UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-Q
 
 (Mark one)
 
 [X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934
 
 For the quarterly period ended March 31, 2010
 
 Or
 
 [   ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934
 
 For the transition period from _________ to _________
 
 Commission File Number: 333-105017
 
 VESTIN FUND III, LLC(Exact name of registrant as specified in its charter)
 
 
 NEVADA

87-0693972(State or Other Jurisdiction of

(I.R.S. EmployerIncorporation or Organization)

Identification No.)
 
 6149 SOUTH RAINBOW BOULEVARD, LAS VEGAS, NEVADA 89118
 (Address of Principal Executive Offices) (Zip Code)
 
 Registrant’s Telephone Number: 702.227.0965
 
 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
 Yes  [X]    No   [   ]
 
 Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
 Yes  [   ]   No   [   ]
 
 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
 Large accelerated filer [   ]
Accelerated filer [   ]Non-accelerated filer [   ]

(Do not check if a smaller reporting company)
Smaller reporting company [X]
 
 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
 Yes  [   ]    No   [X]
 
 As of May 13, 2010, 2,024,424 membership units in the Company were outstanding.
 
  
  TABLEOF CONTENTS
 
 PagePart I
FINANCIAL INFORMATIONItem 1.
Financial Statements
1Balance Sheets as of March 31, 2010 (unaudited) and December 31, 2009
1Statements of Operations (unaudited) for the Three Months Ended March 31, 2010 and 2009
2Statements of Members’ Equity and Other Comprehensive Loss (unaudited) for the Three Months Ended March 31, 2010
3Statements of Cash Flows (unaudited) for the Three Months Ended March 31, 2010 and 2009
4Notes to Financial Statements (unaudited)
5Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
25Item 3.
Quantitative and Qualitative Disclosures About Market Risk
34Item 4.
Controls and Procedures
35Item 4T
Controls and Procedures
36Part II
OTHER INFORMATIONItem 1.
Legal Proceedings
36Item 1A.
Risk Factors
36Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
42Item 3.
Defaults Upon Senior Securities
43Item 4.
Submission of Matters to a Vote of Security Holders
43Item 5.
Other Information
43Item 6.
Exhibits
44SIGNATURES
45Exhibit 31.1Exhibit 31.2Exhibit 32
 
 
  Table of Contents
  PART I - FINANCIAL INFORMATION
 
 ITEM 1.
FINANCIAL STATEMENTS
 
 VESTIN FUNDIII, LLCBALANCE SHEETSASSETSMarch 31, 2010


December 31, 2009(Unaudited)AssetsCash and cash equivalents

$
946,000


$
1,880,000Cash - restricted


700,000



700,000Marketable securities - related party


197,000



246,000Interest and other receivables, net of allowance for doubtful accounts of $11,000 at March 31, 2010 and $12,000 at December 31, 2009


5,000



4,000Notes receivable, net of allowance of $156,000 at March 31, 2010 and December 31, 2009


--



--Real estate held for sale


728,000



835,000Investment in real estate loans, net of allowance for loan loss of $2,194,000 at March 31, 2010 and December 31, 2009


3,353,000



3,353,000Due from related parties


277,000



248,000Total assets

$
6,206,000


$
7,266,000LIABILITIES AND MEMBERS' EQUITYLiabilitiesAccounts payable and accrued liabilities

$
66,000


$
55,000Deferred income


985,000



985,000Total liabilities


1,051,000



1,040,000Commitments and contingenciesMembers' equityMembers' units - authorized 10,000,000 units, 2,024,424 units issued and outstanding at March 31, 2010 and  December 31, 2009


5,402,000



6,424,000Accumulated other comprehensive loss


(247,000
)


(198,000
)Total members' equity


5,155,000



6,226,000Total liabilities and members' equity

$
6,206,000


$
7,266,000
 
 
  The accompanying notes are an integral part of these statements.
 - 1 -
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 VESTIN FUNDIII, LLCSTATEMENTS OF OPERATIONS(UNAUDITED)For The Three

Months EndedMarch 31, 2010


March 31, 2009RevenuesInterest income from investment in real estate loans

$
35,000


$
42,000Other


24,000



1,000Total revenues


59,000



43,000Operating expensesProvision for loan loss


--



154,000Professional fees


51,000



58,000Professional fees - related party


2,000



21,000Other


4,000



22,000Total operating expenses


57,000



255,000Income (loss) from operations


2,000



(212,000
)Non-operating incomeInterest income from banking institutions


--



7,000Total non-operating income


--



7,000Income (loss) from real estate held for saleRevenue related to real estate held for sale


--



6,000Write-down of real estate held for sale


--



(467,000
)Expenses related to real estate held for sale


(22,000
)


(42,000
)Total loss from real estate held for sale, net


(22,000
)


(503,000
)NET LOSS

$
(20,000
)

$
(708,000
)Net loss allocated to members

$
(20,000
)

$
(708,000
)Net loss allocated to members per weighted average membership unit

$
(0.01
)

$
(0.32
)Weighted average membership units outstanding


2,024,424



2,246,332
 
  The accompanying notes are an integral part of these statements.
 - 2 -
 Table of Contents
  
 VESTIN FUNDIII, LLCSTATEMENT OF MEMBERS' EQUITY AND OTHER COMPREHENSIVE LOSSFOR THE THREE MONTHS ENDED MARCH 31, 2010(UNAUDITED)Units


AmountMembers' equity at December 31, 2009


2,024,424


$
6,226,000Comprehensive loss:Net loss






(20,000
)Unrealized loss on marketable securities






(49,000
)Total comprehensive loss






(69,000
)Liquidating distributions






(1,002,000
)Members' equity at March 31, 2010 (unaudited)


2,024,424


$
5,155,000
 
 
  The accompanying notes are an integral part of these statements.
 - 3 -
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 VESTIN FUNDIII, LLCSTATEMENTS OF CASH FLOWS(UNAUDITED)For The Three

Months EndedMarch 31, 2010


March 31, 2009Cash flows from operating activities:Net loss

$
(20,000
)

$
(708,000
)Adjustments to reconcile net loss to net cash used in operating activities:Provision for doubtful accounts related to receivable / proceeds received on accounts receivable that was fully reserved


(1,000
)


--Provision for loan loss


--



154,000Write-downs on real estate held for sale


--



467,000Change in operating assets and liabilities:Interest receivable


--



5,000Accounts payable and accrued liabilities


11,000



(10,000
)Due to/from related parties


(29,000
)


(49,000
)Other assets


--



(6,000
)Net cash used in operating activities


(39,000
)


(147,000
)Cash flows from investing activities:Sale of investments in real estate loans to third parties


--



197,000Proceeds related to real estate held for sale


107,000



355,000Net cash provided by investing activities


107,000



552,000Cash flows from financing activities:Members' redemptions


--



(1,322,000
)Members' liquidating distributions


(1,002,000
)


--Net cash used in financing activities


(1,002,000
)


(1,322,000
)NET CHANGE IN CASH


(934,000
)


(917,000
)Cash, beginning of period


1,880,000



1,484,000Cash, end of period

$
946,000


$
567,000Non-cash investing and financing activities:Adjustment to allowance for loan losses related to sale and payment of investment in real estate loan

$
--


$
985,000Impairment on restructured loan reclassified to allowance for loan loss

$
--


$
30,000Real estate held for sale acquired through foreclosure

$
--


$
1,407,000Unrealized loss on marketable securities - related party

$
(49,000
)

$
(87,000
)
 
 
 
 
  The accompanying notes are an integral part of these statements.
 - 4 -
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  VESTIN FUNDIII, LLC
 
 NOTES TO FINANCIAL STATEMENTS
 
 MARCH 31, 2010
 
 (UNAUDITED)
 
 NOTE A — ORGANIZATION
 
 Vestin Fund III, LLC was organized in April 2003 as a Nevada limited liability company for the purpose of investing in commercial real estate loans (hereafter referred to as “real estate loans”) and income-producing real property.  In this report, we refer to Vestin Fund III, LLC as “the Company,” “our Company,” the “Fund,” “we,” “us,” or “our”.
 
 We commenced operations in February 2004.  Prior to March 2007, we invested in revenue-generating commercial real estate and loans secured by real estate through deeds of trust or mortgages (hereafter referred to collectively as “deeds of trust” and as defined in our Operating Agreement as “Mortgage Assets”).  On March 5, 2007, a majority of our members approved the Third Amended and Restated Operating Agreement, which limited the Company’s investment objectives to investments in real estate loans.
 
 At a special meeting of our members held on July 2, 2009, a majority of our members voted to approve the dissolution and winding up of the Fund, in accordance with the Plan of Complete Liquidation and Dissolution (the “Plan”) as set forth in Annex A of the Fund’s proxy statement filed with the Securities and Exchange Commission (the “SEC”) pursuant to Section 14(a) of the Securities and Exchange Act of 1934 on May 11, 2009.  The Plan became effective upon its approval by the members on July 2, 2009.  As a result, we have commenced an orderly liquidation and we no longer invest in new real estate loans.  We anticipate that the liquidation will be substantially completed by the second half of 2014.  Pursuant to the Plan, we will make liquidating distributions to members on a quarterly basis as funds become available, subject to any reserve established by our manager.  Our members no longer have the right to have their units redeemed by us and we no longer honor any outstanding redemption requests effective as of July 2, 2009.
 
 On January 26, 2010, we made an initial liquidating distribution to all Fund Members, in the aggregate amount of approximately $1.0 million, in accordance with the Plan.  In addition, on April 8, 2010, we made another liquidation distribution to all Fund Members, in the aggregate amount of approximately $0.9 million, in accordance with the Plan.  The amounts distributed to each Member of the Fund were calculated based upon the percentage ownership interest of such Member in the Fund.  See Note H – Members’ Equity of the Notes to the Financial Statements included in Part I, Item 1 Financial Statements of this Quarterly Report on Form 10-Q.
 
 We are not a mutual fund or an investment company within the meaning of the Investment Company Act of 1940, nor are we subject to any regulation thereunder.
 
 Vestin Group, Inc. (“Vestin Group”), a Delaware corporation, owns a significant majority of our manager Vestin Mortgage, Inc. (the “manager” or “Vestin Mortgage”).  Michael Shustek, the CEO and director of our manager, wholly owns Vestin Group, which is engaged in asset management, real estate lending and other financial services through its subsidiaries.  Our manager, prior to June 30, 2006, also operated as a licensed Nevada mortgage broker and was generally engaged in the business of brokerage, placement and servicing of commercial loans secured by real property.  On July 1, 2006, a mortgage broker license was issued to an affiliated company, Vestin Originations, Inc. (“Vestin Originations”) that has continued the business of brokerage, placement and servicing of real estate loans.  Vestin Group owns a significant majority of Vestin Originations.  On September 1, 2007, the servicing of real estate loans was assumed by our manager, for us.
 
  - 5 -
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 Pursuant to our Operating Agreement and the Plan of Complete Liquidation and Dissolution approved by a majority of our members on July 2, 2009, our manager will continue to manage our operations during the liquidation process.  Consequently, the orderly liquidation of our assets and our operating results are dependent upon our manager’s ability and performance in managing our liquidation.
 
 Vestin Mortgage is also the manager of Vestin Realty Mortgage I, Inc. (“VRM I”), as the successor by merger to Vestin Fund I, LLC (“Fund I”) and Vestin Realty Mortgage II, Inc. (“VRM II”), as the successor by merger to Vestin Fund II, LLC (“Fund II”).  These entities have been formed to invest in real estate loans.
 
 During April 2009, we entered into an accounting services agreement with Strategix Solutions, LLC (“Strategix Solutions”), a Nevada limited liability company, for the provision of accounting and financial reporting services to us, VRM I and VRM II.  The CFO and the Controller of our manager became employees of Strategix Solutions.  Strategix Solutions is managed by LL Bradford and Company, LLC (“LL Bradford”), a certified public accounting firm that has provided non-audit accounting services to us.  The principal manager of LL Bradford was a former officer of our manager from April 1999 through January 1, 2005.  Strategix Solutions is owned by certain partners of LL Bradford.  Our manager’s Chief Financial Officer (“CFO”), Ms. Revollo, will be replaced as CFO, effective May 21, 2010, as part of the Company’s efforts to reduce general and administrative expenses.  Pursuant to the terms of our agreement with Strategix Solutions, they are required to designate a new CFO for our manager.  Ms. Revollo’s replacement has not yet been identified.  None of the owners of Strategix Solutions have served or are currently serving as officers of the Company or our manager.
 
 As used herein, “management” means our manager, its executive officers and the individuals at Strategix Solutions who perform accounting and financial reporting services on our behalf.  Our agreement with Strategix Solutions may be terminated with or without cause by our manager upon 30 days prior written notice.  Strategix Solutions may terminate the contract, with or without cause, upon 60 days prior written notice.
 
 
 NOTE B — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Basis of Presentation
 
 The financial statements of the Company have been prepared in accordance with the accounting principles generally accepted in the United States of America (“GAAP”).  Management has included all normal recurring adjustments considered necessary to give a fair presentation of operating results for the periods presented.  Interim results are not necessarily indicative of results for a full year.  The information included in this Form 10-Q should be read in conjunction with information included in the 2009 annual report filed on Form 10-K.
 
 Management Estimates
 
 The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.
 
 Cash and Cash Equivalents
 
 Cash and cash equivalents include interest-bearing and non-interest-bearing bank deposits, money market accounts, short-term certificates of deposit with original maturities of three months or less, and short-term instruments with a liquidation provision of one month or less.
 
  - 6 -
 Table of Contents
  
 Restricted Cash
 
 We have restricted cash, which relates to a cash deposit held as collateral by a banking institution for an irrevocable stand by letter of credit to support rent payments on the property we sold during November 2006.  The requirement for the deposit expires at the end of the lease on August 31, 2014.  For a discussion of litigation between Vestin Group and the building owner, see Note M - Legal Matters Involving The Company.
 
 Revenue Recognition
 
 Interest is recognized as revenue on performing loans when earned according to the terms of the loans, using the effective interest method.  We do not accrue interest income on loans once they are determined to be non-performing.  A loan is non-performing when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement or when the payment of interest is 90 days past due.  Cash receipts will be allocated to interest income, except when such payments are specifically designated by the terms of the loan as principal reduction.  Interest is recognized on impaired loans on the cash basis method.
 
 Deferred Revenue Recognition
 
 Deferred revenue supports the amount of sales proceeds withheld on a sale of our property during November 2006, which we were required to establish an irrevocable stand by letter of credit, which expires August 31, 2014.  Revenue will be recognized at the expiration of the lease referred to above or when restricted cash is received or when amounts are received from our manager.  For discussion of litigation between Vestin Group and the building owner, see Note M – Legal Matters Involving The Company.
 
 Investments in Real Estate Loans
 
 Prior to July 2, 2009, we may have, from time to time, acquired or sold investments in real estate loans from or to our manager or other related parties pursuant to the terms of our Operating Agreement without a premium.  The primary purpose was to either free up capital to provide liquidity for various reasons, such as loan diversification, or place excess capital in investments to maximize the use of our capital.  Selling or buying loans allowed us to diversify our loan portfolio within these parameters.  Due to the short-term nature of the loans we made and the similarity of interest rates in loans we normally would invest in, the fair value of a loan typically approximated its carrying value.  Accordingly, discounts or premiums typically did not apply upon sales of loans and therefore, generally no gain or loss is recorded on these transactions, regardless of whether to a related or unrelated party.
 
 Investments in real estate loans are secured by deeds of trust or mortgages.  Generally, our real estate loans require interest only payments with a balloon payment of the principal at maturity.  We have both the intent and ability to hold real estate loans until maturity and therefore, real estate loans are classified and accounted for as held for investment and are carried at amortized cost.  Loans sold to or purchased from affiliates are accounted for at the principal balance and no gain or loss is recognized by us or any affiliate.  Loan-to-value ratios are initially based on appraisals obtained at the time of loan origination and are updated, when new appraisals are received or when management’s assessment of the value has changed, to reflect subsequent changes in value estimates.  Such appraisals are generally dated within 12 months of the date of loan origination and may be commissioned by the borrower.
 
 The Company considers a loan to be impaired when, based upon current information and events, it believes it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement.  The Company’s impaired loans include troubled debt restructuring, and performing and non-performing loans in which full payment of principal or interest is not expected.  The Company calculates an allowance required for impaired loans based on the present value of expected future cash flows discounted at the loan’s effective interest rate, or at the loan’s observable market price or the fair value of its collateral.
 
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 Loans that have been modified from their original terms are evaluated to determine if the loan meets the definition of a Troubled Debt Restructuring (“TDR”).  When the Company modifies the terms of an existing loan that is considered a TDR, it is considered performing as long as it is in compliance with the modified terms of the loan agreement.  If the modification calls for deferred interest, it is recorded as interest income as cash is collected.
 
 Allowance for Loan Losses
 
 We maintain an allowance for loan losses on our investments in real estate loans for estimated credit impairment.  Our manager’s estimate of losses is based on a number of factors including the types and dollar amounts of loans in the portfolio, adverse situations that may affect the borrower’s ability to repay, prevailing economic conditions and the underlying collateral securing the loan.  Additions to the allowance are provided through a charge to earnings and are based on an assessment of certain factors, which may indicate estimated losses on the loans.  Actual losses on loans are recorded as a charge-off or a reduction to the allowance for loan losses.  Generally, subsequent recoveries of amounts previously charged off are added back to the allowance and included as income.
 
 Estimating allowances for loan losses requires significant judgment about the underlying collateral, including liquidation value, condition of the collateral, competency and cooperation of the related borrower and specific legal issues that affect loan collections or taking possession of the property.  As a commercial real estate lender who was willing to invest in loans to borrowers who may not meet the credit standards of other financial institutional lenders, the default rate on our loans could be higher than those generally experienced in the real estate lending industry.  We and our manager generally approved loans more quickly than other real estate lenders and, due to our expedited underwriting process; there is a risk that the credit inquiry we performed may have not reveal all material facts pertaining to a borrower and the security.
 
 Additional facts and circumstances may be discovered as we continue our efforts in the collection and foreclosure processes.  This additional information often causes management to reassess its estimates.  In recent years, we have revised estimates of our allowance for loan losses.  Circumstances that have and may continue to cause significant changes in our estimated allowance include, but are not limited to:
 
 ·
Declines in real estate market conditions, which can cause a decrease in expected market value;
 
 ·
Discovery of undisclosed liens for community improvement bonds, easements and delinquent property taxes;
 
 ·
Lack of progress on real estate developments after we advance funds.  We customarily utilize disbursement agents to monitor the progress of real estate developments and approve loan advances.  After further inspection of the related property, progress on construction occasionally does not substantiate an increase in value to support the related loan advances;
 
 ·
Unanticipated legal or business issues that may arise subsequent to loan origination or upon the sale of foreclosed property; and
 
 ·
Appraisals, which are only opinions of value at the time of the appraisal, may not accurately reflect the value of the property.
 
 Real Estate Held for Sale
 
 Real estate held for sale (“REO”) includes real estate acquired through foreclosure and will be carried at the lower of the recorded amount, inclusive of any senior indebtedness, or the property's estimated fair value, less estimated costs to sell, with fair value based on appraisals and knowledge of local market conditions.  While pursuing foreclosure actions, we seek to identify potential purchasers of such property.  It is not our intent to invest in or to own real estate as a long-term investment.  We generally seek to sell properties acquired through foreclosure as quickly as circumstances permit.  The carrying values of REO are assessed on a regular basis from updated appraisals, comparable sales values or purchase offers.
 
  - 8 -
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 Management classifies REO when the following criteria are met:
 
 ·
Management commits to a plan to sell the properties;
 
 ·
The property is available for immediate sale in its present condition subject only to terms that are usual and customary;
 
 ·
An active program to locate a buyer and other actions required to complete a sale have been initiated;
 
 ·
The sale of the property is probable;
 
 ·
The property is being actively marketed for sale at a reasonable price; and
 
 ·
Withdrawal or significant modification of the sale is not likely.
 
 Classification of Operating Results from Real Estate Held for Sale
 
 Generally, operating results and cash flows from long-lived assets held for sale are to be classified as discontinued operations as a separately stated component of net income.  Our operations related to REO are separately identified in the accompanying statements of operations.
 
 Investment in Marketable Securities – Related Party
 
 Investment in marketable securities – related party consists of stock in VRM II.  The securities are stated at fair value as determined by the closing market price as of March 31, 2010.  All securities are classified as available-for-sale.
 
 We are required to evaluate our available-for-sale investment for other-than-temporary impairment charges.  We will determine when an investment is considered impaired (i.e., decline in fair value below its amortized cost), and evaluate whether the impairment is other than temporary (i.e., investment value will not be recovered over its remaining life).  If the impairment is considered other than temporary, we will recognize an impairment loss equal to the difference between the investment’s basis and its fair value.
 
 According to the SEC Staff Accounting Bulletin, Topic 5: Miscellaneous Accounting, M - Other Than Temporary Impairment of Certain Investments in Debt and Equity Securities, there are numerous factors to be considered in such an evaluation and their relative significance will vary from case to case.  The following are a few examples of the factors that individually or in combination, indicate that a decline is other than temporary and that a write-down of the carrying value is required:
 
 ·
The length of the time and the extent to which the market value has been less than cost;
 
 ·
The financial condition and near-term prospects of the issuer, including any specific events which may influence the operations of the issuer such as changes in technology that may impair the earnings potential of the investment or the discontinuance of a segment of the business that may affect the future earnings potential; or
 
 ·
The intent and ability of the holder to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value.
 
  - 9 -
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 Fair Value Disclosures
 
 Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e. “the exit price”) in an orderly transaction between market participants at the measurement date.  In determining fair value, the Company uses various valuation approaches, including quoted market prices and discounted cash flows.  The established hierarchy for inputs used, in measuring fair value, maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available.  Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from independent sources.  Unobservable inputs are inputs that reflect a company’s judgment concerning the assumptions that market participants would use in pricing the asset or liability developed based on the best information available under the circumstances.  The fair value hierarchy is broken down into three levels based on the reliability of inputs as follows:
 
 ·
Level 1 – Valuations based on quoted prices in active markets for identical instruments that the Company is able to access.  Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.
 
 ·
Level 2 – Valuations based on quoted prices in active markets for instruments that are similar, or quoted prices in markets that are not active for identical or similar instruments, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.
 
 ·
Level 3 – Valuations based on inputs that are unobservable and significant to the overall fair value measurement, which utilize the Company’s estimates and assumptions.
 
 If the volume and level of activity for an asset or liability have significantly decreased, we will still evaluate our fair value estimate as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions.  In addition, since we are a publicly traded company, we are required to make our fair value disclosures for interim reporting periods.
 
 Net Income Allocated to Members Per Weighted Average Membership Unit
 
 Net income allocated to members per weighted average membership unit is computed by dividing net income calculated in accordance with GAAP by the weighted average number of membership units outstanding for the period.
 
 Segments
 
 We operate as one business segment.
 
 Income Taxes
 
 Limited liability companies (“LLCs”) are not liable for federal or state income taxes and, therefore, no provision for income taxes is made in the accompanying financial statements.  Rather, a proportionate share of the LLC’s income, deductions, credits and tax preference items are reported to the individual members for inclusion in their tax returns.
 
 NOTE C — FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK
 
 Financial instruments with concentration of credit and market risk include cash, marketable securities related party and loans secured by deeds of trust.
 
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 We maintain cash deposit accounts and certificates of deposit, which, at times, may exceed federally-insured limits.  To date, we have not experienced any losses.  As of March 31, 2010 and December 31, 2009, we had approximately $1.1 million and $2.3 million, respectively, in excess of the federally-insured limits.
 
 As of March 31, 2010 and December 31, 2009, 40%, 27%, and 25% of our loans were in Nevada, Oregon and California, respectively.  As a result of this geographical concentration of our real estate loans, the downturn in the local real estate markets in these states has had a material adverse effect on us.
 
 At March 31, 2010 and December 31, 2009, the loan to our largest borrower represented 27.4%, respectively, of our total investment in real estate loans.  When funded in December 2007, this loan constituted approximately 7.0% of our total investment in real estate loans.  The percentage of this loan increased due to the decrease in other loans through payments, sales, foreclosures and modifications.  This commercial property real estate loan is located in Oregon with a first lien position and has an outstanding balance of approximately $1.5 million.  As of March 31, 2010, this loan was considered non-performing.  During the three months ended March 31, 2010, two of our performing loans totaling $17.4 million, of which our portion was approximately $0.8 million, accounted for approximately 80% of our interest income.  During the three months ended March 31, 2009, one of our performing loans totaling approximately $3.1 million, of which our portion was approximately $0.5 million, accounted for approximately 29% of our interest income.  Any additional defaults in our loan portfolio will have a material adverse effect on us.
 
 A borrower’s ability to repay its real estate loan obligation in a large lump-sum payment may be dependent upon the borrower’s ability to refinance the obligation or otherwise raise a substantial amount of cash.  With the weakened economy, credit continues to be difficult to obtain and as such, many of our borrowers who develop and sell commercial real estate projects have been unable to complete their projects, obtain takeout financing or have been otherwise adversely impacted.  In addition, an increase in interest rates over the loan rate applicable at origination of the loan may have an adverse effect on our borrower’s ability to refinance.
 
 For additional information regarding the above non-performing loans, see “Non-Performing Loans” in Note D – Investments In Real Estate Loans.
 
 Common Guarantors
 
 As of March 31, 2010 and December 31, 2009, three loans totaling approximately $0.9 million, representing approximately 16.7% of our portfolio’s total value, had a common guarantor.  One of the three loans, totaling approximately $0.1 million, was secured by a second lien position.  All three loans were considered performing as of March 31, 2010 and December 31, 2009.
 
 NOTE D — INVESTMENTS IN REAL ESTATE LOANS
 
 As of March 31, 2010 and December 31, 2009, all of our loans provided for payments of interest only with a “balloon” payment of principal payable in full at the end of the term.
 
 In addition, we invested in real estate loans that require borrowers to maintain interest reserves funded from the principal amount of the loan for a period of time.  At March 31, 2010 and December 31, 2009, we had no investments in real estate loans that had interest reserves.
 
 Loan Portfolio
 
 As of March 31, 2010, we had five available real estate loan products consisting of commercial, construction, acquisition and development, land and residential.  The effective interest rates on all product categories range from 3% to 15%.  Revenue by product will fluctuate based upon relative balances during the period.
 
  - 11 -
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 Investments in real estate loans as of March 31, 2010, were as follows:
 
 Loan Type

Number of Loans


Balance *


Weighted Average

Interest Rate


Portfolio Percentage


Current Weighted Average Loan-To-Value, Net of Allowance for Loan LossesCommercial


7



4,288,000



11.28%



77.30%



80.38%Construction


2



808,000



3.00%



14.57%



100.00%Land


1



451,000



8.00%



8.13%



78.54%Total


10


$
5,547,000



9.81%



100.00%



83.38%
 
 Investments in real estate loans as of December 31, 2009, were as follows:
 
 Loan Type

Number of Loans


Balance *


Weighted Average

Interest Rate


Portfolio Percentage


Current Weighted Average Loan-To-Value, Net of Allowance for Loan LossesCommercial


7


$
4,288,000



11.28%



77.30%



78.10%Construction


2



808,000



3.00%



14.57%



100.00%Land


1



451,000



8.00%



8.13%



78.54%Total


10


$
5,547,000



9.81%



100.00%



81.78%
 
 *
Please see Balance Sheet Reconciliation below.
 
 The “Weighted Average Interest Rate” as shown above is based on the contractual terms of the loans for the entire portfolio including non-performing loans.  The weighted average interest rate on performing loans only, as of March 31, 2010 and December 31, 2009, was 7.87%.  Please see “Non-Performing Loans” and “Asset Quality and Loan Reserves” below for further information regarding performing and non-performing loans.
 
 Loan-to-value ratios are generally based on the most recent appraisals and may not reflect subsequent changes in value and include allowances for loan losses.  Recognition of allowance for loan losses will result in a maximum loan-to-value ratio of 100% per loan.
 
 The following is a schedule of priority of real estate loans as of March 31, 2010 and December 31, 2009:
 
 Loan Type

Number of Loans


March 31, 2010

Balance *


Portfolio

Percentage


Number of Loans


December 31, 2009 Balance *


Portfolio

PercentageFirst deeds of trust


6


$
4,678,000



84.33%



6


$
4,678,000



84.33%Second deeds of trust


4



869,000



15.67%



4



869,000



15.67%Total


10


$
5,547,000



100.00%



10


$
5,547,000



100.00%
 
 *
Please see Balance Sheet Reconciliation below.
 
  - 12 -
 Table of Contents
  
 The following is a schedule of contractual maturities of investments in real estate loans as of March 31, 2010:
 
 Non-performing and past due loans (a)

$
3,922,000April 2010 – June 2010


--July 2010 – September 2010


--October 2010 – December 2010


118,000January 2011 – March 2011


1,307,000April 2011 – June 2011


--July 2011 – September 2011


--October 2011 – December 2011


200,000Thereafter


--Total

$
5,547,000
 
 (a)
Amounts include the balance of non-performing loans and loans that have been extended subsequent to March 31, 2010.
 
 The following is a schedule by geographic location of investments in real estate loans as of March 31, 2010 and December 31, 2009:
 
 March 31, 2010

Balance *


Portfolio Percentage


December 31, 2009

Balance *


Portfolio PercentageArizona

$
200,000



3.60%


$
200,000



3.60%California


1,400,000



25.24%



1,400,000



25.24%Nevada


2,227,000



40.15%



2,227,000



40.15%Oregon


1,520,000



27.40%



1,520,000



27.40%Texas


200,000



3.61%



200,000



3.61%Total

$
5,547,000



100.00%


$
5,547,000



100.00%
 
 *
Please see Balance Sheet Reconciliation below.
 
 Balance Sheet Reconciliation
 
 The following table reconciles the balance of the loan portfolio to the amount shown on the accompanying Balance Sheets.
 
 March 31, 2010

Balance


December 31, 2009

BalanceBalance per loan portfolio

$
5,547,000


$
5,547,000Less:Allowance for loan losses (a)


(2,194,000
)


(2,194,000
)Balance per balance sheet

$
3,353,000


$
3,353,000
 
 (a)
Please refer to Specific Reserve Allowance below.
 
  - 13 -
 Table of Contents
  
 Non-Performing Loans
 
 As of March 31, 2010, we had four loans considered non-performing (i.e., based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement or when the payment of interest is 90 days past due).  These loans are currently carried on our books at a value of approximately $2.0 million, net of allowance for loan losses of approximately $1.6 million, which does not include the allowances of approximately $0.6 million relating to performing loans as of March 31, 2010.  Except as otherwise provided below, these loans have been placed on non-accrual of interest status and may be the subject of pending foreclosure proceedings.  At March 31, 2010, the following loan types were non-performing:
 
 Loan Type

Number Of

Non-Performing Loans


Balance at

March 31, 2010


Allowance for

Loan Losses


Net Balance at

March 31, 2010Commercial


3


$
3,120,000


$
(1,551,000
)

$
1,569,000Land


1



451,000



--



451,000Total


4


$
3,571,000


$
(1,551,000
)

$
2,020,000
 
 ·
Commercial – As of March 31, 2010, three of our seven commercial loans were considered non-performing.  The outstanding balance on the three non-performing loans was $36.0 million, of which our portion is approximately $3.1 million.  As of March 31, 2010, these loans have been non-performing from 13 to 22 months.  Our manager has commenced foreclosure proceedings on a majority of these loans, and has proceeded with legal action to enforce the personal guarantees as deemed appropriate.  As of March 31, 2010, based on our manager’s evaluations and updated appraisals, our manager has provided a specific allowance to these commercial loans of approximately $27.5 million, of which our portion is approximately $1.6 million.
 
 ·
Land – As of March 31, 2010, our only land loan was considered non-performing.  The loan is secured by a first lien on the property, and is guaranteed by principals of the borrower.  The outstanding balance on the loan is $3.2 million, of which our portion is approximately $0.5 million.  As of March 31, 2010, this loan has been considered non-performing for the last 6 months.  As of March 31, 2010, based on our manager’s evaluation and an updated appraisal, our manager has not provided a specific allowance for this loan.  During April 2010, this non-performing loan complied with the terms of its loan agreement and is now considered a performing loan.
 
 Asset Quality and Loan Reserves
 
 Losses may occur from investing in real estate loans.  The amount of losses will vary as the loan portfolio is affected by changing economic conditions and the financial condition of borrowers.
 
 The conclusion that a real estate loan is uncollectible or that collectability is doubtful is a matter of judgment.  On a quarterly basis, our manager evaluates our real estate loan portfolio for impairment.  The fact that a loan is temporarily past due does not necessarily mean that the loan is non-performing.  Rather, all relevant circumstances are considered by our manager to determine impairment and the need for specific reserves.  Such evaluation, which includes a review of all loans on which full collectability may not be reasonably assured, considers among other matters:
 
 ·
Prevailing economic conditions;
 
 ·
Historical experience;
 
 ·
The nature and volume of the loan portfolio;
  - 14 -
 Table of Contents
  
 
 ·
The borrowers’ financial condition and adverse situations that may affect the borrowers’ ability to pay;
 
 ·
Evaluation of industry trends; and
 
 ·
Estimated net realizable value of any underlying collateral in relation to the loan amount.
 
 Based upon this evaluation, a determination is made as to whether the allowance for loan losses is adequate to cover any potential losses.  Additions to the allowance for loan losses are made by charges to the provision for loan loss.  As of March 31, 2010, we have provided a specific reserve allowance for three non-performing loans and five performing loans based on updated appraisals of the underlying collateral and/or our evaluation of the borrower.  The following is a breakdown of allowance for loan losses related to performing and non-performing loans as of March 31, 2010 and December 31, 2009:
 
 As of March 31, 2010Balance


Allowance for loan losses


Balance, net of allowanceNon-performing loans – no related allowance

$
451,000


$
--


$
451,000Non-performing loans – related allowance


3,120,000



(1,551,000
)


1,569,000Subtotal non-performing loans


3,571,000



(1,551,000
)


2,020,000Performing loans – no related allowance


499,000



--



499,000Performing loans – related allowance


1,477,000



(643,000
)


834,000Subtotal performing loans


1,976,000



(643,000
)


1,333,000Total

$
5,547,000


$
(2,194,000
)

$
3,353,000
 
 
 As of December 31, 2009Balance


Allowance for loan losses *


Balance, net of allowanceNon-performing loans – no related allowance

$
451,000


$
--


$
451,000Non-performing loans – related allowance


3,120,000



(1,551,000
)


1,569,000Subtotal non-performing loans


3,571,000



(1,551,000
)


2,020,000Performing loans – no related allowance


499,000



--



499,000Performing loans – related allowance


1,477,000



(643,000
)


834,000Subtotal performing loans


1,976,000



(643,000
)


1,333,000Total

$
5,547,000


$
(2,194,000
)

$
3,353,000
 
 *           Please refer to Specific Reserve Allowancesabove.
 
 Our manager evaluated our loans and, based on current estimates with respect to the value of the underlying collateral, believes that such collateral is sufficient to protect us against further losses of principal or interest.  However, such estimates could change or the value of the underlying real estate could decline.  Our manager will continue to evaluate our loans in order to determine if any other allowance for loan losses should be recorded.
 
 Specific Reserve Allowances
 
 The following table is a roll-forward of the allowance for loan losses for the three months ended March 31, 2010 and 2009 by loan type.
  - 15 -
 Table of Contents
  
 
 Loan Type

Balance at

12/31/09


Specific Reserve Allocation


Sales


Loan Pay Downs


Transfers to REO


Balance at

03/31/10Commercial

$
1,941,000


$
--


$
--


$
--


$
--


$
1,941,000Construction


253,000



--



--



--



--



253,000Land


--



--



--



--



--



--Total

$
2,194,000


$
--


$
--


$
--


$
--


$
2,194,000
 
 
 Loan Type

Balance at

12/31/08


Specific Reserve Allocation *


Sales


Loan Pay Downs


Transfers to REO


Balance at

03/31/09Commercial

$
3,284,000


$
184,000


$
--


$
--


$
(601,000
)

$
2,867,000Construction


222,000



--



--



--



--



222,000Land


1,940,000



--



(985,000
)


--



(282,000
)


673,000Total

$
5,446,000


$
184,000


$
(985,000
)

$
--


$
(883,000
)

$
3,762,000
 
 * The difference between the specific reserve allocation of $184,000 shown above and the $154,000 on the statement of operations is $30,000.  As of December 31, 2008, a commercial loan included an impairment reserve, applied to the loan balance, of $30,000.  During March 2009, the impairment reserve for this loan was reclassified to its existing allowance for loan loss.
 
 ·
Commercial – As of March 31, 2010, six of our seven commercial loans had a specific reserve allowance totaling approximately $31.9 million, of which our portion is approximately $1.9 million.  The outstanding balance on these six loans was approximately $63.9 million, of which our portion was $3.8 million.
 
 ·
Construction – As of March 31, 2010, our two construction loans had a specific reserve allowance totaling approximately $4.3 million, of which our portion was approximately $0.3 million.  The outstanding balance on these two loans was approximately $14.4 million, of which our portion is $0.8 million.
 
 ·
Land – As of March 31, 2010, our land loan did not have a specific reserve allowance.
 
 As of March 31, 2010, our manager had granted extensions on six loans, totaling approximately $71.4 million, of which our portion was approximately $3.3 million, 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.  Our manager generally grants extensions when a borrower is in compliance with the material terms of the loan, including, but not limited to the borrower’s obligation to make interest payments on the loan.  In addition, if circumstances warrant, our manager may extend a loan that is in default as part of a work out plan to collect interest and/or principal.  Subsequent to their extension, one of the six loans became non-performing.  The loan, which became non-performing after its extension, had a total principal amount at March 31, 2010, of $16.0 million, of which our portion is $1.4 million.
 
 NOTE E — INVESTMENT IN MARKETABLE SECURITIES – RELATED PARTY
 
 As of March 31, 2010, we owned 114,117 shares of VRM II’s common stock, representing approximately 0.84% of their total outstanding common stock.
 
 We evaluated our investment in VRM II’s common stock and determined there was an other-than-temporary impairment as of September 30, 2008.  Based on this evaluation we impaired our investment to its fair value, as of September 30, 2008, to $3.89 per share.
 
  - 16 -
 Table of Contents
  
 As of March 31, 2010, our manager evaluated the near-term prospects of VRM II in relation to the severity and duration of the unrealized loss since September 30, 2008.  Based on that evaluation and our ability and intent to hold this investment for a reasonable period of time sufficient for a forecasted recovery of fair value, we do not consider our investment in VRM II to be other-than-temporarily impaired at March 31, 2010.  Since September 30, 2008, the trading price for VRM II’s common stock ranged from $1.54 to $5.05 per share.  We will continue to evaluate our investment in marketable securities on a quarterly basis.
 
 NOTE F — REAL ESTATE HELD FOR SALE
 
 At March 31, 2010, we held eight properties with a total carrying value of approximately $0.7 million, which were acquired through foreclosure and recorded as investments in REO.  Expenses incurred during the three months ended March 31, 2010, related to our REO totaled $22,000.  Our REO properties are accounted for at the lower of cost or fair value less costs to sell with fair value based on appraisals and knowledge of local market conditions.  It is not our intent to invest in or to own real estate as a long-term investment.  We seek to sell properties acquired through foreclosure as quickly as circumstances permit taking into account current economic conditions.  Set forth below is a roll-forward of REO during the three months ended March 31, 2010:
 
 Description

Balance at

12/31/09


Acquisitions Through Foreclosure


Write Downs


Cash Reductions


Seller Financed Loan


Net Cash Proceeds on Sales


Net Loss on Sale of Real Estate


Balance at

03/31/2010Land

$
716,000


$
--


$
--


$
--


$
--


$
(107,000
)

$
--


$
609,000Residential Building


119,000



--



--



--



--



--



--



119,000Total

$
835,000


$
--


$
--


$
--


$
--


$
(107,000
)

$
--


$
728,000
 
 Land
 
 As of March 31, 2010, we held five REO properties, classified as Land, totaling approximately $0.6 million.  These properties were acquired between December 2006 and December 2009 and consist of commercial land and residential land.  During the three months ended March 31, 2010, our manager continually evaluated the carrying value of these properties and based on its estimates and updated appraisals no write-downs were necessary.  Our manager is currently working with prospective buyers to sell these properties; however, no assurance can be given that these sales will take place.
 
 ·
Commercial Land – As of March 31, 2010, we held two properties located in Nevada and Texas totaling approximately $0.2 million.  On April 27, 2010, we, VRM I and VRM II, sold our commercial land REO property located in Texas to an unrelated third party for approximately $0.6 million, of which our portion was $91,000.  No gain or loss was associated with this transaction.
 
 ·
Residential Land – On January 15, 2010, one property located in Nevada was sold to an unrelated third party for its approximate book value of $1.3 million, of which our portion was approximately $0.1 million.  No gain or loss was associated with this property.  As of March 31, 2010, we held three properties located in Arizona and California totaling approximately $0.4 million.
 
 Residential Buildings
 
 As of March 31, 2010, we held three REO properties, classified as Residential Buildings, totaling approximately $0.1 million.  These properties were acquired between December 2006 and August 2009 and consist of single-family residences and residential apartment /condos.  During the three months ended March 31, 2010, our manager continually evaluated the carrying value of these properties, and based on its estimates and updated appraisals, no write-downs were necessary.  Our manager is currently working with prospective buyers to sell these properties; however, no assurance can be given that these sales will take place.
  - 17 -
 Table of Contents
  
 ·
Single Family Residence Properties – We held one property located in California totaling $6,000 as of March 31, 2010.  On April 22, 2010, we, VRM I and VRM II sold one unit on our property located in California to an unrelated third party for $187,000, of which our portion was $4,000.  There was approximately no gain or loss associated with this transaction.
 
 ·
Residential Apartment /Condo – As of March 31, 2010, we held two properties located in Nevada totaling approximately $0.1 million.  On April 23, 2010, we, VRM I and VRM II sold the remaining unit on one REO property located in Nevada to an unrelated third party for its approximate book value of $81,000, of which our portion was $3,000.  There was approximately no gain or loss associated with this transaction.
 
 NOTE G — RELATED PARTY TRANSACTIONS
 
 Prior to July 2, 2009, we may have acquired or sold investments in real estate loans from/to our manager or other related parties.  Pursuant to the terms of our Operating Agreement, such acquisitions and sales were made without any mark up or mark down.  No gain or loss was recorded on these transactions, as it was not our intent to make a profit on the purchase or sale of such investments.  The purpose was generally to diversify our portfolio by syndicating loans, thereby providing us with additional capital to make additional loans.  From time to time, we may continue to sell performing investments in real estate loans to our manager or other related parties, without any mark up or mark down.  No gain or loss will be recorded on these transactions.
 
 Transactions with the Manager
 
 Our manager is entitled to receive from us a management (acquisition and advisory) fee up to 2.5% of the gross offering proceeds and up to 3% of our rental income.  No management fees were recorded during the three months ended March 31, 2010 and 2009.
 
 As of March 31, 2010 and December 31, 2009, our manager owned 54,863 of our units.  During the three months ended March 31, 2009, we made a liquidating distribution to our manager totaling $27,000, in accordance with the Plan.  There were no similar distributions during the three months ended March 31, 2009.
 
 In connection with the sale of an office building located in Las Vegas, Nevada, we arranged for a $985,000 letter of credit in favor of the purchaser of the building (the “Purchaser”), which may be drawn upon by the Purchaser should Vestin Group default on its lease obligations and is supported by our restricted cash.  Vestin Group is currently engaged in litigation with the Purchaser and has not paid certain amounts allegedly due under its lease.  Vestin Group has provided us with a written agreement to fully indemnify and hold us harmless in the event that the Purchaser draws upon the letter of credit and we incur an obligation to reimburse the bank that issued the letter of credit.  During June 2009, the Purchaser drew $285,000 from the letter of credit; our manager is required to reimburse us for the $285,000 before August 2014.  For a discussion of litigation between Vestin Group and the building owner, see Note M - Legal Matters Involving The Company.
 
 On March 6, 2009, we, VRM I, and VRM II completed the sale of 105 of the 106 units in a residential apartment /condo property in Nevada, to an unrelated third party; the remaining unit was sold on April 23, 2010 for no gain or loss.  In accordance with our Operating Agreement, we, VRM I, and VRM II paid our manager an administrative fee of $282,000, shared pro-rata among us, VRM I, and VRM II.  No similar transactions took place during the three months ended March 31, 2010.
 
 As of March 31, 2010 and December 31, 2009, we had receivables from our manager totaling approximately $0.3 million, primarily related to the withdrawal of the letter of credit referred to above.
 
 Transactions with Other Related Parties
 
 As of March 31, 2010 and December 31, 2009, we owned 114,117 common shares of VRM II, representing approximately 0.84% of their total outstanding common stock.
 
 As of March 31, 2010, we owed VRM II $1,000.  As of December 31, 2009, we owed VRM II $33,000.
  - 18 -
 Table of Contents
  
 
 As of March 31, 2010, we did not owe VRM I or have any receivables from VRM I.  As of December 31, 2009, we owed VRM I $1,000.
 
 As of March 31, 2010 and December 31, 2009, inVestin Nevada Inc., a company wholly owned by our manager’s CEO, (“inVestin”), owned 34,856 of our membership units representing approximately 1.72%, respectively, of our total membership units.  During the three months ended March 31, 2009, we made a liquidating distribution to inVestin totaling $17,000, in accordance with the Plan.  There were no similar distributions during the three months ended March 31, 2009.
 
 As of March 31, 2010 and December 31, 2009, Shustek Investments, a company wholly owned by our manager’s CEO, owned 200,000 of our membership units representing approximately 9.88% of our total membership units.  During the three months ended March 31, 2009, we made a liquidating distribution to Shustek Investments totaling $99,000, in accordance with the Plan.  There were no similar distributions during the three months ended March 31, 2009.
 
 As of March 31, 2010 and December 31, 2009, Mr. Shustek’s spouse owned 2,963 of our membership units representing less than 1.0% of our total membership units.  During the three months ended March 31, 2009, we made a liquidating distribution to Mr. Shustek’s spouse totaling $1,000, in accordance with the Plan.  There were no similar distributions during the three months ended March 31, 2009.
 
 During the three months ended March 31, 2010 and 2009, we incurred $2,000 and $21,000, respectively, for legal fees to the law firm of Levine, Garfinkel & Katz in which the Secretary of Vestin Group has an equity ownership interest in the law firm.
 
 NOTE H — MEMBERS’ EQUITY
 
 Allocations and Distributions
 
 In accordance with our Operating Agreement, profits, gains and losses are to be credited to and charged against each member’s capital account in proportion to their respective capital accounts as of the close of business on the last day of each calendar month.
 
 Distributions were paid monthly to members; however, on August 27, 2008, we suspended payment of distributions as a result of our current losses.
 
 Contingency Reserve
 
 In accordance with the Plan, we will establish a contingency reserve for the payment of ongoing expenses, any contingent liabilities or to account for loan or other investment losses.  Our manager will have the discretion to increase or decrease the amount of the reserve, but will ensure that the reserve is adequate to pay our outstanding obligations.  The amount of the contingency reserve will be based upon estimates and opinions of our manager or through consultation with an outside expert, if our manager determines that it is advisable to retain such expert.  In determining the size of the reserve, our manager will review among other things, the value of our non-performing assets and the likelihood of repayment, our estimated contingent liabilities and our estimated expenses, including without limitation, estimated professional, legal and accounting fees, rent, payroll and other taxes, miscellaneous office expenses, facilities costs and expenses accrued in our financial statements.
 
 Value of Members’ Capital Accounts
 
 In accordance with Section 7.8 of our Operating Agreement, our manager reviewed the value of our assets during the three months ended March 31, 2010.  Based on this review the value of members’ capital accounts was adjusted from $3.56 per unit to $3.03 per unit, as of April 1, 2010.  The change in valuation is primarily for tax and capital account purposes and does not reflect the change in the value of the units calculated in accordance with GAAP.  Accordingly, unit prices calculated under GAAP may be different than the adjusted price per unit.
  - 19 -
 Table of Contents
  
 Liquidating Distributions
 
 On January 26, 2010, we made an initial liquidating distribution to all Fund Members, in the aggregate amount of approximately $1.0 million, in accordance with the Plan.  In addition, on April 8, 2010, we made another liquidation distribution to all Fund Members, in the aggregate amount of approximately $0.9 million, in accordance with the Plan.  The amounts distributed to each Member of the Fund were calculated based upon the percentage ownership interest of such Member in the Fund.
 
 Redemption Limitation
 
 In accordance with the Plan, our members no longer have the right to have their units redeemed by us and we no longer honor any outstanding redemption requests effective as of July 2, 2009.
 
 NOTE I — NOTES RECEIVABLE
 
 During July 2009, we, VRM I, and VRM II entered into a promissory note, totaling approximately $1.4 million, of which our portion is $82,000, with the borrowers on a construction loan, as part of the repayment terms of the loan.  In addition, we received a principal pay off on the loan of approximately $0.3 million, which reflected our book value of the loan, net of allowance for loan loss of approximately $0.2 million.  The promissory note accrues interest over a 60-month period with an interest rate of 7%, with the first monthly payment due on the 37th month.  The remaining note balance and accrued interest will be due at maturity.  Payments will be recognized as income when received.  The balance of $82,000 was fully reserved as of March 31, 2010.
 
 During July 2009, we, VRM I, and VRM II entered into a promissory note, totaling approximately $1.3 million, of which our portion is $74,000, with the borrowers on a construction loan, as part of the repayment terms of the loan.  In addition, we received a principal pay off on the loan of approximately $0.2 million, which reflected our book value of the loan, net of allowance for loan loss of approximately $0.2 million.  The promissory note accrues interest over a 60-month period with an interest rate of 7%, with the first monthly payment due on the 37th month.  The remaining note balance and accrued interest will be due at maturity.  Payments will be recognized as income when received.  The balance of $74,000 was fully reserved as of March 31, 2010.
 
 NOTE J — FAIR VALUE
 
 As of March 31, 2010, financial assets and liabilities, utilizing Level 1 inputs included investment in marketable securities - related party.  We had no assets or liabilities utilizing Level 2 inputs, and assets and liabilities utilizing Level 3 inputs included investments in real estate loans.
 
 To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment.  Accordingly, our degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3.  In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy.  In such cases, an asset or liability will be classified in its entirety based on the lowest level of input that is significant to the measurement of fair value.
 
 Fair value is a market-based measure considered from the perspective of a market participant who holds the asset or owes the liability rather than an entity-specific measure.  Therefore, even when market assumptions are not readily available, our own assumptions are set to reflect those that market participants would use in pricing the asset or liability at the measurement date.  We use prices and inputs that are current as of the measurement date, including during periods of market dislocation, such as the recent illiquidity in the auction rate securities market.  In periods of market dislocation, the observability of prices and inputs may be reduced for many instruments.  This condition may cause our financial instruments to be reclassified from Level 1 to Level 2 or Level 3 and/or vice versa.
 
  - 20 -
 Table of Contents
  
 Our valuation techniques will be consistent with at least one of the three possible approaches: the market approach, income approach and/or cost approach.  Our Level 1 inputs are based on the market approach and consist primarily of quoted prices for identical items on active securities exchanges.  Our Level 2 inputs are primarily based on the market approach of quoted prices in active markets or current transactions in inactive markets for the same or similar collateral that do not require significant adjustment based on unobservable inputs.  Our Level 3 inputs are primarily based on the income and cost approaches, specifically, discounted cash flow analyses, which utilize significant inputs based on our estimates and assumptions.
 
 The following table presents the valuation of our financial assets as of March 31, 2010, measured at fair value on a recurring basis by input levels:
 
 Fair Value Measurements at Reporting Date UsingQuoted Prices in Active Markets For Identical Assets (Level 1)


Significant Other Observable Inputs (Level 2)


Significant Unobservable Inputs (Level 3)


Balance at 03/31/2010


Carrying Value on Balance Sheet at 03/31/2010AssetsInvestment in marketable securities - related party

$
197,000


$
--


$
--


$
197,000


$
197,000Investment in real estate loans

$
--


$
--


$
3,308,000


$
3,308,000


$
3,353,000
 
 The following table presents the changes in our financial assets and liabilities that are measured at fair value on a recurring basis using significant unobservable inputs (Level 3) from December 31, 2009 to March 31, 2010.  There were no liabilities measured at fair value on a recurring basis using significant unobservable inputs as of December 31, 2009 and March 31, 2010.
 
 Investment in

Real Estate LoansBalance on December 31, 2009

$
3,291,000Temporary change in estimated fair value based on future cash flows


17,000Transfer to Level 1


--Transfer to Level 2


--Balance on March 31, 2010, net of temporary valuation adjustment

$
3,308,000
 
 NOTE K — RECENT ACCOUNTING PRONOUNCEMENTS
 
 In January 2010, the FASB issued ASU No. 2010-06 regarding fair value measurements and disclosures and improvement in the disclosure about fair value measurements.  This ASU requires additional disclosures regarding significant transfers in and out of Levels 1 and 2 of fair value measurements, including a description of the reasons for the transfers.  Further, this ASU requires additional disclosures for the activity in Level 3 fair value measurements, requiring presentation of information about purchases, sales, issuances, and settlements in the reconciliation for fair value measurements.  This ASU is effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years.  We are currently evaluating the impact of this ASU; however, we do not expect the adoption of this ASU to have a material impact on our consolidated financial statements.
 
 In February 2010, the FASB issued ASU No. 2010-09 regarding subsequent events and amendments to certain recognition and disclosure requirements.  Under this ASU, a public company that is a SEC filer, as defined, is not required to disclose the date through which subsequent events have been evaluated.  This ASU is effective upon the issuance of this ASU.  The adoption of this ASU did not have a material impact on our consolidated financial statements.
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 In April 2010, the FASB issued ASU No. 2010-18 regarding improving comparability by eliminating diversity in practice about the treatment of modifications of loans accounted for within pools under Subtopic 310-30 – Receivable – Loans and Debt Securities Acquired with Deteriorated Credit Quality (“Subtopic 310-30”).  Furthermore, the amendments clarify guidance about maintaining the integrity of a pool as the unit of accounting for acquired loans with credit deterioration.  Loans accounted for individually under Subtopic 310-30 continue to be subject to the troubled debt restructuring accounting provisions within Subtopic 310-40, Receivables—Troubled Debt Restructurings by Creditors.  The amendments in this Update are effective for modifications of loans accounted for within pools under Subtopic 310-30 occurring in the first interim or annual period ending on or after July 15, 2010.  The amendments are to be applied prospectively.  Early adoption is permitted.  We are currently evaluating the impact of this ASU; however, we do not expect the adoption of this ASU to have a material impact on our consolidated financial statements.
 
 NOTE L— LEGAL MATTERS INVOLVING THE MANAGER
 
 The United States Securities and Exchange Commission (the “Commission”), conducted an investigation of certain matters related to us, our manager, Vestin Capital, VRM I, and VRM II.  We fully cooperated during the course of the investigation.  On September 27, 2006, the investigation was resolved through the entry of an Administrative Order by the Commission (the “Order”).  Our manager, Vestin Mortgage and its Chief Executive Officer, Michael Shustek, as well as Vestin Capital (collectively, the “Respondents”), consented to the entry of the Order without admitting or denying the findings therein.
 
 In the Order, the Commission found that the Respondents violated Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933 through the use of certain slide presentations in connection with the sale of our units and units in Fund II, the predecessor to VRM II.  The Respondents consented to the entry of a cease and desist order, the payment by Mr. Shustek of a fine of $100,000 and Mr. Shustek’s suspension from association with any broker or dealer for a period of six months, which expired in March 2007.  In addition, the Respondents agreed to implement certain undertakings with respect to future sales of securities.  We are not a party to the Order.
 
 On November 21, 2005, Desert Land filed a complaint in the state District Court of Nevada against Vestin Group, Vestin Mortgage and Del Mar Mortgage, Inc. which complaint is substantially similar to a complaint previously filed by Desert Land in the United States District Court, which complaint was dismissed by the United States Court of Appeals for the Ninth Circuit, which dismissal was upheld when the United States Supreme Court denied Desert Land’s Writ of Certiorari.  The action was based upon allegations that Del Mar Mortgage, Inc. and/or Vestin Mortgage charged unlawful fees on various loans arranged by them in 1999, prior to the formation of Fund II.  On March 6, 2006, Desert Land amended the state court complaint to name VRM I.  Desert Land alleged that one or more of the defendants had transferred assets to other entities without receiving reasonable value therefore; alleged plaintiffs are informed and believe that defendants have made such transfers with the actual intent to hinder, delay or defraud Desert Land; that such transfers made the transferor insolvent and that sometime between February 27 and April 1, 2003, Vestin Group transferred $1.6 million to VRM I for that purpose.
 
 The state court complaint further alleged that Desert Land was entitled to void such transfers and that pursuant to NRS 112.20, Desert Land is entitled to an injunction to enjoin defendants from further disposition of assets.  Additionally, Del Mar Mortgage, Inc. has indemnified Vestin Group and Vestin Mortgage for any losses and expenses in connection with the action, and Mr. Shustek has guaranteed the indemnification.  In December 2008, this lawsuit was settled.  The settlement had no effect on us.
 
 In April 2006, the lenders of the loans made to RightStar, Inc. (“RightStar”) filed suit against the State of Hawaii listing 26 causes of action, including allegations that the State of Hawaii has illegally blocked the lender’s right to foreclose and take title to its collateral by inappropriately attaching conditions to the granting of licenses needed to operate the business, the pre-need trust funds and the perpetual care trust funds and that the State of Hawaii has attempted to force the lenders to accept liability for any statutory trust fund deficits while no such lender liability exists under the laws of the State of Hawaii.  The State of Hawaii responded by filing allegations against Vestin Mortgage and VRM II alleging that these Vestin entities improperly influenced the former RightStar trustees to transfer trust funds to VRM II.
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 On May 9, 2007, VRM I, VRM II, Vestin Mortgage, the State of Hawaii and Comerica Incorporated (“Comerica”) announced that an arrangement had been reached to auction the RightStar assets.  On June 12, 2007, the court approved the resolution agreement, which provides that the proceeds of the foreclosure sale would be allocated in part to VRM I, VRM II and Vestin Mortgage and in part to fund the trust’s statutory minimum balances.  VRM I, VRM II, Vestin Mortgage, the State of Hawaii and Comerica have pledged to cooperate to recover additional amounts owed to the trusts and the creditors from others, while mutually releasing each other and RightStar from all claims.  VRM I, VRM II, Vestin Mortgage and the State of Hawaii have received offers and are currently requesting, entertaining, and reviewing bids on the RightStar properties.  To date, the auction has not been successful.  The Vestin entities and the State of Hawaii signed a new agreement that would permit the foreclosure to proceed.  On October 12, 2009, the State Court approved the agreement permitting the foreclosure to proceed.  On January 25, 2010, the Circuit Court of the First Circuit for the State of Hawaii confirmed the right of VRM I, VRM II and Vestin Mortgage, to acquire through foreclosure the RightStar assets.  Closing of the acquisition is to take place within 90 days of the issuance by the Court of its order of confirmation, which was signed on March 10, 2010.  Completion of the acquisition is subject to receipt of appropriate licensing from the Department of Commerce and Consumer Affairs of the State of Hawaii to own and operate the RightStar assets.
 
 VRM I, VRM II and Vestin Mortgage, Inc. (“Defendants”) were defendants in a breach of contract class action filed in San Diego Superior Court by certain plaintiffs who alleged, among other things, that they were wrongfully denied roll-up rights in connection with the merger of Fund I into VRM I. and Fund II into VRM II.  The court certified a class of all former Fund I unit holders and Fund II unit holders who voted against the merger of Fund I into VRM I and Fund II into VRM II.  The trial began in December 2009 and concluded in January 2010.  On February 11, 2010, the Defendants were notified of a Tentative Statement of Decision, in our favor issued by the Superior Court for the State of California in San Diego following a trial.  In the Tentative Statement, the Court found that there was no roll-up and therefore no breach of contract.  The Court entered judgment for the Defendants on March 18, 2010.  Defendants and Plaintiffs have agreed to a post-judgment settlement by which Plaintiffs will not appeal the pending judgment in consideration of a waiver by the Defendants of any claim to recover costs from the Plaintiffs.  The Court has preliminary approved this settlement of post-judgment rights and will decide on July 9, 2010, whether to finally approve it.  No assurance can be given that such approval will be granted.
 
 VRM I, Vestin Mortgage, Inc. and Michael V. Shustek (“Defendants”) are defendants in a civil action filed by approximately 25 separate plaintiffs (“Plaintiffs”) in District Court for Clark County, Nevada.  The Plaintiffs allege, among other things, that Defendants: breached certain alleged contractual obligations owed to Plaintiffs; breached fiduciary duties supposedly owed to Plaintiffs; and misrepresented or omitted material facts regarding the conversion of Fund I into VRM I.  The action seeks monetary and punitive damages.  The trial is currently scheduled to begin on September 6, 2010.  The Defendants believe that the allegations are without merit and that they have adequate defenses.  The Defendants intend to undertake a vigorous defense.  The terms of VRM I’s management agreement and Fund I’s operating agreement contain indemnity provisions whereby Vestin Mortgage and Michael V. Shustek may be eligible for indemnification by VRM I with respect to the above actions.
 
 VRM II, Vestin Mortgage, Inc. and Michael V. Shustek (“Defendants”) are defendants in a civil action filed by 88 sets of plaintiffs representing approximately 138 individuals (“Plaintiffs”),in District Court for Clark County, Nevada.  The Plaintiffs allege, among other things, that Defendants: breached certain alleged contractual obligations owed to Plaintiffs; breached fiduciary duties supposedly owed to Plaintiffs; and misrepresented or omitted material facts regarding the conversion of Fund II into VRM II.  The action seeks monetary and punitive damages.  The trial is currently scheduled to begin on September 6, 2010.  The Defendants believe that the allegations are without merit and that they have adequate defenses.  The Defendants intend to undertake a vigorous defense.  The terms of VRM II’s management agreement and Fund II’s operating agreement contain indemnity provisions whereby Vestin Mortgage and Michael V. Shustek may be eligible for indemnification by VRM II with respect to the above actions.  VRM II, Vestin Mortgage, Inc. and Michael Shustek have entered into confidential settlement agreements with individual plaintiffs.  In addition, individual plaintiffs have voluntarily withdrawn their claims against VRM II, Vestin Mortgage, Inc. and Michael Shustek with prejudice.  Of the approximately 138 plaintiffs that initially filed this lawsuit, approximately 121 still remain plaintiffs to this action.
 
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 In addition to the matters described above, our manager is involved in a number of other legal proceedings concerning matters arising in connection with the conduct of its business activities.  Our manager believes it has meritorious defenses to each of these actions and intends to defend them vigorously.  Our manager believes that it is not a party to any other pending legal or arbitration proceedings that would have a material adverse effect on our manager’s financial condition or results of operations or cash flows, although it is possible that the outcome of any such proceedings could have a material impact on the manager’s net income in any particular period.
 
 NOTE M — LEGAL MATTERS INVOLVING THE COMPANY
 
 The Company is a defendant in a civil action filed by Birkeland Family, LLC III and Birkeland Family, LLC V (“Plaintiffs”) in District Court for Clark County, Nevada.  The Plaintiffs allege as causes of against the Company:  Breach of Contract and Breach of the Implied Covenant of Good Faith and Fair Dealing regarding the sale of the office building commonly described as 8379 W. Sunset Road, Las Vegas, Nevada.  The action seeks monetary, punitive and exemplary damages.  The trial is currently not scheduled.  The Company believes that it performed all obligations it undertook related to the transaction, that the allegations against it are without merit and that it has adequate defenses.  The Company intends to undertake a vigorous defense.
 
 From time to time, we may become involved in litigation in the ordinary course of business.  We do not believe that any pending legal proceedings are likely to have a material adverse effect on our financial condition or results of operations or cash flows.  It is not possible to predict the outcome of any such proceedings.
 
 NOTE N — SUBSEQUENT EVENTS
 
 The following subsequent events have been evaluated through the date of this filing with the SEC.
  On April 8, 2010, we made another liquidation distribution to all Fund Members, in the aggregate amount of approximately $0.9 million, in accordance with the Plan.  The amounts distributed to each Member of the Fund were calculated based upon the percentage ownership interest of such Member in the Fund.
  On April 22, 2010, we, VRM I and VRM II sold one single family residence on our REO property located in California to an unrelated third party for $187,000, of which our portion was $4,000.  There was approximately no gain or loss associated with this transaction.
 
 On April 23, 2010, we, VRM I and VRM II sold the remaining unit on one REO property located in Nevada to an unrelated third party for its approximate book value of $81,000, of which our portion was $3,000.  There was approximately no gain or loss associated with this transaction.
 
 On April 27, 2010, we, VRM I and VRM II, sold our commercial land REO property located in Texas to an unrelated third party for approximately $0.6 million, of which our portion was $91,000.  No gain or loss was associated with this transaction.
 
 
 
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  ITEM 2.
MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
 The following is a financial review and analysis of our financial condition and results of operations for the three months ended March 31, 2010 and 2009.  This discussion should be read in conjunction with our consolidated financial statements and accompanying notes and other detailed information regarding us appearing elsewhere in this report on Form 10-Q and our report on Form 10-K, Part II, Item 7 Management’s Discussion and Analysis of Financial Conditions and Results of Operations for the year ended December 31, 2009.
 
 FORWARD-LOOKING STATEMENTS
 
 Certain statements in this report, including, without limitation, matters discussed under this Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” should be read in conjunction with the financial statements, related notes, and other detailed information included elsewhere in this report on Form 10-Q.  We are including this cautionary statement to make applicable and take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  Statements that are not historical fact are forward-looking statements.  Certain of these forward-looking statements can be identified by the use of words such as “believes,” “anticipates,” “expects,” “intends,” “plans,” “projects,” “estimates,” “assumes,” “may,” “should,” “will,” or other similar expressions.  Such forward-looking statements involve known and unknown risks, uncertainties and other important factors, which could cause actual results, performance or achievements to differ materially from future results, performance or achievements.  These forward-looking statements are based on our current beliefs, intentions and expectations.  These statements are not guarantees or indicative of future performance.  Important assumptions and other important factors that could cause actual results to differ materially from those forward-looking statements include, but are not limited to, those factors, risks and uncertainties described in Part II Item 1A Risk Factors of this Quarterly Report on Form 10-Q and in our other securities filings with the Securities and Exchange Commission (“SEC”).  Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and involve inherent risks and uncertainties.  Our estimates of the value of collateral securing our loans may change, or the value of the underlying property could decline subsequent to the date of our evaluation.  As a result, such estimates are not guarantees of the future value of the collateral.  The forward-looking statements contained in this report are made only as of the date hereof.  We undertake no obligation to update or revise information contained herein to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
 
 RESULTS OF OPERATIONS
 
 OVERVIEW
 
 At a special meeting of our members held on July 2, 2009, a majority of the members voted to approve the dissolution and winding up of the Fund, in accordance with the Plan of Complete Liquidation and Dissolution  (the “Plan”) as set forth in Annex A of the Fund’s proxy statement filed with the Securities and Exchange Commission (the “SEC”) pursuant to Section 14(a) of the Securities and Exchange Act of 1934 on May 11, 2009.  The Plan became effective upon its approval by the members on July 2, 2009.  As a result, we have commenced an orderly liquidation and we no longer invest in new real estate loans.  We currently anticipate that the liquidation will be substantially completed by the second half of 2014.  During January and April 2010, we made liquidating distributions to all Fund Members in accordance with the Plan.  The amount distributed to each Member of the Fund was calculated based upon the percentage ownership interest of such Member in the Fund.  See Note H – Members’ Equity of the Notes to the Financial Statements included in Part I, Item I Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
 
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 Under the terms of the Plan adopted by a majority of our members, our members no longer have the right to have their units redeemed by us and we no longer honor any outstanding redemption requests effective as of July 2, 2009.
 Prior to the approval of the Plan, our primary business objective was to generate income while preserving principal by investing in loans secured by real estate.  The loan underwriting standards utilized by our manager and Vestin Originations were less strict than those used by many institutional real estate lenders.  In addition, one of our competitive advantages was our ability to approve loan applications more quickly than many institutional lenders.  As a result, in certain cases, we made real estate loans that were riskier than real estate loans made by many institutional lenders such as commercial banks.  However, in return, we sought a higher interest rate and our manager took steps to mitigate the lending risks such as imposing a lower loan-to-value ratio.  While we may have assumed more risk than many institutional real estate lenders, in return, we sought to generate higher yields from our real estate loans.
 
 Our historical operating results were affected primarily by: (i) the amount of capital we invested in real estate loans, (ii) the level of real estate lending activity in the markets we serviced, (iii) the interest rates we were able to charge on our loans and (v) the level of non-performing assets, foreclosures and related loan losses that we experienced.
 
 Our recent operating results have been adversely affected by increases in allowances for loan losses and increases in non-performing assets.  This negative trend accelerated sharply during the year ended December 31, 2008 and continues to affect our operations.  As of March 31, 2010, we had four loans considered non-performing (i.e., based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement or when the payment of interest is 90 days past due).  These loans are currently carried on our books at a value of approximately $2.0 million, net of allowance for loan losses of approximately $1.6 million.  These loans have been placed on non-accrual of interest status and are the subject of pending foreclosure proceedings.
 
 Non-performing assets, net of allowance for loan losses, totaled approximately $2.7 million or 44% of our total assets as of March 31, 2010, as compared to approximately $2.8 million or 39% of our total assets as of December 31, 2009.  At March 31, 2010, non-performing assets consisted of approximately $0.7 million of REO and approximately $2.0 million of non-performing loans, net of allowance for loan losses.  None of the properties held for sale generated net income during such time period.  See Note F – Real Estate Held for Sale and Note D – Investments In Real Estate Loans of the Notes to the Financial Statements included in Part I, Item I Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
 
 We believe that the significant increase in the level of our non-performing assets is a direct result of the deterioration of the economy and credit markets.  As the economy weakened and credit became more difficult to obtain, many of our borrowers who develop and sell commercial real estate projects have been unable to complete their projects, obtain takeout financing or have been otherwise adversely impacted.  Our exposure to the negative developments in the credit markets and general economy has likely been increased by our business strategy, which, until the approval of the Plan entailed more lenient underwriting standards and expedited loan approval procedures.  Moreover, real estate values in the principal markets in which we operate declined dramatically, which in many cases eroded the current value of the security underlying our loans.
 
 We expect that the weakness in the credit markets and the weakness in lending will continue to have an adverse impact upon our markets for the foreseeable future.  This may result in a further increase in defaults on our loans and we might be required to record additional reserves based on decreases in market values or we may be required to restructure loans.  This increase in loan defaults has materially affected our operating results.  For additional information regarding our non-performing loans see “Non-Performing Loans” in Note D – Investments In Real Estate Loans of the Notes to the Financial Statements included in Part I, Item I Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
 
 As of March 31, 2010, our loan-to-value ratio was 83.38%, net of allowances for loan losses, on a weighted average basis, generally using updated appraisals.  Additional significant increases in loan defaults accompanied by additional declines in real estate values, as evidenced by updated appraisals generally prepared on an “as-is-basis,” will continue to have a material adverse effect on our financial condition and operating results.  The current loan-to-value ratio is primarily a result of declining real estate values, which have eroded the market value of our collateral.
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 As of March 31, 2010, we have provided a specific reserve allowance for three non-performing loans and five performing loans based on updated appraisals of the underlying collateral and our evaluation of the borrower for these loans, obtained by our manager.  For further information regarding allowance for loan losses, refer to Note D – Investments in Real Estate Loans of the Notes to the Financial Statements included in Part I, Item I Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
 
 As of March 31, 2010, our loans were in the following states: Arizona, California, Nevada, Oregon and Texas.
 
 SUMMARY OF FINANCIAL RESULTS
 
 For the Three Months

Ended March 31,2010


2009Total revenues

$
59,000


$
43,000Total operating expenses


57,000



255,000Non-operating income


--



7,000Loss from real estate held for sale


(22,000
)


(503,000
)NET LOSS

$
(20,000
)

$
(708,000
)Net loss allocated to members per weighted average membership units

$
(0.01
)

$
(0.32
)Weighted average membership units


2,024,424



2,246,332Annualized rate of return to members (a)


-0.40
%


-12.67
%Liquidating distributions (b)

$
1,002,000


$
--Cash distributions per weighted average membership units

$
--


$
--Weighted average term of outstanding loans

24 months


26 months
 
 (a)
The annualized rate of return to members is calculated based upon the net GAAP income allocated to members per weighted average unit as of March 31, 2010 and 2009, divided by the number of days during the period (91) and multiplied by three hundred and sixty five (365) days, then divided by $10.09 (the cost per unit) for the three months ended March 31, 2010 and 2009, respectively.
 
 (b)
In accordance with the Plan.
 
 Comparison of Operating Results for the three months ended March 31, 2010 to the three months ended March 31, 2009.
 
 Total Revenues:  For the three months ended March 31, 2010, total revenues were $59,000 compared to $43,000 during the three months ended March 31, 2009, an increase of $16,000 or 37%.  Revenues were primarily affected by the following factors:
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 ·
Interest income from investments in real estate loans decreased $7,000 or 17%, during the three months ended March 31, 2010, to $35,000 compared to $42,000 during the same period in 2009.  This decrease is primarily due to the decrease in the balance of our investment in real estate loans of approximately $4.3 million since March 31, 2009.  As of March 31, 2010, our investment in real estate loans was approximately $5.5 million compared to our investment in real estate loans of approximately $9.9 million as of March 31, 2009.  This decline is largely attributable to our disposition two non-performing loans totaling approximately $0.5 million, net of allowance for loan losses of approximately $1.6 million.  In addition, we foreclosed upon three non-performing loans and classified them as real estate held for sale, totaling approximately $1.2 million, net of allowance for loan losses of approximately $1.0 million.  We anticipate this downward trend in interest income to continue as we liquidate the Company pursuant to the Plan, as we will no longer invest in new loans.  Interest income has also been adversely affected by the level of non-performing assets in our portfolio.  We expect all of these factors will continue to have an adverse effect upon our operating results during 2010.  For additional information see Note D – Investments in Real Estate Loans of the Notes to the Financial Statements included in Part I, Item I Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
 
 ·
During the three months ended March 31, 2010, we recognized approximately $24,000 in other income due to a receipt of a loan payment on a loan that was the subject of a 100% reserve.  No similar transaction occurred during the three months ended March 31, 2009.
 
 Total Operating Expenses:  Total Operating Expenses:  For the three months ended March 31, 2010, total operating expenses were $57,000 compared to approximately $255,000 during the three months ended March 31, 2009, a decrease of approximately $198,000 or 78%.  Expenses were primarily affected by the following factors:
 
 ·
During the three months ended March 31, 2009, we recognized a provision for loan loss totaling approximately $154,000.  No provision for loan losses were recognized during the three months ended March 31, 2010.  It is premature at this time for us to determine whether or not the reduction in provision for loan loss during the three months ended March 31, 2010, as compared to the same period in 2009, is indicative of a trend.  See “Specific Loan Allowance” in Note D – Investments in Real Estate Loans of the Notes to the Financial Statements included in Part I, Item I Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
 
 ·
Professional fees decreased approximately $26,000 or 33% during the three months ended March 31, 2010 to $53,000 compared to $79,000 during the same period in 2009, primarily due to a decrease in accounting fees and legal costs incurred on non-performing loans.
 
 ·
Other expenses decreased approximately $18,000 or 82% during the three months ended March 31, 2010 to $4,000 compared to $22,000 during the same period in 2009, primarily due to the decrease in expenses related to our investment in real estate loans.  As referred to above, the balance of our investment in real estate loans decreased approximately $4.3 million since March 31, 2009
 
 Total Non-Operating Income:For the three months ended March 31, 2009, we recognized interest income from banking institutions of $7,000.  We had no similar income during the same period in 2010.
 
 Total Loss from Real Estate Held for Sale:  For the three months ended March 31, 2010, total losses from REO was $22,000 compared to $503,000 during the three months ended March 31, 2009, a decrease of approximately $481,000 or 96%.  The decrease is primarily due to the fact that there were no write-downs of REO during the three months ended March 31, 2010 compared to write-downs on three REO properties of approximately $467,000, during the three months ended March 31, 2009.  In addition, we received approximately $107,000 from the sale of an REO property, which was sold at book value during the three months ended March 31, 2010.  For additional information see Note F–Real Estate Held For Sale of the Notes to the Financial Statements included in Part I, Item I Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
 
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 Liquidating Distributions to Members in accordance to the Plan:  On January 26, 2010, we made an initial liquidating distribution to all Fund Members, in the aggregate amount of approximately $1.0 million, in accordance with the Plan.  In addition, on April 8, 2010, we made another liquidation distribution to all Fund Members, in the aggregate amount of approximately $0.9 million, in accordance with the Plan.  The amounts distributed to each Member of the Fund were calculated based upon the percentage ownership interest of such Member in the Fund.  See Note H – Members’ Equity of the Notes to the Financial Statements included in Part I, Item I Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
 
 Stated Unit Value Adjustment:  In accordance with Section 7.8 of our Operating Agreement, our manager reviewed the value of our assets during the three months ended March 31, 2010.  Based on this review the value of members’ capital accounts was adjusted from $3.56 per unit to $3.03 per unit, as of April 1, 2010.  The periodic review of the estimated net unit value includes an analysis of unrealized gains that our manager reasonably believes exist at the time of the review, but that cannot be added to net asset value under GAAP.
 
 Redemptions:  At a special meeting of our members held on July 2, 2009, a majority of the members voted to approve the dissolution and winding up of the Fund, in accordance with the Plan as set forth in Annex A of the Fund’s proxy statement filed with the SEC pursuant to Section 14(a) of the Securities and Exchange Act of 1934 on May 11, 2009.  The Plan became effective upon its approval by the members on July 2, 2009.  Our members no longer have the right to have their units redeemed by us and we no longer honor any outstanding redemption requests effective as of July 2, 2009.  As of March 31, 2010, the total redemptions made from inception were approximately $10.4 million.  For additional information regarding members redemptions, see Note H – Members’ Equity of the Notes to the Financial Statements included in Part I, Item I Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
 
 CAPITAL AND LIQUIDITY
 
 Liquidity is a measure of a company’s ability to meet potential cash requirements, including ongoing commitments to fund lending activities and general operating purposes.  As a result of the decision to liquidate the Company, we no longer invest in new loans.  Hence, subject to retaining sufficient funds to meet our obligations and conduct wind down operations, all available funds will be paid out to our members.  We do not anticipate the need for hiring any employees, acquiring fixed assets such as office equipment or furniture, or incurring material office expenses during the next twelve months because our manager will manage our affairs.
 
 During the three months ended March 31, 2010, net cash flows used in operating activities totaled $39,000.  Operating cash flows were adversely impacted by the decrease in our investments in real estate loan activity.  Cash flows related to investing activities consisted of cash provided by sales of REO of $107,000.  Cash flows used for financing activities consisted of cash used for a members’ distribution of approximately $1.0 million.
 
 At March 31, 2010, we had approximately $0.9 million in unrestricted cash, $0.2 million in marketable securities – related party and approximately $6.2 million in total assets.  We believe we have sufficient working capital to meet our operating needs during the next 12 months.
 
 In addition to the foregoing assets, as of March 31, 2010, we had $0.7 million in restricted cash, which relates to a cash deposit held as collateral by a banking institution to support rent payments on the property we sold during November 2006.  The requirement for the deposit expires at the end of the lease on August 31, 2014.  Vestin Group, the parent of our manager, was previously our tenant in the building we owned in Las Vegas, Nevada.  In connection with the sale of such building, we arranged for a $985,000 letter of credit in favor of the purchaser of the building (the “Purchaser”), which may be drawn upon by the Purchaser should Vestin Group default on its lease obligations and is supported by our restricted cash.  Vestin Group is currently engaged in litigation with the Purchaser and has not paid certain amounts allegedly due under its lease.  Vestin Group has provided us with a written agreement to fully indemnify and hold us harmless in the event that the Purchaser draws upon the letter of credit and we incur an obligation to reimburse the bank, which issued the letter of credit.  During June 2009, the Purchaser drew $285,000 from the letter of credit; our manager is required to reimburse us for the full $285,000, before August 2014.
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 For a discussion of litigation between Vestin Group and the building owner, see Note M - Legal Matters Involving The Company of the Notes to the Financial Statements included in Part I, Item I Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
 
 On January 26, 2010, we made an initial liquidating distribution to all Fund Members, in the aggregate amount of approximately $1.0 million, in accordance with the Plan.  In addition, on April 8, 2010, we made another liquidation distribution to all Fund Members, in the aggregate amount of approximately $0.9 million, in accordance with the Plan.  The amounts distributed to each Member of the Fund were calculated based upon the percentage ownership interest of such Member in the Fund.  See Note H – Members’ Equity of the Notes to the Financial Statements included in Part I, Item I Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
 
 Investments in Real Estate Loans Secured by Real Estate Portfolio
 
 As of March 31, 2010 and December 31, 2009, we had investments in 10 real estate loans with a balance of approximately $5.5 million.  In accordance with the Plan, we will no longer invest in new loans.
 
 As of March 31, 2010, we had four loans considered non-performing (i.e., based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement or when the payment of interest is 90 days past due).  These loans are currently carried on our books at a value of approximately $2.0 million, net of allowance for loan losses of approximately $1.6 million, which does not include the allowances of approximately $0.6 million relating to the decrease in the property value for performing loans as of March 31, 2010.  These loans have been placed on non-accrual of interest status and may be the subject of pending foreclosure proceedings.  Our manager has evaluated these loans and, based on current estimates, believes that the value of the underlying collateral is sufficient to protect us from loss of principal.  However, such estimates may change, or the value of the underlying collateral may deteriorate, in which case further losses may be incurred.
 
 Our manager periodically reviews and makes a determination as to whether the allowance for loan losses is adequate to cover any potential losses.  Additions to the allowance for loan losses are made by charges to the provision for loan loss.  Recoveries of previously charged off amounts are credited to the allowance for loan losses or included as income when the asset is disposed.  As of March 31, 2010, we have provided a specific reserve related to three non-performing loans and five performing loans, based on updated appraisals and evaluation of the borrower obtained by our manager, totaling approximately $2.2 million.  Our manager evaluated these loans and concluded that the remaining underlying collateral was sufficient to protect us against further losses of principal or interest.  Our manager will continue to evaluate these loans in order to determine if any other allowance for loan losses should be recorded.  As of May 13, 2010, we believe continuing declines in real estate values will adversely affect the value of the collateral securing our real estate loans as well as the market value of our REO.
 
 
 Asset Quality and Loan Reserves
 
 Losses may occur from investing in real estate loans.  The amounts of losses will vary as the loan portfolio is affected by changing economic conditions and the financial condition of borrowers.
 
 The conclusion that a real estate loan is uncollectible or that collectability is doubtful is a matter of judgment.  On a quarterly basis, our manager evaluates our real estate loan portfolio for impairment.  The fact that a loan is temporarily past due does not necessarily mean that the loan is non-performing.  Rather, all relevant circumstances are considered by our manager to determine impairment and the need for specific reserves.  Such evaluation, which includes a review of all loans on which full collectability may not be reasonably assured, considers among other matters:
 
 ·
Prevailing economic conditions;
 
 ·
Historical experience;
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 ·
The nature and volume of the loan portfolio;
 
 ·
The borrowers’ financial condition and adverse situations that may affect the borrowers’ ability to pay;
 
 ·
Evaluation of industry trends; and
 
 ·
Estimated net realizable value of any underlying collateral in relation to the real estate loan amount.
 
 Non-performing assets included loans in non-accrual status, net of allowance for loan losses, and REO totaling approximately $2.0 million and $0.7 million, respectively, as of March 31, 2010, compared to approximately $2.0 million and $0.8 million, respectively, as of December 31, 2009.  It is possible that no earnings will be recognized from these assets until they are disposed of, or that no earnings will be recognized at all, and the time it will take to dispose of these assets cannot be predicted.  Our manager believes that these non-performing assets have increased in significant part as a result of conditions in the real estate and credit markets.  We believe that the continued weakness in real estate markets may result in additional losses on our REO.
 
 As a commercial real estate lender who was willing to invest in riskier loans, rates of delinquencies, foreclosures and losses on our loans could be higher than those generally experienced in the commercial mortgage lending industry during this period of economic slowdown and recession.  Problems in the sub-prime residential mortgage market have adversely affected the general economy and the availability of funds for commercial real estate developers.  We believe this lack of available funds has led to an increase in defaults on our loans.  Furthermore, problems experienced in U.S. credit markets since the summer of 2007 have reduced the availability of credit for many prospective borrowers.  These problems have made it more difficult for our borrowers to obtain the anticipated re-financing necessary in many cases to pay back our loans.  Thus, we have had to work with some of our borrowers to either modify, restructure and/or extend their loans in order to keep or restore the loans to performing status.
 
 Based upon this evaluation, a determination is made as to whether the allowance for loan losses is adequate to cover any potential losses.  Additions to the allowance for loan losses are made by charges to the provision for loan loss.  Recoveries of previously charged off amounts are credited to the allowance for loan losses.  For additional information regarding the roll-forward of the allowance for loan losses for the three months ended March 31, 2010, refer to Note D – Investments In Real Estate Loans of the Notes to the Financial Statements included in Part I, Item I Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
 
 Real Estate Held for Sale
 
 At March 31, 2010, we held eight properties with a total carrying value of approximately $0.7 million, which were acquired through foreclosure and recorded as investments in REO.  Our investments in REO are accounted for at the lower of cost or fair value less costs to sell with fair value based on appraisals and knowledge of local market conditions.  It is not our intent to invest in or to own real estate as a long-term investment.  We seek to sell properties acquired through foreclosure as quickly as circumstances permit taking into account current economic conditions.  For additional information on our investments in REO, refer to Note F – Real Estate Held for Sale of the Notes to the Financial Statements included in Part I, Item I Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
 
 OFF-BALANCE SHEET ARRANGEMENTS
 
 As of March 31, 2010, we do not have any interests in off-balance sheet special purpose entities nor do we have any interests in non-exchange traded commodity contracts.
 
 CONTRACTUAL OBLIGATIONS
 
 As of March 31, 2010, we had no contractual obligations.
 
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 RELATED PARTY TRANSACTIONS
 
 Prior to July 2, 2009, we may have acquired or sold investments in real estate loans from/to our manager or other related parties.  Pursuant to the terms of our Operating Agreement, such acquisitions and sales were made without any mark up or mark down.  No gain or loss was recorded on these transactions, as it was not our intent to make a profit on the purchase or sale of such investments.  The purpose was generally to diversify our portfolio by syndicating loans, thereby providing us with additional capital to make additional loans.  From time to time, we may continue to sell performing investments in real estate loans to our manager or other related parties, without any mark up or mark down.  No gain or loss will be recorded on these transactions.  For further information regarding related party transactions, refer to Note G – Related Party Transactions of the Notes to the Financial Statements included in Part I, Item I Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
 
 CRITICAL ACCOUNTING ESTIMATES
 
 Revenue Recognition
 
 Interest income on loans is accrued by the effective interest method.  We do not accrue interest income from loans once they are determined to be non-performing.  A loan is considered non-performing when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement or when the payment of interest is 90 days past due.
 
 The following table presents a sensitivity analysis, averaging the balance of our loan portfolio at the end of the last six quarters, to show the impact on our financial condition at March 31, 2010, from fluctuations in weighted average interest rate charged on loans as a percentage of the loan portfolio:
 
 Changed Assumption

Increase (Decrease) in

Interest IncomeWeighted average interest rate assumption increased by 1.0% or 100 basis points

$
83,000Weighted average interest rate assumption increased by 5.0% or 500 basis points

$
415,000Weighted average interest rate assumption increased by 10.0% or 1,000 basis points

$
830,000Weighted average interest rate assumption decreased by 1.0% or 100 basis points

$
(83,000
)Weighted average interest rate assumption decreased by 5.0% or 500 basis points

$
(415,000
)Weighted average interest rate assumption decreased by 10.0% or 1,000 basis points

$
(830,000
)
 
 The purpose of this analysis is to provide an indication of the impact that the weighted average interest rate fluctuations would have on our financial results.  It is not intended to imply our expectation of future revenues or to estimate earnings.  We believe that the assumptions used above are appropriate to illustrate the possible material impact on the financial statements.
 
 Allowance for Loan Losses
 
 We maintain an allowance for loan losses on our investments in real estate loans for estimated credit impairment in our investment in real estate loans portfolio.  Our manager’s estimate of losses is based on a number of factors including the types and dollar amounts of loans in the portfolio, adverse situations that may affect the borrower’s ability to repay, prevailing economic conditions and the underlying collateral securing the loan.  Additions to the allowance are provided through a charge to earnings and are based on an assessment of certain factors, which may indicate estimated losses on the loans.  Actual losses on loans are recorded as a charge-off or a reduction to the allowance for loan losses.  Subsequent recoveries of amounts previously charged off are added back to the allowance or included as income.
 
 The following table presents a sensitivity analysis to show the impact on our financial condition at March 31, 2010, from increases and decreases to our allowance for loan losses as a percentage of the loan portfolio:
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 Changed Assumption

Increase (Decrease) in Allowance for Loan LossesAllowance for loan losses assumption increased by 1.0% of loan portfolio

$
55,000Allowance for loan losses assumption increased by 5.0% of loan portfolio

$
277,000Allowance for loan losses assumption increased by 10.0% of loan portfolio

$
555,000Allowance for loan losses assumption decreased by 1.0% of loan portfolio

$
(55,000
)Allowance for loan losses assumption decreased by 5.0% of loan portfolio

$
(277,000
)Allowance for loan losses assumption decreased by 10.0% of loan portfolio

$
(555,000
)
 
 Estimating allowances for loan losses requires significant judgment about the underlying collateral, including liquidation value, condition of the collateral, competency and cooperation of the related borrower and specific legal issues that affect loan collections or taking possession of the property.  As a commercial real estate lender, which had invested in loans to borrowers who may not meet the credit standards of other financial institutional lenders, the default rate on our loans could be higher than those generally experienced in the mortgage lending industry.  We, our manager, and Vestin Originations generally approved loans more quickly than other real estate lenders and, due to our expedited underwriting process, there is a risk that the credit inquiries we performed did not reveal all material facts pertaining to a borrower and the security.
 
 We may discover additional facts and circumstances as we continue our efforts in the collection and foreclosure processes.  This additional information often causes management to reassess its estimates.  In recent years, we have revised estimates of our allowance for loan losses.  Circumstances that may cause significant changes in our estimated allowance include, but are not limited to:
 
 ·
Declines in real estate market conditions that can cause a decrease in expected market value;
 
 ·
Discovery of undisclosed liens for community improvement bonds, easements and delinquent property taxes;
 
 ·
Lack of progress on real estate developments after we advance funds.  We customarily utilize disbursement agents to monitor the progress of real estate developments and approve loan advances.  After further inspection of the related property, progress on construction occasionally does not substantiate an increase in value to support the related loan advances;
 
 ·
Unanticipated legal or business issues that may arise subsequent to loan origination or upon the sale of foreclosed upon property; and
 
 ·
Appraisals, which are only opinions of value at the time of the appraisal, may not accurately reflect the value of the property.
 
 RECENT ACCOUNTING PRONOUNCEMENTS
 
 In January 2010, the FASB issued ASU No. 2010-06 regarding fair value measurements and disclosures and improvement in the disclosure about fair value measurements.  This ASU requires additional disclosures regarding significant transfers in and out of Levels 1 and 2 of fair value measurements, including a description of the reasons for the transfers.  Further, this ASU requires additional disclosures for the activity in Level 3 fair value measurements, requiring presentation of information about purchases, sales, issuances, and settlements in the reconciliation for fair value measurements.  This ASU is effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years.  We are currently evaluating the impact of this ASU; however, we do not expect the adoption of this ASU to have a material impact on our consolidated financial statements.
 
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 In February 2010, the FASB issued ASU No. 2010-09 regarding subsequent events and amendments to certain recognition and disclosure requirements.  Under this ASU, a public company that is a SEC filer, as defined, is not required to disclose the date through which subsequent events have been evaluated.  This ASU is effective upon the issuance of this ASU.  The adoption of this ASU did not have a material impact on our consolidated financial statements.
 
 In April 2010, the FASB issued ASU No. 2010-18 regarding improving comparability by eliminating diversity in practice about the treatment of modifications of loans accounted for within pools under Subtopic 310-30 – Receivable – Loans and Debt Securities Acquired with Deteriorated Credit Quality (“Subtopic 310-30”).  Furthermore, the amendments clarify guidance about maintaining the integrity of a pool as the unit of accounting for acquired loans with credit deterioration.  Loans accounted for individually under Subtopic 310-30 continue to be subject to the troubled debt restructuring accounting provisions within Subtopic 310-40, Receivables—Troubled Debt Restructurings by Creditors.  The amendments in this Update are effective for modifications of loans accounted for within pools under Subtopic 310-30 occurring in the first interim or annual period ending on or after July 15, 2010.  The amendments are to be applied prospectively.  Early adoption is permitted.  We are currently evaluating the impact of this ASU; however, we do not expect the adoption of this ASU to have a material impact on our consolidated financial statements.
 
 ITEM 3.
QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK
 
 We are exposed to market risk, primarily from changes in interest rates.  We do not deal in any foreign currencies and do not own any options, futures or other derivative instruments.  As of March 31, 2010, we do not have a significant amount of debt.
 
 Most of our assets consist of investments in real estate loans.  At March 31, 2010, our aggregate investment in real estate loans was approximately $3.4 million, net of allowance of approximately $2.2 million, with a weighted average effective interest rate of 9.81%.  The weighted average interest rate of 9.81% is based on the contractual terms of the loans for the entire portfolio including non-performing loans.  The weighted average interest rate on performing loans only, as of March 31, 2010, was 7.87%.  Most of the real estate loans had an initial term of 12 months.  The weighted average term of outstanding loans, including extensions, at March 31, 2010, was 24 months.  All of the outstanding real estate loans at March 31, 2010, were fixed rate loans.  All of the real estate loans are held for investment purposes; none are held for sale.  We intend to hold such real estate loans to maturity.  As of March 31, 2010, none of our loans had a prepayment penalty, although six of our loans, totaling approximately $2.8 million, had an exit fee.  Out of the six loans with an exit fee, two loans, totaling approximately $1.7 million, were considered non-performing as of March 31, 2010.
 
 Market fluctuations in interest rates generally do not affect the carrying value of our investment in real estate loans.  However, significant and sustained changes in interest rates could affect our operating results.  If interest rates decline significantly, some of the borrowers could prepay their loans with the proceeds of a refinancing at lower interest rates.  This would reduce our earnings and funds available for dividend distribution to stockholders.  On the other hand, a significant increase in interest rates could result in a slowdown in real estate development activity that would reduce the demand for commercial real estate loans.  We are not in a position to quantify the potential impact on our operating results from a material change in interest rates.
 
 The following table contains information about the investment of real estate loans in our portfolio as of March 31, 2010.  The presentation aggregates the investment in real estate loans by their maturity dates for maturities occurring in each of the years 2010 through 2014 and thereafter and separately aggregates the information for all maturities arising after 2013.  The carrying values of these assets approximate their fair value as of March 31, 2010.  See Note J – Fair Value of the Notes to the Financial Statements included in Part I, Item I Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
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 Interest Earning Assets

Aggregated by Maturity at March 31, 2010Interest Earning Assets

2010


2011


2012


2013


2014


Thereafter


Total(a)Investments In Real Estate Loans

$
4,040,000


$
1,507,000


$
--


$
--


$
--


$
--


$
5,547,000Weighted Average Interest Rates


10.92%



6.83%



--%



--%



--%



--%



9.81%
 
 (a)
Amounts include the balance of non-performing loans and loans that have been extended subsequent to March 31, 2010.
 
 At March 31, 2010, we also had approximately $1.1 million invested in cash and marketable securities – related party (VRM II).  We believe that these financial assets do not give rise to significant interest rate risk due to their short-term nature.
 
 ITEM 4.
CONTROLS AND PROCEDURES
 
 Evaluation of Disclosure Controls and Procedures
 
 We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our manager, including our manager’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required financial disclosure.  In connection with the preparation of this Report on Form 10-Q, our manager carried out an evaluation, under the supervision and with the participation of our manager’s CEO and CFO, as of March 31, 2010, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) under the Exchange Act.  Based upon our manager’s evaluation, our manager’s CEO and CFO concluded that, as of March 31, 2010, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our manager’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
 
 Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues within our company have been or will be detected.  Even effective internal control over financial reporting can only provide reasonable assurance with respect to financial statement preparation.  Furthermore, because of changes in conditions, the effectiveness of internal control over financial reporting may vary over time.  Our manager, including our manager’s CEO and CFO, does not expect that our controls and procedures will prevent all errors.
 
 The certifications of the our manager’s CEO and CFO required under Section 302 of the Sarbanes-Oxley Act have been filed as Exhibits 31.1 and 31.2 to this report.
 
 Changes in Internal Control Over Financial Reporting
 
 As required by Rule 13a-15(d) under the Exchange Act, our managemer, including their CEO and their CFO, has evaluated our internal control over financial reporting to determine whether any changes occurred during the first fiscal quarter of 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.  Based on that evaluation, there has been no such change during the first fiscal quarter of 2010.
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 ITEM 4T.
CONTROLS AND PROCEDURES
 Not applicable.
 
 PART II – OTHER INFORMATION
 
 ITEM 1.
LEGAL PROCEEDINGS
 
 Please refer to Note L – Legal Matters Involving the Manager and Note M – Legal Matters Involving the Company in the notes to the financial statement under Part I, Item I FinancialStatements of this Quarterly Report on Form 10-Q, for information regarding our legal proceedings, which are incorporated herein by reference.
  ITEM 1A.
RISK FACTORS
 In considering our future performance and any forward-looking statements made in this report, the material risks described below should be considered carefully.  These factors should be considered in conjunction with the other information included elsewhere in this report.
 
 RISK FACTORS RELATING TO THE PLAN AND DISSOLUTION
 
 Our status as a dissolving company may adversely affect our dealings with potential buyers of foreclosed properties, existing borrowers and other third parties.
 
 We may have a more difficult time dealing with potential buyers of foreclosed properties, existing borrowers and other third parties who are aware of our status as a dissolving company.  In particular, we may not be able to locate a buyer willing to pay full fair market value on our REO if such buyer is aware of our status as a dissolving company and our interest in liquidating such assets as promptly as is practicable.  Further, although our borrowers are bound by the existing terms of their real estate loans, some borrowers may seek to leverage our status as a dissolving company in negotiating settlements and compromises relating to their existing debt.  Accordingly, the amount we distribute to our members may be less than anticipated if our dealings with potential buyers, our borrowers and other third parties are adversely affected as a result of our status as a dissolving company.
 
 We cannot determine with certainty the amount of distributions that we will make to our members.
 
 The amount of distributions that we will make to our members will depend on a variety of factors, including, but not limited to, the net proceeds we will receive from the sale of our remaining assets and from funds received on our Mortgage Assets in accordance with their terms, the resolution of any litigation and other contingent liabilities, the amount of expenses being incurred in connection with the Dissolution, the amount required to settle known and unknown debts and liabilities, and other factors.  Due to uncertainties regarding payoff of our outstanding loans and the amounts we will receive from sales of our REO, we cannot predict the amount of distributions that we will make to our members upon our Dissolution.
 
 Defaults on our real estate loans and any failure to recover the full value of our investment in defaulted loans through foreclosure will reduce the amount of distributions that we will make to our members.
 
 In accordance with the Plan, our manager will liquidate the Company’s assets as promptly as is consistent with recovering the fair market value thereof.  Therefore, the amount of distributions will depend, in significant part, upon the ability of borrowers to pay off our existing real estate loans in a timely manner and the amounts we receive from the sale or other disposition of real estate we acquired through foreclosures.
 
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 As of March 31, 2010, non-performing assets totaled approximately $2.7 million, representing approximately 53% of our total members’ equity and 44% of our total assets.  Non-performing assets included approximately $2.0 million in non-performing loans, net of allowance for loan losses of approximately $1.6 million, which does not include allowances of approximately $0.6 million relating to the decrease in the property value for performing loans, and approximately $0.7 million of REO.  We believe the high level of non-performing assets is largely attributable to difficulties in the real estate and credit markets.  At this time, we are not able to predict how long such difficult economic conditions will continue.
 
 As of March 31, 2010, all of our loans provided for payments of interest only with a “balloon” payment of principal payable in full at the end of the term.  The success of a borrower’s ability to repay its real estate loan obligation in a large lump-sum payment may be dependent upon the borrower’s ability to refinance the obligation or otherwise raise a substantial amount of cash.  We are of the opinion that problems in the sub-prime residential mortgage market have adversely affected the general economy and the availability of funds for commercial real estate developers.  We believe this lack of available funds has led to an increase in defaults on our loans.  Furthermore, problems experienced in U.S. credit markets since the summer of 2007 have reduced the availability of credit for many prospective borrowers.  These problems have made it more difficult for our borrowers to obtain the anticipated re-financing necessary to pay back our loans.
 
 Thus, an extended period of illiquidity in the credit markets could result in a material increase in the number of our loans that are not paid back on time.  Any failure of our borrowers to pay interest and principal on our outstanding loans when due can be expected to reduce the amount of distributions to our members.
 
 In addition, the amount of distributions will be reduced if we are unable to recover the full value of our investment in loans that have defaulted through foreclosure of the underlying real estate collateral.  We depend upon our real estate security to protect us on the loans that we make.  We depend upon the skill of independent appraisers to value the security underlying our loans.  However, notwithstanding the experience of the appraisers, they may make mistakes, or the value of the real estate may decrease due to subsequent events.  Our appraisals are generally dated within 12 months of the date of loan origination and may have been commissioned by the borrower.  Therefore, the appraisals may not reflect a decrease in the value of the real estate due to events subsequent to the date of the appraisals.  In addition, most of the appraisals for construction and acquisition and development loans were prepared on an as-if developed basis, which approximates the post-construction value of the collateralized property assuming such property is developed.  As-if developed values on raw land loans or acquisition and development loans often dramatically exceed the immediate sales value and may include anticipated zoning changes and successful development by the purchaser upon which development is dependent on availability of financing.  As most of the appraisals were prepared on an as-if developed basis, if the loan goes into default prior to completion of the project, the market value of the property may be substantially less than the appraised value.  As a result, there may be less security than anticipated at the time the loan was originally made.  If there is less security and a default occurs, we may not recover the full amount of our loan, thus reducing the amount of proceeds available to distribute.
 
 Difficulties in the real estate markets may reduce the amounts we receive from the sale of properties that we own.
 
 Real estate markets in the states where we operate, including California, Nevada and Oregon, have been adversely affected by declining values, increased rates of default on loans secured by real estate and constraints in the credit markets.  These conditions may continue for several years.  The amount of proceeds we are able to generate from the sale of real estate that we own may be adversely affected by such conditions.  While we will not be required to complete the sales of such properties in any specific time frame, a prolonged recession in real estate will likely have the effect of reducing the proceeds we generate from such sales and the amounts we have available to pay as liquidating distributions to Members.
 
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 There can be no assurances concerning the prices at which our real estate held for sale will be sold.
 
 Real estate market values are constantly changing and fluctuate with changes in interest rates, the availability of suitable buyers, the perceived quality and dependability of income flows from tenancies and other factors that are generally beyond our control.  During the past two years, real estate values in our principal markets have declined significantly.  As a result, the actual prices at which we are able to sell our REO may be less than the amounts we anticipate, which would result in a reduction in the amount we expect to distribute to our members.  The amount available for distributions may also be reduced if the expenses we incur in selling our REO are greater than anticipated.
 
 We may not meet the anticipated timing for the Dissolution and Liquidation.
 
 On January 26, 2010, we made an initial liquidating distribution to all Fund Members, in the aggregate amount of approximately $1.0 million, in accordance with the Plan.  In addition, on April 8, 2010, we made another liquidation distribution to all Fund Members, in the aggregate amount of approximately $0.9 million, in accordance with the Plan.  The amounts distributed to each Member of the Fund were calculated based upon the percentage ownership interest of such Member in the Fund.  See Note H – Members’ Equity of the Notes to the Financial Statements included in Part I, Item I Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
 
 We are working toward the sale of our remaining assets and the winding up of our remaining business.  We expect that the Company will make distributions as cash becomes available subject to us covering our on-going expenses and existing and future obligations.  Our manager is establishing a reserve and we currently have approximately $0.4 million in unrestricted cash as of May 13, 2010.  No assurance can be given as to the amounts to be distributed or the timing of distributions.  The Company will make a final liquidating distribution after we have completed the winding up of our business operations and made appropriate provision for any remaining obligations.  There is no time period required by the Plan, our Operating Agreement or law within which the Company must wind up its affairs and complete its liquidation.  During the process of winding up, the Manager will have the discretion to extend the maturity date of any loan in accordance with the terms of the loan.  We anticipate that the liquidation of our real estate loans may take two or more years and the sale of foreclosed properties may take five or more years, with the Dissolution process being substantially completed by the second half of 2014.  There are a number of factors that could delay our anticipated timetable, including the following:
 
 ·
Delays in the sale of real estate held by us through foreclosures, which may take many years to complete due to the time required to resolve pending litigation and bankruptcy matters involving foreclosed properties and to identify suitable buyers and consummate the sale of such properties;
 
 ·
Delays in distributions resulting from defaults in the payment of interest or principal when due on our real estate loans;
 
 ·
Lawsuits or other claims asserted by or against us;
 
 ·
Unanticipated legal, regulatory or administrative requirements; and
 
 ·
Delays in settling our remaining obligations.
 
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 We own certain of our mortgage assets jointly with other parties whose consent to sale of the properties we may not be able to obtain.
 
 Some of our mortgage assets are held jointly with other parties, many of whom are affiliates whose loan portfolios are managed by our manager.  Because of the nature of joint ownership, sale of these assets will require the Company and its co-owners to agree on the terms of each property sale before such sale can be effected.  The principal terms of sale on which we must reach agreement with the joint owners include sale price, payment terms, closing contingencies for the benefit of the buyer and post-closing obligations of the sellers to reimburse the buyer for losses incurred as a result of a breach of a representation or warranty made by the sellers with respect to these jointly held assets.  There can be no assurance that the Company and its co-owners will agree on satisfactory sales terms for any of such assets.  If the parties are unable to agree, the matter could ultimately go before a court of law, and a judicial partition could be sought.  These legal proceedings would entail additional expense and delay in completing the sale of the jointly owned mortgage assets.
 
 Members may be liable to our creditors for the amount received from us if we are unable to meet our obligations to third parties.
 
 Under Nevada law, if we are unable to meet our obligations to third parties, then each member who received liquidating distributions could be held liable for payment to our creditors for their pro rata share of the amounts due such creditors.  The liability of any member would be limited to the amount of such liquidating distributions previously received by such member from us.  Accordingly, in such event, a member could be required to return all such distributions received from the Company.  If a member has paid taxes on liquidating distributions previously received, a repayment of all or a portion of such amount could result in a member incurring a net tax cost if the member’s repayment of an amount previously distributed does not cause a commensurate reduction in taxes payable.  Any contingency reserve established by us may not be adequate to cover any expenses and liabilities.  As of March 31, 2010, our total liabilities were approximately $1.1 million.  We intend to establish a reserve to pay all outstanding obligations before the Company is dissolved.  The amount of the reserve may be increased or decreased by our manager based upon its evaluation of the amounts necessary to meet our obligations.
 
 
 We will continue to incur claims, liabilities and expenses, which will reduce the amount available for distribution to members.
 
 We will continue to incur claims, liabilities, and expenses as we wind up.  These expenses and liabilities will reduce the amount ultimately available for distribution to our members.
 
 ADDITIONAL RISKS RELATED TO OUR BUSINESS
 
 Investments in second deeds of trust and wraparound loans are subject to the rights of the first deed of trust.
 
 As of March 31, 2010, approximately $0.9 million or 16% of our loans were secured by second deeds of trust.  In a second deed of trust, our rights as a lender, including our rights to receive payment on foreclosure, will be subject to the rights of the first deed of trust.  Because both of these types of loans are subject to the first deed of trust’s right to payment on foreclosure, we incurred a greater risk when we invested in these types of loans and we may not be able to collect the full amount of our loan and may provide an allowance for the full amount of the loan.  When funded, such loans constituted less than 10% of our loans.  The percentage of our loans in second deeds of trust have increased primarily due to the decrease in loans secured by first deeds of trust through sales, foreclosures and modifications.  As of March 31, 2010, one of our four loans secured by second deeds of trust was considered non-performing.  This non-performing loan totaled $14.0 million, of which our portion is $0.2 million.  In addition, all four of these second position loans had an allowance for loan loss of approximately $18.4 million, of which our portion is approximately $0.6 million.
 
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 Our loans are not guaranteed by any governmental agency.
 
 Our loans are not insured or guaranteed by a federally owned or guaranteed mortgage agency.  Consequently, our recourse, if there is a default, may be to foreclose upon the real property securing a loan and/or pursuing the borrower’s guarantee of the principal.  The value of the foreclosed property may have decreased and may not be equal to the amount outstanding under the corresponding loan, resulting in a decrease of the amount available to distribute.
 
 We have and may continue to have difficulty protecting our rights as a secured lender.
 
 We believe that our loan documents will enable us to enforce our commercial arrangements with borrowers.  However, the rights of borrowers and other secured lenders may limit our practical realization of those benefits.  For example:
 
 ·
Judicial foreclosure is subject to the delays of protracted litigation.  Although we expect non-judicial foreclosure to be quicker, our collateral may deteriorate and decrease in value during any delay in foreclosing on it;
 
 ·
The borrower’s right of redemption during foreclosure proceedings can deter the sale of our collateral and can for practical purposes require us to manage the property;
 
 ·
Unforeseen environmental hazards may subject us to unexpected liability and procedural delays in exercising our rights;
 
 ·
The rights of senior or junior secured parties in the same property can create procedural hurdles for us when we foreclose on collateral;
 
 ·
Required licensing and regulatory approvals may complicate our ability to foreclose or to sell a foreclosed property where our collateral includes an operating business;
 
 ·
We may not be able to pursue deficiency judgments after we foreclose on collateral; and
 
 ·
State and federal bankruptcy laws can prevent us from pursuing any actions, regardless of the progress in any of these suits or proceedings.
 
 By becoming the owner of property, we have and may continue to incur additional obligations, which may reduce the amount of funds available for distribution.
 
 We intend to own real property only if we foreclose on a defaulted loan and purchase the property at the foreclosure sale.  Acquiring a property at a foreclosure sale may involve significant costs.  If we foreclose on the security property, we expect to obtain the services of a real estate broker and pay the broker’s commission in connection with the sale of the property.  We may incur substantial legal fees and court costs in acquiring a property through contested foreclosure and/or bankruptcy proceedings.  In addition, significant expenditures, including property taxes, maintenance costs, mortgage payments, insurance costs and related charges, must be made on any property we own regardless of whether the property is producing any income.  See Note F – Real Estate Held for Sale of the Notes to the Financial Statements included in Part I, Item I Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
 
 Under applicable environmental laws, any owner of real property may be fully liable for the costs involved in cleaning up any contamination by materials hazardous to the environment.  Even though we might be entitled to indemnification from the person that caused the contamination, there is no assurance that the responsible person would be able to indemnify us to the full extent of our liability.  Furthermore, we would still have court and administrative expenses for which we may not be entitled to indemnification.
 
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 MANAGEMENT AND CONFLICTS OF INTEREST RISKS
 
 We rely on our manager to manage our day-to-day operations.
 
 We will rely upon our manager to manage the winding down and liquidation of our business.  The funds distributable to members through this process will depend, to a large extent, upon the efforts and skills of our manager.  Our manager’s duties to our members are generally governed by the terms of our Operating Agreement, rather than by common law principles of fiduciary duty.  Moreover, our manager is not required to devote its employees’ full time to our business and may devote time to business interests competitive to our business.
 
 Our success depends on certain key personnel, the loss of whom could adversely affect our operating results, and on our manager’s ability to attract and retain qualified personnel.
 
 Our success depends in part upon the continued contributions of certain key personnel of our manager, including; Michael V. Shustek (Chief Executive Officer and President) and Daniel B. Stubbs (Senior Vice President, Underwriting).  Both Mr. Shustek and Mr. Stubbs have extensive experience in our line of business, extensive market contacts and familiarity with our company.  If Mr. Shustek or Mr. Stubbs were to cease their employment with our manager, they might be difficult to replace and our operating results could suffer.  None of the key personnel of our manager is subject to an employment, non-competition or confidentiality agreement with our manager, or us and we do not maintain “key man” life insurance policies on any of them.  Our future success also depends in large part upon our manager’s ability to hire and retain additional highly skilled managerial, operational and marketing personnel.  Our manager may require additional operations and marketing people who are experienced in obtaining, processing, making and brokering loans and who also have contacts in the relevant markets.  Competition for personnel is intense, and we cannot be assured that we will be successful in attracting and retaining skilled personnel.  If our manager were unable to attract and retain key personnel, the ability of our manager to make prudent investment decisions on our behalf may be impaired.
  On April 23, 2010, our manager decided to replace Rocio Revollo as the Chief Financial Officer of Vestin Group, the parent company of our manager, as part of the Company’s efforts to reduce general and administrative expenses.  Ms. Revollo has functioned as the equivalent of our Chief Financial Officer.  Ms. Revollo’s replacement has not yet been identified and no assurance can be given with respect to the capabilities of her successor.
  Any indemnification of our manager by us will decrease the amount available for distribution.
 
 Pursuant to our Operating Agreement, we may be required to indemnify our manager or any of its affiliates, agents, or attorneys from any action, claim or liability arising from any act or omission made in good faith and in performance of its duties under the Operating Agreement.  The availability of such indemnification may reduce the amount of funds we have available for distribution.  We do not have an independent board of directors to review and approve any proposed indemnification of our manager pursuant to the Operating Agreement.
 
 Vestin Mortgage serves as our manager pursuant to our Operating Agreement.  It may be difficult to terminate Vestin Mortgage and our Operating Agreement does not reflect arm’s length negotiations.
 
 Pursuant to the terms of our Operating Agreement, Vestin Mortgage acts as our manager.  The term of the Operating Agreement is for the duration of our existence.  Vestin Mortgage may only be terminated as manager upon the affirmative vote of a majority of members entitled to vote on the matter.  Consequently, it may be difficult to replace our manager in the event that our performance does not meet expectations or for other reasons.  The Operating Agreement was negotiated by related parties and may not reflect terms as favorable as those subject to arm’s length bargaining.
 
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 Our manager will face conflicts of interest concerning the allocation of its personnel’s time.
 
 Our manager is also the manager of VRM I, and VRM II, companies with investment objectives that were similar to ours.  Our manager and Mr. Shustek, who indirectly owns a significant majority of our manager, anticipate that they may also sponsor other real estate programs having investment objectives.  As a result, our manager and Mr. Shustek may have conflicts of interest in allocating their time and resources between our business and other activities.  During times of intense activity in other programs and ventures, our manager and its key people will likely devote less time and resources to our business than they ordinarily would.  Our Operating Agreement does not specify a minimum amount of time and attention that our manager and its key people are required to devote to our company.  Thus, our manager may not spend sufficient time managing our operations, which could result in our not meeting our investment objectives.
 
 We might incur losses if our manager’s parent defaults on a lease obligation, thereby triggering certain obligations under an outstanding letter of credit.
 
 Vestin Group, the parent of our manager, was previously our tenant in a building we owned in Las Vegas, Nevada.  In connection with the sale of such building, we arranged for a $985,000 letter of credit in favor of the purchaser of the building (the “Purchaser”), which may be drawn upon by the Purchaser should Vestin Group default on its lease obligations.  Vestin Group is currently engaged in litigation with the Purchaser and has not paid certain amounts allegedly due under its lease.  Vestin Group has provided us with a written agreement to fully indemnify and hold us harmless in the event that the Purchaser draws upon the letter of credit and we incur an obligation to reimburse the bank that issued the letter of credit.  Nonetheless, a continuation of the dispute between Vestin Group and the Purchaser could result in our suffering losses, which may not be immediately or fully reimbursed.  During June 2009, the Purchaser drew $285,000 from the letter of credit; our manager is required to reimburse us for the full $285,000, before August 2014.  See Note M - Legal Matters Involving The Company of the Notes to the Financial Statements included in Part I, Item I Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
 
 ITEM 2.
UNREGISTEREDSALES OF EQUITY AND USE OF PROCEEDS
 
 Market Information
 
 There is no established public trading market for the trading of units.
 
 Holders
 
 As of May 13, 2010, approximately 505 unit holders held 2,024,424 units in the Company.
 
 Liquidation Distribution Policy
 
 On January 26, 2010, we made an initial liquidating distribution to all Fund Members, in the aggregate amount of approximately $1.0 million, in accordance with the Plan.  In addition, on April 8, 2010, we made another liquidation distribution to all Fund Members, in the aggregate amount of approximately $0.9 million, in accordance with the Plan.  The amounts distributed to each Member of the Fund were calculated based upon the percentage ownership interest of such Member in the Fund.  See Note H – Members’ Equity of the Notes to the Financial Statements included in Part I, Item I Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
 
 We intend to make Liquidating Distributions on a quarterly basis in accordance with the Plan as set forth in Annex A of the Fund’s proxy statement filed with the Securities and Exchange Commission (the “SEC”) pursuant to Section 14(a) of the Securities and Exchange Act of 1934 on May 11, 2009.  We will distribute to our members the net proceeds we receive from the payoff of our outstanding real estate loans and the net proceeds we receive from the sale of our REO, in each case, less a reasonable Reserve established to provide for payment of the Company’s ongoing expenses and contingent liabilities.  A final Liquidating Distribution will be made after we have completed the winding up of our business operations and made appropriate provision for any remaining obligations.
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 We anticipate that the liquidation of our real estate loans may take two or more years and the sale of foreclosed properties may take five or more years, with the Dissolution process being substantially completed by the second half of 2014.  There are a number of factors that could delay our anticipated timetable, including the following:
 
 •
Delays in the sale of real estate held by us through foreclosures, which may take many years to complete due to the time required to resolve pending litigation and bankruptcy matters involving foreclosed properties and to identify suitable buyers and consummate the sale of such properties;
 
 •
Delays in distributions resulting from defaults in the payment of interest or principal when due on our real estate loans;
 
 •
Lawsuits or other claims asserted by or against us;
 
 •
Unanticipated legal, regulatory or administrative requirements; and
 
 •
Delays in settling our remaining obligations.
 
 See Note H – Members’ Equity of the Notes to the Financial Statements included in Part I, Item I Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
 
 Recent Sales of Unregistered Securities
 
 None.
 
 Equity Compensation Plan Information
 
 None.
 
 Purchases of Equity Securities by the Issuer and Affiliated Purchasers
 
 None.
 
 ITEM 3.
DEFAULTSUPON SENIOR SECURITIES
 
 None.
 
 
 ITEM 4.
SUBMISSION OF MATTERSTO A VOTE OF SECURITY HOLDERS
 
 None.
 
 ITEM 5.
OTHER INFORMATION
 
 None.
 
 
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 ITEM 6.
EXHIBITS
 
 EXHIBIT INDEX
 
 
 
 Exhibit No.

Description of Exhibits2.1(1)

Plan of Complete Liquidation and Dissolution3.1(2)

Articles of Organization3.2(3)

Certificate of Amendment to Articles of Organization3.3(4)

Amended and Restated Operating Agreement (included as Exhibit A to the prospectus)4.4(5)

Distribution Reinvestment Plan10.9(6)

Office lease agreement dated March 31, 2003 by and between Luke Properties, LLC and Vestin Group, Inc.10.10(7)

Indemnification agreement dated March 25, 2009 by and between Vestin Group, Inc. and Vestin Fund III, LLC10.11 (8)

Agreement between Strategix Solutions, LLC and Vestin Fund III, LLC for accounting services.10.12 (9)

Plan of Complete Liquidation and Dissolution31.1

Section 302 Certification of Michael V. Shustek31.2

Section 302 Certification of Rocio Revollo32

Certification Pursuant to 18 U.S.C. Sec. 1350
 
 (1)

Incorporated herein by reference to our Schedule 14A Definitive Proxy Statement filed on May 11, 2009 (File No. 000-51301)(2)

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)(3)

Incorporated herein by reference to our Form 10-Q filed on August 16, 2004 (File No. 333-105017)(4)

Incorporated herein by reference to our Schedule 14A Definitive Proxy Statement filed on January 29, 2007 (File No. 000-51301)(5)

Incorporated herein by reference to Exhibit 4.4 of our Post-Effective Amendment No. 5 to Form S-11 Registration Statement filed on April 28, 2006 (File No. 333-105017)(6)

Incorporated herein by reference to our Form 10-KSB filed on March 30, 2005 (File No. 333-105017)(7)

Incorporated herein by reference to the Annual Report on Form 10-K for the year ended December 31, 2008 filed on March 27, 2009 (File No. 000-51301)(8)

Incorporated herein by reference to the Quarterly Report on Form 10-Q filed on May 14, 2009 (File No. 000-51301)(9)

Incorporated herein by reference to the Proxy Statement dated May 11, 2009 (File No. 000-51301)
 
 
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 SIGNATURES
 
 Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 Vestin Fund III, LLCBy:

Vestin Mortgage, Inc., its sole ManagerBy:

/s/ Michael V. ShustekMichael V. ShustekChief Executive Officer and Sole Director of the Manager(Principal Executive Officer of Manager)By:

/s/ Rocio RevolloRocio RevolloChief Financial Officer of the Manager(Principal Financial and Accounting Officer of the Manager)
 
 Date:  May 14, 2010
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