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U.S. SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2005
 Or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 Transition Period From  To
 COMMISSION FILE NUMBER333-105017
 VESTIN FUND III, LLC
  NEVADA
(State or Other Jurisdiction of
Incorporation or Organization)
    
    87-0693972
(I.R.S. Employer
Identification No.)
 8379 WEST SUNSET ROAD, LAS VEGAS, NEVADA 89113
   þ o
  o þ




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TABLE OF CONTENTS
 PAGEPART I FINANCIAL INFORMATIONItem 1. Consolidated Financial StatementsConsolidated balance sheets as of June 30, 2005 (unaudited), and December 31, 2004
    
    
    3Consolidated statements of income for the three months and six months ended June 30, 2005 and 2004 (unaudited)
    
    
    4Consolidated statement of members equity for the six months ended June 30, 2005 (unaudited)
    
    
    5Consolidated statements of cash flows for the six months ended June 30, 2005 and 2004 (unaudited)
    
    
    6Condensed notes to consolidated financial statements (unaudited)
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    29Item 4. Controls and Procedures
    
    
    30PART II OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    32Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    32Item 3. Defaults Upon Senior Securities
    
    
    33Item 4. Submission of Matters to a Vote of Security Holders
    
    
    33Item 5. Other Information
    
    
    33Item 6. Exhibits
    
    
    33SIGNATURES
    
    
    34EX-31.1EX-31.2EX-32




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VESTIN FUND III, LLC
 
 CONSOLIDATED BALANCE SHEETS
 (UNAUDITED)JUNE 30, 2005
    
    DECEMBER 31, 2004ASSETSCash
    
    $
    1,737,855
    
    
    $
    6,285,989Interest receivable
    
    
    198,872
    
    
    
    127,263Investment in mortgage loans, net of allowance for loan
losses of $109,642 and $72,500 as of June 30, 2005 and
December 31, 2004, respectively
    
    
    21,818,773
    
    
    
    13,519,998Investment in real property, net of accumulated depreciation
of $181,882 and $76,504 as of June 30, 2005 and
December 31, 2004, respectively
    
    
    9,708,599
    
    
    
    9,813,977Capitalized loan fees, net of amortization of $9,976 and $4,236
June 30, 2005 and December 31, 2004, respectively
    
    
    104,826
    
    
    
    110,566Assets under secured borrowings
    
    
    1,914,233
    
    
    
    2,590,491Due from Vestin Fund I
    
    
    5,660
    
    
    
    Deferred offering costs
    
    
    939,932
    
    
    
    926,054$
    36,428,750
    
    
    $
    33,374,338LIABILITIES AND MEMBERS EQUITYLiabilitiesAccounts payable
    
    $
    82,021
    
    
    $
    Due to Manager
    
    
    1,272,261
    
    
    
    1,093,628Secured borrowings
    
    
    1,914,233
    
    
    
    2,590,491Note payable
    
    
    4,882,707
    
    
    
    4,927,885Total liabilities
    
    
    8,151,222
    
    
    
    8,612,004Members equity  Authorized 12,000,000 units,
2,837,677 units issued and outstanding at June 30, 2005
and 2,471,658 units issued and outstanding at December 31, 2004
    
    
    28,277,528
    
    
    
    24,762,334Total members equity
    
    
    28,277,528
    
    
    
    24,762,334Total liabilities and members equity
    
    $
    36,428,750
    
    
    $
    33,374,338
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VESTIN FUND III, LLC
 
 CONSOLIDATED STATEMENTS OF INCOME
 (UNAUDITED)
 FOR THE THREE
    
    FOR THE THREE
    
    FOR THE SIX
    
    FOR THE SIXMONTHS ENDED
    
    MONTHS ENDED
    
    MONTHS ENDED
    
    MONTHS ENDEDJUNE 30, 2005
    
    JUNE 30, 2004
    
    JUNE 30, 2005
    
    JUNE 30, 2004RevenuesInterest income from investments in
mortgage loans
    
    $
    608,418
    
    
    $
    346,434
    
    
    $
    1,171,291
    
    
    $
    527,628Interest income related to secured borrowings
    
    
    66,063
    
    
    
    281,084
    
    
    
    139,082
    
    
    
    398,447Rental income
    
    
    214,935
    
    
    
    
    
    
    
    429,870
    
    
    
    Other
    
    
    8,580
    
    
    
    20,389
    
    
    
    18,069
    
    
    
    26,170Total revenues
    
    
    897,996
    
    
    
    647,907
    
    
    
    1,758,312
    
    
    
    952,245Operating expensesManagement fees
    
    
    17,984
    
    
    
    8,654
    
    
    
    34,480
    
    
    
    11,147Interest expense related to secured borrowings
    
    
    56,964
    
    
    
    242,451
    
    
    
    119,511
    
    
    
    359,814Interest expense related to investment in real estate
    
    
    70,087
    
    
    
    
    
    
    
    138,984
    
    
    
    Provision for loan losses
    
    
    5,318
    
    
    
    72,500
    
    
    
    37,142
    
    
    
    72,500Depreciation and amortization
    
    
    55,559
    
    
    
    
    
    
    
    111,118
    
    
    
    Professional fees
    
    
    117,005
    
    
    
    34,204
    
    
    
    211,999
    
    
    
    34,204Other
    
    
    9,787
    
    
    
    3,105
    
    
    
    16,383
    
    
    
    5,700Total operating expenses
    
    
    332,704
    
    
    
    360,914
    
    
    
    669,617
    
    
    
    483,365NET INCOME
    
    $
    565,292
    
    
    $
    286,993
    
    
    $
    1,088,695
    
    
    $
    468,880Net income allocated to members
    
    $
    565,292
    
    
    $
    286,993
    
    
    $
    1,088,695
    
    
    $
    468,880Net income allocated to members per weighted
average membership units
    
    $
    0.20
    
    
    $
    0.22
    
    
    $
    0.40
    
    
    $
    0.45Weighted average membership units
    
    
    2,836,033
    
    
    
    1,317,948
    
    
    
    2,720,679
    
    
    
    1,053,509
  4




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VESTIN FUND III, LLC
 
 CONSOLIDATED STATEMENT OF MEMBERS EQUITY
 FOR THE SIX MONTHS ENDED JUNE 30, 2005
 (UNAUDITED)
 Units
    
    AmountMembers equity at December 31, 2004
    
    
    2,471,658
    
    
    $
    24,762,334Issuance of units
    
    
    323,768
    
    
    
    3,337,192Distributions
    
    
    
    
    
    
    (1,345,877
    )Reinvestments of distributions
    
    
    47,437
    
    
    
    488,604Members redemptions
    
    
    (5,186
    )
    
    
    (53,420
    )Net income
    
    
    
    
    
    
    1,088,695Members equity at June 30, 2005
    
    
    2,837,677
    
    
    $
    28,277,528
  5




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VESTIN FUND III, LLC
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (UNAUDITED)
 FOR THE SIX
    
    FOR THE SIXMONTHS
    
    MONTHSENDED
    
    ENDEDJUNE 30, 2005
    
    JUNE 30, 2004Cash flows from operating activities:Net income
    
    $
    1,088,695
    
    
    $
    468,880Adjustments to reconcile net income to net cash provided by operating activities:Depreciation
    
    
    105,378
    
    
    
    Amortization of capitalized loan fees
    
    
    5,740
    
    
    
    Provision for loan losses
    
    
    37,142
    
    
    
    72,500Change in operating assets and liabilities:Interest receivable
    
    
    (71,609
    )
    
    
    (181,504
    )Accounts payable
    
    
    82,021
    
    
    
    Due from Fund I
    
    
    (5,660
    )
    
    
    Due to Vestin Group
    
    
    
    
    
    
    8,982Due to Manager
    
    
    164,755
    
    
    
    78,915Net cash provided by operating activities
    
    
    1,406,462
    
    
    
    447,773Cash flows from investing activities:Investments in mortgage loans on real estate
    
    
    (9,084,394
    )
    
    
    (14,505,716
    )Sale of investments in mortgage loans
    
    
    
    
    
    
    2,113,791Proceeds from loan payoff
    
    
    748,477
    
    
    
    7,732,962Deposit on investment in real property
    
    
    
    
    
    
    (125,000
    )Purchase of investments in mortgage loans from Fund II
    
    
    
    
    
    
    (10,000,000
    )Net cash used by investing activities
    
    
    (8,335,917
    )
    
    
    (14,783,963
    )Cash flows from financing activities:Proceeds from issuance of member units
    
    
    3,337,192
    
    
    
    15,466,633Payments on notes payable
    
    
    (45,178
    )
    
    
    Members redemptions
    
    
    (53,420
    )
    
    
    Distributions, net of reinvestments
    
    
    (857,273
    )
    
    
    (246,314
    )Net cash provided by financing activities
    
    
    2,381,321
    
    
    
    15,220,319NET CHANGE IN CASH
    
    
    (4,548,134
    )
    
    
    884,129Cash, beginning
    
    
    6,285,989
    
    
    
    4,952Cash, ending
    
    $
    1,737,855
    
    
    $
    889,081Interest paid during the period
    
    $
    258,495
    
    
    $
    359,814Non-cash financing activities:Offering costs paid by Vestin Mortgage, Inc. recorded as deferred
offering costs and due to manager on the accompanying balance sheet
    
    $
    13,878
    
    
    $
    180,763Change in loans funded through secured borrowing
    
    $
    676,258
    
    
    $
    10,042,362
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VESTIN FUND III, LLC
 
 CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 2005
(UNAUDITED)
 NOTE A  ORGANIZATION
        7




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NOTE B  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
           8




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Land
    
    Not depreciatedBuilding
    
    40 yearsBuilding improvements
    
    10-25 yearsLand improvements
    
    20-25 yearsTenant improvements
    
    Lease termIntangible lease assets
    
    Lease term
     Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
  9




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NOTE C  INVESTMENTS IN MORTGAGE LOANS
  Number
    
    
    
    
    
    WeightedLoan
    
    Of
    
    
    
    
    
    Average
    
    Portfolio
    
    LoanType
    
    Loans
    
    Balance**

    
    Interest Rate
    
    Percentage
    
    To Value*Acquisition and development
    
    
    2
    
    
    $
    3,090,819
    
    
    
    11.13
    %
    
    
    14.10
    %
    
    
    56.84
    %Bridge
    
    
    2
    
    
    
    1,702,180
    
    
    
    10.36
    %
    
    
    7.76
    %
    
    
    51.42
    %Commercial
    
    
    6
    
    
    
    9,284,613
    
    
    
    12.18
    %
    
    
    42.34
    %
    
    
    70.08
    %Construction
    
    
    2
    
    
    
    1,230,551
    
    
    
    12.00
    %
    
    
    5.61
    %
    
    
    64.50
    %Land
    
    
    5
    
    
    
    6,620,252
    
    
    
    11.40
    %
    
    
    30.19
    %
    
    
    56.92
    %17
    
    
    $
    21,928,415
    
    
    
    11.65
    %
    
    
    100.00
    %
    
    
    62.48
    %
  Number
    
    
    
    
    
    WeightedLoan
    
    Of
    
    
    
    
    

    Average
    
    Portfolio
    
    LoanType
    
    Loans
    
    Balance**
    
    Interest Rate
    
    Percentage
    
    To Value*Acquisition and development
    
    
    3
    
    
    $
    6,319,351
    
    
    
    10.90
    %
    
    
    46.49
    %
    
    
    56.74
    %Bridge
    
    
    1
    
    
    
    1,500,000
    
    
    
    10.00
    %
    
    
    11.04
    %
    
    
    50.62
    %Commercial
    
    
    2
    
    
    
    3,348,152
    
    
    
    13.27
    %
    
    
    24.63
    %
    
    
    73.28
    %Construction
    
    
    1
    
    
    
    265,451
    
    
    
    12.00
    %
    
    
    1.95
    %
    
    
    66.53
    %Land
    
    
    3
    
    
    
    2,159,544
    
    
    
    12.81
    %
    
    
    15.89
    %
    
    
    71.82
    %10
    
    
    $
    13,592,498
    
    
    
    11.71
    %
    
    
    100.00
    %
    
    
    62.73
    %
 
 *
    
    Loan to value ratios are based on appraisals obtained at the time of loan origination and may
not reflect subsequent changes in value estimates. Such appraisals, which may be commissioned by
the borrower, are generally dated no greater than 12 months prior to the date of loan origination.
The appraisals may be for the current estimate of the as-if developed value of the property,
which approximates the post-construction value of the collateralized property assuming that such
property is developed. As-if developed values on raw land loans or acquisition and development
loans often dramatically exceed the immediate sales value and may include anticipated zoning
changes, and successful development by the purchaser; upon which development is dependent on
availability of financing. As most of the appraisals will be prepared on an as-if developed
basis, if a loan goes into default prior to any development of a project, the market value of the
property may be substantially less than the appraised value. As a result, there may be less
security than anticipated at the time the loan was originally made. If there is less security and
a default occurs, we may not recover the full amount of the loan.  December 31,June 30, 2005
    
    Portfolio
    
    2004
    
    PortfolioLoan Type
    
    Balance**
    
    Percentage
    
    Balance*
    
    PercentageFirst mortgages
    
    $
    19,585,206
    
    
    
    89.31
    %
    
    $
    11,014,604
    
    
    
    81.03
    %Second mortgages
    
    
    2,343,209
    
    
    
    10.69
    %
    
    
    2,577,894
    
    
    
    18.97
    %$
    21,928,415
    
    
    
    100.00
    %
    
    $
    13,592,498
    
    
    
    100.00
    %
 10




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2005
    
    $
    6,008,4742006
    
    
    15,919,941$
    21,928,415
  December 31,June 30, 2005
    
    Portfolio
    
    2004
    
    PortfolioBalance**
    
    Percentage
    
    Balance**
    
    PercentageArizona
    
    $
    6,864,538
    
    
    
    31.31
    %
    
    $
    6,864,538
    
    
    
    50.50
    %California
    
    
    6,399,563
    
    
    
    29.18
    %
    
    
    1,648,152
    
    
    
    12.12
    %Colorado
    
    
    202,180
    
    
    
    0.92
    %
    
    
    
    
    
    
    0.00
    %Nevada
    
    
    6,532,384
    
    
    
    29.79
    %
    
    
    4,079,808
    
    
    
    30.02
    %Oklahoma
    
    
    1,000,000
    
    
    
    4.56
    %
    
    
    1,000,000
    
    
    
    7.36
    %Texas
    
    
    929,750
    
    
    
    4.24
    %
    
    
    
    
    
    
    0.00
    %$
    21,928,415
    
    
    
    100.00
    %
    
    $
    13,592,498
    
    
    
    100.00
    %
 
 **
    
    The following table reconciles the balance of the loan portfolio to the amount shown on the
accompanying Balance Sheet. December 31,June 30, 2005
    
    2004Balance per loan portfolio
    
    $
    21,928,415
    
    
    $
    13,592,498Less:Allowance for loan losses
    
    
    (109,642
    )
    
    
    (72,500
    )Balance per balance sheet
    
    $
    21,818,773
    
    
    $
    13,519,998
    11




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Balance atDecember 31,
    
    
    
    
    
    Balance atDescription
    
    2004
    
    Provisions
    
    June 30, 2005General Valuation Allowance
    
    $
    72,500
    
    
    $
    37,142
    
    
    $
    109,642
  NOTE D  INVESTMENT IN REAL PROPERTY
   NOTE E  LEASING ACTIVITY
   2005
    
    $
    441,3342006
    
    
    906,0512007
    
    
    942,2932008
    
    
    979,9852009
    
    
    1,019,185Thereafter
    
    
    5,316,833$
    9,605,681
 NOTE F  RELATED PARTY TRANSACTIONS
   12




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NOTE G  SECURED BORROWINGS
 Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
   NOTE H  NOTE PAYABLE
  Balance at June30, 200510- year note payable secured by real property, bearing
interest at 5.6% per annum, payable in monthly principal
and interest installments of $30,694
    
    $
    4,882,707
  July 1, 2005 through December 31, 2005
    
    $
    50,4142006
    
    
    100,2672007
    
    
    106,0292008
    
    
    112,1212009
    
    
    118,563Thereafter
    
    
    4,395,313$
    4,882,707
 NOTE I  MEMBERS EQUITY
 Membership Units
  13




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Allocations and Distributions
    Working Capital Reserves
  Value of Members Capital Accounts
  NOTE J  RECENT ACCOUNTING PRONOUNCEMENTS
   14




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NOTE K  LEGAL MATTERS INVOLVING THE MANAGER
    NOTE L  LEGAL MATTERS INVOLVING THE COMPANY
  15




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NOTE M SEGMENT INFORMATION
     Investment in
    
    Investments inmortgage loans
    
    real estate
    
    TotalRevenues:Interest income from investments
in mortgage loans
    
    $
    1,171,291
    
    
    $
    
    
    
    $
    1,171,291Interest income related to
secured borrowings
    
    
    139,082
    
    
    
    
    
    
    
    139,082Rental income
    
    
    
    
    
    
    429,870
    
    
    
    429,870Other
    
    
    18,069
    
    
    
    
    
    
    
    18,069Total revenues
    
    
    1,328,442
    
    
    
    429,870
    
    
    
    1,758,312Operating expenses:Management fees
    
    
    21,580
    
    
    
    12,900
    
    
    
    34,480Interest related to secured borrowings
    
    
    119,511
    
    
    
    
    
    
    
    119,511Provision for loan losses
    
    
    37,142
    
    
    
    
    
    
    
    37,142Professional fees
    
    
    146,279
    
    
    
    65,720
    
    
    
    211,999Other
    
    
    11,304
    
    
    
    5,079
    
    
    
    16,383Total operating expenses
    
    
    335,816
    
    
    
    83,699
    
    
    
    419,515EBITDA*
    
    
    992,626
    
    
    
    346,171
    
    
    
    1,338,797Less:Depreciation and amortization
    
    
    
    
    
    
    111,118
    
    
    
    111,118Interest expense
    
    
    
    
    
    
    138,984
    
    
    
    138,984Net income
    
    $
    992,626
    
    
    $
    96,069
    
    
    $
    1,088,695
 16




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NOTE N OTHER MATTER
  17




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  BACKGROUND
    OVERVIEW
   18




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SUMMARY OF FINANCIAL RESULTS
 Three months ended June 30,
    
    Six months ended June 30,2005
    
    2004
    
    2005
    
    2004Total revenues
    
    $
    897,996
    
    
    $
    647,907
    
    
    $
    1,758,312
    
    
    $
    952,245Total expenses
    
    
    332,704
    
    
    
    360,914
    
    
    
    669,617
    
    
    
    483,365Net income
    
    $
    565,292
    
    
    $
    286,993
    
    
    $
    1,088,695
    
    
    $
    468,880Net income allocated to members per
weighted average membership units
    
    $
    0.20
    
    
    $
    0.22
    
    
    $
    0.40
    
    
    $
    0.45Annualized rate of return to members
(a) (b)
    
    
    7.8
    %
    
    
    8.8
    %
    
    
    7.9
    %
    
    
    11.7
    %Weighted average membership units
    
    
    2,836,033
    
    
    
    1,317,948
    
    
    
    2,720,679
    
    
    
    1,053,509Cash distributions
    
    $
    697,169
    
    
    $
    351,617
    
    
    $
    1,345,877
    
    
    $
    403,834Cash distributions per weighted average
membership unit
    
    $
    0.25
    
    
    $
    0.27
    
    
    $
    0.49
    
    
    $
    0.38
 
 (a)
    
    The annualized rate of return to members in 2005 is calculated based upon the net income
allocated to members per weighted average units as of June 30, 2005 divided by the number of
days during the period (91 days for the three months ended June 30, 2005 and 180 days for the
six months ended June 30, 2005) and multiplied by three hundred and sixty five (365) days,
then divided by 10.30 (the $10.30 cost per unit).(b)
    
    The annualized rate of return to members in 2004 is calculated based upon the net income
allocated to members per weighted average units as of June 30, 2004 divided by the number of
days during the period (91 days for the three months ended June 30, 2005 and 140 days from
February 12, 2004, the day we commenced operations after raising the minimum $10 million) and
multiplied by three hundred and sixty five (365) days, then divided by ten (the $10 cost per
unit).
 Total Revenues
   19




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Total Expenses
 
    
    Interest expense related to secured borrowings decreased by approximately $180,000 due
to a decrease in the amount of loans financed under secured borrowings of $8.0 million for
same period in prior year.
    
    Interest expense related to investment in real estate increased by approximately $70,000
as we did not have the related debt during the three months ended June 30, 2004.
    
    Provisions for loan losses decreased by approximately $68,000 as our general allowance
for loan losses was generally sufficient to cover inherent losses in our loan portfolio
during the three months ended June 30, 2005.
    
    Depreciation and amortization on our investment in real estate totaled approximately
$56,000 for the three months ended June 30, 2005. This real property was acquired
subsequent to June 30, 2004.
    
    Expenses related to professional fees incurred increased by approximately $80,000 due to
an increase in accounting and legal costs related to the preparation of our public filings.
  
    
    Interest expense related to secured borrowings decreased by approximately $240,000 due
to a decrease in the amount of loans financed under secured borrowings of $8.0 million for
same period in prior year.
    
    Interest expense related to investment in real estate increased by approximately
$140,000 as we did not have the related debt during the six months ended June 30, 2004.
    
    Provisions for loan losses decreased by approximately $35,000 as our general allowance
for loan losses was generally sufficient to cover inherent losses in our loan portfolio
during the six months ended June 30, 2005.
    
    Depreciation and amortization on our investment in real estate totaled approximately
$111,000 for the six months ended June 30, 2005. This real property was acquired
subsequent to June 30, 2004.
    
    Expenses related to professional fees incurred increased by approximately $180,000 due
to an increase in accounting and legal costs related to the preparation of our public
filings.
 Net Income
 Annualized Rate of Return to Members.
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Distributions to Members
 Redemptions.
 INVESTMENTS IN MORTGAGE LOANS SECURED BY REAL ESTATE PORTFOLIO
     
    
    prevailing economic conditions;
    
    historical experience;
    
    the nature and volume of the loan portfolio;
    
    the borrowers financial condition and adverse situations that may affect the borrowers ability to pay;
    
    evaluation of industry trends;
    
    review and evaluation of loans identified as having loss potential; and
    
    estimated fair value of any underlying collateral.
   INVESTMENT IN REAL PROPERTY
  21




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Net income from real estate segment
    
    $
    96,069Deduct: principal payments on debt
    
    
    (45,178
    )Add back depreciation and amortization
    
    
    111,118Cash yield
    
    $
    162,009Cash investment
    
    $
    4,850,000Number of months
    
    
    6Annualized cash yield on real estate segment
    
    
    6.68
    %
  CRITICAL ACCOUNTING ESTIMATES
 Revenue Recognition
  Investments in Mortgage Loans
  Allowance for Loan Losses
  22




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Investments in Real Property
   Land
    
    Not depreciatedBuilding
    
    40 yearsBuilding improvements
    
    10-25 yearsLand improvements
    
    20-25 yearsTenant improvements
    
    Lease termIntangible lease assets
    
    Lease term
  Secured Borrowings
 Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
  23




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CAPITAL AND LIQUIDITY
        Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
 24




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Segment Information
    25




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Investment in mortgage
    
    Investments in realloans
    
    estate
    
    TotalRevenues:Interest income from investments
in mortgage loans
    
    $
    1,171,291
    
    
    $
    
    
    
    $
    1,171,291Interest income related to
secured borrowings
    
    
    139,082
    
    
    
    
    
    
    
    139,082Rental income
    
    
    
    
    
    
    429,870
    
    
    
    429,870Other
    
    
    18,069
    
    
    
    
    
    
    
    18,069Total revenues
    
    
    1,328,442
    
    
    
    429,870
    
    
    
    1,758,312Operating expenses:Management fees
    
    
    21,580
    
    
    
    12,900
    
    
    
    34,480Interest related to secured borrowings
    
    
    119,511
    
    
    
    
    
    
    
    119,511Provision for loan losses
    
    
    37,142
    
    
    
    
    
    
    
    37,142Professional fees
    
    
    146,279
    
    
    
    65,720
    
    
    
    211,999Other
    
    
    11,304
    
    
    
    5,079
    
    
    
    16,383Total operating expenses
    
    
    335,816
    
    
    
    83,699
    
    
    
    419,515EBITDA*
    
    
    992,626
    
    
    
    346,171
    
    
    
    1,338,797Less:Depreciation and amortization
    
    
    
    
    
    
    111,118
    
    
    
    111,118Interest expense
    
    
    
    
    
    
    138,984
    
    
    
    138,984Net income
    
    $
    992,626
    
    
    $
    96,069
    
    
    $
    1,088,695
 
    Off Balance Sheet Arrangements
  Contractual Obligations
  Payment due by periodContractual Obligation
    
    Total
    
    Less than 1 year
    
    1-3 years
    
    3-5 years
    
    More than 5 yearsNote payable
    
    $
    4,882,707
    
    
    $
    50,414
    
    
    $
    318,417
    
    
    $
    376,516
    
    
    $
    4,137,360Secured borrowings
    
    $
    1,914,233
    
    
    $
    1,914,233
    
    
    $
    
    
    
    $
    
    
    
    $
    
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RELATED PARTY TRANSACTIONS
     FACTORS AFFECTING THE COMPANYS OPERATING RESULTS
  Risks of Investing in Mortgage Loans
 
    
    Our Managers underwriting standards and procedures are more lenient than conventional
lenders in that we will invest in loans to borrowers who will not be required to meet the
credit standards of conventional mortgage lenders.
    
    Our Manager approves mortgage loans more quickly then other mortgage lenders. Due to the
nature of loan approvals, there is a risk that the credit inquiry our Manager performs will
not reveal all material facts pertaining to the borrower and the security.
    
    Our appraisals are generally dated within 12 months of the date of the loan origination
and may have been commissioned by the borrower. Therefore, the appraisals may not reflect
a decrease in the value of the real estate due to events subsequent to the draft of the
appraisal.
    
    Appraisals may be performed on an as-if developed basis, which appraised values
approximates the post-construction value of the collateralized property and therefore may
dramatically exceed immediate sales values. Therefore there is a risk that the borrower
will not complete development of the project, which may affect the expected value of the
property and the loan to value ratio.
    
    Our results of operations will vary with changes in interest rates and with the
performance of the relevant real estate markets.
    
    If the economy is healthy, we expect that more people will be borrowing money to
acquire, develop or renovate real property. However, if the economy grows too fast,
interest rates may increase too much and the cost of borrowing may become too expensive.
This could result in a slowdown in real estate lending in which we will have fewer loans to
acquire, thus reducing our revenues and the distributions to our members.
    
    If, at a time of relatively low interest rates, a borrower should prepay obligations
that have a higher interest rate from an earlier period, investors will likely not be able
to reinvest the funds in mortgage loans earning that higher rate of interest. In the
absence of a prepayment fee, the investors will receive neither the anticipated revenue
stream at the higher rate nor any compensation for their loss. This in turn could harm our
reputation and make it more difficult for us to attract investors willing to acquire
interest in mortgage loans.
 Risk of Defaults
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Competition for Borrowers and Properties
   Risks of Investing in Real Property
 
    
    Changes in the general economic or local conditions could have an adverse impact on the
real estate market in general.
    
    Changes in the supply of or demand for similar or competing properties in an area. If we
pay a higher price, our profitability will be reduced. Additionally, if we are unable to
sell a property when we determine to do so, it could have a significant adverse affect on
our cash flow and operations.
    
    Changes in interest rates and availability of permanent mortgage funds may render the
sale of a property difficult or unattractive.
    
    Changes in tax, real estate, environmental and zoning laws may require additional
material expenditures by us in order to be in compliance.
    
    Periods of high interest rates and tight money supply may make the sale of property more
difficult.
    
    Tenant turnover could cause us to lose revenue associated with that lease and increase
costs for tenant improvements.
    
    General overbuilding or excess supply in the market area could lead to vacancies. If
vacancies occur for a long period of time, we may suffer reduced revenues and could
diminish the market value of the property.
 Effect of Fluctuations in the Economy
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FORWARD LOOKING STATEMENTS
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
      29




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ITEM 4. CONTROLS AND PROCEDURES.
 Disclosure Controls and Procedures
   Managements Report on Internal Control Over Financial Reporting
    
    
    The first material weakness identified insufficient resources of technical accounting
and reporting expertise. This weakness relates to the oversight and review of financial
transactions, which affects our ability to prepare and properly review financial
statements and accompanying footnote disclosures in accordance with United States
generally accepted accounting principles and the rules and regulations of the Securities
and Exchange Commission.
    
    As a result of the foregoing material weakness, there has been ineffective oversight of
documentation of authorizations to ensure that procedures are properly executed.
  Remediation Plan
  
    
    Hired a corporate controller with the requisite experience to assist and work directly
with our Managers Chief Financial Officer;
    
    Created an additional position to assist with the financial reporting process and is in
the process of identifying an individual for this position;
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
    
    Implemented a mandatory weekly management meeting for all key personnel. This allows
for financial reporting personnel to be consistently updated on significant matters
affecting the Company;
    
    Implemented a Financial Reporting Review Committee, which reviews all periodic financial
reporting documents prior to filing.
  Changes in Internal Control Over Financial Reporting
  31




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##### Table of Contents



PART II
 OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
   
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
     32




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Units
    
    AmountApril 2005
    
    
    755
    
    
    $
    7,678May 2005
    
    
    1,107
    
    
    
    10,378June 2005
    
    
    
    
    
    
    1,862
    
    
    $
    18,056
 
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
  Exhibit No.
    
    Description of Exhibits3.1(1)
    
    Articles of Organization3.2(2)
    
    Certificate of Amendment to Articles of Organization3.3(3)
    
    Amended and Restated Operating Agreement (included as Exhibit A to the prospectus)4(4)
    
    Distribution Reinvestment Plan10.7
    
    Purchase and Sale Agreement, dated August 1, 2004, by and between LukeProperties, LLC and Vestin Fund III, LLC10.8 (5)
    
    Assignment and Assumption Agreement dated August 16, 2004 by and between VestinFund III, LLC and VFIII HQ, LLC10.9(6)
    
    Office lease agreement dated March 31, 2003 by and between Luke Properties, LLCand Vestin Fund III, LLC31.1
    
    Section 302 Certification of Michael V. Shustek31.2
    
    Section 302 Certification of John Alderfer32
    
    Certification Pursuant to U.S.C. 18 Section 1350
 (1)
    
    Incorporated herein by reference to our Pre-Effective Amendment No. 3 to Form S-11 Registration
Statement filed on September 2, 2003, File No. 333-105017.(2)
    
    Incorporated herein by reference to our Form 10-Q filed on August 16, 2004, File No. 333-105017.(3)
    
    Incorporated herein by reference to our Post-Effective Amendment No. 1 to Form S-11 Registration
Statement filed on April 29, 2004, File No. 333-105017.(4)
    
    Incorporated herein by reference to Exhibit 4.4 of our Pre-Effective Amendment No. 3 to Form S-11
Registration Statement filed on September 2, 2003, File No. 333-105017.(5)
    
    Incorporated herein by reference to our Form 10-Q filed on November 15, 2004, File No. 333-105017.(6)
    
    Incorporated herein by reference to our Form 10-KSB filed on March 30, 2005, File No. 333-105017.
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SIGNATURES
  VESTIN FUND III, LLC
  By:
    /s/John AlderferJohn Alderfer(Chief Financial Officer of the Manager
and Duly Authorized Officer)  34




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VESTIN FUND III, LLC
 A Nevada Limited Liability Company
 
 INDEX TO EXHIBITS
 Exhibit No.
    
    Description of Exhibits3.1(1)
    
    Articles of Organization3.2(2)
    
    Certificate of Amendment to Articles of Organization3.3(3)
    
    Amended and Restated Operating Agreement (included as Exhibit A to the prospectus)4(4)
    
    Distribution Reinvestment Plan10.7(5)
    
    Purchase and Sale Agreement, dated August 1, 2004, by and between LukeProperties, LLC and Vestin Fund III, LLC10.8 (5)
    
    Assignment and Assumption Agreement dated August 16, 2004 by and between VestinFund III, LLC and VFIII HQ, LLC10.9(6)
    
    Office lease agreement dated March 31, 2003 by and between Luke Properties, LLCand Vestin Fund III, LLC31.1
    
    Section 302 Certification of Michael V. Shustek31.2
    
    Section 302 Certification of John Alderfer32
    
    Certification Pursuant to U.S.C. 18 Section 1350
 (1)
    
    Incorporated herein by reference to our Pre-Effective Amendment No. 3 to Form S-11 Registration
Statement filed on September 2, 2003, File No. 333-105017.(2)
    
    Incorporated herein by reference to our Form 10-Q filed on August 16, 2004, File No. 333-105017.(3)
    
    Incorporated herein by reference to our Post-Effective Amendment No. 1 to Form S-11 Registration
Statement filed on April 29, 2004, File No. 333-105017.(4)
    
    Incorporated herein by reference to Exhibit 4.4 of our Pre-Effective Amendment No. 3 to Form S-11
Registration Statement filed on September 2, 2003, File No. 333-105017.(5)
    
    Incorporated herein by reference to our Form 10-Q filed on November 15, 2004, File No. 333-105017.(6)
    
    Incorporated herein by reference to our Form 10-KSB filed on March 30, 2005, File No. 333-105017.