UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C.  20549





FORM
10-K





(Mark
one)





[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934





For the
fiscal year ended December 31,
2007





Or





[   ]
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 333-105017





VESTIN
      FUND III, LLC(Exact
      name of registrant as specified in its
charter)





NEVADA
            
            87-0693972(State
      or Other Jurisdiction of
            
            (I.R.S.
      EmployerIncorporation
      or Organization)
            
            Identification
      No.)








6149
SOUTH RAINBOW BOULEVARD, LAS VEGAS, NEVADA 89118


(Address
of principal executive offices) (Zip Code)





Registrant’s
telephone number, including area code 702.227.0965





Securities
registered pursuant to Section 12(b) of the Act:





None
            
            None(Title
      of each class)
            
            (Name
      of each exchange on which
registered)





Securities
registered pursuant to Section 12(g) of the Act:





None(Title
      of class)





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.


Yes
[   ] No [X]





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.


Yes
[   ] No [X]





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 if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.  [   ]





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.





Large
      accelerated filer [   ]
            Accelerated
      filer [   ]Non-accelerated
      filer [X](Do
      not check if a smaller reporting company)
            Smaller
      reporting company
[   ]





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).


Yes
[   ] No [X]





State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold, or the average bid and asked price of such common equity, as of the
last business day of the registrant’s most recently completed second fiscal
quarter.  Not applicable.





As of
March 17, 2008, the Company had 2,525,561 units outstanding.











Table of Contents





TABLE
OF CONTENTS





PagePART IITEM 1.
            BUSINESS
            1ITEM 1A.
            RISK FACTORS
            12ITEM 1B.
            UNRESOLVED STAFF COMMENTS
            20ITEM 2.
            PROPERTIES
            20ITEM 3.
            LEGAL PROCEEDINGS
            21ITEM 4.
            SUBMISSION OF MATTERS TO A VOTE OF SECURITY
      HOLDERS
            21PART IIITEM 5.
            MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
      MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
            21ITEM 6.
            SELECTED FINANCIAL DATA
            22ITEM 7.
            MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
      AND RESULTS OF OPERATIONS
            23ITEM 7A.
            QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK
            38ITEM 8.
            FINANCIAL STATEMENTS AND SUPPLEMENTARY
    DATA
            39ITEM 9.
            CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
      AND FINANCIAL DISCLOSURE
            71ITEM 9A.
            CONTROLS AND PROCEDURES
            72ITEM 9A(T).
            CONTROLS AND PROCEDURES
            73ITEM 9B.
            OTHER INFORMATION
            73PART IIIITEM 10.
            DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
      GOVERNANCE
            73ITEM 11.
            EXECUTIVE COMPENSATION
            75ITEM 12.
            SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
      MANAGEMENT AND RELATED STOCKHOLDER MATTERS
            75ITEM 13.
            CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
      DIRECTOR INDEPENDENCE
            76ITEM 14.
            PRINCIPAL ACCOUNTING FEES AND SERVICES
            76PART IVITEM 15.
            EXHIBITS, FINANCIAL STATEMENT SCHEDULES
            76EXHIBIT INDEX
            77SIGNATURES
            78














Table of Contents








PARTI





Note
Regarding Forward-Looking Statements





This
report and other written reports and oral statements made from time to time by
us may contain forward-looking statements.  Such forward-looking
statements may be identified by the use of such words as “expects,” “plans,”
“estimates,” “intend,” “might,” “may,” “could,” “will,” “feel,” “forecasts,”
“projects,” “anticipates,” “believes” and words of similar
expression.  Forward-looking statements are likely to address such
matters as our business strategy, future operating results, future sources of
funding for real estate loans brokered by us, future economic conditions and
pending litigation involving us.  Some of the factors which could
affect future results are set forth in the discussion under “Management’s
Discussion and Analysis of Financial Condition and Results of Operations —
Factors Affecting Our Operating Results.”





ITEM
      1.
            BUSINESS





General





Vestin
Fund III, LLC was organized in April 2003 as a Nevada limited liability company
for the purpose of investing in commercial real estate loans (hereafter referred
to as “real estate loans”) and income-producing real property.  On
March 5, 2007, a majority of our members approved the Third Amended and Restated
Operating Agreement, which limits the Company’s investment objectives to
investments in real estate loans.  Prior to adopting this amendment,
we also invested in revenue-generating commercial real estate.  We
sold our real estate investment in November 2006.  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 collectively as “deeds of trust” and as defined in our Operating
Agreement as “Mortgage Assets”).  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 we are
subject to the North American Securities Administration Association Mortgage
Program Guidelines (the “NASAA Guidelines”) promulgated by the state securities
administrators.  Prior to March 5, 2007, we also invested in real
estate and were subject to the North American Securities Administration
Association Real Estate Guidelines.





On
November 7, 2003, our Registration Statement as filed with the United States
Securities and Exchange Commission (“SEC”) became effective for the initial
public offering of up to 10,000,000 units at $10 per unit
(“unit”).  On November 7, 2005, we discontinued the offering of our
units; however, members continued to purchase additional units through our
Distribution Reinvestment Plan whereby the members’ distributions were used to
purchase additional units at the current value.  As of December 31,
2007, we had sold approximately 3,113,166 units, which includes 247,245 units
purchased through our Distribution Reinvestment Plan.  On April 2,
2007, our manager decided to terminate our Distribution Reinvestment Plan
effective May 7, 2007, pursuant to Section 8.5 of our Operating
Agreement.  A letter was sent on April 2, 2007 to our members
notifying them of the Distribution Reinvestment Plan’s termination.





Our
manager is Vestin Mortgage, Inc. (the “manager” or “Vestin Mortgage”), a Nevada
corporation, which is a wholly owned subsidiary of Vestin Group, Inc. (“Vestin
Group”), a Delaware corporation.  Michael Shustek, the CEO and
director of our manager, wholly owns Vestin Group, Inc., which is engaged in
asset management, real estate lending and other financial services through its
subsidiaries.  Our manager, prior to June 30, 2006, also operated as a
licensed Nevada mortgage broker and was generally engaged in the business of
brokerage, placement and servicing of commercial loans secured by real
property.  On July 1, 2006, the mortgage broker license was issued to
an affiliated company, Vestin Originations, Inc. that has continued the business
of brokerage, placement and servicing of real estate loans.  Vestin
Originations, Inc. is a wholly owned subsidiary of Vestin Group.  On
September 1, 2007, the servicing of real estate loans was assumed by our
manager.





- 1
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Pursuant
to our Operating Agreement, our manager implements our business strategies on a
day-to-day basis, manages and provides services to us.  Without
limiting the foregoing, our manager performs other services as may be required
from time to time for management and other activities relating to our assets, as
our manager shall deem appropriate.  Consequently, our operating
results are dependent upon our manager’s ability and performance in managing our
operations and servicing our assets.  The Operating Agreement also
provides that the members have certain rights, including the right to terminate
our manager subject to a majority vote of the members.





Vestin
Mortgage, Inc. is also the manager of Vestin Realty Mortgage I, Inc. (“VRM I”),
as the successor by merger to Vestin Fund I, LLC, (“Fund I”), Vestin Realty
Mortgage II, Inc. (“VRM II”), as the successor by merger to Vestin Fund II, LLC,
(“Fund II) and inVestin Nevada, Inc., (“inVestin”) a company wholly owned by our
manager’s CEO.  These entities also invest in real estate
loans.





For the
year ended December 31, 2006, the financial statements include the accounts of
the Company and its wholly owned subsidiary, VF III HQ, LLC.  All
significant inter-company transactions and balances have been eliminated in
consolidation.  During December 2006, VF III HQ, LLC was
dissolved.





Real Estate Program Objectives
(Prior to March 5,
2007)





Prior to
March 5, 2007, we sought to invest in income-producing multifamily residential
units, office, industrial, and retail properties, assisted living facilities and
other income-producing real property.  Such properties could have
included hotels and resorts, restaurants, parking lots, amusement parks or other
leasehold properties.  We intended to primarily lease the real
property owned by us.  We sought to hold our properties until such
time as we believed it was the optimal time to enable us to capitalize on the
potential for appreciation of our properties.





A Special
Meeting of our members was held on March 5, 2007 to vote on approval of the
Third Amended and Restated Operating Agreement, which limits the Company’s
investment objectives to investment in real estate loans.  A majority
of our members approved the Third Amended and Restated Operating
Agreement.





Real
Estate Loan Objectives





As of
December 31, 2007, our loans were in the following states: Arizona, California,
Nevada, Oklahoma, Oregon and Texas.  The loans we invest in are
selected for us by our manager from among loans originated by Vestin
Originations or non-affiliated mortgage brokers.  When Vestin
Originations or a non-affiliated mortgage broker originates a loan for us, that
entity identifies the borrower, processes the loan application, brokers and
sells, assigns, transfers or conveys the loan to us.  We believe that
our loans are attractive to borrowers because of the expediency of our manager’s
loan approval process, which takes about ten to twenty days.





As a
commercial real estate lender willing to invest in loans to borrowers who may
not meet the credit standards of other financial institutional lenders, the
default rate on our loans could be higher than those generally experienced in
the mortgage lending industry.  Because of our increased willingness
to fund riskier loans, borrowers are generally willing to pay us an interest
rate that is two to five points above the rates generally charged by other
commercial lenders.  We invest a significant amount of our funds in
loans in which the real property, held as collateral, is not generating any
income to the borrower.  The loans in which we invest are generally
riskier because the borrower’s repayment depends on their ability to refinance
the loan or develop the property so they can refinance the loan.





Our
principal investment objectives are to:





·
            Produce
      revenues from the interest income on our real estate
  loans;





·
            Provide
      cash distributions from the net income generated by our real estate
      loans;





·
            Preserve
      capital contributions; and





·
            Reinvest,
      to the extent permissible, payments of principal and sales (net of
      expenses).





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Acquisition
and Investment Policies





We seek
to invest approximately 97% of our assets in real estate
loans.  Approximately 3% will be held as a working capital cash
reserve.  As of December 31, 2007, approximately 79% of our assets,
net of allowance for loan losses, are classified as investments in real estate
loans.





Generally,
the collateral on our real estate loans is the real property that the borrower
is purchasing or developing with the funds that we make available.  We
sometimes refer to these real properties as the security
properties.  While we may invest in other types of loans, most of the
loans in which we invest have been made to real estate developers.





Our real
estate investments are not insured or guaranteed by any government
agency.





Our
manager continuously evaluates prospective investments, selects the loans in
which we invest and makes all investment decisions on our behalf.  In
evaluating prospective real estate loan investments, our manager considers such
factors as the following:





·
            The
      ratio of the amount of the investment to the value of the property by
      which it is secured, or the loan-to-value
ratio;





·
            The
      potential for capital appreciation or depreciation of the property
      securing the investment;





·
            Expected
      levels of rental and occupancy rates, if
  applicable;





·
            Potential
      for rental increases, if
applicable;





·
            Current
      and projected revenues from the property, if
  applicable;





·
            The
      status and condition of the record title of the property securing the
      investment;





·
            Geographic
      location of the property securing the investment;
  and





·
            The
      financial condition of the borrowers and their principals, if any, who
      guarantee the loan.





Our
manager may obtain our loans from an affiliated or non-affiliated mortgage
broker who may solicit previous or new borrowers in those states where
permissible.  We may purchase existing loans that were originated by
third party lenders or brokered by Vestin Originations to facilitate our
purchase of the loans.  Vestin Originations and/or our manager will
sell, assign, transfer or convey the loans to us without a premium, but may
include its service fees and compensation.





When
selecting real estate loans for us, our manager generally adheres to the
following guidelines, which are intended to control the quality of the
collateral given for our loans:





1.Priority of
Loans.Generally, our assets are secured by first deeds of
trust.  First deeds of trust are loans secured by a full or divided
interest in a first deed of trust secured by the property.  We will
not invest in any loan that is junior to more than one loan.  As of
December 31, 2007, approximately 98.63% of the principal amount of our
outstanding investments in loans was secured by first deeds of
trust.





2.Loan-to-Value
Ratio.The amount of our loan combined with the outstanding
debt secured by a senior loan on a security property generally does not exceed
the following percentage of the appraised value of the security property at
origination:





- 3
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Type
      of Secured Property
            Loan-to-Value
      RatioResidential
            75%Unimproved
      Land
            60%
       (of anticipated as-if developed value)Acquisition
      and Development
            60%
       (of anticipated as-if developed value)Commercial
      Property
            75%
       (of anticipated as-if developed value)Construction
            75%
       (of anticipated post- developed value)Leasehold
      Interest
            75%
       (of value of leasehold
interest)





We may
deviate from these guidelines under certain circumstances.  For
example, our manager, in its discretion, may increase any of the above
loan-to-value ratios if a given loan is supported by credit adequate to justify
a higher loan-to-value ratio, including personal
guarantees.  Occasionally, our collateral may include personal
property attached to the real property as well as real property.  We
do not have specific requirements with respect to the projected income or
occupancy levels of a property securing our investment in a particular
loan.  These loan-to-value ratios will not apply to financing offered
to the purchaser of any real estate acquired through foreclosure or to refinance
an existing loan that is in default when it matures.  In those cases,
our manager, in its sole discretion, shall be free to accept any reasonable
financing terms that it deems to be in our best interest.  As of
December 31, 2007, our actual loan-to-value ratio for our loan portfolio as a
whole, prior to allowances for loan losses was 76.94% on a weighted average
basis.





Loan-to-value
ratios are based on appraisals that the manager receives at the time of loan
underwriting and may not reflect subsequent changes in value
estimates.  Such appraisals, which may have been commissioned by the
borrower and may precede the placement of the loan with us, 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 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.





We or the
borrower retain appraisers who are state certified or licensed appraisers and/or
hold designations from one or more of the following organizations: the Federal
National Mortgage Association, the Federal Home Loan Mortgage Corporation, the
National Association of Review Appraisers, the Appraisal Institute, the National
Society of Real Estate Appraisers, American Society of Real Estate Appraisers,
or from among appraisers with other qualifications acceptable to Vestin
Originations and/or our manager.  However, appraisals are only
estimates of value and cannot be relied on as measures of realizable
value.  An employee or agent of Vestin Originations or our manager
will review each appraisal report and will generally conduct a physical
inspection for each property.  A physical inspection includes an
assessment of the subject property, the adjacent properties and the
neighborhood, but generally does not include entering any structures on the
property.





3.  Terms of Real Estate
Loans.Our loans as of December 31, 2007, had original terms
of four months to eighteen months, excluding extensions.  Most of our
loans are for an initial term of 12 months.  Generally, our original
loan agreements permit extensions to the term of the loan by mutual
consent.  Such extensions are generally provided on loans where the
original term was 12 months or less and where a borrower requires additional
time to complete a construction project or negotiate take out
financing.








- 4
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As
      of December 31, 2007, all of our loans provided for payments of interest
      only with a “balloon” payment of principal payable in full at the end of
      the term.  In addition, we invest in real estate loans that
      require borrowers to maintain interest reserves funded from the principal
      amount of the loan for a period of time.  At December 31, 2007,
      we had approximately $6.2 million in investments in real estate loans that
      had interest reserves where the total outstanding principal due to our
      co-lenders and us was approximately $78.6 million.  These loans
      had interest reserves of approximately $3.7 million, of which our portion
      was approximately $0.3 million.  At December 31, 2006, we had
      approximately $12.3 million in investments in real estate loans that had
      interest reserves where the total outstanding principal due to our
      co-lenders and us was approximately $120.3 million.  These loans
      had interest reserves of approximately $5.6 million, of which our portion
      was approximately $0.6 million.





4.  Escrow
Conditions.Our loans will often be funded by us through an
escrow account held by a title insurance company, subject to the following
conditions:





·
            Borrowers
      will obtain title insurance coverage for all loans, providing title
      insurance in an amount at least equal to the principal amount of the
      loan.  Title insurance insures only the validity and priority of
      our deed of trust, and does not insure us against loss by other causes,
      such as diminution in the value of the security
  property.





·
            Borrowers
      will obtain liability insurance coverage for all
  loans.





·
            Borrowers
      will obtain fire and casualty insurance for all loans secured by improved
      real property, covering us in an amount sufficient to cover the
      replacement cost of improvements.





·
            All
      insurance policies, notes, deeds of trust or loans, escrow agreements, and
      any other loan documents for a particular transaction will cover us as a
      beneficiary.





5.  Purchase of Real Estate Investments
from Affiliates.We may acquire real estate loans from our
affiliates, including our manager, without a premium, but may include allowable
fees and expenses in accordance with applicable NASAA guidelines, but without
allowance of any other compensation for the loans.  Except for the
compensation paid to our manager, all income generated and expense associated
with the loans so acquired shall be treated as belonging to us.





6.  Note
Hypothecation.We may also acquire real estate loans secured
by assignments of secured promissory notes.  These real estate loans
must satisfy our stated investment standards, including our loan-to-value
ratios, and may not exceed 80% of the principal amount of the assigned note upon
acquisition.  For example, if the property securing a note we acquire
is commercial property, the total amount of outstanding debts secured by the
property must not exceed 75% of the appraised value of the property, and the
real estate loan will not exceed 80% of the principal amount of the assigned
note.  For real estate loans secured by promissory notes, we will rely
on the appraised value of the underlying property, as determined by an
independent written appraisal that was conducted within the then-preceding
twelve months.  If an appraisal was not conducted within that period,
then we will arrange for a new appraisal to be prepared for the property prior
to acquisition of the loan.





7.  Participation.We
participate in loans with other lenders, including affiliates as permitted by
the NASAA Guidelines, by providing funds for or purchasing an undivided interest
in a loan meeting our investment guidelines described
above.  Typically, we participate in loans if:





·
            We
      did not have sufficient funds to invest in an entire
  loan;





·
            We
      are seeking to increase the diversification of our loan portfolio;
      or





·
            A
      loan fits within our investment guidelines, however it would constitute
      more than 20% of our anticipated capital contribution or otherwise be
      disproportionately large given our then existing
  portfolio.








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Loans in
which unaffiliated investors have participated through inter-creditor agreements
(“Inter-creditor Agreements”) are accounted for as secured borrowings in
accordance with Statement of Financial Accounting Standards (“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 an unaffiliated investor (the “Investor”)
may participate on a non-pari passu basis in certain real estate loans with us
and/or VRM I and/or VRM 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.





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 Lenders being
repaid.





As of
December 31, 2007, all of our loans were loans in which we participated with
other lenders, most of whom are our affiliates.





8.  Diversification.The NASAA
Guidelines provide that we neither invest in or make real estate loans on any
one property, which would exceed in the aggregate, an amount equal to 20% of our
capital, nor may we 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
our capital, provided we are fully funded.  As of December 31, 2007,
our single largest loan accounted for approximately 6% of our members’
equity.  The loan yields interest at 12% per annum and, as of December
31, 2007, our portion of the outstanding balance of the loan was approximately
$1.5 million.  As of March 17, 2008, this loan was performing
according to the terms of the loan.





9.  Reserve Fund.Although the
NASAA Guidelines require reserves of not less than 1% of the offering proceeds,
we have established contingency working capital reserves of approximately 3% of
our capital to cover our unexpected cash needs.





10.  Credit
Evaluations.When reviewing a loan proposal, our manager
determines whether a borrower has sufficient equity in the security
property.  Our manager may also consider the income level and
creditworthiness of a borrower to determine its ability to repay the real estate
loan.





11.  Sale of Real Estate Loan
Investments.Although our manager has no plans to do so, our
manager may sell our real estate loans or interest in our loans to either
affiliates or non-affiliated parties when our manager believes that it is
advantageous for us to do so.  However, we do not expect that the
loans will be marketable or that a secondary market will ever develop for
them.  We may sell our real estate loans to our manager under limited
circumstances pursuant to the NASAA Guidelines.





Real
Estate Loans to Affiliates





We will
not invest in real estate loans made to our manager, Vestin Group or any of our
affiliates.  However, we may acquire an investment in a real estate
loan payable by our manager when our manager has assumed the obligations of the
borrower under that loan, through a foreclosure on the property.





Investment
of Loans from our manager and Its Affiliates





In
addition to those loans our manager selects for us, we invest in loans that were
originated by Vestin Originations or other parties as long as the loan(s)
otherwise satisfies all of our lending criteria.  However, we will not
acquire a loan from or sell a loan to a real estate program in which our manager
or an affiliate has an interest except in compliance with NASAA
Guidelines.








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Types
of Loans We Invest In





We
primarily invest in loans that are secured by first or second trust deeds on
real property.  Such loans fall into the following categories: raw and
unimproved land, acquisition and development, construction, commercial property
and residential loans.  The following discussion sets forth certain
guidelines our manager intends to follow in allocating our investments among the
various types of loans.  Our manager, however, may change these
guidelines at its discretion, subject to the terms of our Operating
Agreement.  Actual investments will be determined by our manager
pursuant to the terms of the Operating Agreement, and the actual percentages
invested among the various loan categories may vary from the guidelines
below.





Raw
and Unimproved Land Loans





Generally,
15% to 25% of the loans invested in by us may be loans made for the purchase or
development of raw, unimproved land.  Generally, we 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 will
generally invest in loans for up to 60% of the as-if developed appraised value
of the property and we generally require that the borrower has 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, and successful development by the purchaser, upon which development is
dependent on availability of financing.  As of December 31, 2007,
approximately 33% of our loans were in this category.





Acquisition
and Development Loans





Generally,
10% to 25% of the loans invested in by us may be acquisition and development
loans.  Such 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, together with the costs
associated with obtaining entitlements, including zoning, mapping and other
required governmental approvals.  We will generally invest in loans
with a face value of up to 60% of the appraised value of the
property.  Loan-to-value ratios on acquisition and development loans
are calculated using as-if developed appraisals.  Such appraisals have
the same valuation limitations as raw and unimproved land loans, described
above.  As of December 31, 2007, approximately 14% of our loans were
in this category.





Construction
Loans





Generally,
10% to 70% of our loans may be construction loans.  Such loans provide
funds for the construction of one or more structures on developed
land.  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 appraisal of the value of the property
and proposed improvements, and will generally finance up to 75% of the appraised
value of the property and proposed improvements.  Such appraisals have
the same valuation limitations as raw and unimproved land loans, described
above.  As of December 31, 2007, approximately 11% of our loans were
in this category.





Commercial
Property Loans





Generally,
20% to 50% of the loans we invest in may be commercial property
loans.  Such loans provide funds to allow borrowers to acquire
income-producing property or to make improvements or renovations to the property
in order to increase the net operating income of the property so that it may
qualify for institutional refinancing.  Generally, we review the
property appraisal and generally invest in loans for up to 75% of such appraised
value of the property.  As of December 31, 2007, approximately 42% of
our loans were in this category.








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Residential
Loans





A small
percentage of the loans invested in by us may be residential
loans.  Such loans facilitate the purchase or refinance of one to four
family residential property units provided the borrower uses one of the units on
the property as such borrower’s principal residence.  We will
generally invest in loans for up to 75% of the value of the
property.  As of December 31, 2007, none of our loans were in this
category.





Collateral





Each loan
is secured by a lien on either a fee simple or leasehold interest in real
property as evidenced by a first deed of trust or a second deed of
trust.





First
Deed of Trust





Most of
our loans are secured by first deeds of trust.  Thus as a lender, we
will have rights as a first priority lender of the collateralized
property.  As of December 31, 2007, approximately 98.63% of our loans
were secured by first deeds of trust.





Second
Deed of Trust





Up to 10%
of our loans may be secured by second deeds of trust.  In a second
priority loan, the rights of the lender (such as the right to receive payment on
foreclosure) will be subject to the rights of the first priority
lender.  In a wraparound loan, the lender’s rights will be comparably
subject to the rights of a first priority lender, but the aggregate indebtedness
evidenced by the loan documentation will be the first priority loan plus the new
funds the lender invests.  The lender would receive all payments from
the borrower and forward to the senior lender its portion of the payments the
lender receives.  As of December 31, 2007, approximately 1.37% of our
loans were secured by a second deed of trust.





Prepayment
Penalties and Exit Fees





Generally,
the loans we invest in will not contain prepayment penalties but may contain
exit fees payable when the loan is paid in full, by the borrower, to Vestin
Originations or its affiliates as part of their compensation.  If our
loans are at a high rate of interest in a market of falling interest rates, the
failure to have a prepayment penalty provision or exit fee in the loan may allow
the borrower to refinance the loan at a lower rate of interest, thus providing a
lower yield to us on the reinvestment of the prepayment
proceeds.  However, these loans will usually be written with
relatively high minimum interest rates, which we would expect to minimize the
risk of lower yields.  As of December 31, 2007, none of our loans had
a prepayment penalty and 15 of our loans, totaling approximately $10.2 million,
had an exit fee.





Extensions
to Term of Loan





Our
original loan agreements generally permit extension to the term of the loan by
mutual consent.  Such extension is generally provided on loans where
the original term was 12 months or less and where a borrower requires additional
time to complete a construction project or negotiate take out
financing.  However, we only grant extensions when a borrower is in
compliance with the material terms of the loan, including, but not limited to,
the borrower’s obligation to make interest payments on the loan.  As
of December 31, 2007, approximately 58% of our loans, totaling approximately
$13.2 million, had received an extension to the terms of the loan.





Interest
Reserves





We may
invest in loans that include a commitment for an interest reserve, which is
usually established at loan closing.  The interest reserve may be
advanced by us or other lenders with the amount of the borrower’s indebtedness
increased by the amount of such advances.  At December 31, 2007, we
had approximately $6.2 million in investments in real estate loans that had
interest reserves where the total outstanding principal due to our co-lenders
and us was approximately $78.6 million.  These loans had interest
reserves of approximately $3.7 million, of which our portion was approximately
$0.3 million.





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Balloon
Payment





As of
December 31, 2007, all of our loans provided for payments of interest only with
a “balloon” payment of principal payable in full at the end of the
term.  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.  To the extent that a borrower has an obligation to pay real
estate loan principal in a large lump sum payment, its ability to repay the loan
may be dependent upon its ability to sell the property, obtain suitable
refinancing or otherwise raise a substantial amount of cash.  As a
result, these loans can involve a higher risk of default than loans where the
principal is paid at the same time as the interest payments.





Repayment
of Loans on Sale of Properties





We may
require a borrower to repay a real estate loan upon the sale of the property
rather than allow the buyer to assume the existing loan.  We will
require repayment if we determine that repayment appears to be advantageous to
us based upon then-current interest rates, the length of time that the loan has
been held by us, the creditworthiness of the buyer and our
objectives.  We will either invest our net proceeds from any capital
transaction in new real estate loans, hold the net proceeds as cash or
distribute them to our members.  These net proceeds will also include
the principal of a loan deemed to be repaid for tax purposes as a result of the
nature of a loan modification or loan extension.  Our Operating
Agreement provides that whether we choose to distribute the proceeds or reinvest
them, members will be deemed to have received a distribution of capital and
re-contributed the same amount to us.  Capital transactions include
payments of principal, foreclosures, and prepayments of real estate loans, to
the extent classified as a return of capital under the Internal Revenue Code,
and any other disposition of a real estate loan or property.





Variable
Rate Loans





Occasionally
we may acquire variable rate loans.  Variable rate loans originated by
Vestin Originations may use as indices the one and five year Treasury Constant
Maturity Index, the Prime Rate Index and the Monthly Weighted Average Cost of
Funds Index for Eleventh District Savings Institutions (Federal Home Loan Bank
Board).  As of December 31, 2007, all of the loans in our real estate
loan portfolio were fixed rate loans, with the exception of two loans with a
variable interest rate, totaling approximately $2.6 million.  One of
these loans was non-performing as of December 31, 2007, see Note D – Investments in Real Estate
Loans in Part II, Item 8 Financial Statements and
Supplementary Data of this Annual Report on Form 10-K for more
information.





It is
possible that the interest rate index used in a variable rate loan will rise (or
fall) more slowly than the interest rate of other loan investments available to
us.  Our manager and Vestin Originations attempt to minimize this
interest rate differential by tying variable rate loans to indices that are
sensitive to fluctuations in market rates.  Additionally, most
variable rate loans originated by Vestin Originations contain provisions under
which the interest rate cannot fall below the initial rate.





Variable
rate loans generally have interest rate caps.  For these loans, there
is the risk that the market rate may exceed the interest cap rate.





Borrowing





We may
incur indebtedness to:





·
            Finance
      our investments in real estate
loans;





·
            Prevent
      a default under real estate loans that are senior to our real estate
      loans;





·
            Discharge
      senior real estate loans if this becomes necessary to protect our
      investment in real estate loans; or





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·
            Operate
      or develop a property that we acquired under a defaulted
    loan.





Our
indebtedness will not exceed 70% of the fair market value of our real estate
loans.  This indebtedness may be with recourse to our
assets.





In
addition, we may enter into structured arrangements with other lenders in order
to provide them with a senior position in real estate loans that we might
jointly fund.  For example, we might establish a wholly owned special
purpose corporation that would borrow funds from an institutional lender under
an arrangement where the resulting real estate loans would be assigned to a
trust, and the trust would issue a senior certificate to the institutional
lender and a junior certificate to the special purpose
corporation.  This would assure the institutional lender of repayment
in full prior to our receipt of any repayment on the jointly funded real estate
loans.





No
Trust or Investment Company Activities





We have
not qualified as a real estate investment trust under the Internal Revenue Code,
and therefore we are not subject to the restrictions on its activities that are
imposed on real estate investment trusts.  We conduct our business so
that we are not an “investment company” within the meaning of the Investment
Company Act of 1940.  We also intend to conduct our business so that
we are not to be deemed a “dealer” in real estate loans for federal income tax
purposes.





Various
Other Policies and Procedures





Without
approval of a majority of the members, we will not:





·
            Issue
      securities senior to the units or issue any units or other securities for
      other than cash;





·
            Invest
      in the securities of other issuers for the purpose of exercising control,
      except when exercising our rights as a secured
  lender;





·
            Underwrite
      securities of other issuers;





·
            Discontinue
      providing our members with the reports described in our
      prospectus;





·
            Offer
      securities in exchange for property;
or





·
            Change
      the nature of our business or our investment
  policies.





Competition





Generally,
real estate developers depend upon the timely completion of a project to obtain
a competitive advantage when selling their properties.  We have sought
to attract real estate developers by offering expedited loan processing, which
generally provides quick loan approval and funding of a loan.  As a
result, we have established a market niche as a non-conventional real estate
lender.





We
consider our direct competitors to be the providers of real estate loans who
offer short-term, equity-based loans on an expedited basis for higher fees and
rates than those charged by other financial institutional lenders such as
commercial banks, insurance companies, mortgage brokers and pension
funds.  Many of the companies against which we compete have
substantially greater financial, technical and other resources than either our
company or our manager.  Competition in our market niche depends upon
a number of factors, including price and interest rates of the loan, speed of
loan processing, cost of capital, reliability, quality of service and support
services.








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Regulation





We are
managed by Vestin Mortgage pursuant to the terms and conditions of our Operating
Agreement.  Vestin Originations, an affiliate of Vestin Mortgage,
operates as a mortgage broker and is subject to extensive regulation by federal,
state and local laws and governmental authorities.  Vestin
Originations conducts its real estate loan business under a license issued by
the State of Nevada Mortgage Lending Division.  Under applicable
Nevada law, the division has broad discretionary authority over Vestin
Originations’ activities, including the authority to conduct periodic regulatory
audits of all aspects of Vestin Originations’ operations.





We, our
manager and Vestin Originations are also subject to the Equal Credit Opportunity
Act of 1974, which prohibits creditors from discriminating against loan
applicants on the basis of race, color, sex, age or marital status, and the Fair
Credit Reporting Act of 1970, which requires lenders to supply applicants with
the name and address of the reporting agency if the applicant is denied
credit.  We are also subject to various other federal and state
securities laws regulating our activities.  In addition, our manager
is subject to the Employee Retirement Income Security Act of 1974.





The NASAA
Guidelines have been adopted by various state agencies charged with protecting
the interest of the investors.  Administrative fees, loan fees, and
other compensation paid to our manager and its affiliates would be generally
limited by the NASAA Guidelines.  These guidelines also include
certain investment procedures and criteria, which are required for new loan
investments.





Because
our business is regulated, the laws, rules and regulations applicable to us are
subject to regular modification and change.  There can be no assurance
that laws, rules or regulations will not be adopted in the future that could
make compliance much more difficult or expensive, restrict our ability to broker
or service loans, further limit or restrict the amount of commissions, interest
and other charges earned on loans brokered by us, Vestin Originations, our
manager, or otherwise adversely affect our business or prospects.





Policies
on Limitation on Investments





We will
not invest in other limited partnerships except as permitted under our Operating
Agreement and the NASAA Guidelines.  We will not invest in limited
partnership interests of any other limited partnership of which our manager
serves as a managing or general partner unless our manager does not receive
duplicate fees or compensation beyond what is permissible by the NASAA
Guidelines.





We will
not engage in the following:





·
            Issue
      senior securities;





·
            Acquire
      property for membership interests;





·
            Issue
      any units after termination of this Offering, except for the reinvestment
      plan offered to our members, or issue units in exchange for
      property;





·
            Underwrite
      securities of other issuers;





·
            Make
      loans to our manager or its
affiliates.





We do not
intend to become an investment company under the Investment Company Act of
1940.  We will only repurchase our securities in response to a request
for redemption pursuant to our Operating Agreement.








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Employees





We have
no employees.  Our manager (Vestin Mortgage), Vestin Originations and
their parent company, Vestin Group, Inc., have provided and will continue to
provide all of the employees necessary for our operations.  As of
December 31, 2007, those entities had a total of 23 full-time and no part-time
employees.  All employees are at-will employees and none are covered
by collective bargaining agreements, except John Alderfer our manager’s prior
CFO.  Mr. Alderfer is party to an employment, non-competition and
confidentiality contract with Vestin Group, Inc., the parent company of our
manager, through December 31, 2008.





Available
Information





Our
Internet website address is http://www.vestinmortgage.com/Products/Product_FundIII.aspx.  We
make available free of charge through http://www.vestinmortgage.com/Products/Product_FundIII.aspx
our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports
on Form 8-K and all amendments to those reports as soon as reasonably practical
after such material is electronically filed with or furnished, pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, to the United
States Securities and Exchange Commission (“SEC”).  Further, a copy of
this annual report on Form 10-K is located at the SEC’s Public Reference Room at
100 F Street, NE, Washington, D.C. 20549.  Information on the
operations of the Public Reference Room can be obtained by calling the SEC at
1-800-SEC-0330.  The SEC maintains an internet site that contains
reports, proxy and information statements and other information regarding our
filings at www.sec.gov.  Information
contained on our website does not constitute a part of this Report on Form
10-K.





ITEM
      1A.
            RISK
      FACTORS





In
considering our future performance and any forward-looking statements made in
this report, the material risks described below should be considered
carefully.  These factors should be considered in conjunction with the
other information included elsewhere in this report.





RISKS
RELATED TO OUR 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.  Our performance will be directly
impacted by any defaults on the loans in our portfolio.  As a
commercial real estate lender willing to invest in loans to borrowers who may
not meet the credit standards of other financial institutional lenders, the rate
of default on our loans could be higher than those generally experienced in the
real estate lending industry.  Any sustained period of increased
defaults could adversely affect our business, financial condition, liquidity and
the results of our operations.  We seek to mitigate the risk by
estimating the value of the underlying collateral and insisting on adequate
loan-to-value ratios.  However, we cannot be assured that these
efforts will fully protect us against losses on defaulted loans.  Our
appraisals are generally dated within 12 months of the date of loan origination
and may not reflect a decrease in the value of the real estate due to events
subsequent to the date of the appraisals.  Any subsequent decline in
real estate values on defaulted loans could result in less security than
anticipated at the time the loan was originally made, which may result in our
not recovering the full amount of the loan.  Our weighted average
loan-to-value ratio, based on updated appraisals obtained during the year and
prior to allowances for loan losses, as of December 31, 2007, was 76.94%, as
compared to 65.06% as of December 31, 2006.  Any failure of a borrower
to pay interest on loans will reduce our revenues, the distributions we pay to
members and, most likely, the value of members’ units.  Similarly, any
failure of a borrower to repay loans when due may reduce the capital we have
available to make new loans, thereby adversely affecting our operating
results.





As of
December 31, 2007, we had in our portfolio approximately $5.0 million in
delinquent loans, net of allowance for loan losses of approximately $0.8
million, which does not include allowances of approximately $0.2 million for
performing loans, and approximately $0.6 million of real estate held for sale
for a total of approximately $5.6 million in non-performing assets, which
represented approximately 22% of our members’ equity.








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A
prolonged economic slowdown, lengthy or severe recession or significant increase
in interest rates could harm our business.





The risks
associated with our business are more acute during periods of economic slowdown
or recession because these periods can be accompanied by illiquid credit markets
and declining real estate values.  During the year ended December 31,
2007, we VRM I and VRM II conducted updated appraisals on a number of properties
securing our loans, representing approximately 71% of our loan portfolio, and
concluded that the estimated value of such properties should be reduced by
approximately $19.0 million.  Our share of this reduction was
approximately $1.9 million, which has adversely impacted our weighted average
loan to value ratio.  As a commercial real estate lender willing to
invest in riskier loans, rates of delinquencies, foreclosures and losses on our
loans could be higher than those generally experienced in the commercial
mortgage lending industry during periods of economic slowdown or
recession.  We are of the opinion that problems in the sub-prime
residential mortgage market have adversely affected the general economy and the
availability of funds for commercial real estate developers.  We
believe this lack of available funds has led to an increase in defaults on our
loans.  Furthermore, problems experienced in U.S. credit markets since
the summer of 2007 have reduced the availability of credit for many prospective
borrowers.  These problems have made it more difficult for our
borrowers to obtain the anticipated re-financing necessary to pay back our
loans.  Thus, an extended period of illiquidity in the credit markets
could result in a material increase in the number of our loans that are not paid
back on time.  For the year ended December 31, 2007, loan originations
accounted for all loans funded, except for eight loans that were refinanced
during that period.  All eight of these refinanced loans had interest
rates equal to or higher than the interest rates on the original
loan.  Any sustained period of increased delinquencies, defaults or
foreclosures will likely have an adverse affect upon our ability to originate,
purchase and securitize loans, which could significantly harm our business,
financial condition, liquidity and results of operations.





Our
underwriting standards and procedures are more lenient than many institutional
lenders, which may result in a higher level of non-performing assets and less
amounts available for distribution.





There may
be a greater risk of default by our borrowers, which may impair our ability to
make timely distributions and which may reduce the amount we have available to
distribute.  Our underwriting standards and procedures are more
lenient than many institutional lenders in that we will invest in loans to
borrowers who may not be required to meet the credit standards of other
financial institutional real estate lenders, which may lead to an increase in
non-performing assets in our loan portfolio and create additional risks of
return.  We approve real estate loans more quickly than other
lenders.  We rely heavily on third-party reports and information such
as appraisals and environmental reports.  Because of our accelerated
due diligence process, we may accept documentation that was not specifically
prepared for us or commissioned by us.  This creates a greater risk of
the information contained therein being out of date or
incorrect.  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.





We
depend upon our real estate security to secure our real estate loans, and we may
suffer a loss if the value of the underlying property declines.





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 are
prepared on an as-if developed basis, which approximates the post-construction
value of the collateralized property assuming such property is
developed.  As-if developed values on raw land loans or acquisition
and development loans often dramatically exceed the immediate sales value and
may include anticipated zoning changes and successful development by the
purchaser upon which development is dependent on availability of
financing.  As most of the appraisals will be prepared on an as-if
developed basis, if the loan goes into default prior to completion of the
project, the market value of the property may be substantially less than the
appraised value.  As a result, there may be less security than
anticipated at the time the loan was originally made.  If there is
less security and a default occurs, we may not recover the full amount of our
loan, thus reducing the amount of funds available to distribute.





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We
typically make “balloon payment” loans, which are riskier than loans with
payments of principal over an extended period of time.





The loans
we invest in or purchase generally 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.  As of December 31, 2007, all of our loans provided
for payments of interest only with a “balloon” payment of principal payable in
full at the end of the term.  Loans with balloon payments are riskier
than loans with payments of principal over an extended time period such as 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.  The borrower’s
ability to achieve a successful sale or refinancing of the property may be
adversely impacted by deteriorating economic conditions or illiquidity in the
credit markets.  There are no specific criteria used in evaluating the
credit quality of borrowers for 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.





Our
loans are not guaranteed by any governmental agency.





Our loans
are not insured or guaranteed by a federally owned or guaranteed mortgage
agency.  Consequently, our recourse, if there is a default, may be to
foreclose upon the real property securing a loan and/or pursuing the borrower’s
guarantee of the principal.  The value of the foreclosed property may
have decreased and may not be equal to the amount outstanding under the
corresponding loan, resulting in a decrease of the amount available to
distribute.





Our
real estate loans may 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.





Any
borrowing by us will increase members risk and may reduce the amount we have
available to distribute.





We may
borrow funds to expand our capacity to invest in real estate
loans.  We may borrow up to 70% of the fair market value of our
outstanding real estate loans at any time.  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 that 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.  During
October 2006, we, our manager, Vestin Originations, Inc., VRM I and VRM II
entered into an intercreditor agreement with an unrelated third party related to
the funding of a construction real estate loan.  The secured borrowing
was recognized pro rata between us, VRM I and VRM II for the amount each entity
has funded for the loan.  During May 2007, the secured borrowings were
paid in full.








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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;





·
            Required
      licensing and regulatory approvals may complicate our ability to foreclose
      or to sell a foreclosed property where our collateral includes an
      operating business;





·
            We
      may not be able to pursue deficiency judgments after we foreclose on
      collateral; and





·
            State
      and federal bankruptcy laws can prevent us from pursuing any actions,
      regardless of the progress in any of these suits or
      proceedings.





By
becoming the owner of property, we may incur additional obligations, which may
reduce the amount of funds available for distribution.





We intend
to own real property only if we foreclose on a defaulted loan and purchase the
property at the foreclosure sale.  Acquiring a property at a
foreclosure sale may involve significant costs.  If we foreclose on
the security property, we expect to obtain the services of a real estate broker
and pay the broker’s commission in connection with the sale of the
property.  We may incur substantial legal fees and court costs in
acquiring a property through contested foreclosure and/or bankruptcy
proceedings.  In addition, significant expenditures, including
property taxes, maintenance costs, mortgage payments, insurance costs and
related charges, must be made on any property we own regardless of whether the
property is producing any income.





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.





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.








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Interest
rate fluctuations may affect our operating results as follows:





§
            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 Originations or our manager, 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; and





§
            If
      interest rates decline, the amount we can charge as interest on our loans
      will also likely decline.  Moreover, if 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.  As of December 31,
      2007, none of our loans had a prepayment penalty, although 15 of our
      loans, totaling approximately $10.2 million, had an exit
      fee.  However, depending upon the amount by which interest rates
      decline, the amount of the exit fees is generally not significant in
      relation to the potential savings borrowers may realize as a result of
      prepaying their loans.





We
face competition for real estate loans that may reduce available yields and fees
available.





We
consider our direct competitors to be the providers of real estate loans who
offer short-term, equity-based loans on an expedited basis for higher fees and
rates than those charged by other financial institutional lenders such as
commercial banks, insurance companies, mortgage brokers and pension
funds.  Many of the companies against which we compete have
substantially greater financial, technical and other resources than either our
company or our manager.  Competition in our market niche depends upon
a number of factors, including price and interest rates of the loan, speed of
loan processing, cost of capital, reliability, quality of service and support
services.  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 our distributions to members.





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.  As of December
31, 2007, approximately 1.37% of our loans were secured by second deeds of
trust.





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 have greater risk because they may
reduce our ability to diversify our loan portfolio.  As of December
31, 2007, our largest loan comprised approximately 7% of our total loan
portfolio.








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As
a result of our small size, we will not be able to build a diversified loan
portfolio, thereby increasing our risk that defaults on one or more loans could
have a material adverse effect upon our operating results.





We are
limited in the number of 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.  As of December 31, 2007, we had approximately
$25.3 million in members’ equity and $20.8 million in outstanding loans, net of
allowance, and we currently are not raising additional funds through the sale of
units.  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 loan we invest in and a default on 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.





Our
loan portfolio may exhibit greater risk if it is not diversified
geographically.





As of
December 31, 2007, our loans were in the following states: Arizona, California,
Nevada, Oklahoma, Oregon and Texas, with approximately 46% of our loans in
Nevada.  Our manager has limited experience outside of the Western and
Southern 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.





Our
lending operations are subject to certain regulatory requirements.





As a
company investing in real estate loans and having raised funds through a public
offering, we are subject to the NASAA 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 that would
exceed, in the aggregate, an amount greater than 20% of the capital
contributions that 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.





We
may have a lack of control over participations.





We will
consider investing in or purchasing loans 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, 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.








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MANAGEMENT
AND CONFLICTS OF INTEREST RISKS





We
rely on our manager to manage our day-to-day operations and select our loans for
investment.





Our
ability to achieve our investment objectives and to make distributions depends
upon our manager’s and its affiliate’s performance in obtaining, processing,
making and brokering loans for us to invest in and determining the financing
arrangements for borrowers.  Members have no opportunity to evaluate
the financial information or creditworthiness of borrowers, the terms of
mortgages, the real property that is our collateral or other economic or
financial data concerning our loans.  Our manager’s duties to our
members are generally governed by the terms of our Operating Agreement, rather
than by common law principles of fiduciary duty.  Moreover, our
manager is not required to devote its employees’ full time to our business and
may devote time to business interests competitive to our business.





Our
manager’s lack of experience with certain real estate markets could impact its
ability to make prudent investments on our behalf.





As of
December 31, 2007, our loans were in the following states: Arizona, California,
Nevada, Oklahoma, Oregon and Texas.  Depending on the market and on
our company’s performance, we plan to expand our investments throughout the
United States.  However, our manager has limited experience outside of
the Western and Southern 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.  Our manager’s limited
experience in most U.S. real estate markets may impact its ability to make
prudent investment decisions on our behalf.  Accordingly, where our
manager deems it necessary, it plans to utilize independent real estate advisors
and local legal counsel located in markets where it 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.





Our
success depends on key personnel of our manager, the loss of whom could
adversely affect our operating results, and on our manager’s ability to attract
and retain qualified personnel.





Our
success depends in part upon the continued contributions of certain key
personnel of our manager, including; Michael V. Shustek (Chief Executive Officer
and President), Rocio Revollo (Chief Financial Officer), James M. Townsend
(Chief Operating Officer) and Daniel B. Stubbs (Senior Vice President,
Underwriting) some of whom would be difficult to replace because of their
extensive experience in the field, extensive market contacts and familiarity
with our company.  If any of these individuals were to cease their
employment or our manager, our operating results could suffer.  None
of the key personnel of our manager is subject to an employment, non-competition
or confidentiality agreement with our manager, or us and we do not maintain “key
man” life insurance policies on any of them.  Our future success also
depends in large part upon our manager’s ability to hire and retain additional
highly skilled managerial, operational and marketing personnel.  Our
manager may require additional operations and marketing people who are
experienced in obtaining, processing, making and brokering loans and who also
have contacts in the relevant markets.  Competition for personnel is
intense, and we cannot be assured that we will be successful in attracting and
retaining skilled personnel.  If our manager were unable to attract
and retain key personnel, the ability of our manager to make prudent investment
decisions on our behalf may be impaired.





Any
indemnification of our manager by us will decrease the amount available for
distribution.  Pursuant to our Operating Agreement, we may be required
to indemnify our manager or any of its affiliates, agents, or attorneys from any
action, claim or liability arising from any act or omission made in good faith
and in performance of its duties under the Operating Agreement.  The
availability of such indemnification may reduce the amount of funds we have
available for distribution.








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Vestin
Mortgage serves as our manager pursuant to our Operating
Agreement.  It may be difficult to terminate Vestin Mortgage and our
Operating Agreement does not reflect arm’s length negotiations.





Pursuant
to the terms of our Operating Agreement, Vestin Mortgage acts as our
manager.  The term of the Operating Agreement is for the duration of
our existence.  Vestin Mortgage may only be terminated as manager upon
the affirmative vote of a majority of members entitled to vote on the
matter.  Consequently, it may be difficult to replace our manager in
the event that our performance does not meet expectations or for other
reasons.  The Operating Agreement was negotiated by related parties
and may not reflect terms as favorable as those subject to arm’s length
bargaining.





Our
manager will face conflicts of interest concerning the allocation of its
personnel’s time.





Our
manager is also the manager of VRM I, VRM II and inVestin, companies with
investment objectives similar to ours.  Our manager and Mr. Shustek,
who indirectly owns 100% of our manager, anticipate that they may also sponsor
other real estate programs having investment objectives similar to
ours.  As a result, our manager and Mr. Shustek may have conflicts of
interest in allocating their time and resources between our business and other
activities.  During times of intense activity in other programs and
ventures, our manager and its key people will likely devote less time and
resources to our business than they ordinarily would.  Our Operating
Agreement does not specify a minimum amount of time and attention that our
manager and its key people are required to devote to our
company.  Thus, our manager may not spend sufficient time managing our
operations, which could result in our not meeting our investment
objectives.





Our
manager and its affiliates will face conflicts of interest arising from our fee
structure.





Vestin
Originations, an affiliate of our manager, will receive substantial fees from
borrowers for transactions involving real estate loans.  Many of these
fees are paid on an up-front basis.  In some cases, Vestin
Originations or our manager may be entitled to additional fees for loan
extensions or modifications and loan assumptions, reconveyances, and exit fees.
These and other fees are quantified and described in greater detail under
“Compensation to Vestin Mortgage and Affiliates” in our Amended and Restated
Operating Agreement filed with the SEC on April 28, 2006.  Vestin
Originations’ compensation is based on the volume and size of the real estate
loans selected for us, regardless of their performance, which could create an
incentive to make or extend riskier loans.  Our interests may diverge
from those of our manager, Vestin Originations and Mr. Shustek to the extent
that Vestin Originations benefits from up-front fees that are not shared with
us.





Vestin
Originations will be receiving fees from borrowers that would otherwise increase
our returns.  Because Vestin Originations receives all of these fees,
our interests will diverge from those of our manager, Vestin Originations and
Mr. Shustek when our manager decides whether we should charge the borrower
higher interest rates or our manager’ affiliates should receive higher fees from
borrowers.





We paid
our manager a management fee of $7,000 for the year ended December 31,
2007.  In addition, Vestin Mortgage and Vestin Originations received a
total of approximately $4.7 million and $13.0 million, respectively, in fees
directly from borrowers for the year ended December 31, 2007.  The
amounts received from borrowers represent fees earned by Vestin Mortgage and
Vestin Originations for loans originated for all funds managed by Vestin
Mortgage, including us, VRM I, VRM II and inVestin.  Our assets
represented approximately 6% of the assets managed by Vestin Mortgage as of
December 31, 2007.





Our
manager will face conflicts of interest relating to other investments in real
estate loans.





We expect
to invest in real estate loans when one or more other companies managed by our
manager are also investing in real estate loans.  There is a risk that
our manager may select for us a real estate loan investment that provides lower
returns than a real estate loan investment purchased by another program or
entity managed by our manager.  Our manager also serves as the manager
for VRM I, VRM II and inVestin, which have similar investment objectives as our
company.  There are no restrictions or guidelines on how our manager
will determine which loans are appropriate for us and which are appropriate for
VRM I, VRM II, inVestin or another company that our manager
manages.  Moreover, our manager has no obligation to provide us with
any particular opportunities or even a pro rata share of opportunities afforded
to other companies it manages.





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INVESTMENT
RISKS





Units
lack liquidity and marketability.





There is
no public trading market for units, and members cannot freely sell or transfer
units or use them as collateral for a loan.  Currently, we 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 will not be
entitled to have their units redeemed without the consent of our
manager.  Our manager 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.





Members have limited ability to have
units redeemed.





Members
have a limited ability to have their units redeemed by us.  Requests
by members for redemptions are honored in the order in which they are received
by the manager.  The significant limitations on the ability to have
units redeemed are the following:





·
            There
      is no reserve fund for redemptions.





·
            Redemption
      payments are made only to the extent we have available cash from proceeds
      of repayments of principal on real estate loans 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, subject to limitations
      in our Operating Agreement.





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.





ITEM
      1B.
            UNRESOLVED
      STAFF COMMENTS





None.





ITEM
      2.
            PROPERTIES





Our
manager shares office facilities, in Las Vegas, Nevada, with its parent
corporation, Vestin Group, in a building, which a company wholly owned by our
CEO holds the majority interest and an unrelated third party holds the minority
interest.  Our manager believes that this facility is adequate for
their foreseeable office space needs.  We do not have any separate
offices.





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We
previously owned an approximately 42,000 square foot office building in Las
Vegas, Nevada, that was sold to an unrelated third party in November
2006.  This building was leased to our parent corporation Vestin Group
and the lease agreement governing this property expires in March
2014.  We have restricted cash, which relates to a cash deposit held
as collateral by a banking institution to support rent payments on this
property.  The requirement for the deposit expires in November
2008.








ITEM
      3.
            LEGAL
      PROCEEDINGS





Please
refer to Note K - Legal
Matters Involving The Manager and Note L - Legal Matters Involving The
Company in Part II, Item 8 Financial Statements and
Supplementary Data of this Annual Report on Form 10-K for information
regarding legal proceedings, which discussion is incorporated herein by
reference.





ITEM
      4.
            SUBMISSION
      OF MATTERS TO A VOTE OF SECURITYHOLDERS





None.





PARTII





ITEM
      5.
            MARKET
      FOR REGISTRANT’SCOMMON EQUITY, RELATED STOCKHOLDER
      MATTERS AND ISSUER PURCHASES OF EQUITY
  SECURITIES





Market
Information





There is
no established public trading market for the trading of units.





Holders





As of
March 17, 2008, approximately 676 unit holders held 2,525,561 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 $2.2
million (prior to reinvested distributions) during the year ended December 31,
2007, 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 ProgramsOctober
      2007
            --
            --
            None
            NoneNovember
      2007
            --
            --
            None
            NoneDecember
      2007
            --
            --
            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 the Internal Revenue Code, we may redeem no more than 10% of
      the aggregate Members’ capital in any calendar year and no more than
      $100,000 per members’ account in any calendar year subject to our
      manager’s discretion.  Balances in Members’ capital accounts as
      of January 1, 2007 were approximately $30.4 million, including deferred
      income of approximately $1.0 million, which limits redemptions to
      approximately $3.0 million for calendar year
  2007.




ITEM
      6.
            SELECTED
      FINANCIALDATA





Balance
      at December 31,Vestin
      Fund III, LLC
            
            2007
            
            
            2006
            
            
            2005
            
            
            2004
            
            
            2003Balance
      Sheet Data:Cash,
      cash equivalents, certificates of deposits and marketable
      securities-related party
            
            $
            3,833,000
            
            
            $
            1,650,000
            
            
            $
            1,167,000
            
            
            $
            6,286,000
            
            
            $
            5,000Cash
      - restricted
            
            $
            985,000
            
            
            $
            985,000
            
            
            $
            
            
            
            $
            
            
            
            $Real
      estate held for sale
            
            $
            546,000
            
            
            $
            575,000
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -Investments
      in real estate loans (net of allowance)
            
            $
            20,825,000
            
            
            $
            26,999,000
            
            
            $
            22,964,000
            
            
            $
            13,520,000
            
            
            $
            --Investment
      in real property (net of depreciation)
            
            $
            --
            
            
            $
            -
            
            
            $
            9,591,000
            
            
            $
            9,814,000
            
            
            $
            --Assets
      under secured borrowing
            
            $
            --
            
            
            $
            4,430,000
            
            
            $
            527,000
            
            
            $
            2,590,000
            
            
            $
            --Deferred
      offering costs
            
            
            --
            
            
            
            -
            
            
            
            -
            
            
            
            926,000
            
            
            
            667,000Total
      assets
            
            $
            26,390,000
            
            
            $
            34,925,000
            
            
            $
            34,710,000
            
            
            $
            33,374,000
            
            
            $
            672,000Long
      term liabilities
            
            $
            --
            
            
            $
            -
            
            
            $
            4,830,000
            
            
            $
            4,928,000
            
            
            $
            -Total
      liabilities
            
            $
            1,111,000
            
            
            $
            5,508,000
            
            
            $
            5,551,000
            
            
            $
            8,612,000
            
            
            $
            673,000Members’
      equity
            
            $
            25,279,000
            
            
            $
            29,417,000
            
            
            $
            29,159,000
            
            
            $
            24,762,000
            
            
            $
            (1,000
            )








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For
      the Years Ended December 31,
            
            
            For
      the Period From April 16, 2003 (Inception) to2007
            
            
            2006
            
            
            2005
            
            
            2004
            
            
            December
      31, 2003Income
      Statement Data:Revenues
            
            $
            2,502,000
            
            
            $
            3,363,000
            
            
            $
            3,583,000
            
            
            $
            2,328,000
            
            
            $
            --Operating
      expenses
            
            
            1,323,000
            
            
            
            1,277,000
            
            
            
            1,294,000
            
            
            
            990,000
            
            
            
            1,000Operating
      income
            
            
            1,179,000
            
            
            
            2,086,000
            
            
            
            2,289,000
            
            
            
            1,338,000
            
            
            
            (1,000
            )Non-operating
      income
            
            
            239,000
            
            
            
            132,000
            
            
            
            33,000
            
            
            
            32,000
            
            
            
            --Income
      (loss) from real estate held for sale
            
            
            (93,000
            )
            
            
            2,612,000
            
            
            
            --
            
            
            
            --
            
            
            
            --Net
      income (loss)
            
            $
            1,325,000
            
            
            $
            4,830,000
            
            
            $
            2,322,000
            
            
            $
            1,370,000
            
            
            $
            (1,000
            )Income
      from operations per weighted average membership units
            
            $
            0.46
            
            
            $
            0.72
            
            
            $
            0.81
            
            
            $
            0.76
            
            
            $
            --Net
      income per weighted average membership units
            
            $
            0.51
            
            
            $
            1.67
            
            
            $
            0.82
            
            
            $
            0.78
            
            
            $
            --Cash
      distributions per weighted average membership units
            
            $
            0.85
            
            
            $
            0.88
            
            
            $
            0.91
            
            
            $
            0.77
            
            
            $
            --Weighted
      average membership units
            
            
            2,579,314
            
            
            
            2,896,025
            
            
            
            2,816,468
            
            
            
            1,751,700
            
            
            
            --





The
information in this table should be read in conjunction with the accompanying
audited consolidated financial statements and notes to the consolidated
financial statements included elsewhere in this document.





ITEM
      7.
            MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
      AND RESULTS OF OPERATIONS





The
following is a financial review and analysis of our financial condition and
results of operations for each of the three years ended December 31, 2007, 2006
and 2005.  This discussion should be read in conjunction with our
consolidated financial statements and accompanying notes and other detailed
information regarding us appearing elsewhere in this report on Form 10-K and our
reports on Form 10-Q, Part I, Item 2 Management’s Discussion and Analysis
of Financial Conditions and Results of Operations for the quarters ended
March 31, 2007, June 30, 2007 and September 30, 2007.





FORWARD-LOOKING
STATEMENTS





Certain
statements in this report, including, without limitation, matters discussed
under this Item 7, “Management’s Discussion and Analysis of Financial Condition
and Results of Operations,” should be read in conjunction with the consolidated
financial statements, related notes, and other detailed information included
elsewhere in this report on Form 10-K.  We are including this
cautionary statement to make applicable and take advantage of the safe harbor
provisions of the Private Securities Litigation Reform Act of
1995.  Statements that are not historical fact are forward-looking
statements.  Certain of these forward-looking statements can be
identified by the use of words such as “believes,” “anticipates,” “expects,”
“intends,” “plans,” “projects,” “estimates,” “assumes,” “may,” “should,” “will,”
or other similar expressions.  Such forward-looking statements involve
known and unknown risks, uncertainties and other important factors, which could
cause actual results, performance or achievements to differ materially from our
expectations.  These forward-looking statements are based on our
current beliefs, intentions and expectations.  Important assumptions
and other important factors that could cause actual results to differ materially
from those forward-looking statements include, but are not limited to, those
factors, risks and uncertainties described in Part I Item 1A Risk Factors of this Annual
Report on Form 10-K and in our other securities filings with the Securities and
Exchange Commission (“SEC”).





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Our
future financial condition and results of operations, as well as any
forward-looking statements, are subject to change and involve inherent risks and
uncertainties.  The forward-looking statements contained in this
report are made only as of the date hereof.  We undertake no
obligation to update or revise information contained herein to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.





RESULTS
OF OPERATIONS





OVERVIEW





Our
primary business objective is to generate income while preserving principal by
investing in real estate loans.  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 other real estate
lenders.  The loan underwriting standards utilized by our manager and
Vestin Originations are less strict than those used by many institutional real
estate lenders.  In addition, one of our competitive advantages is our
ability to approve loan applications more quickly than many institutional
lenders.  As a result, in certain cases, we may make real estate loans
that are riskier than real estate loans made by many institutional lenders such
as 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 many
institutional real estate lenders, in return, we seek to generate higher yields
from our real estate loans.





Prior to
March 5, 2007, our mortgage program was combined with a real estate program
whose objective was 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.  We disposed of our
only investment in real estate in November 2006 and on March 5, 2007, a majority
of our members voted to amend our operating agreement so that in the future we
will only invest in loans secured by mortgages on real estate.





Our
operating results are affected primarily by: (i) the amount of capital we have
to invest in real estate loans, (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 and (v)
the level of non-performing assets, foreclosures and related loan losses which
we may experience.  Our capital, subject to a 3% reserve, will
constitute the bulk of the funds we have available for investment in real estate
loans.  We do not have any arrangements in place to materially
increase the funds we will have available to invest from any other
sources.  See discussion under – “Capital and Liquidity.”





Our
operating results during the past year have been adversely affected by increases
in allowances for loan losses.  At December 31, 2007, the following
loans were non-performing (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); Monterrey Associates LP, Forest Development LLC, Pirates Lake,
Ltd, Jeffrey's Court, LLC, V & M Homes at the Palms, Inc. and Brawley CA
122, LLC.  These loans are currently carried on our books at a value
of approximately $5.0 million, net of allowance for loan losses of approximately
$0.8 million, which does not include the allowances of approximately $0.2
million relating to the decrease in the property value for performing loans as
of December 31, 2007.  These loans have been placed on non-accrual of
interest status and are the subject of pending foreclosure
proceedings.  On February 5, 2008, we, VRM I and VRM II foreclosed
upon Pirates Lake, Ltd. and classified it as real estate held for
sale.  On March 7, 2008, we, VRM I and VRM II foreclosed upon Forest
Development LLC and classified it as real estate held for sale.  For
additional information, see “Specific Loan Allowance” in Note D – Investments In Real Estate
Loans of the Notes to the Consolidated Financial Statements included in
Part II, Item 8 Financial
Statements and Supplementary Data of this Annual Report on Form
10-K.








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Non-performing
assets, net of allowance for loan losses, totaled approximately $5.6 million or
21% of our total assets as of December 31, 2007, as compared to approximately
$2.2 million or 6% of our total assets as of December 31, 2006.  At
December 31, 2007, non-performing assets consisted of approximately $0.6 million
of real estate held for sale and approximately $5.0 million of non-performing
loans, net of allowance for loan losses.  In addition, during the year
ended December 31, 2007, our manager evaluated the carrying value of real estate
acquired through foreclosure located in Cathedral City,
California.  Based on our manager’s estimate, we have written down the
value of the property by $29,000.  We also recognized expenses related
to real estate held for sale for this property of approximately
$64,000.





We
believe that the significant increase in the level of our non-performing assets
reflects the difficulties encountered by the real estate and credit markets
during the past year, as well as the risk inherent in our business strategy that
entails more lenient underwriting standards and expedited loan approval
procedures.  As the economy weakens and credit becomes more difficult
to obtain, our borrowers who develop and sell commercial real estate projects
are unable to complete their projects or obtain takeout financing or are
otherwise adversely impacted.  This has resulted in an increase in
loan defaults, which reduce the amount of funds we have to pay distributions to
our members.  Such conditions may also require us to restructure
loans.  The weighted average term of our outstanding loans, including
extensions, was 17 months as of December 31, 2007 and 14 months as of December
31, 2006.





A
recession or uncertain economic conditions during the next year could have a
material impact on the collectibility of our loans.  The downturn in
the real estate markets where we conduct business might result in a futher
increase in defaults on our loans and might require us to record additional
reserves.  The problems experienced by some lenders in the sub-prime
market may have a material adverse affect on the commercial mortgage markets in
which we operate.  We are aware that weakness in the credit markets
has had an adverse impact upon our markets.  In addition, we are aware
that weakness in residential lending has had and may continue to have an adverse
impact upon our markets.  Recognizing the risk, we seek to maintain an
adequate loan-to-value ratio; as of December 31, 2007, our loan to value ratio
was 76.94%, prior to allowances for loan losses, on a weighted average basis
generally using appraisals prepared on an “as-if developed basis” in connection
with the loan origination.





The
increase in the weighted average loan-to-value ratio, prior to allowances for
loan losses, from 65.06%, as of December 31, 2006, to 76.94%, as of December 31,
2007, is partly a result of seven loans that were funded during the year ended
December 31, 2007, totaling approximately $4.4 million, with loan-to-value
ratios ranging from 73.71% to 78.10%.  The majority of these loans
were to repeat borrowers with a history of good standing with us.  The
original terms of these loans were 12 months.  In addition, during the
year ended December 31, 2007, we VRM I and VRM II conducted updated appraisals
on a number of properties securing our loans, representing approximately 71% of
our loan portfolio, and concluded that the estimated value of such properties
should be reduced by approximately $19.0 million.  Our share of this
reduction was approximately $1.9 million, which has adversely impacted our
weighted average loan to value ratio.  We hope to retain sufficient
cushion in the underlying equity position to protect the value of our loans in
the event of a default.  However, a marked increase in loan defaults
accompanied by a rapid decline in real estate values will have a material
adverse effect upon our financial condition and operating results.





During
the year ended December 31, 2007, we provided a specific reserve allowance for
two non-performing loans and two performing loans based on updated appraisals of
the underlying collateral and our evaluation of the borrower for these loans,
obtained by our manager during the year.  For further information
regarding allowance for loan losses, refer to Note D – Investments in Real Estate
Loans in the notes to our consolidated financials statements in Part II,
Item 8 Financial Statements
and Supplementary Data of this Annual Report on Form 10-K.





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 Management
Agreement without a premium.  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 the ability to
diversify our portfolio by making additional loans.  For further
information regarding related party transactions, refer to Note G – Related Party Transactions in
the notes to our consolidated financials statements in Part II, Item 8 Financial Statements and
Supplementary Data of this Annual Report on Form 10-K.





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As of
December 31, 2007, our loans were in the following states: Arizona, California,
Nevada, Oklahoma, Oregon and Texas.





SUMMARY
OF FINANCIAL RESULTS





The
Year Ended December 31, 2007 Compared To the Year Ended December 31,
2006





Total
Revenues:  For the year ended December 31, 2007, total revenues
were $2,502,000 compared to $3,363,000 during the year ended December 31, 2006,
a decrease of $861,000 or 26%.  Revenues were primarily affected by
the following factors:





·
            During
      the year ended December 31, 2006, we recognized rental income of $944,000
      from a building we sold in November 2006.  No comparable income
      was realized during the year ended December 31, 2007, and as noted above,
      we will no longer earn rental income.  Approximately $3.0
      Million of the proceeds from the sale of the building were used for the
      redemption of membership units during the year ended December 31,
      2007.





·
            Interest
      income from investments in real estate loans increased by approximately
      $67,000.  Our revenue is dependent upon the balance of our
      investment in real estate loans and the interest earned on these
      loans.  As of December 31, 2007, our investment in real estate
      loans was approximately $21.9 million with a weighted average interest
      rate of 11.89%.  As of December 31, 2006, our investment in real
      estate loans was approximately $27.0 million with a weighted average
      interest rate of 11.31%.  In addition, our interest income was
      affected by the performances of our loans.  During the year
      ended December 31, 2007, four loans totaling approximately $4.5 million
      became non-performing.  Increases in non-performing loans will
      reduce our future revenues.  Compared to the year ended December
      31, 2006, four loans totaling approximately $2.2 million became
      non-performing





Total Operating
Expenses:  For the year ended December 31, 2007, total
operating expenses were $1,323,000 compared to $1,277,000 during the year ended
December 31, 2006, an increase of $46,000 or 4%.  Expenses were
primarily affected by the following factors:





·
            During
      the year ended December 31, 2006, we incurred depreciation expense of
      $204,000 on the building that was sold in November 2006.  No
      comparable depreciation expense was recorded during the year ended
      December 31, 2007.





·
            Interest
      expense relating to the note on the building we sold in November 2006,
      totaled $661,000 which included a defeasance fee of $435,000 on the note
      payoff for the year ended December 31, 2006.  No comparable
      interest expense related to the note on the building was recorded during
      the same period in 2007.





·
            During
      the year ended December 31, 2007, fees paid to our manager also decreased
      $38,000 or 84%, compared to the same period during 2006.  Our
      manager was 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.  On March 5, 2007, a majority of our members
      approved the Third Amended and Restated Operating Agreement, which limits
      our investment objectives to investments in real estate
      loans.  We sold our real estate investment in November
      2006.  In addition, on April 2, 2007, our manager decided to
      terminate our Distribution Reinvestment Plan effective May 7, 2007,
      pursuant to Section 8.5 of our Operating
  Agreement.





·
            During
      the year ended December 31, 2007, these decreases in operating expenses
      were offset by provisions for loan losses of approximately
      $953,000.  See “Specific Loan Allowance” in Notes D Investment Real Estate
      Loans of the Notes to the Consolidated Financial Statements
      included in Part II, Item 8 Financial Statements and
      Supplementary Data of this Report Form 10K.  There was no
      provisions for loan loss recorded during the year ended December 31,
      2006.





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Non-operating
income:  Non-operating income consisted of dividend income from
marketable securities-related party and bank interest income.





Total Income (Loss) from Real Estate
Held for Sale:  For the year ended December 31, 2007, total
loss from real estate held for sale was $93,000 compared to a gain of $2,612,000
for the year ended December 31, 2006.  This decline was primarily due
to the following factors:





·
            Based
      on our manager’s estimates, as noted above, our write down on our real
      estate held for sale totaled $29,000 and expenses related to this property
      totaled $64,000, for the year ended December 31, 2007.  There
      were no comparable write downs related to real estate held for sale during
      the year ended December 31, 2006 and expenses totaled
    $12,000.





·
            During
      the year ended December 31, 2006, we recognized a gain on the sale of the
      building noted above of approximately $2.6 million.  See Note F
      Real Estate Held for
      Sale of the Notes to the Consolidated Financial Statements included
      in Part II, Item 8 Financial Statements and
      Supplementary Data of this Annual Report on Form
    10-K.





Distributions to
Members:  The following is a schedule of distributions made to
members for the years ended December 31, 2007 and 2006.





For
      the Years
              Ended
      December 31,2007
            
            
            2006Distributions
      of net income available for distribution
            
            $
            2,193,000
            
            
            $
            2,544,000Distributions
      in excess of net income available for distribution generated during the
      period
            
            
            --
            
            
            
            --Total
      distributions
            
            $
            2,193,000
            
            
            $
            2,544,000





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 as
it constitutes the principal factor in determining the amount of distributions
we pay to our 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:





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For
      the Years
              Ended
      December 31,2007
            
            
            2006Distribution
      of net income available for distribution
            
            $
            2,193,000
            
            
            $
            2,544,000Additions
      to working capital reserves (amount not distributed)
            
            
            114,000
            
            
            
            2,490,000Gain
      on sale of building
            
            
            --
            
            
            
            (2,624,000
            )Change
      in operating assets and liabilities:Interest
      receivable
            
            
            72,000
            
            
            
            (76,000
            )Deferred
      rent receivable - related party
            
            
            --
            
            
            
            (123,000
            )Accounts
      payable
            
            
            32,000
            
            
            
            (63,000
            )Due
      from Vestin Originations
            
            
            --
            
            
            
            (10,000
            )Due
      to related parties
            
            
            11,000
            
            
            
            26,000Other
      assets
            
            
            3,000
            
            
            
            (6,000
            )Net
      cash provided by operating activities
            
            $
            2,425,000
            
            
            $
            2,158,000Net
      cash provided by investing activities
            
            $
            4,414,000
            
            
            $
            6,945,000Net
      cash (used) provided by financing activities
            
            $
            (4,940,000
            )
            
            $
            (9,449,000
            )





Stated Unit Value
Adjustment:  In accordance with Section 7.8 of our Operating
Agreement, our manager reviewed the value of our assets during the three months
ended December 31, 2007.  Based on this review the value of members’
capital accounts was adjusted from $10.97 per unit to $10.40 per
unit.  As a result, units redeemed on or after December 31, 2007 will
be redeemed at $10.40 per unit.  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, we may redeem no more than 10% of the aggregate Members’ capital in any
calendar year and no more than $100,000 per members’ account in any calendar
year subject to our manager’s discretion.  As of December 31, 2007,
the total redemptions made from inception were approximately $6.3
million.  Balances in Members’ capital accounts as of January 1, 2007
were approximately $30.4 million, including deferred income of approximately
$1.0 million, which limited redemptions to approximately $3.0 million for
calendar 2007.  Total redemptions during the year ended December 31,
2007, were approximately $3.0 million.  The remaining requests to
redeem, as of December 31, 2007, were estimated at approximately $2.5 million in
2008, $2.0 million in 2009, $1.4 million in 2010, $0.2 million in 2011, $0.1
million in 2012, $0.1 million in 2013, $0.1 million in 2014, $0.1 million in
2015, $0.1 million in 2016, $0.1 million in 2017 and $0.1 million in 2018
subject to unit valuation adjustments.





The
Year Ended December 31, 2006 Compared To the Year Ended December 31,
2005





Total
Revenues:  Revenues for the year ended December 31, 2006
decreased compared to the same period in 2005, by $220,000 or approximately 6%,
notwithstanding an increase in the total amount of outstanding loans and an
increase in the weighted average interest rate on our loans from 10.38% to
11.31%.  The decrease in revenues was primarily due to the following
factors:





·
            Rental
      income declined by $96,000 due to the sale of an office building which we
      owned during November 2006.  In the future, we will no longer
      earn rental income because, at a Special Meeting of our members held on
      March 5, 2007, amendments to our Operating Agreement were approved,
      limiting the Company’s investment objectives to investment in real estate
      loans.





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·
            Interest
      income from investments in real estate loans declined by
      $91,000.  Our revenue is dependent upon the balance of our
      investment in real estate loans and the interest earned on these
      loans.  As of December 31, 2006, our investment in real estate
      loans was approximately $27.0 million with a weighted average interest
      rate of 11.31%.  As of December 31, 2005, our investment in real
      estate loans was approximately $23.0 million with a weighted average
      interest rate of 10.38%.  However, during the first three
      quarters of 2006, our investment in real estate loans decreased by
      approximately $2.2 million, attributable in part to the reduction in
      capital, resulting from membership unit redemptions, we had available for
      investments.  Our capital was reduced by redemption of
      membership units of approximately $2.9 million during the year ended
      December 31, 2006.





·
            In
      addition, our interest income was affected by the performances of our
      loans.  During the year ended December 31, 2006, four loans
      totaling approximately $2.2 million became non-performing.  One
      of the non-performing loans, with a balance of approximately $0.6 million
      was foreclosed upon and reclassified to real estate held for
      sale.  No loans became non-performing during the year ended
      December 31, 2005.





Total Operating
Expenses:  For each of the years ended December 31, 2006 and
2005, total operating expenses were approximately $1.3
million.  Expenses were primarily affected by the following
factors:





·
            We
      paid management fees to our manager based on 3% of the total rental income
      and up to 2.5% of the gross offering proceeds for the
      period.  For the year ended December 31, 2005, we paid our
      manager $26,000 for management fees relating to rental activity and
      $129,000 for acquisition and advisory fees pertaining to the gross
      offering proceeds for a total of $155,000.  Since we are no
      longer selling our units, except as permitted in our distribution
      reinvestment plan, fees related to gross offering proceeds during the year
      ended December 31, 2006, were $20,000 of the total $45,000 management
      fees.





·
            Expenses
      related to professional fees decreased by $180,000.  This was
      partially due to a decrease in accounting fees of $162,000 related to the
      measures undertaken by our manager to contain costs, including an
      enhancement of its internal accounting
  capabilities.





These
decreases were offset by the increase in interest expenses, which included a
defeasance fee of $435,000 related to the note payoff on the building that was
sold in November 2006.





Non-operating
income:  For the year ended December 31, 2006, total income for
other non-operating income totaled $132,000, consisting of dividend income from
marketable securities-related party and bank interest income, compared to
$33,000 for the year ended December 31, 2005, which consisted of bank interest
income.





Total Income from Real Estate Held
for Sale:  During November 2006, we sold our only investment in
real property, which consisted of an approximately 42,000 square foot office
building located at 8379 West Sunset Road in Las Vegas, Nevada, for a gain of
approximately $2.6 million.  We used the building sales proceeds
primarily to invest approximately $8.5 million in real estate
loans.  There were no similar transactions during the year ended
December 31, 2005.





Distributions to
Members:  The following is a schedule of distributions made to
members for the years ended December 31, 2006 and 2005.





For
      the Year Ended December 31, 2006
            
            
            For
      the Year Ended December 31, 2005Distributions
      of Net Income Available for Distribution
            
            $
            2,544,000
            
            
            $
            2,544,000Distributions
      in Excess of Net Income Available for Distribution Generated During the
      Period
            
            
            --
            
            
            
            11,000Total
      Distributions
            
            $
            2,544,000
            
            
            $
            2,555,000








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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:





For
      the Year Ended December 31, 2006
            
            
            For
      the Year Ended December 31, 2005Distribution
      of net income available for distribution
            
            $
            2,544,000
            
            
            $
            2,544,000Additions
      to working capital reserves (amount not distributed)
            
            
            2,490,000
            
            
            
            --Gain
      on sale of building
            
            
            (2,624,000
            )
            
            
            --Change
      in operating assets and liabilities:Interest
      receivable
            
            
            (76,000
            )
            
            
            (67,000
            )Deferred
      rent receivable - related party
            
            
            (123,000
            )
            
            
            (168,000
            )Accounts
      payable
            
            
            (63,000
            )
            
            
            156,000Due
      from Vestin Originations
            
            
            (10,000
            )
            
            
            --Due
      to Manager
            
            
            26,000
            
            
            
            (130,000
            )Other
      assets
            
            
            (6,000
            )
            
            
            --Net
      cash provided by operating activities
            
            $
            2,158,000
            
            
            $
            2,335,000Net
      cash provided (used) by investing activities
            
            $
            6,943,000
            
            
            $
            (9,431,000
            )Net
      cash (used) provided by financing activities
            
            $
            (9,449,000
            )
            
            $
            1,977,000





Stated Unit Value
Adjustment:  Following a periodic review by our manager as
required pursuant to the Operating Agreement, as a result of the gain on sale of
our real estate held for investment, effective December 15, 2006 we adjusted the
stated unit value from $10.50 per unit to $11.00 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, we may redeem no more than 10% of the aggregate Members’ capital in any
calendar year.  As of December 31, 2006, the total of redemptions made
from inception was approximately $3.2 million.  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
2006.  Total redemptions during the year ended December 31, 2006 were
approximately $2.9 million.  The remaining requests to redeem, as of
December 31, 2006, were approximately $2.9 million in 2007, $2.5 million in
2008, $1.8 million in 2009 and $47,000 in 2010 subject to unit valuation
adjustments.  On March 8, 2007, we redeemed 137,766 units totaling
approximately $1.5 million.





The
Year Ended December 31, 2005 Compared To the Year Ended December 31,
2004





Total
Revenues:  Revenues for the year ended December 31, 2005
increased approximately $1.3 million or 53.22% from the prior period in 2004
primarily due to the following:





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·
            Interest
      income from real estate loans increased by approximately $1.1 million or
      84.48% primarily due to the increase in investment in real estate loans
      from approximately $13.6 million as of December 31, 2004 to approximately
      $23.0 million as of December 31, 2005, an increase of $9.4
      million.  This increase was offset by the decrease in the
      weighted average interest rate on real estate loans from 11.71% at
      December 31, 2004 to 10.38% at December 31, 2005.  Additionally,
      we incurred a decrease of $527,000 in interest income related to secured
      borrowings, which relates to the decrease in assets under secured
      borrowings of approximately $2.1 million from December 31, 2004 to
      December 31, 2005.





·
            Revenues
      derived from income-producing real property increased approximately $0.7
      million or 228.08%.  Investment in real property consists of a
      42,000 square foot office building located in Las Vegas, Nevada, which we
      acquired in August 2004.  As a result, our 2004 results
      reflected four and a half months of rental income, as compared to a full
      year of rental income in 2005.  The office building is fully
      leased by Vestin Group.





Total
Expenses:For the year ended December 31, 2005, total expenses
were approximately $1.3 million compared to approximately $1.0 million for the
same period in 2004, an increase of $0.3 million or 30.71%.  Expenses
were primarily affected by the following:





·
            Interest
      expenses related to investment in real property increased by $221,000, as
      we did not acquire the real property associated with the debt until August
      2004.





·
            Expenses
      related to professional fees incurred increased by $345,000 due to an
      increase in accounting and legal costs related to the preparation of our
      quarterly and annual public
filings.





·
            We
      pay management fees to our manager based on 3% of the total rental income
      and up to 2.5% of the gross offering proceeds for the
      period.  For the year ended December 31, 2005, we paid our
      manager $26,000 for management fees relating to rental activity and
      $129,000 for acquisition and advisory fees pertaining to the gross
      offering proceeds, for a total of
$155,000.





·
            Depreciation
      and amortization on our investment in real property increased $141,000, as
      we did not acquire the property until August
  2004.





The
increase in expenses was partially offset by the following
decreases:





·
            Interest
      expenses related to secured borrowings decreased by $494,000 due to the
      decrease in the amount of loans financed under secured borrowings
      throughout the year.





·
            There
      was no additional provision for loan losses for the year ending December
      31, 2005, as our general allowance for loan losses was generally
      sufficient to cover inherent losses in our loan
      portfolio.  During the year ending December 31, 2004, we
      recorded a general allowance of
$73,000.





Distributions to
Members:  The following is a schedule of distributions made to
members for the year ended December 31, 2005 and 2004.





For
      the Year Ended December 31, 2005
            
            
            For
      the Year Ended December 31, 2004Distributions
      of Net Income Available for Distribution
            
            $
            2,544,000
            
            
            $
            1,350,000Distributions
      in Excess of Net Income Available for Distribution Generated During the
      Period
            
            
            11,000
            
            
            
            --Total
      Distributions
            
            $
            2,555,000
            
            
            $
            1,350,000








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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:





For
      the Year Ended December 31, 2005
            
            
            For
      the Year Ended December 31, 2004Distribution
      of Net Income Available for Distribution
            
            $
            2,544,000
            
            
            $
            1,350,000Addition
      to working capital reserves (Amount not distributed)
            
            
            --
            
            
            
            173,000Change
      in Operating Assets and Liabilities:Deferred
      rent receivable
            
            
            (168,000
            )
            
            
            --Interest
      receivable
            
            
            (67,000
            )
            
            
            (127,000
            )Capitalized
      loan fees
            
            
            --
            
            
            
            (115,000
            )Accounts
      payable
            
            
            156,000
            
            
            
            --Due
      to Manager
            
            
            (130,000
            )
            
            
            162,000Net
      Cash Provided by Operating Activities
            
            $
            2,335,000
            
            
            $
            1,443,000Net
      Cash (Used) by Investing Activities
            
            $
            (9,431,000
            )
            
            
            (18,533,000
            )Net
      Cash Provided in Financing Activities
            
            $
            1,977,000
            
            
            $
            23,371,000





Stated Unit Value
Adjustment:  Following a periodic review by our manager as
required pursuant to the Operating Agreement, as a result of 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
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.  As of December 31, 2005, the total of redemptions made from
inception was $341,000.  Balances in members’ capital accounts as of
January 1, 2005 were approximately $24.8 million, which limited redemptions to
approximately $2.5 million for the calendar year 2005.  Total
redemptions during the year ended December 31, 2005, were $330,000.





CAPITAL
AND LIQUIDITY





Liquidity
is a measure of a company’s ability to meet potential cash requirements,
including ongoing commitments to fund lending activities and general operating
purposes.  Subject to a 3% reserve, we generally seek to use all of
our available funds to invest in real estate loans.  Distributable
cash flow generated from such loans 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 our manager will manage our affairs.





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During
the year ended December 31, 2007, cash flows provided by operating activities
approximated $2.4 million.  Investing activities consisted of cash
provided by loan payoffs and sales of real estate loans of approximately $11.8
million.  Cash used for new investments and purchases of real estate
loans totaled approximately $6.6 million.  In addition, we used
approximately $0.8 million for the purchase VRM II’s common shares, classified
as investment in marketable securities – related party.  Financing
activities consisted of cash used for members’ distributions, net of
reinvestments, of approximately $1.9 million and members’ redemptions of
approximately $3.0 million.





At
December 31, 2007, we had approximately $2.7 million in cash, $1.1 million in
marketable securities – related party and approximately $26.4 million in total
assets.  We intend to meet short-term working capital needs through a
combination of proceeds from loan payoffs, loan sales and/or
borrowings.  We believe we have sufficient working capital to meet our
operating needs in the near term.  In addition, as of December 31,
2007, we had $985,000 in restricted cash, which relates to a cash deposit held
as collateral by a banking institution to support rent payments on the property
we sold during November 2006.





We rely
primarily upon repayment of outstanding loans to provide capital for investment
in new loans.  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.  Non-performing assets
included loans in non-accrual status, net of allowance for loan losses, and real
estate held for sale not sold through seller financing totaling approximately
$5.0 million and $0.6 million, respectively, as of December 31, 2007, compared
to approximately $1.6 million and $0.6 million, respectively, as of December 31,
2006.  It is possible that no earnings will be recognized from these
assets until they are disposed of, or that no earnings will be recognized at
all, and the time it will take to dispose of these assets cannot be
predicted.  Our manager believes that these non-performing assets have
increased as a result of conditions in the real estate and credit
markets.  Because of the estimated value of the underlying properties,
we do not currently believe that any losses beyond those already recognized will
be incurred from these assets upon final disposition.  However, it is
possible that we will not be able to realize the full estimated carrying values
upon disposition.





We have
no current plans to sell any new units.  In addition, any significant
level of redemptions by our members would reduce the capital we have 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 and no more than $100,000 per members’
account in any calendar year subject to our manager’s discretion.  As
of December 31, 2007, the total redemptions made from inception were
approximately $6.3 million.  Balances in Members’ capital accounts as
of January 1, 2007 were approximately $30.4 million, including deferred income
of approximately $1.0 million, which limited redemptions to approximately $3.0
million for calendar 2007.  Total redemptions during the year ended
December 31, 2007, were approximately $3.0 million.  The remaining
requests to redeem, as of December 31, 2007, were estimated at approximately
$2.5 million in 2008, $2.0 million in 2009, $1.4 million in 2010, $0.2 million
in 2011, $0.1 million in 2012, $0.1 million in 2013, $0.1 million in 2014, $0.1
million in 2015, $0.1 million in 2016, $0.1 million in 2017 and $0.1 million in
2018 subject to unit valuation adjustments.





Loans in
which unaffiliated investors have participated through inter-creditor agreements
(“Inter-creditor Agreements”) are accounted for as secured borrowings in
accordance with Statement of Financial Accounting Standards (“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 an unaffiliated investor (the “Investor”)
may participate on a non-pari passu basis in certain real estate loans with us
and/or VRM I and/or VRM 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.








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During
October 2006, we, our manager, Vestin Originations, Inc., VRM I and VRM II
entered into an intercreditor agreement with an unrelated third party related to
the funding of a construction real estate loan.  (See exhibit 10.10
Intercreditor Agreement  under the Exhibit Index included in Part II –
Other Information, Item 6 Exhibits of this Report Form 10-Q).  The
secured borrowing was recognized pro rata between us, VRM I and VRM II for the
amount each entity has funded for the loan.  During May 2007, the
secured borrowings were paid in full.  As of December 31, 2007, we did
not have any funds used under Inter-creditor Agreements as compared to
approximately $4.4 million used under Inter-creditor Agreements as of December
31, 2006.





At
December 31, 2007, we had restricted cash totaling $985,000, which relates to a
cash deposit held as collateral by a banking institution to support rent
payments on the property we sold during November 2006.  The
requirement for the deposit expires in November 2008.





We
maintain working capital reserves of approximately 3% of aggregate members’
capital accounts in cash and cash equivalents, certificates of deposits and
short-term investments or liquid marketable securities.  This reserve
is available to pay expenses in excess of revenues, satisfy obligations of
underlying properties, expend money to satisfy our unforeseen obligations and
for other permitted uses of working capital.





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.





Investments
in Real Estate Loans Secured by Real Estate Portfolio





We offer
five real estate loan products consisting of commercial property, construction,
acquisition and development, land, and residential loans.  The
effective interest rates on all product categories range from 10.0% to
14.0%.  Revenue by product will fluctuate based upon relative balances
during the period.  We had investments in 26 real estate loans, as of
December 31, 2007, with a balance of approximately $21.9 million as compared to
investments in 27 real estate loans as of December 31, 2006, with a balance of
approximately $27.1 million.





At
December 31, 2007, the following loans were non-performing (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); Monterrey Associates LP, Forest
Development LLC, Pirates Lake, Ltd, Jeffrey's Court, LLC, V & M Homes at the
Palms, Inc. and Brawley CA 122, LLC.  These loans are currently
carried on our books at a value of approximately $5.0 million, net of allowance
for loan losses of approximately $0.8 million, which does not include the
allowances of approximately $0.2 million relating to the decrease in the
property value for performing loans as of December 31, 2007.  These
loans have been placed on non-accrual of interest status and are the subject of
pending foreclosure proceedings.  On August 7, 2007, we, VRM I and VRM
II entered into a settlement agreement with the borrower of the Pirates Lake,
Ltd. loan whereby the foreclosure was postponed.  Principal, accrued
interest and $75,000 for expenses incurred by us, VRM I and VRM II relating to
the loan were due on October 1, 2007.  On October 2, 2007, the
borrower was in default of the settlement and loan agreements. Subsequently the
borrower filed for protection under Chapter 11 of the Bankruptcy Code in the
United States Bankruptcy Court for the Southern District of Texas. On November
7, 2007, our legal counsel was successful in seeking the dismissal, with
prejudice, of the subject bankruptcy, together with the lifting of the automatic
stay from foreclosure.  On February 5, 2008, we, VRM I and VRM II
foreclosed upon Pirates Lake, Ltd. and classified it as real estate held for
sale.  On March 7, 2008, we, VRM I and VRM II foreclosed upon Forest
Development LLC and classified it as real estate held for sale.  Our
manager has evaluated these loans and concluded that the value of the underlying
collateral is sufficient to protect us from loss of principal.  No
specific allowance was deemed necessary.








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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.  During the year ended December 31,
2007, we have provided a specific reserve related to two non-performing loans
and two performing loans, based on updated appraisals and evaluation of the
borrower obtained by our manager during the year ended December 31,
2007.  Our manager evaluated these loans and concluded that the
remaining underlying collateral was sufficient to protect us against further
losses of principal or interest.  Our manager will continue to
evaluate these loans in order to determine if any other allowance for loan
losses should be recorded.  For additional information on our
investments in real estate loans, refer to Note D – Investments In Real Estate
Loans of the Notes to the Consolidated Financial Statements included in
Part II, Item 8 Financial
Statements and Supplementary Data of this Annual Report on Form
10-K.





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 periodic basis, our manager
evaluates our real estate loan portfolio for impairment.  The fact
that a loan is temporarily past due does not necessarily mean that the loan is
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 are credited to
the allowance for loan losses.  For additional information regarding
the roll-forward of the allowance for loan losses for the year ended December
31, 2007, refer to Note D – Investments In Real Estate
Loans of the Notes to the Consolidated Financial Statements included in
Part II, Item 8 Financial
Statements and Supplementary Data of this Annual Report on Form
10-K.





Investments
in Real Estate Held for Sale





At
December 31, 2007, we held one property with
a total carrying value of approximately $0.6 million, which was acquired through
foreclosure and recorded as investments in real estate held for
sale.  Our investments in real estate held for sale are
accounted for at the lower of cost or fair value less costs to sell with fair
value based on appraisals and knowledge of local market
conditions.  It is not our intent to invest in or own real estate as a
long-term investment.  We seek to sell properties acquired through
foreclosure as quickly as circumstances permit.  For additional
information on our investments in real estate held for sale, refer to Note F
–Real Estate Held for
Sale of the Notes to the Consolidated Financial Statements included in
Part II, Item 8 Financial
Statements and Supplementary Data of this Annual Report on Form
10-K.








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OFF-BALANCE
SHEET ARRANGEMENTS





We do not
have any interests in off-balance sheet special purpose entities nor do we have
any interests in non-exchange traded commodity contracts.





CONTRACTUAL
OBLIGATIONS





As of
December 31, 2007, we had no contractual obligations.





CRITICAL
ACCOUNTING ESTIMATES





Revenue
Recognition





Interest
income on loans is accrued by the effective interest method.  We do
not accrue interest income from loans once they are determined to be
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.





The
following table presents a sensitivity analysis, averaging the balance of our
loan portfolio at the end of the last six quarters, to show the impact on our
financial condition at December 31, 2007, from fluctuations in weighted average
interest rate charged on loans as a percentage of the loan
portfolio:





Changed Assumption
            
            Increase
      (Decrease) in Interest IncomeWeighted
      average interest rate assumption increased by 1.0% or 100 basis
      points
            
            $
            232,000Weighted
      average interest rate assumption increased by 5.0% or 500 basis
      points
            
            $
            1,158,000Weighted
      average interest rate assumption decreased by 1.0% or 100 basis
      points
            
            $
            (232,000
            )Weighted
      average interest rate assumption decreased by 5.0% or 500 basis
      points
            
            $
            (1,158,000
            )





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
consolidated financial statements.





Allowance for Loan
Losses





We
maintain an allowance for loan losses on our investments in real estate loans
for estimated credit impairment in our investment in real estate loans
portfolio.  Our manager’s estimate of losses is based on a number of
factors including the types and dollar amounts of loans in the portfolio,
adverse situations that may affect the borrower’s ability to repay, prevailing
economic conditions and the underlying collateral securing the
loan.  Additions to the allowance are provided through a charge to
earnings and are based on an assessment of certain factors, which may indicate
estimated losses on the loans.  Actual losses on loans are recorded as
a charge-off or a reduction to the allowance for loan
losses.  Subsequent recoveries of amounts previously charged off are
added back to the allowance or included as income.





The
following table presents a sensitivity analysis to show the impact on our
financial condition at December 31, 2007, 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 LossesAllowance
      for loan losses assumption increased by 1.0% of loan
    portfolio
            
            $
            219,000Allowance
      for loan losses assumption increased by 5.0% of loan
    portfolio
            
            $
            1,093,000Allowance
      for loan losses assumption decreased by 1.0% of loan
    portfolio
            
            $
            (219,000
            )Allowance
      for loan losses assumption decreased by 4.7% of loan
    portfolio
            
            $
            (1,026,000
            )








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Estimating
allowances for loan losses requires significant judgment about the underlying
collateral, including liquidation value, condition of the collateral, competency
and cooperation of the related borrower and specific legal issues that affect
loan collections or taking possession of the property.  As a
commercial real estate lender willing to invest in loans to borrowers who may
not meet the credit standards of other financial institutional lenders, the
default rate on our loans could be higher than those generally experienced in
the mortgage lending industry.  We, our manager and Vestin
Originations generally approves 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.





We may
discover additional facts and circumstances as we continue our efforts in the
collection and foreclosure processes.  This additional information
often causes management to reassess its estimates.  In recent years,
we have revised estimates of our allowance for loan
losses.  Circumstances that may cause significant changes in our
estimated allowance include, but not limited to:





·
            Declines
      in real estate market conditions that can cause a decrease in expected
      market value;





·
            Discovery
      of undisclosed liens for community improvement bonds, easements and
      delinquent property taxes;





·
            Lack
      of progress on real estate developments after we advance
      funds.  We customarily utilize disbursement agents to monitor
      the progress of real estate developments and approve loan
      advances.  After further inspection of the related property,
      progress on construction occasionally does not substantiate an increase in
      value to support the related loan
advances;





·
            Unanticipated
      legal or business issues that may arise subsequent to loan origination or
      upon the sale of foreclosed upon property;
and





·
            Appraisals,
      which are only opinions of value at the time of the appraisal, may not
      accurately reflect the value of the
property.





Real Estate Held For
Sale





Real
estate held for sale includes real estate acquired through foreclosure and will
be carried at the lower of the recorded amount, inclusive of any senior
indebtedness, or the property's estimated fair value, less estimated costs to
sell, with fair value based on appraisals and knowledge of local market
conditions.  While pursuing foreclosure actions, we seek to identify
potential purchasers of such property.  It is not our intent to invest
in or own real estate as a long-term investment.  In accordance with
FAS 144 - Accounting for the
Impairment or Disposal of Long Lived Assets,we seek to sell properties
acquired through foreclosure as quickly as circumstances permit.  The
carrying values of real estate held for sale are assessed on a regular basis
from updated appraisals, comparable sales values or purchase
offers.





Management
classifies real estate held for sale when the following criteria are
met:





·
            Management
      commits to a plan to sell the
properties;





·
            The
      property is available for immediate sale in its present condition subject
      only to terms that are usual and
customary;





·
            An
      active program to locate a buyer and other actions required to complete a
      sale have been initiated;





·
            The
      sale of the property is probable;





·
            The
      property is being actively marketed for sale at a reasonable price;
      and





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·
            Withdrawal
      or significant modification of the sale is not
  likely.





ITEM
      7A.
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURESABOUT 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 consisted of investments in real estate loans, which from time to
time include those that are financed under Inter-creditor
Agreements.  At December 31, 2007, our aggregate investment in real
estate loans was approximately $20.8 million, net of allowance, with a weighted
average effective interest rate of 11.89%.  Most of the real estate
loans had an initial term of 12 months.  The weighted average term of
outstanding loans, including extensions, at December 31, 2007, was 17
months.  All but two of the outstanding real estate loans at December
31, 2007, were fixed rate loans.  One of the two variable interest
rate loans was non-performing as of December 31, 2007, see Note D – Investments in Real Estate
Loans in Part II, Item 8 Financial Statements and
Supplementary Data of this Annual Report on Form 10-K.  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 had prepayment penalties and
15 loans, totaling approximately $10.2 million, had an exit fee.





Market
fluctuations in interest rates generally do not affect the carrying value of our
investment in real estate loans.  However, significant and sustained
changes in interest rates could affect our operating results.  If
interest rates decline significantly, some of the borrowers could prepay their
loans with the proceeds of a refinancing at lower interest
rates.  This would reduce our earnings and funds available for
dividend distribution to stockholders.  On the other hand, a
significant increase in interest rates could result in a slowdown in real estate
development activity that would reduce the demand for commercial real estate
loans.  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 of real estate loans
in our portfolio as of December 31, 2007.  The presentation aggregates
the investment in real estate loans by their maturity dates for maturities
occurring in each of the years 2008 through 2012 and thereafter and separately
aggregates the information for all maturities arising after 2012.  The
carrying values of these assets approximate their fair value as of December 31,
2007.





Interest
      Earning Assets
              Aggregated
      by Maturity at December 31, 2007Interest
      Earning Assets
            
            2008
            
            
            2009
            
            
            2010
            
            
            2011
            
            
            2012
            
            
            Thereafter
            
            
            TotalInvestments
      In Real Estate Loans
            
            $
            21,851,000
            
            
            $
            --
            
            
            $
            --
            
            
            $
            --
            
            
            $
            --
            
            
            $
            --
            
            
            $
            21,851,000Weighted
      Average Interest Rates
            
            
            11.89%
            
            
            
            --%
            
            
            
            --%
            
            
            
            --%
            
            
            
            --%
            
            
            
            --%
            
            
            
            11.89%





At
December 31, 2007, we also had approximately $3.8 million invested in cash and
marketable securities – related party (VRM II).  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.








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ITEM
      8.
            FINANCIAL
      STATEMENTS AND SUPPLEMENTARYDATA





INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION





PageREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
      FIRM
            40CONSOLIDATED
      FINANCIAL STATEMENTSConsolidated Balance Sheets
            41Consolidated Statements of Income
            42Consolidated Statements of Members’ Equity and Other
      Comprehensive Income
            43Consolidated Statements of Cash Flows
            44Notes to the Consolidated Financial
      Statements
            46SUPPLEMENTARY
      INFORMATIONInvestments
      in Real Estate Loans:Real Estate Loan Roll Forward
            68Real Estate Loans by Type of
Property
            69Real Estate Loans by Lien Position
            69Real Estate Loans that Exceed Three Percent of the
      Portfolio
            70








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REPORT OF INDEPENDENT REGISTEREDPUBLIC ACCOUNTING FIRM







To the
Members of Vestin Fund III, LLC:
 
 We have
audited the accompanying balance sheets of Vestin Fund III, LLC (“the Company”)
as of December 31, 2007 and 2006 and related statements of income, members’
equity and other comprehensive income for each of the three years in the period
ended December 31, 2007.  Our audits also included the financial
statement schedules listed in the Index at Item 15.  These financial
statements and schedules are the responsibility of the Company’s
management.  Our responsibility is to express an opinion on these
financial statements and schedules based on our audits.
 
 We
conducted our audits in accordance with the standards of the Public Accounting
Oversight Board (United States).  Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting.  Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting.  Accordingly, we express no such
opinion.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.  We believe
that our audits provide a reasonable basis for our opinion.
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Vestin Fund III, LLC as of December
31, 2007 and 2006 and the results of its operations and cash flows for each of
the three years in the period ended December 31, 2007 in conformity with
accounting principles generally accepted in the United States of
America.  Also, in our opinion, the related financial statement
schedules, when considered in relation to the basic financial statements taken
as a whole, present fairly in all material respects the information set forth
therein.
 
 
 
 
 /s/ Moore
Stephens Wurth Frazer and Torbet, LLP
 
 Orange,
California
 March 24,
2008





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FINANCIAL
STATEMENTS





VESTIN
      FUNDIII, LLCBALANCE
      SHEETSASSETSDecember
      31, 2007
            
            
            December
      31, 2006AssetsCash
      and cash equivalents
            
            $
            2,720,000
            
            
            $
            821,000Cash
      - restricted
            
            
            985,000
            
            
            
            985,000Marketable
      securities - related party
            
            
            1,113,000
            
            
            
            829,000Interest
      and other receivables
            
            
            198,000
            
            
            
            270,000Real
      estate held for sale
            
            
            546,000
            
            
            
            575,000Investment
      in real estate loans, net of allowance for loan losses of $1,026,000 at
      December 31, 2007 and $73,000 at December 31, 2006
            
            
            20,825,000
            
            
            
            26,999,000Assets
      under secured borrowings
            
            
            --
            
            
            
            4,430,000Due
      from related parties
            
            
            --
            
            
            
            10,000Other
      assets
            
            
            3,000
            
            
            
            6,000Total
      assets
            
            $
            26,390,000
            
            
            $
            34,925,000LIABILITIES
      AND MEMBERS' EQUITYLiabilitiesAccounts
      payable and accrued liabilities
            
            $
            125,000
            
            
            $
            93,000Due
      to related parties
            
            
            1,000
            
            
            
            --Secured
      borrowings
            
            
            --
            
            
            
            4,430,000Deferred
      income
            
            
            985,000
            
            
            
            985,000Total
      liabilities
            
            
            1,111,000
            
            
            
            5,508,000Commitments
      and contingenciesMembers'
      equityMembership
      units, 10,000,000 units authorized; 2,525,561 units and 2,775,376 units
      issued and outstanding at December 31, 2007 and  December 31,
      2006, respectively
            
            
            25,818,000
            
            
            
            29,434,000Accumulated
      other comprehensive loss
            
            
            (539,000
            )
            
            
            (17,000
            )Total
      members' equity
            
            
            25,279,000
            
            
            
            29,417,000Total
      liabilities and members' equity
            
            $
            26,390,000
            
            
            $
            34,925,000











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VESTIN
      FUNDIII, LLCSTATEMENTS
      OF INCOMEFor
      the Years EndedDecember
      31, 2007
            
            
            December
      31, 2006
            
            
            December
      31, 2005RevenuesInterest
      income from investment in real estate loans
            
            $
            2,477,000
            
            
            $
            2,410,000
            
            
            $
            2,501,000Rental
      income - related party
            
            
            --
            
            
            
            944,000
            
            
            
            1,040,000Other
            
            
            25,000
            
            
            
            9,000
            
            
            
            42,000Total
      revenues
            
            
            2,502,000
            
            
            
            3,363,000
            
            
            
            3,583,000Operating
      expensesManagement
      fees - related party
            
            
            7,000
            
            
            
            45,000
            
            
            
            155,000Interest
      expense
            
            
            119,000
            
            
            
            777,000
            
            
            
            437,000Provision
      for loan loss
            
            
            953,000
            
            
            
            --
            
            
            
            --Depreciation
      and amortization
            
            
            --
            
            
            
            204,000
            
            
            
            222,000Professional
      fees
            
            
            190,000
            
            
            
            207,000
            
            
            
            397,000Professional
      fees - related party
            
            
            10,000
            
            
            
            20,000
            
            
            
            10,000Other
            
            
            44,000
            
            
            
            24,000
            
            
            
            73,000Total
      operating expenses
            
            
            1,323,000
            
            
            
            1,277,000
            
            
            
            1,294,000Income
      from operations
            
            
            1,179,000
            
            
            
            2,086,000
            
            
            
            2,289,000Non-operating
      incomeInterest
      income from banking institutions
            
            
            95,000
            
            
            
            85,000
            
            
            
            33,000Dividend
      income - related party
            
            
            144,000
            
            
            
            47,000
            
            
            
            --Total
      non-operating expenses
            
            
            239,000
            
            
            
            132,000
            
            
            
            33,000Income
      (loss) from real estate held for saleGain
      on sale of building
            
            
            --
            
            
            
            2,624,000
            
            
            
            --Write
      down of real estate held for sale
            
            
            (29,000
            )Expenses
      related to real estate held for sale
            
            
            (64,000
            )
            
            
            (12,000
            )
            
            
            --Total
      income (loss) from real estate held for sale
            
            
            (93,000
            )
            
            
            2,612,000
            
            
            
            --NET
      INCOME
            
            $
            1,325,000
            
            
            $
            4,830,000
            
            
            $
            2,322,000Net
      income allocated to members
            
            $
            1,325,000
            
            
            $
            4,830,000
            
            
            $
            2,322,000Net
      income allocated to members per weighted average membership
      unit
            
            $
            0.51
            
            
            $
            1.67
            
            
            $
            0.82Weighted
      average membership unit
            
            
            2,579,314
            
            
            
            2,896,025
            
            
            
            2,816,468








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VESTIN
      FUNDIII, LLCSTATEMENTS
      OF MEMBERS' EQUITY AND OTHER COMPREHENSIVE INCOMEFOR
      THE YEAR ENDED DECEMBER 31, 2007Units
            
            
            AmountMembers'
      equity at December 31, 2004
            
            
            2,471,658
            
            
            $
            24,762,000Issuance
      of units, including 54,863 units issued in lieu of payment of deferred
      offering costs
            
            
            440,677
            
            
            
            3,976,000Net
      income
            
            
            
            
            
            
            2,322,000Distributions
            
            
            
            
            
            
            (2,555,000
            )Reinvestments
      of distributions
            
            
            96,451
            
            
            
            984,000Members'
      redemptions
            
            
            (34,367
            )
            
            
            (330,000
            )Members'
      equity at December 31, 2005
            
            
            2,974,419
            
            
            $
            29,159,000Comprehensive
      income:Net
      income
            
            
            
            
            
            
            4,830,000Unrealized
      loss on marketable securities
            
            
            
            
            
            
            (17,000
            )Total
      comprehensive income
            
            
            
            
            
            
            4,813,000Distributions
            
            
            
            
            
            
            (2,544,000
            )Reinvestments
      of distributions
            
            
            77,730
            
            
            
            816,000Members'
      redemptions
            
            
            (276,773
            )
            
            
            (2,891,000
            )Capital
      contribution by manager for forgiveness of debt
            
            
            
            
            
            
            64,000Members'
      equity at December 31, 2006
            
            
            2,775,376
            
            
            $
            29,417,000Comprehensive
      income:Net
      income
            
            
            
            
            
            
            1,325,000Unrealized
      loss on marketable securities
            
            
            
            
            
            
            (523,000
            )Total
      comprehensive income
            
            
            
            
            
            
            802,000Distributions
            
            
            
            
            
            
            (2,193,000
            )Reinvestments
      of distributions
            
            
            25,602
            
            
            
            282,000Members'
      redemptions
            
            
            (275,417
            )
            
            
            (3,029,000
            )Members'
      equity at December 31, 2007
            
            
            2,525,561
            
            
            $
            25,279,000





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VESTIN
      FUNDIII, LLCSTATEMENTS
      OF CASH FLOWSFor
      the Years EndedDecember
      31, 2007
            
            
            December
      31, 2006
            
            
            December
      31, 2005Cash
      flows from operating activities:Net
      income
            
            $
            1,325,000
            
            
            $
            4,830,000
            
            
            $
            2,322,000Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
            
            
            --
            
            
            
            193,000
            
            
            
            210,000Amortization
      of capitalized loan fees
            
            
            --
            
            
            
            11,000
            
            
            
            12,000Provision
      for loan loss
            
            
            953,000
            
            
            
            --
            
            
            
            --Impairment
      of real estate held for sale
            
            
            29,000Gain
      on sale of building
            
            
            --
            
            
            
            (2,624,000
            )
            
            
            --Change
      in operating assets and liabilities:Interest
      receivable
            
            
            72,000
            
            
            
            (76,000
            )
            
            
            (67,000
            )Deferred
      rent receivable - related party
            
            
            --
            
            
            
            (123,000
            )
            
            
            (168,000
            )Accounts
      payable and accrued liabilities
            
            
            32,000
            
            
            
            (63,000
            )
            
            
            156,000Due
      to related parties
            
            
            11,000
            
            
            
            16,000
            
            
            
            (130,000
            )Other
      assets
            
            
            3,000
            
            
            
            (6,000
            )
            
            
            --Net
      cash from operating activities
            
            
            2,425,000
            
            
            
            2,158,000
            
            
            
            2,335,000Cash
      flows from investing activities:Investments
      in real estate loans
            
            
            (5,456,000
            )
            
            
            (22,695,000
            )
            
            
            (16,976,000
            )Purchase
      of investments in real estate loans from:VRM
      II
            
            
            (1,154,000
            )
            
            
            (6,000,000
            )
            
            
            --Our
      manager
            
            
            --
            
            
            
            (700,000
            )
            
            
            --Proceeds
      from loan payoff
            
            
            9,131,000
            
            
            
            19,183,000
            
            
            
            7,032,000Sale
      of investments in real estate loans to:VRM
      II
            
            
            1,300,000
            
            
            
            4,900,000
            
            
            
            500,000Our
      manager
            
            
            --
            
            
            
            700,000
            
            
            
            --Third
      parties
            
            
            1,400,000
            
            
            
            --
            
            
            
            --Purchase
      of marketable securities - related party
            
            
            (807,000
            )
            
            
            (846,000
            )
            
            
            --Proceeds
      from investment in real estate held for sale
            
            
            --
            
            
            
            2,000
            
            
            
            --Proceeds
      from title settlement on investment in real property
            
            
            --
            
            
            
            --
            
            
            
            13,000Sale
      of investment in real property
            
            
            --
            
            
            
            13,386,000
            
            
            
            --Cash
      - restricted
            
            
            --
            
            
            
            (985,000
            )
            
            
            --Net
      cash from investing activities
            
            
            4,414,000
            
            
            
            6,945,000
            
            
            
            (9,431,000
            )Cash
      flows from financing activities:Proceeds
      from issuance of member units
            
            
            --
            
            
            
            --
            
            
            
            3,976,000Payments
      on notes payable
            
            
            --
            
            
            
            (4,830,000
            )
            
            
            (98,000
            )Members'
      redemptions
            
            
            (3,029,000
            )
            
            
            (2,891,000
            )
            
            
            (330,000
            )Members'
      distributions, net of reinvestments
            
            
            (1,751,000
            )
            
            
            (1,634,000
            )
            
            
            (1,473,000
            )Members'
      distributions - related party
            
            
            (160,000
            )
            
            
            (94,000
            )
            
            
            (98,000
            )Net
      cash from financing activities
            
            
            (4,940,000
            )
            
            
            (9,449,000
            )
            
            
            1,977,000NET
      CHANGE IN CASH
            
            
            1,899,000
            
            
            
            (346,000
            )
            
            
            (5,119,000
            )Cash,
      beginning of period
            
            
            821,000
            
            
            
            1,167,000
            
            
            
            6,286,000Cash,
      end of period
            
            $
            2,720,000
            
            
            $
            821,000
            
            
            $
            1,167,000





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VESTIN
      FUND III, LLCSTATEMENTS
      OF CASH FLOWSFor
      the Years EndedDecember
      31, 2007
            
            
            December
      31, 2006
            
            
            December
      31, 2005Supplemental
      disclosures of cash flows information:Interest
      paid during the period
            
            $
            119,000
            
            
            $
            777,000
            
            
            $
            437,000Non-cash
      investing and financing activities:Unrealized
      gain (loss) on marketable securities - related party
            
            $
            (523,000
            )
            
            $
            17,000
            
            
            $
            --Loans
      funded through secured borrowings
            
            $
            --
            
            
            $
            5,841,000
            
            
            $
            340,000Payoffs
      of loans funded through secured borrowings
            
            $
            4,430,000
            
            
            $
            1,938,000
            
            
            $
            2,403,000Loan
      rewritten with same or similar collateral
            
            $
            3,219,000
            
            
            $
            --
            
            
            $
            --Capital
      contribution by Manager through forgiveness of liability
            
            $
            --
            
            
            $
            64,000
            
            
            $
            --Reimbursements
      of offering costs paid by Vestin Mortgage converted to 54,863 membership
      units
            
            $
            --
            
            
            $
            --
            
            
            $
            565,000Offering
      costs paid by our manager, recorded as deferred offering costs and due to
      manager
            
            $
            --
            
            
            $
            --
            
            
            $
            455,000Real
      estate held for sale acquired through foreclosure
            
            $
            --
            
            
            $
            577,000
            
            
            $
            --Recapture
      of accumulated depreciation due to sale of building
            
            $
            --
            
            
            $
            480,000
            
            
            $
            --Recapture
      of capitalized loan fees due to sale of building
            
            $
            --
            
            
            $
            115,000
            
            
            $
            --Recapture
      of Amortized closing costs due to sale of building
            
            $
            --
            
            
            $
            27,000
            
            
            $
            --Recapture
      of Deferred Rent Receivable due to sale of building
            
            $
            --
            
            
            $
            291,000
            
            
            $
            --Deferred
      income related to sale of building
            
            $
            --
            
            
            $
            985,000
            
            
            $
            --




















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VESTIN
FUNDIII, LLC





NOTES
TO FINANCIAL STATEMENTS





DECEMBER
31, 2007








NOTE
A — ORGANIZATION





Vestin
Fund III, LLC was organized in April 2003 as a Nevada limited liability company
for the purpose of investing in commercial real estate loans (hereafter referred
to as “real estate loans”) and income-producing real property.  On
March 5, 2007, a majority of our members approved the Third Amended and Restated
Operating Agreement, which limits the Company’s investment objectives to
investments in real estate loans.  Prior to adopting this amendment,
we also invested in revenue-generating commercial real estate.  We
sold our real estate investment in November 2006.  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 collectively as “deeds of trust” and as defined in our Operating
Agreement as “Mortgage Assets”).  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 we are
subject to the North American Securities Administration Association Mortgage
Program Guidelines (the “NASAA Guidelines”) promulgated by the state securities
administrators.  Prior to March 5, 2007, we also invested in real
estate and were subject to the North American Securities Administration
Association Real Estate Guidelines.





On
November 7, 2003, our Registration Statement as filed with the United States
Securities and Exchange Commission (“SEC”) became effective for the initial
public offering of up to 10,000,000 units at $10 per unit
(“unit”).  On November 7, 2005, we discontinued the offering of our
units; however, members continued to purchase additional units through our
Distribution Reinvestment Plan whereby the members’ distributions were used to
purchase additional units at the current value.  As of December 31,
2007, we had sold approximately 3,113,166 units, which includes 247,245 units
purchased through our Distribution Reinvestment Plan.  On April 2,
2007, our manager decided to terminate our Distribution Reinvestment Plan
effective May 7, 2007, pursuant to Section 8.5 of our Operating
Agreement.  A letter was sent on April 2, 2007 to our members
notifying them of the Distribution Reinvestment Plan’s termination.





Our
manager is Vestin Mortgage, Inc. (the “manager” or “Vestin Mortgage”), a Nevada
corporation, which is a wholly owned subsidiary of Vestin Group, Inc. (“Vestin
Group”), a Delaware corporation.  Michael Shustek, the CEO and
director of our manager, wholly owns Vestin Group, Inc., which is engaged in
asset management, real estate lending and other financial services through its
subsidiaries.  Our manager, prior to June 30, 2006, also operated as a
licensed Nevada mortgage broker and was generally engaged in the business of
brokerage, placement and servicing of commercial loans secured by real
property.  On July 1, 2006, the mortgage broker license was issued to
an affiliated company, Vestin Originations, Inc. that has continued the business
of brokerage, placement and servicing of real estate loans.  Vestin
Originations, Inc. is a wholly owned subsidiary of Vestin Group.  On
September 1, 2007, the servicing of real estate loans was assumed by our
manager.





Pursuant
to our Operating Agreement, our manager implements our business strategies on a
day-to-day basis, manages and provides services to us.  Without
limiting the foregoing, our manager performs other services as may be required
from time to time for management and other activities relating to our assets, as
our manager shall deem appropriate.  Consequently, our operating
results are dependent upon our manager’s ability and performance in managing our
operations and servicing our assets.  The Operating Agreement also
provides that the members have certain rights, including the right to terminate
our manager subject to a majority vote of the members.





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Vestin
Mortgage, Inc. is also the manager of Vestin Realty Mortgage I, Inc. (“VRM I”),
as the successor by merger to Vestin Fund I, LLC, (“Fund I”), Vestin Realty
Mortgage II, Inc. (“VRM II”), as the successor by merger to Vestin Fund II, LLC,
(“Fund II) and inVestin Nevada, Inc., (“inVestin”) a company wholly owned by our
manager’s CEO.  These entities also invest in real estate
loans.





For the
year ended December 31, 2006, the financial statements include the accounts of
the Company and its wholly owned subsidiary, VF III HQ, LLC.  All
significant inter-company transactions and balances have been eliminated in
consolidation.  During December 2006, VF III HQ, LLC was
dissolved.





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.





Restricted
Cash





We have
restricted cash, which relates to a cash deposit held as collateral by a banking
institution for an irrevocable stand by letter of credit to support rent
payments on the property we sold during November 2006.  The
requirement for the deposit expired in November 2007, which was then extended
for an additional year.





Revenue
Recognition





Interest
is recognized as revenue when earned according to the terms of the loans, using
the effective interest method.  We do not accrue interest income on
loans once they are determined to be 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.





Investments in Real Estate
Loans





We may
from time to time acquire or sell investments in real estate loans from or to
our manager or other related parties pursuant to the terms of our Operating
Agreement without a premium.  The primary purpose 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 our
capital.  Selling or buying loans allows us to diversify our loan
portfolio within these parameters.  Due to the short-term nature of
the loans we make and the similarity of interest rates in loans we 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.








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Investments
in real estate loans are secured by deeds of trust or
mortgages.  Generally, our real estate loans require interest only
payments with a balloon payment of the principal at maturity.  We have
both the intent and ability to hold real estate loans until maturity and
therefore, real estate loans are classified and accounted for as held for
investment and are carried at amortized cost.  Loans sold to or
purchased from affiliates are accounted for at the principal balance and no gain
or loss is recognized by us or any affiliate.  Loan-to-value ratios
are 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
funded.  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.  Our manager’s estimate of losses is
based on a number of factors including the types and dollar amounts of loans in
the portfolio, adverse situations that may affect the borrower’s ability to
repay, prevailing economic conditions and the underlying collateral securing the
loan.  Additions to the allowance are provided through a charge to
earnings and are based on an assessment of certain factors, which may indicate
estimated losses on the loans.  Actual losses on loans are recorded as
a charge-off or a reduction to the allowance for loan
losses.  Generally, subsequent recoveries of amounts previously
charged off are added back to the allowance and included as income.





Estimating
allowances for loan losses requires significant judgment about the underlying
collateral, including liquidation value, condition of the collateral, competency
and cooperation of the related borrower and specific legal issues that affect
loan collections or taking possession of the property.  As a
commercial real estate lender willing to invest in loans to borrowers who may
not meet the credit standards of other financial institutional lenders, the
default rate on our loans could be higher than those generally experienced in
the real estate lending industry.  We, our manager and Vestin
Originations 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 are discovered as we continue our efforts in the
collection and foreclosure processes.  This additional information
often causes management to reassess its estimates.  During the year
ended December 31, 2007, we have revised estimates of our allowance for loan
losses.  Circumstances that may cause significant changes in our
estimated allowance include, but are not limited to:





·
            Declines
      in real estate market conditions, 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 upon property;
and





·
            Appraisals,
      which are only opinions of value at the time of the appraisal, may not
      accurately reflect the value of the
property.





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Investments in Real
Property





As of
December 31, 2007 and 2006, we had no investments in real property.  A
Special Meeting of our members was held on March 5, 2007 to vote on approval of
the Third Amended and Restated Operating Agreement, which limits the Company’s
investment objectives to investment in real estate loans.  A majority
of our members approved the Third Amended and Restated Operating
Agreement.





Real Estate Held For
Sale





Real
estate held for sale includes real estate acquired through foreclosure and will
be carried at the lower of the recorded amount, inclusive of any senior
indebtedness, or the property's estimated fair value, less estimated costs to
sell, with fair value based on appraisals and knowledge of local market
conditions.  While pursuing foreclosure actions, we seek to identify
potential purchasers of such property.  It is not our intent to invest
in or own real estate as a long-term investment.  In accordance with
Statement of Financial Accounting Standards (“FAS”) 144 – Accounting for the Impairment or
Disposal of Long Lived Assets(“FAS 144”), we seek to sell properties
acquired through foreclosure as quickly as circumstances permit.  The
carrying values of real estate held for sale are assessed on a regular basis
from updated appraisals, comparable sales values or purchase
offers.





Management
classifies real estate held for sale when the following criteria are
met:





·
            Management
      commits to a plan to sell the
properties;





·
            The
      property is available for immediate sale in its present condition subject
      only to terms that are usual and
customary;





·
            An
      active program to locate a buyer and other actions required to complete a
      sale have been initiated;





·
            The
      sale of the property is probable;





·
            The
      property is being actively marketed for sale at a reasonable price;
      and





·
            Withdrawal
      or significant modification of the sale is not
  likely.





Classification of Operating
Results from Real Estate Held for Sale





FAS 144 –
Accounting for the Impairment
or Disposal of Long-Lived Assets ("FAS 144'') generally requires
operating results from long lived assets held for sale to be classified as
discontinued operations as a separately stated component of net
income.  Our operations related to real estate held for sale are
separately identified in the accompanying statements of income.





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 fees for entering into secured borrowing
arrangements; however, we may receive revenue for any differential of the
interest spread, if applicable.  Loans in which unaffiliated investors
have participated through inter-creditor agreements (“Inter-creditor
Agreements”) are accounted for as secured borrowings in accordance with
Statement of Financial Accounting Standards (“FAS”) 140 – Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities(“FAS
140”).








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The
Inter-creditor Agreements provide us additional funding sources for real estate
loans whereby an unaffiliated investor (the “Investor”) may participate on a
non-pari passu basis in certain real estate loans with us and/or VRM I and/or
VRM 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.





Investment in Marketable
Securities – Related Party





Investment
in marketable securities – related party consists of stock in VRM
II.  The securities are stated at fair value as determined by the
market price as of December 31, 2007.  All securities are classified
as available-for-sale under the provisions of FAS 115 – Accounting for Certain Investments
in Debt and Equity Securities.





Fair Value of Financial
Instruments





FAS 107 –
Disclosures about Fair Value
of Financial Instruments(“FAS 107”), 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 amounts of
      these instruments are at amortized cost, which approximates fair
      value.





(b)
            Investment
      in Real Estate Loans:  The carrying value of these instruments,
      net of the allowance for loan losses, approximates the fair value due to
      their short-term maturities.  Fair values for loans, which are
      delinquent and/or in foreclosure are determined by underlying collateral
      securing the loans.





(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
December 31, 2007 and 2006, the estimated fair values of the real estate loans
were approximately $20.4 million and $27.0 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;
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.





Segments





As of
December 31, 2007 and 2006, we had no investments in real property.  A
Special Meeting of our members was held on March 5, 2007 to vote on approval of
the Third Amended and Restated Operating Agreement, which limits the Company’s
investment objectives to investment in real estate
loans.  Accordingly, we now operate as one business
segment.





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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 periods’ consolidated financial
statements to conform to the current period 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
related to cash deposits.  As of December 31, 2007 and 2006, we had
approximately $3.6 million and $1.9 million, respectively, in excess of the
federally insured limits.





As of
December 31, 2007, 46%, 18%, 15% and 10% of our loans were in Nevada, Arizona,
Oregon and California, respectively, compared to 43%, 16%, 11% and 12% at
December 31, 2006, respectively.  As a result of this geographical
concentration of our real estate loans, a downturn in the local real estate
markets in these states could have a material adverse effect on us.





At
December 31, 2007, the loan to our largest borrower represented 7% of our total
investment in real estate loans.  This commercial property real estate
loan is located in Oregon, with a first lien position earning 12% and has an
outstanding balance of approximately $1.5 million.  At December 31,
2006, the loan to our largest borrower represented approximately 7% of our total
investment in real estate loans.  This construction real estate loan
is located in Nevada, with a first lien position earning 10.0% and has an
outstanding balance of approximately $1.8 million.  We have a
significant concentration of credit risk with our largest borrower, any defaults
by such borrower could have a material adverse effect on us.





The
success of a borrower’s ability to repay its real estate loan obligation in a
large lump-sum payment may be dependent upon the borrower’s ability to refinance
the obligation or otherwise raise a substantial amount of cash.  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





As of
December 31, 2007, all of our loans provided for payments of interest only with
a “balloon” payment of principal payable in full at the end of the
term.





In
addition, we may invest in real estate loans that require borrowers to maintain
interest reserves funded from the principal amount of the loan for a period of
time.  At December 31, 2007, we had approximately $6.2 million in
investments in real estate loans that had interest reserves where the total
outstanding principal due to our co-lenders and us was approximately $78.6
million.  These loans had interest reserves of approximately $3.7
million, of which our portion was approximately $0.3 million.  At
December 31, 2006, we had approximately $12.3 million in investments in real
estate loans that had interest reserves where the total outstanding principal
due to our co-lenders and us was approximately $120.3 million.  These
loans had interest reserves of approximately $5.6 million, of which our portion
was approximately $0.6 million.





As of
December 31, 2007, we had five real estate loan products consisting of
commercial, construction, acquisition and development, land and
residential.  The effective interest rates on all product categories
range from 10.0% to 14.0%.  Revenue by product will fluctuate based
upon relative balances during the period.





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Investments
in real estate loans as of December 31, 2007, were as follows:





Loan
      Type
            
            Number
      Of Loans
            
            
            Balance
      (2)
            
            
            Weighted
      Average Interest Rate
            
            
            Portfolio
      Percentage
            
            
            Weighted
      Average Loan-To-Value (1)Acquisition
      and development
            
            
            3
            
            
            $
            3,138,000
            
            
            
            12.77%
            
            
            
            14.36%
            
            
            
            76.95%Commercial
            
            
            10
            
            
            
            9,108,000
            
            
            
            11.17%
            
            
            
            41.68%
            
            
            
            94.21%Construction
            
            
            6
            
            
            
            2,501,000
            
            
            
            11.17%
            
            
            
            11.45%
            
            
            
            73.31%Land
            
            
            7
            
            
            
            7,104,000
            
            
            
            12.67%
            
            
            
            32.51%
            
            
            
            67.68%26
            
            
            $
            21,851,000
            
            
            
            11.89%
            
            
            
            100.00%
            
            
            
            76.94%





Investments
in real estate loans as of December 31, 2006 were as follows:





Loan
      Type
            
            Number
      Of Loans
            
            
            Balance
      (2)
            
            
            Weighted
      Average Interest Rate
            
            
            Portfolio
      Percentage
            
            
            Weighted
      Average Loan-To-Value (1)Acquisition
      and development
            
            
            4
            
            
            $
            3,408,000
            
            
            
            12.08%
            
            
            
            12.59%
            
            
            
            62.78%Commercial
            
            
            9
            
            
            
            8,420,000
            
            
            
            10.39%
            
            
            
            31.10%
            
            
            
            72.51%Construction
            
            
            5
            
            
            
            5,843,000
            
            
            
            11.38%
            
            
            
            21.58%
            
            
            
            70.26%Land
            
            
            9
            
            
            
            9,401,000
            
            
            
            11.81%
            
            
            
            34.73%
            
            
            
            55.98%27
            
            
            $
            27,072,000
            
            
            
            11.31%
            
            
            
            100.00%
            
            
            
            65.06%





(1)
            Loan-to-value
      ratios are based on the most recent appraisals and may not reflect
      subsequent changes in value and are prior to allowances for loan
      losses.  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 completion of the development 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 the loan.





(2)
            The
      following table reconciles the balance of the loan portfolio to the amount
      shown on the accompanying Balance
Sheets.





December
      31, 2007 Balance
            
            
            December
      31, 2006 BalanceBalance
      per loan portfolio
            
            $
            21,851,000
            
            
            $
            27,072,000Less:Allowance
      for loan losses **
            
            
            (1,026,000
            )
            
            
            (73,000
            )Balance
      per balance sheet
            
            $
            20,825,000
            
            
            $
            26,999,000





The
following is a schedule of priority of real estate loans as of December 31, 2007
and 2006.





Loan
      Type
            
            Number
      of Loans
            
            
            December
      31, 2007 Balance*
            
            
            Portfolio
              Percentage
            
            
            Number
      of Loans
            
            
            December
      31, 2006
              Balance*
            
            
            Portfolio
              PercentageFirst
      deeds of trust
            
            
            25
            
            
            $
            21,551,000
            
            
            
            98.63%
            
            
            
            26
            
            
            $
            26,772,000
            
            
            
            98.89%Second
      deeds of trust
            
            
            1
            
            
            
            300,000
            
            
            
            1.37%
            
            
            
            1
            
            
            
            300,000
            
            
            
            1.11%26
            
            
            $
            21,851,000
            
            
            
            100.00%
            
            
            
            27
            
            
            $
            27,072,000
            
            
            
            100.00%








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*  Please
see (2) above


**  Please
refer to (3) Specific Reserve
Allowance below.





The
following is a schedule of contractual maturities of investments in real estate
loans as of December 31, 2007:





January
      2008 - March 2008 (a)
            
            $
            12,659,000April
      2008 - June 2008
            
            
            4,077,000July
      2008 - September 2008
            
            
            3,595,000October
      2008 - December 2008
            
            
            1,520,000Thereafter
            
            
            --Total
            
            $
            21,851,000





(a)
            Amount
      includes the balance of non-performing loans and loans that have been
      subsequently extended as of December 31,
2007.





The
following is a schedule by geographic location of investments in real estate
loans as of December 31, 2007 and 2006:





December
      31, 2007 Balance*
            
            
            Portfolio
      Percentage
            
            
            December
      31, 2006 Balance*
            
            
            Portfolio
      PercentageArizona
            
            $
            3,864,000
            
            
            
            17.68%
            
            
            $
            4,390,000
            
            
            
            16.22%California
            
            
            2,150,000
            
            
            
            9.84%
            
            
            
            3,240,000
            
            
            
            11.97%Nevada
            
            
            10,140,000
            
            
            
            46.41%
            
            
            
            11,766,000
            
            
            
            43.46%Oklahoma
            
            
            1,000,000
            
            
            
            4.58%
            
            
            
            1,000,000
            
            
            
            3.69%Oregon
            
            
            3,297,000
            
            
            
            15.09%
            
            
            
            2,933,000
            
            
            
            10.83%Texas
            
            
            1,400,000
            
            
            
            6.41%
            
            
            
            2,330,000
            
            
            
            8.61%Washington
            
            
            --
            
            
            
            0.00%
            
            
            
            1,413,000
            
            
            
            5.22%Total
            
            $
            21,851,000
            
            
            
            100.00%
            
            
            $
            27,072,000
            
            
            
            100.00%





*  Please
see (2) above





At
December 31, 2007, the following loans were non-performing (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); Monterrey Associates LP, Forest
Development LLC, Pirates Lake, Ltd, Jeffrey's Court, LLC, V & M Homes at the
Palms, Inc. and Brawley CA 122, LLC.  These loans are currently
carried on our books at a value of approximately $5.0 million, net of allowance
for loan losses of approximately $0.8 million, which does not include the
allowances of approximately $0.2 million relating to the decrease in the
property value for performing loans as of December 31, 2007.  These
loans have been placed on non-accrual of interest status and are the subject of
pending foreclosure proceedings.





·
            Monterrey
      Associates, L.P. is a non-performing loan, which was originally secured by
      various real estate collateral, including a 248 unit apartment complex in
      Oklahoma City, Oklahoma.  The outstanding balance on the loan is
      approximately $4.4 million, of which our portion is approximately $1.0
      million.  As of December 31, 2007, this loan has been considered
      non-performing for the last sixteen months.  Our manager brought
      foreclosure and other legal proceedings to protect our interest in the
      collateral.  The borrowers have alleged that our lien on the
      Oklahoma City apartment complex was extinguished as a result of legal
      actions commenced on our behalf with respect to other collateral securing
      the non-performing loan, of which our portion is approximately $0.5
      million net of allowance for loan loss.  We are vigorously
      contesting their position; however, we cannot determine at this time the
      outcome of these legal proceedings.  Our manager has evaluated
      this loan and based on an appraisal obtained during January 2008, a
      specific allowance of approximately $2.4 million, of which our portion was
      approximately $0.5 million, was
recorded.





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·
            Forest
      Development, LLC, is a loan secured by two 4,000 square foot single family
      residences, together with the four remaining lots in a subdivision,
      located on Mt. Charleston, NV with an outstanding balance of approximately
      $2.6 million of which our portion is approximately $0.3
      million.  As of December 31, 2007, this loan has been considered
      non-performing for the last fourteen months.  We commenced
      foreclosure proceedings and filed litigation to enforce the personal
      guarantee on the loan.  Forest Development subsequently
      counterclaimed and also filed a separate lawsuit against us, Fund I, VRM
      I, Fund II, VRM II, Vestin Mortgage, Inc. and Vestin Originations, Inc.
      (the “Defendants”).  In April 2007, the borrower filed for
      protection under Chapter 11 of the United States Bankruptcy
      Code.  In September 2007, Forest Development filed a lawsuit in
      the United States Bankruptcy Court for the District of Nevada, against us,
      Fund I, VRM I, Fund II VRM II, Vestin Mortgage, Inc. and Vestin
      Originations, Inc. (the “Defendants”) alleging breach of contract, breach
      of the implied covenant of good faith and fair dealing, and unjust
      enrichment, which claims are substantially the same as was filed in the
      State Court action.  On December 10, 2007, the United States
      Bankruptcy Court for the District of Nevada granted a motion approving
      settlement between the parties. The settlement provides for the mutual
      dismissal with prejudice of all litigation between the parties, and
      approves the sale of the property to a third party, the proceeds of which
      shall provide for the repayment of all principal, together with the
      payment of interest at the note rate from October 25, 2007.  In
      addition, the settlement lifts the automatic stay, and on March 7, 2008,
      we, VRM I and VRM II foreclosed upon Forest Development LLC and classified
      it as real estate held for sale.  Our manager has evaluated this
      loan and concluded that the value of the underlying collateral is
      sufficient to protect us from loss of principal.  No specific
      allowance was deemed necessary.





·
            Pirates
      Lake, Ltd., is a loan to provide bridge financing for approximately 46.75
      acres of land in Galveston, TX, with an outstanding balance of
      approximately $8.5 million of which our portion is approximately $1.4
      million.  The loan is secured by a first lien on the property
      and guaranteed by the borrower.  Additionally, the loan is
      secured by a second position lien on approximately 0.5 acres of land
      located in Houston, Texas.  As of December 31, 2007, this loan
      has been considered non-performing for the last seven
      months.  On August 7, 2007, we, VRM I and VRM II entered into a
      settlement agreement with the borrower whereby the foreclosure was
      postponed.  Principal, accrued interest and $75,000 for expenses
      incurred by us, VRM I and VRM II relating to the loan were due on October
      1, 2007.  On October 2, 2007, the borrower was in default of the
      settlement and loan agreements. Subsequently the borrower filed for
      protection under Chapter 11 of the Bankruptcy Code in the United States
      Bankruptcy Court for the Southern District of Texas. On November 7, 2007,
      our legal counsel was successful in seeking the dismissal, with prejudice,
      of the subject bankruptcy, together with the lifting of the automatic stay
      from foreclosure.  On February 5, 2008, we, VRM I and VRM II
      foreclosed upon Pirates Lake, Ltd. and classified it as real estate held
      for sale.  Our manager has evaluated this loan and concluded
      that the value of the underlying collateral is sufficient to protect us
      from loss of principal.  No specific allowance was deemed
      necessary.





·
            Jeffrey's
      Court, LLC, is a loan to provide financing for the development of 4.92
      acres of land into 119 condominium units in Las Vegas, NV, with an
      outstanding balance of approximately $5.1 million of which our portion is
      $1.0 million and is secured by a first lien on the property and guaranteed
      by the borrower.  As of December 31, 2007, this loan has been
      considered non-performing for the last five months.  Our manager
      commenced foreclosure proceedings, and on December 6, 2007, the borrower
      filed for protection under Chapter 11 of the Bankruptcy Code in the United
      States Bankruptcy Court for the District of Nevada.  Our manager
      has instructed legal counsel to seek relief from the automatic
      stay.  In addition, we have filed a complaint in State Court,
      against the guarantors of the loan, in order to enforce the personal
      guarantees.  Subsequently, in March 2008, we, VRM I and VRM II
      (collectively, the "Lender") entered into an Adequate Protection and
      Settlement Agreement (the "Agreement"), which provides that the borrower
      shall make adequate protection payments to the Lender on a monthly basis
      beginning on April 1, 2008, and continuing until August 31, 2008, when the
      entire balance owed by the borrower shall be repaid in
      full.  This is in consideration of the Lender's vacation of the
      motion for the lifting of the automatic stay from
      foreclosure.  In the event the borrower defaults from its
      obligations to the Lender under the Agreement, the foreclosure proceedings
      can continue and the automatic stay shall be lifted.  Our
      manager has evaluated this loan and concluded that the value of the
      underlying collateral is sufficient to protect us from loss of
      principal.  No specific allowance was deemed
      necessary





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·
            V
      & M Homes at the Palms, Inc., is a loan, with a variable interest
      rate, to provide acquisition financing for an 80 acre parcel of land in
      Florence, AZ, with an outstanding balance of approximately $3.9 million of
      which our portion is approximately $1.4 million and is secured by a first
      lien on the property and guaranteed by the principals of the
      borrower.  As of December 31, 2007, this loan has been
      considered non-performing for the last four months.  Our manager
      commenced foreclosure proceedings, and on December 24, 2007, the borrower
      filed for protection under Chapter 11 of the Bankruptcy Code in the United
      States Bankruptcy Court for the District of Arizona.  Our legal
      counsel is seeking relief from the automatic stay.  We are in
      the process of bringing legal action against the guarantors of this
      loan.  Our manager has evaluated this loan and concluded that
      the value of the underlying collateral is sufficient to protect us from
      loss of principal.  No specific allowance was deemed
      necessary.





·
            Brawley
      CA 122, LLC, is a loan to provide acquisition and development financing
      for a 25 acre proposed 122 single-family subdivision to be known as River
      Drive Subdivision in Brawley, CA, with an outstanding balance of
      approximately $2.3 million of which our portion is $750,000 and is secured
      by a first lien on the property and guaranteed by the
      borrower.  As of December 31, 2007, this loan has been
      considered non-performing for the last two months.  Our manager
      has commenced both foreclosure proceedings and litigation against the
      personal guarantors in order to enforce the personal
      guarantees.  Our manager has evaluated this loan and based on an
      appraisal obtained during January 2008, a specific allowance of $766,000,
      of which our portion was $255,000, was
recorded.





The
following schedule summarizes the non-performing loans as of December 31,
2007:




Description
      of Collateral
            
            Balance
      at
              December
      31, 2007
            
            Maturity
      Date
            
            Number
      of Months Non-Performing
            
            
            Percentage
      of Total Loan Balance248-unit
      apartment complex in Oklahoma City, OK
            
            $
            1,000,000
            
            9/1/2006
            
            
            16
            
            
            
            23%2
      single family residences and 4 lots in Mt. Charleston, NV
            
            
            301,000
            
            10/27/2006
            
            
            14
            
            
            
            12%46.75
      acres of land located in Galveston, TX
            
            
            1,400,000
            
            6/30/2007
            
            
            7
            
            
            
            16%4.92
      acres of land in Las Vegas, NV
            
            
            1,000,000
            
            7/17/2007
            
            
            5
            
            
            
            20%80
      acre parcel of land in Florence, AZ
            
            
            1,387,000
            
            8/16/2007
            
            
            4
            
            
            
            36%25
      acres for proposed 122 single-family subdivision  in Brawley,
      CA
            
            
            750,000
            
            8/1/2007
            
            
            2
            
            
            
            33%$
            5,838,000





**  Please
refer to (3) Specific Reserve
Allowancebelow.





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 December 31, 2007, we have
provided specific reserves, related to two non-performing loans and two
performing loans, of approximately $1.0 million.  Our manager
evaluated the loans and concluded that the remaining underlying collateral was
sufficient to protect us against further losses of principal.  Our
manager will continue to evaluate these loans in order to determine if any other
allowance for loan losses should be recorded in future periods.





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 stockholders.








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The
following is a roll-forward of the allowance for loan losses for the year ended
December 31, 2007:





Description
            
            Balance
      at
              December
      31, 2006
            
            
            Specific
      Reserve Allocation
            
            
            Reduction
      of Reserve
            
            
            Balance
      at
              December
      31, 2007General
      Valuation Allowance
            
            $
            73,000
            
            
            $
            --
            
            
            $
            (73,000
            )
            
            $
            --Monterrey
      Associates, L.P.
            
            
            --
            
            
            
            545,000
            
            
            
            --
            
            
            
            545,000Brawley
      CA 122, LLC
            
            
            --
            
            
            
            255,000
            
            
            
            --
            
            
            
            255,000Peoria
      180, LLC
            
            
            --
            
            
            
            108,000
            
            
            
            --
            
            
            
            108,000Terravita,
      LLC
            
            
            --
            
            
            
            118,000
            
            
            
            --
            
            
            
            118,000Total
      (3)
            
            $
            73,000
            
            
            $
            1,026,000
            
            
            $
            (73,000
            )
            
            $
            1,026,000





(3)
            Specific
      Reserve Allowance





Peoria 180, LLC Loan
Allowance – During the year ended December 31, 2007, our manager provided
a specific reserve allowance, related to a land loan on property located in
Glendale, AZ, of approximately $1.6 million, of which our portion was
$108,000.  This specific reserve allowance was based on an updated
appraisal of the underlying collateral for this loan and evaluation of the
borrower, obtained by our manager during October 2007.  Based on this
appraisal we increased our total specific reserve allowance for loss by $35,000
and allocated our general allowance of $73,000 to this loan, bringing our
specific reserve allowance to a total of $108,000.  As of December 31,
2007, and March 17, 2008, the loan was performing as required.  Our
manager will continue to evaluate our position in the loan.





Monterrey Associates, L.P. –
During the year ended December 31, 2007, our manager provided a specific reserve
allowance, related to a commercial loan on a 248-unit apartment complex in
Oklahoma City, OK, of approximately $2.4 million, of which our portion was
approximately $0.5 million.  This specific reserve allowance was based
on an updated appraisal of the underlying collateral for this loan, obtained by
our manager during January 2008.  As of December 31, 2007, the loan
was considered non-performing.  Our manager will continue to evaluate
our position in the loan.





Brawley CA 122, LLC – During
the year ended December 31, 2007, our manager provided a specific reserve
allowance, related to an acquisition and development loan on 25 acres for
proposed 122 single-family subdivision in Brawley, CA, of $766,000, of which our
portion was $255,000.  This specific reserve allowance was based on an
updated appraisal of the underlying collateral for this loan, obtained by our
manager during January 2008.  As of December 31, 2007, the loan was
considered non-performing.  Our manager will continue to evaluate our
position in the loan.





Terravita, LLC – During the
year ended December 31, 2007, our manager provided a specific reserve allowance,
related to a commercial loan on a 100 unit condominium/apartment project in
North Las Vegas, Nevada, totaling $720,000, of which our portion was
$118,000.  This specific reserve allowance was based on an updated
appraisal of the underlying collateral for this loan and evaluation of the
borrower, obtained by our manager during January 2008.  As of December
31, 2007, and March 17, 2008, the loan was performing as
required.  Our manager will continue to evaluate our position in the
loan.





In
addition, as of December 31, 2007, our manager granted extensions on 15 loans,
totaling approximately $176.6 million of which our portion was approximately
$13.2 million, pursuant to the terms of the original loan agreements, which
permit extensions by mutual consent.  Such extensions are generally
provided on loans where the original term was 12 months or less and where a
borrower requires additional time to complete a construction project or
negotiate take-out financing.  However, our manager only grants
extensions when a borrower is in compliance with the material terms of the loan,
including, but not limited to the borrower’s obligation to make interest
payments on the loan.  Our manager concluded that no allowance for
loan loss was necessary with respect to these loans, except for the Terravita,
LLC, Peoria 180, LLC, Monterrey Associates, LP and Brawley CA 122, LLC loans
referred to above, as of December 31, 2007.








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Asset Quality and Loan
Reserves





Losses
may occur from investing in real estate loans.  The amount of losses
will vary as the loan portfolio is affected by changing economic conditions and
the financial condition of borrowers.





The
conclusion that a real estate loan is uncollectible or that collectibility is
doubtful is a matter of judgment.  On a quarterly basis, our manager
evaluates our real estate loan portfolio for impairment.  The fact
that a loan is temporarily past due does not necessarily mean that the loan is
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 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.  As of December 31, 2007 and 2006, approximately $4.1 million
and $1.6 million, respectively, in non-performing loans had no specific
allowance for loan losses.  As of December 31, 2007, approximately
$1.8 million in non-performing loans had a specific allowance for loan losses of
approximately $0.8 million, which does not include the allowances of
approximately $0.2 million relating to the decrease in property value for
performing loans at December 31, 2007.  As of December 31, 2006, none
of our non-performing loans had a specific allowance for loan
losses.  At December 31, 2007, the following loans were non-performing
(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); Monterrey
Associates LP, Forest Development LLC, Pirates Lake, Ltd, Jeffrey's Court, LLC,
V & M Homes at the Palms, Inc. and Brawley CA 122, LLC.  These
loans have been placed on non-accrual of interest status and are the subject of
pending foreclosure proceedings.  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.





NOTE
E — INVESTMENT IN MARKETABLE SECURITIES – RELATED PARTY





As of
December 31, 2007, we owned 114,117 shares of VRM II’s common stock,
representing approximately 0.77% of their total outstanding common
stock.





NOTE
F — REAL ESTATE HELD FOR SALE





At
December 31, 2007, we held one property with
a total carrying value of approximately $0.6 million, which was acquired through
foreclosure and recorded as investments in real estate held for
sale.  The summary below includes our percentage ownership in
the property.  Our investments in real estate held for sale are
accounted for at the lower of cost or fair value less costs to sell with fair
value based on appraisals and knowledge of local market
conditions.  It is not our intent to invest in or own real estate as a
long-term investment.  We seek to sell properties acquired through
foreclosure as quickly as circumstances permit.  The following is a
roll-forward of investments in real estate held for sale during the year ended
December 31, 2007:





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Description
            Date
      Acquired
            
            Percentage
      of Ownership
            
            
            Balance
      at
              December
      31, 2006
            
            
            Acquisitions
      (Reductions)
            
            
            Seller
      Financed Sales
            
            
            Balance
      at
              December
      31, 2007480
      residential building lots  & 2 family dwellings in Cathedral
      City, CA (1)
            12/21/2006
            
            
            2%
            
            
            $
            575,000
            
            
            $
            (29,000
            )
            
            $
            --
            
            
            $
            546,000$
            575,000
            
            
            $
            (29,000
            )
            
            $
            --
            
            
            $
            546,000





(1)
            During
      November 2006, we, VRM I and VRM II acquired through foreclosure
      proceedings 480 residential building lots and two single family dwellings
      in Rio Vista Village Subdivision in Cathedral City, CA.  During
      the year ended December 31, 2007, our manager evaluated the carrying value
      of real estate acquired through foreclosure located in Cathedral City,
      California.  Based on our manager’s estimate, we have written
      down the value of the property by $29,000.  We also recognized
      expenses related to real estate held for sale for this property of
      approximately $64,000.





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 without a premium.  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 years ended December 31, 2007, 2006 and 2005, we
recorded fees to our manager of $7,000, $45,000 and $155,000,
respectively.





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 54,863
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.





We paid
pro rata distributions owed to our manager totaling $46,000, $48,000 and
$82,000, during the years ended December 31, 2007, 2006 and 2005, respectively,
based upon 54,863 units owned by our manager.





During
November 2006, we sold a portion of a loan to our manager for $700,000 and
repurchased the same portion for $700,000.  No gain or loss was
recognized on this transaction.





We
recognized approximately $0.9 million and $1.0 million in rental income for the
years ended December 31, 2006 and 2005, respectively, from Vestin Group related
to an office building located in Las Vegas, Nevada.   This
building was sold to an unrelated third party during November 2006.





In
November 2006, we sold the building to an unrelated third party for a cash sales
price of $14,250,000 and recognized a gain of approximately $2.6 million, net of
sales expenses, which included a 3.0% sales commission to our manager of
$428,000.





As of
December 31, 2007, we owed our manager of $1,000.  As of December 31,
2006, we had no receivables from our manager and did not owe our
manager.








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Transactions with Other
Related Parties





During
the year ended December 31, 2007, we sold $1.3 million in real estate loans to
VRM II and purchased approximately $1.2 million in real estate loans from VRM
II.  During the year ended December 31, 2006, we sold $4.9 million in
real estate loans to VRM II and purchased $6.0 million in real estate loans from
VRM II.  During the year ended December 31, 2005, we sold $500,000 in
real estate loans to VRM II.  There was no gain or loss associated
with these transactions.





As of
December 31, 2007, we owned 114,117 common shares of VRM II, representing
approximately 0.77% of their total outstanding common stock.  For the
years ended December 31, 2007 and 2006, we recorded $144,000 and $47,000,
respectively, in dividend income based on the number of shares we held on the
dividend record dates.





We paid
pro rata distributions owed to inVestin totaling $29,000, $30,000 and $16,000,
during the years ended December 31, 2007, 2006 and 2005, respectively, based
upon 34,856 units owned by inVestin.





We paid
pro rata distributions owed to Shustek Investments, a company wholly owned by
our manager’s CEO, totaling $85,000 and $16,000, during the years ended December
31, 2007 and 2006, respectively, based upon 110,349 units owned by Shustek
Investments.





December
31, 2006, we had receivables from Vestin Originations, of $10,000.





During
the years ended December 31, 2007, 2006 and 2005, we incurred $10,000, $20,000
and $10,000, respectively, for legal fees to the law firm of Levine, Garfinkel
& Katz in which the Secretary of Vestin Group has an equity ownership
interest in the law firm.





NOTE
H — 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 fees for entering into secured borrowing
arrangements; however, we may receive revenue for any differential of the
interest spread, if applicable.  Loans in which unaffiliated investors
have participated through inter-creditor agreements (“Inter-creditor
Agreements”) are accounted for as secured borrowings in accordance with
Statement of Financial Accounting Standards (“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 an unaffiliated investor (the “Investor”)
may participate on a non-pari passu basis in certain real estate loans with us
and/or VRM I and/or VRM 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
borrowings arrangements.





During
October 2006, we, our manager, Vestin Originations, Inc., VRM I and VRM II
entered into an intercreditor agreement with an unrelated third party related to
the funding of a construction real estate loan.  The secured borrowing
was recognized pro rata between us, VRM I and VRM II for the amount each entity
has funded for the loan.  During May 2007, the secured borrowings were
paid in full.  As of December 31, 2007, we did not have any funds used
under Inter-creditor Agreements as compared to approximately $4.4 million used
under Inter-creditor Agreements as of December 31, 2006.








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NOTE
I — MEMBERS’ EQUITY





Membership
Units





During
the year ended December 31, 2007, members received 25,602 units as a result of
reinvestments of distributions.  On April 2, 2007, our manager decided
to terminate our Distribution Reinvestment Plan effective May 7, 2007, pursuant
to Section 8.5 of our Operating Agreement.





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.  For the year ended December 31, 2007,
distributions to members were $1,911,000, net of reinvestments of
$282,000.





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, cash
equivalents, certificates of deposit, short term investments and marketable
securities 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 three months ended December 31,
2007.  Based on this review the value of members’ capital accounts was
adjusted from $10.97 per unit to $10.40 per unit.  As a result, units
redeemed on or after December 31, 2007, will be redeemed at $10.40 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.  On April 2, 2007, our manager decided to terminate our
Distribution Reinvestment Plan effective May 7, 2007, pursuant to Section 8.5 of
our Operating Agreement.  A letter was sent on April 2, 2007 to our
members notifying them of the Distribution Reinvestment Plan’s
termination.





Redemption
Limitation





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
and no more than $100,000 per members’ account in any calendar year subject to
our manager’s discretion.  As of December 31, 2007, the total
redemptions made from inception were approximately $6.3
million.  Balances in Members’ capital accounts as of January 1, 2007
were approximately $30.4 million, including deferred income of approximately
$1.0 million, which limited redemptions to approximately $3.0 million for
calendar 2007.  Total redemptions during the year ended December 31,
2007, were approximately $3.0 million.  The remaining requests to
redeem, as of December 31, 2007, were estimated at approximately $2.5 million in
2008, $2.0 million in 2009, $1.4 million in 2010, $0.2 million in 2011, $0.1
million in 2012, $0.1 million in 2013, $0.1 million in 2014, $0.1 million in
2015, $0.1 million in 2016, $0.1 million in 2017 and $0.1 million in 2018
subject to unit valuation adjustments.








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NOTE
J— RECENT ACCOUNTING PRONOUNCEMENTS





In
December 2007, Financial Accounting Standards Board (“FASB”) issued FAS 160,
Noncontrolling Interests in
Consolidated Financial Statements – an amendment of ARB No.
51.  FAS 160 requires that ownership interests in subsidiaries held by
parties other than the parent, and the amount of consolidated net income, be
clearly identified, labeled, and presented in the consolidated financial
statements within equity, but separate from the parent’s equity. It also
requires once a subsidiary is deconsolidated, any retained noncontrolling equity
investment in the former subsidiary be initially measured at fair value.
Sufficient disclosures are required to clearly identify and distinguish between
the interests of the parent and the interests of the noncontrolling
owners.  In addition to the amendments to ARB 51, this Statement
amends FAS 128, Earnings per
Share; so that earnings-per-share data will continue to be calculated the
same way those data were calculated before this Statement was
issued.  This Statement is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15,
2008.  Earlier adoption is prohibited.  This Statement shall
be applied prospectively as of the beginning of the fiscal year in which this
Statement is initially applied, except for the presentation and disclosure
requirements.  The presentation and disclosure requirements shall be
applied retrospectively for all periods presented.  FAS 160 will be
effective for us beginning January 1, 2009.  We are evaluating FAS 160
and have not yet determined the impact the adoption will have on our
consolidated financial statements, but it is not expected to be
significant.





In
December 2007, the FASB issued FAS 141R, Business
Combinations.  This Statement replaces FAS No.
141.  FAS 141R establishes principles and requirements for how the
acquirer of a business recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any noncontrolling
interest in the acquiree.  FAS 141R also provides guidance for
recognizing and measuring the goodwill acquired in the business combination and
determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination.  This Statement applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15,
2008.  We are evaluating FAS 141 R and have not yet determined the
impact the adoption will have on our consolidated financial statements, but it
is not expected to be significant.





In
February 2007, the FASB issued FAS 159, The Fair Value Option for Financial
Assets and Financial Liabilities.  FAS 159 permits entities to
choose to measure financial assets and liabilities (except for those that are
specifically scoped out of the Statement) at fair value.  The election
to measure a financial asset or liability at fair value can be made on an
instrument-by-instrument basis and is irrevocable.  The difference
between carrying value and fair value at the election date is recorded as a
transition adjustment to opening retained earnings.  Subsequent
changes in fair value are recognized in earnings.  The effective date
for FAS 159 is as of the beginning of an entity's first fiscal year that begins
after November 15, 2007.  We are evaluating FAS 159 and have not yet
determined the impact the adoption will have on our consolidated financial
statements, but it is not expected to be significant.





NOTE
K— LEGAL MATTERS INVOLVING THE MANAGER





The
United States Securities and Exchange Commission (the “Commission”), conducted
an investigation of certain matters related to us, our manager, Vestin Capital,
VRM I and VRM II.  We fully cooperated during the course of the
investigation.  On September 27, 2006, the investigation was resolved
through the entry of an Administrative Order by the Commission (the
“Order”).  Our manager, Vestin Mortgage and its Chief Executive
Officer, Michael Shustek, as well as Vestin Capital (collectively, the
“Respondents”), consented to the entry of the Order without admitting or denying
the findings therein.





In the
Order, the Commission found that the Respondents violated Sections 17(a)(2) and
17(a)(3) of the Securities Act of 1933 through the use of certain slide
presentations in connection with the sale of our units and units in Fund II, the
predecessor to VRM II.  The Respondents consented to the entry of a
cease and desist order, the payment by Mr. Shustek of a fine of $100,000 and Mr.
Shustek’s suspension from association with any broker or dealer for a period of
six months, which expired in March 2007.  In addition, the Respondents
agreed to implement certain undertakings with respect to future sales of
securities.  We are not a party to the Order and we do not expect that
the sanctions imposed upon the Respondents will have any material affect upon
our operations.








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On
November 21, 2005, Desert Land filed a complaint in the state District court of
Nevada against Vestin Group, Vestin Mortgage and Del Mar Mortgage, Inc. which
complaint is substantially similar to a complaint previously filed by Desert
Land in the United States District Court, which complaint was dismissed by the
Ninth Circuit United Court of Appeals, which dismissal was upheld when the
United States Supreme Court denied Desert Land’s Writ of
Certiorari.  The action is based upon allegations that Del Mar
Mortgage, Inc. and/or Vestin Mortgage charged unlawful fees on various loans
arranged by them in 1999.  On March 6, 2006, Desert Land amended the
state court complaint to name VRM I.  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 VRM I for that purpose.  The state court
complaint further alleges that Desert Land is entitled to void such transfers
and that pursuant to NRS 112.20, Desert Land is entitled to an injunction to
enjoin defendants from further disposition of assets.  Additionally,
Del Mar Mortgage, Inc. has indemnified Vestin Group and Vestin Mortgage for any
losses and expenses in connection with the action, and Mr. Shustek has
guaranteed the indemnification.  The Defendants believe that the
allegations are without merit and that they have adequate
defenses.  The Defendants intend to undertake a vigorous
defense.





In April
2006, the lenders filed suit against the State of Hawaii listing 26 causes of
action, including allegations that the State of Hawaii has illegally blocked the
lender’s right to foreclose and take title to its collateral by inappropriately
attaching conditions to the granting of licenses needed to operate the business,
the pre-need trust funds and the perpetual care trust funds and that the State
of Hawaii has attempted to force the lenders to accept liability for any
statutory trust fund deficits while no such lender liability exists under the
laws of the State of Hawaii.  The State of Hawaii responded by filing
allegations against Vestin Mortgage, Inc. and VRM II alleging that these Vestin
entities improperly influenced the former RightStar trustees to transfer trust
funds to VRM II.





On May 9,
2007, VRM I, VRM II, Vestin Mortgage, the State of Hawaii and Comerica
Incorporated announced that an arrangement had been reached to auction the
RightStar assets.  On June 12, 2007, the court approved the resolution
agreement, which provides that the proceeds of the foreclosure sale will be
allocated in part to VRM I, VRM II and Vestin Mortgage in part to fund the
trusts statutory minimum balances.  VRM I, VRM II, Vestin Mortgage,
the State of Hawaii and Comerica have pledged to cooperate to recover additional
amounts owed to the trusts and the creditors from others, while mutually
releasing each other and RightStar from all claims.  VRM I, VRM II,
Vestin Mortgage and the State of Hawaii have received offers and are currently
requesting, entertaining, and reviewing bids on the RightStar
properties.  The final outcome of this auction cannot be determined at
this time.





VRM I and
Vestin Mortgage, Inc. (“Defendants”) are defendants in a civil action filed in
San Diego Superior Court by certain plaintiffs who allege, among other things,
that they were wrongfully denied appraisal rights in connection with the merger
of Fund I into Vestin Realty Mortgage I, Inc.  The action is being
brought as a purported class action on behalf of all members of Vestin Fund I
who did not vote in favor of the merger.  The Defendants believe that
the allegations are without merit and that they have adequate
defenses.  The Defendants intend to undertake a vigorous
defense.  The terms of VRM I’s management agreement and Fund I’s
Operating Agreement contain indemnity provisions whereby, Vestin Mortgage and
Michael V. Shustek may be eligible for indemnification by VRM I with respect to
the above actions.





VRM II
and Vestin Mortgage, Inc. (“Defendants”) are defendants in a civil action filed
in San Diego Superior Court by certain plaintiffs who allege, among other
things, that they were wrongfully denied appraisal rights in connection with the
merger of Fund II into Vestin Realty Mortgage II, Inc.  The action is
being brought as a purported class action on behalf of all members of Vestin
Fund II who did not vote in favor of the merger.  The Defendants believe
that the allegations are without merit and that they have adequate
defenses.  The Defendants intend to undertake a vigorous
defense.  The terms of VRM II’s management agreement and Fund II’s
Operating Agreement contain indemnity provisions whereby, Vestin Mortgage and
Michael V. Shustek may be eligible for indemnification by VRM II with respect to
the above actions.








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VRM I,
Michael V. Shustek and Vestin Mortgage, Inc. (“Defendants”) are defendants in a
civil action filed by 25 separate plaintiffs (“Plaintiffs”) in District Court
for Clark County, Nevada.  The Plaintiffs allege, among other things,
that Defendants: breached certain alleged contractual obligations owed to
Plaintiffs; breached fiduciary duties supposedly owed to Plaintiffs; and
misrepresented or omitted material facts regarding the conversion of Fund I into
VRM I.  The action seeks monetary damages, punitive damages and a
rescission of the REIT conversion.  The Defendants believe that the
allegations are without merit and that they have adequate
defenses.  The Defendants intend to undertake a vigorous
defense.  The terms of VRM I’s management agreement and Fund I’s
operating agreement contain indemnity provisions whereby, Vestin Mortgage and
Michael V. Shustek may be eligible for indemnification by VRM I  with
respect to the above actions.





VRM II,
Vestin Mortgage, Inc. and Michael V. Shustek (“Defendants”) are defendants in a
civil action filed by 88 separate plaintiffs (“Plaintiffs”) in District Court
for Clark County, Nevada.  The Plaintiffs allege, among other things,
that Defendants: breached certain alleged contractual obligations owed to
Plaintiffs; breached fiduciary duties supposedly owed to Plaintiffs; and
misrepresented or omitted material facts regarding the conversion of Fund II
into VRM II.  The action seeks monetary damages and a rescission of
the REIT conversion.  The Defendants believe that the allegations are
without merit and that they have adequate defenses.  The Defendants
intend to undertake a vigorous defense.  The terms of VRM II’s
management agreement and Fund II’s operating agreement contain indemnity
provisions whereby, Vestin Mortgage and Michael V. Shustek may be eligible for
indemnification by VRM II with respect to the above actions.





In
addition to the matters described above, our manager is involved in a number of
other legal proceedings concerning matters arising in connection with the
conduct of its business activities.  Our manager believes it has
meritorious defenses to each of these actions and intends to defend them
vigorously.  Our manager believes that it is not a party to any other
pending legal or arbitration proceedings that would have a material adverse
effect on our manager’s financial condition or results of operations or cash
flows, although it is possible that the outcome of any such proceedings could
have a material impact on the manager’s net income in any particular
period.





NOTE
L — LEGAL MATTERS INVOLVING THE COMPANY





From time
to time, we become involved in litigation in the ordinary course of
business.  We do not believe that any pending legal proceedings are
likely to have a material adverse effect on our financial condition or results
of operations or cash flows.  It is not possible to predict the
outcome of any such proceedings.





NOTE
M — SEGMENT INFORMATION





In
November 2006, we sold our investment in real property to an unrelated third
party.  As of December 31, 2007 and 2006, we had no investments in
real property.  A Special Meeting of our members was held on March 5,
2007 to vote on approval of the Third Amended and Restated Operating Agreement,
which limits the Company’s investment objectives to investment in real estate
loans.  Accordingly, we now operate as one business
segment.





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.








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Financial
information concerning our reportable segments is presented as follows for the
years ended December 31, 2006 and 2005:





For
      the Year Ended December 31, 2006
            
            
            Investment
      in
              Real
      Estate Loans
            
            
            Investment
      in
              Real
      EstateRevenuesInterest
      income from investments in real estate loans
            
            $
            2,292,000
            
            
            $
            2,292,000
            
            
            $
            --Interest
      income from secured borrowings
            
            
            118,000
            
            
            
            118,000
            
            
            
            --Rental
      income
            
            
            944,000
            
            
            
            --
            
            
            
            944,000Gain
      on sale of building
            
            
            2,624,000
            
            
            
            --
            
            
            
            2,624,000Dividend
      Income
            
            
            47,000
            
            
            
            47,000
            
            
            
            --Other
            
            
            94,000
            
            
            
            94,000
            
            
            
            --Total
      revenues
            
            
            6,119,000
            
            
            
            2,551,000
            
            
            
            3,568,000Operating
      expensesManagement
      fees
            
            
            45,000
            
            
            
            34,000
            
            
            
            11,000Professional
      fees
            
            
            207,000
            
            
            
            161,000
            
            
            
            46,000Professional
      fees-related party
            
            
            20,000
            
            
            
            16,000
            
            
            
            4,000Expenses
      related to real estate held for sale
            
            
            12,000
            
            
            
            12,000
            
            
            
            --Other
            
            
            24,000
            
            
            
            21,000
            
            
            
            3,000Total
      operating expenses
            
            
            308,000
            
            
            
            244,000
            
            
            
            64,000EBITDA*
            
            
            5,811,000
            
            
            
            2,307,000
            
            
            
            3,504,000Less:Depreciation
      and Amortization
            
            
            204,000
            
            
            
            --
            
            
            
            204,000Interest
      expense related to secured borrowings
            
            
            116,000
            
            
            
            116,000
            
            
            
            --Interest
      expense related to investment in real estate
            
            
            661,000
            
            
            
            --
            
            
            
            661,000NET
      INCOME
            
            $
            4,830,000
            
            
            $
            2,191,000
            
            
            $
            2,639,000








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For
      the Year Ended December 31, 2005
            
            
            Investment
      in
              Real
      Estate Loans
            
            
            Investment
      in
              Real
      EstateRevenuesInterest
      income from investments in real estate loans
            
            $
            2,341,000
            
            
            $
            2,341,000
            
            
            $
            --Interest
      income from secured borrowings
            
            
            160,000
            
            
            
            160,000Rental
      income
            
            
            1,040,000
            
            
            
            --
            
            
            
            1,040,000Gain
      on sale of building
            
            
            --
            
            
            
            --
            
            
            
            --Dividend
      Income
            
            
            --
            
            
            
            --
            
            
            
            --Other
            
            
            75,000
            
            
            
            75,000
            
            
            
            --Total
      revenues
            
            
            3,616,000
            
            
            
            2,576,000
            
            
            
            1,040,000Operating
      expensesManagement
      fees
            
            
            155,000
            
            
            
            112,000
            
            
            
            43,000Professional
      fees
            
            
            314,000
            
            
            
            212,000
            
            
            
            102,000Professional
      fees-related party
            
            
            93,000
            
            
            
            63,000
            
            
            
            30,000Other
            
            
            73,000
            
            
            
            53,000
            
            
            
            20,000Total
      operating expenses
            
            
            635,000
            
            
            
            440,000
            
            
            
            195,000EBITDA*
            
            
            2,981,000
            
            
            
            2,136,000
            
            
            
            845,000Less:Depreciation
      and Amortization
            
            
            222,000
            
            
            
            --
            
            
            
            222,000Interest
      expense related to secured borrowings
            
            
            136,000
            
            
            
            136,000
            
            
            
            --Interest
      expense related to investment in real estate
            
            
            301,000
            
            
            
            --
            
            
            
            301,000NET
      INCOME
            
            $
            2,322,000
            
            
            $
            2,000,000
            
            
            $
            322,000





*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.





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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NOTE N
— SELECTED QUARTERLY FINANCIAL DATED (UNAUDITED)





The
following schedule is a selected quarterly financial data for the fiscal year
ended December 31, 2007:








For
      the Year Ended December 31, 20071st
      Quarter
            
            
            2nd
      Quarter
            
            
            3rd
      Quarter
            
            
            4th
      Quarter
            
            
            YearTotal
      revenues
            
            $
            786,000
            
            
            $
            672,000
            
            
            $
            508,000
            
            
            $
            536,000
            
            
            $
            2,502,000Total
      operating expenses
            
            
            134,000
            
            
            
            110,000
            
            
            
            110,000
            
            
            
            969,000
            
            
            
            1,323,000Total
      non-operating income
            
            
            38,000
            
            
            
            49,000
            
            
            
            84,000
            
            
            
            68,000
            
            
            
            239,000Total
      loss from real estate held for sale
            
            
            (3,000
            )
            
            
            (62,000
            )
            
            
            (22,000
            )
            
            
            (6,000
            )
            
            
            (93,000
            )NET
      INCOME (LOSS)
            
            $
            687,000
            
            
            $
            549,000
            
            
            $
            460,000
            
            
            $
            (371,000
            )
            
            $
            1,325,000Net
      income (loss)allocated to members
            
            $
            687,000
            
            
            $
            549,000
            
            
            $
            460,000
            
            
            $
            (371,000
            )
            
            $
            1,325,000Net
      income (loss) allocated to members per weighted average membership
      units
            
            $
            0.25
            
            
            $
            0.22
            
            
            $
            0.18
            
            
            $
            (0.15
            )
            
            $
            0.51Weighted
      average membership units
            
            
            2,745,524
            
            
            
            2,523,618
            
            
            
            2,525,561
            
            
            
            2,525,561
            
            
            
            2,579,314Annualized
      rate of return to members (a)
            
            
            9.23%
            
            
            
            7.93%
            
            
            
            6.57%
            
            
            
            -5.31%
            
            
            
            4.68%Cash
      distributions
            
            $
            618,000
            
            
            $
            546,000
            
            
            $
            521,000
            
            
            $
            508,000
            
            
            $
            2,193,000Cash
      distributions per weighted average membership units
            
            $
            0.23
            
            
            $
            0.22
            
            
            $
            0.21
            
            
            $
            0.20
            
            
            $
            0.85Weighted
      average term of outstanding loans
            
            14
      months
            
            
            15
      months
            
            
            16
      months
            
            
            17
      months
            
            
            17
      months





(a)
            The
      annualized rate of return to members in 2007 is calculated based upon the
      net GAAP income allocated to members per weighted average units as of
      December 31, 2007 divided by the number of days during the period (90, 91,
      92, 92 and 365 for the first quarter, second quarter, third quarter,
      fourth quarter and year, respectively) and multiplied by three hundred and
      sixty five (365) days, then divided by (the cost per unit) $11.00 from
      January 1 through August 31, 2007 and $10.97 there
  after.








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The
following schedule is a selected quarterly financial data for the fiscal year
ended December 31, 2006:





For
      the Year Ended December 31, 20061st
      Quarter
            
            
            2nd
      Quarter
            
            
            3rd
      Quarter
            
            
            4th
      Quarter
            
            
            YearTotal
      revenues
            
            $
            857,000
            
            
            $
            800,000
            
            
            $
            830,000
            
            
            $
            876,000
            
            
            $
            3,363,000Total
      operating expenses
            
            
            219,000
            
            
            
            174,000
            
            
            
            209,000
            
            
            
            675,000
            
            
            
            1,277,000Total
      non-operating income
            
            
            12,000
            
            
            
            43,000
            
            
            
            22,000
            
            
            
            55,000
            
            
            
            132,000Total
      income from real estate held for sale
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            2,612,000
            
            
            
            2,612,000NET
      INCOME
            
            $
            650,000
            
            
            $
            669,000
            
            
            $
            643,000
            
            
            $
            2,868,000
            
            
            $
            4,830,000Net
      income allocated to members
            
            $
            650,000
            
            
            $
            669,000
            
            
            $
            643,000
            
            
            $
            2,868,000
            
            
            $
            4,830,000Net
      income allocated to members per weighted average membership
      units
            
            $
            0.22
            
            
            $
            0.23
            
            
            $
            0.22
            
            
            $
            1.03
            
            
            $
            1.67Weighted
      average membership units
            
            
            2,986,887
            
            
            
            2,938,692
            
            
            
            2,878,643
            
            
            
            2,782,318
            
            
            
            2,896,025Annualized
      rate of return to members (a)
            
            
            8.41%
            
            
            
            8.70%
            
            
            
            8.44%
            
            
            
            38.95%
            
            
            
            15.88%Cash
      distributions
            
            $
            645,000
            
            
            $
            647,000
            
            
            $
            637,000
            
            
            $
            615,000
            
            
            $
            2,544,000Cash
      distributions per weighted average membership units
            
            $
            0.22
            
            
            $
            0.22
            
            
            $
            0.22
            
            
            $
            0.22
            
            
            $
            0.88Weighted
      average term of outstanding loans
            
            19
      months
            
            
            16
      months
            
            
            16
      months
            
            
            14
      months
            
            
            14
      months





(b)
            The
      annualized rate of return to members in 2006 is calculated based upon the
      net GAAP income allocated to members per weighted average units as of
      December 31, 2006 divided by the number of days during the period (90, 91,
      92, 92 and 365 for the first quarter, second quarter, third quarter,
      fourth quarter and year, respectively) and multiplied by three hundred and
      sixty five (365) days, then divided by $10.50 (the cost per
      unit).





NOTE O
— SUBSEQUENT EVENTS





On
February 5, 2008, we, VRM I and VRM II foreclosed upon Pirates Lake, Ltd. and
classified it as real estate held for sale.





On March
7, 2008, we, VRM I and VRM II foreclosed upon Forest Development LLC and
classified it as real estate held for sale.








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SUPPLEMENTARY
INFORMATION





ScheduleIVESTIN
      FUND III, LLCREAL
      ESTATE LOANS ON REAL ESTATEREAL
      ESTATE LOAN ROLL FORWARDBalance,
      December 31, 2004
            
            $
            13,593,000Additions
      during the periodNew
      real estate loans and additions
            
            
            16,976,000Real
      estate loans bought
            
            
            --Deductions
      during the periodCollections
      of principal and reductions
            
            
            7,032,000Foreclosed
      loans (Real estate held for sale)
            
            
            --Real
      estate loans sold
            
            
            500,000Net
      Change in 2005
            
            
            9,444,000Balance,
      December 31, 2005
            
            $
            23,037,000Additions
      during the periodNew
      real estate loans and additions
            
            
            22,696,000Real
      estate loans bought
            
            
            6,700,000Deductions
      during the periodCollections
      of principal and reductions
            
            
            19,184,000Foreclosed
      loans (Real estate held for sale)
            
            
            577,000Real
      estate loans sold
            
            
            5,600,000Net
      Change in 2006
            
            
            4,035,000Balance,
      December 31, 2006
            
            $
            27,072,000Additions
      during the periodNew
      real estate loans and additions
            
            
            5,456,000Real
      estate loans bought
            
            
            1,154,000Deductions
      during the periodCollections
      of principal and reductions
            
            
            9,131,000Foreclosed
      loans (Real estate held for sale)
            
            
            --Real
      estate loans sold
            
            
            2,700,000Net
      Change in 2007
            
            
            (5,221,000
            )Balance,
      December 31, 2007
            
            $
            21,851,000











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ScheduleIIVESTIN
      FUND III, LLCREAL
      ESTATE LOANS ON REAL ESTATE *REAL
      ESTATE LOANS BY TYPE OF PROPERTYAs
      of December 31, 2007:Type
      of Property
            
            Interest
      Rate
            
            
            Face
      Amount of Loan
            
            
            Carrying
      Amount of Loan
            
            Maturity
      Date
            
            Amount
      Subject to DelinquencyAcquisition
      and Development
            
            
            12%-13.75%
            
            
            $
            11,270,000
            
            
            $
            3,138,000
            
            07/07-08/07
            
            $
            3,137,000Commercial
            
            
            10%-14%
            
            
            $
            126,155,000
            
            
            $
            9,108,000
            
            09/06-12/08
            
            $
            1,000,000Construction
            
            
            10.5%-12%
            
            
            $
            49,395,000
            
            
            $
            2,501,000
            
            10/06-07/08
            
            $
            301,000Land
            
            
            10.5%-14%
            
            
            $
            79,525,000
            
            
            $
            7,104,000
            
            06/07-07/08
            
            $
            1,400,000$
            266,345,000
            
            
            $
            21,851,000
            
            
            
            $
            5,838,000As
      of December 31, 2006:Type
      of Property
            
            Interest
      Rate
            
            
            Face
      Amount of Loan
            
            
            Carrying
      Amount of Loan
            
            Maturity
      Date
            
            Amount
      Subject to DelinquencyAcquisition
      and Development
            
            
            12%-13%
            
            
            $
            18,932,000
            
            
            $
            3,408,000
            
            01/07-07/07
            
            $
            --Commercial
            
            
            9%-13%
            
            
            $
            105,081,000
            
            
            $
            8,420,000
            
            09/06-12/07
            
            $
            1,000,000Construction
            
            
            10%-12%
            
            
            $
            94,466,000
            
            
            $
            5,843,000
            
            10/06-07/07
            
            $
            301,000Land
            
            
            10%-13%
            
            
            $
            79,625,000
            
            
            $
            9,401,000
            
            11/07-12/07
            
            $
            293,000$
            298,104,000
            
            
            $
            27,072,000
            
            
            
            $
            1,594,000








ScheduleIIIVESTIN
      FUND III, LLCREAL
      ESTATE LOANS ON REAL ESTATE *REAL
      ESTATE LOANS BY LIEN POSITIONAs
      of December 31, 2007:Lien
      Position
              
              Face
      Amount of Loan
              
              
              Interest
      Rate
              
              
              Carrying
      Amount of Loan
              
              Maturity
      Date
              
              Amount
      Subject to Delinquency1st
              
              $
              265,345,000
              
              
              
              10%-14%
              
              
              $
              21,551,000
              
              09/06-12/08
              
              $
              5,838,0002nd
              
              $
              1,000,000
              
              
              
              10.5%
              
              
              $
              300,000
              
              06/08
              
              $
              --$
              266,345,000
              
              
              
              
              
              
              $
              21,851,000
              
              
              
              $
              5,838,000As
      of December 31, 2006:Lien
      Position
              
              Face
      Amount of Loan
              
              
              Interest
      Rate
              
              
              Carrying
      Amount of Loan
              
              Maturity
      Date
              
              Amount
      Subject to Delinquency1st
              
              $
              297,104,000
              
              
              
              9%-13%
              
              
              $
              26,772,000
              
              09/06-12/07
              
              $
              1,594,0002nd
              
              $
              1,000,000
              
              
              
              10.5%
              
              
              $
              300,000
              
              12/07
              
              $
              --$
              298,104,000
              
              
              
              
              
              
              $
              27,072,000
              
              
              
              $
              1,594,000










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ScheduleIVVESTIN
      FUND III, LLCREAL
      ESTATE LOANS ON REAL ESTATEREAL
      ESTATE LOANS THAT EXCEED THREE PERCENT OF THE PORTFOLIOAs
      of December 31, 2007:Description
      of Loan
            
            Interest
      Rate
            
            Final
      Maturity Date
            Periodic
      Payment Terms
            Lien
      Position
            
            Face
      Amount of Loan
            
            
            Carrying
      Amount of Loan
            
            
            Amount
      Subject to DelinquencyA/D
            
            
            12.00%
            
            08/01/07
            Fixed
      Interest only, Balloon Payment $750,000
            1st
            
            $
            2,270,000
            
            
            $
            750,000
            
            
            $
            750,000A/D
            
            
            13.75%
            
            08/16/07
            Variable
      Interest only, Balloon Payment $1,387,000
            1st
            
            $
            3,900,000
            
            
            $
            1,387,000
            
            
            $
            1,387,000A/D
            
            
            12.00%
            
            07/17/07
            Fixed
      Interest only, Balloon Payment $1,000,000
            1st
            
            $
            5,100,000
            
            
            $
            1,000,000
            
            
            $
            1,000,000Commercial
            
            
            12.00%
            
            09/01/06
            Fixed
      Interest only, Balloon Payment $1,000,000
            1st
            
            $
            4,431,000
            
            
            $
            1,000,000
            
            
            $
            1,000,000Commercial
            
            
            11.50%
            
            04/05/08
            Fixed
      Interest only, Balloon Payment $1,294,000
            1st
            
            $
            15,026,147
            
            
            $
            1,294,000
            
            
            $
            --Commercial
            
            
            10.50%
            
            06/14/08
            Fixed
      Interest only, Balloon Payment $1,300,000
            1st
            
            $
            8,750,000
            
            
            $
            1,300,000
            
            
            $
            --Commercial
            
            
            10.00%
            
            02/29/08
            Fixed
      Interest only, Balloon Payment $1,400,000
            1st
            
            $
            16,000,000
            
            
            $
            1,400,000
            
            
            $
            --Commercial
            
            
            10.50%
            
            07/12/08
            Fixed
      Interest only, Balloon Payment $1,500,000
            1st
            
            $
            25,588,000
            
            
            $
            1,500,000
            
            
            $
            --Commercial
            
            
            12.00%
            
            12/05/08
            Fixed
      Interest only, Balloon Payment $1,520,000
            1st
            
            $
            6,000,000
            
            
            $
            1,520,000
            
            
            $
            --Construction
            
            
            12.00%
            
            03/16/08
            Fixed
      Interest only, Balloon Payment $811,000
            1st
            
            $
            16,985,000
            
            
            $
            811,000
            
            
            $
            --Land
            
            
            13.00%
            
            06/30/07
            Fixed
      Interest only, Balloon Payment $1,400,000
            1st
            
            $
            10,000,000
            
            
            $
            1,400,000
            
            
            $
            1,400,000Land
            
            
            11.00%
            
            06/30/08
            Variable
      Interest only, Balloon Payment $1,182,000
            1st
            
            $
            18,000,000
            
            
            $
            1,182,000
            
            
            $
            --Land
            
            
            13.00%
            
            02/10/08
            Fixed
      Interest only, Balloon Payment $1,400,000
            1st
            
            $
            8,500,000
            
            
            $
            1,400,000
            
            
            $
            --Land
            
            
            13.00%
            
            02/16/08
            Fixed
      Interest only, Balloon Payment $1,000,000
            1st
            
            $
            7,150,000
            
            
            $
            1,000,000
            
            
            $
            --Land
            
            
            14.00%
            
            01/27/08
            Fixed
      Interest only, Balloon Payment $1,400,000
            1st
            
            $
            17,000,000
            
            
            $
            1,400,000
            
            
            $
            --$
            164,700,147
            
            
            $
            18,344,000
            
            
            $
            5,537,000








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Schedule
      IVVESTIN
      FUND III, LLCREAL
      ESTATE LOANS ON REAL ESTATEREAL
      ESTATE LOANS THAT EXCEED THREE PERCENT OF THE PORTFOLIOAs
      of December 31, 2006: *Description
      of Loan
            
            Interest
      Rate
            
            Final
      Maturity Date
            Periodic
      Payment Terms
            Lien
      Position
            
            Face
      Amount of Loan
            
            
            Carrying
      Amount of Loan
            
            
            Amount
      Subject to DelinquencyA/D
            
            
            12.00%
            
            07/17/07
            Fixed
      Interest only, Balloon Payment $1,000,000
            1st
            
            $
            5,100,000
            
            
            $
            1,000,000
            
            
            $
            --A/D
            
            
            12.00%
            
            05/16/07
            Variable
      Interest only, Balloon Payment $1,388,000
            1st
            
            $
            3,900,000
            
            
            $
            1,388,000
            
            
            $
            --Commercial
            
            
            12.00%
            
            09/01/06
            Fixed
      Interest only, Balloon Payment $1,000,000
            1st
            
            $
            4,431,000
            
            
            $
            1,000,000
            
            
            $
            1,000,000Commercial
            
            
            9.00%
            
            11/15/06
            Fixed
      Interest only, Balloon Payment $1,156,000
            1st
            
            $
            4,600,000
            
            
            $
            1,156,000
            
            
            $
            --Commercial
            
            
            10.50%
            
            12/14/07
            Fixed
      Interest only, Balloon Payment $1,300,000
            1st
            
            $
            8,750,000
            
            
            $
            1,300,000
            
            
            $
            --Commercial
            
            
            11.50%
            
            10/05/07
            Fixed
      Interest only, Balloon Payment $1,381,000
            1st
            
            $
            18,000,000
            
            
            $
            1,381,000
            
            
            $
            --Commercial
            
            
            10.00%
            
            06/30/07
            Fixed
      Interest only, Balloon Payment $1,400,000
            1st
            
            $
            16,000,000
            
            
            $
            1,400,000
            
            
            $
            --Commercial
            
            
            9.00%
            
            07/12/07
            Fixed
      Interest only, Balloon Payment $1,500,000
            1st
            
            $
            23,900,000
            
            
            $
            1,500,000
            
            
            $
            --Construction
            
            
            12.00%
            
            12/28/06
            Fixed
      Interest only, Balloon Payment $93,000
            1st
            
            $
            12,550,050
            
            
            $
            93,000
            
            
            $
            --Construction
            
            
            12.00%
            
            07/16/07
            Fixed
      Interest only, Balloon Payment $1,382,000
            1st
            
            $
            31,250,000
            
            
            $
            1,382,000
            
            
            $
            --Construction
            
            
            12.00%
            
            05/16/07
            Fixed
      Interest only, Balloon Payment $1,413,000
            1st
            
            $
            26,000,000
            
            
            $
            1,413,000
            
            
            $
            --Construction
            
            
            10.00%
            
            05/28/07
            Fixed
      Interest only, Balloon Payment $1,819,000
            1st
            
            $
            21,166,000
            
            
            $
            1,819,000
            
            
            $
            --Land
            
            
            12.00%
            
            04/11/07
            Fixed
      Interest only, Balloon Payment $820,000
            1st
            
            $
            8,400,000
            
            
            $
            820,000
            
            
            $
            --Land
            
            
            10.00%
            
            02/25/07
            Fixed
      Interest only, Balloon Payment $1,066,000
            1st
            
            $
            2,000,000
            
            
            $
            1,066,000
            
            
            $
            --Land
            
            
            10.50%
            
            12/30/07
            Variable
      Interest only, Balloon Payment $1,182,000
            1st
            
            $
            18,000,000
            
            
            $
            1,182,000
            
            
            $
            --Land
            
            
            13.00%
            
            06/30/07
            Fixed
      Interest only, Balloon Payment $1,400,000
            1st
            
            $
            10,000,000
            
            
            $
            1,400,000
            
            
            $
            --Land
            
            
            13.00%
            
            07/28/07
            Fixed
      Interest only, Balloon Payment $1,400,000
            1st
            
            $
            15,000,000
            
            
            $
            1,400,000
            
            
            $
            --Land
            
            
            13.00%
            
            08/10/07
            Fixed
      Interest only, Balloon Payment $1,400,000
            1st
            
            $
            8,500,000
            
            
            $
            1,400,000
            
            
            $
            --Land
            
            
            10.50%
            
            09/15/07
            Fixed
      Interest only, Balloon Payment $1,400,000
            1st
            
            $
            4,725,000
            
            
            $
            1,400,000
            
            
            $
            --$
            242,272,050
            
            
            $
            23,500,000
            
            
            $
            1,000,000





ITEM
      9.
            CHANGES
      IN AND DISAGREEMENTSWITH ACCOUNTANTS ON ACCOUNTING AND
      FINANCIAL DISCLOSURE





None.





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ITEM
      9A.
            CONTROLS
      AND PROCEDURES





Evaluation of Disclosure
Controls and Procedures





We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our reports under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms, and that such information is accumulated and
communicated to our management, including our manager’s Chief Executive Officer
(“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely
decisions regarding required financial disclosure.  In connection with
the preparation of this Report on Form 10-K, our management carried out an
evaluation, under the supervision and with the participation of our management,
including our manager’s CEO and CFO, as of December 31, 2007, of the
effectiveness of the design and operation of our disclosure controls and
procedures, as such term is defined under Rule 13a-15(e) under the Exchange
Act.  Based upon our evaluation, our manager’s CEO and CFO concluded
that, as of December 31, 2007, our disclosure controls and procedures are
designed at a reasonable assurance level and are effective to provide reasonable
assurance that information we are required to disclose in reports that we file
or submit under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified by the SEC’s rules and forms, and that such
information is accumulated and communicated to our management, including our
manager’s CEO and CFO, as appropriate, to allow timely decisions regarding
required disclosure.





Because
of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues within our company have
been or will be detected.  Even effective internal control over
financial reporting can only provide reasonable assurance with respect to
financial statement preparation.  Furthermore, because of changes in
conditions, the effectiveness of internal control over financial reporting may
vary over time.  Our management, including our manager’s Chief
Executive Officer and Chief Financial Officer, does not expect that our controls
and procedures will prevent all errors.





Management’s Report on
Internal Control over Financial Reporting





Management
is responsible for establishing and maintaining adequate internal control over
financial reporting for our Company, as such term is defined in Rules 13a-15(f)
and 15d-15(f) under the Exchange Act.  Our 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 reporting purposes in accordance with
accounting principles generally accepted in the United
States.  Internal control over financial reporting includes those
policies and procedures that: pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of our Company; 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, and that receipts and expenditures of our Company are being made
only in accordance with authorizations of management and directors of our
Company; and 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 our financial statements. Because of
its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements.  In addition, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.  Therefore, even those systems determined to be effective
can provide only reasonable assurance with respect to financial statement
preparation and presentation.





Management
has conducted an assessment, including testing, of the effectiveness of our
internal control over financial reporting as of December 31, 2007.  In
making its assessment of internal control over financial reporting, management
used the criteria inInternal
Control -- Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”).  Based on this
assessment, management, with the participation of the Chief Executive and Chief
Financial Officers, believes that, as of December 31, 2007, the Company’s
internal control over financial reporting is effective based on those
criteria.








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Changes in Internal Control
Over Financial Reporting





Our
management has not identified any changes in our internal controls over
financial reporting during the quarter ended December 31, 2007.





ITEM
      9A(T).
            CONTROLSAND
PROCEDURES





Not
applicable.





ITEM
      9B.
            OTHER
      INFORMATION





None.





PARTIII





ITEM
      10.
            DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
      GOVERNANCE





We do not
have any directors or officers.  We are managed on a day-to-day basis
by Vestin Mortgage, a privately held company wholly owned by Vestin Group,
Inc.  Vestin Group, Inc. was previously a publicly held company and
maintained an audit committee consisting of independent
directors.  The Vestin Group audit committee previously functioned as
the equivalent of our audit committee.  Since May 2005, Vestin Group
has been a privately held company and since March 2006, it no longer has any
independent directors.  Michael Shustek, the principal executive
officer of our manager, is the sole director of Vestin Group,
Inc.  Our Manager currently functions as the equivalent of our audit
committee. Our units are not listed on any exchange and we are not required to
have an audit committee which consists of independent directors and meets the
other requirements of Section 10A(m) of the Securities Exchange Act of 1934 and
the rules promulgated thereunder.





The
following table sets forth the names, ages as of March 17 2008 and positions of
the individuals who serve as directors, executive officers and certain
significant employees of Vestin Mortgage (our manager), Vestin Group, Vestin
Originations or our affiliates:





Name
            Age
            TitleMichael
      V. Shustek
            49
            President,
      Chief Executive Officer and Chairman of Vestin GroupRocio
      Revollo
            46
            Chief
      Financial Officer of Vestin GroupJames
      M. Townsend
            38
            Chief
      Operating Officer of Vestin GroupMichael
      J. Whiteaker
            58
            Vice
      President of Regulatory Affairs of Vestin GroupDaniel
      B. Stubbs
            46
            Senior
      Vice President of Vestin GroupEdwin
      H. Bentzen IV
            31
            Corporate
      Controller of Vestin Group





Directors,
Executive Officers and certain significant employees of Vestin Mortgage (our
manager), Vestin Group, Vestin Originations or our affiliates





Michael V. Shustek has been a
director of our manager and Chairman of the board of directors, Chief Executive
Officer and a director of Vestin Group since April 1999.  In addition,
Mr. Shustek has been a Director and the CEO of VRM I and VRM II since January
2006.  In February 2004, Mr. Shustek became the President of Vestin
Group.  Mr. Shustek also serves on the loan committee of our manager
and its affiliates.  In 2003, Mr. Shustek became the Chief Executive
Officer of our manager.  In 1995, Mr. Shustek founded Del Mar
Mortgage, and has been involved in various aspects of the real estate industry
in Nevada since 1990.  In 1993, he founded Foreclosures of Nevada,
Inc., a company specializing in non-judicial foreclosures.  In 1993,
Mr. Shustek also started Shustek Investments, a company that originally
specialized in property valuations for third-party lenders or investors and
which continues today as the primary vehicle for his private investment
portfolio.








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In 1997,
Mr. Shustek was involved in the initial founding of Nevada First Bank, with the
largest initial capital base of any new state charter in Nevada’s
history.  Mr. Shustek has co-authored two books, entitled “Trust Deed
Investments,” on the topic of private mortgage lending, and “If I Can Do It, So
Can You.”  Mr. Shustek is a guest lecturer at the University of
Nevada, Las Vegas, where he also has taught a course in Real Estate Law and
Ethics.  Mr. Shustek received a Bachelor of Science degree in Finance
at the University of Nevada, Las Vegas.  See Note K Legal Matters Involving The
Manager in Part II, Item 8 Financial Statements and
Supplementary Data of this Annual Report on Form 10-K for information
regarding legal matters involving our manager and Mr. Shustek.





Rocio Revollowas appointed as the
Chief Financial Officer of Vestin Group on March 21, 2007.  In
addition, Ms. Revollo was appointed the CFO of VRM I and VRM II on March 21,
2007.  Prior to being appointed as the CFO of VRM I, VRM II and Vestin
Group, Ms. Revollo served as the Corporate Controller of Vestin Group since June
2005.  Ms. Revollo previously served as Corporate Controller for Sobel
Westex from January 2002 through May 2005.  From April 1999 to
December 2001, Ms. Revollo was a financial consultant for Re:Source
Connections.  Ms. Revollo is a Certified Public Accountant and worked
for the accounting firm of KPMG LLP.  She received a Bachelor of
Business Administration degree in Accounting and a Bachelor of Arts degree in
Communication Studies from the University of Nevada, Las Vegas.





James M. Townsendhas served
as the Chief Operating Officer of Vestin Group since January
2007.  Mr. Townsend has over 15 years of experience in the securities
industry.  From February 2004 to September 2006, Mr. Townsend was the
National Sales Manager of Samco Financial Services, Inc.  From
November 2003 to February 2004, Mr. Townsend was employed by Vestin Group as
Manager of the Wholesale Division.  From September 2002 to October of
2003, Mr. Townsend was National Sales Manager of Samco Financial Services,
Inc.  From February 1997 to July 2002, Mr. Townsend was employed by
Donald & Co. Securities, Inc., as both a Sales Manager and the National
Sales Manager.  Mr. Townsend received a Bachelor of Science degree in
Business Administration from The University of Texas at Dallas.





Michael J. Whiteaker has been
Vice President of Regulatory Affairs of our manager and Vestin Group since May
1999.  Mr. Whiteaker is experienced in the banking and finance
regulatory fields, having served with the State of Nevada, Financial Institution
Division from 1982 to 1999 as its Supervisory Examiner, responsible for the
financial and regulatory compliance audits of all financial institutions in
Nevada.  Mr. Whiteaker has worked extensively on matters pertaining to
both state and federal statutes, examination procedures, policy determination
and credit administration for commercial and real estate loans.  From
1973 to 1982, Mr. Whiteaker was Assistant Vice President of Nevada National
Bank, responsible for a variety of matters including loan review.  Mr.
Whiteaker has previously served on the Nevada Association of Mortgage Brokers,
Legislative Committee and is a past member of the State of Nevada, Mortgage
Advisory Council. He currently is a director of the Private Lenders Group, an
organization devoted to creating and maintaining the highest professional
standards possible among licensed Nevada Mortgage brokers.





Daniel B. Stubbs has been the
Senior Vice President of Underwriting and Secretary of our manager since January
2000.  Mr. Stubbs heads the loan department for our manager and its
affiliates and is responsible for reviewing loan requests and performs due
diligence necessary for risk analysis in connection with the underwriting
process.  In addition, Mr. Stubbs serves on the loan committee and
acts as liaison for our manager and its affiliates with the various commercial
loan participants.  Mr. Stubbs has 15 years experience in the title
insurance industry and has received a Bachelor of Arts degree in Communication
Studies from the University of Nevada, Las Vegas.





Edwin H. Bentzen IVhas been
the Corporate Controller of Vestin Group since April 2007.  Prior to
being Corporate Controller of Vestin Group, Mr. Bentzen served as a Financial
Reporting Analyst for Vestin Group since January 2006.  Mr. Bentzen
served at Ameristar Casinos Inc. as Senior Internal Auditor from June 2005
through January 2006 and an Internal Auditor from June 2003 to June
2005.  Prior to June 2003, Mr. Bentzen was engaged in public tax
accounting at a local firm in Las Vegas.  Mr. Bentzen is a Certified
Internal Auditor and received a Masters of Science in Accountancy and a Bachelor
of Science degree in Hotel Administration, with an emphasis in gaming, from the
University of Nevada, Las Vegas.








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Code
of Ethics





As we do
not have any executive officers we have not adopted a Code of
Ethics.  However, each of the executive officers of Vestin Mortgage,
our manager, are under an obligation to follow the Code of Ethics of Vestin
Group that was filed as Exhibit 14.1 to Vestin Group’s Form 10-KSB for the year
ended December 31, 2003.  If our manager or Vestin Group makes any
substantive amendments to the Code of Ethics or if our manager grants any
waiver, including any implicit waiver, from a provision of the Code of Ethics to
its chief executive officer, chief financial officer or chief accounting
officer, we will disclose the nature of such amendment or waiver on our website
or in a Report on Form 8-K or quarterly or annual report under the Securities
and Exchange Act of 1934.





ITEM
      11.
            EXECUTIVECOMPENSATION





Not
Applicable.





ITEM
      12.
            SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
      MANAGEMENT AND RELATED STOCKHOLDER
MATTERS





As of
March 17, 2008, one of our members (our manager’s CEO Michael Shustek) owned
more than 5% of our 2,525,561 membership units as noted below.





Name
      and Address of
              Beneficial
      Owner
            
            Amount
      and Nature of
              Beneficial
      Ownership
            
            Percent
      of ClassMichael
      V. Shustek
              6149
      South Rainbow Boulevard
              Las
      Vegas, NV 89118
            
            Sole
      voting and dispositive power of 215,720 units (1)
            
            8.54%





The
following table sets forth the total number and percentage of our membership
units beneficially owned as of March 17, 2008 by:





·
            each
      of our manager’s directors;





·
            our
      manager’s chief executive officer and other executive officers;
      and





·
            all
      of our manager’s executive officers and directors as a
    group.





Unless
otherwise noted, the percentage ownership is calculated based on 2,653,601
shares of our total outstanding membership units as of March 17,
2007.





Membership
      Units Beneficially OwnedBeneficial
      Owner
            
            Number
            
            
            PercentMichael
      V. Shustek (1)
            
            
            215,720
            
            
            
            8.54%Rocio
      Revollo
            
            
            --
            
            
            
            --%James
      M. Townsend
            
            
            --
            
            
            
            --%All
      directors and executive officers as a group
            
            
            215,720
            
            
            
            8.54%





(1)
            Includes
      54,863 units held by our manager and 160,857 units held by Shustek
      Investments, a company wholly owned by Michael Shustek.  Mr.
      Shustek is the Chairman, President and Chief Executive Officer of Vestin
      Mortgage and indirectly owns all of the capital stock of our manager
      through Vestin Group.  Mr. Shustek has sole voting and
      investment power in all these
units.








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ITEM
      13.
            CERTAIN
      RELATIONSHIPSAND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE





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 Management
Agreement without a premium.  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.





Please
refer to Note G Related Party
Transactions in Part II, Item 8 Financial Statements and
Supplementary Data of this Annual Report on Form 10-K, for information
regarding our related party transactions, which are incorporated herein by
reference.





ITEM
      14.
            PRINCIPAL
      ACCOUNTINGFEES AND
SERVICES





During
the years ended December 31, 2007 and 2006, Moore Stephens Wurth Frazer and
Torbet, LLP (“Moore Stephens”) provided various audit, audit related and
non-audit services to us as follows:





December
      31, 2007
            
            
            December
      31, 2006Audit
      Fees
            
            $
            98,000
            
            
            $
            138,000Audit
      Related Fees
            
            $
            --
            
            
            $
            --Tax
      Fees
            
            $
            --
            
            
            $
            --All
      Other Fees
            
            $
            --
            
            
            $
            --





Mr.
Shustek, the sole director of our manager, has considered whether provision of
the services described regarding audit related fees, tax fees and all other fees
above were compatible with maintaining the independent accountant’s independence
and has determined that such services did not adversely affect Moore Stephens’
independence.





Our
manager has direct responsibility to review and approve the engagement of the
independent auditors to perform audit services or any permissible non-audit
services.  All audit and non-audit services to be provided by the
independent auditors must be approved in advance by our manager.  Our
manager may not engage the independent auditors to perform specific non-audit
services proscribed by law or regulation.  All services performed by
independent auditors under engagements entered into on or after January 21,
2005, were approved by our manager pursuant to their pre-approval policy, and
none was approved pursuant to the de minimusexception to the
rules and regulations of the Securities Exchange Act of 1934, Section
10A(i)(1)(B), on pre-approval.





PARTIV





ITEM
      15.
            EXHIBITS, FINANCIAL STATEMENT
  SCHEDULES





The
following are filed as part of this Report:





(a)
1.  Financial
Statements





The list
of the financial statements contained herein are contained in Part II, Item 8
Financial Statements and
Supplementary Data on this Annual Report on Form 10-K, which is hereby
incorporated by reference.





(a)
2.  Financial Statement
Schedules





The list
of the financial statements schedules contained herein are contained in Part II,
Item 8 Financial Statements
and Supplementary Data on this Annual Report on Form 10-K, which is
hereby incorporated by reference.








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(a)
3.  Exhibits





EXHIBITINDEX





Exhibit
      No.
            
            Description
      of Exhibits3.1(1)
            
            Articles
      of Organization3.2(2)
            
            Certificate
      of Amendment to Articles of Organization3.3(3)
            
            Amended
      and Restated Operating Agreement (included as Exhibit A to the
      prospectus)4.4(4)
            
            Distribution
      Reinvestment Plan10.9(6)
            
            Office
      lease agreement dated March 31, 2003 by and between Luke Properties, LLC
      and Vestin Group, Inc.31.1
            
            Section 302 Certification of Michael V.
      Shustek31.2
            
            Section 302 Certification of Rocio
      Revollo32
            
            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 28, 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.(7)
            
            Incorporated
      herein by reference to the Quarterly Report on Form 10-Q for the three
      months ended September 30, 2006 filed on November 8, 2006 (File No.
      000-51301)








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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 Officer and Sole Director of the Manager(Principal
      Executive Officer of Manager)By:
            
            /s/ Rocio
      RevolloRocio
      RevolloChief
      Financial Officer of the Manager(Principal
      Financial and Accounting Officer of the
Manager)





Date:  March
25, 2008





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