**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
          year ended December 31, 2005
 
 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.)
 
 8379
          WEST
          SUNSET ROAD, LAS VEGAS, NEVADA 89113
 (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
 
 Securities
          registered pursuant to Section 12(g) of the Act:
 NONE
 
 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 (Sec 229.405 of this chapter) is not contained herein, and
          will
          not be contained, to the best of the 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, or a non-accelerated filer. See definition of “accelerated
          filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
          one):
 Large
                    accelerated filer [  ]
                Accelerated
                    filler [  ]
                Non-accelerated
                    filer [X]
 
 Indicate
          by check mark whether the registrant is a shell company (as defined in
          Rule
          12b-2 of the 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
          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 8, 2006 the Company had 2,995,885 Units outstanding.
 *Table
              of Contents*
 **TABLE
          OF CONTENTS**
 **Page**PART
                      IITEM
                      1.
                  BUSINESS
                  3ITEM
                      1A.
                  RISK
                      FACTORS
                  17ITEM
                      1B.
                  UNRESOLVED
                      STAFF COMMENTS
                  30ITEM
                      2.
                  PROPERTIES
                  31ITEM
                      3.
                  LEGAL
                      PROCEEDINGS
                  31ITEM
                      4.
                  SUBMISSION
                      OF MATTERS TO A VOTE OF SECURITY
                      HOLDERS
                  32PART
                      IIITEM
                      5.
                  MARKET
                      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
                      MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
                  32ITEM
                      6.
                  SELECTED
                      FINANCIAL DATA
                  33ITEM
                      7.
                  MANAGEMENT’S
                      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS
                  34ITEM
                      7A.
                  QUANTITATIVE
                      AND QUALITATIVE DISCLOSURES ABOUT MARKET
                      RISK
                  48ITEM
                      8.
                  FINANCIAL
                      STATEMENTS AND SUPPLEMENTARY
                      DATA
                  49ITEM
                      9.
                  CHANGES
                      IN AND DISAGREEMENTS WITH INDEPENDENT AUDITORS ON
                      ACCOUNTING AND FINANCIAL DISCLOSURE
                  49ITEM
                      9A.
                  CONTROL
                      AND PROCEDURES
                  50ITEM
                      9B.
                  OTHER
                      INFORMATION
                  51PART
                      IIIITEM
                      10.
                  DIRECTORS
                      AND EXECUTIVE OFFICERS OF
                      REGISTRANT
                  51ITEM
                      11.
                  EXECUTIVE
                      COMPENSATION
                  54ITEM
                      12.
                  SECURITY
                      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                      MANAGEMENT AND RELATED STOCKHOLDER MATTERS
                  54ITEM
                      13.
                  CERTAIN
                      RELATIONSHIPS AND RELATED
                      TRANSACTIONS
                  54ITEM
                      14.
                  PRINCIPAL
                      ACCOUNTING FEES AND SERVICES
                  55PART
                      IVITEM
                      15.
                  EXHIBITS
                      AND FINANCIAL STATEMENT
                      SCHEDULES
                  55EXHIBIT
                      INDEX
                  56SIGNATURES
                  57CONSOLIDATED
                      BALANCE SHEET
                  F-3CONSOLIDATED
                      STATEMENTS OF
                      OPERATIONS
                  F-4CONSOLIDATED
                      STATEMENT OF MEMBERS'
                      EQUITY
                  F-5CONSOLIDATED
                      STATEMENTS OF CASH FLOWS
                  F-6NOTES
                      TO CONSOLIDATED FINANCIAL
                      STATEMENTS
                  F-8SUPPLEMENTARY
                      INFORMATION
                  F-25
 *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”,
“forecasts”, “projects”, “anticipates”, “believes” and words of similar meaning.
          Forward looking statements are likely to address such matters as our business
          strategy, future operating results, future sources of funding for real
          estate
          loans or real property purchased 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 real estate loans and income-producing
          real
          property. In this report we refer to Vestin Fund III, LLC as “the Company”, “our
          Company”, the “Fund”, “we”, “us”, or “our”. We invest in loans secured by real
          estate through deeds of trust or mortgages (hereafter referred to as “deeds of
          trust”). We commenced operations in February 2004. We will continue our
          operations until December 2023 unless dissolved prior thereto or extended
          by
          vote of the members under the provisions of our Operating
          Agreement.
 
 We
          are
          not a mutual fund or an investment company within the meaning of the Investment
          Company Act of 1940, nor are we subject to any regulation thereunder. As
          a
          company investing in real estate loans, investments in real estate and
          raising
          funds through our Distribution Reinvestment Plan, we are subject to the
          North
          American Securities Administration Act Mortgage Program Guidelines and
          Real
          Estate Guidelines (collectively, the “NASAA Guidelines”) promulgated by the
          state securities administrators.
 
 On
          November 7, 2003, our Registration Statement as filed with the 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”). As of December 31,
          2005, we had sold approximately 2,865,921 Units. Members may participate
          in our
          Distribution Reinvestment Plan whereby the members’ distributions may be used to
          purchase additional Units at the current value. As of December 31, 2005,
          approximately 143,913 Units had been purchased under this plan. On November
          7,
          2005, we discontinued the offering of our Units; however, members may continue
          to purchase additional Units through our Distribution Reinvestment
          Plan.
 
 Our
          Manager is Vestin Mortgage, Inc. (the “Manager”), a Nevada corporation and
          licensed mortgage broker engaged in the business of brokerage, placement
          and
          servicing of commercial loans secured by real property. Our Manager is
          a wholly
          owned subsidiary of Vestin Group, Inc., a Delaware corporation (“Vestin Group”).
          Michael V. Shustek, the Chief Executive Officer (“CEO”) and Director of the
          Manager, acquired all of the outstanding shares of common stock of Vestin
          Group,
          Inc. pursuant to a tender offer and follow-on short form merger, which
          closed on
          May 26, 2005. Vestin Group filed a Form 15 with the SEC on May 11, 2005
          to
          terminate its reporting obligations under the Securities Exchange Act of
          1934.
          Through its subsidiaries, Vestin Group is engaged in asset management,
          real
          estate lending and other financial services.
 
 Our
          Operating Agreement provides that the Manager controls the daily operating
          activities of the Company, including the power to assign duties, to determine
          how to invest our assets, to sign bills of sale, title documents, leases,
          notes,
          security agreements, real estate investments and contracts, and to assume
          direction of the business operations. As a result, our operating results
          are
          dependent on our Manager’s ability and intent to continue to manage the
          Company’s assets. The Operating Agreement also provides that the members have
          certain rights, including the right to terminate the Manager subject to
          a
          majority vote of the members.
 -
              3
              -
 *Table
              of Contents*
 Vestin
          Mortgage, Inc. is also the Manager of Vestin Fund I, LLC (“Fund I”), Vestin Fund
          II, LLC (“Fund II”) and inVestin Nevada, Inc., a company wholly owned by our
          Manager’s CEO. These entities also invest in commercial real estate
          loans.
 
 We
          seek
          to invest substantially all of our assets in real estate loans and real
          property. The allocation of our investments between real property and real
          estate loans will be dependant upon the amounts available for investment
          and
          investment opportunities. The NASAA Guidelines require reserves of not
          less than
          1% of our offering proceeds; approximately 3% of net proceeds we raised
          in our
          offering will be held as a working capital cash reserve.
 
 **Real
          Estate Program Objectives**
 
 We
          seek
          to primarily invest in income-producing multifamily residential units,
          office,
          industrial, and retail properties, assisted living facilities and other
          income-producing real property. Such properties may include properties
          used for
          hotels and resorts, restaurants, parking lots, amusement parks or other
          leasehold properties. We intend to primarily lease the real property owned
          by
          us. We seek to hold our properties until such time as we believe it is
          the
          optimal time to enable us to capitalize on the potential for increased
          income
          and capital appreciation of our properties.
 
 By
          investing primarily in different types of properties, we believe we will
          reduce
          our overall portfolio risk and enhance our overall portfolio returns. In
          the
          event we become fully funded, no single property will comprise more than
          20% of
          our funds. As of December 31, 2005, we had a property that represented
          28% of
          our funds.
 
 We
          may
          acquire income-producing properties, which have been developed with funds
          provided by us pursuant to our real estate program. For example, we may
          make a
          loan to a developer for the purchase of unimproved land. After the developer
          has
          improved the land, we may then purchase the real property.
 
 We
          seek
          to invest in properties that will satisfy our investment objectives of
          maximizing distributions, preserving capital and realizing capital appreciation
          upon the ultimate sale of our properties. We intend to invest in properties
          located in the United States. We do not intend to invest in unimproved
          land or
          construction or development of properties.
 
 Vestin
          Mortgage has not previously been engaged in the business of direct investment
          in
          real property. In making investment decisions for us, Vestin Mortgage will
          consider factors such as the location of the property, its income-producing
          capacity, the prospects for long-range appreciation, return on capital
          and
          liquidity and income tax considerations. Vestin Mortgage will have substantial
          discretion with respect to the selection of specific investments.
 
 We
          will
          obtain independent appraisals for each property in which we invest.
          Additionally, we will not rely upon or utilize any appraisals which have
          not
          been commissioned by us. However, we will rely on our own independent analysis
          of various criteria, including such appraisals, in determining whether
          or not to
          invest in a particular property. Appraisals are estimates of value and
          should
          not be relied upon as measures of true worth or realizable value.
 
 Our
          obligation to purchase any property will generally be conditioned upon
          the
          delivery and verification of certain documents from the seller or developer
          including, environmental reports, evidence of marketable title, audited
          financial statements covering recent operations of properties with operating
          histories, and title and liability insurance policies. We will attempt
          to ensure
          all of our properties are adequately insured to cover casualty losses.
          However,
          there are types of losses which are uninsurable or not economically insurable
          or
          may be insurable subject to limitations, such as large deductibles or
          co-payments.
 
 Our
          investments generally will take the form of holding fee title in the properties
          we acquire. We will acquire such interests directly or through wholly owned
          subsidiaries, which may be formed in the future. We may also invest in
          real
          property through joint ventures pursuant to the NASAA Guidelines. In no
          event
          will we acquire an interest in real property through any structure which
          would
          cause us to be deemed an investment company under the Investment Company
          Act of
          1940.
 -
              4
              -
 *Table
              of Contents*
 Our
          Manager intends to apply its prior experience in investing in real estate
          loans
          to its evaluation and investment in real property on our behalf. Accordingly,
          we
          intend to invest in real property throughout the areas in which Vestin
          Mortgage
          and its correspondents have experience. As of December 31, 2005, our loans
          were
          in the following states; Arizona, California, Nevada, North Carolina, Oklahoma,
          Oregon, Texas, Washington and Wisconsin. Depending on the market and on
          our
          performance, we may expand our investments throughout the United
          States.
 
 We
          intend
          to purchase properties in the range of $5 million to $30 million. However,
          our
          actual purchases may vary from these guidelines.
 
 Our
          principal investment in real estate objectives are:
 
 ·
              Provide
                  monthly cash distributions to investors from the lease income earned
                  on
                  our properties; 
 ·
              Preserve
                  capital contributions; and 
 ·
              Realize
                  growth in the value of our properties upon our ultimate sale of
                  such
                  properties. 
 We
          cannot
          assure that we will achieve these objectives or that the total amount of
          capital
          we have will not decrease. Vestin Mortgage may change our investment guidelines,
          subject to the fiduciary obligations that it owes to all members and in
          accordance with the terms of our Operating Agreement. However, Vestin Mortgage
          may not change our investment objectives, except upon majority approval
          of the
          unit holders holding a majority of our outstanding Units. Vestin Mortgage
          has no
          authority to do anything that would impair our ability to carry on our
          ordinary
          business as a real estate loan or real property investor.
 
 **Real
          Estate Loan Program Objectives**
 
 We
          generally invest in real estate loans throughout the areas in which Vestin
          Mortgage and its correspondents have experience. As of December 31, 2005,
          our
          loans were in the following states; Arizona, California, Nevada, North
          Carolina,
          Oklahoma, Oregon, Texas, Washington and Wisconsin. Depending on the market
          and
          on the Fund’s performance, we plan to expand our investments throughout the
          United States. The loans we invest in will be selected for us by Vestin
          Mortgage
          from among loans originated by Vestin Mortgage or non-affiliated mortgage
          brokers. When Vestin Mortgage or someone else originates a loan for us,
          that
          person identifies the borrower, processes the loan application, makes or
          invests
          in the loan, and brokers or sells the loan to us. We believe that our loans
          are
          attractive to borrowers because of the expediency of Vestin Mortgage’s loan
          approval process, which takes about 10 to 20 days. Vestin Mortgage will
          obtain,
          negotiate and make each loan, after which we acquire the loan, provided
          that the
          cost of the loan does not exceed the funds reasonably anticipated to be
          available to us to purchase the loan.
 
 As
          a
          non-conventional lender, we are more willing to invest in real estate loans
          to
          borrowers that conventional lenders would not deem to be creditworthy.
          Because
          of our increased willingness to fund riskier loan types and borrowers,
          borrowers
          are willing to pay us an interest rate that is generally above the rates
          charged
          by conventional lenders. We intend to invest in a significant amount of
          loans in
          which the real property being developed is not generating any income to
          the
          borrower. We anticipate investing 10% to 70% of our assets allocated for
          construction loans and not more than 25% of our assets in unimproved land
          loans.
          Our investments in second deeds of trust in real estate loans are riskier
          because our rights will be subject to the rights of the first real estate
          loan
          lender. We may invest up to 10% of our real estate loan assets secured
          by second
          deeds of trust. All of our loans are “balloon payment” loans. The “balloon
          payment” loans may be riskier because the borrower’s repayment depends on their
          ability to refinance the loan or develop the property so it can be sold.
          We
          anticipate investing up to 50% of our real estate loan assets in bridge
          loans.
          Bridge loans are a subcategory of commercial loans in which we provide
          interim
          financing for borrowers seeking long-term, permanent financing. In addition,
          we
          expect to invest approximately 20% to 50% of our assets allocated for real
          estate loans in commercial property loans, 10% to 25% in acquisition and
          development loans and a small percentage in residential property loans.
          The
          actual allocations may vary materially from the guidelines above depending
          on
          the amount available for investment in real estate loans.
 -
              5
              -
 *Table
              of Contents*
 In
          addition to those policies contained in our prospectus and Operating Agreement,
          Vestin Mortgage may establish written policies on loans and
          borrowings.
 
 Our
          principal investment in real estate loans objectives are to:
 
 ·
              Produce
                  revenues from the interest income on our real estate
                  loans; 
 ·
              Provide
                  monthly cash distributions to investors from the net income earned
                  on our
                  real estate loans; 
 ·
              Preserve
                  capital contributions; and 
 ·
              Reinvest,
                  to the extent permissible, payments of principal and proceeds of
                  prepayments, sales and insurance proceeds, net of
                  expenses. 
 
 **Leasing**
 
 The
          terms
          and conditions of any lease we enter into with our tenants may vary
          substantially. However, we expect that our leases will be the type customarily
          used between landlords and tenants in the geographic area where the property
          is
          located. The following are the types of leasing arrangements:
 
 *Multifamily.* Multifamily leases generally provide for terms of 6 months to 3 years and
          generally require tenants to pay monthly lease payments and a security
          deposit
          equal to one month’s rent. Under such leases, the landlord is generally directly
          responsible for all real estate taxes, sales and use taxes, special assessments,
          insurance and building repairs.
 
 *Office.* Office
          leases generally have terms of 3 to 10 years and require tenants to pay
          monthly
          lease payments and a security deposit equal to one month’s rent. The landlord
          may be responsible for all real estate taxes, sales and use taxes, special
          assessments, insurance and building repairs, utilities and other building
          operation and management costs.
 
 *Industrial.* Industrial leases generally have terms of 5 to 20 years and require tenants
          to
          pay monthly lease payments and a security deposit equal to one month’s rent. The
          tenant typically is responsible for its share of building operation and
          management costs, including real estate taxes, sales and use taxes, special
          assessments, insurance, building repairs, and utilities.
 
 *Retail.* Retail
          leases generally have terms of 3 to 5 years with multiple options and require
          tenants to pay monthly lease payments and a security deposit equal to one
          month’s rent. The tenant typically is responsible for its share of building
          operation and management costs, including real estate taxes, sales and
          use
          taxes, special assessments, insurance, building repairs, and
          utilities.
 
 *Assisted
          Living.* Assisted
          living leases generally have terms of 1 to 2 years and require tenants
          to pay
          monthly lease payments and a security deposit equal to one month’s rent. The
          landlord is generally directly responsible for all real estate taxes, sales
          and
          use taxes, special assessments, insurance and building repairs.
 
 **Other
          Income-Producing Properties**
 
 We
          will
          execute new tenant leases and tenant lease renewals, expansions and extensions
          with terms that are dictated by the current market conditions. If it is
          economically practical, we may verify the creditworthiness of each tenant.
          If we
          verify the creditworthiness of each tenant, we may use industry credit
          rating
          services for any guarantors of each potential tenant. We may also obtain
          relevant financial data from potential tenants and guarantors, such as
          income
          statements, balance sheets and cash flow statements. We may require personal
          guarantees from shareholders of our corporate tenants. However, there can
          be no
          guarantee that the tenants selected will not default on their leases or
          that we
          can successfully enforce any guarantees.
 -
              6
              -
 *Table
              of Contents*
 We
          anticipate that tenant improvements will be funded by us from our cash
          flow or a
          line of credit. When one of our tenants vacates its space in one of our
          buildings, we may, in order to attract new tenants, be required to expend
          funds
          for tenant improvements. In addition, we may provide free rent for a certain
          time period, provide tenant improvement allowances, and provide other
          concessions in order to attract new tenants.
 
 **Borrowing
          Policies**
 
 We
          may
          borrow funds to acquire our properties. We will not incur debt in an amount
          greater than the sum of 85% of the aggregate purchase price of all real
          property
          owned by us plus 70% of the aggregate fair market value of all our other
          assets.
 
 Vestin
          Mortgage will have the authority to select the lender and negotiate the
          terms of
          the loan.
 
 **Participation**
 
 We
          may
          also participate in the operation and purchase of real property with other
          purchasers, including affiliates as permitted by NASAA Guidelines. We will
          own
          any jointly purchased real property in direct fee title.
 
 We
          will
          participate in the operation and/or purchase with non-affiliates if we
          acquire a
          controlling interest, alone or with any of our publicly registered affiliates
          meeting the requirements below, in such participation. A controlling interest
          would enable us to direct or cause the direction of the management and
          policies
          of such participation, which would include the authority to:
 
 ·
              Review
                  all material contracts; 
 ·
              Cause
                  a sale or refinancing of the property or our interest therein subject
                  in
                  certain cases to limitations imposed by the participation agreement
                  between the parties; 
 ·
              Approve
                  budgets and major capital expenditures, subject to a stated minimum
                  amount; 
 ·
              Veto
                  any sale or refinancing of a property, or alternately, to receive
                  a
                  specified preference on sale or refinancing proceeds;
                  and 
 ·
              Exercise
                  a right of first refusal on any desired sale or refinancing by
                  a
                  participant of its interest in a property except for transfer to
                  its
                  affiliate. 
 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 substantially
          on the
          same terms and conditions. Each participant shall have right of first refusal
          to
          buy the other’s interest if the co-participant decides to sell its interest. We
          may participate in joint ventures or partnerships with affiliates that
          are not
          publicly registered if the investment is necessary to relieve Vestin Mortgage
          from any commitment to purchase a real estate loan entered into prior to
          the
          closing of the offering, there are no duplicate fees, the investment of
          each
          entity is on the same terms and condition and the participants have a right
          of
          first refusal to buy if Vestin Mortgage wishes to sell a real estate loan
          held
          in the joint venture.
 
 We
          will
          not give Vestin Mortgage, Vestin Group or any of their affiliates any
          consideration similar to rebates or give-backs or enter into reciprocal
          arrangements with Vestin Mortgage or its affiliates that might be entered
          into
          in lieu of participations.
 -
              7
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 *Table
              of Contents*
 **Disposition**
 
 We
          anticipate that periodically and at our termination and dissolution we
          will sell
          our properties. We intend to hold various real properties in which we invest
          until such time as a sale or other disposition appears to be advantageous
          to
          achieve our investment objectives or until it appears that such objectives
          will
          not be met. We will consider multiple factors in deciding on whether or
          not to
          dispose of our properties, including potential capital appreciation, cash
          flow
          and federal income tax considerations. We will decide when to sell our
          properties based upon economic and market conditions. Vestin Mortgage may
          exercise its discretion as to whether and when to sell a property, and
          we will
          have no obligation to sell properties at any particular time.
 
 After
          our
          members have received a 100% return on their capital contributions plus
          an
          amount equal to 6% per annum cumulative return, Vestin Mortgage will be
          eligible
          to receive up to 25% of cash to be distributed from the net proceeds remaining
          from the sale or refinancing of properties. Additionally, Vestin Mortgage
          or one
          of its affiliates may receive a real estate commission up to 3% if Vestin
          Mortgage or one of its affiliates acts as our broker in the sale or purchase
          of
          real property.
 
 Return
          of
          the original purchase price paid by us from the disposition of properties
          generally will be reinvested during the first seven years of our operations;
          thereafter, such proceeds will be distributed to the members. Retainable
          net
          sale proceeds do not include amounts in excess of the original purchase
          price
          paid by us on the sale of real property, which are accounted for as part
          of cash
          funds from our operations. However, we may also reinvest a portion of cash
          funds
          from our operations for amounts attributable to amounts in excess of the
          original purchase price paid by us on the sale of real property.
 
 **Real
          Estate Loan Program Policies and Guidelines**
 
 We
          anticipate that a majority of our collateral on our real estate loans will
          be
          the real property that the borrowers are purchasing, refinancing 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, we believe that most of the loans in which we invest will have been
          made
          to real estate developers with a lesser proportion of loans involving land
          loans. Our real estate loan investments will not be insured or guaranteed
          by any
          government agency. We will not give any rebates or enter into any reciprocal
          agreement with Vestin Mortgage or any of its affiliates that enables Vestin
          Mortgage or its affiliates to receive a rebate.
 
 Vestin
          Mortgage will continuously evaluate prospective investments, select the
          real
          estate loans in which we invest and make all investment decisions on our
          behalf
          in its sole discretion, unless the Operating Agreement provides otherwise.
          In
          evaluating prospective real estate loan investments, Vestin Mortgage 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.  -
              8
              -
 *Table
              of Contents*
 Vestin
          Mortgage may obtain our loans from non-affiliated mortgage brokers and
          previous
          borrowers and by solicitation of new borrowers in those states where
          permissible. We may purchase existing loans that were originated by third-party
          lenders and acquired by Vestin Mortgage to facilitate our purchase of the
          loans.
          Vestin Mortgage will sell the loans to us for no greater than Vestin Mortgage’s
          cost, not including its service fees and compensation. There are no specific
          requirements or guidelines governing Vestin Mortgage’s discretion in determining
          which real estate loans it will place with us and which it will place with
          other
          funding sources.
 
 When
          selecting real estate loans for us, Vestin Mortgage will adhere to the
          following
          guidelines, which are intended to control the quality of the collateral
          given
          for our loans:
 
 *1.*
              *Priority
                  of Real Estate Loans.*We
                  anticipate investing at least 90% of our assets allocated for real
                  estate
                  loans secured by first deeds of trust. First deeds of trust are
                  loans
                  secured by a full or divided interest of a first mortgage secured
                  by the
                  property. Our investment in real estate loans secured by property
                  will not
                  be junior to more than one other loan. The only subordinated loan
                  we
                  currently intend to invest in at this time are second deeds of
                  trust,
                  although in the future we may invest in wraparound, or all-inclusive,
                  real
                  estate loans. 
 *2.*
              *Loan-to-Value
                  Ratio.*We
                  do not anticipate the amount of our loan combined with the outstanding
                  debt secured by a senior loan on a security property will exceed
                  the
                  following percentage of the appraised value of the security property
                  at
                  origination: 
 **Type
                    of Secured Property**
                
                **Loan-to-Value
                    Ratio**Residential
                
                75%Unimproved
                    Land
                
                60%
                    (of the anticipated as-if developed value)Acquisition
                    and Development
                
                60%
                    (of the anticipated as-if developed value)Commercial
                    Property*
                
                75%
                    (of the anticipated post-development value)Construction
                
                75%
                    (of the anticipated as-if developed value)Leasehold
                    Interest
                
                75%
                    (of value of leasehold interest)
 
 *
          Bridge
          loans are a subcategory of commercial loans in which we provide interim
          financing for borrowers seeking long-term, permanent financing. Bridge
          loans are
          reported within the commercial category.
 
 We
          may
          deviate from these guidelines under certain circumstances. For example,
          Vestin
          Mortgage, in its discretion, may increase any of the above loan-to-value
          ratios
          if, in its opinion, 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 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 by us 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, Vestin Mortgage,
          in its
          sole discretion, shall be free to accept any reasonable financing terms
          it deems
          to be in our best interest. Nevertheless, in no event will the loan-to-value
          ratio on any loan exceed 80% of the independently appraised as-if developed
          value of the property at the time of loan origination. The target loan-to-value
          ratio for our loan portfolio as a whole is approximately 70%.
 
 Vestin
          Mortgage will receive an appraisal at the time of loan underwriting, which
          may
          predate the placement of the loan with us. Copies of these appraisals will
          be
          available for your review at the offices of Vestin Mortgage for a period
          of six
          (6) years. Generally, these appraisals will be completed within twelve
          months
          prior to funding of the loan. Also, the appraisal may have been previously
          performed for the borrower. The appraisal may be for the current estimated
          “as-if developed” value of the property. We will use appraisers who are licensed
          or qualified as independent appraisers and certified by 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 Society
          of Real
          Estate Appraisers, M.A.I., Class IV Savings and Loan appraisers or from
          among
          appraisers with other qualifications acceptable to Vestin Mortgage.
 -
              9
              -
 *Table
              of Contents*
 However,
          appraisals are only estimates of value and cannot be relied on as measures
          of
          realizable value. The appraisal may be for the current estimated “as-if
          developed” or “as-if completed” value of the property or, in the case of
          acquisition and development loans or construction loans, for the estimated
          value
          of the property upon completion of the project. As-if completed or 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. An employee or agent of Vestin
          Mortgage
          will review each appraisal report and will 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.*Most of our loans will range from a six-month term to a five-year
                  term.
                  Our original loan agreements, however, will permit extensions to
                  the term
                  of the loan by mutual consent. Such extensions will generally be
                  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 full compliance with the terms of the
                  loan. 
 We
          anticipate that substantially all of our loans will provide 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 which require
          borrowers to maintain interest reserves funded from the principal amount
          of the
          loan for a period of time.
 
 *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, with the title
                  insurance policy naming us as the insured and 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 fire and casualty insurance for all loans secured by
                  unimproved real property, naming us as loss payee in an amount
                  sufficient
                  to cover the replacement cost of
                  improvements. 
 ·
              All
                  insurance policies, notes, deeds of trust or real estate loans,
                  escrow
                  agreements, and any other loan documents for a particular transaction
                  will
                  name us as payee and beneficiary. Real estate loans will not be
                  held in
                  the name of Vestin Mortgage or any other
                  nominee. 
 *5.*
              *Purchase
                  of Real Estate Investments from Affiliates.*We
                  may acquire real estate loans from our affiliates, including Vestin
                  Mortgage, if the loans were acquired to facilitate their acquisition
                  by
                  us, provided that such loan is purchased by us for a price not
                  in excess
                  of the par value of the note or its fair market value, whichever
                  is lower,
                  plus allowable fees and expenses in accordance with applicable
                  NASAA
                  guidelines, but without the allowance of any other compensation
                  for the
                  loans. Except for the compensation paid to Vestin Mortgage, 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 also
                  may not
                  exceed 80% of the principal amount of the assigned note. 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 “as-if developed” 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 “as-if developed” value of the underlying property, as
                  determined by a written appraisal, which was conducted within the
                  then-preceding twelve months at the time of loan origination. If
                  an
                  appraisal was not conducted within that period, then we will arrange
                  for a
                  new appraisal to be prepared for the
                  property.  -
              10
              -
 *Table
              of Contents*
  
 *7.*
              *Participation.*We
                  participate in loans with other lenders, including affiliates as
                  permitted
                  by NASAA Guidelines, by providing funds or purchasing an undivided
                  interest in a loan meeting our investment guidelines described
                  above. We
                  will directly own any loans purchased jointly with other lenders.
                  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 in our loan
                  portfolio. 
 ·
              Vestin
                  Mortgage originated a loan that fit within our investment guidelines,
                  but
                  it would constitute more than 20% of our anticipated capital contribution
                  or otherwise be disproportionately large given our then existing
                  portfolio. 
 ·
              We
                  will participate in loans with non-affiliates if we acquire a controlling
                  interest, alone or with any of our publicly registered affiliates
                  meeting
                  the requirements below, in such participation. A controlling interest
                  would enable us to direct or cause the direction of the management
                  and
                  policies of such participation, which would include the authority
                  to: 
 i.
              Review
                  all material contracts; 
 ii.
              Cause
                  a sale of the real estate loan or our interest therein subject
                  in certain
                  cases to limitations imposed by the participation agreement between
                  parties; 
 iii.
              Approve
                  budgets and major capital expenditures, subject to a stated minimum
                  amount; 
 iv.
              Veto
                  any sale of a real estate loan, or alternatively, to receive a
                  specified
                  preference on sale or proceeds; and 
 v.
              Exercise
                  a right of first refusal on any desired sale by a participant of
                  its
                  interest in a loan except for transfer to its
                  affiliate.  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 by NASAA
          Guidelines.
 
 We
          will
          not give Vestin Mortgage, Vestin Group or any of their affiliates any
          consideration similar to rebates or give-backs or enter into reciprocal
          arrangements with Vestin Mortgage or its affiliates that might be entered
          into
          in lieu of participations.
 
 *8.*
              *Diversification.*The
                  NASAA Guidelines provide that we neither invest in nor 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. 
 *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.*Before
                  making a loan, Vestin Mortgage must first determine a borrower
                  has
                  sufficient equity in the security property to meet the loan-to-value
                  ratios described above. Vestin Mortgage may also consider the income
                  level
                  and creditworthiness of a borrower to determine its ability to
                  repay the
                  real estate loan.  -
              11
              -
 *Table
              of Contents*
 
 *11.*
              *Sale
                  of Real Estate Investments.*Although
                  Vestin Mortgage has no plan to do so, Vestin Mortgage may sell
                  our real
                  estate loans or interests in our loans to either affiliates or
                  non-affiliated parties when Vestin Mortgage believes 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 Vestin Mortgage under limited circumstances
                  pursuant to the NASAA Guidelines. 
 **Real
          Estate Loans to Affiliates**
 
 We
          do not
          invest in real estate loans made to Vestin Mortgage, Vestin Group or any
          of our
          affiliates. However, we may acquire an investment in a real estate loan
          payable
          by Vestin Mortgage when Vestin Mortgage has assumed the obligations of
          the
          borrower under that loan, through a foreclosure on the property.
 
 **Purchase
          of Loans from Vestin Mortgage and Its Affiliates**
 
 In
          addition to those loans Vestin Mortgage selects for us, we may purchase
          loans
          that were originated by Vestin Mortgage or other parties and first held
          for
          Vestin Mortgage’s own portfolio, as long as the loan satisfies all of our
          lending criteria. This requirement also applies to any loan originated
          by an
          affiliate of Vestin Mortgage, such as Vestin Group, Michael Shustek, Chief
          Executive Officer of Vestin Group, or another principal of Vestin Mortgage.
          However, we do not acquire loans from or sell loans to real estate loan
          programs
          in which Vestin Mortgage has an interest unless it is in compliance with
          NASAA
          Guidelines.
 
 **Types
          of Loans We Intend to Invest In**
 
 We
          primarily invest in loans, which are secured by first or second deeds of
          trust
          on real property. Such loans fall into the following categories: raw and
          unimproved land, acquisition and development, construction, commercial,
          and
          residential loans. We make investments based upon the guidelines set forth
          below. However, the actual allocation may vary from the guidelines below
          depending on the amount available for investment in real estate
          loans.
 
 ***Raw
          and Unimproved Land Loans***
 
 Approximately
          15% to 25% of the loans we invest in 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. Generally, we invest in loans
          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, 2005, approximately 25% of our loans were in this
          category.
 
 ***Acquisition
          and Development Loans***
 
 Approximately
          10% to 25% of the loans we invest in may be acquisition and development
          loans.
          These loans enable borrowers to acquire and/or complete the basic infrastructure
          and development of their property prior to the construction of buildings
          or
          structures. Such development may include installing utilities, sewers,
          water
          pipes, and/or streets. We 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, 2005, approximately 17% of our loans
          were in
          this category.
 -
              12
              -
 *Table
              of Contents*
 ***Construction
          Loans***
 
 Approximately
          10% to 70% of the loans we invest in may be construction loans. A construction
          loan provides funds for the construction of one or more structures on developed
          land. Funds under this type of loan generally are not 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 review the property appraisal
          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, 2005, approximately 5% of our loans were in this
          category.
 
 ***Commercial
          Property Loans***
 
 Approximately
          20% to 50% of the loans we invest in may be commercial property loans.
          Commercial property loans provide funds to allow commercial 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. Bridge loans are a subcategory of commercial loans in which
          we
          provide interim financing for borrowers seeking long-term, permanent financing.
          We review the property appraisal, in this subcategory, and generally invest
          in
          loans of up to 75% of that value of the property. Such appraisals may be
          based
          on either an “as-is basis” or “as-if developed” basis, depending on the
          circumstances, and therefore, may not be an accurate indicator of the fair
          value
          of the property. As of December 31, 2005, approximately 53% of our loans
          were in
          this category.
 
 ***Residential
          Loans***
 
 We
          may
          invest approximately 5% of loans in 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. Generally, we invest in loans for up to 75% of the appraised
          value of
          the property. As of December 31, 2005, there were no loans in this
          category.
 
 ***Collateral***
 
 The
          types
          of collateral that secure the loans brokered by us include a first deed
          of
          trust, a second deed of trust or a leasehold interest.
 
 ***First
          Deed of Trust***
 
 Most
          of
          our loans are secured by a first deed of trust. Thus as a lender, we will
          have
          rights as a first lender of the collateralized property. As of December
          31,
          2005, 93.45% of our loans were secured by a first deed of trust.
 
 ***Second
          Deed of Trust***
 
 Up
          to 10%
          of our loans may be secured by second deeds of trust. In a second deed
          of trust,
          the rights of the lender (such as the right to receive payment on foreclosure)
          will be subject to the rights of the first real estate loan lender. In
          a
          wraparound loan, the lender’s rights will be comparably subject to the rights of
          a first real estate loan lender, but the aggregate indebtedness evidenced
          by the
          loan documentation will be the first real estate 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, 2005, 6.55% of our loans were secured by a second deed
          of
          trust.
 
 ***Leasehold
          Interest***
 
 Up
          to 20%
          of the loans we invest in may be in loans where the collateral is an interest
          in
          a lease. As of December 31, 2005, we did not have any loans secured by
          a
          leasehold interest.
 -
              13
              -
 *Table
              of Contents*
 **Prepayment
          Penalties and Exit Fees**
 
 We
          anticipate that a majority of the loans we invest in will not contain prepayment
          penalties or exit fees. 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 allows 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.
 
 **Extensions
          to Term of Loan**
 
 Our
          original loan agreements will 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.
          However, we will only grant extensions when a borrower is in full compliance
          with the terms of the loan, including, but not limited to, the borrower’s
          obligation to make interest payments on the loan.
 
 **Interest
          Reserves**
 
 We
          sometimes invest in loans, which include a commitment for an interest reserve,
          which is usually established at loan closing. We or other lenders may advance
          the interest reserve with the amount of the borrower’s indebtedness increased by
          the amount of such advances. At December 31, 2005, we had $3.9 million
          in
          investments in real estate loans that had interest reserves where the total
          outstanding principal was approximately $53.2 million, including participating
          lenders. These loans had interest reserves of approximately $2.4 million,
          of
          which our portion is $0.7 million.
 
 **Balloon
          Payment**
 
 Currently
          all of the loans we invest in or purchase will require the borrower to
          make a
“balloon payment” on the principal amount upon maturity of the loan. 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 Real Estate Loans on Sales 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 or
          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.
 -
              14
              -
 *Table
              of Contents*
 **Variable
          Rate Loans**
 
 Occasionally
          we may acquire variable rate loans. Variable rate loans originated by Vestin
          Mortgage may use as indices the one and five year Treasury Constant Maturity
          Index, the Prime Rate Index or the Monthly Weighted Average Cost of Funds
          Index
          for Eleventh District Savings Institutions (Federal Home Loan Bank Board).
          Vestin Mortgage may negotiate spreads over these indices of 2.5% to 5.5%,
          depending upon market conditions when the loan is made. As of December
          31, 2005,
          we did not hold any variable rate loans, and all of the loans in the real
          estate
          loans portfolio were fixed rate loans.
 
 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. Vestin Mortgage attempts 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
          Mortgage contain provisions under which the interest rate cannot fall below
          the
          initial rate.
 
 Variable
          rate loans generally have interest rate caps. We anticipate that the interest
          rate cap will be a ceiling that is 2% to 4% above the initial rate with
          a floor
          rate equal to the initial rate. For these loans there is the risk that
          the
          market rate may exceed the interest cap rate.
 
 Variable
          rate loans of five to ten year maturities are not assumable without the
          prior
          consent of Vestin Mortgage. We do not expect to invest or purchase a significant
          amount of other assumable loans. To minimize our risk, any borrower assuming
          an
          existing real estate loan will be subject to the same underwriting criteria
          as
          the original borrower.
 
 **Borrowing
          For Real Estate Loans**
 
 We
          may
          incur indebtedness:
 
 ·
              To
                  finance our investments in real estate
                  loans, 
 ·
              To
                  prevent a default under real estate loans that are senior to our
                  real
                  estate loans, 
 ·
              To
                  discharge senior real estate loans if this becomes necessary to
                  protect
                  our investment in real estate loans, or 
 ·
              To
                  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 lenders in order
          to
          provide them with a senior position in real estate loans, which we might
          jointly
          fund. For example, we might establish a wholly owned special purpose corporation
          which 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. Last, we intend to conduct our business so that we are not to be
          deemed a
“dealer” in real estate loans for federal income tax purposes.
 -
              15
              -
 *Table
              of Contents*
 **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
          and General Economic Conditions**
 
 There
          are
          hundreds of commercial banks, insurance companies, mortgage brokers, pension
          funds and other institutional lenders competing to make the type of loans
          in
          which we invest. No particular competitor dominates the market. Recently
          many
          major institutional lenders have re-entered the commercial real estate
          market
          due to a stronger economy, stabilized or increased property values and
          leasing
          rates, and the decrease in demand for residential loans. As a result, we
          anticipate competition for investments in real estate loans secured by
          commercial properties, which creates pressure on lenders to lower interest
          rates. Consequently, we may not be able to obtain as high interest rates
          on real
          estate loan investments as we would otherwise obtain, which would affect
          our
          revenues and the distributions. There are numerous investors in income
          producing
          real estate including, REIT’s, insurance companies, pension funds, property
          management companies and high net worth individuals. Many of these investors
          have substantially more financial resources and experience than we have,
          which
          may enable them to acquire the most attractive properties on the market.
          We may
          also invest in real estate in areas where competition for tenants lowers
          leasing
          rates. Consequently, we may earn less lease revenue, which would lower
          our
          distributions.
 
 **Regulation**
 
 Our
          operations are managed by Vestin Mortgage. Vestin Mortgage’s operations, as a
          mortgage company, are subject to extensive regulation by federal, state
          and
          local laws and governmental authorities. Vestin Mortgage conducts its real
          estate mortgage business under a license issued by the State of Nevada.
          As of
          October 1, 2003, Vestin Mortgage has been regulated by the Mortgage Lending
          Division of the State of Nevada. Under applicable Nevada law, the division
          has
          broad discretionary authority over Vestin Mortgage’s activities, including the
          authority to conduct periodic regulatory audits of all aspects of Vestin
          Mortgage’s operations.
 
 We
          and
          Vestin Mortgage 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 the
          issuance and sale of securities, as well as the Employee Retirement Income
          Security Act of 1974.
 
 Investment
          capital raised by us is subject to the Mortgage Program Guidelines of the
          North
          American Securities Administrators Association (“NASAA”). These guidelines are
          adopted by various state agencies charged with protecting the interest
          of the
          investors. Administrative fees, loan fees, and other compensation paid
          to Vestin
          Mortgage and its affiliates are generally limited by the NASAA program
          guidelines. These guidelines also include certain investment procedures
          and
          criteria, which are required for new loan investments.
 -
              16
              -
 *Table
              of Contents*
 Since
          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, 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 the
          NASAA
          Guidelines. We will not invest in limited partnership interests of any
          other
          limited partnership of which Vestin Mortgage serves as a managing or general
          partner unless Vestin Mortgage 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 Vestin Mortgage 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.
 
 **Employees**
 
 We
          do not
          have any employees. As of December 31, 2005, our Manager, Vestin Mortgage,
          and
          its parent company, Vestin Group, Inc., employed 34 personnel. Of these
          employees, 4 were employed to identify, arrange, and service loans, 4 were
          employed by the broker dealer engaged to perform administrative functions
          including those related to sales of units in other managed funds and 26
          performed general and administrative as well as information technology
          and
          marketing functions.
 
 **Available
          Information**
 
 Our
          Internet website address is http://www.vestinfunds.com .
          We make
          available free of charge through www.vestingroup.com 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 practicable, after such
          material is electronically filed or furnished to the United States Securities
          and Exchange Commission (SEC).
  **ITEM
          1A.**  **RISKFACTORS**
 
 Our
          business is subject to numerous factors affecting our operating results.
          The
          following summary describes factors we believe are material risks that
          apply to
          our business. In addition to the risks described below, our business, financial
          condition and operating results could be harmed by other risks, including
          risks
          we have not yet identified or that we may believe are immaterial or
          unlikely.
 -
              17
              -
 *Table
              of Contents*
 **INVESTMENT
          RISKS**
 
 **Limited
          operating history.**
 
 We
          were
          organized on April 16, 2003. Accordingly, we have a limited operating history.
          We only commenced operations on February 12, 2004 after we sold 1,000,000
          units
          at our initial offering price of $10 per unit and received $10,000,000.
          We lack
          past performance to determine the likelihood of achieving our investment
          objectives.
 
 **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 Vestin Mortgage. Vestin Mortgage will withhold its consent
          to any
          sale, assignment or redemption of units to the extent necessary to prohibit
          transfers that could cause us to be classified as a publicly traded partnership.
          Further, the resale of units may be restricted by state securities
          laws.
 
 **Members
          have limited ability to have units redeemed.**
 
 Members
          have a limited ability to have their units redeemed by us. The significant
          limitations on the ability to have units redeemed are the following:
 
 ·
              Members
                  can only redeem their units after they have held them for one
                  year. 
 ·
              If
                  members redeem units between the first and second anniversaries
                  from their
                  date of purchase, they will receive an amount equal to 90% of their
                  capital account; provided, however, such discounts will not apply
                  in the
                  event of a member’s death. If members redeem their units after the second
                  anniversary from their date of purchase, they will receive an amount
                  equal
                  to the full value of their capital
                  account. 
 ·
              Redemption
                  payments only return all or the requested part of members’ capital
                  account. We will perform an appraisal or internal valuation of
                  the
                  underlying real property each year. Accordingly, the value of members’
                  capital account may fluctuate depending upon our
                  performance. 
 ·
              There
                  is no reserve fund for redemptions. 
 ·
              Redemption
                  payments are made only to the extent we have available cash from
                  proceeds
                  of repayments of principal on real estate loans, recovery through
                  a sale
                  of the cost of investments in real estate, and capital contributions;
                  and
                  the redemption would not impair the capital or operation of the
                  Fund.
                  Accordingly, a significant amount of redemption requests may delay
                  the
                  payment of subsequent redemptions. 
 ·
              The
                  total amount withdrawn by all members during any calendar year
                  cannot
                  exceed 10% of the amount of capital accounts of all the members
                  with a
                  yearly limit of $100,000 per member subject to the Manager’s discretion to
                  allow a greater amount. 
 ·
              We
                  will only make redemption payments once a
                  quarter.  -
              18
              -
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              of Contents*
 Because
          a
          substantial portion of our loans are made on an “interest only” basis, we will
          not receive proceeds from the repayment of principal as frequently as we
          would
          with loans where the principal is repaid in periodic installments. To help
          permit redemptions, we will not refinance or invest in new loans using
          payments
          of loan principal by borrowers or new invested capital of members unless
          we have
          sufficient funds to cover permitted withdrawals.
 
 **Our
          management has identified material weaknesses in internal control over
          our
          financial reporting, primarily related to the lack of technical accounting
          and
          reporting expertise. Our inability to provide such expertise may result
          in
          inadequate or deficient financial reporting.**
 
 Management
          is responsible for establishing and maintaining adequate internal control
          over
          financial reporting of our Company. Internal control over financial reporting
          is
          a process designed to provide reasonable assurance regarding the reliability
          of
          financial reporting and the preparation of financial statements for external
          purposes in accordance with accounting principles generally accepted in
          the
          United States of America.
 
 Our
          Company’s internal control over financial reporting includes those policies and
          procedures that (i) pertain to the maintenance of records that, in reasonable
          detail, accurately and fairly reflect the transactions and dispositions
          of the
          assets of the Company; (ii) provide reasonable assurance that transactions
          are
          recorded as necessary to permit preparation of financial statements in
          accordance with accounting principles generally accepted in the United
          States of
          America, and that receipts and expenditures of our Company are being made
          only
          in accordance with authorizations of Management and Directors of our Company;
          and (iii) provide reasonable assurance regarding prevention or timely detection
          of unauthorized acquisition, use or disposition of our Company’s assets that
          could have a material effect on the financial statements.
 
 As
          defined by the Public Company Accounting Oversight Board’s Auditing Standard No.
          2, a material weakness is defined as a significant deficiency or combination
          of
          significant deficiencies, that results in more than a remote likelihood
          that a
          material misstatement of the annual or interim financial statements will
          not be
          prevented or detected. Management’s preliminary assessment concluded that we did
          not maintain effective internal control over financial reporting as of
          December
          31, 2005. As a result of the assessment, we identified the following material
          weaknesses:
 
 ·
              The
                  first material weakness identified insufficient resources of technical
                  accounting and reporting expertise. This weakness relates to the
                  oversight
                  and review of financial transactions, which affects our ability
                  to prepare
                  and properly review financial statements and accompanying footnote
                  disclosures in accordance with United States generally accepted
                  accounting
                  principles and the rules and regulations of the
                  SEC. 
 ·
              As
                  a result of the foregoing material weakness, there has been ineffective
                  oversight of documentation of authorizations to ensure that procedures
                  are
                  properly executed. Specifically, we did not have backup documentation
                  for
                  some authorized payments made by our
                  Company. 
 The
          foregoing material weaknesses resulted in revisions to the draft financial
          statement disclosures, but we believe our final financial statements and
          related
          disclosures were accurate in all material respects. In addition, our Manager
          and
          independent auditors together have determined that the identified material
          weaknesses did not result in inadequate or deficient financial reporting
          for
          prior periods and will not result in a restatement of any of our prior
          financial
          statements.
 
 In
          addition to controls and procedures consistent with prior practices, our
          Manager
          is in the process of developing and implementing remediation plans. In
          order to
          remediate the aforementioned material weaknesses, our Manager has:
 
 ·
              Hired
                  a Corporate Controller with the requisite experience to assist
                  and work
                  directly with our Manager’s Chief Financial
                  Officer; 
 ·
              Hired
                  an Accounting Manager with the requisite experience to assist and
                  work
                  directly with our Manager’s Corporate
                  Controller;  -
              19
              -
 *Table
              of Contents*
 
 ·
              Hired
                  a Financial Reporting Analyst to assist with the financial reporting
                  process and work directly with our Manager’s Corporate
                  Controller; 
 ·
              Implemented
                  a mandatory weekly management meeting for all key personnel. This
                  allows
                  for financial reporting personnel to be consistently updated on
                  significant matters affecting the Company;
                  and 
 ·
              Implemented
                  a Financial Reporting Review Committee, which reviews all periodic
                  financial reporting documents prior to
                  filing. 
 We
          believe that, for the reasons described above, we are continuing to improve
          our
          disclosure controls and procedures and remedy the identified material
          weaknesses. Because of the inherent limitations in all control systems,
          no
          evaluation of controls can provide absolute assurance that all control
          issues
          and instances of fraud, if any, will be or have been detected. These inherent
          limitations include the realities that judgments in decision-making can
          be
          faulty, and that breakdowns can occur because of simple error or mistake.
          Additionally, controls can be circumvented by the individual acts of some
          persons, by collusion of two or more people, or by management override
          of the
          control. The design of any system of controls also is based in part upon
          certain
          assumptions about the likelihood of future conditions; over time, control
          may
          become inadequate because of changes in conditions, or the degree of compliance
          with the policies or procedures may deteriorate. Because of the inherent
          limitation in a cost-effective control system, misstatements due to error
          or
          fraud may occur and not be detected.
 
 **Any
          borrowing by us will increase members risk and may reduce the amount we
          have
          available to distribute.**
 
 We
          anticipate that we will borrow funds to expand our capacity to invest in
          real
          estate loans and real property. Our total indebtedness shall not exceed
          the sum
          of 85% of the aggregate purchase price of all real property owned by us
          plus 70%
          of the aggregate fair market value of all of our other assets. Any such
          borrowings will require us to carefully manage our cost of funds. No assurance
          can be given that we will be successful in this effort. Should we be unable
          to
          repay the indebtedness and make the interest payments on the loans, the
          lender
          will likely declare us in default and require that we repay all amounts
          owing
          under the loan facility. Even if we are repaying the indebtedness in a
          timely
          manner, interest payments owing on the borrowed funds may reduce our income
          and
          the distributions members receive.
 
 We
          may
          borrow funds from several sources, and the terms of any indebtedness we
          incur
          may vary. However, some lenders may require as a condition of making a
          loan to
          us that the lender will receive a priority on loan repayments received
          by us. As
          a result, if we do not collect 100% on our investments, the first dollars
          may go
          to our lenders and we may incur a loss which will result in a decrease
          of the
          amount available for distribution. In addition, we may enter into securitization
          arrangements in order to raise additional funds. Such arrangements could
          increase our leverage and adversely affect our cash flow and our ability
          to make
          distributions.
 
 Lenders
          may require us to enter into restrictive covenants that may have an adverse
          effect on our operations. **** In
          connection with obtaining certain financing, a lender could impose restrictions
          on us that affect our ability to incur additional debt and our distribution
          and
          operating policies. Loan documents we enter into may contain customary
          negative
          covenants that may limit our ability to further mortgage the property,
          to
          discontinue insurance coverage, replace our manager or impose other limitations.
          Any such restriction or limitation may have an adverse effect on our
          operations.
 
 Increases
          in interest rates could increase the amount of our debt payments and adversely
          affect our ability to pay distributions to our members. **** We
          expect
          that in the future we will incur indebtedness that bears interest at a
          variable
          rate. Accordingly, increases in interest rates would increase our interest
          costs, which could have a material adverse effect on our operating cash
          flow and
          our ability to pay distributions. In addition, if rising interest rates
          cause us
          to need additional capital to repay indebtedness in accordance with its
          terms or
          otherwise, we would be required to liquidate one or more of our investments
          in
          properties at times which may not permit realization of the maximum return
          on
          such investments.
 -
              20
              -
 *Table
              of Contents*
 The
          aggregate amount we may borrow is limited under our Operating Agreement,
          which
          may hinder our ability to secure additional funding when it is
          needed. **** Our
          Operating Agreement limits the aggregate amount we may borrow in accordance
          with
          the requirements of the NASAA Guidelines to the sum of 85.0% of the aggregate
          purchase price of all of our properties which have not been refinanced
          plus
          85.0% of the aggregate fair market value of all of our refinanced properties.
          That limitation could have adverse business consequences such as: (i) freezing
          our ability to purchase additional properties; (ii) causing operational
          problems
          if there were cash flow shortfalls for working capital purposes; and (iii)
          resulting in the loss of a property if, for example, financing were necessary
          to
          repay a default on a real estate loan.
 
 **RISKS
          RELATED TO INVESTMENTS IN REAL ESTATE**
 
 **Our
          operating results will be affected by economic and regulatory changes that
          have
          an adverse impact on the real estate market in general, and we cannot assure
          members that we will be profitable or that we will realize growth in the
          value
          of our real estate properties.**
 
 Our
          operating results will be subject to risks generally incident to the ownership
          of real estate, including:
 
 ·
              changes
                  in general economic or local conditions; 
 ·
              changes
                  in supply of or demand for similar or competing properties in an
                  area; 
 ·
              changes
                  in interest rates and availability of permanent mortgage funds
                  that may
                  render the sale of a property difficult or
                  unattractive; 
 ·
              changes
                  in tax, real estate, environmental and zoning laws;
                  and 
 ·
              periods
                  of high interest rates and tight money
                  supply. 
 For
          these
          and other reasons, we cannot assure that we will be profitable or that
          we will
          realize growth in the value of our real estate properties.
 
 **Properties
          that have significant vacancies could be difficult to sell, which could
          diminish
          the return on members’ investment.**
 
 A
          property may incur vacancies either by the continued default of tenants
          under
          their leases or the expiration of tenant leases. If vacancies continue
          for a
          long period of time, we may suffer reduced revenues resulting in less cash
          to be
          distributed to members. In addition, the resale value of the property could
          be
          diminished because the market value of a particular property will depend
          principally upon the value of the leases of such property.
 
 **We
          are dependent on tenants for our revenue, and lease terminations could
          reduce
          our distributions to our members.**
 
 The
          success of our investments is materially dependent on the financial stability
          of
          our tenants. Lease payment defaults by tenants could cause us to reduce
          the
          amount of distributions. A default by a significant tenant on its lease
          payments
          to us would cause us to lose the revenue associated with such lease and
          cause us
          to have to find an alternative source of revenue to meet mortgage payments
          and
          prevent a foreclosure if the property is subject to a mortgage. In the
          event of
          a tenant default, we may experience delays in enforcing our rights as landlord
          and may incur substantial costs in protecting our investment and re-letting
          our
          property.
 
 If
          significant leases are terminated, we cannot assure that we will be able
          to
          lease the property for the rent previously received or sell the property
          without
          incurring a loss.
 -
              21
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              of Contents*
 **We
          may be unable to secure funds for future tenant improvements, which could
          adversely impact our ability to pay cash distributions to our
          members.**
 
 When
          tenants do not renew their leases or otherwise vacate their space, it is
          usual
          that, in order to attract replacement tenants, we will be required to expend
          substantial funds for tenant improvements and tenant refurbishments to
          the
          vacated space. If we have insufficient working capital reserves, we will
          have to
          obtain financing from other sources. We intend to establish initial working
          capital reserves of 3% of the contract price of the properties we acquire.
          If
          these reserves or any reserves otherwise established are insufficient to
          meet
          our cash needs, we may have to obtain financing from either affiliated
          or
          unaffiliated sources to fund our cash requirements. We cannot assure that
          sufficient financing will be available or, if available, will be available
          on
          economically feasible terms or on terms acceptable to us. Our Operating
          Agreement imposes certain limits on our ability to borrow money. Any borrowing
          will require us to pay interest expense, and therefore our financial condition
          and our ability to pay cash distributions to our members may be adversely
          affected.
  **We
          may be unable to sell a property if or when we decide to do so, which could
          adversely impact our ability to pay cash distributions to our
          members.**
 
 The
          real
          estate market is affected, as set forth above, by many factors, such as
          general
          economic conditions, availability of financing, interest rates and other
          factors, including supply and demand, that are beyond our control. We cannot
          predict whether we will be able to sell any property for the price or on
          the
          terms set by us, or whether any price or other terms offered by a prospective
          purchaser would be acceptable to us. We cannot predict the length of time
          needed
          to find a willing purchaser and to close the sale of a property. If we
          are
          unable to sell a property when we determine to do so, it could have a
          significant adverse effect on our cash flow and results of operations.
 
 **Competition
          with third parties in acquiring properties may reduce our profitability
          and the
          return on members’ investment.**
 
 We
          compete with many other entities engaged in real estate investment activities,
          including individuals, corporations, bank and insurance company investment
          accounts, REITs, real estate limited partnerships, and other entities engaged
          in
          real estate investment activities, many of which have greater resources
          than we
          do.
 
 Larger
          real estate programs may enjoy significant competitive advantages that
          result
          from, among other things, a lower cost of capital and enhanced operating
          efficiencies. In addition, the number of entities and the amount of funds
          competing for suitable properties may increase. Any such increase would
          result
          in increased demand for these assets and therefore increased prices paid
          for
          them. If we pay higher prices for properties and other investments, our
          profitability will be reduced and members may experience a lower return
          on their
          investment.
 
 **Uncertain
          market conditions and the broad discretion of Vestin Mortgage relating
          to the
          future disposition of properties could adversely affect the return on members’
investment.**
 
 We
          intend
          to hold the various real properties in which we invest until such time
          as Vestin
          Mortgage determines that a sale or other disposition appears to be advantageous
          to achieve our investment objectives or until it appears that such objectives
          will not be met. Vestin Mortgage may exercise their discretion as to whether
          and
          when to sell a property and we will have no obligation to sell properties
          at any
          particular time, except upon our liquidation. We cannot predict with any
          certainty the various market conditions affecting real estate investments
          that
          will exist at any particular time in the future. Due to the uncertainty
          of
          market conditions that may affect the future disposition of our properties,
          we
          cannot assure that we will be able to sell our properties at a profit in
          the
          future.
 -
              22
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              of Contents*
 **If
          we set aside insufficient working capital reserves, we may be required
          to defer
          necessary property improvements.**
 
 If
          we do
          not estimate enough reserves for working capital to supply needed funds
          for
          capital improvements throughout the life of the investment in a property,
          we may
          be required to defer necessary improvements to the property that may cause
          the
          property to suffer from a greater risk of obsolescence or a decline in
          value, or
          a greater risk of decreased cash flow as a result of fewer potential tenants
          being attracted to the property. If this happens, we may not be able to
          maintain
          projected rental rates for effected properties, and our results of operations
          may be negatively impacted.
 
 **If
          we sell properties by providing financing to purchasers, we will bear the
          risk
          of default by the purchaser.**
 
 If
          we
          decide to sell any of our properties, we intend to use our best efforts
          to sell
          them for cash. However, in some instances we may sell our properties by
          providing financing to purchasers. When we provide financing to purchasers,
          we
          will bear the risk of default by the purchaser and will be subject to remedies
          provided by law, which could negatively impact our cash distributions.
          There are
          no limitations or restrictions on our ability to take purchase money
          obligations. We may, therefore, take a purchase money obligation secured
          by a
          mortgage as part payment for the purchase price. The terms of payment to
          us
          generally will be affected by custom in the area where the property being
          sold
          is located and the then-prevailing economic conditions. If we receive promissory
          notes or other property in lieu of cash from property sales, the distribution
          of
          the proceeds of sales to members, or their reinvestment in other properties,
          will be delayed until the promissory notes or other property are actually
          paid,
          sold, refinanced or otherwise disposed of. In some cases, we may receive
          initial
          down payments in cash and other property in the year of sale in an amount
          less
          than the selling price and subsequent payments will be spread over a number
          of
          years. If any purchaser defaults under a financing arrangement with us,
          it could
          negatively impact our ability to pay cash distributions to members.
 
 **RISKS
          OF THE MORTGAGE LENDING BUSINESS**
 
 **Defaults
          on our real estate loans will decrease our revenues and members’
distributions.**
 
 We
          are in
          the business of investing in real estate loans and, as such, we are subject
          to
          risk of defaults by borrowers. Any failure of a borrower to repay loans
          or
          interest on loans will reduce our revenues and members’ distributions and the
          value of members’ units.
 
 In
          addition, foreclosures on defaulted loans create additional risks that
          may
          adversely affect our operating results. These risks include:
 
 ·
              We
                  may incur substantial legal fees and court costs in acquiring a
                  mortgaged
                  property through a foreclosure sale and/or bankruptcy
                  proceedings. 
 ·
              During
                  the period of time when a defaulted loan is the subject of foreclosure
                  proceedings, it is likely that we will earn less, if any, income
                  from such
                  loans, thereby reducing our earnings. 
 ·
              Properties
                  foreclosed upon may not generate sufficient income from operations
                  to meet
                  expenses, such as property taxes, maintenance costs, real estate
                  loan
                  payments, insurance cost and related
                  charges. 
 ·
              Operation
                  of foreclosed properties may require us to spend substantial funds
                  for an
                  extended period until we are able to find a suitable
                  buyer. 
 ·
              We
                  incur liability risks in owning and operating real property such
                  as
                  possible liability for injury to persons and property or for the
                  cost
                  involved in cleaning up any contamination by materials hazardous
                  to the
                  environment. 
 ·
              Proceeds
                  from the sale of foreclosed property may not generate full repayment
                  of
                  our loans and, in connection with such sale, we may be required
                  to provide
                  seller financing and incur the risk that the buyer may default
                  on such
                  financing.  -
              23
              -
 *Table
              of Contents*
 **The
          value of our real estate security may be insufficient.**
 
 We
          depend
          upon our real estate security to protect us on the loans that we make.
          We depend
          upon the skill of independent appraisers to value the security underlying
          our
          loans. However, notwithstanding the experience of the appraisers, they
          may make
          mistakes, or the value of the real estate may decrease due to subsequent
          events.
          Our appraisals are generally dated within 12 months of the date of loan
          origination and may have been commissioned by the borrower. Therefore,
          the
          appraisals may not reflect a decrease in the value of the real estate due
          to
          events subsequent to the date of the appraisals. In addition, most of the
          appraisals will be prepared on an “as if-developed basis,” which approximates
          the post-construction value of the collateralized property assuming that
          such
          property is developed. As if-developed values on new land loans or acquisition
          and development loans often dramatically exceed the immediate sales value
          and
          may include anticipated zoning changes and timely successful development
          by the
          purchaser. If the loan goes into default prior to completion of the project,
          the
          market value of the property may be substantially less than the appraised
          value.
          As a result, there may be less security than anticipated at the time the
          loan
          was originally made. If there is less security and a default occurs, we
          may not
          recover the full amount of our loan, thus reducing the amount of funds
          available
          to distribute.
 
 **We
          may invest in unimproved land which does not generate income.**
 
 We
          may
          invest approximately 15%, and not more than 25%, of our total real estate
          loan
          assets in loans to purchase or develop raw, unimproved land. Generally,
          we will
          determine whether to invest in these loans based upon the appraised value
          of the
          property and the borrower’s actual capital investment in the property. We intend
          to invest in loans with a face value of up to 60% of the as-if developed
          appraised value of the property and we will usually require that the borrower
          have invested in the property actual capital expenditures of at least 25%
          of the
          property’s value. As-if developed values on raw and unimproved land loans often
          dramatically exceed the immediate sales value and may include anticipated
          zoning
          changes, selection of a purchaser against multiple alternatives, and successful
          development by the purchaser; upon which development is dependent on
          availability of financing. These loans are riskier because the property
          is not
          capable of generating any income, as compared to a commercial
          property.
 
 **We
          may invest in acquisition and development loans which do not generate
          income.**
 
 We
          may
          invest about 10% to 25% of our total real estate loan assets in acquisition
          and
          development loans. These loans enable borrowers to acquire and/or complete
          the
          basic infrastructure and development of their property prior to the construction
          of buildings or structures. Such development may include installing utilities,
          sewers, water pipes, and/or streets. Generally, we may invest in loans
          with a
          face value of up to 60% of the as-if developed appraised value of the property.
          Such appraisals have the same valuation limitations as raw and unimproved
          land
          loans, described above.
 
 **We
          may invest in construction loans which do not generate
          income.**
 
 We
          may
          invest 10% to 70% of our total real estate loan assets in construction
          loans.
          These are loans generally made to real estate developers to fund the
          construction of one or more buildings on real property. Funds under this
          type of
          loan will generally not be forwarded to the borrower until work in the
          previous
          phase of the project has been completed and an independent inspector has
          verified certain aspects of the construction and its costs. We will typically
          require material and labor lien releases by the borrower per completed
          phase of
          the project. We will review the appraised value of the property and proposed
          improvements, and will arrange loans for up to 75% of the as-if developed
          appraised value. Such appraisals have the same valuation limitations as
          raw and
          unimproved land loans, described above. These loans are riskier than loans
          secured by income producing properties because during construction the
          borrower
          does not receive income from the property to make payments on the
          loan.
 -
              24
              -
 *Table
              of Contents*
 **Our
          investments in commercial property loans may not yield the anticipated
          increase
          in value and income.**
 
 We
          expect
          to invest approximately 20% to 50% of our total real estate loan assets
          in
          commercial property loans. These loans provide funds to allow commercial
          borrowers to acquire income-producing property or to improve or renovate
          property to increase the value or net operating income of the property
          so that
          it may qualify for institutional refinancing. Bridge loans are a subcategory
          of
          commercial loans in which we provide interim financing to enable commercial
          borrowers to qualify for permanent refinancing. We will review the appraised
          value of the property and will invest in loans for up to 75% of such appraised
          value. To the extent such loans include renovations, appraisals may include
          as-if developed valuations with the limitations described above. These
          loans are
          riskier because there is no assurance that the commercial borrower will
          qualify
          for the refinancing or that the improvements will yield the anticipated
          increase
          in value and income.
 
 **We
          may invest in residential loans.**
 
 We
          may
          invest approximately 5% of our total real estate loan assets in residential
          loans. Such loans facilitate the purchase or refinance of one to four family
          residential property units provided the borrower used one of the units
          on the
          property as such borrower’s principal residence. We will review the appraisal of
          the value of the property and will invest in loans for up to 75% of such
          appraised value.
 
 **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.
 
 **Balloon
          payments require sufficient resources to make payment when
          due.**
 
 We
          anticipate that 90% to 100% of our loans will require the borrower to make
          a
“balloon payment” on the principal amount upon maturity of the loan. A balloon
          payment is a large principal balance that is payable after a period of
          time
          during which the borrower has repaid none or only a small portion of the
          principal balance. Loans with balloon payments are riskier than loans with
          even
          payments of principal over an extended time period like 15 or 30 years
          because the borrower’s repayment depends on its ability to sell the property
          profitably, obtain suitable refinancing or otherwise raise a substantial
          amount
          of cash when the loan comes due. There are no specific criteria used in
          evaluating the credit quality of borrowers for real estate loans requiring
          balloon payments. Furthermore, a substantial period of time may elapse
          between
          the review of the financial statements of the borrower and the date when
          the
          balloon payment is due. As a result, there is no assurance that a borrower
          will
          have sufficient resources to make a balloon payment when due.
 
 **Investment
          in large loans may reduce our ability to diversify our loan
          portfolio.**
 
 We
          will
          generally invest in loans that constitute an amount equal to less than
          5% of our
          total capital. However, we may invest in a larger loan depending on such
          factors
          as the performance of the Fund and the value of the collateral. These larger
          loans are risky because they may reduce our ability to diversify our loan
          portfolio.
 
 **Taking
          a lease interest as collateral only provides a right to assume the borrower’s
          obligations under the lease.**
 
 We
          may
          invest up to 20% of our total real estate loan assets in loans where the
          collateral is an interest in a lease. These loans are riskier because the
          only
          rights we will have are to assume the borrower’s obligations under the lease and
          to use the property for the length of time and in the limited manner permitted
          under the lease.
 -
              25
              -
 *Table
              of Contents*
 **Our
          underwriting standards and procedures are more lenient than conventional
          lenders.**
 
 We
          will
          invest in loans to borrowers who may not be required to meet the credit
          standards of conventional real estate lenders and we will approve real
          estate
          loans more quickly than other real estate lenders. Generally, we will not
          spend
          more than 20 days assessing the character and credit history of our borrowers.
          Due to the nature of loan approvals, there is a risk that the credit inquiry
          we
          perform will not reveal all material facts pertaining to the borrower and
          the
          security. There may be a greater risk of default by our borrowers which
          may
          impair our ability to make distributions or may reduce the amount we have
          available to distribute, particularly in the case of foreclosures.
 
 **Our
          loans are not guaranteed by any government agency.**
 
 Our
          loans
          will not be insured or guaranteed by a federally owned or guaranteed mortgage
          agency. Consequently, our recourse if there is a default may only be to
          foreclose upon the real property. The value of the foreclosed property
          may have
          decreased and may not be equal to the amount outstanding under the corresponding
          loan, resulting in a decrease of the amount available to distribute.
 
 **Our
          real estate loans will not be marketable and we expect no secondary market
          to
          develop.**
 
 We
          do not
          expect our real estate loans to be marketable and we do not expect a secondary
          market to develop for them. As a result, we will generally bear all the
          risk of
          our investment until the loans mature. This will limit our ability to hedge
          our
          risk in changing real estate markets and may result in reduced returns
          to our
          Members.
 
 **Our
          loan portfolio may be riskier if it is not diversified
          geographically.**
 
 Initially
          we intend to invest in real estate loans throughout the areas in which
          Vestin
          Mortgage and its correspondents have experience, specifically Arizona,
          California, Hawaii, Nevada and Texas. Depending on the market and on the
          Company’s performance, we plan to expand our investments throughout the United
          States. However, Vestin Mortgage has limited experience outside of the
          Southwest. Real estate markets vary greatly from location to location and
          the
          rights of secured real estate lenders vary considerably from state to state.
          Vestin Mortgage’s limited experience in most U.S. real estate markets may impact
          its ability to make prudent investment decisions on our behalf. Accordingly,
          where Vestin Mortgage deems it necessary, it plans to utilize independent
          real
          estate advisors and local legal counsel located in markets where Vestin
          Mortgage
          lacks experience for consultation prior to making investment decisions.
          Members
          will not have an opportunity to evaluate the qualifications of such advisors
          and
          no assurance can be given that they will render prudent advice to our Manager.
 
 **We
          may have difficulty protecting our rights as a secured
          lender.**
 
 We
          believe that our loan documents will enable us to enforce our commercial
          arrangements with borrowers. However, the rights of borrowers and other
          secured
          lenders may limit our practical realization of those benefits. For example:
 
 ·
              Judicial
                  foreclosure is subject to the delays of protracted litigation.
                  Although we
                  expect non-judicial foreclosure to be quicker, our collateral may
                  deteriorate and decrease in value during any delay in foreclosing
                  on
                  it. 
 ·
              The
                  borrower’s right of redemption during foreclosure proceedings can deter
                  the sale of our collateral and can for practical purposes require
                  us to
                  manage the property. 
 ·
              Unforeseen
                  environmental hazards may subject us to unexpected liability and
                  procedural delays in exercising our
                  rights. 
 ·
              The
                  rights of senior or junior secured parties in the same property
                  can create
                  procedural hurdles for us when we foreclose on
                  collateral. 
 ·
              We
                  may not be able to pursue deficiency judgments after we foreclose
                  on
                  collateral.  -
              26
              -
 *Table
              of Contents*
 
 ·
              State
                  and federal bankruptcy laws can prevent us from pursuing any actions,
                  regardless of the progress in any of these suits or
                  proceedings. 
 **By
          becoming the owner of property, we may become liable for unforeseen
          environmental obligations.**
 
 We
          intend
          to acquire income producing properties such as office, industrial and retail
          properties, multi-family residential units and assisted living facilities
          and
          other income producing real property, such as parking lots, hotels and
          restaurants. In addition, we intend to own real property if we foreclose
          on a
          defaulted loan and purchase the property at the foreclosure sale. Under
          applicable environmental laws, any owner of real property may be fully
          liable
          for the costs involved in cleaning up any contamination by materials hazardous
          to the environment. Even though we might be entitled to indemnification
          from the
          person that caused the contamination, there is no assurance that the responsible
          person would be able to indemnify us to the full extent of our liability.
          Furthermore, we would still have court and administrative expenses for
          which we
          may not be entitled to indemnification.
 
 **Our
          results are subject to fluctuations in interest rates and other economic
          conditions.**
 
 ·
              We
                  expect that a majority of our loans will not have a prepayment
                  penalty.
                  Should interest rates decrease, our borrowers may prepay their
                  outstanding
                  loans with us in order to receive a more favorable rate. This may
                  reduce
                  the amount of funds we have available to
                  distribute. 
 ·
              Our
                  results of operations will vary with changes in interest rates
                  and with
                  the performance of the relevant real estate markets. If the economy
                  is
                  healthy, we expect that more people will be borrowing money to
                  acquire,
                  develop or renovate real property. However, if the economy grows
                  too fast,
                  interest rates may increase too much and the cost of borrowing
                  may become
                  too expensive. Alternatively, if the economy enters a recession,
                  real
                  estate development may slow. A slowdown in real estate lending
                  may mean we
                  will have fewer loans to acquire, thus reducing our revenues and
                  the
                  distributions to members. 
 ·
              One
                  of the results of interest rate fluctuations is that borrowers
                  seek to
                  extend their low-interest-rate real estate loans after market interest
                  rates have increased. Generally, our loan documents permit us to
                  raise the
                  interest rate we charge on extended loans anywhere from between
                  0.75% to
                  3% from the then-current rate on the loan. This creates two risks
                  for
                  us: 
 ·
              There
                  is no assurance that this permitted rate increase will be adequate
                  if
                  interest rates have increased beyond the range contemplated by
                  our loan
                  documents. If interest rates rise, borrowers under loans with monthly
                  or
                  quarterly principal payments may be compelled to extend their loans
                  to
                  decrease the principal paid with each payment because the interest
                  component has increased. If this happens, we are likely to be at
                  a greater
                  risk of the borrower defaulting on the extended loan, and the increase
                  in
                  the interest rate on our loan may not be adequate compensation
                  for the
                  increased risk. Additionally, any fees paid to extend the loan
                  are paid to
                  Vestin Mortgage, not to us. Our revenues and distributions will
                  decline if
                  we are unable to reinvest at higher rates or if an increasing number
                  of
                  borrowers default on their loans. 
 ·
              If,
                  at a time of relatively low interest rates, a borrower should prepay
                  obligations that have a higher interest rate from an earlier period,
                  we
                  will likely not be able to reinvest the funds in real estate loans
                  earning
                  that higher rate of interest. In the absence of a prepayment fee,
                  we will
                  receive neither the anticipated revenue stream at the higher rate
                  nor any
                  compensation for its loss. This is a risk if the loans we invest
                  in do not
                  have prepayment penalties or exit fees. 
 ·
              Our
                  results will also reflect other economic conditions, such as a
                  particular
                  industry migrating to or from one of the states into which we make
                  loans.  -
              27
              -
 *Table
              of Contents*
 **We
          face competition for real estate loans that may reduce available yields
          and
          fees.**
 
 Our
          competitors consist primarily of conventional mortgage lenders and mortgage
          loan
          investors including commercial banks, insurance companies, mortgage brokers,
          pension funds and other institutional lenders. Many of the companies against
          which we and Vestin Mortgage compete have substantially greater financial,
          technical and other resources than either the Fund or Vestin Mortgage.
          Additionally, if our competition decreases interest rates on their loans
          or
          makes funds more easily accessible, yields on our loans could decrease
          and the
          costs associated with making loans could increase, both of which would
          reduce
          our revenues and the distributions members receive.
 
 **Our
          lending operations are subject to certain regulatory
          requirements.**
 
 As
          a
          company investing in real estate loans and rural property and having raised
          funds through a public offering, we are subject to the NASAA Mortgage Program
          Guidelines promulgated by the state securities administrators. The NASAA
          Guidelines govern, among other things, our debt to equity ratio and the
          diversity and composition of our investments. For example, the NASAA Guidelines
          provide that we may not invest in or make real estate loans to or from
          any one
          borrower which would exceed, in the aggregate, an amount greater than 20%
          of the
          capital contributions which we have raised. Additionally, the NASAA Guidelines
          require reserves of not less than 1% of the offering proceeds. The NASAA
          Guidelines are intended to protect the interests of investors. However,
          our
          flexibility in making business decisions may be limited by our obligation
          to
          comply with the NASAA Guidelines.
 
 **MANAGEMENT
          RISKS**
 
 We
          must
          rely on Vestin Mortgage to manage our operations and select our loans and
          real
          property for investment. Our ability to achieve our investment objectives
          and to
          pay distributions depends upon Vestin Mortgage's performance (i) in obtaining,
          processing, making and brokering loans for us to invest in and determining
          the
          financing arrangements for borrowers and (ii) in the acquisition of our
          investments, the selection of tenants and the determination of any financing
          arrangements
 
 **Vestin
          Mortgage has limited experience in acquiring and managing real
          properties.**
 
 Our
          performance and ability to pay distributions depends largely upon the
          performance of Vestin Mortgage in managing our operations. While Vestin
          Mortgage
          has substantial experience in managing funds that invest in real estate
          loans,
          it has limited experience in the business of acquiring and managing real
          properties. Vestin Mortgage is not engaged in the business of acquiring
          and
          managing real properties nor has it ever managed a fund which is engaged
          in the
          business of acquiring real properties. Vestin Mortgage has managed and
          disposed
          of real properties which were acquired through foreclosure. In addition,
          one of
          its principals has some experience in acquiring and managing multi-family
          residential properties and office buildings. However, this limited experience
          may be insufficient to enable Vestin Mortgage to successfully manage our
          investments in real property. As a result of its limited experience, Vestin
          Mortgage may make errors of judgment in selecting properties for us to
          acquire
          and may encounter difficulties in managing such properties. Poor performance
          by
          Vestin Mortgage may reduce our income and may reduce our distributions.
 
 **Our
          Manager lacks experience with certain real estate markets.**
 
 Initially
          we intend to invest in real estate loans and real property throughout the
          areas
          in which Vestin Mortgage and its correspondents have experience, specifically
          Arizona, California, Hawaii, Nevada and Texas. Accordingly, members’ investment
          will be dependent upon the economy in the Southwest. Depending on the market
          and
          on the Fund’s performance, we plan to expand our investments throughout the
          United States. Real estate markets vary greatly from location to location
          and
          the rights of secured real estate lenders vary considerably from state
          to state.
          Vestin Mortgage’s limited experience in most U.S. real estate markets may impact
          its ability to make prudent investment decisions on our behalf. Accordingly,
          where Vestin Mortgage deems it necessary, it plans to utilize independent
          real
          estate advisors and local legal counsel located in markets where Vestin
          Mortgage
          lacks experience for consultation prior to making investment decisions.
          Members
          will not have an opportunity to evaluate the qualifications of such advisors
          and
          no assurance can be given that they will render prudent advice to our Manager.
 -
              28
              -
 *Table
              of Contents*
 We
          are
          limited in the number and type of properties and real estate loans in which
          we
          may invest and the value of members’ investment will fluctuate with the
          performance of the specific investments we make. We raised approximately
          $29.7
          million, and we currently are not raising additional funds through the
          sale of
          units, except through our distribution reinvestment plan. Accordingly,
          we are a
          relatively small fund and will make a limited number of investments resulting
          in
          less diversification in terms of the number of investments owned, the geographic
          regions in which our investments are located and the types of investments
          that
          we make as compared with larger funds. As a result, our performance will
          be
          closely tied to the performance of each property or loan we invest and
          a default
          on leases or a loan could materially reduce the funds available for
          distribution. Our profitability may be affected by the performance of any
          one of
          our investments and members’ investment in our units will be subject to greater
          risk.
 
 We
          depend
          on key personnel of Vestin Mortgage we do not have any directors, officers
          or
          employees. Our success depends upon the continued contributions of certain
          key
          personnel of Vestin Mortgage, including Michael V. Shustek, each of whom
          would
          be difficult to replace because of their extensive experience in the field,
          extensive market contacts and familiarity with Vestin Mortgage's activities.
          If
          any of these key employees were to cease employment, our operating results
          could
          suffer. Our future success also depends in large part upon Vestin Mortgage's
          ability to hire and retain additional highly skilled managerial, operational
          and
          marketing personnel. Vestin Mortgage may require additional operations
          and
          marketing people who are experienced in obtaining, processing, making and
          brokering loans, investing, leasing and operating real property and who
          also
          have contacts in the market. The size of our loan and real estate portfolio
          may
          require Vestin Mortgage to hire and retain additional financial and accounting
          personnel to assist in managing Vestin Mortgage's accounting services.
          Competition for accounting personnel is intense, and we cannot assure members
          that Vestin Mortgage will be successful in attracting and retaining skilled
          personnel. Should Vestin Mortgage be unable to attract and retain key personnel,
          the ability of Vestin Mortgage to make prudent investment decisions on
          our
          behalf may be impaired.
 
 Any
          indemnification of our Manager by us will decrease the amount available
          for
          distribution. Pursuant to our Operating Agreement, we may be required to
          indemnify Vestin Mortgage or any of its affiliates, agents, or attorneys
          from
          any action, claim or liability arising from any act or omission made in
          good
          faith and in performance of its duties under the Operating Agreement. The
          availability of such indemnification may reduce the amount of funds we
          have
          available for distribution.
 
 
 **CONFILICTS
          OF INTEREST RISKS**
 
 **Vestin
          Mortgage will face conflicts of interest arising from our fee structure.**
 
 Vestin
          Mortgage will receive substantial fees for brokering and managing our real
          property investments. Vestin Mortgage will also receive substantial fees
          from
          borrowers for transactions involving real estate loans. Many of these fees
          are
          paid on an up-front basis. Vestin Mortgage's compensation is based on the
          volume
          and size of the real estate loans selected for us. Our interests may diverge
          from those of Vestin Mortgage and Mr. Shustek to the extent that Vestin
          Mortgage
          benefits from up-front fees which are not shared with us.
 
 Vestin
          Mortgage will be receiving fees from borrowers that would otherwise increase
          our
          returns. Because Vestin Mortgage receives all of these fees, including
          brokering
          and management fees for our real property, our interests will diverge from
          those
          of Vestin Mortgage when our Manager decides whether we should charge the
          borrower higher interest rates or Vestin Mortgage should receive higher
          fees
          from the borrower or whether we should purchase or sell real property or
          in the
          leasing of our buildings or in determining our advisory fees.
 -
              29
              -
 *Table
              of Contents*
 **Vestin
          Mortgage will face conflicts of interest concerning the allocation of its
          personnel's time.**
 
 Vestin
          Mortgage is the manager of Vestin Fund I, LLC ("Vestin Fund I''), Vestin
          Fund
          II, LLC ("Vestin Fund II'') and inVestin Nevada, Inc. ("inVestin Nevada''),
          funds with investment objectives similar to ours. Vestin Fund I has raised
          $100
          million pursuant to a registration statement on Form S-11 initially filed
          with
          the Securities Exchange Commission on August 23, 2000. Vestin Fund II had
          raised
          approximately $476 million as of December 31, 2004 pursuant to a registration
          statement on Form S-11 initially filed with the Securities and Exchange
          Commission on December 31, 2000. inVestin Nevada is seeking to raise $100
          million through the sale of subordinated notes to Nevada residents pursuant
          to a
          registration statement filed with the Securities Division of the Nevada
          Secretary of State and in reliance on exemption from registration requirements
          provided by Section 3(a)(11) of the Securities Act of 1933 and Rule 147
          thereunder. As of June 30, 2005, inVestin Nevada had raised approximately
          $45
          million. Vestin Mortgage and Mr. Shustek, who indirectly owns 100% of Vestin
          Mortgage, anticipate that they will also sponsor other real estate programs
          having investment objectives similar to ours. As a result, Vestin Mortgage
          may
          have conflicts of interest in allocating their time and resources between
          our
          business and those other activities. During times of intense activity in
          other
          programs and ventures, Vestin Mortgage and its key personnel, including
          Mr.
          Shustek, will likely devote less time and resources to our business than
          they
          ordinarily would. If Vestin Mortgage does not spend sufficient time managing
          our
          operations we may not meet our investment objectives.
 
 **Vestin
          Mortgage will face conflicts of interest relating to other investments
          in real
          estate loans.**
 
 We
          may
          invest in real estate loans when one or more other companies managed by
          Vestin
          Mortgage are also investing in real estate loans. There is a risk that
          Vestin
          Mortgage may select for us a real estate loan investment that provides
          lower
          returns than a real estate loan investment purchased by another Vestin
          Mortgage
          program or entity. Vestin Mortgage also serves as a manager for Vestin
          Fund I,
          Vestin Fund II and inVestin Nevada, funds which have similar investment
          objectives as our Fund. There are no restrictions or guidelines on how
          Vestin
          Mortgage will determine which loans are appropriate for us and which are
          appropriate for Vestin Fund I, Vestin II, inVestin Nevada or any another
          company
          which Vestin Mortgage manages.
 
 **Vestin
          Mortgage will face conflicts of interest in selecting real estate loans
          for
          us.**
 
 In
          the
          event we purchase real property by incurring debt, Vestin Mortgage may
          lend us
          money directly or Vestin Mortgage could select one of its affiliates as
          our
          lender or Vestin Mortgage will select a third party as our lender. There
          is also
          a risk that Vestin Mortgage may select a loan for us that provides for
          a higher
          interest rate than we may otherwise be able to obtain.
 
 **We
          may have a lack of control over participations.**
 
 We
          will
          consider investing in or purchasing loans and properties jointly with other
          lenders and purchasers, some of whom might be affiliates of Vestin Mortgage.
          We
          will initially have, and will maintain a controlling interest as lead lender
          in
          participations with non-affiliates. Although it is not our intention to
          lose
          control, there is a risk that we will be unable to remain as the lead lender
          in
          the loans in which we participate in the future. In the event of participation
          with a publicly registered affiliate, the investment objectives of the
          participants shall be substantially identical. There shall be no duplicate
          fees.
          The compensation to the sponsors must be substantially identical, and the
          investment of each participant must be on substantially the same terms
          and
          conditions. Each participant shall have a right of first refusal to buy
          the
          other's interest if the co-participant decides to sell its interest. We
          will not
          participate in joint ventures or partnerships with affiliates that are
          not
          publicly registered except as permitted in the NASAA Guidelines. If our
          co-participant affiliate determines to sell its interest in the loan or
          property, there is no guarantee that we will have the resources to purchase
          such
          interest and we will have no control over a sale to a third party
          purchaser.
 
 **ITEM
          1B.**  **UNRESOLVEDSTAFF
          COMMENTS**
 
 None.
 -
              30
              -
 *Table
              of Contents*
 **ITEM
          2.**  **PROPERTIES**
 
 Our
          Manager, Vestin Mortgage, operates from its executive offices at 8379 West
          Sunset Road, Las Vegas, Nevada 89113. We do not have any separate
          offices.
 
 Our
          Manager’s offices are located in a 42,000 square foot office building, which is
          owned by us. This building is fully leased to Vestin Group, the parent
          corporation of our Manager, earning us monthly rent revenue of approximately
          of
          $87,000. The lease agreement expires in March 2014. Vestin Group has sub-leased
          office space in the building as permitted by the lease agreement at rates
          equal
          to or less than rates we receive.
 
 **ITEM
          3.**  **LEGALPROCEEDINGS**
 
 **Legal
          Matters Involving Our Manager**
 
 Vestin
          Group, Vestin Mortgage, and Del Mar Mortgage, Inc., a company wholly owned
          by
          Michael V. Shustek, the sole shareholder and CEO of Vestin Group, are defendants
          in a civil action entitled Desert Land, LLC et al. v. Owens Financial Group,
          Inc. et al (the “Action”). The Action is based upon allegations that Del Mar
          Mortgage and/or Vestin Mortgage charged unlawful fees on various loans
          arranged
          by them. Desert Land sought in excess of $10 million in monetary damages.
          On
          April 10, 2003, the United States District Court for the District of Nevada
          (the
“Court”) entered judgment jointly and severally in favor of Desert Land against
          Vestin Group, Vestin Mortgage and Del Mar Mortgage, Inc. Judgment was predicated
          upon the Court’s finding that Del Mar Mortgage, Inc. received an unlawful
          penalty fee from the plaintiffs.
 
 The
          defendants subsequently filed a motion for reconsideration. The Court denied
          the
          motion and, on August 13, 2003, held that Vestin Group, Vestin Mortgage,
          and Del Mar Mortgage, Inc. are jointly and severally liable for the judgment
          in
          the amount of $5,683,312 (which amount includes prejudgment interest and
          attorney’s fees). On August 27, 2003, the Court stayed execution of the judgment
          against Vestin Group and Vestin Mortgage based upon the posting of a bond
          in the
          amount of $5,830,000. Mr. Shustek personally posted a cash bond without
          any cost
          or obligation to Vestin Group and Vestin Mortgage. Additionally, Del Mar
          Mortgage, Inc. has indemnified Vestin Group and Vestin Mortgage for any
          losses
          and expenses in connection with the Action, and Mr. Shustek has guaranteed
          the
          indemnification with his cash bond. On September 12, 2003, all of the defendants
          held liable to Desert Land appealed the judgment to the United States Court
          of
          Appeals for the Ninth Circuit, which heard the case on October 18, 2005.
          On
          November 15, 2005, the Ninth Circuit vacated the judgment of the District
          Court
          and dismissed the state law claims against the defendants without prejudice
          on
          the basis that the District Court lacked subject matter jurisdiction in
          the
          case. On November 29, 2005, Desert Land petitioned the Ninth Circuit Court
          for
          rehearing with a suggestion that the matter be heard en banc. On December
          16,
          2005, the District Court issued an Order releasing the Bond, and on January
          6,
          2006, the Ninth Circuit denied Desert Land’s petition and the matter remains
          dismissed. We were not a party to the action.
 
 Our
          Manager is involved in a number of legal proceedings concerning matters
          arising
          in connection with the conduct of its business activities. The Manager
          believes
          it has meritorious defenses to each of these actions and intends to defend
          them
          vigorously. The Manager believes that it is not a party to any pending
          legal or
          arbitration proceedings that would have a material adverse effect on the
          Manager’s financial condition or results of operations or cash flows, although
          it is possible that the outcome of any such proceedings could have a material
          impact on the Manager’s net income in any particular period.
 
 **Legal
          Matters Involving the Company**
 
 The
          staff
          of the Pacific Regional Office of the United States Securities and Exchange
          Commission (SEC) conducted an investigation into certain matters related
          to us,
          Vestin Group, Vestin Mortgage, Vestin Capital, Fund I and Fund II. We have
          fully
          cooperated during the course of the investigation.
 -
              31
              -
 *Table
              of Contents*
 The
          Staff
          has notified us, Fund I, Fund II, our Manager, Vestin Capital and Michael
          V.
          Shustek, the Principal Executive Officer of our Manager and Vestin Capital,
          or
          collectively the Vestin Entities, that they intend to seek authority to
          bring an
          enforcement proceeding against the Vestin Entities alleging violations
          of
          Section 17 (a) of the Securities Act of 1933, Section 10 (b) of the Securities
          Exchange Act of 1934 and Rule 10b-5 thereunder based upon certain sales
          practices employed for a period of time by the Vestin Entities. Specifically,
          the SEC Staff has advised that they believe certain slides used at sales
          seminars held to promote the sale of Fund II and Fund III units included
          disclosure regarding distributions to members of Fund I and Fund II that
          were
          misleading. The Vestin Entities are engaged in discussions with the Staff
          regarding the proposed recommendation and any remedies, which might be
          sought by
          the SEC Staff. Based upon these discussions, we currently believe that
          neither
          we nor Fund I, and Fund II will be named as parties in the enforcement
          recommendation. These settlement negotiations are ongoing and, at this
          time, we
          do not know if a mutually acceptable settlement will be reached.
 
 We
          are
          involved in a number of legal proceedings concerning matters arising in
          connection with the conduct of our business activities. We believe we have
          meritorious defenses to each of these actions and intend to defend them
          vigorously. We believe that we are not a party to any pending legal or
          arbitration proceedings that would have a material adverse effect on our
          financial condition or results of operations or cash flows, although it
          is
          possible that the outcome of any such proceedings could have a material
          impact
          on our net income in any particular period.
 
 **ITEM
          4.**  **SUBMISSIONOF
          MATTERS TO A VOTE OF SECURITY
          HOLDERS**
 
 On
          January 17, 2005, our members approved certain amendments to our Operating
          Agreement at a Special Meeting of the members. The amendments are described
          in
          an 8-K report we filed with the SEC on January 20, 2005, as amended on
          January
          21, 2005.
  **PARTII**
 
 **ITEM
          5.**  **MARKETFOR
          REGISTRANT’S COMMON 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
          December 31, 2005, approximately 811 Unit holders held 2,974,419 Units
          of
          interest in the Company.
 
 **Dividend
          Policy**
 
 We
          generally distribute to members 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 U.
          S.
          generally accepted accounting principles (GAAP). Our Operating Agreement
          also
          permits distributions in excess of Net Income Available for Distribution.
          We
          made distributions of $2,555,000 (prior to reinvested distributions) during
          the
          year ended December 31, 2005, of which $11,000 represented distributions
          in
          excess of Net Income Available for Distribution. It is our intention to
          continue
          to distribute most of our Net Income Available for Distribution to our
          unit
          holders.
 
 **Recent
          Sales of Unregistered Securities**
 
 None.
 
 **Equity
          Compensation Plan Information**
 
 None.
 -
              32
              -
 *Table
              of Contents*
 **Purchases
          of Equity Securities by the Issuer and Affiliated
          Purchasers**
  **Period**
                **Total
                    Number of Units Purchased (1)**
                **Average
                    Price Paid per Unit**
                **Total
                    Number of Units Purchased as Part of Publicly Announced Plans
                    or
                    Programs**
                **Maximum
                    Number (or Approximate Dollar Value) of Units that May Yet be
                    Purchased
                    under the Plans or Programs**October
                    2005
                1,681
                $10.30
                None
                NoneNovember
                    2005
                571
                $10.30
                None
                NoneDecember
                    2005
                14,374
                $10.50
                None
                None
 
 (1)
              Pursuant
                  to our Operating Agreement, members may request to have their units
                  redeemed. However, in order to comply with our Operating Agreement
                  and the
                  Internal Revenue Code, we may redeem no more than 10% of the aggregate
                  members’ capital in any calendar year. Balances in members’ capital
                  accounts as of January 1, 2005 were approximately $24.8 million,
                  which
                  limited redemptions to approximately $2.5 million for calendar
                  year
                  2005. 
 **ITEM
          6.**  **SELECTEDFINANCIAL
          DATA**
 
 **December
                    31, 2005**
                
                **December
                    31, 2004**
                
                **December
                    31, 2003****Balance
                    Sheet Data:**Cash,
                    Cash Equivalents, Certificates of Deposits and Short-term
                    Investments
                
                $
                1,167,000
                
                $
                6,286,000
                
                $
                5,000Interest
                    and Other Receivables
                
                
                194,000
                
                
                127,000
                
                
                --Investments
                    in Real Estate Loans (Net of Allowance)
                
                
                22,964,000
                
                
                13,520,000
                
                
                --Investment
                    in Real Property (Net of Depreciation)
                
                
                9,591,000
                
                
                9,814,000
                
                
                --Capitalized
                    Loan Fees (Net of Allowance)
                
                
                99,000
                
                
                111,000
                
                
                --Assets
                    Under Secured Borrowing
                
                
                527,000
                
                
                2,590,000
                
                
                --Deferred
                    Rent Receivable
                
                
                168,000
                
                
                --
                
                
                --Deferred
                    Offering Costs
                
                
                --
                
                
                926,000
                
                
                667,000Total
                    Assets
                
                $
                34,710,000
                
                $
                33,374,000
                
                $
                672,000Liabilities
                
                
                5,551,000
                
                
                8,612,000
                
                
                673,000Members’
                    Equity
                
                
                29,159,000
                
                
                24,762,000
                
                
                (1,000
                )Total
                    Liabilities and Members’ Equity
                
                $
                34,710,000
                
                $
                33,374,000
                
                $
                672,000**For
                    the Year Ended December 31, 2005**
                
                
                **For
                    the Year Ended December 31, 2004**
                
                
                **For
                    the Period From April 16, 2003 (Inception) To December 31,
                    2003****Income
                    Statement Data:**Revenues
                
                $
                3,616,000
                
                $
                2,360,000
                
                $
                --Expenses
                
                $
                1,294,000
                
                $
                990,000
                
                $
                1,000Net
                    Income (Loss)
                
                $
                2,322,000
                
                $
                1,370,000
                
                $
                (1,000
                )Net
                    Income (Loss) Allocated to Members
                
                $
                2,322,000
                
                $
                1,370,000
                
                $
                (1,000
                )Net
                    Income Allocated to Members per Weighted Average Membership
                    Units
                
                $
                0.82
                
                $
                0.78
                
                $
                --Cash
                    Distributions
                
                $
                2,555,000
                
                $
                1,350,000
                
                $
                --Cash
                    Distributions per Weighted Average Membership Units
                
                $
                0.91
                
                $
                0.77
                
                $
                --Weighted
                    Average Membership Units
                
                
                2,817,055
                
                
                1,751,700
                
                
                --
  -
              33
              -
 *Table
              of Contents*
 The
          information in this table should be read in conjunction with the accompanying
          audited financial statements and notes to financial statements included
          elsewhere in this document.
 
 **ITEM
          7.**  **MANAGEMENT’SDISCUSSION
          AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS**
 
 **OVERVIEW**
 
 Our
          real
          estate loan program objective is to generate monthly income 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 traditional real estate lenders. The loan underwriting standards
          our
          Manager utilizes are less strict than traditional real estate lenders.
          In
          addition, we believe one of our competitive advantages is our ability to
          approve
          loan applications more quickly than traditional lenders. As a result, in
          certain
          cases, we may make real estate loans, which are riskier than real estate
          loans
          made by commercial banks. However, in return we seek a higher interest
          rate and
          our Manager takes steps to mitigate the lending risks such as imposing
          a lower
          loan to value ratio. While we may assume more risk than traditional real
          estate
          lenders, in return, we seek to generate higher yields from our real estate
          loans.
 
 Our
          real
          estate program objective is to invest in income-producing multifamily
          residential units, assisted living facilities, office buildings, industrial
          and
          retail properties and other income-producing real property, such as hotels
          and
          resorts, restaurants, parking lots and amusement parks. Our Manager intends
          to
          apply its prior experience in investing in real estate loans to its evaluation
          and investment in real property on our behalf. Accordingly, we intend to
          invest
          in real property throughout the areas in which Vestin Mortgage and its
          correspondents have experience.
 
 Our
          operating results depend primarily upon (i) the amount of capital we have
          to
          invest in real estate loans and income producing real estate, (ii) the
          level of
          real estate lending activity in the markets we service, (iii) our ability
          to
          identify and work with suitable borrowers, (iv) the interest rates we are
          able
          to charge on our loans, (v) our ability to identify and acquire suitable
          income-producing properties, (vi) the level of rents or other income we
          are able
          to generate from our acquired properties, (vii) the level of non-performing
          assets and loan losses which we experience, and (viii) negative fluctuations
          in
          the fair market value of income-producing properties that we own.
 
 Adverse
          economic conditions during the next year could have a material impact on
          the
          collectibility of our loans. Recognizing the risk, we seek to maintain
          an
          adequate loan-to-value ratio, which, as of December 31, 2005, was 60% on
          a
          weighted average basis, generally using appraisals prepared on an as-if
          developed basis in connection with the loan origination. In this manner,
          we hope
          to retain sufficient cushion in the underlying equity position to protect
          the
          value of our loan in the event of a default. Nevertheless, a marked increase
          in
          loan defaults accompanied by a rapid decline in real estate values could
          result
          in losses on defaulted loans that would have a material adverse effect
          upon our
          financial condition and operating results.
 
 As
          of
          December 31, 2005, 18% of the principal amount of our loans was secured
          by real
          estate in Nevada, while 25% and 24% were secured by real estate in Arizona,
          and
          California, respectively. Such geographical concentration creates greater
          risk
          that any downturn in such local real estate markets could have a significant
          adverse effect upon our results of operations. If we enter into another
          recession, particularly in any of the identified states, our operating
          results
          could be adversely affected.
 
 In
          accordance with Section 7.8 of our Operating Agreement, our Manager reviewed
          the
          value of our assets during the last quarter of fiscal 2005. Based on this
          review, as a result of an increase in the value of our assets, the value
          of
          members’ capital accounts was adjusted from $10.30 per unit to $10.50 per unit.
          As a result, units redeemed on or after December 15, 2005 have been redeemed
          at
          $10.50 per unit. The change in valuation is primarily for tax and capital
          account purposes and does not reflect the change in the value of the units
          calculated in accordance with GAAP. Accordingly, unit prices calculated
          under
          GAAP may be different than the adjusted price per unit.
 -
              34
              -
 *Table
              of Contents*
 **SUMMARY
          OF FINANCIAL RESULTS**
 
 **For
                    the Year Ended December 31, 2005**
                
                **For
                    the Year Ended December 31, 2004**
                
                **For
                    the Period From April 16, 2003 (Inception) To December 31,
                    2003**Total
                    revenues
                
                $
                3,616,000
                
                $
                2,360,000
                
                $
                --Total
                    expenses
                
                
                1,294,000
                
                
                990,000
                
                
                1,000Net
                    income (loss)
                
                $
                2,322,000
                
                $
                1,370,000
                
                $
                (1,000
                )Net
                    income allocated to members per Weighted average membership
                    units
                
                
                0.82
                
                
                0.78
                
                
                --Annualized
                    rate of return to members (a)
                
                
                8.00%
                
                
                7.80%
                
                
                --Cash
                    distributions
                
                $
                2,555,000
                
                $
                1,350,000
                
                $
                --Cash
                    distributions per weighted average membership unit
                
                $
                0.91
                
                $
                0.77
                
                $
                --Weighted
                    average membership units
                
                
                2,817,055
                
                
                1,751,700
                
                
                --Weighted
                    average term of outstanding loans
                
                
                15
                    months
                
                
                18
                    months
                
                
                --
 
 (a)
              The
                  annualized rate of return to members is calculated based upon the
                  GAAP net
                  income allocated to members per weighted average units as of December
                  31,
                  divided by the number of days during the period (365 days and 366
                  days for
                  the year ended December 31, 2005 and 2004, respectively) and multiplied
                  by
                  three hundred and sixty five (365) days, then divided by the cost
                  per unit
                  ($10.30 and $10.00 for 2005 and 2004,
                  respectively). 
 *Total
          Revenues* :
          Revenues for the year ended December 31, 2005 increased $1.3 million or
          53.22%
          from the prior period in 2004 primarily due to the following:
 
 ·
              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 $13.6 million as of December 31, 2004 to $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 approximately $527,000 in interest income
                  related to secured borrowings, which relates to the decrease in
                  assets
                  under secured borrowings of $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
                  for 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. 
 As
          of
          December 31, 2005, our Manager had granted extensions on six loans pursuant
          to
          the terms of the original loan agreements, which permit extensions by mutual
          consent. Such extensions are generally provided on loans where the original
          term
          was 12 months or less and where a borrower requires additional time to
          complete
          a construction project or negotiate with the terms of the loan, including,
          but
          not limited to the borrower’s obligation to make interest payments on the loan.
          However, we only grant extensions when a borrower is in full compliance
          with the
          terms of the loan. The aggregate amount due from borrowers whose loans
          had been
          extended as of December 31, 2005 was approximately $7.6 million. Our Manager
          concluded that no allowance for loan loss was necessary with respect to
          these
          loans as of December 31, 2005.
 -
              35
              -
 *Table
              of Contents*
 *Total
          Expenses:* For
          the
          year ended December 31, 2005, total expenses were approximately $1.3 million
          compared to $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 approximately
                  $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 approximately
                  $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. 
 ·
              Depreciation
                  and amortization on our investment in real property increased
                  approximately $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 approximately
                  $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. 
 *Net
          Income* :
          Net
          income for the year ended December 31, 2005 totaled approximately $2.3
          million
          compared to $1.4 million for the same period in 2004, an increase of
          69%.
 
 *Annualized
          Rate of Return to Members:* For the
          year ended December 31, 2005, annualized rate of return to members as calculated
          based on GAAP net income was 8.00% as compared to 7.80% for the same period
          in
          2004.
 
 *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, 2004**Distributions
                    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
 
 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.
 -
              36
              -
 *Table
              of Contents*
 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, 2004**Distribution
                    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 a the increase in the estimated fair value of
          real
          estate held for investment, effective December 15, 2005 we adjusted the
          stated
          unit value from $10.30 per unit to $10.50 per unit to reflect the estimated
          net
          unit value of each unit at that date. The periodic review of the estimated
          net
          unit value includes an analysis of unrealized gains that our Manager reasonably
          believes exist at the time of the review, but that cannot be added to net
          asset
          value under GAAP.
 
 *Redemptions* :
          In
          order to comply with our Operating Agreement and Internal Revenue Code,
          we may
          redeem no more than 10% of the aggregate members’ capital in any calendar year.
          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 $24.8
          million, which limited redemptions to $2.5 million for calendar 2005. Total
          redemptions during the year ended December 31, 2005 were $330,000.
 
 **Investments
          in Real Estate Loans Secured by Real Estate Portfolio**
 
 We
          currently have five real estate loan products consisting of acquisition
          and
          development, commercial, construction, residential and land loans. The
          effective
          interest rates on all product categories range from 6% to 14%. Revenue
          by
          product will fluctuate based upon relative balances during the
          period.
 
 Investments
          in real estate loans as of December 31, 2005 are as follows:
 
 **Loan
                    Type**
                
                **Number
                    Of Loans**
                
                **Fund
                    Balance**
                
                **Weighted
                    Average Interest Rate**
                
                **Portfolio
                    Percentage**
                
                **Loan
                    to Value (2)**Acquisition
                    and Development
                
                
                3
                
                $
                3,806,000
                
                
                11.30%
                
                
                16.52%
                
                
                47.74%Commercial
                    (1)
                
                
                12
                
                
                12,244,000
                
                
                9.63%
                
                
                53.15%
                
                
                65.33%Construction
                
                
                2
                
                
                1,231,000
                
                
                12.00%
                
                
                5.34%
                
                
                64.50%Land
                
                
                3
                
                
                5,756,000
                
                
                11.01%
                
                
                24.99%
                
                
                56.44%20
                
                $
                23,037,000
                
                
                10.38%
                
                
                100.00%
                
                
                60.16%
 
  -
              37
              -
 *Table
              of Contents*
 Investments
          in real estate loans as of December 31, 2004 are as follows:
 
 **Loan
                    Type**
                
                **Number
                    Of Loans**
                
                **Fund
                    Balance**
                
                **Weighted
                    Average Interest Rate**
                
                **Portfolio
                    Percentage**
                
                **Loan
                    To Value (2)**Acquisition
                    and Development
                
                
                3
                
                $
                6,319,000
                
                
                10.90%
                
                
                46.49%
                
                
                56.74%Commercial
                    (1)
                
                
                3
                
                
                4,848,000
                
                
                12.26%
                
                
                35.67%
                
                
                66.27%Construction
                
                
                1
                
                
                266,000
                
                
                12.00%
                
                
                1.95%
                
                
                66.53%Land
                
                
                3
                
                
                2,160,000
                
                
                12.81%
                
                
                15.89%
                
                
                71.82%10
                
                $
                13,593,000
                
                
                11.71%
                
                
                100.00%
                
                
                62.73%
 
 (1)
              Bridge
                  loans are a subcategory of commercial loans in which we provide
                  interim
                  financing for borrowers seeking long-term, permanent
                  financing. 
 (2)
              Loan
                  to value ratios are based on appraisals obtained at the time of
                  loan
                  origination and may not reflect subsequent changes in value estimates.
                  Such appraisals are generally dated no greater than 12 months prior
                  to the
                  date of loan origination and may have been commissioned by the
                  borrower,
                  and also may precede the placement of the loan with us. The appraisals
                  may
                  be for the current estimate of the “as-if developed” value of the
                  property, which approximates the post-construction value of the
                  collateralized property assuming that such property is developed.
                  As-if
                  developed values on raw land loans or acquisition and development
                  loans
                  often dramatically exceed the immediate sales value and may include
                  anticipated zoning changes, and successful development by the purchaser;
                  upon which development is dependent on availability of financing.
                  As most
                  of the appraisals will be prepared on an as-if developed basis,
                  if a loan
                  goes into default prior to any development of a project, the market
                  value
                  of the property may be substantially less than the appraised value.
                  As a
                  result, there may be less security than anticipated at the time
                  the loan
                  was originally made. If there is less security and a default occurs,
                  we
                  may not recover the full amount of the
                  loan. 
 The
          following is a schedule of investments in real estate loans by lien
          position.
 
 **Loan
                    Type**
                
                **December
                    31, 2005**
                  **Balance**
                
                **Portfolio
                    Percentage**
                
                **December
                    31, 2004**
                  **Balance**
                
                **Portfolio
                    Percentage**First
                    Deeds of Trust
                
                $
                21,527,000
                
                
                93.45%
                
                $
                11,015,000
                
                
                81.03%Second
                    Deeds of Trust**
                
                
                1,510,000
                
                
                6.55%
                
                
                2,578,000
                
                
                18.97%$
                23,037,000
                
                
                100.00%
                
                $
                13,593,000
                
                
                100.00%
 
 **Generally,
          our second deeds of trust are junior to first deeds of trust position held
          by
          either us or our Manager.
 
 As
          of
          December 31, 2005, all contractual investments in real estate loans mature
          during 2006.
 -
              38
              -
 *Table
              of Contents*
 The
          following is a schedule by geographic location of investments in real estate
          loans as of:
 
 **December
                    31, 2005 Balance**
                
                **Portfolio
                    Percentage**
                
                **December
                    31, 2004 Balance**
                
                **Portfolio
                    Percentage**Arizona
                
                $
                5,807,000
                
                
                25.21%
                
                $
                6,865,000
                
                
                50.50%California
                
                
                5,490,000
                
                
                23.83%
                
                
                1,648,000
                
                
                12.12%Nevada
                
                
                4,194,000
                
                
                18.21%
                
                
                4,080,000
                
                
                30.02%North
                    Carolina
                
                
                102,000
                
                
                0.44%
                
                
                --
                
                
                --Oklahoma
                
                
                1,000,000
                
                
                4.34%
                
                
                1,000,000
                
                
                7.36%Oregon
                
                
                1,356,000
                
                
                5.89%
                
                
                --
                
                
                --Texas
                
                
                2,525,000
                
                
                10.96%
                
                
                --
                
                
                --Washington
                
                
                1,360,000
                
                
                5.90%
                
                
                --
                
                
                --Wisconsin
                
                
                1,203,000
                
                
                5.22%
                
                
                --
                
                
                --$
                23,037,000
                
                
                100.00%
                
                $
                13,593,000
                
                
                100.00%
 
 The
          following table reconciles the balance of the loan portfolio to the amount
          shown
          on the accompanying Balance Sheet.
 
 **December
                    31, 2005 Balance**
                
                **December
                    31, 2004 Balance**Balance
                    Per Loan Portfolio
                
                $
                23,037,000
                
                $
                13,593,000Less:Allowance
                    for Loan Losses
                
                
                73,000
                
                
                73,000Balance
                    per Balance Sheet
                
                $
                22,964,000
                
                $
                13,520,000
 
 Our
          Manager has evaluated the collectibility of the loans in our portfolio
          in light
          of 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. We do not currently have
          any
          non-performing loans. Our Manager believes a general allowance for loan
          losses
          totaling $73,000 included in the accompanying balance sheet as of December
          31,
          2005 is adequate to address estimated credit losses in our investment in
          real
          estate loan portfolio as of that date. No specific allowances were deemed
          necessary.
 
 Decisions
          regarding an allowance for loan losses require management’s judgment. As a
          result, there is an inherent risk that such judgment will prove incorrect.
          In
          such event, actual losses may exceed (or be less than) the amount of any
          allowance. To the extent that we experience losses greater than the amount
          of
          the allowance, we may incur a charge to earnings that will adversely affect
          our
          operating results and the amount of any cash available for
          distribution.
 
 Our
          Manager often grants extensions on loans pursuant to the terms of the original
          loan agreements, which permit extensions by mutual consent. Such extensions
          are
          generally provided on loans where the original term was 12 months or less
          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 full compliance with the terms of the loan, including, but
          not
          limited to the borrower’s obligation to make interest payments on the loan. The
          aggregate amount due from borrowers whose loans had been extended as of
          December
          31, 2005 was approximately $7.6 million. Our Manager concluded that no
          allowance
          for loan loss was necessary with respect to these loans as of December
          31,
          2005.
 -
              39
              -
 *Table
              of Contents*
 **Investment
          in Real Property**
 
 During
          the year ended December 31, 2004, we acquired an office building, which
          has
          approximately 42,000 square feet of rentable space, located at 8379 West
          Sunset
          Road in Las Vegas, Nevada. The purchase price and related closing costs
          were
          approximately $9,800,000. As of December 31, 2005, the building was fully
          leased
          to Vestin Group, earning us monthly rent revenue of approximately of $87,000.
          Vestin Group has sub-leased office space in the building as permitted by
          the
          lease agreement at rates equal to or less than rates we receive. We provided
          $4,850,000 of the purchase price from our capital and borrowed $4,950,000
          for
          the remainder of the purchase price. We subsequently conveyed the real
          property
          to VF III HQ, LLC, a wholly owned single asset subsidiary formed for the
          purpose
          of owning this asset. For further information about this property, see
          Item 13
          Certain Relationships and Related Transactions.
 
 In
          August
          2004, our Manager relocated its corporate headquarters to this facility.
          As
          further discussed in “Segment Information” below, net income on this segment of
          our business was approximately $322,000, which represents 12 months of
          operating
          activity. The following represents our estimated yield on this investment
          from a
          cash flow perspective.
 
 **December
                    31, 2005**
                
                **December
                    31, 2004**Net
                    Income From Real Estate Segment
                
                $
                322,000
                
                $
                92,000Less
                    Principal Payments
                
                
                (98,000
                )
                
                --Less
                    Deferred Rent Receivable
                
                
                (168,000
                )
                
                --Add
                    Back Depreciation and Amortization
                
                
                222,000
                
                
                81,000Yield
                
                $
                378,000
                
                $
                173,000Investment
                    Provided from Capital
                
                $
                4,850,000
                
                $
                4,850,000Months
                    of Operation
                
                
                12
                
                
                4.5Annualized
                    Yield on Real Estate Segment
                
                
                5.73%
                
                
                9.51%
 
 Annualized
          yield on real estate segment is a non-GAAP measure. We have presented this
          annualized yield on real estate segment because management believes this
          information is useful and important to members. This non-GAAP financial
          measure
          should not be considered in isolation or as a substitute for measures of
          performance prepared in accordance with GAAP or as an alternative to cash
          flows
          from operating activities as a measure of our liquidity.
 
 **Asset
          Quality and Loan Reserves**
 
 Losses
          may occur from investing in real estate loans. The amounts of losses will
          vary
          as the loan portfolio is affected by changing economic conditions and the
          financial condition of borrowers.
 
 The
          conclusion that a real estate loan is uncollectible or that collectibility
          is
          doubtful is a matter of judgment. On a quarterly basis, the Manager evaluates
          our real estate loan portfolio for impairment. The fact that a loan is
          temporarily past due does not necessarily mean that the loan is impaired.
          Rather, all relevant circumstances are considered by our Manager to determine
          impairment and the need for specific reserves. Such evaluation, which includes
          a
          review of all loans on which full collectibility may not be reasonably
          assured,
          considers among other matters:
 
 ·
              Prevailing
                  economic conditions; 
 ·
              Historical
                  experience; 
 ·
              The
                  nature and volume of the loan portfolio; 
 ·
              The
                  borrowers’ financial condition and adverse situations that may affect the
                  borrowers’ability
                  to pay; 
 ·
              Evaluation
                  of industry trends; and 
 ·
              Estimated
                  net realizable value of any underlying collateral in relation to
                  the real
                  estate loan amount.  -
              40
              -
 *Table
              of Contents*
 Based
          upon this evaluation, a determination is made as to whether the allowance
          for
          loan losses is adequate to cover any potential losses. Additions to the
          allowance for loan losses are made by charges to the provision for loan
          losses.
          Recoveries of previously charged off amounts would be credited to the provision
          for loan losses or included in income. At December 31, 2005, all of our
          loans
          were performing. Our Manager had determined the general allowance for loan
          losses of $73,000 is sufficient to cover any inherent losses in our loan
          portfolio.
 
 The
          following is a roll-forward of the general allowance for loan losses for
          the
          year ended December 31, 2005:
 
 **Description**
                
                **Balance
                    at**
                  **December
                    31, 2004**
                
                **Provisions**
                
                **Deductions**
                
                **Balance
                    at**
                  **December
                    31, 2005**General
                    Valuation Allowance
                
                $
                73,000
                
                $
                --
                
                $
                --
                
                $
                73,000
  **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**
 
 The
          following summarizes our contractual obligations at December 31,
          2005.
 
 **Note
                    Payable**
                
                **Secured
                    borrowings**
                
                **Total
                    Contractual Obligations**January
                    1 Through December 31, 2006
                
                $
                100,000
                
                $
                527,000
                
                $
                627,000January
                    1 Through December 31, 2007
                
                
                106,000
                
                
                --
                
                
                106,000January
                    1 Through December 31, 2008
                
                
                112,000
                
                
                --
                
                
                112,000January
                    1 Through December 31, 2009
                
                
                119,000
                
                
                --
                
                
                119,000January
                    1 Through December 31, 2010
                
                
                125,000
                
                
                --
                
                
                125,000Thereafter:
                
                
                4,268,000
                
                
                --
                
                
                4,268,000Total:
                
                $
                4,830,000
                
                $
                527,000
                
                $
                5,357,000
 
 **CRITICAL
          ACCOUNTING ESTIMATES**
 
 **Revenue
          Recognition**
 
 Interest
          income on loans is accrued by the effective interest method. We do not
          recognize
          interest income from loans once they are determined to be impaired. A loan
          is
          impaired when, based on current information and events, it is probable
          that we
          will be unable to collect all amounts due according to the contractual
          terms of
          the loan agreement or when the payment of interest is 90 days past
          due.
 
 The
          following table presents a sensitivity analysis to show the impact on our
          financial condition at December 31, 2005 from fluctuations in weighted
          average
          interest rate charged on loans as a percentage of the loan
          portfolio:
 
 **Changed
                    Assumption**
                
                **Increase
                    (Decrease) in Interest Income**Weighted
                    average interest rate assumption increased by 1% or 100 basis
                    points
                $
                187,000Weighted
                    average interest rate assumption increased by 5% or 500 basis
                    points
                $
                933,000Weighted
                    average interest rate assumption decreased by 1% or 100 basis
                    points
                $
                (187,000)Weighted
                    average interest rate assumption decreased by 5% or 500 basis
                    points
                $
                (933,000)
 
  -
              41
              -
 *Table
              of Contents*
 The
          purpose of this analysis is to provide an indication of the impact that
          the
          weighted average interest rate fluctuations would have on our financial
          results.
          It is not intended to imply our expectation of future revenues or to estimate
          earnings. We believe that the assumptions used above are appropriate to
          illustrate the possible material impact on the financial
          statements.
 
 Certain
          leases provide for tenant occupancy during periods for which no rent is
          due or
          where minimum rent payments increase during the term of the lease. Rental
          revenue is recorded for the full term of each lease on a straight-line
          basis.
          Accordingly, the Company records a receivable from tenants for rents that
          it
          expects to collect over the remaining lease term as deferred rents receivable.
          When the Company acquires a property, the term of the existing leases is
          considered to commence as of the acquisition date for the purposes of this
          calculation. Revenue recognition is considered to be critical because the
          evaluation of the reliability of such deferred rents receivable involves
          management’s assumptions relating to such tenant’s viability.
 
 We
          recognize income from rent once all of the following criteria are met in
          accordance with the Statement of Financial Accounting Standards (FAS) No.
          13 *Accounting
          for Leases* :
 
 ·
              The
                  agreement has been fully executed and
                  delivered; 
 ·
              Services
                  have been rendered; 
 ·
              The
                  amount is fixed or determinable, and 
 ·
              The
                  collectibility is reasonable assure. 
 **Investments
          in Real Estate Loans**
 
 The
          Company may from time to time acquire or sell investments in real estate
          loans
          from or to the Manager or other related parties pursuant to the terms of
          the
          Company's Operating Agreement provided the price does not exceed the original
          cost. The purpose primarily is to either free up capital to provide liquidity
          for various reasons, such as loan diversification, or place excess capital
          in
          investments to maximize the use of the Company's capital. For example,
          the
          Company's Operating Agreement provides certain guidelines with respect
          to loan
          concentration by dollar amount, location and lien position. Selling or
          buying
          loans allows the Company to diversify its loan portfolio within these
          parameters. Due to the short term nature of the loans the Company makes
          and the
          similarity of interest rates in loans the Company normally would invest
          in, the
          fair value of a loan typically approximates its carrying value. Accordingly,
          discounts or premiums typically do not apply upon sales of loans and therefore
          no gain or loss is recorded on these transactions, regardless of whether
          a
          related or unrelated party.
 
 Investments
          in real estate loans are secured by deeds of trust. Generally, all of our
          real
          estate loans require interest only payments with a balloon payment of the
          principal at maturity. We have both the intent and ability to hold real
          estate
          loans until maturity and therefore, real estate loans are classified and
          accounted for as held for investment and are carried at amortized cost.
          Loans
          sold to or purchased from affiliates are accounted for at the principal
          balance
          and no gain or loss is recognized by us or any affiliate. Loan to value
          ratios
          are based on appraisals obtained at the time of loan origination and may
          not
          reflect subsequent changes in value estimates. Such appraisals are generally
          dated within 12 months of the date of loan origination and may be commissioned
          by the borrower. The appraisals may be for the current estimate of the
“as-if
          developed” value of the property, which approximates the post-construction value
          of the collateralized property assuming that such property is developed.
“As-if
          developed” values on raw land loans or acquisition and development loans often
          dramatically exceed the immediate sales value and may include anticipated
          zoning
          changes and timely successful development by the purchaser. As most of
          the
          appraisals will be prepared on an “as-if developed” basis, if a loan goes into
          default prior to any development of a project, the market value of the
          property
          may be substantially less than the appraised value. As a result, there
          may be
          less security than anticipated at the time the loan was originally made.
          If
          there is less security and a default occurs, we may not recover the full
          amount
          of the loan.
 -
              42
              -
 *Table
              of Contents*
 **Allowance
          for Loan Losses**
 
 We
          maintain an allowance for loan losses on our investments in real estate
          loans
          for estimated credit impairment in our investment in real estate loans
          portfolio. The Manager’s estimate of losses is based on a number of factors
          including the types and dollar amounts of loans in the portfolio, adverse
          situations that may affect the borrower’s ability to repay, prevailing economic
          conditions and the underlying collateral securing the loan. Additions to
          the
          allowance are provided through a charge to earnings and are based on an
          assessment of certain factors, which may indicate estimated losses on the
          loans.
          Actual losses on loans are recorded as a charge-off or a reduction to the
          allowance for loan losses. Subsequent recoveries of amounts previously
          charged
          off are added back to the provision for loan loss or included as
          income.
 
 The
          following table presents a sensitivity analysis to show the impact on our
          financial condition at December 31, 2005 from increases and decreases to
          our
          allowance for loan losses as a percentage of the loan portfolio:
 
 **Changed
                    Assumption**
                
                **Increase
                    (Decrease) in Allowance for Loan Losses**Allowance
                    for loan losses assumption increased by 1.0% of loan
                    portfolio
                $
                230,000Allowance
                    for loan losses assumption increased by 5.0% of loan
                    portfolio
                $
                1,152,000Allowance
                    for loan losses assumption decreased by 0.3% of loan
                    portfolio
                $
                (73,000)
 
 Estimating
          allowances for loan losses requires significant judgment about the underlying
          collateral, including liquidation value, condition of the collateral, competency
          and cooperation of the related borrower and specific legal issues that
          affect
          loan collections or taking possession of the property. As a non-conventional
          lender willing to invest in loans to borrowers who may not meet the credit
          standards of conventional lenders, the default rate on our loans could
          be higher
          than those generally experienced in the real estate lending industry. We
          generally approve loans more quickly than other real estate lenders and,
          due to
          our expedited underwriting process, there is a risk that the credit inquiry
          we
          perform will not reveal all material facts pertaining to a borrower and
          the
          security.
 
 Additional
          facts and circumstances may be discovered as we continue our efforts in
          the
          collection and foreclosure processes. This additional information often
          causes
          management to reassess its estimates. Circumstances that may caused significant
          changes in our estimated allowance include:
 
 (a)
              Declines
                  in real estate market conditions, which can cause a decrease in
                  expected
                  market value. 
 (b)
              Discovery
                  of undisclosed liens for community improvement bonds, easements
                  and
                  delinquent property taxes. 
 (c)
              Lack
                  of progress on real estate developments after we advance funds.
                  We
                  customarily utilize disbursement agents to monitor the progress
                  of real
                  estate developments and approve loan advances. After further inspection
                  of
                  the related property, progress on construction occasionally does
                  not
                  substantiate an increase in value to support the related loan
                  advances. 
 ·
              Unanticipated
                  legal or business issues that may arise subsequent to loan origination
                  or
                  upon the sale of foreclosed upon
                  property. 
 ·
              Appraisals,
                  which are only opinions of value at the time of the appraisal,
                  may not
                  accurately reflect the value of the
                  property.  -
              43
              -
 *Table
              of Contents*
 **Investments
          in Real Property**
 
 Real
          property is stated at cost, less accumulated depreciation. Amounts capitalized
          as investments in real property consist of the cost of acquisition or
          construction and any tenant improvements or major improvements that extend
          the
          useful life of the related asset. All repairs and maintenance are expensed
          as
          incurred. Upon acquisition, the purchase price of the property is allocated
          to
          land, building and improvements and other intangible assets and associated
          liabilities as required by FAS No. 141 *Business
          Combinations* .
          The
          allocation to land is based on an estimate of its fair value based on all
          available information including appraisals. The allocation to other intangible
          assets represents the value associated with the in-place leases, including
          leasing commission, legal and other related costs.
 
 Real
          property is depreciated using the straight-line method over the useful
          lives of
          the assets by class generally as follows:
  Land
                
                Not
                    DepreciatedBuilding
                
                40 YearsBuilding Improvements
                
                10-25 YearsLand
                    Improvements
                
                20-25
                    YearsTenant Improvements
                
                Lease
                    TermIntangible Lease Assets
                
                Lease
                    Term
 
 Our
          Manager continually monitors events and changes in circumstances that could
          indicate carrying amounts of real estate and related intangible assets
          may not
          be recoverable. When indicators of potential impairment are present, our
          Manager
          assess the recoverability of the assets by determining whether the carrying
          value of the real estate and related intangible assets will be recovered
          through
          the undiscounted future cash flows expected from the use and eventual
          disposition of the asset. In the event the expected undiscounted future
          cash
          flows do not exceed the carrying value, we adjust the real estate and intangible
          assets to their fair value and recognize an impairment loss. Our Manager
          has
          determined there has been no impairment in the carrying value of real property
          held by us during the year ended December 31, 2005.
 
 **Deferred
          Offering Costs**
 
 Deferred
          offering costs consist primarily of legal, accounting and registration
          fees
          related to the Proposed Offering and that will be charged to capital upon
          the
          receipt of the capital or charged to expense if not completed.
 
 Our
          Manager was reimbursed for out of pocket offering expenses in an amount
          not to
          exceed 2% of the gross proceeds of the offering of our units. As of December
          31,
          2005, offering costs of approximately $565,000 were incurred by us and
          paid by
          our Manager on our behalf. These deferred offerings costs, which are primarily
          legal, accounting and registration fees, were converted to 54,862 membership
          units at a price equal to the then effective unit value. The additional
          costs
          above the 2% of the gross proceeds of the offering were absorbed by our
          Manager.
 -
              44
              -
 *Table
              of Contents*
 **Secured
          Borrowings**
 
 Secured
          borrowings provide an additional source of capital for our lending activity.
          Secured borrowings allow us to increase the diversification of our loan
          portfolio and to invest in loans that we might not otherwise invest in.
          We do
          not receive any revenues for entering into secured borrowing arrangements.
          Loans
          in which third party investors have participated through inter-creditor
          agreements (“Inter-creditor Agreements”) are accounted for as secured borrowings
          in accordance with FAS No. 140, *Accounting
          for Transfers and Servicing of Financial Assets and Extinguishments of
          Liabilities* (“FAS
          No. 140”). The Inter-creditor Agreements provide us additional funding sources
          for real estate loans whereby a third party investor (the “Investor”) may
          participate on a senior basis in certain real estate loans with us and/or
          Fund I
          and/or Fund II (collectively, the “Lead Lenders”). In the event of borrower
          non-performance, the Inter-creditor Agreements generally provide that the
          Lead
          Lenders must repay the Investor’s loan amount either by (i) continuing to remit
          to the Investor the interest due on the participated loan amount; (ii)
          substituting an alternative loan acceptable to the Investor; or (iii)
          repurchasing the participation from the Investor for the outstanding balance
          plus accrued interest.
 
 Additionally,
          an Investor may participate in certain loans with the Lead Lenders through
          Participation Agreements. In the event of borrower non-performance, the
          Participation Agreement may allow the Investor to be repaid up to the amount
          of
          the Investor’s investment prior to the Lead Lender being repaid. Real estate
          loan financing under the Participation Agreements are also accounted for
          as a
          secured borrowing in accordance with FAS No. 140. The Company does not
          receive
          any revenues for entering into secured borrowings arrangements.
 
 
 **CAPITAL
          AND LIQUIDITY**
 
 Liquidity
          is a measure of a company’s ability to meet potential cash requirements,
          including ongoing commitments to fund investing activities and for general
          operating purposes. Subject to an approximate 3% reserve, we seek to use
          most of
          our available funds to invest in real estate loans or purchase income producing
          property. Income generated from such investments is paid out to our members
          unless they have elected to reinvest their distributions. We do not anticipate
          the need for hiring any employees, acquiring fixed assets such as office
          equipment or furniture, or incurring material office expenses during the
          next
          twelve months because Vestin Mortgage will manage our affairs. With respect
          to
          real estate that we acquire, we may pay Vestin Mortgage a monthly management
          fee
          of up to 3% of our gross rental revenues. In addition, we may pay Vesting
          Mortgage acquisition and advisory fees in connection with real estate
          acquisition, provided that such amounts do not exceed 2.5% of our gross
          offering
          proceeds.
 
 During
          the year ended December 31, 2005, cash flows provided by our operating
          activities approximated $2.3 million. Our investing activities for the
          year
          ended December 31, 2005 consisted of cash used from the purchase of new
          investments in loans secured by real estate in the amount of $17.0 million
          and
          cash proceeds from loan payoffs of investment in real estate loans of
          approximately $7.0 million. Our financing activities primarily consisted
          of
          proceeds from issuance of member units of approximately $4.0 million, cash
          used
          for members’ distributions, net of reinvestments, of $1.6 million, and payments
          from a note payable of approximately $0.1 million.
 
 Since
          we
          distribute most or all of our operating income, our sources of liquidity
          include: repayments of outstanding loans, distribution reinvestments by
          our
          members and arrangements with third parties to participate in our loans.
          In the
          future, we may also generate liquidity through the sale of our real property
          investments. However, under our Operating Agreement, the proceeds from
          any sale
          of real property occurring after November 2010 must be distributed to members
          and will not be available for reinvestment.
 -
              45
              -
 *Table
              of Contents*
 We
          rely
          primarily upon repayment of outstanding loans and raising new capital to
          provide
          capital for investment in new loans and real estate properties. Effective
          November 7, 2005, we discontinued the offering of our Units, except for
          Units
          sold through our Distribution Reinvestment Plan. Any significant level
          of
          defaults on outstanding loans could reduce the funds we have available
          for
          investment in new loans. Resulting foreclosure proceedings may not generate
          full
          repayment of our loans and may result in significant delays in the return
          of
          invested funds. This would diminish our capital resources and would impair
          our
          ability to invest in new loans. Additionally, if there is a downturn in
          the
          economies in which we invest in real estate, the level of rents we can
          charge to
          lease our properties can diminish our capital resources and would diminish
          our
          ability to invest in new properties or service any related debt.
 
 Cash
          provided by the operating activities of our investments in real estate
          segment
          is primarily dependent on the occupancy level of our properties, the rental
          rates on our leases, the collectibility of rents from our tenants, and
          the level
          of operating and other expenses. Since we intend on leveraging our capital
          for
          property acquisitions, we will depend on cash provided by operating activities
          to service such debt. The following table summarizes future minimum base
          rent to
          be received from our Manager under a non-cancelable lease on our sole real
          estate property at December 31, 2005:
 
 January
                    1 Through December 31, 2006
                $
                906,000January
                    1 Through December 31, 2007
                
                942,000January
                    1 Through December 31, 2008
                
                980,000January
                    1 Through December 31, 2009
                
                1,020,000January
                    1 Through December 31, 2010
                
                1,060,000Thereafter:
                
                4,307,000Total:
                $
                9,215,000
 
 Any
          significant level of redemptions by our members would reduce the amount
          of
          capital available for investment. In order to comply with our Operating
          Agreement and the Internal Revenue Code, we may redeem no more than 10%
          of the
          aggregate members’ capital in any calendar year. Our Operating Agreement also
          provides other conditions limiting redemptions.
 
 Approximately
          51% of our members currently reinvest their distributions. The level of
          reinvested distributions is likely to be affected by our operating performance.
          If our performance does not meet the expectations of our members, the level
          of
          reinvestment may decline.
 
 Inter-creditor
          agreements provide us additional funding sources for real estate loans
          whereby a
          third party investor (the “Investor”) may participate in certain real estate
          loans with us, Vestin Mortgage, Vestin Fund I, and Vestin Fund II (collectively,
          the “Lead Lenders”). In the event of borrower non-performance, the Lead Lenders
          are required to protect the Investor by (i) continuing to remit to the
          Investor
          the interest due on the participation amount; (ii) substituting an alternative
          loan acceptable to the Investor; or (iii) repurchasing the participation
          from
          the Investor for the outstanding balance of the participation plus accrued
          interest.
 
 Additionally,
          an Investor may participate in certain loans with Lead Lenders through
          participation agreements. In the event of borrower non-performance, the
          participation agreement allows the Investor to be repaid up to the amount
          of the
          Investor’s investment prior to the Lead Lenders being repaid.
 
 As
          of
          December 31, 2005, funds being used under inter-creditor and participation
          agreements where we have potential obligations as defined above totaled
          $527,000.
 
 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.
 -
              46
              -
 *Table
              of Contents*
 We
          do not
          currently have any interest in any special purpose entities, which are
          not
          reflected on our balance sheet nor do we have any commitments or obligations,
          which are not reflected on our balance sheet. We do not have any interest
          in
          derivative contracts.
 
 We
          maintain working capital reserves of approximately 3% of aggregate members’
capital accounts in cash and cash equivalents. This reserve is available
          to pay
          expenses in excess of revenues, satisfy obligations of underlying secured
          properties, expend money to satisfy our unforeseen obligations and for
          other
          permitted uses of the working capital. At December 31, 2005, we had $1.2
          million
          in cash and $34.7 million in total assets.
 
 **Segment
          Information:**
 
 Operating
          segments are components of an enterprise about which separate financial
          information is available that is regularly reviewed by the chief operating
          decision makers in assessing performance and deciding how to allocate resources.
          Reportable segments consist of one or more operating segments with similar
          economic characteristics, products and services, production processes,
          type of
          customer, distribution system and regulatory environment.
 
 The
          information provided for Segment Reporting is based on internal reports
          utilized
          by management. The presentation and allocation of overhead and the net
          contribution for the operating segments may not reflect the actual economic
          costs, contribution or results of operations of the segments as stand alone
          businesses. If a different basis of allocation were utilized, the relative
          contributions of the segments might differ but the relative trends in segments
          would, in management’s view, likely not be impacted.
 
 Our
          two
          reportable segments are investments in real estate loans and investments
          in real
          estate.
 
 Financial
          information concerning our reportable segments is presented as follows
          for the
          years ended December 31, 2005 and 2004:
 
 **For
                      the Year Ended December 31, 2005**
                  
                  **Investment
                      in**
                    **Real
                      Estate Loans**
                  
                  **Investment
                      in**
                    **Real
                      Estate****Revenues**Interest
                      income from investments in real estate loans
                  
                  $
                  2,341,000
                  
                  $
                  2,341,000
                  
                  $
                  --Interest
                      income related to secured borrowings
                  
                  
                  160,000
                  
                  
                  160,000
                  
                  
                  --Rental
                      income
                  
                  
                  1,040,000
                  
                  
                  --
                  
                  
                  1,040,000Other
                  
                  
                  75,000
                  
                  
                  75,000
                  
                  
                  --Total
                      revenues
                  
                  
                  3,616,000
                  
                  
                  2,576,000
                  
                  
                  1,040,000**Operating
                      expenses**Management
                      fees
                  
                  
                  155,000
                  
                  
                  112,000
                  
                  
                  43,000Provision
                      for loan losses
                  
                  
                  --
                  
                  
                  --
                  
                  
                  --Professional
                      fees
                  
                  
                  407,000
                  
                  
                  275,000
                  
                  
                  132,000Other
                  
                  
                  73,000
                  
                  
                  53,000
                  
                  
                  20,000Total
                      operating expenses
                  
                  
                  635,000
                  
                  
                  440,000
                  
                  
                  195,000**EBITDA***
                  
                  
                  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
                  
                  
                  --
                  
                  
                  301,000**NET
                      INCOME**
                  
                  $
                  2,322,000
                  
                  $
                  2,000,000
                  
                  $
                  322,000
 
  -
              47
              -
 *Table
              of Contents*
   **For
                      the Year Ended December 31, 2004**
                  
                  **Investment
                      in**
                    **Real
                      Estate Loans**
                  
                  **Investment
                      in**
                    **Real
                      Estate****Revenues**Interest
                      income from investments in real estate loans
                  
                  $
                  1,269,000
                  
                  $
                  1,269,000
                  
                  $
                  --Interest
                      income related to secured borrowings
                  
                  
                  687,000
                  
                  
                  687,000
                  
                  
                  --Rental
                      income
                  
                  
                  317,000
                  
                  
                  --
                  
                  
                  317,000Other
                  
                  
                  87,000
                  
                  
                  87,000
                  
                  
                  --Total
                      revenues
                  
                  
                  2,360,000
                  
                  
                  2,043,000
                  
                  
                  317,000**Operating
                      expenses**Management
                      fees
                  
                  
                  36,000
                  
                  
                  21,000
                  
                  
                  15,000Provision
                      for loan losses
                  
                  
                  73,000
                  
                  
                  73,000
                  
                  
                  --Professional
                      fees
                  
                  
                  62,000
                  
                  
                  36,000
                  
                  
                  26,000Other
                  
                  
                  28,000
                  
                  
                  5,000
                  
                  
                  23,000Total
                      operating expenses
                  
                  
                  199,000
                  
                  
                  135,000
                  
                  
                  64,000**EBITDA***
                  
                  
                  2,161,000
                  
                  
                  1,908,000
                  
                  
                  253,000Less:Depreciation
                      and Amortization
                  
                  
                  81,000
                  
                  
                  --
                  
                  
                  81,000Interest
                      expense related to secured borrowings
                  
                  
                  630,000
                  
                  
                  630,000
                  
                  
                  --Interest
                      expense related to investment in real estate
                  
                  
                  80,000
                  
                  
                  --
                  
                  
                  80,000**NET
                      INCOME**
                  
                  $
                  1,370,000
                  
                  $
                  1,278,000
                  
                  $
                  92,000
 
 *EBITDA
          represents Earnings Before Interest, Taxes, Depreciation, and Amortization.
          We
          present EBITDA because we consider it an important supplemental measure
          of our
          performance but it does not represent cash flows. EBITDA is a measure of
          our
          performance that is not required by, or presented in accordance with, GAAP.
          EBITDA is not a measurement of our financial performance under GAAP and
          should
          not be considered as an alternative to net earnings, operating income or
          any
          other performance measures derived in accordance with GAAP or as an alternative
          to cash flow from operating activities as a measure of our liquidity. We
          compensate for these limitations by relying primarily on our GAAP results
          and
          using EBITDA only supplementally.
 
 Although
          depreciation and amortization are non-cash charges, the assets being depreciated
          or amortized often will have to be replaced in the future, and EBITDA does
          not
          reflect any cash requirements for such replacements. Other companies in
          our
          industry may calculate EBITDA differently than we do, limiting its usefulness
          as
          a comparative measure. In addition, EBITDA does not reflect the impact
          of earnings or charges resulting from matters we consider not to be indicative
          of our ongoing operations.
 
 **ITEM
          7A.**  **QUANTITATIVEAND
          QUALITATIVE DISCLOSURES ABOUT MARKET
          RISK** ****
 
 We
          are
          exposed to market risk, primarily from changes in interest rates. We do
          not deal
          in any foreign currencies and do not own any options, futures or other
          derivative instruments. We do not have a significant amount of
          debt.
 
 Most
          of
          our assets consist of investments in real estate loans, including those
          that are
          financed under Inter-creditor Agreements. At December 31, 2005, our aggregate
          investment in real estate loans was approximately $23 million with a weighted
          average effective interest rate of 10.38%. Loans financed under inter-creditor
          agreements totaled $527,000 as of December 31, 2005 and are classified
          as assets
          under secured borrowing. Such financing is at a weighted average interest
          rate
          of 11%. These real estate loans mature within the next 5 months.
 -
              48
              -
 *Table
              of Contents*
 The
          weighted average term of outstanding loans at December 31, 2005 was 15
          months.
          As of December 31, 2005, our real estate loans mature during the 12 months
          ending December 31, 2006. All of the outstanding real estate loans at December
          31, 2005 were fixed rate loans. All of the real estate loans are held for
          investment purposes; none are held for sale. We intend to hold such real
          estate
          loans to maturity. None of the real estate loans have prepayment
          penalties.
 
 As
          of
          December 31, 2005, approximately $9.6 million or 27.63% of our assets consist
          of
          investment in income producing real property. This property is located
          in Las
          Vegas, Nevada and is leased entirely by our Manager, earning us monthly
          rent
          revenue of approximately of $87,000. Vestin Group has sub-leased office
          space in
          the building as permitted by the lease agreement at rates equal to or less
          than
          rates we receive.
 
 Market
          fluctuations in interest rates generally do not affect the carrying value
          of our
          investment in real estate loans. However, significant and sustained changes
          in
          interest rates could affect our operating results. If interest rates decline
          significantly, some of the borrowers could prepay their loans with the
          proceeds
          of a refinancing at lower interest rates. This would reduce our earnings
          and
          funds available for distribution to members. On the other hand, a significant
          increase in interest rates could result in a slowdown in real estate development
          activity, which would reduce the demand for commercial real estate loans.
          As a
          result, we might encounter greater difficulty in identifying appropriate
          borrowers. We are not in a position to quantify the potential impact on
          our
          operating results from a material change in interest rates.
 
 The
          following table contains information about the investment in real estate
          loans
          held in our portfolio as of December 31, 2005. The presentation aggregates
          the
          investment in real estate loans by their maturity dates for maturities
          occurring
          in each of the years 2006 through 2009 and separately aggregates the information
          for all maturities arising after 2009. The carrying values of these assets
          approximate their fair value as of December 31, 2005.
 
 **Interest
                    Earning Assets Aggregated by**
                  **Maturity
                    at December 31, 2005****Interest
                    Earning Assets**
                
                **2006**
                
                **2007**
                
                **2008**
                
                **2009**
                
                **Thereafter**
                
                **Total**Investments
                    In Real Estate Loans
                
                $
                23,037,000
                
                
                --
                
                
                --
                
                
                --
                
                
                --
                
                $
                23,037,000Weighted
                    Average Interest Rates
                
                
                10.38%
                
                
                --%
                
                
                --%
                
                
                --%
                
                
                --%
                
                
                10.38%
 
 At
          December 31, 2005, we also had approximately $1.2 million invested in cash,
          cash
          equivalents, and certificates of deposit. Approximately 3% of our assets
          will be
          held in such accounts as a cash reserve; additional deposits in such accounts
          will be made as funds are received from investors and repayment of loans
          pending
          the deployment of such funds in new real estate loans. We believe that
          these
          financial assets do not give rise to significant interest rate risk due
          to their
          short-term nature.
 
 **ITEM
          8.**  **FINANCIALSTATEMENTS
          AND SUPPLEMENTARY DATA**
 
 The
          financial statements and supplementary data are indexed in Item 15 of this
          report.
 
 **ITEM
          9.**  **CHANGESIN
          AND DISAGREEMENTS WITH INDEPENDENT AUDITORS ON
          ACCOUNTING AND FINANCIAL DISCLOSURE**
 
 None.
 -
              49
              -
 *Table
              of Contents*
 **ITEM
          9A.**  **CONTROLAND
          PROCEDURES**
 
 **Disclosure
          Controls and Procedures**
 
 Our
          Manager’s Chief Executive Officer and Chief Financial Officer have reviewed and
          evaluated the effectiveness of the design and operation of our Company’s
          disclosure controls and procedures (as defined in the Securities Exchange
          Act of
          1934 Rules 13a-15(e) and 15d-15(e) as of December 31, 2005.
 
 Our
          Manager’s Chief Executive Officer and Chief Financial Officer concluded that our
          Company’s disclosure controls and procedures as of the end of the period covered
          by this report were not effective as a result of material weaknesses in
          internal
          controls as of December 31, 2005 as discussed below.
 
 **Management’s
          Report on Internal Control Over Financial Reporting**
 
 Management
          is responsible for establishing and maintaining adequate internal control
          over
          financial reporting of our Company. Internal control over financial reporting
          is
          a process designed to provide reasonable assurance regarding the reliability
          of
          financial reporting and the preparation of financial statements for external
          purposes in accordance with accounting principles generally accepted in
          the
          United States of America.
 
 Our
          Company’s internal control over financial reporting includes those policies and
          procedures that (i) pertain to the maintenance of records that, in reasonable
          detail, accurately and fairly reflect the transactions and dispositions
          of the
          assets of the Company; (ii) provide reasonable assurance that transactions
          are
          recorded as necessary to permit preparation of financial statements in
          accordance with accounting principles generally accepted in the United
          States of
          America, and that receipts and expenditures of our Company are being made
          only
          in accordance with authorizations of Management and Directors of our Company;
          and (iii) provide reasonable assurance regarding prevention or timely detection
          of unauthorized acquisition, use or disposition of our Company’s assets that
          could have a material effect on the financial statements.
 
 As
          defined by the Public Company Accounting Oversight Board’s Auditing Standard No.
          2, a material weakness is defined as a significant deficiency or combination
          of
          significant deficiencies, that results in more than a remote likelihood
          that a
          material misstatement of the annual or interim financial statements will
          not be
          prevented or detected. Management’s preliminary assessment concluded that we did
          not maintain effective internal control over financial reporting as of
          December
          31, 2005. As a result of the assessment, we identified the following material
          weaknesses:
 
 ·
              The
                  first material weakness identified insufficient resources of technical
                  accounting and reporting expertise. This weakness relates to the
                  oversight
                  and review of financial transactions, which affects our ability
                  to prepare
                  and properly review financial statements and accompanying footnote
                  disclosures in accordance with United States generally accepted
                  accounting
                  principles and the rules and regulations of the
                  SEC. 
 ·
              As
                  a result of the foregoing material weakness, there has been ineffective
                  oversight of documentation of authorizations to ensure that procedures
                  are
                  properly executed. Specifically, we did not have backup documentation
                  for
                  some authorized payments made by our
                  Company. 
 The
          foregoing material weaknesses resulted in revisions to the draft financial
          statement disclosures, but we believe our final financial statements and
          related
          disclosures were accurate in all material respects. In addition, our Manager
          and
          independent auditors together have determined that the identified material
          weaknesses did not result in inadequate or deficient financial reporting
          for
          prior periods and will not result in a restatement of any of our prior
          financial
          statements.
 -
              50
              -
 *Table
              of Contents*
 **Remediation
          Plan**
 
 In
          addition to controls and procedures consistent with prior practices, our
          Manager
          is in the process of developing and implementing remediation plans. In
          order to
          remediate the aforementioned material weaknesses, our Manager has:
 
 ·
              Hired
                  a Corporate Controller with the requisite experience to assist
                  and work
                  directly with our Manager’s Chief Financial
                  Officer; 
 ·
              Hired
                  an Accounting Manager with the requisite experience to assist and
                  work
                  directly with our Manager’s Corporate
                  Controller; 
 ·
              Hired
                  a Financial Reporting Analyst to assist with the financial reporting
                  process and work directly with our Manager’s Corporate
                  Controller; 
 ·
              Implemented
                  a mandatory weekly management meeting for all key personnel. This
                  allows
                  for financial reporting personnel to be consistently updated on
                  significant matters affecting the Company;
                  and 
 ·
              Implemented
                  a Financial Reporting Review Committee, which reviews all periodic
                  financial reporting documents prior to
                  filing. 
 We
          believe that, for the reasons described above, we are continuing to improve
          our
          disclosure controls and procedures and remedy the identified material
          weaknesses. Because of the inherent limitations in all control systems,
          no
          evaluation of controls can provide absolute assurance that all control
          issues
          and instances of fraud, if any, will be or have been detected. These inherent
          limitations include the realities that judgments in decision-making can
          be
          faulty, and that breakdowns can occur because of simple error or mistake.
          Additionally, controls can be circumvented by the individual acts of some
          persons, by collusion of two or more people, or by management override
          of the
          control. The design of any system of controls also is based in part upon
          certain
          assumptions about the likelihood of future conditions; over time, control
          may
          become inadequate because of changes in conditions, or the degree of compliance
          with the policies or procedures may deteriorate. Because of the inherent
          limitation in a cost-effective control system, misstatements due to error
          or
          fraud may occur and not be detected.
 
 **Changes
          in Internal Control Over Financial Reporting**
 
 Except
          for our remediation changes to address the material weaknesses discussed
          above,
          no change in our internal control over financial reporting identified in
          connection with the evaluation required by paragraph (d) of Securities
          Exchange
          Act Rules 13a-15(f) or 15d-15(f) that occurred has materially affected,
          or is
          reasonably likely to materially affect, our internal control over financial
          reporting.
 
 **ITEM
          9B.**  **OTHERINFORMATION**
 
 None.
 
 **PARTIII**
 
 **ITEM
          10.**  **DIRECTORSAND
          EXECUTIVE OFFICERS OF
          REGISTRANT**
 
 We
          do not
          have any directors or officers. We are managed by Vestin Mortgage who is
          engaged
          in asset management, real estate lending and other financial services.
          Vestin
          Mortgage, a privately held company and wholly-owned subsidiary of Vestin
          Group,
          has no audit committee and no requirement of independence at this
          time.
 -
              51
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 *Table
              of Contents*
 The
          following sets forth certain information regarding the executive officers
          of
          Vestin Mortgage as of December 31, 2005:
 
 **Name**
                **Age**
                **Title**Michael
                    V. Shustek
                47
                Chairman
                    of the Board, Chief Executive Officer, President and
                    DirectorJohn
                    Alderfer
                61
                Chief
                    Financial Officer and Director, TreasurerMichael
                    J. Whiteaker
                56
                Vice
                    President of Regulatory AffairsDaniel
                    B. Stubbs
                44
                Senior
                    Vice President, Underwriting of Vestin Mortgage, a subsidiary
                    of Vestin
                    Group
 
 The
          directors listed below are currently functioning as an audit committee
          operating
          under a written Audit Committee Charter adopted by Vestin Group’s board of
          directors. The
          following table sets forth certain information regarding the directors
          of Vestin
          Group:
 
 **Name**
                **Age**
                **Title**Robert
                    J. Aalberts
                54
                DirectorFredrick
                    J. Zaffarese Leavitt
                34
                DirectorRoland
                    M. Sansone
                50
                Director
 
 
 All
          the
          directors of Vestin Mortgage and Vestin Group hold office until the next
          annual
          meeting of stockholders.
 
 
 The
          principal occupation and business experience for each of our officers and
          directors and key employees, for at least the last five years, are as
          follows:
 
 *Robert
          J. Aalberts* has been
          a director of Vestin Group since April 1999. ** Since
          1991, Professor Aalberts has held the Ernst Lied Professor of Legal Studies
          professorship in the College of Business at the University of Nevada, Las
          Vegas.
          From 1984 to 1991, Professor Aalberts was an Associate Professor of Business
          Law
          at Louisiana State University in Shreveport, Louisiana. From 1982 through
          1984,
          he served as an attorney for Gulf Oil Company. Professor Aalberts has
          co-authored a book relating to the regulatory environment, law and business
          of
          real estate; including Real Estate Law 6th Ed. (2006) published by the
          Thomson/
          West Company. He is also the author of numerous legal articles, dealing
          with
          various aspects of real estate, business and the practice of law. Since
          1992
          Professor Aalberts has been the Editor-in-chief of the Real Estate Law
          Journal.
          Professor Aalberts received his Juris Doctor degree from Loyola University,
          in
          New Orleans, Louisiana, a Masters of Arts from the University of Missouri,
          Columbia, and received a Bachelor of Arts degree in Social Sciences, Geography
          from the Bemidji State University in Bemidji, Minnesota. He was admitted
          to the
          State Bar of Louisiana in 1982 (currently inactive status).
 
 *John
          W. Alderfer* was
          appointed the Chief Financial Officer of Vestin Mortgage and Vestin Group
          effective January 2005. Mr. Alderfer previously served as Chief Financial
          Officer of Vestin Group from September 2002 to February 2004. From February
          2004
          to December 2004, Mr. Alderfer served as a consultant to Vestin Group.
          From
          October 1998 to September 2002, Mr. Alderfer was retired. From September
          1996 to
          October 1998, Mr. Alderfer was a Director, Vice President, Treasurer, and
          Chief
          Financial Officer of Interactive Flight Technologies, Inc. From September
          1990
          to June 1996, Mr. Alderfer was Senior Vice President, Treasurer, and Chief
          Financial Officer of Alliance Gaming Corporation. Mr. Alderfer is the former
          Senior Vice President, Corporate Controller and Chief Accounting Officer
          of
          Summa Corporation and The Hughes Corporation, 100% owned by the Estate
          of Howard
          R. Hughes. Mr. Alderfer received his BBA degree in accounting from Texas
          Tech
          University. He is a Certified Public Accountant.
 
 *Roland
          M. Sansone* has
          served as President of Sansone Development, Inc. since 2002. ** Sansone
          Development, Inc. is a real estate development company. Mr. Sansone has
          been
          self-employed as a Manager and developer of real estate since 1980. Mr.
          Sansone
          is currently the president of several companies that develop, own and manage
          commercial and residential property. Mr. Sansone attended Mt. San Antonio
          College.
 -
              52
              -
 *Table
              of Contents*
 *Michael
          V. Shustek* has been
          a director of Vestin Mortgage, a subsidiary of Vestin Group, and Chairman
          of the
          Board of Directors, Chief Executive Officer and a director of Vestin Group
          since
          April 1999. In February 2004, Mr. Shustek became the President of Vestin
          Group.
          Mr. Shustek also serves on the Company’s loan committee. In 2003, Mr. Shustek
          became the Chief Executive Officer of Vestin Mortgage. 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. In 1997,
          Mr.
          Shustek was involved in the initial founding of Nevada First Bank. 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.
 
 *Daniel
          B. Stubbs* has been
          the Senior Vice President, Underwriting of Vestin Mortgage since January
          2000.
          Mr. Stubbs is responsible for analyzing the risks of each loan as well
          as
          prescribing Title Insurance coverage for each individual transaction. In
          addition, Mr. Stubbs serves on the loan committee and acts as a liaison
          between
          Vestin Mortgage and the various banks that carry its lines of credit. Mr.
          Stubbs
          has over 13 years experience in the Title Insurance industry. Mr. Stubbs
          received his Bachelor of Arts in Communications Studies from the University
          of
          Nevada, in Las Vegas, Nevada.
 
 *Michael
          J. Whiteaker* has been
          Vice President of Regulatory Affairs of Vestin Mortgage and Vestin Group
          since
          May 1999 and is experienced in the banking and finance regulatory fields,
          having
          most recently 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.
 
 *Fredrick
          J. Zaffarese Leavitt* has been
          a director of Vestin Group since November 2004. Since August of 1993 Mr.
          Zaffarese has been an accountant for the United States Department of the
          Interior where his responsibilities include the review and audit of various
          state, local and municipality governments for compliance with federal laws
          and
          regulations as well as preparation of financial statements for Executive
          Branch
          and Congressional review. Additionally, Mr. Zaffarese sits on various audit
          committees involving the utility industries. Mr. Zaffarese is a CPA and
          a
          graduate of University of Nevada Las Vegas.
 
 **Audit
          Committee**
 The
          board
          of directors of Vestin Group, the parent corporation of our Manager, has
          a
          standing Audit Committee established in accordance with Section 3(a)(58)
          of the
          Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Audit
          Committee is responsible for the appointment, compensation, retention and
          oversight of our independent accountants. In addition, the Audit Committee
          reviews with Vestin Group’s management and our independent accountants financial
          information that will be provided to our members and others, and our audit
          and
          financial reporting processes. The Audit Committee operates under a written
          Audit Committee Charter adopted by Vestin Group’s board of directors. The Audit
          Committee consists of Robert J. Aalberts, Rick Zaffarese Leavitt and Roland
          Sansone. The board of directors of Vestin Group believes that Mr. Rick
          Zaffarese
          Leavitt is an “audit committee financial expert” as defined in Item 401(h) of
          Regulation S-K. Mr. Rick Zaffarese Leavitt and each of the other members
          of the
          Audit Committee is an “independent director” as defined in Rule 4200 of the
          Marketplace Rules of the National Association of Securities Dealers,
          Inc.
 
 **Code
          of Ethics**
 As
          we do
          not have any executive officers we have not adopted a Code of Ethics. However,
          the executive officers of Vestin Mortgage, our Manager, are under an obligation
          to follow the Code of Ethics of Vestin Group that has been 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.
 -
              53
              -
 *Table
              of Contents*
 **ITEM
          11.**  **EXECUTIVECOMPENSATION**
 
 Not
          Applicable.
  **ITEM
          12.**  **SECURITYOWNERSHIP
          OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT** **AND RELATED STOCKHOLDER MATTERS**
 
 The
          following table indicates the beneficial ownership of our voting securities
          by
          each person known by us to be the beneficial owner of more than 5% of such
          securities, as of December 31, 2005. Beneficial ownership is determined
          in
          accordance with the rules of the Securities and Exchange Commission. Unless
          otherwise indicated, the unit holders listed possess sole voting and investment
          power with respect to the units shown.
 
 **Name**
                **Units
                    Beneficially Owned**
                **Percentage
                    of Units Beneficially Owned**Dr.
                    Bernard Greenblatt
                200,000
                6.72%880
                    Buffwood Avenue, Las Vegas, Nevada 89123
 
 **ITEM
          13.**  **CERTAINRELATIONSHIPS
          AND RELATED
          TRANSACTIONS**
 
 From
          time
          to time we may acquire or sell investments in real estate loans from/to
          our
          Manager or other related parties pursuant to the terms of our Operating
          Agreement provided the price does not exceed the original cost. No gain
          or loss
          is recorded on these transactions, as it is not our intent to make a profit
          on
          the purchase or sale of such investments. The purpose is generally to diversify
          our portfolio by syndicating loans, thereby providing us with additional
          capital
          to make additional loans.
 
 **Transactions
          with the Manager**
 
 Our
          Manager is entitled to receive from us a management (acquisition and advisory)
          fee up to 2.5% of the gross offering proceeds and up to 3% of our rental
          income.
          For the year ended December 31, 2005 and 2004, we recorded fees to our
          Manager
          of approximately $155,000 and 36,000 respectively.
 
 As
          of
          December 31, 2004, we owed our Manager and Vestin Group approximately $1.1
          million, primarily related to deferred offering costs paid on our behalf
          as well
          as unpaid management fees. As of December 31, 2005, we owed our Manager
          approximately $38,000 for unpaid management fees.
 
 Our
          Manager was reimbursed for out of pocket offering expenses in an amount
          not to
          exceed 2% of the gross proceeds of the offering of our units. As of December
          31,
          2005, offering costs of $565,000 were incurred by us and paid by our Manager
          on
          our behalf. These deferred offerings costs, which are primarily legal,
          accounting and registration fees, were converted to 54,862 membership units
          at a
          price equal to the then effective unit value. The additional costs above
          the 2%
          of the gross proceeds of the offering were absorbed by our Manager.
 
 During
          the year ended December 31, 2004, we acquired an office building located
          in Las
          Vegas, Nevada (the “Property”) for approximately $9,800,000, which is inclusive
          of $200,000 paid to the Manager for advisory and diligence fees. As of
          December
          31, 2005, the Property was fully leased to Vestin Group, earning us monthly
          rent
          revenue of approximately of $87,000. Vestin Group has sub-leased office
          space in
          the building as permitted by the lease agreement at rates equal to or less
          than
          rates we receive. We provided $4,850,000 of the purchase price from our
          capital
          and borrowed $4,950,000 for the remainder of the purchase price. We subsequently
          transferred the Property to our wholly owned subsidiary, VFIII HQ,
          LLC.
 
 The
          property underlying the building was originally purchased by an unrelated
          party
          from a company wholly owned by the principal stockholder and Chief Executive
          Officer of our Manager who has advised our Manager that he earned a profit
          of
          approximately $1.0 million in connection with the sale.
 -
              54
              -
 *Table
              of Contents*
 **Transactions
          with the Funds**
 
 During
          the year ended December 31, 2005 and 2004, we sold $500,000 and $5 million
          respectively, in real estate loans to Fund II.
 
 During
          the year ended December 31, 2004, we purchased $10 million in real estate
          loans
          from Fund II.
 
 **Transactions
          with Other Related Parties**
 
 During
          the year ended December 31, 2005 and 2004, we incurred expenses of $83,000
          and
          $0 respectively, to L.L. Bradford & Company, LLC, a certified public
          accounting firm for accounting services. A former Director and Officer
          of Vestin
          Group is an equity owner in that firm.
 
 During
          the year ended December 31, 2005 and 2004, we incurred expenses of $10,000
          and
          $0 respectively, for legal fees to the law firm of Levine, Garfinkel, and
          Katz
          in which the Secretary of Vestin Group has an equity ownership
          interest.
 
 **ITEM
          14.**  **PRINCIPALACCOUNTING
          FEES AND SERVICES**
 
 During
          the fiscal year ended December 31, 2005 and 2004, Moore Stephens Wurth
          Frazer
          and Torbet, LLP (“Moore Stephens”) provided various audit, audit related and
          non-audit services to us as follows:
 
 **December
                    31, 2005**
                
                **December
                    31, 2004**Audit
                    Fees
                
                $
                112,000
                
                $
                130,000Audit
                    Related Fees
                
                $
                --
                
                $
                --Tax
                    Fees
                
                $
                --
                
                $
                --All
                    Other Fees
                
                $
                --
                
                $
                --
 
 During
          the year ending December 31, 2004, approximately $62,000 was absorbed by
          our
          Manager as part of the expenses relating to the registration and offering
          costs
          of the Company.
 
 The
          Audit
          Committee of Vestin Group (the “Audit Committee”) 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.
 
 The
          Audit
          Committee 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 the Audit Committee. The Audit
          Committee
          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
          the Audit Committee pursuant to its pre-approval policy, and none was approved
          pursuant to the *de
          minimus* exception
          to the rules and regulations of the Securities Exchange Act of 1934, Section
          10A(i)(1)(B), on pre-approval.
 
 **PART
          IV**
  **ITEM
          15.**  **EXHIBITS
          AND FINANCIAL STATEMENT SCHEDULES**
  (a)
          1. Financial
          Statements
  The
          financial statement are contained on Pages F-2 through F-24 on this Annual
          Report on Form 10-K, and the list of the financial statements contained
          herein
          is set forth on page F-1, which is hereby incorporated by
          reference.
 
 (a)
          2. Financial
          Statement Schedules
 -
              55
              -
 *Table
              of Contents*
 
 **EXHIBIT
          INDEX**
 **Exhibit
                    No.**
                
                **Description
                    of Exhibits**3.1
                    (1)
                
                Articles
                    of Organization3.2
                    (2)
                
                Certificate
                    of Amendment to Articles of Organization3.3
                    (3)
                
                Amended
                    and Restated Operating Agreement (included as Exhibit A to the
                    prospectus)4
                    (4)
                
                Distribution
                    Reinvestment Plan10.7
                    (5)
                
                Purchase
                    and Sale Agreement, dated August 1, 2004, by and between Luke
                    Properties, LLC and Vestin Fund III, LLC10.8
                    (5)
                
                Assignment
                    and Assumption Agreement dated August 16, 2004 by and between Vestin
                    Fund III, LLC and VFIII HQ, LLC10.9(6)
                
                Office
                    lease agreement dated March 31, 2003 by and between Luke Properties,
                    LLC
                    and Vestin Fund III, LLC31.1
                
                Section 302
                    Certification of Michael V.
                    Shustek31.2
                
                Section 302
                    Certification of John
                    Alderfer32
                
                Certification
                    Pursuant to U.S.C. 18
                    Section 1350
 
 (1)
                
                Incorporated
                    herein by reference to our Pre-Effective Amendment No. 3 to Form S-11
                    Registration Statement filed on September 2, 2003, File
                    No. 333-105017.(2)
                
                Incorporated
                    herein by reference to our Form 10-Q filed on August 16, 2004, File
                    No. 333-105017.(3)
                
                Incorporated
                    herein by reference to our Post-Effective Amendment No. 1 to Form
                    S-11 Registration Statement filed on April 29, 2004, File
                    No. 333-105017.(4)
                
                Incorporated
                    herein by reference to Exhibit 4.4 of our Pre-Effective Amendment
                    No. 3 to Form S-11 Registration Statement filed on September 2,
                    2003, File No. 333-105017.(5)
                
                Incorporated
                    herein by reference to our Form 10-Q filed on November 15, 2004,
                    File No.
                    333-105017.(6)
                
                Incorporated
                    herein by reference to our Form 10-KSB filed on March 30, 2005,
                    File No.
                    333-105017.
  -
              56
              -
 *Table
              of Contents*
  **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 Director of the Manager(Principal
                    Officer of Manager)By:
                
                /s/
                    John AlderferJohn
                    Alderfer(Chief
                    Financial Officer of the Manager)
 
 Dated:
          March 9, 2006
 
 
  
  -
              57
              -
 *Table
              of Contents*
   **INDEX
          TO** **CONSOLIDATED** **FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION**
 
 **Page**REPORT
                    OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
                    FIRM
                F-2CONSOLIDATED
                    FINANCIAL STATEMENTSConsolidated
                    Balance Sheets
                F-3Consolidated
                    Statements of
                    Operations
                F-4Consolidated
                    Statements of Members’
                    Equity
                F-5Consolidated
                    Statements of Cash Flows
                F-6Notes
                    to Consolidated Financial
                    Statements
                F-8SUPPLEMENTARY
                    INFORMATIONInvestments
                    in Real Estate Loans:Real
                    estate loan Rollforward
                F-25Real
                    estate loans by Type of
                    Property
                F-26Real
                    estate loans by Lien Position
                F-27Real
                    estate loans that Exceed Three Percent of the
                    Portfolio
                F-28
 
  F-1
 *Table
              of Contents*
  
 
 Reportof
          Independent Registered Public Accounting
          Firm
 
 
 To
          the
          Board of Directors and Members of Vestin Fund III, LLC
 
 We
          have
          audited the accompanying consolidated balance sheets of Vestin Fund III,
          LLC and
          subsidiary (formerly RE Investments III, LLC) (the “Company”) as of December 31,
          2005 and 2004, and the related consolidated statements of operations, members’
equity, and cash flows for the years ended December 31, 2005 and 2004 and
          for
          the period from April 16, 2003 (Inception) to December 31, 2003. These
          consolidated financial statements are the responsibility of the Company’s
          management. Our responsibility is to express an opinion on these consolidated
          financial statements based on our audits.
 
 We
          conducted our audits in accordance with the standards of the Public Company
          Accounting Oversight Board (United States). Those standards require that
          we plan
          and perform the audits 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 also includes
          examining, on a test basis, evidence supporting the amounts and disclosures
          in
          the financial statements, 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 consolidated financial statements referred to above present
          fairly,
          in all material respects, the consolidated financial position of Vestin
          Fund
          III, LLC and subsidiary as of December 31, 2005 and 2004, and the consolidated
          results of their operations and their consolidated cash flows for the years
          then
          ended and for the period from April 16,  2003
          (Inception) to December 31, 2003 in conformity with U.S. generally accepted
          accounting principles.
 
 The
          supplemental schedules are presented for purposes of additional analysis
          and are
          not a required part of the consolidated financial statements. Such information
          has been subjected to the auditing procedures applied in our audits of
          the
          consolidated financial statements and, in our opinion, is fairly stated
          in all
          material respects in relation to the consolidated financial statements
          taken as
          a whole.
 
 
 
 
 
 
 /s/ Moore
          Stephens Wurth Frazer and Torbet, LLP
 
 Orange,
          California
 March
          9,
          2006
 
 
 
  F-2
 *Table
              of Contents*
  **CONSOLIDATED
          FINANCIALSTATEMENTS**
  **Vestin
                    Fund III, LLC****CONSOLIDATED
                    BALANCESHEETS****ASSETS****DECEMBER
                    31, 2005**
                
                
                **DECEMBER
                    31, 2004**Cash
                
                $
                1,167,000
                
                $
                6,286,000Interest
                    receivable
                
                
                194,000
                
                
                127,000Investment
                    in real estate loans, net of allowance for loan losses of $73,000
                    as of
                    December 31, 2005 and 2004
                
                
                22,964,000
                
                
                13,520,000Investment
                    in real property, net of accumulated depreciation of $287,000
                    and $77,000
                    as of December 31, 2005 and 2004, respectively
                
                
                9,591,000
                
                
                9,814,000Capitalized
                    loan fees, net of amortization of $16,000 and $4,000 as of December
                    31,
                    2005 and 2004 respectively
                
                
                99,000
                
                
                111,000Assets
                    under secured borrowings
                
                
                527,000
                
                
                2,590,000Deferred
                    rent receivable
                
                
                168,000
                
                
                --Deferred
                    offering costs
                
                
                --
                
                
                926,000Total
                    assets
                
                $
                34,710,000
                
                $
                33,374,000**LIABILITIES
                    AND MEMBERS' EQUITY**LiabilitiesAccounts
                    payable
                
                $
                156,000
                
                $
                --Due
                    to Manager
                
                
                38,000
                
                
                1,094,000Secured
                    borrowings
                
                
                527,000
                
                
                2,590,000Note
                    payable
                
                
                4,830,000
                
                
                4,928,000Total
                    liabilities
                
                
                5,551,000
                
                
                8,612,000Members'
                    equity - Authorized 10,000,000 units, 2,974,419 units issued
                    and
                    outstanding at December 31, 2005 and 2,471,658 units issued and
                    outstanding at December 31, 2004
                
                
                29,159,000
                
                
                24,762,000Total
                    members' equity
                
                
                29,159,000
                
                
                24,762,000Total
                    liabilities and members' equity
                
                $
                34,710,000
                
                $
                33,374,000
  The
                accompanying notes are an integral part of these
                statements.
 F-3
 *Table
              of Contents*
  
 **Vestin
                        Fund III, LLC****CONSOLIDATED
                        STATEMENTSOF OPERATIONS****FOR
                        THE YEARS ENDED**
                      **DECEMBER
                        31,**
                    
                    **FOR
                        THE PERIOD FROM APRIL 16, 2003 (INCEPTION) TO DECEMBER
                        31,****2005**
                    
                    **2004**
                    
                    **2003****Revenues**Interest
                        income from investments in real estate loans
                    
                    $
                    2,341,000
                    
                    $
                    1,269,000
                    
                    $
                    --Interest
                        income related to secured borrowings
                    
                    
                    160,000
                    
                    
                    687,000
                    
                    
                    --Rental
                        income
                    
                    
                    1,040,000
                    
                    
                    317,000
                    
                    
                    --Other
                    
                    
                    75,000
                    
                    
                    87,000
                    
                    
                    --Total
                        revenues
                    
                    
                    3,616,000
                    
                    
                    2,360,000
                    
                    
                    --**Operating
                        expenses**Management
                        fees
                    
                    
                    155,000
                    
                    
                    36,000
                    
                    
                    --Interest
                        expense related to secured borrowings
                    
                    
                    136,000
                    
                    
                    630,000
                    
                    
                    --Interest
                        expense related to investment in real estate
                    
                    
                    301,000
                    
                    
                    80,000
                    
                    
                    --Provision
                        for loan losses
                    
                    
                    --
                    
                    
                    73,000
                    
                    
                    --Depreciation
                        and amortization
                    
                    
                    222,000
                    
                    
                    81,000
                    
                    
                    --Professional
                        fees
                    
                    
                    407,000
                    
                    
                    62,000
                    
                    
                    --Other
                    
                    
                    73,000
                    
                    
                    28,000
                    
                    
                    1,000Total
                        operating expenses
                    
                    
                    1,294,000
                    
                    
                    990,000
                    
                    
                    1,000**NET
                        INCOME (LOSS)**
                    
                    $
                    2,322,000
                    
                    $
                    1,370,000
                    
                    $
                    (1,000
                    )Net
                        income (loss) allocated to members
                    
                    $
                    2,322,000
                    
                    $
                    1,370,000
                    
                    $
                    (1,000
                    )Net
                        income (loss) allocated to members per weighted average membership
                        units
                    
                    $
                    0.82
                    
                    $
                    0.78
                    
                    $
                    --Weighted
                        average membership units
                    
                    
                    2,817,055
                    
                    
                    1,751,700
                    
                    
                    --
  The
                accompanying notes are an integral part of these
                statements.
 F-4
 *Table
              of Contents*
  
 **Vestin
                    Fund III, LLC****CONSOLIDATED
                    STATEMENTOF MEMBERS' EQUITY****UNITS**
                
                **AMOUNT**Members'
                    equity at December 31, 2003
                
                
                --
                
                $
                (1,000
                )Issuance
                    of units
                
                
                2,425,244
                
                
                24,278,000Distributions
                
                
                --
                
                
                (1,350,000
                )Reinvestments
                    of distributions
                
                
                47,462
                
                
                476,000Members'
                    redemptions
                
                
                (1,048
                )
                
                (11,000
                )Net
                    income
                
                
                --
                
                
                1,370,000Members'
                    equity at December 31, 2004
                
                
                2,471,658
                
                $
                24,762,000Issuance
                    of units, including 54,862 units issued in lieu of payment of
                    deferred
                    offering costs
                
                
                440,677
                
                
                3,976,000Distributions
                
                
                --
                
                
                (2,555,000
                )Reinvestments
                    of distributions
                
                
                96,451
                
                
                984,000Members'
                    redemptions
                
                
                (34,367
                )
                
                (330,000
                )Net
                    income
                
                
                --
                
                
                2,322,000Members'
                    equity at December 31, 2005
                
                
                2,974,419
                
                $
                29,159,000
  The
                accompanying notes are an integral part of these
                statements.
 F-5
 *Table
              of Contents*
  
 **VESTIN
                    FUND III, LLC****CONSOLIDATED
                    STATEMENTSOF CASH FLOWS****FOR
                    THE YEARS ENDED****DECEMBER
                    31,**
                
                **FOR
                    THE PERIOD FROM APRIL 16, 2003 (INCEPTION) TO DECEMBER 31,****2005**
                
                **2004**
                
                **2003****Cash
                    flows from operating activities:**Net
                    income
                
                $
                2,322,000
                
                $
                1,370,000
                
                $
                (1,000
                )Adjustments
                    to reconcile net income to net cash provided by operating
                    activities:Depreciation
                
                
                210,000
                
                
                76,000
                
                
                --Amortization
                    of capitalized loan fees
                
                
                12,000
                
                
                4,000
                
                
                --Provision
                    for loan losses
                
                
                --
                
                
                73,000
                
                
                --Change
                    in operating assets and liabilities:Interest
                    receivable
                
                
                (67,000
                )
                
                (127,000
                )
                
                --Deferred
                    rent receivable
                
                
                (168,000
                )
                
                --
                
                
                --Capitalized
                    loan fees
                
                
                --
                
                
                (115,000
                )
                
                --Accounts
                    payable
                
                
                156,000
                
                
                --
                
                
                --Due
                    to Manager
                
                
                (130,000
                )
                
                162,000
                
                
                6,000Net
                    cash provided by operating activities
                
                
                2,335,000
                
                
                1,443,000
                
                
                5,000**Cash
                    flows from investing activities:**Investments
                    in real estate loans on real estate
                
                
                (16,976,000
                )
                
                (20,442,000
                )
                
                --Sale
                    of investments in real estate loans
                
                
                --
                
                
                2,114,000
                
                
                --Proceeds
                    from loan payoff
                
                
                7,032,000
                
                
                9,736,000
                
                
                --Proceeds
                    from title settlement on investment in real property
                
                
                13,000
                
                
                --
                
                
                --Purchase
                    of investments in real estate loans from Fund II
                
                
                --
                
                
                (10,000,000
                )
                
                --Proceeds
                    received from sale of real estate loans to Vestin Fund II,
                    LLC
                
                
                500,000
                
                
                5,000,000
                
                
                --Purchase
                    of investment in real property
                
                
                --
                
                
                (4,941,000
                )
                
                --Net
                    cash used by investing activities
                
                $
                (9,431,000
                )
                $
                (18,533,000
                )
                $
                --
  The
                accompanying notes are an integral part of these
                statements.
 F-6
 *Table
              of Contents*
  **VESTIN
                      FUND III, LLC****CONSOLIDATED
                      STATEMENTS OF CASH FLOWS**
 **FOR
                      THE YEARS ENDED****DECEMBER
                      31,**
                  
                  **FOR
                      THE PERIOD FROM APRIL 16, 2003 (INCEPTION) TO DECEMBER 31,****2005**
                  
                  **2004**
                  
                  **2003****Cash
                      flows from financing activities:**Proceeds
                      from issuance of member units
                  
                  $
                  3,976,000
                  
                  $
                  24,278,000
                  
                  $
                  --Payments
                      on notes payable
                  
                  
                  (98,000
                  )
                  
                  (22,000
                  )
                  
                  --Members'
                      redemptions
                  
                  
                  (330,000
                  )
                  
                  (11,000
                  )
                  
                  --Distributions,
                      net of reinvestments
                  
                  
                  (1,571,000
                  )
                  
                  (874,000
                  )
                  
                  --Net
                      cash provided by financing activities
                  
                  
                  1,977,000
                  
                  
                  23,371,000**NET
                      CHANGE IN CASH**
                  
                  
                  (5,119,000
                  )
                  
                  6,281,000
                  
                  
                  5,000**Cash,
                      beginning**
                  
                  
                  6,286,000
                  
                  
                  5,000
                  
                  
                  --**Cash,
                      ending**
                  
                  $
                  1,167,000
                  
                  $
                  6,286,000
                  
                  $
                  5,000**Interest
                      paid during the period**
                  
                  $
                  301,000
                  
                  $
                  80,000
                  
                  $
                  --**Non-cash
                      financing activities:**Offering
                      costs paid by Vestin Mortgage, Inc. recorded as deferred offering
                      costs
                      and due to manager on the accompanying balance sheet
                  
                  $
                  --
                  
                  $
                  259,000
                  
                  $
                  667,000Change
                      in loans funded through secured borrowing
                  
                  $
                  2,063,000
                  
                  $
                  2,590,000
                  
                  $
                  --Note
                      payable related to acquisition of investment in real
                      estate
                  
                  $
                  --
                  
                  $
                  4,950,000
                  
                  $
                  --Reimbursements
                      of offering costs paid by Vestin Mortgage, Inc. converted to
                      54,862
                      membership units
                  
                  $
                  565,000
                  
                  $
                  --
                  
                  $
                  --Deferred
                      offering costs that were expensed by Vestin Mortgage and recorded
                      as a
                      reduction in due to manager
                  
                  $
                  455,000
                  
                  $
                  --
                  
                  $
                  --
 
 
  The
                accompanying notes are an integral part of these
                statements.
 F-7
 *Table
              of Contents*
 
 **VESTIN
          FUND III, LLC**
 
 **NOTESTO
          CONSOLIDATED FINANCIAL STATEMENTS**
 
 **DECEMBER
          31, 2005**
 
 
 **NOTE
          A — ORGANIZATION**
 
 Vestin
          Fund III, LLC was organized in April 2003 as a Nevada limited liability
          company
          for the purpose of investing in real estate loans and income-producing
          real
          property. In this report we refer to Vestin Fund III, LLC as “the Company”, “our
          Company”, the “Fund”, “we”, “us”, or “our”. We invest in loans secured by real
          estate through deeds of trust or mortgages (hereafter referred to as “deeds of
          trust”). We commenced operations in February 2004. We will continue our
          operations until December 2023 unless dissolved prior thereto or extended
          by
          vote of the members under the provisions of our Operating
          Agreement.
 
 We
          are
          not a mutual fund or an investment company within the meaning of the Investment
          Company Act of 1940, nor are we subject to any regulation thereunder. As
          a
          company investing in real estate loans, investments in real estate and
          raising
          funds through our Distribution Reinvestment Plan, we are subject to the
          North
          American Securities Administration Act Mortgage Program Guidelines and
          Real
          Estate Guidelines (collectively, the “NASAA Guidelines”) promulgated by the
          state securities administrators.
 
 On
          November 7, 2003, our Registration Statement as filed with the Securities
          and
          Exchange Commission became effective for the initial public offering of
          up to
          10,000,000 units at $10 per unit (“Unit”). As of December 31, 2005, we had sold
          approximately 2,865,921 Units. Members may participate in our Distribution
          Reinvestment Plan whereby the members’ distributions may be used to purchase
          additional Units at the current value. As of December 31, 2005, approximately
          143,913 Units had been purchased under this plan. On November 7, 2005,
          we
          discontinued the offering of our Units; however, members may continue to
          purchase additional Units through our Distribution Reinvestment
          Plan.
 
 Our
          Manager is Vestin Mortgage, Inc. (the “Manager”), a Nevada corporation and
          licensed mortgage broker engaged in the business of brokerage, placement
          and
          servicing of commercial loans secured by real property. Our Manager is
          a wholly
          owned subsidiary of Vestin Group, Inc., a Delaware corporation (“Vestin Group”).
          Michael V. Shustek, the Chief Executive Officer (“CEO”) and Director of the
          Manager, acquired all of the outstanding shares of common stock of Vestin
          Group,
          Inc. pursuant to a tender offer and follow-on short form merger, which
          closed on
          May 26, 2005. Vestin Group filed a Form 15 with the United States Securities
          and
          Exchange Commission (SEC) on May 11, 2005 to terminate its reporting obligations
          under the Securities Exchange Act of 1934. Through its subsidiaries, Vestin
          Group is engaged in asset management, real estate lending and other financial
          services.
 
 Our
          Operating Agreement provides that the Manager controls the daily operating
          activities of the Company, including the power to assign duties, to determine
          how to invest our assets, to sign bills of sale, title documents, leases,
          notes,
          security agreements, real estate loan investments and contracts, and to
          assume
          direction of the business operations. As a result, our operating results
          are
          dependent on our Manager’s ability and intent to continue to service the
          Company’s assets. The Operating Agreement also provides that the members have
          certain rights, including the right to terminate the Manager subject to
          a
          majority vote of the members.
 
 Vestin
          Mortgage, Inc. is also the Manager of Vestin Fund I, LLC (“Fund I”), Vestin Fund
          II, LLC (“Fund II”) and inVestin Nevada, Inc., a company wholly owned by our
          Manager’s CEO. These entities also invest in commercial real estate
          loans.
 F-8
 *Table
              of Contents*
 We
          invest
          in real estate loans throughout the areas in which Vestin Mortgage and
          its
          correspondents have experience. As of December 31, 2005, our loans are
          in the
          following states; Arizona, California, Nevada, North Carolina, Oklahoma,
          Oregon,
          Texas, Washington and Wisconsin. The loans we invest in are selected for
          us by
          Vestin Mortgage from among loans originated by Vestin Mortgage or non-affiliated
          mortgage brokers. When Vestin Mortgage or a non-affiliated mortgage broker
          originates a loan for us, that entity identifies the borrower, processes
          the
          loan application, makes or invests in the loan, and brokers or sells the
          loan to
          us. We believe that our loans are attractive to borrowers because of the
          expediency of Vestin Mortgage’s loan approval process, which takes about ten to
          twenty days.
 
 The
          consolidated financial statements include the accounts of the Company and
          its
          wholly owned subsidiary. All significant inter-company transactions and
          balances
          have been eliminated in consolidation.
 
 **NOTE
          B — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**
 
 **Management
          Estimates**
 
 The
          preparation of financial statements in conformity with accounting principles
          generally accepted in the United States of America (“GAAP”) requires management
          to make estimates and assumptions that affect the reported amounts of assets
          and
          liabilities and disclosure of contingent assets and liabilities at the
          date of
          the financial statements and the reported amounts of revenues and expenses
          during the reporting period. Actual results could differ from those
          estimates.
 
 **Cash
          and Cash Equivalents**
 
 Cash
          and
          cash equivalents include interest-bearing and non-interest-bearing bank
          deposits, money market accounts, short-term certificates of deposit with
          original maturities of three months or less, and short-term instruments
          with a
          liquidation provision of one month or less.
 
 **Revenue
          Recognition**
 
 Interest
          is recognized as revenue when earned according to the terms of the loans,
          using
          the effective interest method. We do not recognize interest income on loans
          once
          they are determined to be impaired. A loan is impaired when based on current
          information and events, it is probable that we will be unable to collect
          all
          amounts due according to the contractual terms of the loan agreement or
          when the
          payment of interest is 90 days past due. Cash receipts will be allocated
          to
          interest income, except when such payments are specifically designated
          by the
          terms of the loan as principal reduction or when management does not believe
          our
          investment in the loan is fully recoverable.
 
 Certain
          leases provide for tenant occupancy during periods for which no rent is
          due or
          where minimum rent payments increase during the term of the lease. Rental
          revenue is recorded for the full term of each lease on a straight-line
          basis.
          Accordingly, the Company records a receivable from tenants for rents that
          it
          expects to collect over the remaining lease term as deferred rents receivable.
          When the Company acquires a property, the term of the existing leases is
          considered to commence as of the acquisition date for the purposes of this
          calculation. Revenue recognition is considered to be critical because the
          evaluation of the reliability of such deferred rents receivable involves
          management’s assumptions relating to such tenant’s viability.
 
 We
          recognize income from rent once all of the following criteria are met in
          accordance with the Statement of Financial Accounting Standards (FAS) No.
          13 *Accounting
          for Leases* :
 
 ·
              The
                  agreement has been fully executed and
                  delivered; 
 ·
              Services
                  have been rendered; 
 ·
              The
                  amount is fixed or determinable, and 
 ·
              The
                  collectibility is reasonable assure.  F-9
 *Table
              of Contents*
 **Investments
          in Real Estate Loans**
 
 The
          Company may from time to time acquire or sell investments in real estate
          loans
          from or to the Manager or other related parties pursuant to the terms of
          the
          Company's Operating Agreement provided the price does not exceed the original
          cost. The purpose primarily is to either free up capital to provide liquidity
          for various reasons, such as loan diversification, or place excess capital
          in
          investments to maximize the use of the Company's capital. For example,
          the
          Company's Operating Agreement provides certain guidelines with respect
          to loan
          concentration by dollar amount, location and lien position. Selling or
          buying
          loans allows the Company to diversify its loan portfolio within these
          parameters. Due to the short term nature of the loans the Company makes
          and the
          similarity of interest rates in loans the Company normally would invest
          in, the
          fair value of a loan typically approximates its carrying value. Accordingly,
          discounts or premiums typically do not apply upon sales of loans and therefore,
          generally no gain or loss is recorded on these transactions, regardless
          of
          whether to a related or unrelated party.
 
 Investments
          in real estate loans are secured by deeds of trust or mortgages (hereafter
          referred to as “deeds of trust”). Generally, all of our real estate loans
          require interest only payments with a balloon payment of the principal
          at
          maturity. We have both the intent and ability to hold real estate loans
          until
          maturity and therefore, real estate loans are classified and accounted
          for as
          held for investment and are carried at amortized cost. Loans sold to or
          purchased from affiliates are accounted for at the principal balance and
          no gain
          or loss is recognized by us or any affiliate. Loan to value ratios are
          based on
          appraisals obtained at the time of loan origination and may not reflect
          subsequent changes in value estimates. Such appraisals are generally dated
          within 12 months of the date of loan origination and may be commissioned
          by the
          borrower. The appraisals may be for the current estimate of the “as-if
          developed” value of the property, which approximates the post-construction value
          of the collateralized property assuming that such property is developed.
“As-if
          developed” values on raw land loans or acquisition and development loans often
          dramatically exceed the immediate sales value and may include anticipated
          zoning
          changes and timely successful development by the purchaser. As most of
          the
          appraisals will be prepared on an “as-if developed” basis, if a loan goes into
          default prior to any development of a project, the market value of the
          property
          may be substantially less than the appraised value. As a result, there
          may be
          less security than anticipated at the time the loan was originally made.
          If
          there is less security and a default occurs, we may not recover the full
          amount
          of the loan.
 
 Currently,
          all of our loans provide for payments of interest only with a “balloon” payment
          of principal payable in full at the end of the term. In addition, we also
          invest
          in real estate loans that have interest reserves. Loans with interest reserves
          require the borrowers to maintain interest reserves funded from the principal
          amount of the loan for a period of time. At December 31, 2005, we had $3.9
          million in investments in real estate loans that had interest reserves
          where the
          total outstanding principal was approximately $53.2 million, including
          participating lenders. These loans had interest reserves of approximately
          $2.4
          million, of which our portion is $0.7 million. At December 31, 2004, we
          had
          $10.4 million in investments in real estate loans that had interest reserves
          where the total outstanding principal was approximately $131 million, including
          participating lenders. These loans had interest reserves of approximately
          $5.8
          million, of which our portion was $0.7 million.
 
 **Allowance
          for Loan Losses**
 
 We
          maintain an allowance for loan losses on our investments in real estate
          loans
          for estimated credit impairment. The Manager’s estimate of losses is based on a
          number of factors including the types and dollar amounts of loans in the
          portfolio, adverse situations that may affect the borrower’s ability to repay,
          prevailing economic conditions and the underlying collateral securing the
          loan.
          Additions to the allowance are provided through a charge to earnings and
          are
          based on an assessment of certain factors, which may indicate estimated
          losses
          on the loans. Actual losses on loans are recorded as a charge-off or a
          reduction
          to the allowance for loan losses. Subsequent recoveries of amounts previously
          charged off are added back to the provision for loan loss or included as
          income.
 
 Estimating
          allowances for loan losses requires significant judgment about the underlying
          collateral, including liquidation value, condition of the collateral, competency
          and cooperation of the related borrower and specific legal issues that
          affect
          loan collections or taking possession of the property. As a non-conventional
          lender willing to invest in loans to borrowers who may not meet the credit
          standards of conventional lenders, the default rate on our loans could
          be higher
          than those generally experienced in the real estate lending industry. We
          generally approve loans more quickly than other real estate lenders and,
          due to
          our expedited underwriting process, there is a risk that the credit inquiry
          we
          perform will not reveal the material facts pertaining to a borrower and
          the
          security.
 F-10
 *Table
              of Contents*
 Additional
          facts and circumstances are discovered as we continue our efforts in the
          collection and foreclosure processes. This additional information often
          causes
          management to reassess its estimates. Circumstances that may caused significant
          changes in our estimated allowance include:
 
 (a)
              Declines
                  in real estate market conditions, which can cause a decrease in
                  expected
                  market value. 
 (b)
              Discovery
                  of undisclosed liens for community improvement bonds, easements
                  and
                  delinquent property taxes. 
 (c)
              Lack
                  of progress on real estate developments after we advance funds.
                  We
                  customarily utilize disbursement agents to monitor the progress
                  of real
                  estate developments and approve loan advances. After further inspection
                  of
                  the related property, progress on construction occasionally does
                  not
                  substantiate an increase in value to support the related loan
                  advances. 
 ·
              Unanticipated
                  legal or business issues that may arise subsequent to loan origination
                  or
                  upon the sale of foreclosed upon
                  property. 
 ·
              Appraisals,
                  which are only opinions of value at the time of the appraisal,
                  may not
                  accurately reflect the value of the
                  property. 
 **Investments
          in Real Property**
 
 Real
          property is stated at cost, less accumulated depreciation. Amounts capitalized
          as investments in real property consist of the cost of acquisition or
          construction and any tenant improvements or major improvements that extend
          the
          useful life of the related asset. All repairs and maintenance are expensed
          as
          incurred. Upon acquisition, the purchase price of the property is allocated
          to
          land, building and improvements and other intangible assets and associated
          liabilities as required by FAS No. 141 *Business
          Combinations* .
          The
          allocation to land is based on an estimate of its fair value based on available
          information, including appraisals. The allocation to other intangible assets
          represents the value associated with the in-place leases, including leasing
          commission, legal and other related costs.
 
 Real
          property is depreciated using the straight-line method over the useful
          lives of
          the assets by class generally as follows:
 
 Land
                
                Not
                    DepreciatedBuilding
                
                40
                    YearsBuilding
                    Improvements
                
                10-25
                    YearsLand
                    Improvements
                
                20-25
                    YearsTenant
                    Improvements
                
                Lease
                    TermIntangible
                    Lease Assets
                
                Lease
                    Term
 
 Our
          Manager continually monitors events and changes in circumstances that could
          indicate carrying amounts of real estate and related intangible assets
          may not
          be recoverable. When indicators of potential impairment are present, our
          Manager
          assesses the recoverability of the assets by determining whether the carrying
          value of the real estate and related intangible assets will be recovered
          through
          the undiscounted future cash flows expected from the use and eventual
          disposition of the asset. In the event the expected undiscounted future
          cash
          flows do not exceed the carrying value, we adjust the real estate and intangible
          assets to their fair value and recognize an impairment loss. Our Manager
          has
          determined there has been no impairment in the carrying value of real property
          held by us during the year ended December 31, 2005.
 
 **Deferred
          Offering Costs**
 
 Deferred
          offering costs consist primarily of legal, accounting and registration
          fees
          related to the Proposed Offering and that will be charged to capital upon
          the
          receipt of the capital or charged to expense if not completed.
 F-11
 *Table
              of Contents*
 Our
          Manager was reimbursed for out of pocket offering expenses in an amount
          not to
          exceed 2% of the gross proceeds of the offering of our units. As of December
          31,
          2005, offering costs of approximately $565,000 were incurred by us and
          paid by
          our Manager on our behalf. These deferred offerings costs, which are primarily
          legal, accounting and registration fees, were converted to 54,862 membership
          units at a price equal to the then effective unit value. The additional
          costs
          above the 2% of the gross proceeds of the offering were absorbed by our
          Manager.
 
 **Secured
          Borrowings**
 
 Secured
          borrowings provide an additional source of capital for our lending activity.
          Secured borrowings allow us to increase the diversification of our loan
          portfolio and to invest in loans that we might not otherwise invest in.
          We do
          not receive any revenues for entering into secured borrowing arrangements.
          Loans
          in which third party investors have participated through inter-creditor
          agreements (“Inter-creditor Agreements”) are accounted for as secured borrowings
          in accordance with FAS No. 140, *Accounting
          for Transfers and Servicing of Financial Assets and Extinguishments of
          Liabilities* (“FAS
          No.
          140”). The Inter-creditor Agreements provide us additional funding sources
          for
          real estate loans whereby a third party investor (the “Investor”) may
          participate on a senior basis in certain real estate loans with us and/or
          Fund I
          and/or Fund II (collectively, the “Lead Lenders”). In the event of borrower
          non-performance, the Inter-creditor Agreements generally provide that the
          Lead
          Lenders must repay the Investor’s loan amount either by (i) continuing to remit
          to the Investor the interest due on the participated loan amount; (ii)
          substituting an alternative loan acceptable to the Investor; or (iii)
          repurchasing the participation from the Investor for the outstanding balance
          plus accrued interest.
 
 Additionally,
          an Investor may participate in certain loans with the Lead Lenders through
          Participation Agreements. In the event of borrower non-performance, the
          Participation Agreement may allow the Investor to be repaid up to the amount
          of
          the Investor’s investment prior to the Lead Lender being repaid. Real estate
          loan financing under the Participation Agreements are also accounted for
          as a
          secured borrowing in accordance with FAS No. 140. We do not receive any
          revenues
          for entering into secured borrowing arrangements.
 
 **Fair
          Value of Financial Instruments**
 
 FAS.
          107, *Disclosures
          about Fair Value of Financial Instruments* ,
          requires the determination of fair value of our financial assets. The following
          methods and assumptions were used to estimate the fair value of financial
          instruments included in the following categories:
 
 (a)
              Certificate
                  of Deposits and Short-Term Investments: The carrying amount of
                  these
                  instruments is at amortized cost, which approximates fair
                  value. 
 (b)
              Investment
                  in Real Estate Loans: The carrying value of these instruments,
                  net of the
                  allowance for loan losses, approximates the fair value due to their
                  short-term maturities. Fair values for loans, which are delinquent
                  and/or
                  in foreclosure are indeterminable at this time as no ready market
                  exists
                  for these loans, but fair value may be significantly below the
                  current
                  carrying value. 
 (c)
              Assets
                  under Secured Borrowing: The carrying amount of these instruments
                  approximate fair value. The fair value is estimated based upon
                  projected
                  cash flows discounted at the estimated current interest rates at
                  which
                  similar loans would be made. 
 At
          December 31, 2005 and 2004, the estimated fair value of the real estate
          loans
          were approximately $23.0 million and $13.6 million, respectively. At December
          31, 2005 and 2004, the estimated fair values of assets under secured borrowings
          were approximately $0.5 million and $2.6 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.
 F-12
 *Table
              of Contents*
 **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 U. S. GAAP by the weighted
          average number of membership units outstanding for the period.
 
 **Income
          Taxes**
 
 Income
          tax effects resulting from our operations pass through to our members
          individually and, accordingly, no provision for income taxes is included
          in the
          financial statements.
 
 **Reclassifications**
 
 Certain
          reclassifications have been made to the prior year’s financial statements to
          conform with the current year presentation.
 
 **NOTE
          C — FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT
          RISK**
 
 Financial
          instruments with concentration of credit and market risk include cash and
          loans
          secured by deeds of trust.
 
 We
          maintain cash deposit accounts and certificates of deposit, which, at times,
          may
          exceed federally insured limits. We have not experienced any losses in
          such
          accounts and believe we are not exposed to any significant credit risk
          on cash.
          As of December 31, 2005 and 2004, we had approximately $1.2 million and
          $6.2
          million, respectively, in excess of the federally insured limits.
 
 As
          of
          December 31, 2005, 18% of our real estate loans were in Nevada compared
          to 30%
          at December 31, 2004. Additionally, as of December 31, 2005, 25% of our
          real
          estate loans were in Arizona compared to 51% at December 31, 2004 and 24%
          of our
          real estate loans were in California compared to 12% at December 31, 2004.
          As a
          result of this geographical concentration of our real estate loans, a downturn
          in the local real estate markets in Nevada, Arizona, and California could
          have a
          material adverse effect on us.
 
 At
          December 31, 2005, the aggregate amount of loans to our three largest borrowers
          represented 41% of our total investment in real estate loans. These real
          estate
          loans consisted of commercial, land and acquisition and development, located
          in
          Arizona, Nevada and California with a first lien position, earning between
          10%
          and 12%, and outstanding balances of approximately $9.2 million. At December
          31,
          2004, the aggregate amount of loans to our three largest borrowers represented
          55% of our total investment in real estate loans. These real estate loans
          consisted of commercial and land loans, located in Arizona and Nevada,
          with a
          first lien position, earning between 10% and 15%, and outstanding balances
          of
          approximately $7.5 million. Because we have a significant concentration
          of
          credit risk with our three largest borrowers, a default by any of such
          borrowers
          could have a material adverse effect on us.
 
 At
          December 31, 2005 and 2004, there was one loan with a balance of approximately
          $4.3 million and $4.1 million, respectively, representing 19% and 30%,
          respectively, of our total investment in real estate loans. This land loan
          was
          located in Arizona, with a first lien position, earning 10%
          interest.
 
 Most
          of
          our real estate loans will require the borrower to make a balloon payment
          of the
          principal at maturity. The success of a borrower’s ability to repay our real
          estate loan obligation in a large lump-sum payment may be dependent upon
          the
          borrower’s ability to refinance the obligation or otherwise raise a substantial
          amount of cash. An increase in interest rates over the loan rate applicable
          at
          origination of the loan may have an adverse effect on the borrower’s ability to
          refinance.
 
 **NOTE
          D — INVESTMENTS IN REAL ESTATE LOANS**
 
 We
          have
          five real estate loan products consisting of commercial, construction,
          acquisition and development, land, and residential loans. The effective
          interest
          rates on all product categories range from 6% to 14%. Revenue by product
          will
          fluctuate based upon relative balances during the period.
 F-13
 *Table
              of Contents*
 Investments
          in real estate loans as of December 31, 2005 were as follows:
 
 **Loan
                    Type**
                
                **Number
                    Of Loans**
                
                **Fund
                    Balance**
                
                **Weighted
                    Average Interest Rate**
                
                **Portfolio
                    Percentage**
                
                **Loan
                    To Value (2)**Acquisition
                    and development
                
                
                3
                
                $
                3,806,000
                
                
                11.30%
                
                
                16.52%
                
                
                47.74%Commercial
                    (1)
                
                
                12
                
                
                12,244,000
                
                
                9.63%
                
                
                53.15%
                
                
                65.33%Construction
                
                
                2
                
                
                1,231,000
                
                
                12.00%
                
                
                5.34%
                
                
                64.50%Land
                
                
                3
                
                
                5,756,000
                
                
                11.01%
                
                
                24.99%
                
                
                56.44%20
                
                $
                23,037,000
                
                
                10.38%
                
                
                100.00%
                
                
                60.16%
 
 Investments
          in real estate loans as of December 31, 2004 were as follows:
 
 **Loan
                    Type**
                
                **Number
                    Of Loans**
                
                **Fund
                    Balance**
                
                **Weighted
                    Average Interest Rate**
                
                **Portfolio
                    Percentage**
                
                **Loan
                    To Value (2)**Acquisition
                    and development
                
                
                3
                
                $
                6,319,000
                
                
                10.90%
                
                
                46.49%
                
                
                56.74%Commercial
                    (1)
                
                
                3
                
                
                4,848,000
                
                
                12.26%
                
                
                35.67%
                
                
                66.27%Construction
                
                
                1
                
                
                266,000
                
                
                12.00%
                
                
                1.95%
                
                
                66.53%Land
                
                
                3
                
                
                2,160,000
                
                
                12.81%
                
                
                15.89%
                
                
                71.82%10
                
                $
                13,593,000
                
                
                11.71%
                
                
                100.00%
                
                
                62.73%
 
 (1)
              Bridge
                  loans are a subcategory of commercial loans in which we provide
                  interim
                  financing for borrowers seeking long-term, permanent
                  financing. 
 (2)
              Loan
                  to value ratios are based on appraisals obtained at the time of
                  loan
                  origination and may not reflect subsequent changes in value estimates.
                  Such appraisals, which may be commissioned by the borrower, are
                  generally
                  dated no greater than 12 months prior to the date of loan origination.
                  The
                  appraisals may be for the current estimate of the “as-if developed” value
                  of the property, which approximates the post-construction value
                  of the
                  collateralized property assuming that such property is developed.
“As-if
                  developed” values on raw land loans or acquisition and development loans
                  often dramatically exceed the immediate sales value and may include
                  anticipated zoning changes, and successful development by the purchaser;
                  upon which development is dependent on availability of financing.
                  As most
                  of the appraisals will be prepared on an “as-if developed” basis, if a
                  loan goes into default prior to any development of a project, the
                  market
                  value of the property may be substantially less than the appraised
                  value.
                  As a result, there may be less security than anticipated at the
                  time the
                  loan was originally made. If there is less security and a default
                  occurs,
                  we may not recover the full amount of the
                  loan. 
 The
          following table reconciles the balance of the loan portfolio to the amount
          shown
          on the accompanying Balance Sheet:
 
 **December
                    31, 2005 Balance**
                
                **December
                    31, 2004 Balance**Balance
                    Per Loan Portfolio
                
                $
                23,037,000
                
                $
                13,593,000Less:Allowance
                    for Loan Losses
                
                
                73,000
                
                
                73,000Balance
                    per Balance Sheet
                
                $
                22,964,000
                
                $
                13,520,000
 
  F-14
 *Table
              of Contents*
 The
          following is a schedule of investments in real estate loans by lien
          position.
 
 **Loan
                    Type**
                
                **December
                    31, 2005**
                  **Balance**
                
                **Portfolio**
                  **Percentage**
                
                **December
                    31, 2004**
                  **Balance**
                
                **Portfolio**
                  **Percentage**First
                    Deeds of Trust
                
                $
                21,527,000
                
                
                93.45%
                
                $
                11,015,000
                
                
                81.03%Second
                    Deeds of Trust**
                
                
                1,510,000
                
                
                6.55%
                
                
                2,578,000
                
                
                18.97%$
                23,037,000
                
                
                100.00%
                
                $
                13,593,000
                
                
                100.00%
 
 **Generally,
          our second deeds of trust are junior to first deeds of trust position held
          by
          either us or our Manager.
 
 As
          of
          December 31, 2005 all contractual investments in real estate loans mature
          during
          2006.
 
 The
          following is a schedule by geographic location of investments in real estate
          loans as of December 31, 2005 and 2004:
 
 **December
                    31, 2005 Balance**
                
                **Portfolio
                    Percentage**
                
                **December
                    31, 2004 Balance**
                
                **Portfolio
                    Percentage**Arizona
                
                $
                5,807,000
                
                
                25.21%
                
                $
                6,865,000
                
                
                50.50%California
                
                
                5,490,000
                
                
                23.83%
                
                
                1,648,000
                
                
                12.12%Nevada
                
                
                4,194,000
                
                
                18.21%
                
                
                4,080,000
                
                
                30.02%North
                    Carolina
                
                
                102,000
                
                
                0.44%
                
                
                --
                
                
                --Oklahoma
                
                
                1,000,000
                
                
                4.34%
                
                
                1,000,000
                
                
                7.36%Oregon
                
                
                1,356,000
                
                
                5.89%
                
                
                --
                
                
                --Texas
                
                
                2,525,000
                
                
                10.96%
                
                
                --
                
                
                --Washington
                
                
                1,360,000
                
                
                5.90%
                
                
                --
                
                
                --Wisconsin
                
                
                1,203,000
                
                
                5.22%
                
                
                --
                
                
                --Total
                
                $
                23,037,000
                
                
                100.00%
                
                $
                13,593,000
                
                
                100.00%
 
 Our
          Manager periodically reviews and makes a determination as to whether the
          allowance for loan losses is adequate to cover any potential losses. Additions
          to the allowance for loan losses are made by charges to the provision for
          loan
          losses. Recoveries of previously charged off amounts are credited to the
          allowance for loan losses or included as income when the asset is disposed.
          As
          of December 31, 2005, we have provided a general allowance for loan losses
          of
          $73,000. Our Manager evaluated the loans and concluded that the underlying
          collateral was sufficient to protect us against further losses of principal
          or
          interest. Our Manager will continue to evaluate these loans in order to
          determine if any other allowance for loan losses should be recorded. As
          of
          December 31, 2005, all of our loans were performing.
 
 Because
          any decision regarding the allowance for loan losses reflects a judgment
          about
          the probability of future events, there is an inherent risk that such judgments
          will prove incorrect. In such event, actual losses may exceed (or be less
          than)
          the amount of any reserve. To the extent that we experience losses greater
          than
          the amount of our reserves, we may incur a charge to our earnings that
          will
          adversely affect our operating results and the amount of any distributions
          payable to our members.
 
 The
          following is a roll-forward of the allowance for loan losses for the 12
          months
          ended December 31, 2005:
 
 **Description**
                
                **Balance
                    at**
                  **December
                    31, 2004**
                
                **Provisions**
                
                **Deductions**
                
                **Balance
                    at**
                  **December
                    31, 2005**General
                    Valuation Allowance
                
                $
                73,000
                
                
                --
                
                
                --
                
                $
                73,000
 
  F-15
 *Table
              of Contents*
 In
          addition, our Manager had granted extensions on six loans pursuant to the
          terms
          of the original loan agreements, which permit extensions by mutual consent.
          Such
          extensions are generally provided on loans where the original term was
          12 months
          or less 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 full compliance with the terms of the
          loan,
          including, but not limited to the borrower’s obligation to make interest
          payments on the loan. The aggregate amount due from borrowers whose loans
          had
          been extended as of December 31, 2005 was approximately $7.6 million. Our
          Manager concluded that no allowance for loan loss was necessary with respect
          to
          these loans as of that date.
 
 **Asset
          Quality and Loan Reserves**
 
 Losses
          may occur from investing in real estate loans. The amounts of losses will
          vary
          as the loan portfolio is affected by changing economic conditions and the
          financial condition of borrowers.
  The
              conclusion that a real estate loan is uncollectible or that collectibility
              is
              doubtful is a matter of judgment. On a quarterly basis, the Manager
              evaluates
              our real estate loan portfolio for impairment. The fact that a loan
              is
              temporarily past due does not necessarily mean that the loan is impaired.
              Rather, all relevant circumstances are considered by our Manager to
              determine
              impairment and the need for specific reserves. Such evaluation, which
              includes a
              review of all loans on which full collectibility may not be reasonably
              assured,
              considers among other matters:
 
 ·
                  Prevailing
                      economic conditions; 
 ·
                  Historical
                      experience; 
 ·
                  The
                      nature and volume of the loan portfolio; 
 ·
                  The
                      borrowers’ financial condition and adverse situations that may affect
                      the
                      borrowers’ability
                      to pay; 
 ·
                  Evaluation
                      of industry trends; and 
 ·
                  Estimated
                      net realizable value of any underlying collateral in relation
                      to the loan
                      amount.
 
 Based
          upon this evaluation, a determination was made as to whether the allowance
          for
          loan losses was adequate to cover any potential losses. Additions to the
          allowance for loan losses are made by charges to the provision for loan
          losses.
          Recoveries of previously charged off amounts are credited to the allowance
          for
          loan losses or included as income. As of December 31, 2005, our Manager
          had
          provided for $73,000 as a general allowance for loan losses.
 
 **NOTE
          E — INVESTMENT IN REAL PROPERTY**
 
 Investment
          in real property consists of an approximately 42,000 square foot office
          building
          located at 8379 West Sunset Road in Las Vegas, Nevada. The purchase price
          and
          related closing costs was approximately $9,800,000. As of December 31,
          2005, the
          building was fully leased by Vestin Group, earning us monthly rent revenue
          of
          approximately of $87,000. Vestin Group has sub-leased office space in the
          building as permitted by the lease agreement at rates equal to or less
          than
          rates we receive. We provided $4,850,000 of the purchase price from our
          capital
          and borrowed $4,950,000 for the remainder of the purchase price. We subsequently
          conveyed the real property to our wholly-owned subsidiary, VF III HQ,
          LLC.
 
 Subsequent
          to the purchase of this property we invested an additional $90,000 in tenant
          improvements. As of December 31, 2005, the carrying value of this property
          was
          $9,591,000, net of accumulated depreciation of $287,000.
 F-16
 *Table
              of Contents*
 **NOTE
          F — LEASING ACTIVITY**
 
 The
          Company leases a facility to Vestin Group under a 10 year non-cancelable
          lease
          agreement, expiring March 2014, with two, five-year optional extensions.
          The
          agreement calls for an annual base rent of approximately $894,000, plus
          a 4%
          annual increase. Rental income recognized for the leased facility is recognized
          on a straight line basis over the term of the lease. For year ended December
          31,
          2005 and 2004, rental income totaled $1,040,000 and $317,000, respectively.
          Deferred rent receivable as of December 31, 2005 was $168,000.
 
 Future
          minimum base rent to be received, due under non-cancelable leases with
          Vestin
          Group in effect as of December 31, 2005 are as follows:
 
 January
                    1 Through December 31, 2006
                
                $
                906,000January
                    1 Through December 31, 2007
                
                
                942,000January
                    1 Through December 31, 2008
                
                
                980,000January
                    1 Through December 31, 2009
                
                
                1,020,000January
                    1 Through December 31, 2010
                
                
                1,060,000Thereafter:
                
                
                4,307,000Total:
                
                $
                9,215,000
 
 **NOTE
          G — RELATED PARTY TRANSACTIONS**
 
 From
          time
          to time we may acquire or sell investments in real estate loans from/to
          our
          Manager or other related parties pursuant to the terms of our Operating
          Agreement provided the price does not exceed the original cost. No gain
          or loss
          is recorded on these transactions, as it is not our intent to make a profit
          on
          the purchase or sale of such investments. The purpose is generally to diversify
          our portfolio by syndicating loans, thereby providing us with additional
          capital
          to make additional loans.
 
 **Transactions
          with the Manager**
 
 Our
          Manager is entitled to receive from us a management (acquisition and advisory)
          fee up to 2.5% of the gross offering proceeds and up to 3% of our rental
          income.
          For the year ended December 31, 2005 and 2004, we recorded fees to our
          Manager
          of approximately $155,000 and $36,000 respectively.
 
 As
          of
          December 31, 2004, we owed our Manager and Vestin Group approximately $1.1
          million, primarily related to deferred offering costs paid on our behalf
          as well
          as unpaid management fees. As of December 31, 2005, we owed our Manager
          approximately $38,000 for unpaid management fees.
 
 Our
          Manager was reimbursed for out of pocket offering expenses in an amount
          not to
          exceed 2% of the gross proceeds of the offering of our units. As of December
          31,
          2005, offering costs of $565,000 were incurred by us and paid by our Manager
          on
          our behalf. These deferred offerings costs, which are primarily legal,
          accounting and registration fees, were converted to 54,862 membership units
          at a
          price equal to the then effective unit value. The additional costs above
          the 2%
          of the gross proceeds of the offering were absorbed by our Manager.
 
 During
          the year ended December 31, 2004, we acquired an office building located
          in Las
          Vegas, Nevada (the “Property”) for approximately $9,800,000, which is inclusive
          of $200,000 paid to the Manager for advisory and diligence fees. As of
          December
          31, 2005, the Property was fully leased to Vestin Group, earning us monthly
          rent
          revenue of approximately of $87,000. Vestin Group has sub-leased office
          space in
          the building as permitted by the lease agreement at rates equal to or less
          than
          rates we receive. We provided $4,850,000 of the purchase price from our
          capital
          and borrowed $4,950,000 for the remainder of the purchase price. We subsequently
          transferred the Property to our wholly owned subsidiary, VFIII HQ,
          LLC.
 
 The
          property underlying the building was originally purchased by an unrelated
          party
          from a company wholly owned by the principal stockholder and Chief Executive
          Officer of our Manager who has advised our Manager that he earned a profit
          of
          approximately $1.0 million in connection with the sale.
 F-17
 *Table
              of Contents*
 **Transactions
          with the Funds**
 
 During
          the year ended December 31, 2005 and 2004, we sold $500,000 and $5 million
          respectively, in real estate loans to Fund II.
 
 During
          the year ended December 31, 2004, we purchased $10 million in real estate
          loans
          from Fund II.
 
 **Transactions
          with Other Related Parties**
 
 During
          the year ended December 31, 2005 and 2004, we incurred expenses of $83,000
          and
          $0 respectively, to L.L. Bradford & Company, LLC, a certified public
          accounting firm for accounting services. A former Director and Officer
          of Vestin
          Group is an equity owner in that firm.
 
 During
          the year ended December 31, 2005 and 2004, we incurred expenses of $10,000
          and
          $0 respectively, for legal fees to the law firm of Levine, Garfinkel, and
          Katz
          in which the Secretary of Vestin Group has an equity ownership
          interest.
 
 **NOTE
          H — SECURED BORROWINGS**
 
 Secured
          borrowings provide an additional source of capital for our lending activity.
          Secured borrowings allow us to increase the diversification of our loan
          portfolio and to invest in loans that we might not otherwise invest in.
          We do
          not receive any revenues for entering into secured borrowing arrangements.
          Loans
          in which third party investors have participated through inter-creditor
          agreements (“Inter-creditor Agreements”) are accounted for as secured borrowings
          in accordance with FAS No. 140, *Accounting
          for Transfers and Servicing of Financial Assets and Extinguishments of
          Liabilities* (“FAS
          No.
          140”). The Inter-creditor Agreements provide us additional funding sources
          for
          real estate loans whereby a third party investor (the “Investor”) may
          participate on a senior basis in certain real estate loans with us and/or
          Fund I
          and/or Fund II (collectively, the “Lead Lenders”). In the event of borrower
          non-performance, the Inter-creditor Agreements generally provide that the
          Lead
          Lenders must repay the Investor’s loan amount either by (i) continuing to remit
          to the Investor the interest due on the participated loan amount; (ii)
          substituting an alternative loan acceptable to the Investor; or (iii)
          repurchasing the participation from the Investor for the outstanding balance
          plus accrued interest.
 
 Additionally,
          an Investor may participate in certain loans with the Lead Lenders through
          participation agreements (“Participation Agreements”). In the event of borrower
          non-performance, the Participation Agreement may allow the Investor to
          be repaid
          up to the amount of the Investor’s investment prior to the Lead Lenders being
          repaid. Real estate loan financing under the Participation Agreements are
          also
          accounted for as a secured borrowing in accordance with FAS No.
          140.
 
 As
          of
          December 31, 2005, and December 31, 2004, funds being used under Inter-creditor
          and Participation Agreements where we have potential obligations as defined
          above totaled $527,000, and $2,590,000, respectively.
 
 **NOTE
          I — NOTE PAYABLE**
 
 Note
          payable consists of the following:
 
 **Balance
                    at**
                  **December
                    31, 2005**10-
                    year note payable secured by real property, bearing interest
                    at 5.6% per
                    annum, payable in monthly principal and interest installments
                    of
                    $31,000
                
                $
                4,830,000
 
  F-18
 *Table
              of Contents*
 As
          of
          December 31, 2005, the scheduled principal reduction of the note payable
          was as
          follows:
 
 January
                    1 Through December 31, 2006
                
                $
                100,000January
                    1 Through December 31, 2007
                
                
                106,000January
                    1 Through December 31, 2008
                
                
                112,000January
                    1 Through December 31, 2009
                
                
                119,000January
                    1 Through December 31, 2010
                
                
                125,000Thereafter:
                
                
                4,268,000Total:
                
                $
                4,830,000
 
 **NOTE
          J** — **MEMBERS’
          EQUITY**
 
 **Membership
          Units**
 
 During
          the year ended December 31, 2005, we sold approximately 385,815 units,
          for
          proceeds totaling $3,976,000. Additionally, members’ received 96,451 units as a
          result of reinvestments of distributions for the year ended December 31,
          2005.
 
 Our
          Manager was reimbursed for out of pocket offering expenses in an amount
          not to
          exceed 2% of the gross proceeds of the offering of our units. As of December
          31,
          2005, offering costs of $565,000 were incurred by us and paid by our Manager
          on
          our behalf. These deferred offerings costs, which are primarily legal,
          accounting and registration fees, were converted to 54,862 membership units
          at a
          price equal to the then effective unit value. The additional costs above
          the 2%
          of the gross proceeds of the offering were absorbed by our Manager.
 
 **Allocations
          and Distributions**
 
 In
          accordance with our Operating Agreement, profits, gains and losses are
          to be
          credited to and charged against each member’s capital account in proportion to
          their respective capital accounts as of the close of business on the last
          day of
          each calendar month.
 
 Distributions
          are paid monthly to members. Members may elect to reinvest their distributions.
          For the year ended December 31, 2005, distributions to members were
          approximately $2,555,000.
 
 **Working
          Capital Reserves**
 
 We
          are
          required by our Operating Agreement to maintain working capital reserves
          of
          approximately 3% of the aggregate capital accounts of the members. This
          reserve
          is available to pay any future expenses in excess of revenues, satisfy
          obligations of underlying secured properties, expend money to satisfy our
          unforeseen obligations and other permitted uses of our working capital.
          Working
          capital reserves up to 3% in cash or cash equivalents are excluded from
          the
          funds committed to investments in determining what proportion of the offering
          proceeds and reinvested distributions have been invested in real estate
          loans or
          real property.
 
 **Value
          of Members’ Capital Accounts**
 
 In
          accordance with Section 7.8 of our Operating Agreement, our Manager reviewed
          the
          value of our assets during the last quarter of fiscal year 2005. Based
          on this
          review, as a result of an increase in the value of our assets, the value
          of
          members’ capital accounts was adjusted from $10.30 per unit to $10.50 per unit.
          As a result, new units sold and units redeemed on or after December 15,
          2005
          have been sold or redeemed at $10.50 per unit. The change in valuation
          is
          primarily for tax and capital account purposes and does not reflect the
          change
          in the value of the units calculated in accordance with GAAP. Accordingly,
          unit
          prices calculated under GAAP may be different than the adjusted price per
          unit.
 F-19
 *Table
              of Contents*
 **NOTE
          K — RECENT ACCOUNTING PRONOUNCEMENTS**
 
 In
          March
          2005, the FASB issued Interpretation No. 47 (“FIN 47”) *Accounting
          for Conditional Asset Retirement Obligations* - an
          interpretation of FASB Statement No. 143”. FIN 47 requires an entity to
          recognize a liability for the fair value of a conditional asset retirement
          obligation if the fair value can be reasonably estimated. FIN 47 states
          that a
          conditional asset retirement obligation is a legal obligation to perform
          an
          asset retirement activity in which the timing or method of settlement are
          conditional upon a future event that may or may not be within control of
          the
          entity. FIN 47 is effective no later than the end of fiscal years ending
          after
          December 15, 2005. Retrospective application for the interim financial
          information is permitted but not required. Early adoption of FIN 47 is
          encouraged. We do not expect the adoption of FIN 47 to have a material
          impact on
          our financial position or results of operations.
 
 In
          May
          2005, the Financial Accounting Standards Board (“FASB”) issued FAS No. 154 (“FAS
          154”), *Accounting
          Changes and Error Corrections* - a
          replacement of APB Opinion No. 20 and FAS Statement No. 3. APB No. 20, *Accounting
          Changes* ,
          and FAS
          No. 3, *Reporting
          Accounting Changes in Interim Financial Statements* ,
          required the inclusion of the cumulative effect of changes in accounting
          principle in net income in the period of change. FAS 154 establishes, unless
          impracticable, retrospective application to prior periods’ financial statements
          as the required method for reporting a voluntary change in accounting principle
          in the absence of explicit transition requirements specific to the newly
          adopted
          accounting principle. This statement is effective for accounting changes
          and
          corrections of errors made in fiscal years beginning after December 15,
          2005. We
          do not believe that the adoption of FAS No. 154 will have a material impact
          on
          our financial statements.
 
 In
          June
          2005, the Emerging Issues Task Force (“EITF”) reached a consensus on EITF Issue
          05-6, “Determining the Amortization Period for Leasehold Improvements”. EIFT
          05-6 states that the amortization period that is to be used for a leasehold
          improvement that are placed in service significantly after and not contemplated
          at the beginning of the lease term should be the lesser of the useful life
          of
          the acquired leasehold improvement or a period that reflects renewals that
          are
          reasonably assured upon the purchase of the leasehold improvement. EITF
          05-6 is
          effective for periods beginning after June 29, 2005. We do not believe
          that
          adoption of EITF 05-6 will not have an impact on our financial position
          or
          results of operations.
 
 FASB
          Staff Position (FSP) FAS 115-1/124-1, replacing Emerging Issues Task Force
          (EITF) 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application
          to Certain Investments” - On November 3, 2005, the FASB released FSP FAS 115-1
          and FAS 124-1 replacing EITF 03-1. The final language on FSP FAS 115-1
          / FAS
          124-1 requires investors to recognize an impairment loss when the impairment
          is
          deemed other-than-temporary, even if a decision to sell has not been made.
          The
          FSP applies to reporting periods beginning after December 15, 2005. We
          do not
          expect the adoption of Staff Position (FSP) FAS 115-1/124-1 to have a material
          impact on our financial position or results of operations.
 
 On
          February 16, 2006, the FASB issued FAS No. 155, "Accounting for Certain
          Hybrid
          Financial Instruments" (FAS 155), an amendment of FAS 140 and FAS 133.
          FAS 155
          permits the Company to elect to measure any hybrid financial instrument
          at fair
          value (with changes in fair value recognized in earnings) if the hybrid
          instrument contains an embedded derivative that would otherwise be required
          to
          be bifurcated and accounted for separately under FAS 133. The election
          to
          measure the hybrid instrument at fair value is made on an
          instrument-by-instrument basis and is irreversible. The Statement will
          be
          effective for all instruments acquired, issued, or subject to a remeasurement
          event occurring after the beginning of the Company's fiscal year that begins
          after September 15, 2006, with earlier adoption permitted as of the beginning
          of
          the Company's 2006 fiscal year, provided that financial statements for
          any
          interim period of that fiscal year have not yet been issued. We do not
          expect
          the adoption of FAS 155 to have a material impact on our financial position
          or
          results of operations.
 F-20
 *Table
              of Contents*
 **NOTE
          L — LEGAL MATTERS INVOLVING THE MANAGER**
 
 Vestin
          Group, Vestin Mortgage, and Del Mar Mortgage, Inc., a company wholly owned
          by
          Michael V. Shustek, the sole shareholder and CEO of Vestin Group, are defendants
          in a civil action entitled Desert Land, LLC et al. v. Owens Financial Group,
          Inc. et al (the “Action”). The Action is based upon allegations that Del Mar
          Mortgage and/or Vestin Mortgage charged unlawful fees on various loans
          arranged
          by them. Desert Land sought in excess of $10 million in monetary damages.
          On
          April 10, 2003, the United States District Court for the District of Nevada
          (the
“Court”) entered judgment jointly and severally in favor of Desert Land against
          Vestin Group, Vestin Mortgage and Del Mar Mortgage, Inc. Judgment was predicated
          upon the Court’s finding that Del Mar Mortgage, Inc. received an unlawful
          penalty fee from the plaintiffs.
 
 The
          defendants subsequently filed a motion for reconsideration. The Court denied
          the
          motion and, on August 13, 2003, held that Vestin Group, Vestin Mortgage,
          and Del Mar Mortgage, Inc. are jointly and severally liable for the judgment
          in
          the amount of $5,683,312 (which amount includes prejudgment interest and
          attorney’s fees). On August 27, 2003, the Court stayed execution of the judgment
          against Vestin Group and Vestin Mortgage based upon the posting of a bond
          in the
          amount of $5,830,000. Mr. Shustek personally posted a cash bond without
          any cost
          or obligation to Vestin Group and Vestin Mortgage. Additionally, Del Mar
          Mortgage, Inc. has indemnified Vestin Group and Vestin Mortgage for any
          losses
          and expenses in connection with the Action, and Mr. Shustek has guaranteed
          the
          indemnification with his cash bond. On September 12, 2003, all of the defendants
          held liable to Desert Land appealed the judgment to the United States Court
          of
          Appeals for the Ninth Circuit, which heard the case on October 18, 2005.
          On
          November 15, 2005, the Ninth Circuit vacated the judgment of the District
          Court
          and dismissed the state law claims against the defendants without prejudice
          on
          the basis that the District Court lacked subject matter jurisdiction in
          the
          case. On November 29, 2005, Desert Land petitioned the Ninth Circuit Court
          for
          rehearing with a suggestion that the matter be heard en banc. On December
          16,
          2005, the District Court issued an Order releasing the Bond, and on January
          6,
          2006, the Ninth Circuit denied Desert Land’s petition and the matter remains
          dismissed. We were not a party to the action.
 
 Our
          Manager is involved in a number of legal proceedings concerning matters
          arising
          in connection with the conduct of its business activities. The Manager
          believes
          it has meritorious defenses to each of these actions and intends to defend
          them
          vigorously. The Manager believes that it is not a party to any pending
          legal or
          arbitration proceedings that would have a material adverse effect on the
          Manager’s financial condition or results of operations or cash flows, although
          it is possible that the outcome of any such proceedings could have a material
          impact on the Manager’s net income in any particular period.
 
 **NOTE
          M — LEGAL MATTERS INVOLVING THE COMPANY**
 
 The
          staff
          of the Pacific Regional Office of the United States Securities and Exchange
          Commission (SEC) conducted an investigation into certain matters related
          to us,
          Vestin Group, Vestin Mortgage, Vestin Capital, Fund I and Fund II. We have
          fully
          cooperated during the course of the investigation.
 
 The
          Staff
          has notified us, Fund I, Fund II, our Manager, Vestin Capital and Michael
          V.
          Shustek, the Principal Executive Officer of our Manager and Vestin Capital,
          or
          collectively the Vestin Entities, that they intend to seek authority to
          bring an
          enforcement proceeding against the Vestin Entities alleging violations
          of
          Section 17 (a) of the Securities Act of 1933, Section 10 (b) of the Securities
          Exchange Act of 1934 and Rule 10b-5 thereunder based upon certain sales
          practices employed for a period of time by the Vestin Entities. Specifically,
          the SEC Staff has advised that they believe certain slides used at sales
          seminars held to promote the sale of Fund II and Fund III units included
          disclosure regarding distributions to members of Fund I and Fund II that
          were
          misleading. The Vestin Entities are engaged in discussions with the Staff
          regarding the proposed recommendation and any remedies, which might be
          sought by
          the SEC Staff. Based upon these discussions, we currently believe that
          neither
          we nor Fund I, and Fund II will be named as parties in the enforcement
          recommendation. These settlement negotiations are ongoing and, at this
          time, we
          do not know if a mutually acceptable settlement will be reached.
 F-21
 *Table
              of Contents*
 We
          are
          involved in a number of legal proceedings concerning matters arising in
          connection with the conduct of our business activities. We believe we have
          meritorious defenses to each of these actions and intend to defend them
          vigorously. We believe that we are not a party to any pending legal or
          arbitration proceedings that would have a material adverse effect on our
          financial condition or results of operations or cash flows, although it
          is
          possible that the outcome of any such proceedings could have a material
          impact
          on our net income in any particular period.
 
 **NOTE
          N — SELECTED QUARTERLY FINANCIAL DATED (UNAUDITED)**
 
 The
          following schedule is a selected quarterly financial date for fiscal year
          ended
          December 31, 2005:
 
 **First
                    Quarter**
                
                **Second
                    Quarter**
                
                **Third
                    Quarter**
                
                **Fourth
                    Quarter**
                
                **Year**Total
                    Revenues
                
                $
                854,000
                
                $
                898,000
                
                $
                859,000
                
                $
                1,005,000
                
                $
                3,616,000Total
                    Operating Expenses
                
                $
                330,000
                
                $
                333,000
                
                $
                216,000
                
                $
                415,000
                
                $
                1,294,000**NET
                    INCOME**
                
                $
                524,000
                
                $
                565,000
                
                $
                643,000
                
                $
                590,000
                
                $
                2,322,000Net
                    Income Allocated to Members
                
                $
                524,000
                
                $
                565,000
                
                $
                643,000
                
                $
                590,000
                
                $
                2,322,000Net
                    Income Allocated to Members Per Weighted Average Membership
                    Units
                
                $
                0.20
                
                $
                0.20
                
                $
                0.22
                
                $
                0.20
                
                $
                0.82Weighted
                    Average Membership Units
                
                
                2,665,400
                
                
                2,836,033
                
                
                2,865,352
                
                
                2,958,579
                
                
                2,817,055Annualized
                    Rate of Return to Members (a)
                
                
                7.74%
                
                
                7.76%
                
                
                8.64%
                
                
                7.68%
                
                
                8.00%Cash
                    Distributions
                
                $
                649,000
                
                $
                697,000
                
                $
                539,000
                
                $
                670,000
                
                $
                2,555,000Cash
                    Distributions Per Weighted Average Membership Units
                
                $
                0.24
                
                $
                0.25
                
                $
                0.19
                
                $
                0.23
                
                $
                0.91Weighted
                    Average Term of Outstanding Loans
                
                
                17
                    months
                
                
                17
                    months
                
                
                16
                    months
                
                
                15
                    months
                
                
                15
                    months
 
 (a)
              The
                  annualized rate of return to members in 2005 is calculated based
                  upon the
                  net GAAP income allocated to members per weighted average units
                  as of
                  December 31, 2005 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 $10.30 (the cost per
                  unit). 
 **NOTE
          O — SEGMENT INFORMATION**
 
 Operating
          segments are components of an enterprise in which separate financial information
          is available that is regularly reviewed by the chief operating decision
          makers
          in assessing performance and deciding how to allocate resources. Reportable
          segments consist of one or more operating segments with similar economic
          characteristics, products and services, production processes, type of customer,
          distribution system and regulatory environment.
 F-22
 *Table
              of Contents*
 The
          information provided for Segment Reporting is based on internal reports
          utilized
          by management. The presentation and allocation of overhead and the net
          contribution for the operating segments may not reflect the actual economic
          costs, contribution or results of operations of the segments as stand alone
          businesses. If a different basis of allocation were utilized, the relative
          contributions of the segments might differ, but the relative trends in
          segments
          would, in management’s view, likely not be impacted.
 
 Our
          two
          reportable segments are investments in real estate loans and investments
          in real
          estate.
 
 Financial
          information concerning our reportable segments is presented as follows
          for the
          years ended December 31, 2005 and 2004:
 
 **For
                    the Year Ended December 31, 2005**
                
                **Investment
                    in**
                  **Real
                    Estate Loans**
                
                **Investment
                    in**
                  **Real
                    Estate****Revenues**Interest
                    income from investments in real estate loans
                
                $
                2,341,000
                
                $
                2,341,000
                
                $
                --Interest
                    income related to secured borrowings
                
                
                160,000
                
                
                160,000
                
                
                --Rental
                    income
                
                
                1,040,000
                
                
                --
                
                
                1,040,000Other
                
                
                75,000
                
                
                75,000
                
                
                --Total
                    revenues
                
                
                3,616,000
                
                
                2,576,000
                
                
                1,040,000**Operating
                    expenses**Management
                    fees
                
                
                155,000
                
                
                112,000
                
                
                43,000Provision
                    for loan losses
                
                
                --
                
                
                --
                
                
                --Professional
                    fees
                
                
                407,000
                
                
                275,000
                
                
                132,000Other
                
                
                73,000
                
                
                53,000
                
                
                20,000Total
                    operating expenses
                
                
                635,000
                
                
                440,000
                
                
                195,000**EBITDA***
                
                
                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
                
                
                --
                
                
                301,000**NET
                    INCOME**
                
                $
                2,322,000
                
                $
                2,000,000
                
                $
                322,000
 
  F-23
 *Table
              of Contents*
  
 **For
                    the Year Ended December 31, 2004**
                
                **Investment
                    in**
                  **Real
                    Estate Loans**
                
                **Investment
                    in**
                  **Real
                    Estate****Revenues**Interest
                    income from investments in real estate loans
                
                $
                1,269,000
                
                $
                1,269,000
                
                $
                --Interest
                    income related to secured borrowings
                
                
                687,000
                
                
                687,000
                
                
                --Rental
                    income
                
                
                317,000
                
                
                --
                
                
                317,000Other
                
                
                87,000
                
                
                87,000
                
                
                --Total
                    revenues
                
                
                2,360,000
                
                
                2,043,000
                
                
                317,000**Operating
                    expenses**Management
                    fees
                
                
                36,000
                
                
                21,000
                
                
                15,000Provision
                    for loan losses
                
                
                73,000
                
                
                73,000
                
                
                --Professional
                    fees
                
                
                62,000
                
                
                36,000
                
                
                26,000Other
                
                
                28,000
                
                
                5,000
                
                
                23,000Total
                    operating expenses
                
                
                199,000
                
                
                135,000
                
                
                64,000**EBITDA***
                
                
                2,161,000
                
                
                1,908,000
                
                
                253,000Less:Depreciation
                    and Amortization
                
                
                81,000
                
                
                --
                
                
                81,000Interest
                    expense related to secured borrowings
                
                
                630,000
                
                
                630,000
                
                
                --Interest
                    expense related to investment in real estate
                
                
                80,000
                
                
                --
                
                
                80,000**NET
                    INCOME**
                
                $
                1,370,000
                
                $
                1,278,000
                
                $
                92,000
 
 *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.
 F-24
 *Table
              of Contents*
 
 **SUPPLEMENTARYINFORMATION**
 **Investmentsin
          Real Estate Loans:**
 **ScheduleI****Vestin
                    Fund III, LLC****REAL
                    ESTATE LOANS ON REAL ESTATE****REAL
                    ESTATE LOAN ROLLFORWARD****Balance,**December
                    31, 2003
                
                $
                --Additions
                    during the periodNew
                    real estate loans
                
                
                20,442,000Real
                    Estate loans bought
                
                
                10,000,000Deductions
                    during the periodCollections
                    of principal
                
                
                (9,736,000
                )Real
                    Estate loans sold
                
                
                (7,113,000
                )Net
                    Change in 2004
                
                
                13,593,000**Balance,**December
                    31, 2004
                
                $
                13,593,000Additions
                    during the periodNew
                    real estate loans
                
                
                16,976,000Real
                    Estate loans bought
                
                
                --Deductions
                    during the periodCollections
                    of principal
                
                
                (7,032,000
                )Real
                    Estate loans sold
                
                
                (500,000
                )Net
                    Change in 2005
                
                
                9,445,000**Balance,**December
                    31, 2005
                
                $
                23,037,000
 
  F-25
 *Table
              of Contents*
  
 **ScheduleII****Vestin
                    Fund III, LLC****REAL
                    ESTATE LOANS ON REAL ESTATE****REAL
                    ESTATE LOANS BY TYPE OF PROPERTY****As
                    of December 31, 2005:****Type
                    of Property**
                
                **Interest
                    Rate**
                
                **Face
                    Amount of Loan**
                
                **Fund
                    Balance**
                
                **Maturity
                    Date**
                
                **Amount
                    Subject to Delinquency**Commercial
                
                
                6%
                    - 14%
                
                $
                96,921,000
                
                $
                12,244,000
                
                
                03/2006
                    - 09/2006
                
                $
                --Construction
                
                
                12%
                
                $
                16,050,000
                
                $
                1,231,000
                
                
                03/2006
                    - 07/2006
                
                $
                --Acquisition
                    and Development
                
                
                8%
                    - 12%
                
                $
                75,662,000
                
                $
                3,806,000
                
                
                04/2006
                    - 05/2006
                
                $
                --Land
                
                
                10%
                    - 14%
                
                $
                63,158,000
                
                $
                5,756,000
                
                
                02/2006
                    - 04/2006
                
                $
                --23,037,000**As
                    of December 31, 2004:****Type
                    of Property**
                
                
                **Interest
                    Rate**
                
                
                **Face
                    Amount of Loan**
                
                
                **Fund
                    Balance**
                
                
                **Maturity
                    Date**
                
                
                **Amount
                    Subject to Delinquency**Commercial
                
                
                10%
                    - 15%
                
                $
                27,500,000
                
                $
                4,848,000
                
                
                07/2005
                    - 10/2006
                
                $
                --Construction
                
                
                12%
                
                $
                3,495,000
                
                $
                265,000
                
                
                09/2005
                
                $
                --Acquisition
                    and Development
                
                
                10%
                    - 13%
                
                $
                59,431,000
                
                $
                6,319,000
                
                
                04/2005
                    - 03/2006
                
                $
                --Land
                
                
                12%
                    - 14%
                
                $
                18,863,000
                
                $
                2,161,000
                
                
                06/2005
                    - 09/2005
                
                $
                --13,593,000
 
  F-26
 *Table
              of Contents*
  
 **ScheduleIII****Vestin
                    Fund III, LLC****REAL
                    ESTATE LOANS ON REAL ESTATE****REAL
                    ESTATE LOANS BY LIEN POSITION****As
                    of December 31, 2005:****Lien
                    Position**
                
                **Face
                    Amount of Loan**
                
                **Interest
                    Rate**
                
                **Fund
                    Balance**
                
                **Maturity
                    Date**
                
                **Amount
                    Subject to Delinquency**1st
                
                $
                229,459,000
                
                
                6%
                    - 14%
                
                $
                21,527,000
                
                
                03/2006
                    - 09/2006
                
                $
                --2nd
                
                $
                22,332,000
                
                
                14%
                
                $
                1,510,000
                
                
                02/2006
                    - 03/2006
                
                $
                --23,037,000**As
                    of December 31, 2004:****Lien
                    Position**
                
                
                **Face
                    Amount of Loan**
                
                
                **Interest
                    Rate**
                
                
                **Fund
                    Balance**
                
                
                **Maturity
                    Date**
                
                
                **Amount
                    Subject to Delinquency**1st
                
                $
                105,025,000
                
                
                10%
                    - 14%
                
                $
                11,015,000
                
                
                04/2005
                    - 04/2006
                
                $
                --2nd
                
                $
                4,264,000
                
                
                14%
                    - 15%
                
                $
                2,578,000
                
                
                09/2005
                    - 10/2006
                
                $
                --13,593,000
 
  F-27
 *Table
              of Contents*
  
 **ScheduleIV****Vestin
                      Fund III, LLC****REAL
                      ESTATE LOANS ON REAL ESTATE****REAL
                      ESTATE LOANS THAT EXCEED THREE PERCENT OF THE
                      PORTFOLIO****As
                      of December 31, 2005:****Description
                      of Loan**
                  **Interest
                      Rate**
                  **Maturity
                      Date**
                  **Extension
                      Date**
                  **Lien
                      Position**
                  
                  **Face
                      Amount of Loan**
                  
                  **Carrying
                      Amount of Loan**
                  
                  **Amount
                      Subject to Delinquency**A/D
                  12.00%
                  01/07/06
                  04/07/06
                  1st
                  $
                  7,662,000
                  $
                  2,420,000
                  $
                  --A/D
                  12.00%
                  05/10/06
                  
                  1st
                  $
                  33,000,000
                  $
                  715,000
                  $
                  --Commercial
                  10.00%
                  04/30/06
                  
                  1st
                  $
                  15,000,000
                  $
                  1,500,000
                  $
                  --Commercial
                  12.00%
                  09/01/05
                  03/01/06
                  1st
                  $
                  4,431,000
                  $
                  1,000,000
                  $
                  --Commercial
                  11.00%
                  01/20/06
                  04/20/06
                  1st
                  $
                  7,000,000
                  $
                  2,500,000
                  $
                  --Commercial
                  6.00%
                  07/15/06
                  
                  1st
                  $
                  4,600,000
                  $
                  1,156,000
                  $
                  --Commercial
                  6.00%
                  07/15/06
                  
                  1st
                  $
                  6,500,000
                  $
                  1,203,000
                  $
                  --Commercial
                  6.00%
                  07/15/06
                  
                  1st
                  $
                  4,320,000
                  $
                  1,360,000
                  $
                  --Commercial
                  10.25%
                  08/18/06
                  
                  1st
                  $
                  24,500,000
                  $
                  950,000
                  $
                  --Commercial
                  13.00%
                  09/30/06
                  
                  1st
                  $
                  19,500,000
                  $
                  1,500,000
                  $
                  --Construction
                  12.00%
                  07/31/06
                  
                  1st
                  $
                  12,550,000
                  $
                  930,000
                  $
                  --Land
                  10.00%
                  03/30/06
                  
                  1st
                  $
                  35,000,000
                  $
                  4,307,000
                  $
                  --Land
                  14.00%
                  02/15/06
                  
                  2nd
                  $
                  21,632,000
                  $
                  832,000
                  $
                  --**As
                      of December 31, 2004:****Description
                      of Loan**
                  **Interest
                      Rate**
                  **Maturity
                      Date**
                  **Extension
                      Date**
                  **Lien
                      Position**
                  
                  **Face
                      Amount of Loan**
                  
                  **Carrying
                      Amount of Loan**
                  
                  **Amount
                      Subject to Delinquency**A/D
                  10.00%
                  03/30/06
                  
                  1st
                  $
                  35,000,000
                  $
                  4,083,000
                  $
                  --A/D
                  13.00%
                  04/22/05
                  
                  1st
                  $
                  20,000,000
                  $
                  1,236,000
                  $
                  --A/D
                  12.00%
                  09/01/05
                  
                  1st
                  $
                  4,431,000
                  $
                  1,000,000
                  $
                  --Commercial
                  10.00%
                  04/30/06
                  
                  1st
                  $
                  15,000,000
                  $
                  1,500,000
                  $
                  --Commercial
                  11.00%
                  07/14/05
                  
                  1st
                  $
                  12,500,000
                  $
                  1,448,000
                  $
                  --Commercial
                  15.00%
                  10/28/06
                  
                  2nd
                  $
                  3,564,000
                  $
                  1,900,000
                  $
                  --Land
                  14.00%
                  09/28/05
                  
                  2nd
                  $
                  700,000
                  $
                  678,000
                  $
                  --Land
                  12.00%
                  06/30/05
                  
                  1st
                  $
                  12,063,000
                  $
                  1,282,000
                  $
                  --
 
  F-28