | $         | 1,757,000 |                |   | $       |        |  |   | $         | 1,757,000 | 
|                         | Interest Income Related to Secured Borrowings         |                |           | 152,000   |                |   |         |        |  |   |           | 152,000   | 
|                         | Rental Income                                         |                |           |          |                |   |         | 645,000 |  |   |           | 645,000   | 
|                         | Other                                                 |                |           | 63,000    |                |   |         |        |  |   |           | 63,000    | 
|                         |                                                       |                |           |           |                |   |         |         | 
|Total Revenues           |                                                       | $              | 1,972,000 |           |                | $ | 645,000 |         |  | $ | 2,617,000 |          
|Operating Expenses:      |                                                       |                |           |           |                |   |         |         |  |   |           |          
|                         | Management Fees                                       |                |           | 23,000    |                |   |         | 19,000  |  |   |           | 42,000    | 
|                         | Interest Related to Secured Borrowings                |                |           | 130,000   |                |   |         |        |  |   |           | 130,000   | 
|                         | Provision for Loan Losses                             |                |           | 37,000    |                |   |         |        |  |   |           | 37,000    | 
|                         | Professional Fees                                     |                |           | 189,000   |                |   |         | 70,000  |  |   |           | 259,000   | 
|                         | Other                                                 |                |           | 14,000    |                |   |         | 5,000   |  |   |           | 19,000    | 
|                         |                                                       |                |           |           |                |   |         |         | 
|Total Operating Expenses |                                                       | $              | 393,000   |           |                | $ | 94,000  |         |  | $ | 487,000   |          
|EBITDA*                  |                                                       | $              | 1,579,000 |           |                | $ | 551,000 |         |  | $ | 2,130,000 |          
|                         |                                                       |                |           |           |                |   |         |         | 
|Less:                    |                                                       |                |           |           |                |   |         |         |  |   |           |          
|                         | Depreciation and Amortization                         |                |           |          |                |   |         | 167,000 |  |   |           | 167,000   | 
|                         | Interest Expense                                      |                |           |          |                |   |         | 231,000 |  |   |           | 231,000   | 
|                         |                                                       |                |           |           |                |   |         |         | 
|Net Income               |                                                       | $              | 1,579,000 |           |                | $ | 153,000 |         |  | $ | 1,732,000 |          
|                         |                                                       |                |           |           |                |   |         |         | 






|  |                                                                                                                                                                                                                                                     
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | EBITDA represents net earnings before interest expense, income
    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.

37



---



##### Table of Contents







FORWARD LOOKING STATEMENTS









|        |                                                               
|------- | --------------------------------------------------------------
|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
    RISK









38



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##### Table of Contents





Interest Earning Assets


Aggregated by Maturity


For the Nine Months Ended September 30, 2005


|                                 |  |      |           |   |      |   |            |      |  |      |   |      |  |            |   |       |  |   |   |  |  |   |   |  |  |   |            |  
|-------------------------------- |  | ---- | --------- | - | ---- | - | ---------- | ---- |  | ---- | - | ---- |  | ---------- | - | ----- |  | - | - |  |  | - | - |  |  | - | ---------- | -
|Interest Earning Assets          |  | 2005 |           |   | 2006 |   |            | 2007 |  | 2008 |   | 2009 |  | Thereafter |   | Total | 
|                                 |  |      |           |   |      |   |            |      |  |      |   |      |  |            |   |       | 
|Investments in real estate loans |  | $    | 2,259,000 |   |      | $ | 20,180,000 |      |  | $    |  |      |  | $          |  |       |  | $ |  |  |  | $ |  |  |  | $ | 22,439,000 |  
|Weighted Average interest rates  |  |      | 12.54     | % |      |   | 10.19      | %    |  |      |  |      |  |            |  |       |  |   |  |  |  |   |  |  |  |   | 10.42      | %








|        |                         
|------- | ------------------------
|ITEM 4. | CONTROLS AND PROCEDURES.



| |                                   
| | ----------------------------------
| | Disclosure Controls and Procedures







| |                                                                     
| | --------------------------------------------------------------------
| | Managements Report on Internal Control Over
    Financial Reporting







39



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##### Table of Contents







| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The first material weakness identified insufficient resources of
    technical accounting and reporting expertise. This weakness
    relates to the oversight and review of financial transactions,
    which affects our ability to prepare and properly review
    financial statements and accompanying footnote disclosures in
    accordance with United States generally accepted accounting
    principles and the rules and regulations of the SEC.
|
| |  | As a result of the foregoing material weakness, there has been
    ineffective oversight of documentation of authorizations to
    ensure that procedures are properly executed. Specifically, we
    did not have backup documentation for some authorized payments
    made by our Company.                                                                                                                                                              





| |                 
| | ----------------
| | Remediation Plan





| |   |                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Hired a Corporate Controller with the requisite experience to
    assist and work directly with our Managers Chief Financial
    Officer;                                                                     
|
| |  | Hired an Accounting Manager with the requisite experience to
    assist and work directly with our Managers Corporate
    Controller;                                                                         
|
| |  | Created an additional position to assist with the financial
    reporting process and are in the process of identifying an
    individual for this position;                                                   
|
| |  | Implemented a mandatory weekly management meeting for all key
    personnel. This allows for financial reporting personnel to be
    consistently updated on significant matters affecting the
    Company; and
|
| |  | Implemented a Financial Reporting Review Committee, which
    reviews all periodic financial reporting documents prior to
    filing.                                                                          





| |                                                         
| | --------------------------------------------------------
| | Changes in Internal Control Over Financial
    Reporting



40



---



##### Table of Contents






PART II


OTHER INFORMATION







|        |                  
|------- | -----------------
|ITEM 1. | LEGAL PROCEEDINGS



| |                                    
| | -----------------------------------
| | Legal Matters Involving Our Manager









| |                                    
| | -----------------------------------
| | Legal Matters involving the Company







41



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##### Table of Contents










|        |                                                                
|------- | ---------------------------------------------------------------
|ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
    PROCEEDS



| |                   
| | ------------------
| | Market Information





| |        
| | -------
| | Holders





| |                    
| | -------------------
| | Distribution Policy





| |                                        
| | ---------------------------------------
| | Recent Sales of Unregistered Securities





| |                                     
| | ------------------------------------
| | Equity Compensation Plan Information





| |                                                                           
| | --------------------------------------------------------------------------
| | Purchases of Equity Securities by the Issuer and
    Affiliated Purchasers

|               |  |                    |       |  |                    |                    |       |                 |                    |  |              |  |  |  |      | 
|-------------- |  | ------------------ | ----- |  | ------------------ | ------------------ | ----- | --------------- | ------------------ |  | ------------ |  |  |  | ---- | 
|               |  |                    |       |  |                    |                    |       | Maximum Number  |                   
|               |  |                    |       |  |                    |                    |       | (or Approximate |                   
|               |  |                    |       |  |                    | Total Number of    |       |                 | Dollar Value) of   | 
|               |  |                    |       |  |                    | Units Purchased as |       |                 | Units That May yet | 
|               |  |                    |       |  |                    | Part of Publicly   |       |                 | be Purchased Under | 
|               |  | Total Number of    |       |  | Average Price Paid |                    |       | Announced Plans |                    |  | the Plans or | 
|Period         |  | Units Purchased(1) |       |  | per Unit           |                    |       | or Programs     |                    |  | Programs     | 
|               |  |                    |       |  |                    |                    |       |                 |                    |  |              | 
|July 2005      |  |                    | 3,679 |  |                    | $                  | 10.30 |                 |                    |  | None         |  |  |  | None | 
|August 2005    |  |                    |      |  |                    | $                  | 10.30 |                 |                    |  | None         |  |  |  | None | 
|September 2005 |  |                    | 5,950 |  |                    | $                  | 10.30 |                 |                    |  | 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, 2005 were approximately $24.8 million,
    which limited redemptions to approximately $2.5 million for
    calendar year 2005.






|        |                                
|------- | -------------------------------
|ITEM 3. | DEFAULTS UPON SENIOR SECURITIES



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##### Table of Contents








|        |                                                    
|------- | ---------------------------------------------------
|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS








|        |                  
|------- | -----------------
|ITEM 5. | OTHER INFORMATION








|        |         
|------- | --------
|ITEM 6. | EXHIBITS



|        |    |                         |  |                                                                                                                    
|------- | -- | ----------------------- |  | -------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                        
|No.     |    | Description of Exhibits
|        |    |                        
|        | 3  | .1(1)                   |  | Articles of Organization                                                                                           
|       
|        | 3  | .2(2)                   |  | Certificate of Amendment to Articles of Organization                                                               
|       
|        | 3  | .3(3)                   |  | Amended and Restated Operating Agreement (included as
    Exhibit A to the prospectus)                             
|       
|        | 4  | (4)                     |  | Distribution Reinvestment Plan                                                                                     
|       
|        | 10 | .7                      |  | Purchase and Sale Agreement, dated August 1, 2004, by and
    between Luke Properties, LLC and Vestin Fund III, LLC

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##### Table of Contents



|        |    |                         |  |                                                                                                                     
|------- | -- | ----------------------- |  | --------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                        
|No.     |    | Description of Exhibits
|        |    |                        
|        | 10 | .8(5)                   |  | Assignment and Assumption Agreement dated August 16, 2004
    by and between Vestin Fund III, LLC and VF III HQ, LLC
|       
|        | 10 | .9(6)                   |  | Office lease agreement dated March 31, 2003 by and between
    Luke Properties, LLC and Vestin Fund III, LLC        
|       
|        | 31 | .1                      |  | Section 302 Certification of Michael V. Shustek                                                                     
|       
|        | 31 | .2                      |  | Section 302 Certification of John Alderfer                                                                          
|       
|        | 32 |                         |  | 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
    Pre-Effective Amendment No. 3 to Form S-11
    Registration Statement filed on September 2, 2003, 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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##### Table of Contents






SIGNATURES






| |                                            
| | -------------------------------------------
| | VESTIN FUND III, LLC                       
|
| | By: Vestin Mortgage, Inc., its sole Manager



| |     |                  
| | --- | -----------------
| | By: | /s/ John Alderfer

| |                                        
| | ---------------------------------------
| |                                        
| | John Alderfer                          
| | (Chief Financial Officer of the Manager
| | and Duly Authorized Officer)           



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##### Table of Contents



VESTIN FUND III, LLC


A Nevada Limited Liability Company


INDEX TO EXHIBITS


|        |    |                         |  |                                                                                                                     
|------- | -- | ----------------------- |  | --------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                        
|No.     |    | Description of Exhibits
|        |    |                        
|        | 3  | .1(1)                   |  | Articles of Organization                                                                                            
|       
|        | 3  | .2(2)                   |  | Certificate of Amendment to Articles of Organization                                                                
|       
|        | 3  | .3(3)                   |  | Amended and Restated Operating Agreement (included as
    Exhibit A to the prospectus)                              
|       
|        | 4  | (4)                     |  | Distribution Reinvestment Plan                                                                                      
|       
|        | 10 | .7(5)                   |  | Purchase and Sale Agreement, dated August 1, 2004, by and
    between Luke Properties, LLC and Vestin Fund III, LLC 
|       
|        | 10 | .8(5)                   |  | Assignment and Assumption Agreement dated August 16, 2004
    by and between Vestin Fund III, LLC and VF III HQ, LLC
|       
|        | 10 | .9(6)                   |  | Office lease agreement dated March 31, 2003 by and between
    Luke Properties, LLC and Vestin Fund III, LLC        
|       
|        | 31 | .1                      |  | Section 302 Certification of Michael V. Shustek                                                                     
|       
|        | 31 | .2                      |  | Section 302 Certification of John Alderfer                                                                          
|       
|        | 32 |                         |  | 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
    Pre-Effective Amendment No. 3 to Form S-11
    Registration Statement filed on September 2, 2003, 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.                                                                                

46