##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2010
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 0-51295
 NNN 2003 Value Fund, LLC
  Delaware
(State or other jurisdiction of 
incorporation or organization)
    
    20-0122092
(I.R.S. Employer
Identification No.)1551 N. Tustin Avenue, Suite 300, Santa Ana, California
(Address of principal executive offices)
    
    92705
(Zip Code)
 (714) 667-8252
 N/A
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




---



##### 



NNN 2003 VALUE FUND, LLC
(A Delaware limited liability company)
TABLE OF CONTENTS
 PagePART I  FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    2Condensed Consolidated Balance Sheets as of June 30, 2010 (Unaudited) and
December 31, 2009
    
    
    2Unaudited Condensed Consolidated Statements of Operations and Comprehensive
Income (Loss) for the Three and Six Months Ended June 30, 2010 and 2009
    
    
    3Unaudited Condensed Consolidated Statement of (Deficit) Equity for the Six Months
Ended June 30, 2010
    
    
    4Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 2010 and 2009
    
    
    5Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    23Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    35Item 4. Controls and Procedures
    
    
    36PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    37Item 1A. Risk Factors
    
    
    37Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    38Item 3. Defaults Upon Senior Securities
    
    
    38Item 4. [Removed and Reserved.]
    
    
    38Item 5. Other Information
    
    
    38Item 6. Exhibits
    
    
    38Signatures
    
    
    39Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   1




---



##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 NNN 2003 VALUE FUND, LLC
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 June 30, 2010
    
    
    December 31, 2009(Unaudited)ASSETSReal estate investments:Operating properties, net
    
    $
    27,703,000
    
    
    $
    32,973,000Properties held for non-sale disposition, net
    
    
    
    
    
    
    8,567,000Investments in unconsolidated real estate
    
    
    153,000
    
    
    
    1,101,00027,856,000
    
    
    
    42,641,000Cash and cash equivalents
    
    
    2,118,000
    
    
    
    2,724,000Accounts receivable, net
    
    
    191,000
    
    
    
    354,000Accounts and loans receivable due from related parties, net
    
    
    
    
    
    
    475,000Restricted cash
    
    
    1,163,000
    
    
    
    1,351,000Identified intangible assets, net
    
    
    2,118,000
    
    
    
    2,852,000Other assets related to properties held for non-sale disposition
    
    
    
    
    
    
    2,579,000Other assets, net
    
    
    800,000
    
    
    
    968,000Total assets
    
    $
    34,246,000
    
    
    $
    53,944,000LIABILITIES AND (DEFICIT) EQUITYMortgage loans payable
    
    $
    43,359,000
    
    
    $
    43,179,000Mortgage loans payable secured by properties held for non-sale
disposition
    
    
    
    
    
    
    16,985,000Accounts payable and accrued liabilities
    
    
    847,000
    
    
    
    1,842,000Accounts and loans payable due to related parties
    
    
    39,000
    
    
    
    118,000Acquired lease liabilities, net
    
    
    50,000
    
    
    
    73,000Other liabilities related to properties held for non-sale
disposition, net
    
    
    
    
    
    
    142,000Security deposits, prepaid rent and other liabilities
    
    
    606,000
    
    
    
    680,000Total liabilities
    
    
    44,901,000
    
    
    
    63,019,000Commitments and contingencies (Note 12)(Deficit) equity:NNN 2003 Value Fund, LLC unit holders deficit
    
    
    (10,655,000
    )
    
    
    (9,173,000
    )Noncontrolling interest equity
    
    
    
    
    
    
    98,000Total (deficit) equity
    
    
    (10,655,000
    )
    
    
    (9,075,000
    )Total liabilities and (deficit) equity
    
    $
    34,246,000
    
    
    $
    53,944,000
   2




---



##### Table of Contents



NNN 2003 VALUE FUND, LLC
 
 CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Revenues:Rental revenue
    
    $
    1,654,000
    
    
    $
    1,769,000
    
    
    $
    3,379,000
    
    
    $
    3,559,000Expenses:Rental expense
    
    
    797,000
    
    
    
    842,000
    
    
    
    1,629,000
    
    
    
    1,710,000General and administrative
    
    
    186,000
    
    
    
    99,000
    
    
    
    360,000
    
    
    
    403,000Depreciation and amortization
    
    
    499,000
    
    
    
    274,000
    
    
    
    967,000
    
    
    
    547,000Real estate related impairments
    
    
    5,300,000
    
    
    
    600,000
    
    
    
    5,300,000
    
    
    
    600,000Total expenses
    
    
    6,782,000
    
    
    
    1,815,000
    
    
    
    8,256,000
    
    
    
    3,260,000(Loss) income before other income
(expense) and discontinued operations
    
    
    (5,128,000
    )
    
    
    (46,000
    )
    
    
    (4,877,000
    )
    
    
    299,000Other income (expense):Interest expense
    
    
    (691,000
    )
    
    
    (978,000
    )
    
    
    (1,538,000
    )
    
    
    (1,762,000
    )Interest and dividend income
    
    
    8,000
    
    
    
    12,000
    
    
    
    20,000
    
    
    
    24,000Equity in income (losses) of
unconsolidated real estate
    
    
    1,016,000
    
    
    
    (1,525,000
    )
    
    
    609,000
    
    
    
    (2,565,000
    )Other income (expense)
    
    
    67,000
    
    
    
    (5,000
    )
    
    
    69,000
    
    
    
    (40,000
    )Loss from continuing operations
    
    
    (4,728,000
    )
    
    
    (2,542,000
    )
    
    
    (5,717,000
    )
    
    
    (4,044,000
    )Income (loss) from discontinued operations
    
    
    6,591,000
    
    
    
    (2,409,000
    )
    
    
    6,137,000
    
    
    
    (3,344,000
    )Consolidated net income (loss)
    
    
    1,863,000
    
    
    
    (4,951,000
    )
    
    
    420,000
    
    
    
    (7,388,000
    )Income (loss) attributable to
noncontrolling interests
    
    
    
    
    
    
    58,000
    
    
    
    (98,000
    )
    
    
    (252,000
    )Net income (loss) attributable to NNN
2003 Value Fund, LLC
    
    $
    1,863,000
    
    
    $
    (5,009,000
    )
    
    $
    518,000
    
    
    $
    (7,136,000
    )Comprehensive income (loss):Consolidated net income (loss)
    
    $
    1,863,000
    
    
    $
    (4,951,000
    )
    
    $
    420,000
    
    
    $
    (7,388,000
    )Other comprehensive income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Comprehensive income (loss)
    
    
    1,863,000
    
    
    
    (4,951,000
    )
    
    
    420,000
    
    
    
    (7,388,000
    )Comprehensive income (loss)
attributable to noncontrolling
interests
    
    
    
    
    
    
    58,000
    
    
    
    (98,000
    )
    
    
    (252,000
    )Comprehensive income (loss) attributable
to NNN 2003 Value Fund, LLC
    
    $
    1,863,000
    
    
    $
    (5,009,000
    )
    
    $
    518,000
    
    
    $
    (7,136,000
    )
   3




---



##### Table of Contents



NNN 2003 VALUE FUND, LLC
 
 CONDENSED CONSOLIDATED STATEMENT OF (DEFICIT) EQUITY
(Unaudited)
 NNN 2003 ValueNumber
    
    
    
    
    
    
    Fund, LLC
    
    
    Noncontrollingof Units
    
    
    Total Deficit
    
    
    Deficit
    
    
    Interests(Deficit) Equity Balance  December 31, 2009
    
    
    9,970
    
    
    $
    (9,075,000
    )
    
    $
    (9,173,000
    )
    
    $
    98,000Distributions
    
    
    
    
    
    
    (2,000,000
    )
    
    
    (2,000,000
    )
    
    
    Net income (loss)
    
    
    
    
    
    
    420,000
    
    
    
    518,000
    
    
    
    (98,000
    )Deficit Balance  June 30, 2010
    
    
    9,970
    
    
    $
    (10,655,000
    )
    
    $
    (10,655,000
    )
    
    $
    
   4




---



##### Table of Contents



NNN 2003 VALUE FUND, LLC
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)
 Six Months EndedJune 30,2010
    
    
    2009CASH FLOWS FROM OPERATING ACTIVITIES:Consolidated net income (loss)
    
    $
    420,000
    
    
    $
    (7,388,000
    )Adjustments to reconcile net income (loss) to net cash used in operating
activities:Real estate related impairments on consolidated properties
    
    
    5,300,000
    
    
    
    3,300,000Gains on extinguishment of debt
    
    
    (6,667,000
    )
    
    
    Depreciation and amortization (including deferred financing costs,
deferred rent, lease inducements and above/below market leases)
    
    
    1,394,000
    
    
    
    1,194,000Equity in (earnings) losses of unconsolidated real estate
    
    
    (609,000
    )
    
    
    2,565,000Allowance for doubtful accounts
    
    
    118,000
    
    
    
    80,000Change in operating assets and liabilities:Accounts receivable, including accounts receivable from related parties
    
    
    260,000
    
    
    
    70,000Other assets
    
    
    (317,000
    )
    
    
    (166,000
    )Restricted cash
    
    
    (389,000
    )
    
    
    184,000Accounts payable and accrued liabilities, including accounts payable
to related parties
    
    
    384,000
    
    
    
    61,000Security deposits, prepaid rent and other liabilities
    
    
    (19,000
    )
    
    
    1,000Net cash used in operating activities
    
    
    (125,000
    )
    
    
    (99,000
    )CASH FLOWS FROM INVESTING ACTIVITIES:Capital expenditures
    
    
    (296,000
    )
    
    
    (479,000
    )Distributions from unconsolidated real estate
    
    
    1,268,000
    
    
    
    1,000Proceeds from repayment of loans receivable from related parties
    
    
    579,000
    
    
    
    Cash transferred to lender in connection with transfer of property
    
    
    (213,000
    )
    
    
    Net cash provided by (used in) investing activities
    
    
    1,338,000
    
    
    
    (478,000
    )CASH FLOWS FROM FINANCING ACTIVITIES:Restricted cash
    
    
    1,000
    
    
    
    104,000Borrowings on mortgage loans payable
    
    
    180,000
    
    
    
    192,000Payment of deferred financing costs
    
    
    
    
    
    
    (23,000
    )Distributions to unit holders
    
    
    (2,000,000
    )
    
    
    Net cash (used in) provided by financing activities
    
    
    (1,819,000
    )
    
    
    273,000NET DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (606,000
    )
    
    
    (304,000
    )CASH AND CASH EQUIVALENTS  beginning of period
    
    
    2,724,000
    
    
    
    1,459,000CASH AND CASH EQUIVALENTS  end of period
    
    $
    2,118,000
    
    
    $
    1,155,000SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid for interest
    
    $
    1,850,000
    
    
    $
    2,452,000Cash paid for income taxes
    
    $
    
    
    
    $
    15,000NONCASH INVESTING AND FINANCING ACTIVITIES:Accrual for tenant improvements and capital expenditures
    
    $
    12,000
    
    
    $
    67,000Transfer of real estate and other assets and liabilities in connection
with debt extinguishment
    
    $
    10,749,000
    
    
    $
    Cancellation of debt and accrued interest in connection with transfer
of real estate and other assets and liabilities
    
    $
    17,629,000
    
    
    $
    
   5




---



##### Table of Contents



NNN 2003 VALUE FUND, LLC
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 The use of the words we, us, or our refers to NNN 2003 Value Fund, LLC and its
subsidiaries, except where the context otherwise requires.
 1. Organization and Description of Business
         6




---



##### Table of Contents



NNN 2003 VALUE FUND, LLC
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)   Continued
 2. Summary of Significant Accounting Policies
  Interim Unaudited Financial Data
  Principles of Consolidation and Basis of Presentation
 Consolidation
   Use of Estimates
   7




---



##### Table of Contents



NNN 2003 VALUE FUND, LLC
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)   Continued
 Real Estate Related Impairments
  
    
    a significant negative industry or economic trend;
    
    a significant underperformance relative to historical or projected future operating results;
and
    
    a significant change in the manner in which the asset is used.
  Property, Plant and Equipment
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Real estate
related impairments
(operating
properties)
    
    $
    5,300,000
    
    
    $
    600,000
    
    
    $
    5,300,000
    
    
    $
    600,000Equity in losses of
unconsolidated real
estate (investments
in unconsolidated
real estate)
    
    
    
    
    
    
    1,649,000
    
    
    
    374,000
    
    
    
    2,647,000Income (loss) from
discontinued
operations (sold
properties)
    
    
    
    
    
    
    2,200,000
    
    
    
    
    
    
    
    2,700,000$
    5,300,000
    
    
    $
    4,449,000
    
    
    $
    5,674,000
    
    
    $
    5,947,000
   8




---



##### Table of Contents



NNN 2003 VALUE FUND, LLC
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)   Continued
 Operating Properties
   Properties Held for Non-Sale Disposition
   Properties Held for Sale
 Property, Plant and Equipment
 
    
    management, having the authority to approve the action, commits to a plan to sell the
asset;
 
    
    the asset is available for immediate sale in its present condition subject only to
terms that are usual and customary for sales of such assets;
  9




---



##### Table of Contents



NNN 2003 VALUE FUND, LLC
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)   Continued
 
 
    
    an active program to locate a buyer and other actions required to complete the plan to
sell the asset have been initiated;
 
    
    the sale of the asset is probable and the transfer of the asset is expected to qualify
for recognition as a completed sale within one year;
 
    
    the asset is being actively marketed for sale at a price that is reasonable in relation
to its current fair value; and
 
    
    given the actions required to complete the plan, it is unlikely that significant
changes to the plan will be made or that the plan will be withdrawn.
 Property, Plant and Equipment
  Fair Value Measurements
 Fair Value Measurements
 Fair Value
Measurements Fair Value
Measurements
   10




---



##### Table of Contents



NNN 2003 VALUE FUND, LLC
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)   Continued
  Quoted Prices inActive Markets
    
    
    Significant Other
    
    
    Significantfor Identical
    
    
    Observable
    
    
    Unobservable
    
    
    TotalAssets
    
    
    Inputs
    
    
    Inputs
    
    
    ImpairmentAssets
    
    Carrying Value
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    LossesOperating properties
    
    $
    27,703,000
    
    
    $
    
    
    
    $
    
    
    
    $
    27,703,000
    
    
    $
    (5,300,000
    )Investments in
unconsolidated real
estate
    
    $
    153,000
    
    
    $
    
    
    
    $
    
    
    
    $
    153,000
    
    
    $
    
  Quoted Prices inActive Markets
    
    
    Significant Other
    
    
    Significantfor Identical
    
    
    Observable
    
    
    Unobservable
    
    
    TotalAssets
    
    
    Inputs
    
    
    Inputs
    
    
    ImpairmentAssets
    
    Carrying Value
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    LossesOperating properties
    
    $
    32,789,000
    
    
    $
    
    
    
    $
    
    
    
    $
    32,789,000
    
    
    $
    (600,000
    )Properties held for
non-sale disposition
    
    $
    8,026,000
    
    
    $
    
    
    
    $
    
    
    
    $
    8,026,000
    
    
    $
    (2,700,000
    )Property held for sale
    
    $
    9,393,000
    
    
    $
    
    
    
    $
    
    
    
    $
    9,393,000
    
    
    $
    Investments in
unconsolidated real
estate
    
    $
    1,468,000
    
    
    $
    
    
    
    $
    
    
    
    $
    1,468,000
    
    
    $
    
 Fair Value of Financial Instruments
 Financial Instruments
  Income Taxes
   11




---



##### Table of Contents



NNN 2003 VALUE FUND, LLC
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)   Continued
 Segments
 Segment Reporting
 Recently Issued Accounting Pronouncements
 Accounting for Transfers of Financial Assets  an amendment of FASB Statement No. 140 Transfers and Servicing Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities Consolidation of Variable Interest Entities, an Interpretation
of Accounting Research Bulletin No. 51, Consolidation
 Amendments to FASB Interpretation No. 46(R)
 Improving
Disclosures about Fair Value Measurements Fair Value Measurements and Disclosure
  12




---



##### Table of Contents



NNN 2003 VALUE FUND, LLC
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)   Continued
 3. Real Estate Investments  Operating Properties
  June 30, 2010
    
    
    December 31, 2009Buildings and tenant improvements
    
    $
    27,028,000
    
    
    $
    30,725,000Land
    
    
    4,137,000
    
    
    
    5,092,00031,165,000
    
    
    
    35,817,000Less: accumulated depreciation
    
    
    (3,462,000
    )
    
    
    (2,844,000
    )$
    27,703,000
    
    
    $
    32,973,000
   4. Real Estate Investments  Properties Held for Non-Sale Disposition
  June 30, 2010
    
    
    December 31, 2009Buildings and tenant improvements
    
    $
    
    
    
    $
    8,349,000Land
    
    
    
    
    
    
    2,030,000
    
    
    
    10,379,000Less: accumulated depreciation
    
    
    
    
    
    
    (1,812,000
    )$
    
    
    
    $
    8,567,000
   5. Real Estate Investments  Unconsolidated Real Estate
  Property
    
    Location
    
    June 30, 2010
    
    
    December 31, 2009Chase Tower
    
    Austin, TX
    
    $
    59,000
    
    
    $
    727,000Enterprise Technology Center
    
    Scotts Valley, CA
    
    
    
    
    
    
    374,000Executive Center II and III
    
    Dallas, TX
    
    
    94,000
    
    
    
    $
    153,000
    
    
    $
    1,101,000
  13




---



##### Table of Contents



NNN 2003 VALUE FUND, LLC
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)   Continued
 Summarized Financial Information
  June 30, 2010
    
    
    December 31, 2009Assets (primarily real estate, net of impairments)
    
    $
    20,309,000
    
    
    $
    140,954,000Mortgage loans and other debt payable
    
    $
    32,562,000
    
    
    $
    117,582,000Other liabilities
    
    
    3,326,000
    
    
    
    15,987,000(Deficit) equity
    
    
    (15,579,000
    )
    
    
    7,385,000Total liabilities and (deficit) equity
    
    $
    20,309,000
    
    
    $
    140,954,000Our share of equity
    
    $
    153,000
    
    
    $
    1,101,000
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Revenues
    
    $
    539,000
    
    
    $
    1,518,000
    
    
    $
    2,218,000
    
    
    $
    3,005,000Rental and other expenses
    
    
    1,997,000
    
    
    
    1,495,000
    
    
    
    21,699,000
    
    
    
    13,041,000(Loss)
income  from continuing operations
    
    
    (1,458,000
    )
    
    
    23,000
    
    
    
    (19,481,000
    )
    
    
    (10,036,000
    )Income (loss) from discontinued operations
    
    
    3,219,000
    
    
    
    (4,682,000
    )
    
    
    2,741,000
    
    
    
    (8,211,000
    )Net income (loss)
    
    $
    1,761,000
    
    
    $
    (4,659,000
    )
    
    $
    (16,740,000
    )
    
    $
    (18,247,000
    )Our equity in income (losses) of
unconsolidated real estate
    
    $
    635,000
    
    
    $
    (1,525,000
    )
    
    $
    261,000
    
    
    $
    (2,565,000
    )
   Investments  Equity Method and Joint Ventures
  14




---



##### Table of Contents



NNN 2003 VALUE FUND, LLC
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)   Continued
  OwnershipProperty
    
    Percentage
    
    
    June 30, 2010
    
    
    December 31, 2009Chase Tower
    
    
    14.8
    %
    
    $
    
    
    
    $
    67,781,000Enterprise Technology Center
    
    
    8.5
    %
    
    
    32,562,000
    
    
    
    32,771,000Executive Center II and III
    
    
    41.1
    %
    
    
    
    
    
    
    17,030,000$
    32,562,000
    
    
    $
    117,582,000
 Chase Tower
  Enterprise Technology Center
   Executive Center II and III
   15




---



##### Table of Contents



NNN 2003 VALUE FUND, LLC
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)   Continued
 Loan Covenants
  Unconsolidated Debt Due to Related Parties
  Amount ofNote Issue Dates
    
    LoanJune 8, 2005
    
    $
    1,000,000September 12, 2005
    
    
    200,000October 18, 2005
    
    
    240,000November 14, 2005
    
    
    5,000$
    1,445,000
  6. Identified Intangible Assets
  June 30, 2010
    
    
    December 31, 2009In-place leases and tenant
relationships, net of
accumulated amortization of
$1,989,000 and $1,723,000 as of
June 30, 2010 and December 31,
2009, respectively (with
weighted average lives of 26
months and 58 months for
in-place leases and tenant
relationships, respectively, as
of June 30, 2010 and
weighted-average lives of 32
months and 64 months for
in-place leases and tenant
relationships, respectively, as
of December 31, 2009)
    
    $
    2,118,000
    
    
    $
    2,852,000
  7. Other Assets
  June 30, 2010
    
    
    December 31, 2009Deferred rent receivable
    
    $
    292,000
    
    
    $
    352,000Lease commissions, net of
accumulated amortization of
$295,000 and $210,000 as of June
30, 2010 and December 31, 2009,
respectively
    
    
    330,000
    
    
    
    394,000Deferred financing costs, net of
accumulated amortization of
$850,000 and $741,000 as of June
30, 2010 and December 31, 2009,
respectively
    
    
    60,000
    
    
    
    164,000Prepaid expenses, deposits and other
    
    
    118,000
    
    
    
    58,000$
    800,000
    
    
    $
    968,000
  16




---



##### Table of Contents



NNN 2003 VALUE FUND, LLC
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)   Continued
 8. Mortgage Loans Payable
  Total Mortgage
    
    
    Weighted AverageLoans Payable
    
    
    Interest RateJune 30, 2010
    
    
    December 31, 2009
    
    
    June 30, 2010
    
    
    December 31, 2009Variable rate
    
    $
    22,359,000
    
    
    $
    34,574,000
    
    
    
    7.15
    %
    
    
    7.47
    %Fixed rate
    
    
    21,000,000
    
    
    
    25,590,000
    
    
    
    5.95
    %
    
    
    7.04
    %$
    43,359,000
    
    
    $
    60,164,000
    
    
    
    6.57
    %
    
    
    7.28
    %
   Property
    
    
    Maturity
    
    
    Outstanding PrincipalProperty
    
    Classification
    
    
    Date
    
    
    June 30, 2010
    
    
    December 31, 2009Sevens Building
    
    Operating
    
    
    10/31/2010
    
    
    $
    21,494,000
    
    
    $
    21,382,000Four Resource Square
    
    Operating
    
    
    11/30/2010
    
    
    
    21,865,000
    
    
    
    21,797,000Tiffany Square
    
    Held for Non-Sale Disposition
    
    
    N/A
    
    
    
    

    
    
    
    12,395,000Executive Center I
    
    Held for Non-Sale Disposition
    
    
    N/A
    
    
    
    
    
    
    
    4,590,000$
    43,359,000
    
    
    $
    60,164,000
 Four Resource Square Mortgage Loan Extension
  Tiffany Square Mortgage Loan Cancellation
  Executive Center I Mortgage Loan Cancellation
   17




---



##### Table of Contents



NNN 2003 VALUE FUND, LLC
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)   Continued
 9. Noncontrolling Interests
  Entity
    
    Date Acquired
    
    
    Noncontrolling InterestsNNN Enterprise Way, LLC
    
    
    05/07/2004
    
    
    
    26.7
    %NNN 901 Civic Center, LLC
    
    
    04/24/2006
    
    
    
    3.1
    %
  10. 2003 Value Fund, LLC Unit Holders Deficit
      11. Related Party Transactions
 The Management Agreement
   18




---



##### Table of Contents



NNN 2003 VALUE FUND, LLC
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)   Continued
  Property Management Fees
  Real Estate Acquisition Fees
  Real Estate Disposition Fees
  Leasing Commissions
  Accounting Fees
  Construction Management Fees
  Loan Fees
  Related Party Payables
   19




---



##### Table of Contents



NNN 2003 VALUE FUND, LLC
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)   Continued
 Related Party Receivables
   12. Commitments and Contingencies
 Litigation
  Environmental Matters
  13. Concentration of Credit Risk
    20




---



##### Table of Contents



NNN 2003 VALUE FUND, LLC
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)   Continued
  LeaseExpirationTenant
    
    Property
    
    DateMcKesson Information Solutions, Inc.
    
    Four Resource Square
    
    
    06/30/2012
  LeaseExpirationTenant
    
    Property
    
    DateGSA-FBI
    
    901 Civic Center
    
    
    05/03/2012McKesson Information Solutions, Inc.
    
    Four Resource Square
    
    
    06/30/2012
 14. Discontinued Operations
 Property, Plant and Equipment
 Date DesignatedProperty
    
    Date Acquired
    
    
    for Sale
    
    
    Date of Disposal901 Civic Center
    
    
    04/24/2006
    
    
    
    09/26/2008
    
    
    
    07/17/2009Tiffany Square
    
    
    11/15/2006
    
    
    
    N/A
    
    
    
    05/07/2010Executive Center I
    
    
    12/30/2003
    
    
    
    N/A
    
    
    
    06/02/2010
     21




---



##### Table of Contents



NNN 2003 VALUE FUND, LLC
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)   Continued
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Rental revenue
    
    $
    325,000
    
    
    $
    1,007,000
    
    
    $
    936,000
    
    
    $
    1,959,000Rental expense (including general,
administrative, depreciation and
amortization)
    
    
    (276,000
    )
    
    
    (638,000
    )
    
    
    (845,000
    )
    
    
    (1,520,000
    )Real estate related impairments
    
    
    
    
    
    
    (2,200,000
    )
    
    
    
    
    
    
    (2,700,000
    )Income (loss) from discontinued
operations before other income (expense)
    
    
    49,000
    
    
    
    (1,831,000
    )
    
    
    91,000
    
    
    
    (2,261,000
    )Interest and other expense
    
    
    (125,000
    )
    
    
    (578,000
    )
    
    
    (621,000
    )
    
    
    (1,083,000
    )Gains on extinguishment of debt
    
    
    6,667,000
    
    
    
    
    
    
    
    6,667,000
    
    
    
    Income (loss) from discontinued operations
    
    
    6,591,000
    
    
    
    (2,409,000
    )
    
    
    6,137,000
    
    
    
    (3,344,000
    )Income (loss) from discontinued
operations attributable to noncontrolling
interests
    
    
    
    
    
    
    4,000
    
    
    
    
    
    
    
    6,000Income (loss) from discontinued
operations attributable to NNN 2003 Value
Fund, LLC
    
    $
    6,591,000
    
    
    $
    (2,413,000
    )
    
    $
    6,137,000
    
    
    $
    (3,350,000
    )
  22




---



##### Table of Contents



Item 2. Managements Discussion and Analysis Financial Condition and Results of Operations.
 The use of the words we, us, or our refers to NNN 2003 Value Fund, LLC and its
subsidiaries, except where the context otherwise requires.
  Forward-Looking Statements
  Overview and Background
    23




---



##### Table of Contents



Business Strategy
   24




---



##### Table of Contents



Acquisitions and Dispositions
    Critical Accounting Policies
  Interim Financial Data
  Factors Which May Influence Results of Operations
   25




---



##### Table of Contents



Rental Revenue
  Scheduled Lease Expirations
  Sarbanes-Oxley Act
   Results of Operations
    26




---



##### Table of Contents



Comparison of the Three Months Ended June 30, 2010 and 2009
 Three Months EndedJune 30,
    
    
    Change2010
    
    
    2009
    
    
    $
    
    
    %Revenues:Rental revenue
    
    $
    1,654,000
    
    
    $
    1,769,000
    
    
    $
    (115,000
    )
    
    
    (6.5
    )%Expenses:Rental expense
    
    
    797,000
    
    
    
    842,000
    
    
    
    (45,000
    )
    
    
    (5.3
    )%General and administrative
    
    
    186,000
    
    
    
    99,000
    
    
    
    87,000
    
    
    
    87.9
    %Depreciation and amortization
    
    
    499,000
    
    
    
    274,000
    
    
    
    225,000
    
    
    
    82.1
    %Real estate related impairments
    
    
    5,300,000
    
    
    
    600,000
    
    
    
    4,700,000
    
    
    
    783.3
    %6,782,000
    
    
    
    1,815,000
    
    
    
    4,967,000
    
    
    
    273.7
    %Loss before other income (expense) and
discontinued operations
    
    
    (5,128,000
    )
    
    
    (46,000
    )
    
    
    (5,082,000
    )
    
    
    11,047.8
    %Other income (expense):Interest expense
    
    
    (691,000
    )
    
    
    (978,000
    )
    
    
    287,000
    
    
    
    (29.3
    )%Interest and dividend income
    
    
    8,000
    
    
    
    12,000
    
    
    
    (4,000
    )
    
    
    (33.3
    )%Equity in income (losses) of
unconsolidated real estate
    
    
    1,016,000
    
    
    
    (1,525,000
    )
    
    
    2,541,000
    
    
    
    166.6
    %Other income (expense)
    
    
    67,000
    
    
    
    (5,000
    )
    
    
    72,000
    
    
    
    1,440.0
    %Loss from continuing operations
    
    
    (4,728,000
    )
    
    
    (2,542,000
    )
    
    
    (2,186,000
    )
    
    
    86.0
    %Income (loss) from discontinued operations
    
    
    6,591,000
    
    
    
    (2,409,000
    )
    
    
    9,000,000
    
    
    
    373.6
    %Consolidated net income (loss)
    
    $
    1,863,000
    
    
    $
    (4,951,000
    )
    
    $
    6,814,000
    
    
    
    137.6
    %
 Rental Revenue
  Rental Expense
  General and Administrative
  Depreciation and Amortization
   27




---



##### Table of Contents



Real Estate Related Impairments
  Interest Expense
  Interest and Dividend Income
  Equity in Income (Losses) of Unconsolidated Real Estate
  Other Income (Expense)
  Income (Loss) from Discontinued Operations
  Consolidated Net Income (Loss)
   28




---



##### Table of Contents



Comparison of the Six Months Ended June 30, 2010 and 2009
 Six Months EndedJune 30,
    
    
    Change2010
    
    
    2009
    
    
    $
    
    
    %Revenues:Rental revenue
    
    $
    3,379,000
    
    
    $
    3,559,000
    
    
    $
    (180,000
    )
    
    
    (5.1
    )%Expenses:Rental expense
    
    
    1,629,000
    
    
    
    1,710,000
    
    
    
    (81,000
    )
    
    
    (4.7
    )%General and administrative
    
    
    360,000
    
    
    
    403,000
    
    
    
    (43,000
    )
    
    
    (10.7
    )%Depreciation and amortization
    
    
    967,000
    
    
    
    547,000
    
    
    
    420,000
    
    
    
    76.8
    %Real estate related impairments
    
    
    5,300,000
    
    
    
    600,000
    
    
    
    4,700,000
    
    
    
    783.3
    %8,256,000
    
    
    
    3,260,000
    
    
    
    4,996,000
    
    
    
    153.3
    %(Loss) income before other income
(expense) and discontinued operations
    
    
    (4,877,000
    )
    
    
    299,000
    
    
    
    (5,176,000
    )
    
    
    (1,731.1
    )%Other income (expense):Interest expense
    
    
    (1,538,000
    )
    
    
    (1,762,000
    )
    
    
    224,000
    
    
    
    (12.7
    )%Interest and dividend income
    
    
    20,000
    
    
    
    24,000
    
    
    
    (4,000
    )
    
    
    (16.7
    )%Equity in income (losses) of
unconsolidated real estate
    
    
    609,000
    
    
    
    (2,565,000
    )
    
    
    3,174,000
    
    
    
    123.7
    %Other income (expense)
    
    
    69,000
    
    
    
    (40,000
    )
    
    
    109,000
    
    
    
    272.5
    %Loss from continuing operations
    
    
    (5,717,000
    )
    
    
    (4,044,000
    )
    
    
    (1,673,000
    )
    
    
    41.4
    %Income (loss) from discontinued operations
    
    
    6,137,000
    
    
    
    (3,344,000
    )
    
    
    9,481,000
    
    
    
    283.5
    %Consolidated net income (loss)
    
    $
    420,000
    
    
    $
    (7,388,000
    )
    
    $
    7,808,000
    
    
    
    105.7
    %
 Rental Revenue
  Rental Expense
  General and Administrative
  Depreciation and Amortization
   29




---



##### Table of Contents



Real Estate Related Impairments
  Interest Expense
  Interest and Dividend Income
  Equity in Income (Losses) of Unconsolidated Real Estate
   Other Income (Expense)
  Income (Loss) from Discontinued Operations
  Consolidated Net Loss
   30




---



##### Table of Contents



Liquidity and Capital Resources
 Ability to Continue as a Going Concern
     Sources of Capital and Liquidity
    31




---



##### Table of Contents



Debt Financing
   Total Mortgage Loans Payable
    
    
    Weighted-Average Interest RateJune 30, 2010
    
    
    December 31, 2009
    
    
    June 30, 2010
    
    
    December 31, 2009Variable rate
    
    $
    22,359,000
    
    
    $
    34,574,000
    
    
    
    7.15
    %
    
    
    7.47
    %Fixed rate
    
    
    21,000,000
    
    
    
    25,590,000
    
    
    
    5.95
    %
    
    
    7.04
    %$
    43,359,000
    
    
    $
    60,164,000
    
    
    
    6.57
    %
    
    
    7.28
    %
  Weighted-Average
    
    
    VariablePrincipal
    
    
    
    
    
    
    Interest
    
    
    or FixedOutstanding
    
    
    Maturity Date
    
    
    Rate
    
    
    Interest RateConsolidated Properties:Sevens Building(1)
    
    
    21,494,000
    
    
    
    10/31/2010
    
    
    
    5.87
    %
    
    Fixed & VariableFour Resource Square
    
    
    21,865,000
    
    
    
    11/30/2010
    
    
    
    7.25
    %
    
    Variable$
    43,359,000Unconsolidated Property:Enterprise Technology Center(2)
    
    $
    32,562,000
    
    
    
    05/11/2011
    
    
    
    11.44
    %
    
    Fixed
 
 (1)
    
    Includes $21,000,000 with a fixed interest rate of 5.95% per annum and
$494,000 with a variable interest rate of 2.60% per annum as of June
30, 2010.(2)
    
    The mortgage loan on the Enterprise Technology Center property is in
default due to non-payment of monthly interest and principal, and we
are currently discussing our options regarding this property with the
lender. The interest rate is comprised of the 6.44% per annum fixed
interest rate plus an additional 5.00% per annum of default interest.   32




---



##### Table of Contents



Cash Flows
    Other Liquidity Needs
   Contractual Obligations
  Payments Due by PeriodLess than
    
    
    
    
    
    
    
    
    
    
    More than1 Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    5 Years(2010)
    
    
    (2011-2012)
    
    
    (2013-2014)
    
    
    (After 2014)
    
    
    TotalPrincipal payments  variable rate debt
    
    $
    22,359,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    22,359,000Principal payments  fixed rate debt
    
    
    21,000,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,000,000Interest payments  variable rate debt
(based on rates in effect as of June 30, 2010)
    
    
    665,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    665,000Interest payments  fixed rate debt
    
    
    417,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    417,000$
    44,441,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    44,441,000
  33




---



##### Table of Contents



Off-Balance Sheet Arrangements
  Inflation
  Recently Issued Accounting Pronouncements
 Accounting for Transfers of Financial Assets  an amendment of FASB Statement No. 140 Transfers and Servicing Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities Consolidation of Variable Interest Entities, an Interpretation
of Accounting Research Bulletin No. 51, FIN No. 46(R) Consolidation
 Amendments to FASB Interpretation No. 46(R)
 Improving
Disclosures about Fair Value Measurements Fair Value Measurements and Disclosure
  34




---



##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk.
     Expected Maturity Date2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    2014
    
    
    Thereafter
    
    
    Total
    
    
    Fair ValueFixed rate mortgage
loans payable
    
    $
    21,000,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    21,000,000
    
    
    $
    15,632,000Weighted average
interest rate on
maturing fixed rate
debt
    
    
    5.95
    %
    
    
    
    %
    
    
    
    %
    
    
    
    %
    
    
    
    %
    
    
    
    %
    
    
    5.95
    %Variable rate
mortgage loans
payable
    
    $
    22,359,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    22,359,000
    
    
    $
    14,618,000Weighted average
interest rate on
maturing variable
rate debt (based on
rates in effect as
of June 30, 2010)
    
    
    7.15
    %
    
    
    
    %
    
    
    
    %
    
    
    
    %
    
    
    
    %
    
    
    
    %
    
    
    7.15
    %
    35




---



##### Table of Contents



Item 4. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control Over Financial Reporting
  36




---



##### Table of Contents



PART II  OTHER INFORMATION
 The use of the words we, us, or our refers to NNN 2003 Value Fund, LLC and its
subsidiaries, except where the context otherwise requires.
 
 Item 1. Legal Proceedings.
  
 Item 1A. Risk Factors.
  If we are unable to generate the necessary cash flows to meet our financial obligations,
including the payment of outstanding principal balances and accrued interest on our mortgage
loans, our lenders may declare us in default of the loans and exercise their remedies under the
loan agreements, including foreclosure on the properties, which could have a material adverse
effect on our financial position, results of operations and cash flows and has created
substantial doubt about our ability to continue as a going concern.
       37




---



##### Table of Contents



We will rely on the disposition of our properties to generate cash to fund our operations
and pay distributions to our unit holders.
    
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  
 Item 3. Defaults Upon Senior Securities.
  
 Item 4. [Removed and Reserved.]
 
 Item 5. Other Information.
  
 Item 6. Exhibits.
   38




---



##### Table of Contents



SIGNATURES
  NNN 2003 Value Fund, LLC
(Registrant)August 12, 2010
    
    /s/ Kent W. PetersDate
    
    Kent W. PetersChief Executive Officer
(principal executive officer)August 12, 2010
    
    /s/ Paul E. HendersonDate
    
    Paul E. HendersonChief Accounting Officer
Grubb & Ellis Realty Investors, LLC,
the Manager of NNN 2003 Value Fund, LLC
(principal financial officer)  39




---



##### Table of Contents



EXHIBIT INDEX
   ExhibitNumber

    
    Description3.1
    
    
    Articles of Organization of NNN 2003 Value Fund, LLC, dated March 19, 2003 (included in
Exhibit 3.1 to our Form 10 filed on May 2, 2005 and incorporated herein by reference)10.1
    
    
    Purchase and Sale Agreement between NNN VF Tiffany Square, LLC and Tiffany Square, LLC, dated
April 8, 2010 (included as Exhibit 10.1 to our Current Report on Form 8-K filed on April 14, 2010
and incorporated herein by reference)10.2
    
    
    First Amendment to Loan and Security Agreement between NNN VF Four Resource Square, LLC, NNN 2003
Value Fund, LLC and RAIT Partnership, L.P., dated April 20, 2010 (included as Exhibit 10.1 to our
Current Report on Form 8-K filed on April 26, 2010 and incorporated herein by reference)10.3
    
    
    Settlement Agreement between NNN Executive Center 2003, LP and Ivan Halaj and Vilma Halaj Inter
Vivos Trust, dated May 28, 2010 (included as Exhibit 10.1 to our Current Report on Form 8-K filed
on June 4, 2010 and incorporated herein by reference)10.4
    
    
    Amendment to Settlement Agreement between NNN Executive Center 2003, LP and Ivan Halaj and Vilma
Halaj Inter Vivos Trust, dated June 2, 2010 (included as Exhibit 10.2 to our Current Report on
Form 8-K filed on June 4, 2010 and incorporated herein by reference)31.1
    *
    
    Certification of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    *
    
    Certification of Principal Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of
200232.1
    **
    
    Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as created by
Section 906 of the Sarbanes-Oxley Act of 200232.2
    **
    
    Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as created by
Section 906 of the Sarbanes-Oxley Act of 2002
 
 *
    
    Filed herewith.**
    
    Furnished herewith.  40