**U.S.
        SECURITIES AND EXCHANGE COMMISSION**
 **WASHINGTON,
        D.C. 20549**
 
 **FORM
        10-Q/A**
  (Amendment
          No. 1)
 (MARK
        ONE)
 
 **[X]
                  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                  THE****SECURITIES
                  EXCHANGE ACT OF 1934**
 
 **FOR
        THE QUARTERLY PERIOD ENDED** **MARCH
        31, 2006**
 
 **Or**
 
 **[   ]
                  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                  THE****SECURITIES
                  EXCHANGE ACT OF 1934**
 
 **Transition
        Period From ______________ To ______________**
 
 *COMMISSION
        FILE NUMBER 333-105017*
 
 
 **VESTIN
        FUND III, LLC**
 (Exact
        Name of Registrant as Specified in Its Charter)
 
 NEVADA
              
              87-0693972(State
                  or Other Jurisdiction of
              
              (I.R.S.
                  EmployerIncorporation
                  or Organization)
              
              Identification
                  No.)
 
 
 **8379
        WEST SUNSET ROAD**
 **LAS
        VEGAS, NEVADA**  **89113**
 (Address
        of Principal Executive Offices) (Zip Code)
 
 Registrant’s
        Telephone Number: 702.227.0965
 
 Indicate
        by check mark whether the registrant: (1) has filed all reports required
        to be
        filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
        the
        preceding 12 months (or for such shorter period that the registrant was required
        to file such reports), and (2) has been subject to such filing requirements
        for
        the past 90 days.
 
 Yes
        [X]
        No [   ]
 
 Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, or a non-accelerated filer. See definition of “accelerated
        filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
        one):
 
 Large
                  accelerated filer [   ]
              Accelerated
                  filler [   ]
              Non-accelerated
                  filer [X]
 
 Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Securities Exchange Act).
 
 Yes
        [   ] No [ X]
 
 As
        of May
        10, 2006, 2,940,496 Units of interest in the Company were outstanding.
 
  **Explanatory
          Note**
  The
          Company is filing this Amendment No. 1 on Form 10-Q/ A to amend its Form
          10-Q
          for the three months ended March 31, 2006 as filed with the Securities
          and
          Exchange Commission on May 11, 2006 (the “Original Filing”) to amend the cover
          page.
  *Table
            of Contents*
 **TABLE
          OF CONTENTS**
 
 **PAGE**Part
                    I
                FINANCIAL
                    INFORMATIONItem
                    1.
                Financial
                    StatementsConsolidated
                    Balance Sheets As of March 31, 2006 (unaudited),
                    and December 31, 2005
                3Consolidated
                    Statements of Income for the Three Months Ended
                    March 31, 2006 and 2005 (unaudited)
                4Consolidated
                    Statement of Members’ Equity for the Three Months
                    Ended March 31, 2006 (unaudited)
                5Consolidated
                    Statements of Cash Flows for the Three
                    Months Ended March 31, 2006 and 2005 (unaudited)
                6Notes
                    to Consolidated Financial Statements
                    (unaudited)
                8Item
                    2.
                Management’s
                    Discussion and Analysis of Financial
                    Condition and Results of Operations
                24Item
                    3.
                Quantitative
                    and Qualitative Disclosures About Market
                    Risk
                38Item
                    4.
                Control
                    and Procedures
                39Part
                    II
                OTHER
                    INFORMATIONItem
                    1.
                Legal
                    Proceedings
                41Item
                    1A.
                Risk
                    Factors
                43Item
                    2.
                Unregistered
                    Sales of Equity - Securities and Use of
                    Proceeds
                56Item
                    3.
                Defaults
                    Upon Senior Securities
                57Item
                    4.
                Submission
                    of Matters to a Vote of Security
                    Holders
                57Item
                    5.
                Other
                    Information
                57Item
                    6.
                Exhibits
                58SIGNATURES
                59Exhibits
                    31.1Exhibits
                    31.2Exhibits
                    32
  -
            2
            -
 *Table
            of Contents*
  **PART
        I - FINANCIALINFORMATION**
 
 **ITEM
        1.**  **FINANCIALSTATEMENTS**
 
 **VESTIN
                    FUNDIII, LLC****CONSOLIDATED
                  BALANCE SHEETS****ASSETS****(UNAUDITED)****MARCH
                  31, 2006**
              
              **DECEMBER
                  31, 2005**Cash
              
              $
              2,323,000
              
              $
              1,167,000Interest
                  receivable
              
              
              202,000
              
              
              194,000Investment
                  in real estate loans, net of allowance for loan losses of $73,000
                  as of
                  March 31, 2006 and December 31, 2005
              
              
              21,307,000
              
              
              22,964,000Investment
                  in real property, net of accumulated depreciation of $340,000 at
                  March 31,
                  2006 and $287,000 as of December 31, 2005, respectively
              
              
              9,538,000
              
              
              9,591,000Capitalized
                  loan fees, net of amortization of $19,000 at March 31, 2006 and
                  $16,000 as
                  of December 31, 2005, respectively
              
              
              96,000
              
              
              99,000Assets
                  under secured borrowings
              
              
              229,000
              
              
              527,000Deferred
                  rent receivable - related party
              
              
              202,000
              
              
              168,000Total
                  assets
              
              $
              33,897,000
              
              $
              34,710,000**LIABILITIES
                  AND MEMBERS' EQUITY**LiabilitiesAccounts
                  payable
              
              $
              114,000
              
              $
              156,000Due
                  to Manager
              
              
              64,000
              
              
              38,000Secured
                  borrowings
              
              
              229,000
              
              
              527,000Note
                  payable
              
              
              4,805,000
              
              
              4,830,000Total
                  liabilities
              
              
              5,212,000
              
              
              5,551,000Members'
                  equity - Authorized 10,000,000 units, 2,927,163 units issued and
                  outstanding at March 31, 2006 and 2,974,419 units issued and outstanding
                  at December 31, 2005
              
              
              28,685,000
              
              
              29,159,000Total
                  members' equity
              
              
              28,685,000
              
              
              29,159,000Total
                  liabilities and members' equity
              
              $
              33,897,000
              
              $
              34,710,000
  The
              accompanying notes are an integral part of these statements.
 *Table
            of Contents*
  **VESTIN
                    FUNDIII, LLC****CONSOLIDATED
                  STATEMENTS OF INCOME****(UNAUDITED)****FOR
                  THE THREE MONTHS**
                **ENDED
                  MARCH 31,****2006**
              
              **2005****Revenues**Interest
                  income from investments in real estate loans
              
              $
              594,000
              
              $
              636,000Rental
                  income - related parties
              
              
              257,000
              
              
              215,000Other
              
              
              18,000
              
              
              10,000Total
                  revenues
              
              
              869,000
              
              
              861,000**Operating
                  expenses**Management
                  fees - related parties
              
              
              12,000
              
              
              16,000Interest
                  expense related to secured borrowings
              
              
              12,000
              
              
              63,000Interest
                  expense related to investment in real estate
              
              
              68,000
              
              
              69,000Provision
                  for loan losses
              
              
              --
              
              
              32,000Depreciation
                  and amortization
              
              
              56,000
              
              
              56,000Professional
                  fees
              
              
              65,000
              
              
              93,000Professional
                  fees - related parties
              
              
              1,000
              
              
              2,000Other
              
              
              5,000
              
              
              7,000Total
                  operating expenses
              
              
              219,000
              
              
              338,000**NET
                  INCOME**
              
              $
              650,000
              
              $
              523,000Net
                  income allocated to members
              
              $
              650,000
              
              $
              523,000Net
                  income allocated to members per weighted average membership
                  units
              
              $
              0.22
              
              $
              0.20Weighted
                  average membership units
              
              
              2,986,887
              
              
              2,665,400
  The
              accompanying notes are an integral part of these statements.
 *Table
            of Contents*
 
 **VESTIN
                  FUNDIII, LLC****CONSOLIDATED
                  STATEMENT OF MEMBERS' EQUITY********(UNAUDITED)****UNITS**
              
              **AMOUNT**Members'
                  equity at December 31, 2005
              
              
              2,974,419
              
              $
              29,159,000Net
                  income
              
              
              
              
              
              650,000Distributions
              
              
              
              
              
              (645,000
              )Reinvestments
                  of distributions
              
              
              21,466
              
              
              226,000Members'
                  redemptions
              
              
              (68,722
              )
              
              (705,000
              )Members'
                  equity at March 31, 2006 (Unaudited)
              
              
              2,927,163
              
              $
              28,685,000
  The
              accompanying notes are an integral part of these statements.
 *Table
            of Contents*
 
 **VESTIN
                  FUNDIII, LLC****CONSOLIDATED
                  STATEMENTS OF CASH FLOWS****(UNAUDITED)****FOR
                  THE THREE MONTHS**
                **ENDED
                  MARCH 31,****2006**
              
              **2005****Cash
                  flows from operating activities:**Net
                  income
              
              $
              650,000
              
              $
              523,000Adjustments
                  to reconcile net income to net cash provided by operating
                  activities:Depreciation
              
              
              53,000
              
              
              53,000Amortization
                  of capitalized loan fees
              
              
              3,000
              
              
              3,000Provision
                  for loan losses
              
              
              --
              
              
              32,000Change
                  in operating assets and liabilities:Interest
                  receivable
              
              
              (8,000
              )
              
              (76,000
              )Deferred
                  rent receivable - related party
              
              
              (34,000
              )
              
              --Accounts
                  payable
              
              
              (42,000
              )
              
              56,000Due
                  to Manager
              
              
              26,000
              
              
              96,000Net
                  cash provided by operating activities
              
              
              648,000
              
              
              687,000**Cash
                  flows from investing activities:**Investments
                  in real estate loans on real estate
              
              
              (793,000
              )
              
              (7,384,000
              )Proceeds
                  from loan payoff
              
              
              2,450,000
              
              
              112,000Net
                  cash provided (used) by investing activities
              
              
              1,657,000
              
              
              (7,272,000
              )**Cash
                  flows from financing activities:**Proceeds
                  from issuance of member units
              
              
              --
              
              
              2,212,000Payments
                  on notes payable
              
              
              (25,000
              )
              
              (23,000
              )Members'
                  redemptions
              
              
              (705,000
              )
              
              (35,000
              )Distributions,
                  net of reinvestments
              
              
              (407,000
              )
              
              (416,000
              )Distributions
                  to Related Party
              
              
              (12,000
              )
              
              --Net
                  cash provided (used) by financing activities
              
              
              (1,149,000
              )
              
              1,738,000**NET
                  CHANGE IN CASH**
              
              
              1,156,000
              
              
              (4,847,000
              )**Cash,
                  beginning**
              
              
              1,167,000
              
              
              6,286,000**Cash,
                  ending**
              
              $
              2,323,000
              
              $
              1,439,000
  The
              accompanying notes are an integral part of these statements.
 *Table
            of Contents*
 
 **VESTIN
                  FUND III, LLC****CONSOLIDATED
                  STATEMENTS OF CASH FLOWS****(UNAUDITED)****FOR
                  THE THREE MONTHS**
                **ENDED
                  MARCH 31,****2006**
              
              **2005****Supplemental
                  disclosures of cash flows information:**Interest
                  paid during the period
              
              $
              80,000
              
              $
              132,000**Non-cash
                  financing activities:**Offering
                  costs paid by Vestin Mortgage, Inc. recorded as deferred offering
                  costs
                  and due to manager on the accompanying balance sheet
              
              $
              --
              
              $
              11,000Change
                  in loans funded through secured borrowing
              
              $
              298,000
              
              $
              88,000
 
 
  The
              accompanying notes are an integral part of these statements.
 *Table
            of Contents*
  **VESTIN
        FUNDIII, LLC**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS** ****
 
 **MARCH
        31, 2006**
 
 **(UNAUDITED)**
 
 
 **NOTE
        A — ORGANIZATION**
 
 Vestin
        Fund III, LLC was organized in April 2003 as a Nevada limited liability company
        for the purpose of investing in real estate loans and income-producing real
        property. In this report we refer to Vestin Fund III, LLC as “the Company”, “our
        Company”, the “Fund”, “we”, “us”, or “our”. We invest in loans secured by real
        estate through deeds of trust or mortgages (hereafter referred to as “deeds of
        trust”). We commenced operations in February 2004. We will continue our
        operations until December 2023 unless dissolved prior thereto or extended
        by
        vote of the members under the provisions of our Operating
        Agreement.
 
 We
        are
        not a mutual fund or an investment company within the meaning of the Investment
        Company Act of 1940, nor are we subject to any regulation thereunder. As
        a
        company investing in real estate loans, investments in real estate and raising
        funds through our Distribution Reinvestment Plan, we are subject to the North
        American Securities Administration Act Mortgage Program Guidelines and Real
        Estate Guidelines (collectively, the “NASAA Guidelines”) promulgated by the
        state securities administrators.
 
 On
        November 7, 2003, our Registration Statement as filed with the Securities
        and
        Exchange Commission became effective for the initial public offering of up
        to
        10,000,000 units at $10 per unit (“Unit”). As of March 31, 2006, we had sold
        approximately 2,865,921 Units. Members may participate in our Distribution
        Reinvestment Plan whereby the members’ distributions may be used to purchase
        additional Units at the current value. As of March 31, 2006, approximately
        165,379 Units had been purchased under this plan. On November 7, 2005, we
        discontinued the offering of our Units; however, members may continue to
        purchase additional Units through our Distribution Reinvestment
        Plan.
 
 Our
        Manager is Vestin Mortgage, Inc. (the “Manager”), a Nevada corporation and
        licensed mortgage broker engaged in the business of brokerage, placement
        and
        servicing of commercial loans secured by real property. Our Manager is a
        wholly
        owned subsidiary of Vestin Group, Inc., a Delaware corporation (“Vestin Group”).
        Michael V. Shustek, the Chief Executive Officer (“CEO”) and Director of the
        Manager, is the sole stockholder of Vestin Group, Inc. Through its subsidiaries,
        Vestin Group is engaged in asset management, real estate lending and other
        financial services.
 
 Our
        Operating Agreement provides that the Manager controls the daily operating
        activities of the Company, including the power to assign duties, to determine
        how to invest our assets, to sign bills of sale, title documents, leases,
        notes,
        security agreements, real estate loan investments and contracts, and to assume
        direction of the business operations. As a result, our operating results
        are
        dependent on our Manager’s ability and intent to continue to service the
        Company’s assets. The Operating Agreement also provides that the members have
        certain rights, including the right to terminate the Manager subject to a
        majority vote of the members.
 
 Vestin
        Mortgage, Inc. is also the Manager of Vestin Realty Mortgage I, Inc., as
        the
        successor by merger to Vestin Fund I, LLC, (“Fund I”), Vestin Realty Mortgage
        II, Inc, as the successor by merger to Vestin Fund II, LLC, (“Fund II”) and
        inVestin Nevada, Inc., a company wholly owned by our Manager’s CEO. These
        entities also invest in commercial real estate loans.
 -
            8
            -
 *Table
            of Contents*
  We
        invest
        in real estate loans throughout the areas in which Vestin Mortgage and its
        correspondents have experience. As of March 31, 2006, our loans are in the
        following states; Arizona, California, Nevada, North Carolina, Oklahoma,
        Oregon,
        Texas, Washington and Wisconsin. The loans we invest in are selected for
        us by
        Vestin Mortgage from among loans originated by Vestin Mortgage or non-affiliated
        mortgage brokers. When Vestin Mortgage or a non-affiliated mortgage broker
        originates a loan for us, that entity identifies the borrower, processes
        the
        loan application, makes or invests in the loan, and brokers or sells the
        loan to
        us. We believe that our loans are attractive to borrowers because of the
        expediency of Vestin Mortgage’s loan approval process, which takes about ten to
        twenty days.
 
 The
        consolidated financial statements include the accounts of the Company and
        its
        wholly owned subsidiary. All significant inter-company transactions and balances
        have been eliminated in consolidation.
 
 **NOTE
        B — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**
 
 **Management
        Estimates**
 
 The
        preparation of financial statements in conformity with accounting principles
        generally accepted in the United States of America (“GAAP”) requires management
        to make estimates and assumptions that affect the reported amounts of assets
        and
        liabilities and disclosure of contingent assets and liabilities at the date
        of
        the financial statements and the reported amounts of revenues and expenses
        during the reporting period. Actual results could differ from those
        estimates.
 
 **Cash
        and Cash Equivalents**
 
 Cash
        and
        cash equivalents include interest-bearing and non-interest-bearing bank
        deposits, money market accounts, short-term certificates of deposit with
        original maturities of three months or less, and short-term instruments with
        a
        liquidation provision of one month or less.
 
 **Revenue
        Recognition**
 
 Interest
        is recognized as revenue when earned according to the terms of the loans,
        using
        the effective interest method. We do not recognize interest income on loans
        once
        they are determined to be impaired. A loan is impaired when based on current
        information and events, it is probable that we will be unable to collect
        all
        amounts due according to the contractual terms of the loan agreement or when
        the
        payment of interest is 90 days past due. Cash receipts will be allocated
        to
        interest income, except when such payments are specifically designated by
        the
        terms of the loan as principal reduction or when management does not believe
        our
        investment in the loan is fully recoverable.
 
 Certain
        leases provide for tenant occupancy during periods for which no rent is due
        or
        where minimum rent payments increase during the term of the lease. Rental
        revenue is recorded for the full term of each lease on a straight-line basis.
        Accordingly, the Company records a receivable from tenants for rents that
        it
        expects to collect over the remaining lease term as deferred rents receivable.
        When the Company acquires a property, the term of the existing leases is
        considered to commence as of the acquisition date for the purposes of this
        calculation. Revenue recognition is considered to be critical because the
        evaluation of the reliability of such deferred rents receivable involves
        management’s assumptions relating to such tenant’s viability.
 
 We
        recognize income from rent once all of the following criteria are met in
        accordance with the Statement of Financial Accounting Standards (FAS) 13 *Accounting
        for Leases* :
 
 ·
            The
                agreement has been fully executed and
                delivered; 
 ·
            Services
                have been rendered; 
 ·
            The
                amount is fixed or determinable, and 
 ·
            The
                collectibility is reasonably assured.  -
            9
            -
 *Table
            of Contents*
  **Investments
        in Real Estate Loans**
 
 The
        Company may from time to time acquire or sell investments in real estate
        loans
        from or to the Manager or other related parties pursuant to the terms of
        the
        Company's Operating Agreement provided the price does not exceed the original
        cost. The purpose primarily is to either free up capital to provide liquidity
        for various reasons, such as loan diversification, or place excess capital
        in
        investments to maximize the use of the Company's capital. For example, the
        Company's Operating Agreement provides certain guidelines with respect to
        loan
        concentration by dollar amount, location and lien position. Selling or buying
        loans allows the Company to diversify its loan portfolio within these
        parameters. Due to the short term nature of the loans the Company makes and
        the
        similarity of interest rates in loans the Company normally would invest in,
        the
        fair value of a loan typically approximates its carrying value. Accordingly,
        discounts or premiums typically do not apply upon sales of loans and therefore,
        generally no gain or loss is recorded on these transactions, regardless of
        whether to a related or unrelated party.
 
 Investments
        in real estate loans are secured by deeds of trust or mortgages (hereafter
        referred to as “deeds of trust”). Generally, our real estate loans require
        interest only payments with a balloon payment of the principal at maturity.
        We
        have both the intent and ability to hold real estate loans until maturity
        and
        therefore, real estate loans are classified and accounted for as held for
        investment and are carried at amortized cost. Loans sold to or purchased
        from
        affiliates are accounted for at the principal balance and no gain or loss
        is
        recognized by us or any affiliate. Loan to value ratios are based on appraisals
        obtained at the time of loan origination and may not reflect subsequent changes
        in value estimates. Such appraisals are generally dated within 12 months
        of the
        date of loan origination and may be commissioned by the borrower. The appraisals
        may be for the current estimate of the “as-if developed” value of the property,
        which approximates the post-construction value of the collateralized property
        assuming that such property is developed. “As-if developed” values on raw land
        loans or acquisition and development loans often dramatically exceed the
        immediate sales value and may include anticipated zoning changes and timely
        successful development by the purchaser. As most of the appraisals will be
        prepared on an “as-if developed” basis, if a loan goes into default prior to any
        development of a project, the market value of the property may be substantially
        less than the appraised value. As a result, there may be less security than
        anticipated at the time the loan was originally made. If there is less security
        and a default occurs, we may not recover the full amount of the
        loan.
 
 Currently,
        all of our loans provide for payments of interest only with a “balloon” payment
        of principal payable in full at the end of the term. In addition, we also
        invest
        in real estate loans that have interest reserves. Loans with interest reserves
        require the borrowers to maintain interest reserves funded from the principal
        amount of the loan for a period of time. At March 31, 2006, we had $2.9 million
        in investments in real estate loans that had interest reserves where the
        total
        outstanding principal was approximately $6.2 million, including participating
        lenders. These loans had interest reserves of approximately $1.6 million,
        of
        which our portion is $0.7 million. At December 31, 2005, we had $3.9 million
        in
        investments in real estate loans that had interest reserves where the total
        outstanding principal was approximately $25.1 million, including participating
        lenders. These loans had interest reserves of approximately $2.4 million,
        of
        which our portion was $0.7 million.
 
 **Allowance
        for Loan Losses**
 
 We
        maintain an allowance for loan losses on our investments in real estate loans
        for estimated credit impairment. The Manager’s estimate of losses is based on a
        number of factors including the types and dollar amounts of loans in the
        portfolio, adverse situations that may affect the borrower’s ability to repay,
        prevailing economic conditions and the underlying collateral securing the
        loan.
        Additions to the allowance are provided through a charge to earnings and
        are
        based on an assessment of certain factors, which may indicate estimated losses
        on the loans. Actual losses on loans are recorded as a charge-off or a reduction
        to the allowance for loan losses. Subsequent recoveries of amounts previously
        charged off are added back to the provision for loan loss or included as
        income.
 
 Estimating
        allowances for loan losses requires significant judgment about the underlying
        collateral, including liquidation value, condition of the collateral, competency
        and cooperation of the related borrower and specific legal issues that affect
        loan collections or taking possession of the property. As a non-conventional
        lender willing to invest in loans to borrowers who may not meet the credit
        standards of conventional lenders, the default rate on our loans could be
        higher
        than those generally experienced in the real estate lending industry. We
        generally approve loans more quickly than other real estate lenders and,
        due to
        our expedited underwriting process, there is a risk that the credit inquiry
        we
        perform will not reveal the material facts pertaining to a borrower and the
        security.
 -
            10
            -
 *Table
            of Contents*
  Additional
        facts and circumstances are discovered as we continue our efforts in the
        collection and foreclosure processes. This additional information often causes
        management to reassess its estimates. Circumstances that may cause significant
        changes in our estimated allowance include:
 
 ·
            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. 
 ·
            Appraisals,
                which are only opinions of value at the time of the appraisal, may
                not
                accurately reflect the value of the
                property. 
 **Investments
        in Real Property**
 
 Real
        property is stated at cost, less accumulated depreciation. Amounts capitalized
        as investments in real property consist of the cost of acquisition or
        construction and any tenant improvements or major improvements that extend
        the
        useful life of the related asset. All repairs and maintenance are expensed
        as
        incurred. Upon acquisition, the purchase price of the property is allocated
        to
        land, building and improvements and other intangible assets and associated
        liabilities as required by FAS 141 *Business
        Combinations* .
        The
        allocation to land is based on an estimate of its fair value based on available
        information, including appraisals. The allocation to other intangible assets
        represents the value associated with the in-place leases, including leasing
        commission, legal and other related costs.
 
 Real
        property is depreciated using the straight-line method over the useful lives
        of
        the assets by class generally as follows:
  Land
                
                Not
                    DepreciatedBuilding
                
                40
                    YearsBuilding
                    Improvements
                
                10-25
                    YearsLand
                    Improvements
                
                20-25
                    YearsTenant
                    Improvements
                
                Lease
                    TermIntangible
                    Lease Assets including capitalized loan fees
                
                Lease
                    Term
 
 Our
        Manager continually monitors events and changes in circumstances that could
        indicate carrying amounts of real estate and related intangible assets may
        not
        be recoverable. When indicators of potential impairment are present, our
        Manager
        assesses the recoverability of the assets by determining whether the carrying
        value of the real estate and related intangible assets will be recovered
        through
        the undiscounted future cash flows expected from the use and eventual
        disposition of the asset. In the event the expected undiscounted future cash
        flows do not exceed the carrying value, we adjust the real estate and intangible
        assets to their fair value and recognize an impairment loss. Our Manager
        has
        determined there has been no impairment in the carrying value of real property
        held by us during the three months ended March 31, 2006.
 -
            11
            -
 *Table
            of Contents*
  **Secured
        Borrowings**
 
 Secured
        borrowings provide an additional source of capital for our lending activity.
        Secured borrowings allow us to increase the diversification of our loan
        portfolio and to invest in loans that we might not otherwise invest in. We
        do
        not receive any revenues for entering into secured borrowing arrangements.
        Loans
        in which third party investors have participated through inter-creditor
        agreements (“Inter-creditor Agreements”) are accounted for as secured borrowings
        in accordance with FAS 140, *Accounting
        for Transfers and Servicing of Financial Assets and Extinguishments of
        Liabilities* (“FAS
        140”). The Inter-creditor Agreements provide us additional funding sources for
        real estate loans whereby a third party investor (the “Investor”) may
        participate on a senior basis in certain real estate loans with us and/or
        Fund I
        and/or Fund II (collectively, the “Lead Lenders”). In the event of borrower
        non-performance, the Inter-creditor Agreements generally provide that the
        Lead
        Lenders must repay the Investor’s loan amount either by (i) continuing to remit
        to the Investor the interest due on the participated loan amount; (ii)
        substituting an alternative loan acceptable to the Investor; or (iii)
        repurchasing the participation from the Investor for the outstanding balance
        plus accrued interest.
 
 Additionally,
        an Investor may participate in certain loans with the Lead Lenders through
        Participation Agreements. In the event of borrower non-performance, the
        Participation Agreement may allow the Investor to be repaid up to the amount
        of
        the Investor’s investment prior to the Lead Lender being repaid. Real estate
        loan financing under the Participation Agreements are also accounted for
        as a
        secured borrowing in accordance with FAS 140. We do not receive any revenues
        for
        entering into secured borrowing arrangements.
 
 **Fair
        Value of Financial Instruments**
 
 FAS.
        107, *Disclosures
        about Fair Value of Financial Instruments* ,
        requires the determination of fair value of our financial assets. The following
        methods and assumptions were used to estimate the fair value of financial
        instruments included in the following categories:
 
 (a)
            Certificate
                of Deposits and Short-Term Investments: The carrying amount of these
                instruments is at amortized cost, which approximates fair
                value. 
 (b)
            Investment
                in Real Estate Loans: The carrying value of these instruments, net
                of the
                allowance for loan losses, approximates the fair value due to their
                short-term maturities. Fair value for loans which are delinquent
                and/or in
                foreclosure are indeterminable at this time as no ready market exists
                for
                these loans, but fair value may be significantly below the current
                carrying value. 
 (c)
            Assets
                under Secured Borrowing: The carrying amount of these instruments
                approximate fair value. The fair value is estimated based upon projected
                cash flows discounted at the estimated current interest rates at
                which
                similar loans would be made. 
 At
        March
        31, 2006 and December 31, 2005, the estimated fair value of the real estate
        loans was approximately $21.3 million and $23.0 million, respectively. At
        March
        31, 2006 and December 31, 2005, the estimated fair values of assets under
        secured borrowings were approximately $0.2 million and $0.5 million,
        respectively. These estimates were based upon the present value of expected
        cash
        flows discounted at rates currently available for similar loans. Fair value
        estimates are made at a specific point in time; are based on relevant market
        information; are subjective in nature; and involve uncertainties and matters
        of
        significant judgment. Accordingly, the estimates presented herein are not
        necessarily indicative of the amounts that would be collected upon maturity
        or
        disposition of the loans.
 
 **Net
        Income Allocated to Members Per Weighted Average Membership
        Unit**
 
 Net
        income allocated to members per weighted average membership unit is computed
        by
        dividing net income calculated in accordance with GAAP by the weighted average
        number of membership units outstanding for the period.
 -
            12
            -
 *Table
            of Contents*
  **Income
        Taxes**
 
 Income
        tax effects resulting from our operations pass through to our members
        individually and, accordingly, no provision for income taxes is included
        in the
        financial statements.
 
 **Reclassifications**
 
 Certain
        reclassifications have been made to the prior year’s financial statements to
        conform with the current year presentation.
 
 **NOTE
        C — FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT
        RISK**
 
 Financial
        instruments with concentration of credit and market risk include cash and
        loans
        secured by deeds of trust.
 
 We
        maintain cash deposit accounts and certificates of deposit, which, at times,
        may
        exceed federally insured limits. We have not experienced any losses in such
        accounts and believe we are not exposed to any significant credit risk on
        cash.
        As of March 31, 2006 and December 31, 2005, we had approximately $2.9 million
        and $1.2 million, respectively, in excess of the federally insured
        limits.
 
 As
        of
        March 31, 2006, the majority of our loans were concentrated in the following
        states; Arizona, California and Nevada. As of March 31, 2006, 21% of our
        real
        estate loans were in Nevada compared to 18% at December 31, 2005. Additionally,
        as of March 31, 2006, 27% of our real estate loans were in Arizona compared
        to
        25% at December 31, 2005 and 21% of our real estate loans were in California
        compared to 24% at December 31, 2005. As a result of this geographical
        concentration of our real estate loans, a downturn in the local real estate
        markets in Nevada, Arizona, and California could have a material adverse
        effect
        on us.
 
 At
        March
        31, 2006, the aggregate amount of loans to our three largest borrowers
        represented 43% of our total investment in real estate loans. These real
        estate
        loans consisted of commercial, land and acquisition and development, located
        in
        Arizona, Nevada and California with a first lien position, earning between
        10%
        and 12%, and outstanding balances of approximately $9.2 million. At December
        31,
        2005, the aggregate amount of loans to our three largest borrowers represented
        41% of our total investment in real estate loans. These real estate loans
        consisted of commercial and land loans, located in Arizona and Nevada, with
        a
        first lien position, earning between 10% and 12%, and outstanding balances
        of
        approximately $9.2 million. Because we have a significant concentration of
        credit risk with our three largest borrowers, a default by any of such borrowers
        could have a material adverse effect on us.
 
 At
        March
        31, 2006 and December 31, 2005, there was one loan with a balance of
        approximately $4.3 million, representing 20% and 19%, respectively, of our
        total
        investment in real estate loans. This land loan is located in Arizona, with
        a
        first lien position, earning 10% interest.
 
 Most
        of
        our real estate loans will require the borrower to make a balloon payment
        of the
        principal at maturity. The success of a borrower’s ability to repay our real
        estate loan obligation in a large lump-sum payment may be dependent upon
        the
        borrower’s ability to refinance the obligation or otherwise raise a substantial
        amount of cash. An increase in interest rates over the loan rate applicable
        at
        origination of the loan may have an adverse effect on the borrower’s ability to
        refinance.
 
 **NOTE
        D — INVESTMENTS IN REAL ESTATE LOANS**
 
 We
        have
        five real estate loan products consisting of commercial, construction,
        acquisition and development, land, and residential loans. The effective interest
        rates on all product categories range from 6% to 14%. Revenue by product
        will
        fluctuate based upon relative balances during the period.
 -
            13
            -
 *Table
            of Contents*
  Investments
        in real estate loans as of March 31, 2006 were as follows:
 
 **Loan
                  Type**
              
              **Number
                  Of Loans**
              
              **Fund
                  Balance**
              
              **Weighted
                  Average Interest Rate**
              
              **Portfolio
                  Percentage**
              
              **Loan
                  To Value (2)**Acquisition
                  and development
              
              
              3
              
              $
              3,806,000
              
              
              11.30%
              
              
              17.80%
              
              
              47.74%Commercial
                  (1)
              
              
              10
              
              
              9,794,000
              
              
              9.06%
              
              
              45.81%
              
              
              66.05%Construction
              
              
              3
              
              
              1,731,000
              
              
              12.00%
              
              
              8.10%
              
              
              63.20%Land
              
              
              4
              
              
              6,049,000
              
              
              11.06%
              
              
              28.29%
              
              
              56.98%20
              
              $
              21,380,000
              
              
              10.26%
              
              
              100.00%
              
              
              59.99%
 
 Investments
        in real estate loans as of December 31, 2005 were as follows:
 
 **Loan
                  Type**
              
              **Number
                  Of Loans**
              
              **Fund
                  Balance**
              
              **Weighted
                  Average Interest Rate**
              
              **Portfolio
                  Percentage**
              
              **Loan
                  To Value (2)**Acquisition
                  and development
              
              
              3
              
              $
              3,806,000
              
              
              11.30%
              
              
              16.52%
              
              
              47.74%Commercial
                  (1)
              
              
              12
              
              
              12,244,000
              
              
              9.63%
              
              
              53.15%
              
              
              65.33%Construction
              
              
              2
              
              
              1,231,000
              
              
              12.00%
              
              
              5.34%
              
              
              64.50%Land
              
              
              3
              
              
              5,756,000
              
              
              11.01%
              
              
              24.99%
              
              
              56.44%20
              
              $
              23,037,000
              
              
              10.38%
              
              
              100.00%
              
              
              60.16%
 
 (1)
            Bridge
                loans are a subcategory of commercial loans in which we provide interim
                financing for borrowers seeking long-term, permanent
                financing. 
 (2)
            Loan
                to value ratios are based on the most recent appraisals and may not
                reflect subsequent changes in value estimates. Such appraisals, which
                may
                be commissioned by the borrower, are generally dated no greater than
                12
                months prior to the date of loan origination. The appraisals may
                be for
                the current estimate of the “as-if developed” value of the property, which
                approximates the post-construction value of the collateralized property
                assuming that such property is developed. “As-if developed” values on raw
                land loans or acquisition and development loans often dramatically
                exceed
                the immediate sales value and may include anticipated zoning changes,
                and
                successful development by the purchaser; upon which development is
                dependent on availability of financing. As most of the appraisals
                will be
                prepared on an “as-if developed” basis, if a loan goes into default prior
                to 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. 
 The
        following table reconciles the balance of the loan portfolio to the amount
        shown
        on the accompanying Balance Sheet:
 
 **March
                  31, 2006 Balance**
              
              **December
                  31, 2005 Balance**Balance
                  Per Loan Portfolio
              
              $
              21,380,000
              
              $
              23,037,000Less:Allowance
                  for Loan Losses
              
              
              (73,000
              )
              
              (73,000
              )Balance
                  per Balance Sheet
              
              $
              21,307,000
              
              $
              22,964,000
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            14
            -
 *Table
            of Contents*
  The
        following is a schedule of investments in real estate loans by lien
        position.
 
 **Loan
                  Type**
              
              **Number
                  of Loans**
              
              **March
                  31, 2006**
                **Balance**
              
              **Portfolio**
                **Percentage**
              
              **Number
                  of Loans**
              
              **December
                  31, 2005**
                **Balance**
              
              **Portfolio**
                **Percentage**First
                  Deeds of Trust
              
              
              18
              
              $
              19,870,000
              
              
              92.94%
              
              
              18
              
              $
              21,527,000
              
              
              93.45%Second
                  Deeds of Trust**
              
              
              2
              
              
              1,510,000
              
              
              7.06%
              
              
              2
              
              
              1,510,000
              
              
              6.55%20
              
              $
              21,380,000
              
              
              100.00%
              
              
              20
              
              $
              23,037,000
              
              
              100.00%
 
 **Generally,
        our second deeds of trust are junior to first deeds of trust position held
        by
        either us or our Manager.
 
 The
        following is a schedule of contractual maturities of investments in real
        estate
        loans as of March 31, 2006:
 
 April
                  - December 2006
              
              $
              20,587,000January
                  - December 2007
              
              
              793,000$
              21,380,000
 
 
 The
        following is a schedule by geographic location of investments in real estate
        loans as of March 31, 2006 and December 31, 2005:
 
 **March
                  31, 2006 Balance**
              
              **Portfolio
                  Percentage**
              
              **December
                  31, 2005 Balance**
              
              **Portfolio
                  Percentage**Arizona
              
              $
              5,807,000
              
              
              27.16%
              
              $
              5,807,000
              
              
              25.21%California
              
              
              4,540,000
              
              
              21.23%
              
              
              5,490,000
              
              
              23.83%Nevada
              
              
              4,487,000
              
              
              20.98%
              
              
              4,194,000
              
              
              18.21%North
                  Carolina
              
              
              102,000
              
              
              0.48%
              
              
              102,000
              
              
              0.44%Oklahoma
              
              
              1,000,000
              
              
              4.68%
              
              
              1,000,000
              
              
              4.34%Oregon
              
              
              1,356,000
              
              
              6.34%
              
              
              1,356,000
              
              
              5.89%Texas
              
              
              1,025,000
              
              
              4.80%
              
              
              2,525,000
              
              
              10.96%Washington
              
              
              1,860,000
              
              
              8.70%
              
              
              1,360,000
              
              
              5.90%Wisconsin
              
              
              1,203,000
              
              
              5.63%
              
              
              1,203,000
              
              
              5.22%Total
              
              $
              21,380,000
              
              
              100.00%
              
              $
              23,037,000
              
              
              100.00%
 
 Our
        Manager periodically reviews and makes a determination as to whether the
        allowance for loan losses is adequate to cover any potential losses. Additions
        to the allowance for loan losses are made by charges to the provision for
        loan
        losses. Recoveries of previously charged off amounts are credited to the
        allowance for loan losses or included as income when the asset is disposed.
        As
        of March 31, 2006, we have provided a general allowance for loan losses of
        $73,000. Our Manager evaluated the loans and concluded that the underlying
        collateral was sufficient to protect us against further losses of principal
        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
        March
        31, 2006, all of our loans were performing.
 
 Because
        any decision regarding the allowance for loan losses reflects a judgment
        about
        the probability of future events, there is an inherent risk that such judgments
        will prove incorrect. In such event, actual losses may exceed (or be less
        than)
        the amount of any reserve. To the extent that we experience losses greater
        than
        the amount of our reserves, we may incur a charge to our earnings that will
        adversely affect our operating results and the amount of any distributions
        payable to our members.
 -
            15
            -
 *Table
            of Contents*
  The
        following is a roll-forward of the allowance for loan losses for the three
        months ended March 31, 2006:
 
 **Description**
              
              **Balance
                  at**
                **December
                  31, 2005**
              
              **Provisions**
              
              **Deductions**
              
              **Balance
                  at**
                **March
                  31, 2006**General
                  Valuation Allowance
              
              $
              73,000
              
              
              --
              
              
              --
              
              $
              73,000
 
 In
        addition, our Manager had granted extensions on nine loans pursuant to the
        terms
        of the original loan agreements, which permit extensions by mutual consent.
        Such
        extensions are generally provided on loans where the original term was 12
        months
        or less. However, our Manager only grants extensions when a borrower is in
        full
        compliance with the terms of the loan, including, but not limited to the
        borrower’s obligation to make interest payments on the loan. The aggregate
        amount due from borrowers whose loans had been extended as of March 31, 2006
        was
        approximately $14.2 million. Our Manager concluded that no allowance for
        loan
        loss was necessary with respect to these loans as of that date.
 
 **Asset
        Quality and Loan Reserves**
 
 Losses
        may occur from investing in real estate loans. The amounts of losses will
        vary
        as the loan portfolio is affected by changing economic conditions and the
        financial condition of borrowers.
 
 The
        conclusion that a real estate loan is uncollectible or that collectibility
        is
        doubtful is a matter of judgment. On a quarterly basis, the Manager evaluates
        our real estate loan portfolio for impairment. The fact that a loan is
        temporarily past due does not necessarily mean that the loan is impaired.
        Rather, all relevant circumstances are considered by our Manager to determine
        impairment and the need for specific reserves. Such evaluation, which includes
        a
        review of all loans on which full collectibility may not be reasonably assured,
        considers among other matters:
 
 ·
            Prevailing
                economic conditions; 
 ·
            Historical
                experience; 
 ·
            The
                nature and volume of the loan portfolio; 
 ·
            The
                borrowers’ financial condition and adverse situations that may affect the
                borrowers’ ability to pay; 
 ·
            Evaluation
                of industry trends; and 
 ·
            Estimated
                net realizable value of any underlying collateral in relation to
                the loan
                amount. 
 Based
        upon this evaluation, a determination was made as to whether the allowance
        for
        loan losses was adequate to cover any potential losses. Additions to the
        allowance for loan losses are made by charges to the provision for loan losses.
        Recoveries of previously charged off amounts are credited to the allowance
        for
        loan losses or included as income. As of March 31, 2006, our Manager had
        provided for $73,000 as a general allowance for loan losses.
 
 **NOTE
        E — INVESTMENT IN REAL PROPERTY**
 
 Investment
        in real property consists of an approximately 42,000 square foot office building
        located at 8379 West Sunset Road in Las Vegas, Nevada. The purchase price
        and
        related closing costs was approximately $9,800,000. As of March 31, 2006,
        the
        building was fully leased by Vestin Group, earning us monthly rent revenue
        of
        approximately $87,000. Vestin Group has sub-leased office space in the
        building as permitted by the lease agreement at rates equal to or less than
        rates we receive. We provided $4,850,000 of the purchase price from our capital
        and borrowed $4,950,000 for the remainder of the purchase price. We subsequently
        conveyed the real property to our wholly-owned subsidiary, VF III HQ,
        LLC.
 -
            16
            -
 *Table
            of Contents*
  Subsequent
        to the purchase of this property we invested an additional $90,000 in tenant
        improvements. As of March 31, 2006, the carrying value of this property was
        $9,538,000, net of accumulated depreciation of $340,000.
 
 On
        April
        10, 2006, the property was listed for sale.
 
 **NOTE
        F — LEASING ACTIVITY**
 
 The
        Company leases a facility to Vestin Group under a 10 year non-cancelable
        lease
        agreement, expiring March 2014, with two, five-year optional extensions.
        The
        agreement calls for an annual base rent of approximately $894,000, plus a
        4%
        annual increase. Rental income recognized for the leased facility is recognized
        on a straight line basis over the term of the lease. For three months ended
        March 31, 2006 and 2005, rental income totaled $257,000 and $215,000,
        respectively. Deferred rent receivable as of March 31, 2006 was
        $202,000.
 
 Future
        minimum base rent to be received, due under non-cancelable leases with Vestin
        Group in effect as of March 31, 2006 are as follows:
 
 April
                  1, 2006 Through March 31, 2007
              
              $
              915,000April
                  1, 2006 Through March 31, 2008
              
              
              952,000April
                  1, 2006 Through March 31, 2009
              
              
              990,000April
                  1, 2006 Through March 31, 2010
              
              
              1,029,000April
                  1, 2006 Through March 31, 2011
              
              
              1,070,000Thereafter:
              
              
              3,934,000Total:
              
              $
              8,890,000
 
 **NOTE
        G — RELATED PARTY TRANSACTIONS**
 
 From
        time
        to time we may acquire or sell investments in real estate loans from/to our
        Manager or other related parties pursuant to the terms of our Operating
        Agreement provided the price does not exceed the original cost. No gain or
        loss
        is recorded on these transactions, as it is not our intent to make a profit
        on
        the purchase or sale of such investments. The purpose is generally to diversify
        our portfolio by syndicating loans, thereby providing us with additional
        capital
        to make additional loans.
 
 **Transactions
        with the Manager**
 
 Our
        Manager is entitled to receive from us a management (acquisition and advisory)
        fee up to 2.5% of the gross offering proceeds and up to 3% of our rental
        income.
        For the three months ended March 31, 2006 and 2005, we recorded fees to our
        Manager of approximately $12,000 and $16,000 respectively.
 
 As
        of
        March 31, 2006 and December 31, 2005, we owed our Manager and Vestin Group
        approximately $64,000 and $38,000, respectively, primarily related to unpaid
        management fees.
 
 Our
        Manager was reimbursed for out of pocket offering expenses in an amount not
        to
        exceed 2% of the gross proceeds of the offering of our units. As of December
        31,
        2005, offering costs of $565,000 were incurred by us and paid by our Manager
        on
        our behalf. These deferred offerings costs, which are primarily legal,
        accounting and registration fees, were converted to 54,862 membership units
        at a
        price equal to the then effective unit value. The additional costs above
        the 2%
        of the gross proceeds of the offering were absorbed by our Manager.
        Additionally, for the three months ended, March 31, 2006, we paid pro rata
        distributions owed to our manager of approximately $12,000 based upon the
        total
        54,862 units owned by our manager.
 
 We
        lease
        an office building, located in Las Vegas, NV, to Vestin Group, earning us
        monthly rent revenue of approximately  $87,000. During the three months
        ended March 31, 2006 and 2005 we earned rental income of $257,000 and $215,000,
        respectively.
 -
            17
            -
 *Table
            of Contents*
  **Transactions
        with the Funds**
 
 During
        the three months ended March 31, 2006 and 2005, we had no transactions with
        Fund
        I or Fund II.
 
 **Transactions
        with Other Related Parties**
 
 During
        the three months ended March 31, 2006 and 2005, we incurred expenses of $1,000
        and $2,000 respectively, for legal fees to the law firm of Levine, Garfinkel,
        and Katz in which the Secretary of Vestin Group has an equity ownership
        interest.
 
 **NOTE
        H — SECURED BORROWINGS**
 
 Secured
        borrowings provide an additional source of capital for our lending activity.
        Secured borrowings allow us to increase the diversification of our loan
        portfolio and to invest in loans that we might not otherwise invest in. We
        do
        not receive any revenues for entering into secured borrowing arrangements.
        Loans
        in which third party investors have participated through inter-creditor
        agreements (“Inter-creditor Agreements”) are accounted for as secured borrowings
        in accordance with FAS 140, *Accounting
        for Transfers and Servicing of Financial Assets and Extinguishments of
        Liabilities* (“FAS
        140”). The Inter-creditor Agreements provide us additional funding sources for
        real estate loans whereby a third party investor (the “Investor”) may
        participate on a senior basis in certain real estate loans with us and/or
        Fund I
        and/or Fund II (collectively, the “Lead Lenders”). In the event of borrower
        non-performance, the Inter-creditor Agreements generally provide that the
        Lead
        Lenders must repay the Investor’s loan amount either by (i) continuing to remit
        to the Investor the interest due on the participated loan amount; (ii)
        substituting an alternative loan acceptable to the Investor; or (iii)
        repurchasing the participation from the Investor for the outstanding balance
        plus accrued interest.
 
 Additionally,
        an Investor may participate in certain loans with the Lead Lenders through
        participation agreements (“Participation Agreements”). In the event of borrower
        non-performance, the Participation Agreement may allow the Investor to be
        repaid
        up to the amount of the Investor’s investment prior to the Lead Lenders being
        repaid. Real estate loan financing under the Participation Agreements are
        also
        accounted for as a secured borrowing in accordance with FAS 140.
 
 As
        of
        March 31, 2006, and December 31, 2005, funds being used under Inter-creditor
        and
        Participation Agreements where we have potential obligations as defined above
        totaled $229,000 and $527,000, respectively.
 
 **NOTE
        I — NOTE PAYABLE**
 
 Note
        payable consists of the following:
 
 **Balance
                  at**
                **March
                  31, 2006**10-
                  year note payable secured by real property, bearing interest at
                  5.6% per
                  annum, payable in monthly principal and interest installments of
                  $31,000
              
              $
              4,805,000
 
 As
        of
        March 31, 2006, the scheduled principal reduction of the note payable was
        as
        follows:
 
 April
                  1, 2006 Through March 31, 2007
              
              $
              102,000April
                  1, 2006 Through March 31, 2008
              
              
              108,000April
                  1, 2006 Through March 31, 2009
              
              
              114,000April
                  1, 2006 Through March 31, 2010
              
              
              120,000April
                  1, 2006 Through March 31, 2011
              
              
              127,000Thereafter:
              
              
              4,234,000Total
              
              $
              4,805,000
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            18
            -
 *Table
            of Contents*
  **NOTE
        J — MEMBERS’ EQUITY**
 
 **Membership
        Units**
 
 During
        the three months ended March 31, 2006, members received 21,466 units as a
        result
        of reinvestments of distributions for the three months ended March 31,
        2006.
 
 Our
        Manager was reimbursed for out of pocket offering expenses in an amount not
        to
        exceed 2% of the gross proceeds of the offering of our units. As of December
        31,
        2005, offering costs of approximately $565,000 were incurred by us and paid
        by
        our Manager on our behalf. These deferred offerings costs, which are primarily
        legal, accounting and registration fees, were converted to 54,862 membership
        units at a price equal to the then effective unit value. The additional costs
        above the 2% of the gross proceeds of the offering were absorbed by our
        Manager.
 
 **Allocations
        and Distributions**
 
 In
        accordance with our Operating Agreement, profits, gains and losses are to
        be
        credited to and charged against each member’s capital account in proportion to
        their respective capital accounts as of the close of business on the last
        day of
        each calendar month.
 
 Distributions
        are paid monthly to members. Members may elect to reinvest their distributions.
        For the three months ended March 31, 2006, distributions to members were
        approximately $645,000.
 
 **Working
        Capital Reserves**
 
 We
        are
        required by our Operating Agreement to maintain working capital reserves
        of
        approximately 3% of the aggregate capital accounts of the members. This reserve
        is available to pay any future expenses in excess of revenues, satisfy
        obligations of underlying secured properties, expend money to satisfy our
        unforeseen obligations and other permitted uses of our working capital. Working
        capital reserves up to 3% in cash or cash equivalents are excluded from the
        funds committed to investments in determining what proportion of the offering
        proceeds and reinvested distributions have been invested in real estate loans
        or
        real property.
 
 **Value
        of Members’ Capital Accounts**
 
 In
        accordance with Section 7.8 of our Operating Agreement, our Manager reviewed
        the
        value of our assets during the last quarter of fiscal year 2005. Based on
        this
        review, as a result of an increase in the value of our assets, the value
        of
        members’ capital accounts was adjusted from $10.30 per unit to $10.50 per unit.
        As a result, new units sold through our distribution Reinvestment Plan and
        units
        redeemed on or after December 15, 2005 have been sold or redeemed at $10.50
        per
        unit. The change in valuation is primarily for tax and capital account purposes
        and does not reflect the change in the value of the units calculated in
        accordance with GAAP. Accordingly, unit prices calculated under GAAP may
        be
        different than the adjusted price per unit.
 
 **NOTE
        K — RECENT ACCOUNTING PRONOUNCEMENTS**
 
 FASB
        Staff Position (FSP) FAS 115-1/124-1, replacing Emerging Issues Task Force
        (EITF) 03-1, *The
        Meaning of Other-Than-Temporary Impairment and Its Application to Certain
        Investments* - On
        November 3, 2005, the FASB released FSP FAS 115-1 and FAS 124-1 replacing
        EITF
        03-1. The final language on FSP FAS 115-1 / FAS 124-1 requires investors
        to
        recognize an impairment loss when the impairment is deemed other-than-temporary,
        even if a decision to sell has not been made. The FSP applies to reporting
        periods beginning after December 15, 2005. We do not expect the adoption
        of
        Staff Position (FSP) FAS 115-1/124-1 to have a material impact on our financial
        position or results of operations.
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            19
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  On
        February 16, 2006, the FASB issued FAS 155, *Accounting
        for Certain Hybrid Financial Instruments* (FAS
        155), an amendment of FAS 140 and FAS 133. FAS 155 permits the Company to
        elect
        to measure any hybrid financial instrument at fair value (with changes in
        fair
        value recognized in earnings) if the hybrid instrument contains an embedded
        derivative that would otherwise be required to be bifurcated and accounted
        for
        separately under FAS 133. The election to measure the hybrid instrument at
        fair
        value is made on an instrument-by-instrument basis and is irreversible. The
        Statement will be effective for all instruments acquired, issued, or subject
        to
        a re-measurement event occurring after the beginning of the Company's fiscal
        year that begins after September 15, 2006, with earlier adoption permitted
        as of
        the beginning of the Company's 2006 fiscal year, provided that financial
        statements for any interim period of that fiscal year have not yet been issued.
        We do not expect the adoption of FAS 155 to have a material impact on our
        financial position or results of operations.
 
 On
        March
        17, 2006, the FASB issued FAS 156 *Accounting
        for Transfers and Servicing of Financial Assets and Extinguishments of
        Liabilities* (FAS
        156), an amendment to portions of FAS 133, FAS 140 and FTB 87-3. FAS 156
        requires that all separately recognized servicing assets and servicing
        liabilities be initially measured at fair value, if practicable. It also
        permits, but does not require, the subsequent measurement of servicing assets
        and servicing liabilities at fair value. Derivative instruments used to mitigate
        the risks inherent in servicing assets and servicing liabilities must be
        accounted for at fair value. Under FAS 156 an election can also be made for
        subsequent fair value measurement of servicing assets and servicing liabilities
        by class, thus simplifying the accounting and provide for income statement
        recognition of potential offsetting changes in the fair value of servicing
        assets, servicing liabilities and related derivative instruments. The Statement
        will be effect beginning the first fiscal year that begins after September
        15,
        2006. We do not expect the adoption of FAS 156 to have a material impact
        on our
        financial position or results of operations.
 
 **NOTE
        L — LEGAL MATTERS INVOLVING THE MANAGER**
 
 Vestin
        Group, Vestin Mortgage, and Del Mar Mortgage, Inc., a company wholly owned
        by
        Michael V. Shustek, the sole shareholder and CEO of Vestin Group, are defendants
        in a civil action entitled Desert Land, LLC et al. v. Owens Financial Group,
        Inc. et al (the “Action”). The Action is based upon allegations that Del Mar
        Mortgage, Inc. and/or Vestin Mortgage charged unlawful fees on various loans
        arranged by them. Desert Land sought in excess of $10 million in monetary
        damages. On April 10, 2003, the United States District Court for the District
        of
        Nevada (the “Court”) entered judgment jointly and severally in favor of Desert
        Land against Vestin Group, Vestin Mortgage and Del Mar Mortgage, Inc. Judgment
        was predicated upon the Court’s finding that Del Mar Mortgage, Inc. received an
        unlawful penalty fee from the plaintiffs.
 
 The
        defendants subsequently filed a motion for reconsideration. The Court denied
        the
        motion and, on August 13, 2003, held that Vestin Group, Vestin Mortgage,
        and Del Mar Mortgage, Inc. are jointly and severally liable for the judgment
        in
        the amount of $5,683,312 (which amount includes prejudgment interest and
        attorney’s fees). On August 27, 2003, the Court stayed execution of the judgment
        against Vestin Group and Vestin Mortgage based upon the posting of a bond
        in the
        amount of $5,830,000. Mr. Shustek personally posted a cash bond without any
        cost
        or obligation to Vestin Group and Vestin Mortgage. Additionally, Del Mar
        Mortgage, Inc. has indemnified Vestin Group and Vestin Mortgage for any losses
        and expenses in connection with the Action, and Mr. Shustek has guaranteed
        the
        indemnification with his cash bond. On September 12, 2003, all of the defendants
        held liable to Desert Land appealed the judgment to the United States Court
        of
        Appeals for the Ninth Circuit, which heard the case on October 18, 2005.
        On
        November 15, 2005, the Ninth Circuit vacated the judgment of the District
        Court
        and dismissed the state law claims against the defendants without prejudice
        on
        the basis that the District Court lacked subject matter jurisdiction in the
        case. On November 29, 2005, Desert Land petitioned the Ninth Circuit Court
        for
        rehearing with a suggestion that the matter be heard en banc. On December
        16,
        2005, the District Court issued an Order releasing the bond, and on January
        6,
        2006, the Ninth Circuit denied Desert Land’s petition and the matter remains
        dismissed.
 -
            20
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 On
          November 21, 2005, Desert Land filed a complaint in the state courts of
          Nevada,
          which complaint is substantially similar to the original complaint previously
          filed by Desert Land in the United States District Court, with the exception
          of
          claiming Nevada State Law violations and seeking Nevada State Law remedies
          rather than claiming Federal Law violations and seeking Federal Law remedies.
          On
          March 6, 2006, Desert Land amended the state court complaint to name Vestin
          Fund
          I, LLC as a defendant. Desert Land alleges that one or more of the defendants
          have transferred assets to other entities without receiving reasonable
          value
          therefore; alleges plaintiffs are informed and believe that defendants
          have made
          such transfers with the actual intent to hinder, delay or defraud Desert
          Land;
          that such transfers made the transferor insolvent and that sometime between
          February 27 and April 1, 2003, Vestin Group transferred $1.6 million to
          Vestin
          Fund I, LLC for that very purpose. The state court complaint further alleges
          that Desert Land is entitled to avoid such transfers and that pursuant
          to NRS
          112.20, Desert Land is entitled to an injunction to enjoin defendants from
          further disposition of assets.
 
 Most
        recently, on or about April 6, 2006, Desert Land filed a Writ of Certiorari
        seeking review of the 9th Circuit’s decision by the United States Supreme Court.
        Vestin continues to believe that Desert Land’s claims are without merit and will
        vigorously oppose the Writ of Certiorari and defend against the state court
        complaint. We were not a party to the action.
 
 On
        April
        21, 2006, our Manager, Vestin Mortgage Inc., filed a complaint in the Circuit
        Court of the First Circuit in Hawaii to expedite Fund I and Fund II’s efforts to
        foreclose upon first trust deeds secured by the assets of Rightstar
        International, Inc. (the “Rightstar Trust Deeds”). In the filing, Vestin
        Mortgage Inc. alleges that the State of Hawaii has unreasonably blocked the
        foreclosure without any legal basis for doing so. On April 24, 2006, the
        State
        of Hawaii responded by filing allegations against Vestin Mortgage, Inc.,
        and
        Vestin Fund II, LLC alleging that these Vestin entities improperly influenced
        the former RightStar trustees to transfer trust funds to Vestin. Our Manager
        believes these claims to be without merit and intend to vigorously defend
        those
        allegations. The outcome of this litigation is unforeseeable at this
        time.
 
 Our
        Manager is involved in a number of legal proceedings concerning matters arising
        in connection with the conduct of its business activities. The Manager believes
        it has meritorious defenses to each of these actions and intends to defend
        them
        vigorously. The Manager believes that it is not a party to any pending legal
        or
        arbitration proceedings that would have a material adverse effect on the
        Manager’s financial condition or results of operations or cash flows, although
        it is possible that the outcome of any such proceedings could have a material
        impact on the Manager’s net income in any particular period.
 
 **NOTE
        M — LEGAL MATTERS INVOLVING THE COMPANY**
 
 The
        staff
        of the Pacific Regional Office of the United States Securities and Exchange
        Commission (SEC) conducted an investigation into certain matters related
        to us,
        Vestin Group, Vestin Mortgage, Vestin Capital, Fund I and Fund II. We have
        fully
        cooperated during the course of the investigation.
 
 The
        Staff
        has notified us, Fund I, Fund II, our Manager, Vestin Capital and Michael
        V.
        Shustek, the Principal Executive Officer of our Manager and Vestin Capital,
        or
        collectively the Vestin Entities, that they intend to seek authority to bring
        an
        enforcement proceeding against the Vestin Entities alleging violations of
        Section 17 (a) of the Securities Act of 1933, Section 10 (b) of the Securities
        Exchange Act of 1934 and Rule 10b-5 thereunder based upon certain sales
        practices employed for a period of time by the Vestin Entities. Specifically,
        the SEC Staff has advised that they believe certain slides used at sales
        seminars held to promote the sale of Fund II and Fund III units included
        disclosure regarding distributions to members of Fund I and Fund II that
        were
        misleading. The Vestin Entities are engaged in discussions with the Staff
        regarding the proposed recommendation and any remedies, which might be sought
        by
        the SEC Staff. Based upon these discussions, we currently believe that neither
        we nor Fund I, and Fund II will be named as parties in the enforcement
        recommendation. These settlement negotiations are ongoing and, at this time,
        we
        do not know if a mutually acceptable settlement will be reached.
 
 We
        are
        involved in a number of legal proceedings concerning matters arising in
        connection with the conduct of our business activities. We believe we have
        meritorious defenses to each of these actions and intend to defend them
        vigorously. We believe that we are not a party to any pending legal or
        arbitration proceedings that would have a material adverse effect on our
        financial condition or results of operations or cash flows, although it is
        possible that the outcome of any such proceedings could have a material impact
        on our net income in any particular period.
 -
            21
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  **NOTE
        N — SEGMENT INFORMATION**
 
 Operating
        segments are components of an enterprise in which separate financial information
        is available that is regularly reviewed by the chief operating decision makers
        in assessing performance and deciding how to allocate resources. Reportable
        segments consist of one or more operating segments with similar economic
        characteristics, products and services, production processes, type of customer,
        distribution system and regulatory environment.
 
 The
        information provided for Segment Reporting is based on internal reports utilized
        by management. The presentation and allocation of overhead and the net
        contribution for the operating segments may not reflect the actual economic
        costs, contribution or results of operations of the segments as stand alone
        businesses. If a different basis of allocation were utilized, the relative
        contributions of the segments might differ, but the relative trends in segments
        would, in management’s view, likely not be impacted.
 
 Our
        two
        reportable segments are investments in real estate loans and investments
        in real
        estate.
 
 Financial
        information concerning our reportable segments is presented as follows for
        the
        three months ended March 31, 2006 and 2005:
 
 **For
                  the Three Months Ended March 31, 2006**
              
              **Investment
                  in**
                **Real
                  Estate Loans**
              
              **Investment
                  in**
                **Real
                  Estate****Revenues**Interest
                  income from investments in real estate loans
              
              $
              594,000
              
              $
              594,000
              
              $
              --Rental
                  income-related party
              
              
              257,000
              
              
              --
              
              
              257,000Other
              
              
              18,000
              
              
              18,000
              
              
              --Total
                  revenues
              
              
              869,000
              
              
              612,000
              
              
              257,000**Operating
                  expenses**Management
                  fees - related party
              
              
              12,000
              
              
              5,000
              
              
              7,000Provision
                  for loan losses
              
              
              --
              
              
              --
              
              
              --Professional
                  fees
              
              
              53,000
              
              
              38,000
              
              
              15,000Professional
                  fees-related party
              
              
              13,000
              
              
              9,000
              
              
              4,000Other
              
              
              5,000
              
              
              4,000
              
              
              1,000Total
                  operating expenses
              
              
              83,000
              
              
              56,000
              
              
              27,000**EBITDA***
              
              
              786,000
              
              
              556,000
              
              
              230,000Less:Depreciation
                  and Amortization
              
              
              56,000
              
              
              --
              
              
              56,000Interest
                  expense related to secured borrowings
              
              
              12,000
              
              
              12,000
              
              
              --Interest
                  expense related to investment in real estate
              
              
              68,000
              
              
              --
              
              
              68,000**NET
                  INCOME**
              
              $
              650,000
              
              $
              544,000
              
              $
              106,000
 
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            22
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 **For
                  the Three Months Ended March 31, 2005**
              
              **Investment
                  in**
                **Real
                  Estate Loans**
              
              **Investment
                  in**
                **Real
                  Estate****Revenues**Interest
                  income from investments in real estate loans
              
              $
              636,000
              
              $
              636,000
              
              $
              --Rental
                  income-related party
              
              
              215,000
              
              
              --
              
              
              215,000Other
              
              
              10,000
              
              
              10,000
              
              
              --Total
                  revenues
              
              
              861,000
              
              
              646,000
              
              
              215,000**Operating
                  expenses**Management
                  fees-related party
              
              
              16,000
              
              
              11,000
              
              
              5,000Provision
                  for loan losses
              
              
              32,000
              
              
              32,000
              
              
              --Professional
                  fees
              
              
              93,000
              
              
              64,000
              
              
              29,000Professional
                  fees-related party
              
              
              2,000
              
              
              1,000
              
              
              1,000Other
              
              
              7,000
              
              
              7,000
              
              
              --Total
                  operating expenses
              
              
              150,000
              
              
              115,000
              
              
              35,000**EBITDA***
              
              
              711,000
              
              
              531,000
              
              
              180,000Less:Depreciation
                  and Amortization
              
              
              56,000
              
              
              --
              
              
              56,000Interest
                  expense related to secured borrowings
              
              
              63,000
              
              
              63,000
              
              
              --Interest
                  expense related to investment in real estate
              
              
              69,000
              
              
              --
              
              
              69,000**NET
                  INCOME**
              
              $
              523,000
              
              $
              468,000
              
              $
              55,000
 
 *EBITDA
        represents Earnings Before Interest, Taxes, Depreciation, and Amortization.
        We
        present EBITDA because we consider it an important supplemental measure of
        our
        performance but it does not represent cash flows. EBITDA is a measure of
        our
        performance that is not required by, or presented in accordance with, GAAP.
        EBITDA is not a measurement of our financial performance under GAAP and should
        not be considered as an alternative to net earnings, operating income or
        any
        other performance measures derived in accordance with GAAP or as an alternative
        to cash flow from operating activities as a measure of our liquidity. We
        compensate for these limitations by relying primarily on our GAAP results
        and
        using EBITDA only supplementally. A reconciliation of EBITDA to net income
        is
        set forth above.
 
 Although
        depreciation and amortization are non-cash charges, the assets being depreciated
        or amortized often will have to be replaced in the future, and EBITDA does
        not
        reflect any cash requirements for such replacements. Other companies in our
        industry may calculate EBITDA differently than we do, limiting its usefulness
        as
        a comparative measure. In addition, EBITDA does not reflect the impact
        of earnings or charges resulting from matters we consider not to be indicative
        of our ongoing operations.
 -
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 **ITEM
        2.**  **MANAGEMENT’SDISCUSSION
        AND ANALYSIS OF FINANCIAL CONDITION
        AND** **RESULTS
        OF OPERATIONS**
 
 **BACKGROUND**
 
 Vestin
        Fund III, LLC was organized in April 2003 as a Nevada limited liability company
        for the purpose of investing in real estate loans and income-producing real
        property. In this report we refer to Vestin Fund III, LLC as “the Company”, “our
        Company”, the “Fund”, “we”, “us”, or “our”. We invest in loans secured by real
        estate through deeds of trust or mortgages (hereafter referred to as “deeds of
        trust”). We commenced operations in February 2004. We will continue our
        operations until December 2023 unless dissolved prior thereto or extended
        by
        vote of the members under the provisions of our Operating
        Agreement.
 
 We
        are
        not a mutual fund or an investment company within the meaning of the Investment
        Company Act of 1940, nor are we subject to any regulation thereunder. As
        a
        company investing in real estate loans, investments in real estate and raising
        funds through our Distribution Reinvestment Plan, we are subject to the North
        American Securities Administration Act Mortgage Program Guidelines and Real
        Estate Guidelines (collectively, the “NASAA Guidelines”) promulgated by the
        state securities administrators.
 
 On
        November 7, 2003, our Registration Statement as filed with the Securities
        and
        Exchange Commission became effective for the initial public offering of up
        to
        10,000,000 units at $10 per unit (“Unit”). As of March 31, 2006, we had sold
        approximately 2,865,921 Units. Members may participate in our Distribution
        Reinvestment Plan whereby the members’ distributions may be used to purchase
        additional Units at the current value. As of March 31, 2006, approximately
        165,379 Units had been purchased under this plan. On November 7, 2005, we
        discontinued the offering of our Units; however, members may continue to
        purchase additional Units through our Distribution Reinvestment
        Plan.
 
 Our
        Manager is Vestin Mortgage, Inc. (the “Manager”), a Nevada corporation and
        licensed mortgage broker engaged in the business of brokerage, placement
        and
        servicing of commercial loans secured by real property. Our Manager is a
        wholly
        owned subsidiary of Vestin Group, Inc., a Delaware corporation (“Vestin Group”).
        Michael V. Shustek, the Chief Executive Officer (“CEO”) and Director of the
        Manager, is the sole stockholder of Vestin Group, Inc. Through its subsidiaries,
        Vestin Group is engaged in asset management, real estate lending and other
        financial services.
 
 Our
        Operating Agreement provides that the Manager controls the daily operating
        activities of the Company, including the power to assign duties, to determine
        how to invest our assets, to sign bills of sale, title documents, leases,
        notes,
        security agreements, real estate loan investments and contracts, and to assume
        direction of the business operations. As a result, our operating results
        are
        dependent on our Manager’s ability and intent to continue to service the
        Company’s assets. The Operating Agreement also provides that the members have
        certain rights, including the right to terminate the Manager subject to a
        majority vote of the members.
 
 Vestin
        Mortgage, Inc. is also the Manager of Vestin Realty Mortgage I, Inc., as
        the
        successor by merger to Vestin Fund I, LLC, (“Fund I”), Vestin Realty Mortgage
        II, Inc, as the successor by merger to Vestin Fund II, LLC, (“Fund II”) and
        inVestin Nevada, Inc., a company wholly owned by our Manager’s CEO. These
        entities also invest in commercial real estate loans.
 
 We
        invest
        in real estate loans throughout the areas in which Vestin Mortgage and its
        correspondents have experience. As of March 31, 2006, our loans are in the
        following states; Arizona, California, Nevada, North Carolina, Oklahoma,
        Oregon,
        Texas, Washington and Wisconsin. The loans we invest in are selected for
        us by
        Vestin Mortgage from among loans originated by Vestin Mortgage or non-affiliated
        mortgage brokers. When Vestin Mortgage or a non-affiliated mortgage broker
        originates a loan for us, that entity identifies the borrower, processes
        the
        loan application, makes or invests in the loan, and brokers or sells the
        loan to
        us. We believe that our loans are attractive to borrowers because of the
        expediency of Vestin Mortgage’s loan approval process, which takes about ten to
        twenty days.
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  Our
        principal investment objectives are to:
 
 ·
            Produce
                revenues from the interest income on our real estate
                loans; 
 ·
            Provide
                cash distributions to investors from the net income earned on our
                real
                estate loans and from lease income earned on our
                properties; 
 ·
            Realize
                growth in the value of our properties upon our ultimate sale of investment
                in real estate properties; 
 ·
            Preserve
                capital contributions; and 
 ·
            Reinvest,
                to the extent permissible, payments of principal and proceeds of
                prepayments, sales and insurance proceeds, net of
                expenses.  **OVERVIEW**
 
 Our
        real
        estate loan program objective is to generate current income by investing
        in real
        estate loans and income producing real property. We believe there is a
        significant market opportunity to make real estate loans to owners and
        developers of real property whose financing needs are not met by traditional
        real estate lenders. The loan underwriting standards our Manager utilizes
        are
        less strict than traditional real estate lenders. In addition, we believe
        one of
        our competitive advantages is our ability to approve loan applications more
        quickly than traditional lenders. As a result, in certain cases, we may make
        real estate loans, which are riskier than real estate loans made by commercial
        banks. However, in return we seek a higher interest rate and our Manager
        takes
        steps to mitigate the lending risks such as imposing a lower loan to value
        ratio. While we may assume more risk than traditional real estate lenders,
        in
        return, we seek to generate higher yields from our real estate
        loans.
 
 Our
        real
        estate program objective is to invest in income-producing multifamily
        residential units, assisted living facilities, office buildings, industrial
        and
        retail properties and other income-producing real property, such as hotels
        and
        resorts, restaurants, parking lots and amusement parks. Our Manager intends
        to
        apply its prior experience in investing in real estate loans to its evaluation
        and investment in real property on our behalf. Accordingly, we intend to
        invest
        in real property throughout the areas in which Vestin Mortgage and its
        correspondents have experience.
 
 Our
        operating results depend primarily upon (i) the amount of capital we have
        to
        invest in real estate loans and income producing real estate, (ii) the level
        of
        real estate lending activity in the markets we service, (iii) our ability
        to
        identify and work with suitable borrowers, (iv) the interest rates we are
        able
        to charge on our loans, (v) our ability to identify and acquire suitable
        income-producing properties, (vi) the level of rents or other income we are
        able
        to generate from our acquired properties, (vii) the level of non-performing
        assets and loan losses which we experience, and (viii) negative fluctuations
        in
        the fair market value of income-producing properties that we own.
 
 Adverse
        economic conditions during the next year could have a material impact on
        the
        collectibility of our loans. Recognizing the risk, we seek to maintain an
        adequate loan-to-value ratio, which, as of March 31, 2006, was 60% on a weighted
        average basis, generally using appraisals prepared on an as-if developed
        basis
        in connection with the loan origination. In this manner, we hope to retain
        sufficient cushion in the underlying equity position to protect the value
        of our
        loan in the event of a default. Nevertheless, a marked increase in loan defaults
        accompanied by a rapid decline in real estate values could result in losses
        on
        defaulted loans that would have a material adverse effect upon our financial
        condition and operating results.
 
 We
        invest
        in loans throughout the areas in which Vestin Mortgage and its correspondents
        have experience. As of March 31, 2006, 21% of the principal amount of our
        loans
        was secured by real estate in Nevada, while 27% and 21% were secured by real
        estate in Arizona, and California, respectively. Such geographical concentration
        creates greater risk that any downturn in such local real estate markets
        could
        have a significant adverse effect upon our results of operations. If we enter
        into another recession, particularly in any of the identified states, our
        operating results could be adversely affected.
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  **SUMMARY
        OF FINANCIAL RESULTS**
 
 **FOR
                  THE THREE MONTHS ENDED****MARCH****31, 2006**
              
              **MARCH****31, 2005**Total
                  Revenues
              
              $
              869,000
              
              $
              861,000Total
                  Operating Expenses
              
              $
              219,000
              
              $
              338,000**NET
                  INCOME**
              
              $
              650,000
              
              $
              523,000Net
                  Income Allocated to Members
              
              $
              650,000
              
              $
              523,000Net
                  Income Allocated to Members Per Weighted Average Membership
                  Units
              
              $
              0.22
              
              $
              0.20Weighted
                  Average Membership Units
              
              
              2,986,887
              
              
              2,665,400Annualized
                  Rate of Return to Members
              
              
              8.41
              %
              
              7.73
              %Cash
                  Distributions
              
              $
              645,000
              
              $
              649,000Cash
                  Distributions Per Weighted Average Membership Units
              
              $
              0.22
              
              $
              0.24Weighted
                  Average Term of Outstanding Loans
              
              
              16
                  months
              
              
              17
                  months
 
 (a)
            The
                annualized rate of return to members is calculated based upon the
                GAAP net
                income allocated to members per weighted average units as of March
                31,
                divided by the number of days during the period (90days
                for the three months ended March 31, 2006 and 2005) and multiplied
                by
                three hundred and sixty five (365) days, then divided by the cost
                per unit
                ($10.50 and $10.30 for 2006 and 2005,
                respectively). 
 **RESULTS
        OF OPERATIONS**
 
 *Total
        Revenues* :
        Revenues for the three months ended March 31, 2006 remained comparable to
        the
        three months ended March 31, 2005, $869,000 and $861,000, respectively. Interest
        income from investment in real estate loans decreased approximately $42,000,
        primarily due to the decrease in the weighted average interest rate from
        11.54%
        as of March 31, 2005 to 10.26%. While there has been a general increase in
        interest rates in the U.S., such increases have not yet affected our operating
        results and it is not clear when, if ever, higher interest rates might impact
        our revenues.
 
 *Total
        Expenses:* For
        the
        three months ended March 31, 2006, total expenses were approximately $219,000
        compared to $338,000 for the same period in 2005, a decrease of $119,000
        or 35%.
        Expenses were primarily affected by the following factors:
 
 ·
            Expenses
                related to professional fees decreased by approximately $29,000 due
                to
                additional accounting expenses related to the preparation of our
                annual
                public filings recorded during the three months ended March 31,
                2005. 
 ·
            Our
                interest expenses related to secured borrowings decreased approximately
                $51,000 due to the decrease in the amount of loans financed under
                secured
                borrowings throughout the year, from $2.5 million at March 31, 2005
                to
                $0.2 million at March 31, 2006.  -
            26
            -
 *Table
            of Contents*
 
 ·
            There
                was no additional provision for loan losses for the three months
                ended
                March 31, 2006. During the three months ended March 31, 2005, we
                recorded
                a general allowance of $32,000. Our Manager periodically reviews
                and makes
                a determination as to whether the allowance for loan losses is adequate
                to
                cover any potential losses. Our Manager evaluated the loans and concluded
                that the underlying collateral was sufficient to protect us against
                further losses of principal or interest. Our Manager will continue
                to
                evaluate these loans in order to determine if any other allowance
                for loan
                losses should be recorded. As of March 31, 2006, all of our loans
                were
                performing. 
 *Net
        Income* :
        Overall
        net income for the three months ended March 31, 2006 totaled approximately
        $650,000 compared to $523,000 for the same period in 2005.
 
 *Annualized
        Rate of Return to Members:* For the
        three months ended March 31, 2006 and 2005, annualized rate of return to
        members
        as calculated based on GAAP net income was 8.41% and 7.73%,
        respectively.
 
 *Distributions
        to Members* :
        The
        following is a schedule of distributions made to members for the year ended
        March 31, 2006 and 2005.
 
 **For
                  the Three Months Ended March 31, 2006**
              
              **For
                  the Three Months Ended March 31, 2005**Distributions
                  of Net Income Available for Distribution
              
              $
              645,000
              
              $
              611,000Distributions
                  in Excess of Net Income Available for Distribution Generated During
                  the
                  Period
              
              
              --
              
              
              38,000Total
                  Distributions
              
              $
              645,000
              
              $
              649,000
 
 Net
        Income Available for Distributions is a non-GAAP financial measure that is
        defined in our Operating Agreement as cash flows from operations, less certain
        reserves, and may exceed net income as calculated in accordance with GAAP.
        We
        have presented net income available for distribution because management believes
        this financial measure is useful and important to members. Although we generally
        do not plan to make distributions in excess of net income available for
        distribution, we may do so from time to time. Any such distribution will
        be
        treated as a return of capital for income tax purposes. In addition, cash
        flows
        from operations, which are the significant component of net income available
        for
        distribution, affect the capital available for investment in new loans. This
        non-GAAP financial measure should not be considered in isolation or as a
        substitute for measures of performance prepared in accordance with GAAP or
        as an
        alternative to cash flows from operating activities as a measure of our
        liquidity. We compensate for these limitations by relying primarily on our
        GAAP
        results and using net income available for distribution only
        supplementally.
 
 The
        most
        directly comparable GAAP measure to net income available for distribution
        is
        cash flows from operating activities. The following table reconciles net
        income
        available for distribution to cash flows from operating activities and presents
        the two other major categories of our statement of cash flows:
 -
            27
            -
 *Table
            of Contents*
 
 **For
                  the Three Months Ended March 31, 2006**
              
              **For
                  the Three Months Ended March 31, 2005**Distribution
                  of Net Income Available for Distribution
              
              $
              645,000
              
              $
              611,000Addition
                  to working capital reserves (Amount not distributed)
              
              
              61,000
              
              
              --Change
                  in Operating Assets and Liabilities:Deferred
                  rent receivable
              
              
              (34,000
              )
              
              --Interest
                  receivable
              
              
              (8,000
              )
              
              (76,000
              )Accounts
                  payable
              
              
              (42,000
              )
              
              56,000Due
                  to Manager
              
              
              26,000
              
              
              96,000Net
                  Cash Provided by Operating Activities
              
              $
              648,000
              
              $
              687,000Net
                  Cash Provided (Used) by Investing Activities
              
              $
              1,657,000
              
              
              (7,272,000
              )Net
                  Cash Provided (Used) in Financing Activities
              
              $
              (1,149,000
              )
              $
              1,738,000
 
 *Stated
        Unit Value Adjustment* :
        Following a periodic review by our Manager as required pursuant to the Operating
        Agreement, as a result of a the increase in the estimated fair value of real
        estate held for investment, effective December 15, 2005 we adjusted the stated
        unit value from $10.30 per unit to $10.50 per unit to reflect the estimated
        net
        unit value of each unit at that date. The periodic review of the estimated
        net
        unit value includes an analysis of unrealized gains that our Manager reasonably
        believes exist at the time of the review, but that cannot be added to net
        asset
        value under GAAP.
 
 *Redemptions* :
        In
        accordance with the terms of our Operating Agreement and the Internal Revenue
        Code, our redemptions are limited to no more than 10% of the aggregate members’
capital in any calendar year. As of March 31, 2006, the total of redemptions
        made from inception was approximately $1,046,000. Balances in members’ capital
        accounts as of January 1, 2006 were $29.2 million, which limited redemptions
        to
        $2.9 million for calendar 2006. Total redemptions during the three months
        ended
        March 31, 2006 were $705,000.
 
 **Investment
        in Real Estate Loans Secured by Real Estate**
 
 As
        of
        March 31, 2006, we had investments in real estate loans secured by real estate
        totaling $21,380,000 including 18 loans with an aggregate principal value
        of
        approximately $19,870,000 secured by first deeds of trust and two loans secured
        by second deeds of trust totaling approximately $1,510,000.
 
 The
        weighted average contractual term of outstanding loans at March 31, 2006
        was 16
        months. As of March 31, 2006, our real estate loans mature during the next
        14
        months. All of the outstanding real estate loans at March 31, 2006 were fixed
        rate loans. All of the real estate loans are held for investment purposes;
        none
        are held for sale. We intend to hold such real estate loans to maturity.
        None of
        the real estate loans have prepayment penalties.
 
 **Investment
        in Real Property**
 
 Investment
        in real property consists of an approximately 42,000 square foot office building
        located at 8379 West Sunset Road in Las Vegas, Nevada. The purchase price
        and
        related closing costs was approximately $9,800,000. As of March 31, 2006,
        the
        building was fully leased by Vestin Group, earning us monthly rent revenue
        of
        approximately of $87,000. Vestin Group has sub-leased office space in the
        building as permitted by the lease agreement at rates equal to or less than
        rates we receive.
 
 As
        further discussed in “Segment Information” below, net income on this segment of
        our business was approximately $106,000, which represents three months of
        operating activity. The following represents our estimated yield on this
        investment from a cash flow perspective.
 -
            28
            -
 *Table
            of Contents*
  **March
                  31, 2006**
              
              **March
                  31, 2005**Net
                  Income From Real Estate Segment
              
              $
              106,000
              
              $
              55,000Less
                  Principal Payments
              
              
              (25,000
              )
              
              (23,000
              )Less
                  Deferred Rent Receivable - Related Party
              
              
              (34,000
              )
              
              --Add
                  Back Depreciation and Amortization
              
              
              56,000
              
              
              56,000Yield
              
              $
              103,000
              
              $
              88,000Investment
                  Provided from Capital
              
              $
              4,850,000
              
              $
              4,850,000Months
                  of Operation
              
              
              3
              
              
              3Annualized
                  Yield on Real Estate Segment
              
              
              8.49
              %
              
              7.26
              %
 
 Annualized
        yield on real estate segment is a non-GAAP measure. We have presented this
        annualized yield on real estate segment because management believes this
        information is useful and important to members. This non-GAAP financial measure
        should not be considered in isolation or as a substitute for measures of
        performance prepared in accordance with GAAP or as an alternative to cash
        flows
        from operating activities as a measure of our liquidity.
 
 **Asset
        Quality and Loan Reserves**
 
 Losses
        may occur from investing in real estate loans. The amounts of losses will
        vary
        as the loan portfolio is affected by changing economic conditions and the
        financial condition of borrowers.
 
 The
        conclusion that a real estate loan is uncollectible or that collectibility
        is
        doubtful is a matter of judgment. On a quarterly basis, the Manager evaluates
        our real estate loan portfolio for impairment. The fact that a loan is
        temporarily past due does not necessarily mean that the loan is impaired.
        Rather, all relevant circumstances are considered by our Manager to determine
        impairment and the need for specific reserves. Such evaluation, which includes
        a
        review of all loans on which full collectibility may not be reasonably assured,
        considers among other matters:
 
 ·
            Prevailing
                economic conditions; 
 ·
            Historical
                experience; 
 ·
            The
                nature and volume of the loan portfolio; 
 ·
            The
                borrowers’ financial condition and adverse situations that may affect the
                borrowers’ ability to pay; 
 ·
            Evaluation
                of industry trends; and 
 ·
            Estimated
                net realizable value of any underlying collateral in relation to
                the real
                estate loan amount. 
 Based
        upon this evaluation, a determination is made as to whether the allowance
        for
        loan losses is adequate to cover any potential losses. Additions to the
        allowance for loan losses are made by charges to the provision for loan losses.
        Recoveries of previously charged off amounts would be credited to the provision
        for loan losses or included in income. At March 31, 2006, all of our loans
        were
        performing. Our Manager had determined the general allowance for loan losses
        of
        $73,000 is sufficient to cover any inherent losses in our loan
        portfolio.
 
 The
        following is a roll-forward of the general allowance for loan losses for
        the
        three months ended March 31, 2006:
 
 **Description**
              
              **Balance
                  at**
                **December
                  31, 2005**
              
              **Provisions**
              
              **Deductions**
              
              **Balance
                  at**
                **March
                  31, 2006**General
                  Valuation Allowance
              
              $
              73,000
              
              $
              --
              
              $
              --
              
              $
              73,000
  -
            29
            -
 *Table
            of Contents*
  **Segment
        Information:**
 
 Operating
        segments are components of an enterprise about which separate financial
        information is available that is regularly reviewed by the chief operating
        decision makers in assessing performance and deciding how to allocate resources.
        Reportable segments consist of one or more operating segments with similar
        economic characteristics, products and services, production processes, type
        of
        customer, distribution system and regulatory environment.
 
 The
        information provided for Segment Reporting is based on internal reports utilized
        by management. The presentation and allocation of overhead and the net
        contribution for the operating segments may not reflect the actual economic
        costs, contribution or results of operations of the segments as stand alone
        businesses. If a different basis of allocation were utilized, the relative
        contributions of the segments might differ but the relative trends in segments
        would, in management’s view, likely not be impacted.
 
 Our
        two
        reportable segments are investments in real estate loans and investments
        in real
        estate.
 
 Financial
        information concerning our reportable segments is presented as follows for
        the
        three months ended March 31, 2006 and 2005:
 
 **For
                  the Three Months Ended March 31, 2006**
              
              **Investment
                  in**
                **Real
                  Estate Loans**
              
              **Investment
                  in**
                **Real
                  Estate****Revenues**Interest
                  income from investments in real estate loans
              
              $
              594,000
              
              $
              594,000
              
              $
              --Rental
                  income-related party
              
              
              257,000
              
              
              --
              
              
              257,000Other
              
              
              18,000
              
              
              18,000
              
              
              --Total
                  revenues
              
              
              869,000
              
              
              612,000
              
              
              257,000**Operating
                  expenses**Management
                  fees - related party
              
              
              12,000
              
              
              5,000
              
              
              7,000Provision
                  for loan losses
              
              
              --
              
              
              --
              
              
              --Professional
                  fees
              
              
              53,000
              
              
              38,000
              
              
              15,000Professional
                  fees-related party
              
              
              13,000
              
              
              9,000
              
              
              4,000Other
              
              
              5,000
              
              
              4,000
              
              
              1,000Total
                  operating expenses
              
              
              83,000
              
              
              56,000
              
              
              27,000**EBITDA***
              
              
              786,000
              
              
              556,000
              
              
              230,000Less:Depreciation
                  and Amortization
              
              
              56,000
              
              
              --
              
              
              56,000Interest
                  expense related to secured borrowings
              
              
              12,000
              
              
              12,000
              
              
              --Interest
                  expense related to investment in real estate
              
              
              68,000
              
              
              --
              
              
              68,000**NET
                  INCOME**
              
              $
              650,000
              
              $
              544,000
              
              $
              106,000
 
  -
            30
            -
 *Table
            of Contents*
  
 **For
                  the Three Months Ended March 31, 2005**
              
              **Investment
                  in**
                **Real
                  Estate Loans**
              
              **Investment
                  in**
                **Real
                  Estate****Revenues**Interest
                  income from investments in real estate loans
              
              $
              636,000
              
              $
              636,000
              
              $
              --Rental
                  income-related party
              
              
              215,000
              
              
              --
              
              
              215,000Other
              
              
              10,000
              
              
              10,000
              
              
              --Total
                  revenues
              
              
              861,000
              
              
              646,000
              
              
              215,000**Operating
                  expenses**Management
                  fees-related party
              
              
              16,000
              
              
              11,000
              
              
              5,000Provision
                  for loan losses
              
              
              32,000
              
              
              32,000
              
              
              --Professional
                  fees
              
              
              93,000
              
              
              64,000
              
              
              29,000Professional
                  fees-related party
              
              
              2,000
              
              
              1,000
              
              
              1,000Other
              
              
              7,000
              
              
              7,000
              
              
              --Total
                  operating expenses
              
              
              150,000
              
              
              115,000
              
              
              35,000**EBITDA***
              
              
              711,000
              
              
              531,000
              
              
              180,000Less:Depreciation
                  and Amortization
              
              
              56,000
              
              
              --
              
              
              56,000Interest
                  expense related to secured borrowings
              
              
              63,000
              
              
              63,000
              
              
              --Interest
                  expense related to investment in real estate
              
              
              69,000
              
              
              --
              
              
              69,000**NET
                  INCOME**
              
              $
              523,000
              
              $
              468,000
              
              $
              55,000
 
 *EBITDA
        represents Earnings Before Interest, Taxes, Depreciation, and Amortization.
        We
        present EBITDA because we consider it an important supplemental measure of
        our
        performance but it does not represent cash flows. EBITDA is a measure of
        our
        performance that is not required by, or presented in accordance with, GAAP.
        EBITDA is not a measurement of our financial performance under GAAP and should
        not be considered as an alternative to net earnings, operating income or
        any
        other performance measures derived in accordance with GAAP or as an alternative
        to cash flow from operating activities as a measure of our liquidity. We
        compensate for these limitations by relying primarily on our GAAP results
        and
        using EBITDA only supplementally.
 
 Although
        depreciation and amortization are non-cash charges, the assets being depreciated
        or amortized often will have to be replaced in the future, and EBITDA does
        not
        reflect any cash requirements for such replacements. Other companies in our
        industry may calculate EBITDA differently than we do, limiting its usefulness
        as
        a comparative measure. In addition, EBITDA does not reflect the impact
        of earnings or charges resulting from matters we consider not to be indicative
        of our ongoing operations.
 
 **CRITICAL
        ACCOUNTING ESTIMATES**
 
 **Revenue
        Recognition**
 
 Interest
        income on loans is accrued by the effective interest method. We do not recognize
        interest income from loans once they are determined to be impaired. A loan
        is
        impaired when, based on current information and events, it is probable that
        we
        will be unable to collect all amounts due according to the contractual terms
        of
        the loan agreement or when the payment of interest is 90 days past
        due.
 -
            31
            -
 *Table
            of Contents*
 
 The
        following table presents a sensitivity analysis to show the impact on our
        financial condition at March 31, 2006 from fluctuations in weighted average
        interest rate charged on loans as a percentage of the loan
        portfolio:
 
 **Changed
                  Assumption**
              
              **Increase
                  (Decrease) in Interest Income**Weighted
                  average interest rate assumption increased by 1% or 100 basis
                  points
              
              $
              191,000Weighted
                  average interest rate assumption increased by 5% or 500 basis
                  points
              
              $
              953,000Weighted
                  average interest rate assumption decreased by 1% or 100 basis
                  points
              
              $
              (191,000
              )Weighted
                  average interest rate assumption decreased by 5% or 500 basis
                  points
              
              $
              (953,000
              )
 
 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.
 
 Certain
        leases provide for tenant occupancy during periods for which no rent is due
        or
        where minimum rent payments increase during the term of the lease. Rental
        revenue is recorded for the full term of each lease on a straight-line basis.
        Accordingly, the Company records a receivable from tenants for rents that
        it
        expects to collect over the remaining lease term as deferred rents receivable.
        When the Company acquires a property, the term of the existing leases is
        considered to commence as of the acquisition date for the purposes of this
        calculation. Revenue recognition is considered to be critical because the
        evaluation of the reliability of such deferred rents receivable involves
        management’s assumptions relating to such tenant’s viability.
 
 We
        recognize income from rent once all of the following criteria are met in
        accordance with the Statement of Financial Accounting Standards (FAS) 13 *Accounting
        for Leases* :
 
 ·
            The
                agreement has been fully executed and
                delivered; 
 ·
            Services
                have been rendered; 
 ·
            The
                amount is fixed or determinable, and 
 ·
            The
                collectibility is reasonable assure. 
 **Investments
        in Real Estate Loans**
 
 The
        Company may from time to time acquire or sell investments in real estate
        loans
        from or to the Manager or other related parties pursuant to the terms of
        the
        Company's Operating Agreement provided the price does not exceed the original
        cost. The purpose primarily is to either free up capital to provide liquidity
        for various reasons, such as loan diversification, or place excess capital
        in
        investments to maximize the use of the Company's capital. For example, the
        Company's Operating Agreement provides certain guidelines with respect to
        loan
        concentration by dollar amount, location and lien position. Selling or buying
        loans allows the Company to diversify its loan portfolio within these
        parameters. Due to the short term nature of the loans the Company makes and
        the
        similarity of interest rates in loans the Company normally would invest in,
        the
        fair value of a loan typically approximates its carrying value. Accordingly,
        discounts or premiums typically do not apply upon sales of loans and therefore
        no gain or loss is recorded on these transactions, regardless of whether
        a
        related or unrelated party.
 -
            32
            -
 *Table
            of Contents*
  Investments
        in real estate loans are secured by deeds of trust. Generally, all of our
        real
        estate loans require interest only payments with a balloon payment of the
        principal at maturity. We have both the intent and ability to hold real estate
        loans until maturity and therefore, real estate loans are classified and
        accounted for as held for investment and are carried at amortized cost. Loans
        sold to or purchased from affiliates are accounted for at the principal balance
        and no gain or loss is recognized by us or any affiliate. Loan to value ratios
        are based on appraisals obtained at the time of loan origination and may
        not
        reflect subsequent changes in value estimates. Such appraisals are generally
        dated within 12 months of the date of loan origination and may be commissioned
        by the borrower. The appraisals may be for the current estimate of the “as-if
        developed” value of the property, which approximates the post-construction value
        of the collateralized property assuming that such property is developed.
“As-if
        developed” values on raw land loans or acquisition and development loans often
        dramatically exceed the immediate sales value and may include anticipated
        zoning
        changes and timely successful development by the purchaser. As most of the
        appraisals will be prepared on an “as-if developed” basis, if a loan goes into
        default prior to any development of a project, the market value of the property
        may be substantially less than the appraised value. As a result, there may
        be
        less security than anticipated at the time the loan was originally made.
        If
        there is less security and a default occurs, we may not recover the full
        amount
        of the loan.
 
 **Allowance
        for Loan Losses**
 
 We
        maintain an allowance for loan losses on our investments in real estate loans
        for estimated credit impairment in our investment in real estate loans
        portfolio. The Manager’s estimate of losses is based on a number of factors
        including the types and dollar amounts of loans in the portfolio, adverse
        situations that may affect the borrower’s ability to repay, prevailing economic
        conditions and the underlying collateral securing the loan. Additions to
        the
        allowance are provided through a charge to earnings and are based on an
        assessment of certain factors, which may indicate estimated losses on the
        loans.
        Actual losses on loans are recorded as a charge-off or a reduction to the
        allowance for loan losses. Subsequent recoveries of amounts previously charged
        off are added back to the provision for loan loss or included as
        income.
 
 The
        following table presents a sensitivity analysis to show the impact on our
        financial condition at March 31, 2006 from increases and decreases to our
        allowance for loan losses as a percentage of the loan portfolio:
 
 **Changed
                  Assumption**
              
              **Increase
                  (Decrease) in Allowance for Loan Losses**Allowance
                  for loan losses assumption increased by 1.0% of loan
                  portfolio
              
              $
              214,000Allowance
                  for loan losses assumption increased by 5.0% of loan
                  portfolio
              
              $
              1,069,000Allowance
                  for loan losses assumption decreased by 0.3% of loan
                  portfolio
              
              $
              (73,000
              )
 
 Estimating
        allowances for loan losses requires significant judgment about the underlying
        collateral, including liquidation value, condition of the collateral, competency
        and cooperation of the related borrower and specific legal issues that affect
        loan collections or taking possession of the property. As a non-conventional
        lender willing to invest in loans to borrowers who may not meet the credit
        standards of conventional lenders, the default rate on our loans could be
        higher
        than those generally experienced in the real estate lending industry. We
        generally approve loans more quickly than other real estate lenders and,
        due to
        our expedited underwriting process, there is a risk that the credit inquiry
        we
        perform will not reveal 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. Circumstances that may caused significant
        changes in our estimated allowance include:
 
 (a)
            Declines
                in real estate market conditions, which can cause a decrease in expected
                market value. 
 (b)
            Discovery
                of undisclosed liens for community improvement bonds, easements and
                delinquent property taxes.  -
            33
            -
 *Table
            of Contents*
 
 (c)
            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. 
 (d)
            Unanticipated
                legal or business issues that may arise subsequent to loan origination
                or
                upon the sale of foreclosed upon
                property. 
 (e)
            Appraisals,
                which are only opinions of value at the time of the appraisal, may
                not
                accurately reflect the value of the
                property. 
 **Investments
        in Real Property**
 
 Real
        property is stated at cost, less accumulated depreciation. Amounts capitalized
        as investments in real property consist of the cost of acquisition or
        construction and any tenant improvements or major improvements that extend
        the
        useful life of the related asset. All repairs and maintenance are expensed
        as
        incurred. Upon acquisition, the purchase price of the property is allocated
        to
        land, building and improvements and other intangible assets and associated
        liabilities as required by FAS 141 *Business
        Combinations* .
        The
        allocation to land is based on an estimate of its fair value based on all
        available information including appraisals. The allocation to other intangible
        assets represents the value associated with the in-place leases, including
        leasing commission, legal and other related costs.
 
 Real
        property is depreciated using the straight-line method over the useful lives
        of
        the assets by class generally as follows:
 Land
                  
                  Not
                      DepreciatedBuilding
                  
                  40
                      YearsBuilding
                      Improvements
                  
                  10-25
                      YearsLand
                      Improvements
                  
                  20-25
                      YearsTenant
                      Improvements
                  
                  Lease
                      TermIntangible
                      Lease Assets including capitalized loan fees
                  
                  Lease
                      Term
 Our
        Manager continually monitors events and changes in circumstances that could
        indicate carrying amounts of real estate and related intangible assets may
        not
        be recoverable. When indicators of potential impairment are present, our
        Manager
        assess the recoverability of the assets by determining whether the carrying
        value of the real estate and related intangible assets will be recovered
        through
        the undiscounted future cash flows expected from the use and eventual
        disposition of the asset. In the event the expected undiscounted future cash
        flows do not exceed the carrying value, we adjust the real estate and intangible
        assets to their fair value and recognize an impairment loss. Our Manager
        has
        determined there has been no impairment in the carrying value of real property
        held by us during the three months ended March 31, 2006.
 -
            34
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  **Secured
        Borrowings**
 
 Secured
        borrowings provide an additional source of capital for our lending activity.
        Secured borrowings allow us to increase the diversification of our loan
        portfolio and to invest in loans that we might not otherwise invest in. We
        do
        not receive any revenues for entering into secured borrowing arrangements.
        Loans
        in which third party investors have participated through inter-creditor
        agreements (“Inter-creditor Agreements”) are accounted for as secured borrowings
        in accordance with FAS 140, *Accounting
        for Transfers and Servicing of Financial Assets and Extinguishments of
        Liabilities* (“FAS
        140”). The Inter-creditor Agreements provide us additional funding sources for
        real estate loans whereby a third party investor (the “Investor”) may
        participate on a senior basis in certain real estate loans with us and/or
        Fund I
        and/or Fund II (collectively, the “Lead Lenders”). In the event of borrower
        non-performance, the Inter-creditor Agreements generally provide that the
        Lead
        Lenders must repay the Investor’s loan amount either by (i) continuing to remit
        to the Investor the interest due on the participated loan amount; (ii)
        substituting an alternative loan acceptable to the Investor; or (iii)
        repurchasing the participation from the Investor for the outstanding balance
        plus accrued interest.
 
 Additionally,
        an Investor may participate in certain loans with the Lead Lenders through
        Participation Agreements. In the event of borrower non-performance, the
        Participation Agreement may allow the Investor to be repaid up to the amount
        of
        the Investor’s investment prior to the Lead Lender being repaid. Real estate
        loan financing under the Participation Agreements are also accounted for
        as a
        secured borrowing in accordance with FAS 140. The Company does not receive
        any
        revenues for entering into secured borrowings arrangements.
 
 **Related
        Party Transactions**
 
 From
        time
        to time we may acquire or sell investments in real estate loans from/to our
        Manager or other related parties pursuant to the terms of our Operating
        Agreement provided the price does not exceed the original cost. No gain or
        loss
        is recorded on these transactions, as it is not our intent to make a profit
        on
        the purchase or sale of such investments. The purpose is generally to diversify
        our portfolio by syndicating loans, thereby providing us with additional
        capital
        to make additional loans.
 
 **Transactions
        with the Manager**
 
 Our
        Manager is entitled to receive from us a management (acquisition and advisory)
        fee up to 2.5% of the gross offering proceeds and up to 3% of our rental
        income.
        For the three months ended March 31, 2006 and 2005, we recorded fees to our
        Manager of approximately $12,000 and $16,000 respectively.
 
 As
        of
        March 31, 2006 and December 31, 2005, we owed our Manager and Vestin Group
        approximately $64,000 and $38,000, respectively, primarily related to unpaid
        management fees.
 
 Our
        Manager was reimbursed for out of pocket offering expenses in an amount not
        to
        exceed 2% of the gross proceeds of the offering of our units. As of December
        31,
        2005, offering costs of $565,000 were incurred by us and paid by our Manager
        on
        our behalf. These deferred offerings costs, which are primarily legal,
        accounting and registration fees, were converted to 54,862 membership units
        at a
        price equal to the then effective unit value. The additional costs above
        the 2%
        of the gross proceeds of the offering were absorbed by our Manager.
        Additionally, for the three months ended, March 31, 2006, we paid pro rata
        distributions owed to our manager of approximately $12,000 based upon the
        total
        54,862 units owned by our manager.
 
 We
        lease
        an office building, located in Las Vegas, NV, to Vestin Group, earning us
        monthly rent revenue of approximately  $87,000. During the three months
        ended March 31, 2006 and 2005 we earned rental income of $257,000 and $215,000,
        respectively.
 
 **Transactions
        with the Funds**
 
 During
        the three months ended March 31, 2006 and 2005, we had no transactions with
        Fund
        I or Fund II.
 -
            35
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 *Table
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  **Transactions
        with Other Related Parties**
 
 During
        the three months ended March 31, 2006 and 2005, we incurred expenses of $1,000
        and $2,000 respectively, for legal fees to the law firm of Levine, Garfinkel,
        and Katz in which the Secretary of Vestin Group has an equity ownership
        interest.
 
 **CAPITAL
        AND LIQUIDITY**
 
 Liquidity
        is a measure of a company’s ability to meet potential cash requirements,
        including ongoing commitments to fund investing activities and for general
        operating purposes. Subject to an approximate 3% reserve, we seek to use
        most of
        our available funds to invest in real estate loans or purchase income producing
        property. Income generated from such investments is paid out to our members
        unless they have elected to reinvest their distributions. We do not anticipate
        the need for hiring any employees, acquiring fixed assets such as office
        equipment or furniture, or incurring material office expenses during the
        next
        twelve months because Vestin Mortgage will manage our affairs. With respect
        to
        real estate that we acquire, we may pay Vestin Mortgage a monthly management
        fee
        of up to 3% of our gross rental revenues. In addition, we may pay Vesting
        Mortgage acquisition and advisory fees in connection with real estate
        acquisition, provided that such amounts do not exceed 2.5% of our gross offering
        proceeds.
 
 During
        the three months ended March 31, 2006, cash flows provided by our operating
        activities approximated $648,000. Our investing activities for the year ended
        March 31, 2006 consisted of cash used from the purchase of new investments
        in
        loans secured by real estate in the amount of $793,000 and cash proceeds
        from
        loan payoffs of investment in real estate loans of approximately $2,450,000.
        Our
        financing activities primarily consisted of cash used for members’
distributions, net of reinvestments, of $419,000, members’ redemptions of
        $705,000 and payments from a note payable of approximately $25,000.
 
 Since
        we
        distribute most or all of our operating income, our sources of liquidity
        include: repayments of outstanding loans, distribution reinvestments by our
        members and arrangements with third parties to participate in our loans.
        Effective November 7, 2005, we discontinued the offering of our Units, except
        for Units sold throught our Distribution Reinvestment Plan. In the future,
        we
        may also generate liquidity through the sale of our real property investments.
        However, under our Operating Agreement, the proceeds from any sale of real
        property occurring after November 2010 must be distributed to members and will
        not be available for reinvestment.
 
 We
        rely
        primarily upon repayment of outstanding loans and raising new capital to
        provide
        capital for investment in new loans and real estate properties. Any significant
        level of defaults on outstanding loans could reduce the funds we have available
        for investment in new loans. Resulting foreclosure proceedings may not generate
        full repayment of our loans and may result in significant delays in the return
        of invested funds. This would diminish our capital resources and would impair
        our ability to invest in new loans. Additionally, if there is a downturn
        in the
        economies in which we invest in real estate, the level of rents we can charge
        to
        lease our properties can diminish our capital resources and would diminish
        our
        ability to invest in new properties or service any related debt.
 -
            36
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  **Contractual
        Obligations**
 
 The
        following summarizes our contractual obligations at March 31, 2006.
 
 **Note
                  Payable**
              
              **Secured
                  Borrowings**
              
              **Total
                  Contractual Obligations**April
                  1, 2006 Through March 31, 2007
              
              $
              102,000
              
              $
              229,000
              
              $
              331,000April
                  1, 2006 Through March 31, 2008
              
              
              108,000
              
              
              --
              
              
              108,000April
                  1, 2006 Through March 31, 2009
              
              
              114,000
              
              
              --
              
              
              114,000April
                  1, 2006 Through March 31, 2010
              
              
              120,000
              
              
              --
              
              
              120,000April
                  1, 2006 Through March 31, 2011
              
              
              127,000
              
              
              --
              
              
              127,000Thereafter:
              
              
              4,234,000
              
              
              --
              
              
              4,234,000Total:
              
              $
              4,805,000
              
              $
              229,000
              
              $
              5,034,000
 
 Cash
        provided by the operating activities of our investments in real estate segment
        is primarily dependent on the occupancy level of our properties, the rental
        rates on our leases, the collectibility of rents from our tenants, and the
        level
        of operating and other expenses. Since we intend on leveraging our capital
        for
        property acquisitions, we will depend on cash provided by operating activities
        to service such debt. The following table summarizes future minimum base
        rent to
        be received from our Manager under a non-cancelable lease on our sole real
        estate property at March 31, 2006:
 
 April
                  1, 2006 Through March 31, 2007
              
              $
              915,000April
                  1, 2006 Through March 31, 2008
              
              
              952,000April
                  1, 2006 Through March 31, 2009
              
              
              990,000April
                  1, 2006 Through March 31, 2010
              
              
              1,029,000April
                  1, 2006 Through March 31, 2011
              
              
              1,070,000Thereafter:
              
              
              3,934,000Total:
              
              $
              8,890,000
 
 Any
        significant level of redemptions by our members would reduce the amount of
        capital available for investment. In order to comply with our Operating
        Agreement and the Internal Revenue Code, we may redeem no more than 10% of
        the
        aggregate members’ capital in any calendar year. Our Operating Agreement also
        provides other conditions limiting redemptions.
 
 Approximately
        49% of our members currently reinvest their distributions. The level of
        reinvested distributions is likely to be affected by our operating performance.
        If our performance does not meet the expectations of our members, the level
        of
        reinvestment may decline.
 
 Inter-creditor
        agreements provide us additional funding sources for real estate loans whereby
        a
        third party investor (the “Investor”) may participate in certain real estate
        loans with us, Vestin Mortgage, Vestin Fund I, and Vestin Fund II (collectively,
        the “Lead Lenders”). In the event of borrower non-performance, the Lead Lenders
        are required to protect the Investor by (i) continuing to remit to the Investor
        the interest due on the participation amount; (ii) substituting an alternative
        loan acceptable to the Investor; or (iii) repurchasing the participation
        from
        the Investor for the outstanding balance of the participation plus accrued
        interest.
 
 Additionally,
        an Investor may participate in certain loans with Lead Lenders through
        participation agreements. In the event of borrower non-performance, the
        participation agreement allows the Investor to be repaid up to the amount
        of the
        Investor’s investment prior to the Lead Lenders being repaid.
 
 As
        of
        March 31, 2006, funds being used under inter-creditor and participation
        agreements where we have potential obligations as defined above totaled
        $229,000.
 -
            37
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  We
        may
        seek to expand our capital resources through borrowings from institutional
        lenders or through securitization of our loan portfolio or similar arrangements.
        We currently do not have in place any commitments to borrow any funds or
        securitize any of our assets. No assurance can be given that, if we should
        seek
        to borrow funds or to securitize our assets we would be able to do so on
        commercially attractive terms. Our ability to expand our capital resources
        in
        this manner is subject to many factors, some of which are beyond our control,
        including the state of the economy, the state of the capital markets and
        the
        perceived quality of our loan portfolio.
 
 **Off-Balance
        Sheet Arrangements**
 
 We
        do not
        currently have any interest in any special purpose entities, which are not
        reflected on our balance sheet nor do we have any commitments or obligations,
        which are not reflected on our balance sheet. We do not have any interest
        in
        derivative contracts.
 
 We
        maintain working capital reserves of approximately 3% of aggregate members’
capital accounts in cash and cash equivalents. This reserve is available
        to pay
        expenses in excess of revenues, satisfy obligations of underlying secured
        properties, expend money to satisfy our unforeseen obligations and for other
        permitted uses of the working capital. At March 31, 2006, we had $2.3 million
        in
        cash and $33.9 million in total assets.
 
 **FORWARD
        LOOKING STATEMENTS**
 
 When
        used
        in this Quarterly Report on Form 10-Q the words or phrases “will likely result,”
“are expected to,” “is anticipated,” or similar expressions are intended to
        identify “forward looking statements” within the meaning of the Private
        Securities Litigation Reform Act of 1995. Such statements are subject to
        certain
        risks and uncertainties, including but not limited to changes in interest
        rates,
        loan defaults and fluctuations in operating results. Such factors which are
        discussed in “Risk Factors” in Item 1A of Part II of this report, could affect
        our financial performance and could cause our actual results for future periods
        to differ materially from any opinion or statements expressed herein with
        respect to future periods. In particular, the Risk Factors under the headings
        “Risks Related to Investments in Real Estate”, “Risks of the Mortgage Lending
        Business” and “Management Risks” identify factors which might have a material
        affect upon our future operating results and financial condition. As a result,
        we wish to caution readers not to place undue reliance on any such forward
        looking statements, which speak only as of the date made.
 
 **ITEM
        3.**  **QUANTITATIVEAND
        QUALITATIVE DISCLOSURES ABOUT MARKET RISK**
 
 We
        are
        exposed to market risk, primarily from changes in interest rates. We do not
        deal
        in any foreign currencies and do not own any options, futures or other
        derivative instruments. We do not have a significant amount of
        debt.
 
 Most
        of
        our assets consist of investments in real estate loans, including those that
        are
        financed under Inter-creditor Agreements. At March 31, 2006, our aggregate
        investment in real estate loans was approximately $21.3 million with a weighted
        average effective interest rate of 10.26%. Loans financed under inter-creditor
        agreements totaled $229,000 as of March 31, 2006 and are classified as assets
        under secured borrowing. Such financing is at a weighted average interest
        rate
        of 11%. These assets under secured borrowings mature within the next 2
        months.
 
 The
        weighted average contractual term of outstanding loans at March 31, 2006
        was 16
        months. As of March 31, 2006, our real estate loans mature during the next
        14
        months. All of the outstanding real estate loans at March 31, 2006 were fixed
        rate loans. All of the real estate loans are held for investment purposes;
        none
        are held for sale. We intend to hold such real estate loans to maturity.
        None of
        the real estate loans have prepayment penalties.
 
 As
        of
        March 31, 2006, approximately $9.5 million or 28.1% of our assets consist
        of
        investment in income producing real property. This property is located in
        Las
        Vegas, Nevada and is leased entirely by our Manager, earning us monthly rent
        revenue of approximately $87,000. Vestin Group has sub-leased office space
        in
        the building as permitted by the lease agreement at rates equal to or less
        than
        rates we receive. On April 10, 2006, the property was listed for
        sale.
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            38
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  Market
        fluctuations in interest rates generally do not affect the carrying value
        of our
        investment in real estate loans. However, significant and sustained changes
        in
        interest rates could affect our operating results. If interest rates decline
        significantly, some of the borrowers could prepay their loans with the proceeds
        of a refinancing at lower interest rates. This would reduce our earnings
        and
        funds available for distribution to members. On the other hand, a significant
        increase in interest rates could result in a slowdown in real estate development
        activity, which would reduce the demand for commercial real estate loans.
        As a
        result, we might encounter greater difficulty in identifying appropriate
        borrowers. We are not in a position to quantify the potential impact on our
        operating results from a material change in interest rates.
 
 The
        following table contains information about the investment in real estate
        loans
        held in our portfolio as of March 31, 2006. The presentation aggregates the
        investment in real estate loans by their maturity dates for maturities occurring
        in each of the years 2006 through 2009 and separately aggregates the information
        for all maturities arising after 2009. The carrying values of these assets
        approximate their fair value as of March 31, 2006.
 
 **Interest
                  Earning Assets**
                **Aggregated
                  by Maturity at March 31, 2006****Interest
                  Earning Assets**
              
              **2006**
              
              **2007**
              
              **2008**
              
              **2009**
              
              **Thereafter**
              
              **Total**Investments
                  In Real Estate Loans
              
              $
              20,587,000
              
              $
              793,000
              
              $
              --
              
              $
              --
              
              $
              --
              
              $
              21,380,000Weighted
                  Average Interest Rates
              
              
              10.19
              %
              
              12.00
              %
              
              --
              %
              
              --
              %
              
              --
              %
              
              10.26
              %
 
 At
        March
        31, 2006, we also had approximately $2.3 million invested in cash, cash
        equivalents, and certificates of deposit. Approximately 3% of our assets
        will be
        held in such accounts as a cash reserve; additional deposits in such accounts
        will be made as funds are received from investors and repayment of loans
        pending
        the deployment of such funds in new real estate loans. We believe that these
        financial assets do not give rise to significant interest rate risk due to
        their
        short-term nature.
 
 **ITEM
        4.**  **CONTROLSAND
        PROCEDURES**
 
 **Disclosure
        Controls and Procedures**
 
 Our
        Manager’s Chief Executive Officer and Chief Financial Officer have reviewed and
        evaluated the effectiveness of the design and operation of our Company’s
        disclosure controls and procedures (as defined in the Securities Exchange
        Act of
        1934 Rules 13a-15(e) and 15d-15(e) as of March 31, 2006.
 
 Our
        Manager’s Chief Executive Officer and Chief Financial Officer concluded that our
        Company’s disclosure controls and procedures as of the end of the period covered
        by this report were not effective as a result of material weaknesses in internal
        controls as of March 31, 2006 as discussed below.
 
 **Management’s
        Report on Internal Control Over Financial Reporting**
 
 Management
        is responsible for establishing and maintaining adequate internal control
        over
        financial reporting of our Company. Internal control over financial reporting
        is
        a process designed to provide reasonable assurance regarding the reliability
        of
        financial reporting and the preparation of financial statements for external
        purposes in accordance with accounting principles generally accepted in the
        United States of America.
 -
            39
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  Our
        Company’s internal control over financial reporting includes those policies and
        procedures that (i) pertain to the maintenance of records that, in reasonable
        detail, accurately and fairly reflect the transactions and dispositions of
        the
        assets of the Company; (ii) provide reasonable assurance that transactions
        are
        recorded as necessary to permit preparation of financial statements in
        accordance with accounting principles generally accepted in the United States
        of
        America, and that receipts and expenditures of our Company are being made
        only
        in accordance with authorizations of Management and Directors of our Company;
        and (iii) provide reasonable assurance regarding prevention or timely detection
        of unauthorized acquisition, use or disposition of our Company’s assets that
        could have a material effect on the financial statements.
 
 As
        defined by the Public Company Accounting Oversight Board’s Auditing Standard No.
        2, a material weakness is defined as a significant deficiency or combination
        of
        significant deficiencies, that results in more than a remote likelihood that
        a
        material misstatement of the annual or interim financial statements will
        not be
        prevented or detected. Management’s preliminary assessment concluded that we did
        not maintain effective internal control over financial reporting as of March
        31,
        2006. As a result of the assessment, we identified the following material
        weaknesses:
 
 ·
            The
                first material weakness identified insufficient resources of technical
                accounting and reporting expertise. This weakness relates to the
                oversight
                and review of financial transactions, which affects our ability to
                prepare
                and properly review financial statements and accompanying footnote
                disclosures in accordance with United States generally accepted accounting
                principles and the rules and regulations of the
                SEC. 
 ·
            As
                a result of the foregoing material weakness, there has been ineffective
                oversight of documentation of authorizations to ensure that procedures
                are
                properly executed. Specifically, we did not have backup documentation
                for
                some authorized payments made by our
                Company. 
 The
        foregoing material weaknesses resulted in revisions to the draft financial
        statement disclosures, but we believe our final financial statements and
        related
        disclosures were accurate in all material respects. In addition, our Manager
        and
        independent auditors together have determined that the identified material
        weaknesses did not result in inadequate or deficient financial reporting
        for
        prior periods and will not result in a restatement of any of our prior financial
        statements.
 
 **Remediation
        Plan**
 
 In
        addition to controls and procedures consistent with prior practices, our
        Manager
        is in the process of developing and implementing remediation plans. In order
        to
        remediate the aforementioned material weaknesses, our Manager has:
 
 ·
            Hired
                a Corporate Controller with the requisite experience to assist and
                work
                directly with our Manager’s Chief Financial
                Officer; 
 ·
            Hired
                an Accounting Manager with the requisite experience to assist and
                work
                directly with our Manager’s Corporate
                Controller; 
 ·
            Hired
                a Financial Reporting Analyst to assist with the financial reporting
                process and work directly with our Manager’s Corporate
                Controller; 
 ·
            Implemented
                a mandatory weekly management meeting for all key personnel. This
                allows
                for financial reporting personnel to be consistently updated on
                significant matters affecting the Company;
                and 
 ·
            Implemented
                a Financial Reporting Review Committee, which reviews all periodic
                financial reporting documents prior to
                filing.  -
            40
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  We
        believe that, for the reasons described above, we are continuing to improve
        our
        disclosure controls and procedures and remedy the identified material
        weaknesses. Because of the inherent limitations in all control systems, no
        evaluation of controls can provide absolute assurance that all control issues
        and instances of fraud, if any, will be or have been detected. These inherent
        limitations include the realities that judgments in decision-making can be
        faulty, and that breakdowns can occur because of simple error or mistake.
        Additionally, controls can be circumvented by the individual acts of some
        persons, by collusion of two or more people, or by management override of
        the
        control. The design of any system of controls also is based in part upon
        certain
        assumptions about the likelihood of future conditions; over time, control
        may
        become inadequate because of changes in conditions, or the degree of compliance
        with the policies or procedures may deteriorate. Because of the inherent
        limitation in a cost-effective control system, misstatements due to error
        or
        fraud may occur and not be detected.
 
 **Changes
        in Internal Control Over Financial Reporting**
 
 Except
        for our remediation changes to address the material weaknesses discussed
        above,
        no change in our internal control over financial reporting identified in
        connection with the evaluation required by paragraph (d) of Securities Exchange
        Act Rules 13a-15(f) or 15d-15(f) that occurred has materially affected, or
        is
        reasonably likely to materially affect, our internal control over financial
        reporting.
 
 **PART
        II - OTHER INFORMATION**
 
 **ITEM
        1.**  **LEGALPROCEEDINGS**
 
 **Legal
        Matters Involving Our Manager**
 
 Vestin
        Group, Vestin Mortgage, and Del Mar Mortgage, Inc., a company wholly owned
        by
        Michael V. Shustek, the sole shareholder and CEO of Vestin Group, are defendants
        in a civil action entitled Desert Land, LLC et al. v. Owens Financial Group,
        Inc. et al (the “Action”). The Action is based upon allegations that Del Mar
        Mortgage, Inc. and/or Vestin Mortgage charged unlawful fees on various loans
        arranged by them. Desert Land sought in excess of $10 million in monetary
        damages. On April 10, 2003, the United States District Court for the District
        of
        Nevada (the “Court”) entered judgment jointly and severally in favor of Desert
        Land against Vestin Group, Vestin Mortgage and Del Mar Mortgage, Inc. Judgment
        was predicated upon the Court’s finding that Del Mar Mortgage, Inc. received an
        unlawful penalty fee from the plaintiffs.
 
 The
        defendants subsequently filed a motion for reconsideration. The Court denied
        the
        motion and, on August 13, 2003, held that Vestin Group, Vestin Mortgage,
        and Del Mar Mortgage, Inc. are jointly and severally liable for the judgment
        in
        the amount of $5,683,312 (which amount includes prejudgment interest and
        attorney’s fees). On August 27, 2003, the Court stayed execution of the judgment
        against Vestin Group and Vestin Mortgage based upon the posting of a bond
        in the
        amount of $5,830,000. Mr. Shustek personally posted a cash bond without any
        cost
        or obligation to Vestin Group and Vestin Mortgage. Additionally, Del Mar
        Mortgage, Inc. has indemnified Vestin Group and Vestin Mortgage for any losses
        and expenses in connection with the Action, and Mr. Shustek has guaranteed
        the
        indemnification with his cash bond. On September 12, 2003, all of the defendants
        held liable to Desert Land appealed the judgment to the United States Court
        of
        Appeals for the Ninth Circuit, which heard the case on October 18, 2005.
        On
        November 15, 2005, the Ninth Circuit vacated the judgment of the District
        Court
        and dismissed the state law claims against the defendants without prejudice
        on
        the basis that the District Court lacked subject matter jurisdiction in the
        case. On November 29, 2005, Desert Land petitioned the Ninth Circuit Court
        for
        rehearing with a suggestion that the matter be heard en banc. On December
        16,
        2005, the District Court issued an Order releasing the bond, and on January
        6,
        2006, the Ninth Circuit denied Desert Land’s petition and the matter remains
        dismissed.
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 On
          November 21, 2005, Desert Land filed a complaint in the state courts of
          Nevada,
          which complaint is substantially similar to the original complaint previously
          filed by Desert Land in the United States District Court, with the exception
          of
          claiming Nevada State Law violations and seeking Nevada State Law remedies
          rather than claiming Federal Law violations and seeking Federal Law remedies.
          On
          March 6, 2006, Desert Land amended the state court complaint to name Vestin
          Fund
          I, LLC as a defendant. Desert Land alleges that one or more of the defendants
          have transferred assets to other entities without receiving reasonable
          value
          therefore; alleges plaintiffs are informed and believe that defendants
          have made
          such transfers with the actual intent to hinder, delay or defraud Desert
          Land;
          that such transfers made the transferor insolvent and that sometime between
          February 27 and April 1, 2003, Vestin Group transferred $1.6 million to
          Vestin
          Fund I, LLC for that very purpose. The state court complaint further alleges
          that Desert Land is entitled to avoid such transfers and that pursuant
          to NRS
          112.20, Desert Land is entitled to an injunction to enjoin defendants from
          further disposition of assets.
 
 Most
        recently, on or about April 6, 2006, Desert Land filed a Writ of Certiorari
        seeking review of the 9th Circuit’s decision by the United States Supreme Court.
        Vestin continues to believe that Desert Land’s claims are without merit and will
        vigorously oppose the Writ of Certiorari and defend against the state court
        complaint. We were not a party to the action.
 
 On
        April
        21, 2006, our Manager, Vestin Mortgage Inc., filed a complaint in the Circuit
        Court of the First Circuit in Hawaii to expedite Fund I and Fund II’s efforts to
        foreclose upon first trust deeds secured by the assets of Rightstar
        International, Inc. (the “Rightstar Trust Deeds”). In the filing, Vestin
        Mortgage Inc. alleges that the State of Hawaii has unreasonably blocked the
        foreclosure without any legal basis for doing so. On April 24, 2006, the
        State
        of Hawaii responded by filing allegations against Vestin Mortgage, Inc.,
        and
        Vestin Fund II, LLC alleging that these Vestin entities improperly influenced
        the former RightStar trustees to transfer trust funds to Vestin. Our Manager
        believes these claims to be without merit and intend to vigorously defend
        those
        allegations. The outcome of this litigation is unforeseeable at this
        time.
 
 Our
        Manager is involved in a number of legal proceedings concerning matters arising
        in connection with the conduct of its business activities. The Manager believes
        it has meritorious defenses to each of these actions and intends to defend
        them
        vigorously. The Manager believes that it is not a party to any pending legal
        or
        arbitration proceedings that would have a material adverse effect on the
        Manager’s financial condition or results of operations or cash flows, although
        it is possible that the outcome of any such proceedings could have a material
        impact on the Manager’s net income in any particular period.
 
 **Legal
        Matters Involving the Company**
 
 The
        staff
        of the Pacific Regional Office of the United States Securities and Exchange
        Commission (SEC) conducted an investigation into certain matters related
        to us,
        Vestin Group, Vestin Mortgage, Vestin Capital, Fund I and Fund II. We have
        fully
        cooperated during the course of the investigation.
 
 The
        Staff
        has notified us, Fund I, Fund II, our Manager, Vestin Capital and Michael
        V.
        Shustek, the Principal Executive Officer of our Manager and Vestin Capital,
        or
        collectively the Vestin Entities, that they intend to seek authority to bring
        an
        enforcement proceeding against the Vestin Entities alleging violations of
        Section 17 (a) of the Securities Act of 1933, Section 10 (b) of the Securities
        Exchange Act of 1934 and Rule 10b-5 thereunder based upon certain sales
        practices employed for a period of time by the Vestin Entities. Specifically,
        the SEC Staff has advised that they believe certain slides used at sales
        seminars held to promote the sale of Fund II and Fund III units included
        disclosure regarding distributions to members of Fund I and Fund II that
        were
        misleading. The Vestin Entities are engaged in discussions with the Staff
        regarding the proposed recommendation and any remedies, which might be sought
        by
        the SEC Staff. Based upon these discussions, we currently believe that neither
        we nor Fund I, and Fund II will be named as parties in the enforcement
        recommendation. These settlement negotiations are ongoing and, at this time,
        we
        do not know if a mutually acceptable settlement will be reached.
 
 We
        are
        involved in a number of legal proceedings concerning matters arising in
        connection with the conduct of our business activities. We believe we have
        meritorious defenses to each of these actions and intend to defend them
        vigorously. We believe that we are not a party to any pending legal or
        arbitration proceedings that would have a material adverse effect on our
        financial condition or results of operations or cash flows, although it is
        possible that the outcome of any such proceedings could have a material impact
        on our net income in any particular period.
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  **ITEM
        1A.**  **RISKFACTORS**
 
 Our
        business is subject to numerous factors affecting our operating results.
        The
        following summary describes factors we believe are material risks that apply
        to
        our business. In addition to the risks described below, our business, financial
        condition and operating results could be harmed by other risks, including
        risks
        we have not yet identified or that we may believe are immaterial or
        unlikely.
 
 **INVESTMENT
        RISKS**
 
 **Limited
        operating history.**
 
 We
        commenced operations on February 12, 2004. Accordingly we have a limited
        operating history. As a result, members will not be able to rely upon our
        past
        performance to determine the likelihood of our achieving our investment
        objectives.
 
 **Units
        lack liquidity and marketability.**
 
 There
        is
        no public trading market for members units, and members cannot freely sell
        or
        transfer their units or use them as collateral for a loan. We currently do
        not
        intend to list the units on any national exchange or on Nasdaq. Our Operating
        Agreement restricts the transfer of units so that we may avoid being classified
        as a “publicly traded partnership” under Section 7704 of the Internal Revenue
        Code. If we were classified as a publicly traded partnership taxable as a
        corporation, the taxable income derived from our operations would be subject
        to
        the double tax system applicable to corporations and shareholders for federal
        income tax purposes (i.e., the taxable income would be subject to tax at
        the
        entity level at regular corporate tax rates and members would be subject
        to tax
        at distribution or capital gain rates on our share of our taxable income
        to the
        extent we distribute). As a result of this entity level tax, cash available
        for
        distribution to unit holders would be significantly reduced which in turn
        would
        result in a significant reduction in the value of members units. In order
        to
        attempt to avoid these adverse income tax consequences, members may not sell
        or
        assign their units and they will not be entitled to have their units redeemed
        without the consent of Vestin Mortgage. Vestin Mortgage will withhold its
        consent to any sale, assignment or redemption of units to the extent necessary
        to prohibit transfers that could cause us to be classified as a publicly
        traded
        partnership. Further the resale of units may, be restricted by state securities
        laws. Consequently, members may not be able to obtain cash for their units
        in a
        timely manner and should anticipate holding the units for at least one year
        and
        possibly much longer.
 
 **Members
        have limited ability to have units redeemed.**
 
 Members
        have a limited ability to have their units redeemed by us. The significant
        limitations on the ability to have units redeemed are the following:
 
 ·
            Members
                can only redeem their units after they have held them for one
                year. 
 ·
            If
                members redeem units between the first and second anniversaries from
                their
                date of purchase, they will receive an amount equal to 90% of their
                capital account; provided, however, such discounts will not apply
                in the
                event of a member’s death. If members redeem their units after the second
                anniversary from their date of purchase, they will receive an amount
                equal
                to the full value of their capital
                account. 
 ·
            Redemption
                payments only return all or the requested part of members’ capital
                account. We will perform an appraisal or internal valuation of the
                underlying real property each year. Accordingly, the value of members’
                capital account may fluctuate depending upon our
                performance. 
 ·
            There
                is no reserve fund for redemptions.  -
            43
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 ·
            Redemption
                payments are made only to the extent we have available cash from
                proceeds
                of repayments of principal on real estate loans, recovery through
                a sale
                of the cost of investments in real estate, and capital contributions;
                and
                the redemption would not impair the capital or operation of the Fund.
                Accordingly, a significant amount of redemption requests may delay
                the
                payment of subsequent redemptions. 
 ·
            The
                total amount withdrawn by all members during any calendar year cannot
                exceed 10% of the amount of capital accounts of all the members with
                a
                yearly limit of $100,000 per member subject to the Manager’s discretion to
                allow a greater amount. 
 ·
            We
                will only make redemption payments once a
                quarter. 
 Because
        a
        substantial portion of our loans are made on an “interest only” basis, we will
        not receive proceeds from the repayment of principal as frequently as we
        would
        with loans where the principal is repaid in periodic installments. To help
        permit redemptions, we will not refinance or invest in new loans using payments
        of loan principal by borrowers or new invested capital of members unless
        we have
        sufficient funds to cover permitted withdrawals.
 
 **Our
        management has identified material weaknesses in internal control over our
        financial reporting, primarily related to the lack of technical accounting
        and
        reporting expertise. Our inability to provide such expertise may result in
        inadequate or deficient financial reporting.**
 
 Management
        is responsible for establishing and maintaining adequate internal control
        over
        financial reporting of our Company. Internal control over financial reporting
        is
        a process designed to provide reasonable assurance regarding the reliability
        of
        financial reporting and the preparation of financial statements for external
        purposes in accordance with accounting principles generally accepted in the
        United States of America.
 
 Our
        Company’s internal control over financial reporting includes those policies and
        procedures that (i) pertain to the maintenance of records that, in reasonable
        detail, accurately and fairly reflect the transactions and dispositions of
        the
        assets of the Company; (ii) provide reasonable assurance that transactions
        are
        recorded as necessary to permit preparation of financial statements in
        accordance with accounting principles generally accepted in the United States
        of
        America, and that receipts and expenditures of our Company are being made
        only
        in accordance with authorizations of Management and Directors of our Company;
        and (iii) provide reasonable assurance regarding prevention or timely detection
        of unauthorized acquisition, use or disposition of our Company’s assets that
        could have a material effect on the financial statements.
 
 As
        defined by the Public Company Accounting Oversight Board’s Auditing Standard No.
        2, a material weakness is defined as a significant deficiency or combination
        of
        significant deficiencies, that results in more than a remote likelihood that
        a
        material misstatement of the annual or interim financial statements will
        not be
        prevented or detected. Management’s preliminary assessment concluded that we did
        not maintain effective internal control over financial reporting as of March
        31,
        2006. As a result of the assessment, we identified the following material
        weaknesses:
 
 ·
            The
                first material weakness identified insufficient resources of technical
                accounting and reporting expertise. This weakness relates to the
                oversight
                and review of financial transactions, which affects our ability to
                prepare
                and properly review financial statements and accompanying footnote
                disclosures in accordance with United States generally accepted accounting
                principles and the rules and regulations of the
                SEC. 
 ·
            As
                a result of the foregoing material weakness, there has been ineffective
                oversight of documentation of authorizations to ensure that procedures
                are
                properly executed. Specifically, we did not have backup documentation
                for
                some authorized payments made by our
                Company.  -
            44
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  The
        foregoing material weaknesses resulted in revisions to the draft financial
        statement disclosures, but we believe our final financial statements and
        related
        disclosures were accurate in all material respects. In addition, our Manager
        and
        independent auditors together have determined that the identified material
        weaknesses did not result in inadequate or deficient financial reporting
        for
        prior periods and will not result in a restatement of any of our prior financial
        statements.
 
 In
        addition to controls and procedures consistent with prior practices, our
        Manager
        is in the process of developing and implementing remediation plans. In order
        to
        remediate the aforementioned material weaknesses, our Manager has:
 
 ·
            Hired
                a Corporate Controller with the requisite experience to assist and
                work
                directly with our Manager’s Chief Financial
                Officer; 
 ·
            Hired
                an Accounting Manager with the requisite experience to assist and
                work
                directly with our Manager’s Corporate
                Controller; 
 ·
            Hired
                a Financial Reporting Analyst to assist with the financial reporting
                process and work directly with our Manager’s Corporate
                Controller; 
 ·
            Implemented
                a mandatory weekly management meeting for all key personnel. This
                allows
                for financial reporting personnel to be consistently updated on
                significant matters affecting the Company;
                and 
 ·
            Implemented
                a Financial Reporting Review Committee, which reviews all periodic
                financial reporting documents prior to
                filing. 
 We
        believe that, for the reasons described above, we are continuing to improve
        our
        disclosure controls and procedures and remedy the identified material
        weaknesses. Because of the inherent limitations in all control systems, no
        evaluation of controls can provide absolute assurance that all control issues
        and instances of fraud, if any, will be or have been detected. These inherent
        limitations include the realities that judgments in decision-making can be
        faulty, and that breakdowns can occur because of simple error or mistake.
        Additionally, controls can be circumvented by the individual acts of some
        persons, by collusion of two or more people, or by management override of
        the
        control. The design of any system of controls also is based in part upon
        certain
        assumptions about the likelihood of future conditions; over time, control
        may
        become inadequate because of changes in conditions, or the degree of compliance
        with the policies or procedures may deteriorate. Because of the inherent
        limitation in a cost-effective control system, misstatements due to error
        or
        fraud may occur and not be detected.
 
 **Any
        borrowing by us will increase members risk and may reduce the amount we have
        available to distribute.**
 
 We
        anticipate that we will borrow funds to expand our capacity to invest in
        real
        estate loans and real property. Our total indebtedness shall not exceed the
        sum
        of 85% of the aggregate purchase price of all real property owned by us plus
        70%
        of the aggregate fair market value of all of our other assets. Any such
        borrowings will require us to carefully manage our cost of funds. No assurance
        can be given that we will be successful in this effort. Should we be unable
        to
        repay the indebtedness and make the interest payments on the loans, the lender
        will likely declare us in default and require that we repay all amounts owing
        under the loan facility. Even if we are repaying the indebtedness in a timely
        manner, interest payments owing on the borrowed funds may reduce our income
        and
        the distributions members receive.
 
 We
        may
        borrow funds from several sources, and the terms of any indebtedness we incur
        may vary. However, some lenders may require as a condition of making a loan
        to
        us that the lender will receive a priority on loan repayments received by
        us. As
        a result, if we do not collect 100% on our investments, the first dollars
        may go
        to our lenders and we may incur a loss which will result in a decrease of
        the
        amount available for distribution. In addition, we may enter into securitization
        arrangements in order to raise additional funds. Such arrangements could
        increase our leverage and adversely affect our cash flow and our ability
        to make
        distributions.
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  Lenders
        may require us to enter into restrictive covenants that may have an adverse
        effect on our operations. **** In
        connection with obtaining certain financing, a lender could impose restrictions
        on us that affect our ability to incur additional debt and our distribution
        and
        operating policies. Loan documents we enter into may contain customary negative
        covenants that may limit our ability to further mortgage the property, to
        discontinue insurance coverage, replace our manager or impose other limitations.
        Any such restriction or limitation may have an adverse effect on our
        operations.
 
 Increases
        in interest rates could increase the amount of our debt payments and adversely
        affect our ability to pay distributions to our members. **** We
        expect
        that in the future we will incur indebtedness that bears interest at a variable
        rate. Accordingly, increases in interest rates would increase our interest
        costs, which could have a material adverse effect on our operating cash flow
        and
        our ability to pay distributions. In addition, if rising interest rates cause
        us
        to need additional capital to repay indebtedness in accordance with its terms
        or
        otherwise, we would be required to liquidate one or more of our investments
        in
        properties at times which may not permit realization of the maximum return
        on
        such investments.
 
 The
        aggregate amount we may borrow is limited under our Operating Agreement,
        which
        may hinder our ability to secure additional funding when it is
        needed. **** Our
        Operating Agreement limits the aggregate amount we may borrow in accordance
        with
        the requirements of the NASAA Guidelines to the sum of 85.0% of the aggregate
        purchase price of all of our properties which have not been refinanced plus
        85.0% of the aggregate fair market value of all of our refinanced properties.
        That limitation could have adverse business consequences such as: (i) freezing
        our ability to purchase additional properties; (ii) causing operational problems
        if there were cash flow shortfalls for working capital purposes; and (iii)
        resulting in the loss of a property if, for example, financing were necessary
        to
        repay a default on a real estate loan.
 
 **RISKS
        RELATED TO INVESTMENTS IN REAL ESTATE**
 
 **Our
        operating results will be affected by economic and regulatory changes that
        have
        an adverse impact on the real estate market in general, and we cannot assure
        members that we will be profitable or that we will realize growth in the
        value
        of our real estate properties.**
 
 Our
        operating results will be subject to risks generally incident to the ownership
        of real estate, including:
 
 ·
            changes
                in general economic or local conditions; 
 ·
            changes
                in supply of or demand for similar or competing properties in an
                area; 
 ·
            changes
                in interest rates and availability of permanent mortgage funds that
                may
                render the sale of a property difficult or
                unattractive; 
 ·
            changes
                in tax, real estate, environmental and zoning laws;
                and 
 ·
            periods
                of high interest rates and tight money
                supply. 
 For
        these
        and other reasons, we cannot assure that we will be profitable or that we
        will
        realize growth in the value of our real estate properties.
 
 **Properties
        that have significant vacancies could be difficult to sell, which could diminish
        the return on members’ investment.**
 
 A
        property may incur vacancies either by the continued default of tenants under
        their leases or the expiration of tenant leases. If vacancies continue for
        a
        long period of time, we may suffer reduced revenues resulting in less cash
        to be
        distributed to members. In addition, the resale value of the property could
        be
        diminished because the market value of a particular property will depend
        principally upon the value of the leases of such property.
 -
            46
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  **We
        are dependent on tenants for our revenue, and lease terminations could reduce
        our distributions to our members.**
 
 The
        success of our investments is materially dependent on the financial stability
        of
        our tenants. Lease payment defaults by tenants could cause us to reduce the
        amount of distributions. A default by a significant tenant on its lease payments
        to us would cause us to lose the revenue associated with such lease and cause
        us
        to have to find an alternative source of revenue to meet mortgage payments
        and
        prevent a foreclosure if the property is subject to a mortgage. In the event
        of
        a tenant default, we may experience delays in enforcing our rights as landlord
        and may incur substantial costs in protecting our investment and re-letting
        our
        property.
 
 If
        significant leases are terminated, we cannot assure that we will be able
        to
        lease the property for the rent previously received or sell the property
        without
        incurring a loss.
  **We
        may be unable to secure funds for future tenant improvements, which could
        adversely impact our ability to pay cash distributions to our
        members.**
 
 When
        tenants do not renew their leases or otherwise vacate their space, it is
        usual
        that, in order to attract replacement tenants, we will be required to expend
        substantial funds for tenant improvements and tenant refurbishments to the
        vacated space. If we have insufficient working capital reserves, we will
        have to
        obtain financing from other sources. We intend to establish initial working
        capital reserves of 3% of the contract price of the properties we acquire.
        If
        these reserves or any reserves otherwise established are insufficient to
        meet
        our cash needs, we may have to obtain financing from either affiliated or
        unaffiliated sources to fund our cash requirements. We cannot assure that
        sufficient financing will be available or, if available, will be available
        on
        economically feasible terms or on terms acceptable to us. Our Operating
        Agreement imposes certain limits on our ability to borrow money. Any borrowing
        will require us to pay interest expense, and therefore our financial condition
        and our ability to pay cash distributions to our members may be adversely
        affected.
  **We
        may be unable to sell a property if or when we decide to do so, which could
        adversely impact our ability to pay cash distributions to our
        members.**
 
 The
        real
        estate market is affected, as set forth above, by many factors, such as general
        economic conditions, availability of financing, interest rates and other
        factors, including supply and demand, that are beyond our control. We cannot
        predict whether we will be able to sell any property for the price or on
        the
        terms set by us, or whether any price or other terms offered by a prospective
        purchaser would be acceptable to us. We cannot predict the length of time
        needed
        to find a willing purchaser and to close the sale of a property. If we are
        unable to sell a property when we determine to do so, it could have a
        significant adverse effect on our cash flow and results of operations.
 
 **Competition
        with third parties in acquiring properties may reduce our profitability and
        the
        return on members’ investment.**
 
 We
        compete with many other entities engaged in real estate investment activities,
        including individuals, corporations, bank and insurance company investment
        accounts, REITs, real estate limited partnerships, and other entities engaged
        in
        real estate investment activities, many of which have greater resources than
        we
        do.
 
 Larger
        real estate programs may enjoy significant competitive advantages that result
        from, among other things, a lower cost of capital and enhanced operating
        efficiencies. In addition, the number of entities and the amount of funds
        competing for suitable properties may increase. Any such increase would result
        in increased demand for these assets and therefore increased prices paid
        for
        them. If we pay higher prices for properties and other investments, our
        profitability will be reduced and members may experience a lower return on
        their
        investment.
 -
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  **Uncertain
        market conditions and the broad discretion of Vestin Mortgage relating to
        the
        future disposition of properties could adversely affect the return on members’
investment.**
 
 We
        intend
        to hold the various real properties in which we invest until such time as
        Vestin
        Mortgage determines that a sale or other disposition appears to be advantageous
        to achieve our investment objectives or until it appears that such objectives
        will not be met. Vestin Mortgage may exercise their discretion as to whether
        and
        when to sell a property and we will have no obligation to sell properties
        at any
        particular time, except upon our liquidation. We cannot predict with any
        certainty the various market conditions affecting real estate investments
        that
        will exist at any particular time in the future. Due to the uncertainty of
        market conditions that may affect the future disposition of our properties,
        we
        cannot assure that we will be able to sell our properties at a profit in
        the
        future.
 
 **If
        we set aside insufficient working capital reserves, we may be required to
        defer
        necessary property improvements.**
 
 If
        we do
        not estimate enough reserves for working capital to supply needed funds for
        capital improvements throughout the life of the investment in a property,
        we may
        be required to defer necessary improvements to the property that may cause
        the
        property to suffer from a greater risk of obsolescence or a decline in value,
        or
        a greater risk of decreased cash flow as a result of fewer potential tenants
        being attracted to the property. If this happens, we may not be able to maintain
        projected rental rates for effected properties, and our results of operations
        may be negatively impacted.
 
 **If
        we sell properties by providing financing to purchasers, we will bear the
        risk
        of default by the purchaser.**
 
 If
        we
        decide to sell any of our properties, we intend to use our best efforts to
        sell
        them for cash. However, in some instances we may sell our properties by
        providing financing to purchasers. When we provide financing to purchasers,
        we
        will bear the risk of default by the purchaser and will be subject to remedies
        provided by law, which could negatively impact our cash distributions. There
        are
        no limitations or restrictions on our ability to take purchase money
        obligations. We may, therefore, take a purchase money obligation secured
        by a
        mortgage as part payment for the purchase price. The terms of payment to
        us
        generally will be affected by custom in the area where the property being
        sold
        is located and the then-prevailing economic conditions. If we receive promissory
        notes or other property in lieu of cash from property sales, the distribution
        of
        the proceeds of sales to members, or their reinvestment in other properties,
        will be delayed until the promissory notes or other property are actually
        paid,
        sold, refinanced or otherwise disposed of. In some cases, we may receive
        initial
        down payments in cash and other property in the year of sale in an amount
        less
        than the selling price and subsequent payments will be spread over a number
        of
        years. If any purchaser defaults under a financing arrangement with us, it
        could
        negatively impact our ability to pay cash distributions to members.
 
 **RISKS
        OF THE MORTGAGE LENDING BUSINESS**
 
 **Defaults
        on our real estate loans will decrease our revenues and members’
distributions.**
 
 We
        are in
        the business of investing in real estate loans and, as such, we are subject
        to
        risk of defaults by borrowers. Any failure of a borrower to repay loans or
        interest on loans will reduce our revenues and members’ distributions and the
        value of members’ units.
 
 In
        addition, foreclosures on defaulted loans create additional risks that may
        adversely affect our operating results. These risks include:
 
 ·
            We
                may incur substantial legal fees and court costs in acquiring a mortgaged
                property through a foreclosure sale and/or bankruptcy
                proceedings. 
 ·
            During
                the period of time when a defaulted loan is the subject of foreclosure
                proceedings, it is likely that we will earn less, if any, income
                from such
                loans, thereby reducing our earnings.  -
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 ·
            Properties
                foreclosed upon may not generate sufficient income from operations
                to meet
                expenses, such as property taxes, maintenance costs, real estate
                loan
                payments, insurance cost and related
                charges. 
 ·
            Operation
                of foreclosed properties may require us to spend substantial funds
                for an
                extended period until we are able to find a suitable
                buyer. 
 ·
            We
                incur liability risks in owning and operating real property such
                as
                possible liability for injury to persons and property or for the
                cost
                involved in cleaning up any contamination by materials hazardous
                to the
                environment. 
 ·
            Proceeds
                from the sale of foreclosed property may not generate full repayment
                of
                our loans and, in connection with such sale, we may be required to
                provide
                seller financing and incur the risk that the buyer may default on
                such
                financing. 
 **The
        value of our real estate security may be insufficient.**
 
 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 will be prepared on an “as if-developed basis,” which approximates
        the post-construction value of the collateralized property assuming that
        such
        property is developed. As if-developed values on new land loans or acquisition
        and development loans often dramatically exceed the immediate sales value
        and
        may include anticipated zoning changes and timely successful development
        by the
        purchaser. If the loan goes into default prior to completion of the project,
        the
        market value of the property may be substantially less than the appraised
        value.
        As a result, there may be less security than anticipated at the time the
        loan
        was originally made. If there is less security and a default occurs, we may
        not
        recover the full amount of our loan, thus reducing the amount of funds available
        to distribute.
 
 **We
        may invest in unimproved land which does not generate income.**
 
 We
        may
        invest approximately 15%, and not more than 25%, of our total real estate
        loan
        assets in loans to purchase or develop raw, unimproved land. Generally, we
        will
        determine whether to invest in these loans based upon the appraised value
        of the
        property and the borrower’s actual capital investment in the property. We intend
        to invest in loans with a face value of up to 60% of the as-if developed
        appraised value of the property and we will usually require that the borrower
        have invested in the property actual capital expenditures of at least 25%
        of the
        property’s value. As-if developed values on raw and unimproved land loans often
        dramatically exceed the immediate sales value and may include anticipated
        zoning
        changes, selection of a purchaser against multiple alternatives, and successful
        development by the purchaser; upon which development is dependent on
        availability of financing. These loans are riskier because the property is
        not
        capable of generating any income, as compared to a commercial property. The
        actual allocations may vary materially from the guidelines above depending
        on
        the amount available for investment in real estate loans. Currently, 28%
        of our
        loans are secured by unimproved land.
 
 **We
        may invest in acquisition and development loans which do not generate
        income.**
 
 We
        may
        invest about 10% to 25% of our total real estate loan assets in acquisition
        and
        development loans. These loans enable borrowers to acquire and/or complete
        the
        basic infrastructure and development of their property prior to the construction
        of buildings or structures. Such development may include installing utilities,
        sewers, water pipes, and/or streets. Generally, we may invest in loans with
        a
        face value of up to 60% of the as-if developed appraised value of the property.
        Such appraisals have the same valuation limitations as raw and unimproved
        land
        loans, described above. Currently, 18% of our loans are acquisition and
        development loans.
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  **We
        may invest in construction loans which do not generate
        income.**
 
 We
        may
        invest 10% to 70% of our total real estate loan assets in construction loans.
        These are loans generally made to real estate developers to fund the
        construction of one or more buildings on real property. Funds under this
        type of
        loan will generally not be forwarded to the borrower until work in the previous
        phase of the project has been completed and an independent inspector has
        verified certain aspects of the construction and its costs. We will typically
        require material and labor lien releases by the borrower per completed phase
        of
        the project. We will review the appraised value of the property and proposed
        improvements, and will arrange loans for up to 75% of the as-if developed
        appraised value. Such appraisals have the same valuation limitations as raw
        and
        unimproved land loans, described above. These loans are riskier than loans
        secured by income producing properties because during construction the borrower
        does not receive income from the property to make payments on the loan.
        Currently, 8% of our loans are construction loans.
 
 **Our
        investments in commercial property loans may not yield the anticipated increase
        in value and income.**
 
 We
        expect
        to invest approximately 20% to 50% of our total real estate loan assets in
        commercial property loans. These loans provide funds to allow commercial
        borrowers to acquire income-producing property or to improve or renovate
        property to increase the value or net operating income of the property so
        that
        it may qualify for institutional refinancing. Bridge loans are a subcategory
        of
        commercial loans in which we provide interim financing to enable commercial
        borrowers to qualify for permanent refinancing. We will review the appraised
        value of the property and will invest in loans for up to 75% of such appraised
        value. To the extent such loans include renovations, appraisals may include
        as-if developed valuations with the limitations described above. These loans
        are
        riskier because there is no assurance that the commercial borrower will qualify
        for the refinancing or that the improvements will yield the anticipated increase
        in value and income. Currently, 46% of our loans are secured by commercial
        properties.
 
 **We
        may invest in residential loans.**
 
 We
        may
        invest approximately 5% of our total real estate loan assets in residential
        loans. Such loans facilitate the purchase or refinance of one to four family
        residential property units provided the borrower used one of the units on
        the
        property as such borrower’s principal residence. We will review the appraisal of
        the value of the property and will invest in loans for up to 75% of such
        appraised value. We do not currently have any residential loans.
 
 **Investments
        in second deeds of trust and wraparound loans are subject to the rights of
        the
        first deed of trust.**
 
 We
        may
        also invest up to 10% of our total real estate loan assets in deeds of trust
        and, in rare instances, wraparound, or all-inclusive, real estate loans.
        In a
        second deed of trust, our rights as a lender, including our rights to receive
        payment on foreclosure, will be subject to the rights of the first deed of
        trust. In a wraparound real estate loan, our rights will be similarly subject
        to
        the rights of a first deed of trust, but the aggregate indebtedness evidenced
        by
        our loan documentation will be the first deed of trust plus the new funds
        we
        invest. We would receive all payments from the borrower and forward to the
        senior lender its portion of the payments we receive. Because both of these
        types of loans are subject to the first deed of trust’s right to payment on
        foreclosure, we incur a greater risk when we invest in each of these types
        of
        loans. Currently, 7% of our loans are secured by second deeds of
        trust.
 
 **Balloon
        payments require sufficient resources to make payment when
        due.**
 
 We
        anticipate that 90% to 100% of our loans will require the borrower to make
        a
“balloon payment” on the principal amount upon maturity of the loan. A balloon
        payment is a large principal balance that is payable after a period of time
        during which the borrower has repaid none or only a small portion of the
        principal balance. Loans with balloon payments are riskier than loans with
        even
        payments of principal over an extended time period like 15 or 30 years
        because the borrower’s repayment depends on its ability to sell the property
        profitably, obtain suitable refinancing or otherwise raise a substantial
        amount
        of cash when the loan comes due. There are no specific criteria used in
        evaluating the credit quality of borrowers for real estate loans requiring
        balloon payments. Furthermore, a substantial period of time may elapse between
        the review of the financial statements of the borrower and the date when
        the
        balloon payment is due. As a result, there is no assurance that a borrower
        will
        have sufficient resources to make a balloon payment when due.
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  **Investment
        in large loans may reduce our ability to diversify our loan
        portfolio.**
 
 We
        will
        generally invest in loans that constitute an amount equal to less than 5%
        of our
        total capital. However, we may invest in a larger loan depending on such
        factors
        as the performance of the Fund and the value of the collateral. These larger
        loans are risky because they may reduce our ability to diversify our loan
        portfolio.
 
 **Taking
        a lease interest as collateral only provides a right to assume the borrower’s
        obligations under the lease.**
 
 We
        may
        invest up to 20% of our total real estate loan assets in loans where the
        collateral is an interest in a lease. These loans are riskier because the
        only
        rights we will have are to assume the borrower’s obligations under the lease and
        to use the property for the length of time and in the limited manner permitted
        under the lease.
 
 **Our
        underwriting standards and procedures are more lenient than conventional
        lenders.**
 
 We
        will
        invest in loans to borrowers who may not be required to meet the credit
        standards of conventional real estate lenders and we will approve real estate
        loans more quickly than other real estate lenders. Generally, we will not
        spend
        more than 20 days assessing the character and credit history of our borrowers.
        Due to the nature of loan approvals, there is a risk that the credit inquiry
        we
        perform will not reveal all material facts pertaining to the borrower and
        the
        security. There may be a greater risk of default by our borrowers which may
        impair our ability to make distributions or may reduce the amount we have
        available to distribute, particularly in the case of foreclosures.
 
 **Our
        loans are not guaranteed by any government agency.**
 
 Our
        loans
        will not be insured or guaranteed by a federally owned or guaranteed mortgage
        agency. Consequently, our recourse if there is a default may only be to
        foreclose upon the real property. The value of the foreclosed property may
        have
        decreased and may not be equal to the amount outstanding under the corresponding
        loan, resulting in a decrease of the amount available to distribute.
 
 **Our
        real estate loans will not be marketable and we expect no secondary market
        to
        develop.**
 
 We
        do not
        expect our real estate loans to be marketable and we do not expect a secondary
        market to develop for them. As a result, we will generally bear all the risk
        of
        our investment until the loans mature. This will limit our ability to hedge
        our
        risk in changing real estate markets and may result in reduced returns to
        our
        Members.
 
 **Our
        loan portfolio may be riskier if it is not diversified
        geographically.**
 
 Initially
        we intend to invest in real estate loans throughout the areas in which Vestin
        Mortgage and its correspondents have experience, specifically Arizona,
        California, Hawaii, Nevada and Texas. However, we have also invested in real
        estate loans in North Carolina, Oklahoma, Oregon, Washington and Wisconsin.
        Depending on the market and on the Company’s performance, we plan to expand our
        investments throughout the United States. However, Vestin Mortgage has limited
        experience outside of the Southwest. Real estate markets vary greatly from
        location to location and the rights of secured real estate lenders vary
        considerably from state to state. Vestin Mortgage’s limited experience in most
        U.S. real estate markets may impact its ability to make prudent investment
        decisions on our behalf. Accordingly, where Vestin Mortgage deems it necessary,
        it plans to utilize independent real estate advisors and local legal counsel
        located in markets where Vestin Mortgage lacks experience for consultation
        prior
        to making investment decisions. Members will not have an opportunity to evaluate
        the qualifications of such advisors and no assurance can be given that they
        will
        render prudent advice to our Manager.
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  **We
        may have difficulty protecting our rights as a secured
        lender.**
 
 We
        believe that our loan documents will enable us to enforce our commercial
        arrangements with borrowers. However, the rights of borrowers and other secured
        lenders may limit our practical realization of those benefits. For example:
 
 ·
            Judicial
                foreclosure is subject to the delays of protracted litigation. Although
                we
                expect non-judicial foreclosure to be quicker, our collateral may
                deteriorate and decrease in value during any delay in foreclosing
                on
                it. 
 ·
            The
                borrower’s right of redemption during foreclosure proceedings can deter
                the sale of our collateral and can for practical purposes require
                us to
                manage the property. 
 ·
            Unforeseen
                environmental hazards may subject us to unexpected liability and
                procedural delays in exercising our
                rights. 
 ·
            The
                rights of senior or junior secured parties in the same property can
                create
                procedural hurdles for us when we foreclose on
                collateral. 
 ·
            We
                may not be able to pursue deficiency judgments after we foreclose
                on
                collateral. 
 ·
            State
                and federal bankruptcy laws can prevent us from pursuing any actions,
                regardless of the progress in any of these suits or
                proceedings. 
 **By
        becoming the owner of property, we may become liable for unforeseen
        environmental obligations.**
 
 We
        intend
        to acquire income producing properties such as office, industrial and retail
        properties, multi-family residential units and assisted living facilities
        and
        other income producing real property, such as parking lots, hotels and
        restaurants. In addition, we intend to own real property if we foreclose
        on a
        defaulted loan and purchase the property at the foreclosure sale. 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.
 
 **Our
        results are subject to fluctuations in interest rates and other economic
        conditions.**
 
 ·
            We
                expect that a majority of our loans will not have a prepayment penalty.
                Should interest rates decrease, our borrowers may prepay their outstanding
                loans with us in order to receive a more favorable rate. This may
                reduce
                the amount of funds we have available to
                distribute. 
 ·
            Our
                results of operations will vary with changes in interest rates and
                with
                the performance of the relevant real estate markets. If the economy
                is
                healthy, we expect that more people will be borrowing money to acquire,
                develop or renovate real property. However, if the economy grows
                too fast,
                interest rates may increase too much and the cost of borrowing may
                become
                too expensive. Alternatively, if the economy enters a recession,
                real
                estate development may slow. A slowdown in real estate lending may
                mean we
                will have fewer loans to acquire, thus reducing our revenues and
                the
                distributions to members. 
 ·
            One
                of the results of interest rate fluctuations is that borrowers seek
                to
                extend their low-interest-rate real estate loans after market interest
                rates have increased. Generally, our loan documents permit us to
                raise the
                interest rate we charge on extended loans anywhere from between 0.75%
                to
                3% from the then-current rate on the loan. This creates two risks
                for
                us:  -
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 ·
            There
                is no assurance that this permitted rate increase will be adequate
                if
                interest rates have increased beyond the range contemplated by our
                loan
                documents. If interest rates rise, borrowers under loans with monthly
                or
                quarterly principal payments may be compelled to extend their loans
                to
                decrease the principal paid with each payment because the interest
                component has increased. If this happens, we are likely to be at
                a greater
                risk of the borrower defaulting on the extended loan, and the increase
                in
                the interest rate on our loan may not be adequate compensation for
                the
                increased risk. Additionally, any fees paid to extend the loan are
                paid to
                Vestin Mortgage, not to us. Our revenues and distributions will decline
                if
                we are unable to reinvest at higher rates or if an increasing number
                of
                borrowers default on their loans. 
 ·
            If,
                at a time of relatively low interest rates, a borrower should prepay
                obligations that have a higher interest rate from an earlier period,
                we
                will likely not be able to reinvest the funds in real estate loans
                earning
                that higher rate of interest. In the absence of a prepayment fee,
                we will
                receive neither the anticipated revenue stream at the higher rate
                nor any
                compensation for its loss. This is a risk if the loans we invest
                in do not
                have prepayment penalties or exit fees. 
 ·
            Our
                results will also reflect other economic conditions, such as a particular
                industry migrating to or from one of the states into which we make
                loans. 
 **We
        face competition for real estate loans that may reduce available yields and
        fees.**
 
 Our
        competitors consist primarily of conventional mortgage lenders and mortgage
        loan
        investors including commercial banks, insurance companies, mortgage brokers,
        pension funds and other institutional lenders. Many of the companies against
        which we and Vestin Mortgage compete have substantially greater financial,
        technical and other resources than either the Fund or Vestin Mortgage.
        Additionally, if our competition decreases interest rates on their loans
        or
        makes funds more easily accessible, yields on our loans could decrease and
        the
        costs associated with making loans could increase, both of which would reduce
        our revenues and the distributions members receive.
 
 **Our
        lending operations are subject to certain regulatory
        requirements.**
 
 As
        a
        company investing in real estate loans and rural property and having raised
        funds through a public offering, we are subject to the NASAA Mortgage Program
        Guidelines promulgated by the state securities administrators. The NASAA
        Guidelines govern, among other things, our debt to equity ratio and the
        diversity and composition of our investments. For example, the NASAA Guidelines
        provide that we may not invest in or make real estate loans to or from any
        one
        borrower which would exceed, in the aggregate, an amount greater than 20%
        of the
        capital contributions which we have raised. Additionally, the NASAA Guidelines
        require reserves of not less than 1% of the offering proceeds. The NASAA
        Guidelines are intended to protect the interests of investors. However, our
        flexibility in making business decisions may be limited by our obligation
        to
        comply with the NASAA Guidelines.
 
 **MANAGEMENT
        RISKS**
 
 We
        must
        rely on Vestin Mortgage to manage our operations and select our loans and
        real
        property for investment. Our ability to achieve our investment objectives
        and to
        pay distributions depends upon Vestin Mortgage's performance (i) in obtaining,
        processing, making and brokering loans for us to invest in and determining
        the
        financing arrangements for borrowers and (ii) in the acquisition of our
        investments, the selection of tenants and the determination of any financing
        arrangements.
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  **Vestin
        Mortgage has limited experience in acquiring and managing real
        properties.**
 
 Our
        performance and ability to pay distributions depends largely upon the
        performance of Vestin Mortgage in managing our operations. While Vestin Mortgage
        has substantial experience in managing funds that invest in real estate loans,
        it has limited experience in the business of acquiring and managing real
        properties. Vestin Mortgage is not engaged in the business of acquiring and
        managing real properties nor has it ever managed a fund which is engaged
        in the
        business of acquiring real properties. Vestin Mortgage has managed and disposed
        of real properties which were acquired through foreclosure. In addition,
        one of
        its principals has some experience in acquiring and managing multi-family
        residential properties and office buildings. However, this limited experience
        may be insufficient to enable Vestin Mortgage to successfully manage our
        investments in real property. As a result of its limited experience, Vestin
        Mortgage may make errors of judgment in selecting properties for us to acquire
        and may encounter difficulties in managing such properties. Poor performance
        by
        Vestin Mortgage may reduce our income and may reduce our distributions.
 
 **Our
        Manager lacks experience with certain real estate markets.**
 
 Initially
        we intend to invest in real estate loans and real property throughout the
        areas
        in which Vestin Mortgage and its correspondents have experience, specifically
        Arizona, California, Hawaii, Nevada and Texas. Accordingly, members’ investment
        will be dependent upon the economy in the Southwest. Depending on the market
        and
        on the Fund’s performance, we plan to expand our investments throughout the
        United States. Real estate markets vary greatly from location to location
        and
        the rights of secured real estate lenders vary considerably from state to
        state.
        Vestin Mortgage’s limited experience in most U.S. real estate markets may impact
        its ability to make prudent investment decisions on our behalf. Accordingly,
        where Vestin Mortgage deems it necessary, it plans to utilize independent
        real
        estate advisors and local legal counsel located in markets where Vestin Mortgage
        lacks experience for consultation prior to making investment decisions. Members
        will not have an opportunity to evaluate the qualifications of such advisors
        and
        no assurance can be given that they will render prudent advice to our Manager.
 
 We
        are
        limited in the number and type of properties and real estate loans in which
        we
        may invest and the value of members’ investment will fluctuate with the
        performance of the specific investments we make. We raised approximately
        $29.7
        million, and we currently are not raising additional funds through the sale
        of
        units, except through our distribution reinvestment plan. Accordingly, we
        are a
        relatively small fund and will make a limited number of investments resulting
        in
        less diversification in terms of the number of investments owned, the geographic
        regions in which our investments are located and the types of investments
        that
        we make as compared with larger funds. As a result, our performance will
        be
        closely tied to the performance of each property or loan we invest and a
        default
        on leases or a loan could materially reduce the funds available for
        distribution. Our profitability may be affected by the performance of any
        one of
        our investments and members’ investment in our units will be subject to greater
        risk.
 
 We
        depend
        on key personnel of Vestin Mortgage we do not have any directors, officers
        or
        employees. Our success depends upon the continued contributions of certain
        key
        personnel of Vestin Mortgage, including Michael V. Shustek, each of whom
        would
        be difficult to replace because of their extensive experience in the field,
        extensive market contacts and familiarity with Vestin Mortgage's activities.
        If
        any of these key employees were to cease employment, our operating results
        could
        suffer. Our future success also depends in large part upon Vestin Mortgage's
        ability to hire and retain additional highly skilled managerial, operational
        and
        marketing personnel. Vestin Mortgage may require additional operations and
        marketing people who are experienced in obtaining, processing, making and
        brokering loans, investing, leasing and operating real property and who also
        have contacts in the market. The size of our loan and real estate portfolio
        may
        require Vestin Mortgage to hire and retain additional financial and accounting
        personnel to assist in managing Vestin Mortgage's accounting services.
        Competition for accounting personnel is intense, and we cannot assure members
        that Vestin Mortgage will be successful in attracting and retaining skilled
        personnel. Should Vestin Mortgage be unable to attract and retain key personnel,
        the ability of Vestin Mortgage to make prudent investment decisions on our
        behalf may be impaired.
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  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 Vestin Mortgage 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.
 
 **CONFILICTS
        OF INTEREST RISKS**
 
 **Vestin
        Mortgage will face conflicts of interest arising from our fee structure.**
 
 Vestin
        Mortgage will receive substantial fees for brokering and managing our real
        property investments. Vestin Mortgage will also receive substantial fees
        from
        borrowers for transactions involving real estate loans. Many of these fees
        are
        paid on an up-front basis. Vestin Mortgage's compensation is based on the
        volume
        and size of the real estate loans selected for us. Our interests may diverge
        from those of Vestin Mortgage and Mr. Shustek to the extent that Vestin Mortgage
        benefits from up-front fees which are not shared with us.
 
 Vestin
        Mortgage will be receiving fees from borrowers that would otherwise increase
        our
        returns. Because Vestin Mortgage receives all of these fees, including brokering
        and management fees for our real property, our interests will diverge from
        those
        of Vestin Mortgage when our Manager decides whether we should charge the
        borrower higher interest rates or Vestin Mortgage should receive higher fees
        from the borrower or whether we should purchase or sell real property or
        in the
        leasing of our buildings or in determining our advisory fees.
 
 **Vestin
        Mortgage will face conflicts of interest concerning the allocation of its
        personnel's time.**
 
 Vestin
        Mortgage is the manager of Fund I, Fund II and inVestin Nevada, Inc., funds
        with
        investment objectives similar to ours. Vestin Mortgage is also the manger
        Vestin
        Fund I has raised $100 million pursuant to a registration statement on Form
        S-11
        initially filed with the Securities Exchange Commission on August 23, 2000.
        Vestin Fund II had raised approximately $475 million as of December 31, 2005
        pursuant to a registration statement on Form S-11 initially filed with the
        Securities and Exchange Commission on December 31, 2000. inVestin Nevada
        is
        seeking to raise $100 million through the sale of subordinated notes to Nevada
        residents pursuant to a registration statement filed with the Securities
        Division of the Nevada Secretary of State and in reliance on exemption from
        registration requirements provided by Section 3(a)(11) of the Securities
        Act of
        1933 and Rule 147 thereunder. As of March 31, 2006, inVestin Nevada had raised
        approximately $81 million. Vestin Mortgage and Mr. Shustek, who indirectly
        owns
        100% of Vestin Mortgage, anticipate that they will also sponsor other real
        estate programs having investment objectives similar to ours. As a result,
        Vestin Mortgage may have conflicts of interest in allocating their time and
        resources between our business and those other activities. During times of
        intense activity in other programs and ventures, Vestin Mortgage and its
        key
        personnel, including Mr. Shustek, will likely devote less time and resources
        to
        our business than they ordinarily would. If Vestin Mortgage does not spend
        sufficient time managing our operations we may not meet our investment
        objectives.
 
 **Vestin
        Mortgage will face conflicts of interest relating to other investments in
        real
        estate loans.**
 
 We
        may
        invest in real estate loans when one or more other companies managed by Vestin
        Mortgage are also investing in real estate loans. There is a risk that Vestin
        Mortgage may select for us a real estate loan investment that provides lower
        returns than a real estate loan investment purchased by another Vestin Mortgage
        program or entity. Vestin Mortgage also serves as a manager for Fund I, Fund
        II
        and inVestin Nevada, Inc., funds which have similar investment objectives
        as
        ours. There are no restrictions or guidelines on how Vestin Mortgage will
        determine which loans are appropriate for us and which are appropriate for
        Vestin Fund I, Vestin II, inVestin Nevada or any another company which Vestin
        Mortgage manages.
 
 **Vestin
        Mortgage will face conflicts of interest in selecting real estate loans for
        us.**
 
 In
        the
        event we purchase real property by incurring debt, Vestin Mortgage may lend
        us
        money directly or Vestin Mortgage could select one of its affiliates as our
        lender or Vestin Mortgage will select a third party as our lender. There
        is also
        a risk that Vestin Mortgage may select a loan for us that provides for a
        higher
        interest rate than we may otherwise be able to obtain.
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  **We
        may have a lack of control over participations.**
 
 We
        will
        consider investing in or purchasing loans and properties jointly with other
        lenders and purchasers, some of whom might be affiliates of Vestin Mortgage.
        We
        will initially have, and will maintain a controlling interest as lead lender
        in
        participations with non-affiliates. Although it is not our intention to lose
        control, there is a risk that we will be unable to remain as the lead lender
        in
        the loans in which we participate in the future. In the event of participation
        with a publicly registered affiliate, the investment objectives of the
        participants shall be substantially identical. There shall be no duplicate
        fees.
        The compensation to the sponsors must be substantially identical, and the
        investment of each participant must be on substantially the same terms and
        conditions. Each participant shall have a right of first refusal to buy the
        other's interest if the co-participant decides to sell its interest. We will
        not
        participate in joint ventures or partnerships with affiliates that are not
        publicly registered except as permitted in the NASAA Guidelines. If our
        co-participant affiliate determines to sell its interest in the loan or
        property, there is no guarantee that we will have the resources to purchase
        such
        interest and we will have no control over a sale to a third party
        purchaser.
 
 **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
        March 31, 2006, 782 accounts held 2,927,163 Units of interest in the Company.
 
 **Distribution
        Policy**
 
 We
        generally distribute to Unit holders on a monthly basis most of our Net Income
        Available for Distribution (as defined in our Operating Agreement). Net Income
        Available for Distribution is based upon cash flow from operations, less
        certain
        reserves, and may exceed net income as calculated in accordance with accounting
        principles generally accepted in the United States (“GAAP”). Our Operating
        Agreement also permits distributions of capital. We made distributions of
        approximately $645,000 (prior to reinvested distributions) during the three
        months ended March 31, 2006, all of which were paid from Net Income Available
        for Distribution. It is our intention to continue to distribute our Net Income
        Available for Distribution to our Unit holders.
 
 **Recent
        Sales of Unregistered Securities**
 
 None.
 
 **Equity
        Compensation Plan Information**
 
 None.
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  **Purchases
        of Equity Securities by the Issuer and Affiliated
        Purchasers**
 
 **Period**
              **Total
                  Number of Units Purchased (1)**
              **Average
                  Price Paid per Unit**
              **Total
                  Number of Units Purchased as Part of Publicly Announced Plans or
                  Programs**
              **Maximum
                  Number (or Approximate Dollar Value) of Units that May Yet be Purchased
                  under the Plans or Programs**January
                  2006
              --
              --
              None
              NoneFebruary
                  2006
              --
              --
              None
              NoneMarch
                  2006
              68,722
              $10.50
              None
              None
 
 (1)
            Pursuant
                to our Operating Agreement, members may request to have their units
                redeemed. However, in order to comply with our Operating Agreement
                and
                Internal Revenue Code, we may redeem no more than 10% of the aggregate
                Members’ capital in any calendar year. Balances in Members’ capital
                accounts as of January 1, 2006 were approximately $29.2 million,
                which
                limited redemptions to approximately $2.9 million for calendar year
                2006. 
 **ITEM
        3.**  **DEFAULTSUPON
        SENIOR SECURITIES**
 
 None.
 
 **ITEM
        4.**  **SUBMISSIONOF
        MATTERS TO A VOTE OF SECURITY
        HOLDERS**
  None.
 
 **ITEM
        5.**  **OTHERINFORMATION**
 
 None.
 -
            57
            -
 *Table
            of Contents*
 
 **ITEM
        6.**  **EXHIBITS**
 
 **EXHIBIT
        INDEX**
 
 **Exhibit****No.**
              
              **Description
                  of Exhibits**3.1(1)
              
              Articles
                  of Organization3.2(2)
              
              Certificate
                  of Amendment to Articles of Organization3.3(3)
              
              Amended
                  and Restated Operating Agreement (included as Exhibit A to the
                  prospectus)4(4)
              
              Distribution
                  Reinvestment Plan10.7
                  (5)
              
              Purchase
                  and Sale Agreement, dated August 1, 2004, by and between Luke Properties,
                  LLC and Vestin Fund III, LLC10.8
                  (5)
              
              Assignment
                  and Assumption Agreement dated August 16, 2004 by and between Vestin
                  Fund III, LLC and VF III HQ, LLC10.9(6)
              
              Office
                  lease agreement dated March 31, 2003 by and between Luke Properties,
                  LLC
                  and Vestin 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 Post-Effective Amendment
                  No. 5
                  to Form S-11 Registration Statement filed on April 28, 2006, File
                  No.
                  333-105017.(5)
              
              Incorporated
                  herein by reference to our Form 10-Q filed on November 15, 2004,
                  File No.
                  333-105017.(6)
              
              Incorporated
                  herein by reference to our Form 10-KSB filed on March 30, 2005,
                  File No.
                  333-105017.
  -
            58
            -
 *Table
            of Contents*
 
 **EXHIBIT
        INDEX**
 
 **SIGNATURES**
 
 Pursuant
        to the requirements of Section 13 or 15(d) of the Securities Exchange Act
        of
        1934, the Registrant has duly caused this report to be signed on its behalf
        by
        the undersigned thereunto duly authorized.
 Vestin
                  Fund III, LLCBy:
              Vestin
                  Mortgage, Inc., its Sole ManagerBy:
              /s/
                  Michael V. ShustekMichael
                  V. ShustekChief
                  Executive Office and Director of the Manager(Principal
                  Executive Officer of the Manager)By:
              /s/
                  John AlderferJohn
                  AlderferChief
                  Financial Officer of the Manager
 
 Dated:
        May 11, 2006