VESTIN FUND III LLC - FORM 10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark one)

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

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2012

[ ] 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. Employer
Incorporation or Organization)		Identification No.)

8880 WEST SUNSET ROAD, SUITE 200, LAS VEGAS, NEVADA 89148

(Address of Principal Executive Offices) (Zip Code)

Registrant’s telephone number, including area code 702.227.0965

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

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

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

None

(Title of class)

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

Yes [ ] No [X]

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

Yes [ ] No [X]

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ ] No [ X ]

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Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec. 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ ] 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 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. Yes [ ] No [X]

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

Large accelerated filer [ ]	Accelerated filer [ ]

Non-accelerated filer [ ]	Smaller reporting company [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 last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. Not applicable.

As of March 28, 2013, the Company had 2,024,424 units outstanding.

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TABLE OF CONTENTS

			Page
PART I
	ITEM 1.	BUSINESS	1
	ITEM 1B.	UNRESOLVED STAFF COMMENTS	3
	ITEM 2.	PROPERTIES	3
	ITEM 3.	LEGAL PROCEEDINGS	3
	ITEM 4.	MINE SAFETY DISCLOSURE	4

PART II
	ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	4
	ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	5
	ITEM 8.	FINANCIAL STATEMENTS	12
	ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	37
	ITEM 9A.	CONTROLS AND PROCEDURES	37
	ITEM 9B.	OTHER INFORMATION	38

PART III
	ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	38
	ITEM 11.	EXECUTIVE COMPENSATION	40
	ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	40
	ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	41
	ITEM 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES	41

PART IV
	ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES	41
		EXHIBIT INDEX	42
		SIGNATURES	43

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PART I

ITEM 1.

BUSINESS

General

Vestin Fund III, LLC was organized in April 2003 as a Nevada limited liability company for the purpose of investing in commercial real estate loans (hereafter referred to as “real estate loans”) and income-producing real property. In this report, we refer to Vestin Fund III, LLC as “the Company,” “our Company,” the “Fund,” “we,” “us,” or “our”.

We commenced operations in February 2004. Prior to March 2007, we invested in revenue-generating commercial real estate and loans secured by real estate through deeds of trust or mortgages (hereafter referred to collectively as “deeds of trust” and as defined in our Operating Agreement as “Mortgage Assets”). On March 5, 2007, a majority of our members approved the Third Amended and Restated Operating Agreement, which limited the Company’s investment objectives to investments in real estate loans.

At a special meeting of our members held on July 2, 2009, a majority of the members voted to approve the dissolution and winding up of the Fund, in accordance with the Plan of Complete Liquidation and Dissolution (the “Plan”) as set forth in Annex A of the Fund’s proxy statement filed with the Securities and Exchange Commission (the “SEC”) pursuant to Section 14(a) of the Securities and Exchange Act of 1934 on May 11, 2009. The Plan became effective upon its approval by the members on July 2, 2009. As a result, we have commenced an orderly liquidation and we no longer invest in new real estate loans. We anticipate that the liquidation will be substantially completed by the second half of 2014. However, because of numerous uncertainties, the liquidation may take longer or shorter than expected. Because the liquidation of the Fund was not imminent, as of December 3, 2012, the financial statements are presented assuming the Fund will continue as a going concern. Pursuant to the Plan, we will make liquidating distributions to members on a quarterly basis or as funds become available, subject to a reasonable reserve established to provide for payment of the Company’s ongoing expenses and contingent liabilities. Our members no longer have the right to have their units redeemed by us and we no longer honor any outstanding redemption requests effective as of July 2, 2009.

On January 26, 2010, April 8, 2010, September 17, 2010, May 25, 2011 and June 15, 2012, we made liquidating distributions to all Fund Members, in the aggregate amount of approximately $1.0 million, $0.9 million, $0.3 million, $0.3 million, and $0.4 million, respectively, in accordance with the Plan. The amounts distributed to each Member of the Fund were calculated based upon the percentage ownership interest of such Member in the Fund. See Note I – Members’ Equity of the Notes to the Financial Statements included in Part II, Item 8 Financial Statements of this Annual Report on Form 10-K..

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.

Vestin Group, Inc. (“Vestin Group”), a Delaware corporation, owns a significant majority of Vestin Mortgage, LLC, a Nevada limited liability company, which is our manager (the “manager” or “Vestin Mortgage”). On January 7, 2011, Vestin Mortgage converted from a corporation to a limited liability company. Michael Shustek, the CEO and managing member of our manager and CEO, President and a director of us, wholly owns Vestin Group, which is engaged in asset management, real estate lending and other financial services through its subsidiaries. Our manager, prior to June 30, 2006, also operated as a licensed Nevada mortgage broker and was generally engaged in the business of brokerage, placement and servicing of commercial loans secured by real property. Since February 14, 2011, the business of brokerage and placement of real estate loans have been performed by affiliated or non-affiliated mortgage brokers, including Advant Mortgage, LLC (“MVP Mortgage”), a licensed Nevada mortgage broker, which is indirectly wholly owned by Michael V. Shustek.

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Pursuant to our Operating Agreement and the Plan of Complete Liquidation and Dissolution approved by a majority of our members on July 2, 2009, our manager will continue to manage our operations during the liquidation process. Consequently, the orderly liquidation of our assets and our operating results are dependent upon our manager’s ability and performance in managing our liquidation. Because of numerous uncertainties, the liquidation may take longer or shorter than expected. Because the liquidation of the Fund was not imminent, as of December 31, 2012, the financial statements are presented assuming the Fund will continue as a going concern.

Vestin Mortgage is also the manager of Vestin Realty Mortgage I, Inc. (“VRM I”), as the successor by merger to Vestin Fund I, LLC, (“Fund I”) and Vestin Realty Mortgage II, Inc. (“VRM II”), as the successor by merger to Vestin Fund II, LLC, (“Fund II). These entities have been formed to invest in real estate loans.

During April 2009, we entered into an accounting services agreement with Strategix Solutions, LLC (“Strategix Solutions”), a Nevada limited liability company, for the provision of accounting and financial reporting services. Strategix Solutions also provides accounting and financial reporting services to VRM I and VRM II. The CFO of our manager and other members of our accounting staff are employees of Strategix Solutions. Strategix Solutions is managed by LL Bradford and Company, LLC ("LL Bradford"), a certified public accounting firm that has provided non-audit accounting services to us. The principal manager of LL Bradford was a former officer of our manager from April 1999 through January 1, 2005. Strategix Solutions is owned by certain partners of LL Bradford, none of whom are currently or were previously officers of our manager. On January 14, 2013, Eric Bullinger resigned his position as Chief Financial Officer as Vestin Realty Mortgage I, Inc., Vestin Realty Mortgage II, Inc and the equivalent of Chief Financial Officer of Vestin Fund III, LLC (hereafter referred to collectively as the “Vestin Entities”). On January 14, 2013, the Board of Directors appointed Tracee Gress as the Chief Financial Officer of the Vestin Entities. As of December 31, 2012, Strategix Solutions dedicates to us a total of three employees.

Business Objectives

As a result of our members’ decision to liquidate the Company, we will not make any new loans and are in the process of winding up our affairs by pursuing remedies with respect to defaulted loans and preparing for sale/selling of our real estate held for sale. As of December 31, 2012, we no longer have investments in real estate loans. Below is a brief description of our prior business activities.

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

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

Real Estate Loan Objectives (Prior to July 2, 2009)

After March 5, 2007, we sought to invest approximately 97% of our assets in five real estate loan products consisting of commercial, construction, acquisition and development, land and residential loans. Approximately 3% of our assets were held as a working capital cash reserve. Generally, the collateral on our real estate loans is the real property that the borrower was purchasing or developing, along with a guarantee of the main principal of the borrower, with the funds that we make available. We sometimes refer to these real properties as the security properties. While we may have invested in other types of loans, most of the loans in which we invested were made to real estate developers. Our real estate investments are not insured or guaranteed by any government agency.

The loans we invested in were selected for us by our manager from among loans originated by affiliated or non-affiliated mortgage brokers. When a mortgage broker originated a loan for us, that entity identified the borrower, processed the loan application and brokered and sold, assigned, transferred or conveyed the loan to us. We believed that our loans were attractive to borrowers because of the expediency of our manager’s loan approval process, which took about ten to twenty days. For additional information regarding our current loan and real estate held for sale activity see Note D – Investments in Real Estate Loans and Note F – Real Estate Held for Sale of the Notes to the Financial Statements included in Part II, Item 8 Financial Statements of this Annual Report on Form 10-K.

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Employees

We have no employees. Our manager has provided, and will continue to provide, most of the employees necessary for our operations, except as described below regarding Strategix Solutions, LLC. As of December 31, 2012, the Vestin entities had a total of 16 full-time and no part-time employees. Except as hereinafter noted, all employees are at-will employees, and none are covered by collective bargaining agreements. John Alderfer, our former CFO, is a party to an employment, non-competition, confidentiality and consulting contract with Vestin Group, Inc., the parent company of our manager, through December 31, 2016.

Available Information

Our Internet website address is http://www.vestinmortgage.com/Products/Product_FundIII.aspx. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports are available through the SEC’s Electronic Data Gathering, Analysis and Retrieval website (“EDGAR”) at http://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0001230634&owner=include, after such material is electronically filed with or furnished, pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, to the SEC. Further, a copy of this annual report on Form 10-K is located at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Information on the operations of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains an internet site that contains reports, proxy and information statements and other information regarding our filings at www.sec.gov. Information contained on our website does not constitute a part of this Annual Report on Form 10-K.

ITEM 1B.

UNRESOLVED STAFF COMMENTS

None.

ITEM 2.

PROPERTIES

Our manager shares office facilities in Las Vegas, Nevada through a sublease with its parent corporation, Vestin Group. In March, 2010, Vestin Group entered into a ten-year lease agreement for office facilities in Las Vegas, Nevada.

We previously owned an approximately 42,000 square foot office building in Las Vegas, Nevada, that was sold to an unrelated third party in November 2006. This building was leased to the parent company of our Manager, Vestin Group and the lease agreement governing this property expires in August 2014. For a discussion of litigation between Vestin Group and the building owner, see Note M - Legal Matters Involving The Manager in Part II, Item 8 Financial Statements of this Annual Report on Form 10-K.

ITEM 3.

LEGAL PROCEEDINGS

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

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ITEM 4.

MINE SAFETY DISCLOSURE

Not applicable.

PART II

ITEM 5.

MARKET FOR 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 March 28, 2013, approximately 509 unit holders held 2,024,424 units in the Company.

Liquidation Distribution Policy

On January 26, 2010, April 8, 2010, September 17, 2010, May 25, 2011 and June 15, 2012, we made liquidating distributions to all Fund Members, in the aggregate amount of approximately $1.0 million, $0.9 million, $0.3 million, $0.3 million and $0.4 million, respectively, in accordance with the Plan. The amount distributed to each Member of the Fund was calculated based upon the percentage ownership interest of such Member in the Fund. See Note I – Members’ Equity of the Notes to the Financial Statements included in Part II, Item 8 Financial Statements of this Annual Report on Form 10-K.

We intend to make Liquidating Distributions in accordance with the Plan as set forth in Annex A of the Fund’s proxy statement filed with the Securities and Exchange Commission (the “SEC”) pursuant to Section 14(a) of the Securities and Exchange Act of 1934 on May 11, 2009. We will distribute to our members the net proceeds we receive from the payoff of our outstanding real estate loans and the net proceeds we receive from the sale of our real estate held for sale, in each case, less a reasonable Reserve established to provide for payment of the Company’s ongoing expenses and contingent liabilities. A final Liquidating Distribution will be made after we have completed the winding up of our business operations and made appropriate provision for any remaining obligations.

We anticipate that the liquidation of our real estate loans and the sale of foreclosed properties may take several more years, with the Dissolution process being substantially completed by the second half of 2014. However, because of numerous uncertainties, the liquidation may take longer or shorter than expected. Because the liquidation of the Fund was not imminent, as of December 31, 2012, the financial statements are presented assuming the Fund will continue as a going concern.

There are a number of factors that could delay our anticipated timetable, including the following:

•

Delays in the sale of real estate held by us through foreclosures, which may take many years to complete due to the time required to resolve pending litigation and bankruptcy matters involving foreclosed properties and to identify suitable buyers and consummate the sale of such properties;

•

Delays in distributions resulting from defaults in the payment of interest or principal when due on our real estate loans;

•

Lawsuits or other claims asserted by or against us;

•

Unanticipated legal, regulatory or administrative requirements; and

•

Delays in settling our remaining obligations.

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See Note H – Members’ Equity of the Notes to the Financial Statements included in Part II, Item 8 Financial Statements of this Annual Report on Form 10-K.

Recent Sales of Unregistered Securities

None.

Equity Compensation Plan Information

None.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

None.

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is a financial review and analysis of our financial condition and results of operations for the years ended December 31, 2012, and 2011. This discussion should be read in conjunction with our financial statements and accompanying notes and other detailed information regarding us appearing elsewhere in this Annual Report on Form 10-K. In light of the decision in July 2009 to liquidate the Company, our historical operating results should not be viewed as indicative of future operating results.

FORWARD-LOOKING STATEMENTS

Certain statements in this report, including, without limitation, matters discussed under this Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” should be read in conjunction with the financial statements, related notes, and other detailed information included elsewhere in this report on Form 10-K. We are including this cautionary statement to make applicable and take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Statements that are not historical fact are forward-looking statements. Certain of these forward-looking statements can be identified by the use of words such as “believes,” “anticipates,” “expects,” “intends,” “plans,” “projects,” “estimates,” “assumes,” “may,” “should,” “will,” or other similar expressions. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors, which could cause actual results, performance or achievements to differ materially from future results, performance or achievements. These forward-looking statements are based on our current beliefs, intentions and expectations. These statements are not guarantees or indicative of future performance. Important assumptions and other important factors that could cause actual results to differ materially from those forward-looking statements include, but are not limited to, those factors, risks and uncertainties described in this Annual Report on Form 10-K and in our other securities filings with the Securities and Exchange Commission (“SEC”). Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and involve inherent risks and uncertainties. Our estimates of the value of collateral securing our loans may change, or the value of the underlying property could decline subsequent to the date of our evaluation. As a result, such estimates are not guarantees of the future value of the collateral. The forward-looking statements contained in this report are made only as of the date hereof. We undertake no obligation to update or revise information contained herein to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

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RESULTS OF OPERATIONS

OVERVIEW

At a special meeting of our members held on July 2, 2009, a majority of the members voted to approve the dissolution and winding up of the Fund, in accordance with the Plan of Complete Liquidation and Dissolution (the “Plan”) as set forth in Annex A of the Fund’s proxy statement filed with the Securities and Exchange Commission (the “SEC”) pursuant to Section 14(a) of the Securities and Exchange Act of 1934 on May 11, 2009. The Plan became effective upon its approval by the members on July 2, 2009. As a result, we have commenced an orderly liquidation and we no longer invest in new real estate loans. Our historical operating results should not be viewed as indicative of future results as we implement the Plan. We currently anticipate that the liquidation will be substantially completed by the second half of 2014. However, because of numerous uncertainties, the liquidation may take longer or shorter than expected. Because the liquidation of the Fund was not imminent, as of December 31, 2012, the financial statements are presented assuming the Fund will continue as a going concern. Pursuant to the Plan, we will make liquidating distributions to members on a quarterly basis or as funds become available, subject to reasonable reserve established to provide for payment of the Company’s ongoing expenses and contrast liabilities. Our manager has established a reserve to cover our on-going expenses and future obligations. As of December 31, 2012, our cash was approximately $0.4 million.

On January 26, 2010, April 8, 2010, September 17, 2010, May 25, 2011 and June 15, 2012, we made liquidating distributions to all Fund Members, in the aggregate amount of approximately $1.0 million, $0.9 million, $0.3 million, $0.3 million and $0.4 million, respectively, in accordance with the Plan. The amounts distributed to each Member of the Fund were calculated based upon the percentage ownership interest of such Member in the Fund. See Note I – Members’ Equity of the Notes to the Financial Statements included in Part II, Item 8 Financial Statements of this Annual Report on Form 10-K.

Under the terms of the Plan adopted by a majority of our members, our members no longer have the right to have their units redeemed by us and we no longer honor any outstanding redemption requests effective as of July 2, 2009.

Prior to the approval of the Plan, our primary business objective was to generate income while preserving principal by investing in loans secured by real estate. The loan underwriting standards utilized by our manager and Vestin Originations were less strict than those used by many institutional real estate lenders. In addition, one of our competitive advantages was our ability to approve loan applications more quickly than many institutional lenders. As a result, in certain cases, we made real estate loans that were riskier than real estate loans made by many institutional lenders such as commercial banks. However, in return, we sought a higher interest rate and our manager took steps to mitigate the lending risks such as imposing a lower loan-to-value ratio. While we may have assumed more risk than many institutional real estate lenders, in return, we sought to generate higher yields from our real estate loans.

Our historical operating results were affected primarily by: (i) the amount of capital we invested in real estate loans, (ii) the level of real estate lending activity in the markets we serviced, (iii) the interest rates we were able to charge on our loans and (iv) the level of non-performing assets, foreclosures and related loan losses that we experienced.

Our operating results have been adversely affected by increases in allowances for loan losses and increases in non-performing assets. This negative trend accelerated sharply during the year ended December 31, 2008 and continues to affect our operations. See Note F – Real Estate Held for Sale and Note D – Investments In Real Estate Loans of the Notes to the Financial Statements included in Part II, Item 8 Financial Statements of this Annual Report on Form 10-K.

Non-performing assets, net of allowance for loan losses, totaled approximately $1.4 million or 54% of our total assets as of December 31, 2012, as compared to approximately $1.8 million or 55% of our total assets as of December 31, 2011. At December 31, 2012, non-performing assets consisted of approximately $0.4 million of real estate held for sale and approximately $1.1 million of investment in equity method investee held for sale. See Note F – Real Estate Held for Sale and Note D – Investments In Real Estate Loans of the Notes to the Financial Statements included in Part II, Item 8 Financial Statements of this Annual Report on Form 10-K.

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We believe that the significant level of our non-performing assets is a direct result of the deterioration of the economy and credit markets. As the economy weakened and credit became more difficult to obtain, many of our borrowers who develop and sell commercial real estate projects have been unable to complete their projects, obtain takeout financing or have been otherwise adversely impacted. These conditions persisted during 2012 in our primary markets where the recovery of real estate values has lagged other geographical areas. Our exposure to the negative developments in the credit markets and general economy has likely been increased by our business strategy, which, until the approval of the Plan, entailed more lenient underwriting standards and expedited loan approval procedures. Moreover, real estate values in the principal markets in which we operate declined dramatically, which in many cases eroded the current value of the security underlying our loans.

SUMMARY OF FINANCIAL RESULTS

The Year Ended December 31, 2012

Total Revenue:	2012		2011		$ Change			% Change
Interest income from investment in real estate loans	$	6,000	$	23,000	$	(17,000	)		(74	%)
Recovery of allowance for doubtful notes receivable		22,000		--		22,000			100	%
Recovery of allowance for loan loss		17,000		--		17,000			100	%
Other Income		--		2,000		(2,000	)		(100	%)
Total	$	45,000	$	25,000	$	20,000			80	%

Our revenue from interest income is dependent upon the balance of our investment in real estate loans and the interest earned on these loans. As of December 31, 2012, we have no investments in real estate loans in our portfolio. Accordingly, our future revenues will be derived primarily from the disposition of our remaining assets and income from properties held for sale. Payments on fully reserved notes receivable resulted in an increase in recovery of allowance for doubtful notes receivable. During May 2012, we, VRM I and VRM II sold our portions of a fully reserved loan of $14.0 million, of which our portion was $0.2 million to a third party. We received a payment of approximately $17,000.

For additional information see Note D – Investments in Real Estate Loans and of the Notes to the Consolidated Financial Statements included in Part II, Item 8 Financial Statements of this Annual Report on Form 10-K.

Total Operating Expenses:	2012		2011		$ Change			% Change
Provision for loan loss	$	46,000	$	219,000	$	(173,000	)		(79	%)
Interest expense		--		4,000		(4,000	)		(100	%)
Professional fees		170,000		171,000		(1,000	)		(1	%)
Consulting		24,000		21,000		3,000			14	%
Other		18,000		14,000		4,000			29	%
Total	$	258,000	$	429,000	$	(171,000	)		(40	%)

Operating expenses decreased as a result of a decrease in provision for loan loss. Interest expense decreased in 2012 due to a note payable obtained in late 2010 which had been paid off by its maturity date of December 2011.

Total Non-operating income:	2012		2011			$ Change		%Change
Recovery from settlement with loan guarantor	$	157,000	$	--		$	157,000		100	%
Impairment of marketable securities – related party		--		(35,000	)		35,000		100	%
Gain on sale of marketable securities – related party		29,000		--			29,000		100	%
Total	$	186,000	$	(35,000	)	$	221,000		631	%

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During January 2011, we, VRM I and VRM II were awarded unsecured claims up to $3.6 million from a bankruptcy settlement with a guarantor of certain loans. Pursuant to the terms of the settlement, we received payment of $115,000 during April 2012 and $42,000 in July 2012. During 2011 we recognized an other than temporary impairment of our marketable securities – related party of approximately $35, 000. There was no impairment was necessary in 2012. The increase in gain on sale of marketable securities – related party is primarily due to a sale for our 114,117 shares of VRM II’s common stock to our Chairman and Chief Executive Officer, Michael Shustek on June 11, 2012.

See Note E — Investment In Marketable Securities – Related Party of the Notes to the Financial Statements included in Part II, Item 8 Financial Statements of this Annual Report on Form 10-K.

Total Discontinued Operations:	2012			2011			$ Change			% Change
Write-down of real estate held for sale	$	(302,000	)	$	(219,000	)	$	(83,000	)		(38	%)
Gain on sale of building		50,000			--			50,000			100	%
Income from equity method investee held for sale		54,000			--			54,000			100	%
Net gain on sale of real estate held for sale		3,000			26,000			(23,000	)		(88	%)
Expenses related to real estate held for sale		(60,000	)		(43,000	)		(17,000	)		(40	%)
Total	$	(255,000	)	$	(236,000	)	$	19,000			8	%

The variance in write-down of real estate held for sale was primarily due to the anticipated full depletion of net assets held for sale based on recent offers. During the year ended December 31, 2012, we received income from equity investee held for sale and did not have similar income in 2011. During the year ended December 31, 2012, we recorded gain on sale of building of approximately $50,000, which was partial recognition of deferred income in connection with the sale of an office building located in Las Vegas, Nevada, which income had been deferred pending recovery of our letter of credit from Vestin Group and Mike Shustek. In September 2012, we made distributions of approximately $50,000 to Mr. Shustek, which were assigned back to us as partial repayment of the letter of credit. As a result, we recorded this recovery as revenue. No such transaction occurred during the year ended December 31, 2011. During the year ended December 31, 2012 and 2011, we recorded net gains of $3,000 and $26,000, respectively, on sale of real estate held for sale. Increase in expenses related to real estate held for sale during the year ended December 31, 2012 compared to December 31, 2011, were primarily related to professional fees associated with 1701 Commerce.

For additional information see Note F – Real Estate Held for Sale, Note G – Investment in Equity Method Investee Held for Sale and Note H – Related Party Transactions of the Notes to the Financial Statements included in Part II, Item 8 Financial Statements of this Annual Report on Form 10-K.

Distributions to Members: The following is a schedule of distributions made to members for the year ended December 31, 2012 and 2011.

	For the Year Ended December 31,
	2012			2011

Distribution of net income available for distribution	$	--		$	--
Reduction to working capital due to net loss		(233,000	)		(640,000	)
Distribution in excess of net income available for distribution		583,000			938,000
Total distributions	$	350,000		$	298,000

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Net Income Available for Distributions is a non-GAAP financial measure that is defined in our Operating Agreement as cash flows from operations, less certain reserves, and may exceed net income as calculated in accordance with GAAP. We have presented net income available for distribution because management believes this financial measure is useful and important to members. Distributions in excess of net income available for distribution will be treated as a return of capital for income tax purposes. This non-GAAP financial measure should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP or as an alternative to cash flows from operating activities as a measure of our liquidity. We compensate for these limitations by relying primarily on our GAAP results and using net income available for distribution only supplementally.

The most directly comparable GAAP measure to net income available for distribution is cash flows from operating activities. The following table reconciles net income available for distribution to cash flows from operating activities and presents the two other major categories of our statement of cash flows:

	For the Year Ended December 31,
	2012			2011
Reductions to working capital		(130,000	)		(203,000	)
Gain on sale of marketable securities – related party		(29,000	)		--
Gain on sale of real estate held for sale		(3,000	)		--
Gain on sale of building		(50,000	)		--
Income from equity method investee held for sale		(54,000	)		--
Change in operating assets and liabilities:
Interest receivable		--			236,000
Accounts payable		(4,000	)		(48,000	)
Deferred income		(50,000	)		--
Due from related parties		97,000			--
Due to related parties		64,000			21,000
Other assets		--			2,000
Net cash provided by (used in) operating activities	$	(159,000	)	$	8,000
Net cash provided by investing activities	$	762,000		$	6,000
Net cash used in financing activities	$	(350,000	)	$	(346,000	)

Stated Unit Value Adjustment: In accordance with Section 7.8 of our Operating Agreement, our manager reviewed the value of our assets during the three months ended December 31, 2012. Based on this review the value of members’ capital accounts was adjusted from $0.94 per unit to $0.84 per unit, as of January 1, 2013. 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: At a special meeting of our members held on July 2, 2009, a majority of the members voted to approve the dissolution and winding up of the Fund, in accordance with the Plan as set forth in Annex A of the Fund’s proxy statement filed with the SEC pursuant to Section 14(a) of the Securities and Exchange Act of 1934 on May 11, 2009. The Plan became effective upon its approval by the members on July 2, 2009. Our members no longer have the right to have their units redeemed by us and we no longer honor any outstanding redemption requests effective as of July 2, 2009. As of July 2, 2009, the total redemptions made from inception were approximately $10.4 million. For additional information regarding members redemptions, see Note H – Members’ Equity of the Notes to the Financial Statements included in Part II, Item 8 Financial Statements of this Annual Report on Form 10-K.

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CAPITAL AND LIQUIDITY

Liquidity is a measure of a company’s ability to meet potential cash requirements, including ongoing commitments to fund lending activities and general operating purposes. As a result of the decision to liquidate the Company, we no longer invest in new loans. Hence, subject to retaining sufficient funds to meet our obligations and conduct wind down operations, all available funds will be paid out to our members. We do not anticipate the need for hiring any employees, acquiring fixed assets such as office equipment or furniture, or incurring material office expenses during the next twelve months because our manager will manage our affairs.

During the year ended December 31, 2012, net cash flows used in operating activities totaled approximately $0.2 million, mostly resulting from unsecured claims of approximately $0.2 million we were awarded from a bankruptcy settlement with a guarantor of certain loans. Cash flows provided by investing activities for the year ended December 31, 2012 totaled approximately $0.8 million and were from proceeds from loan payoffs, sale of marketable securities – related party, real estate held for sale and unsecured claims awarded from settlement with guarantor. Net cash flows used by financing activities, used for member distributions, totaled approximately $0.4 million during the year ended December 31, 2012.

At December 31, 2012 we had approximately $0.4 million in unrestricted cash and approximately $2.6 million in total assets. We believe we have sufficient working capital to meet our operating needs during the next 12 months.

Investments in Real Estate Loans Secured by Real Estate Portfolio

As of December 31, 2012, we had no investments in real estate loans. As of December 31, 2011, we had investments in five real estate loans, with a balance of approximately $2.7 million. In accordance with the Plan, we will no longer invest in new loans.

For additional information on our investments in real estate loans, refer to Note D – Investments in Real Estate Loans of the Notes to the Financial Statements included in Part II, Item 8 Financial Statements of this Annual Report on Form 10-K.

Asset Quality and Loan Reserves

As a commercial real estate lender who was willing to invest in riskier loans, rates of delinquencies, foreclosures and losses on our loans could be higher than those generally experienced in the commercial mortgage lending industry during periods of economic slowdown and recession. The recent recession adversely affected the general economy and the availability of funds for commercial real estate developers. We believe this lack of available funds led to an increase in defaults on our loans. Furthermore, problems experienced in the U.S. credit markets from the summer of 2007 through present have reduced the availability of credit for many prospective borrowers. These problems persist in the markets we are serving, making it more difficult for our borrowers to obtain the anticipated re-financing necessary in many cases to pay back our loans. Thus, an extended period of illiquidity in the credit markets has resulted in a material increase in the number of our loans that are not paid back on time, and we have had to work with some of our borrowers to either modify, restructure and/or extend their loans in order to keep or restore the loans to performing status.

OFF-BALANCE SHEET ARRANGEMENTS

As of December 31, 2012, 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.

RELATED PARTY TRANSACTIONS

Prior to July 2, 2009, we may have acquired or sold investments in real estate loans from/to our manager or other related parties. Pursuant to the terms of our Operating Agreement, such acquisitions and sales were made without any mark up or mark down. No gain or loss was recorded on these transactions, as it was not our intent to make a profit on the purchase or sale of such investments. The purpose was generally to diversify our portfolio by syndicating loans, thereby providing us with additional capital to make additional loans. For further information regarding related party transactions, refer to Note H – Related Party Transactions of the Notes to the Financial Statements included in Part II, Item 8 Financial Statements of this Annual Report on Form 10-K.

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CRITICAL ACCOUNTING ESTIMATES

Revenue Recognition

Interest income on loans is accrued by the effective interest method. We do not accrue interest income from loans once they are determined to be non-performing. A loan is considered non-performing 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.

RECENT ACCOUNTING PRONOUNCEMENTS

No new accounting pronouncements have been defined that would materially impact our financial statements.

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ITEM 8.

FINANCIAL STATEMENTS

INDEX TO FINANCIAL STATEMENTS

	Page

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	13

FINANCIAL STATEMENTS
Balance Sheets	14
Statements of Operations	15
Statement of Other Comprehensive Loss	16
Statements of Members’ Equity and Other Comprehensive Loss	17
Statements of Cash Flows	18
Notes to the Financial Statements	20

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Members of

Vestin Fund III, LLC

We have audited the accompanying balance sheets of Vestin Fund III, LLC (the “Company”) as of December 31, 2012 and 2011, and the related statements of operations, other comprehensive loss, members’ equity and other comprehensive loss, and cash flows for each of the years in the two-year period ended December 31, 2012. The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on these 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 audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit 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 financial statements referred to above present fairly, in all material respects, the financial position of Vestin Fund III, LLC as of December 31, 2012 and 2011, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2012, in conformity with accounting principles generally accepted in the United States of America.

/s/ JLK Rosenberger, LLP

Irvine, California

March 28, 2013

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FINANCIAL STATEMENTS

VESTIN FUND III, LLC

BALANCE SHEETS

ASSETS

	12/31/2012		12/31/2011

Assets
Cash and cash equivalents	$	354,000	$	101,000
Marketable securities - related party		--		145,000
Interest and other receivables, net of allowance for doubtful accounts of $0 at December 31, 2012 and $102,000 at December 31, 2011		--		1,000
Notes receivable, net of allowance of $871,000 at December 31, 2012 and $358,000 at December 31, 2011		--		--
Real estate held for sale		300,000		596,000
Investment in equity method investee held for sale		1,103,000		--
Investment in real estate loans, net of allowance for loan loss of $0 at December 31, 2012 and $1,236,000 at December 31, 2011		--		1,439,000
Due from related parties		928,000		992,000
Other assets		2,000		1,000

Total assets	$	2,687,000	$	3,275,000


LIABILITIES AND MEMBERS' EQUITY

Liabilities
Accounts payable and accrued liabilities	$	13,000	$	16,000
Due to related parties		97,000		--
Deferred income		935,000		985,000

Total liabilities		1,045,000		1,001,000

Commitments and contingencies

Members' equity
Members' units - 10,000,000 units, 2,024,424 units issued and outstanding at December 31, 2012, and 2011		1,642,000		2,274,000

Total members' equity		1,642,000		2,274,000

Total liabilities and members' equity	$	2,687,000	$	3,275,000

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VESTIN FUND III, LLC

STATEMENTS OF OPERATIONS
	For the Year Ended

	12/31/2012			12/31/2011

Revenues
Interest income from investment in real estate loans	$	6,000		$	23,000
Gain related to payoff of real estate loan, including recovery of allowance for notes receivable		22,000			--
Gain related to pay off of notes receivable, including recovery of allowance for loan loss		17,000			--
Other income		--			2,000
Total revenues		45,000			25,000

Operating expenses
Interest expense		--			4,000
Provision for loan loss		46,000			219,000
Professional fees		170,000			171,000
Consulting		24,000			21,000
Other		18,000			14,000
Total operating expenses		258,000			429,000

Loss from operations		(213,000	)		(404,000	)

Non-operating income (loss)
Recovery from settlement with loan guarantor		157,000			--
Gain on sale of marketable securities – related party		29,000			--
Impairment of marketable securities - related party		--			(35,000	)
Total non-operating income (loss), net		186,000			(35,000	)

Discontinued Operations
Income related to real estate held for sale		--			--
Gain on sale of building		50,000			--
Income from equity method investee held for sale		54,000			--
Net gain on sale of real estate held for sale		3,000			26,000
Write-down of real estate held for sale		(302,000	)		(219,000	)
Expenses related to real estate held for sale		(60,000	)		(43,000	)
Total loss from discontinued operations		(255,000	)		(236,000	)

NET LOSS	$	(282,000	)	$	(675,000	)

Net loss allocated to members	$	(282,000	)	$	(675,000	)

Basic and diluted income (loss) per weighted average membership unit
Continuing operations	$	(0.01	)	$	(0.22	)
Discontinued operations		(0.13	)		(0.11	)
Total basic and diluted income (loss) per weighted average membership unit	$	(0.14	)	$	(0.33	)
Dividends declared per membership unit	$	--		$	--
Weighted average membership units	$	2,024,424		$	2,024,424

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VESTIN FUND III, LLC

STATEMENTS OF OTHER COMPREHENSIVE LOSS

	For The Year Ended
	12/31/2012			12/31/2011

Net loss	$	(282,000	)	$	(675,000	)

Recognition of unrealized loss on marketable securities – related party		--			35,000
Unrealized holding loss on available-for-sale securities – related party		--			(32,000	)

Comprehensive loss	$	(282,000	)	$	(672,000	)

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VESTIN FUND III, LLC

STATEMENTS OF MEMBERS' EQUITY AND OTHER COMPREHENSIVE LOSS


	Units		Amount
Members' equity at December 31, 2010		2,024,424	$	3,244,000

Comprehensive loss:

Net loss				(675,000	)

Recognition of unrealized loss on marketable securities - related party				35,000

Unrealized loss on marketable securities - related party				(32,000	)

Total comprehensive loss				(672,000	)

Distributions				(298,000	)

Members' equity at December 31, 2011		2,024,424	$	2,274,000

Comprehensive loss:

Net loss				(282,000	)

Total comprehensive loss				(282,000	)

Distributions				(350,000	)

Members' equity at December 31, 2012		2,024,424	$	1,642,000

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VESTIN FUND III, LLC

STATEMENTS OF CASH FLOWS

	12/31/12			12/31/11
Cash flows from operating activities:
Net loss	$	(282,000	)	$	(675,000	)
Adjustments to reconcile net loss to net cash used in operating activities:
Provision for loan loss		46,000			219,000
Gain related to sale of real estate held for sale		(3,000	)		--
Gain on sale of marketable securities – related party		(29,000	)		--
Gain related to recovery of allowance for doubtful notes receivable		(22,000	)		--
Gain related to pay off of real estate loan, including recovery of allowance for loan loss		(17,000	)		--
Gain related to recovery from settlement with loan guarantor		(157,000	)		--
Write-downs on real estate held for sale		302,000			219,000
Gain on sale of building		(50,000	)		--
Income from equity method investee held for sale		(54,000	)		--
Impairment of marketable securities - related party		--			35,000
Change in operating assets and liabilities:
Interest receivable		--			236,000
Accounts payable and accrued liabilities		(4,000	)		(49,000	)
Deferred income		(50,000	)		--
Due from related parties		97,000			--
Due to related parties		64,000			21,000
Other assets		--			2,000
Net cash provided by (used in) operating activities	$	(159,000	)	$	8,000

Cash flows from investing activities:
Proceeds from loan payoff	$	194,000		$	--
Investment in real estate held for sale		(20,000	)		--
Proceeds from sale of marketable securities – related party		161,000			--
Proceeds from settlement from loan guarantor		157,000			--
Proceeds from nonrefundable extension fees on real estate held for sale		--			5,000
Proceeds related to sale of building		50,000			--
Proceeds from notes receivable		37,000			--
Proceeds related to real estate held for sale		183,000			--
Purchase of marketable securities - related party		--			(11,000	)
Net cash provided by (used in) investing activities	$	762,000		$	(6,000	)

Cash flows from financing activities:
Payments on notes payable		--			(48,000	)
Members' distributions, net of reinvestments		(350,000	)		(298,000	)
Net cash used in financing activities	$	(350,000	)	$	(346,000	)

NET CHANGE IN CASH		253,000			(344,000	)

Cash, beginning of period		101,000			445,000

Cash, end of period	$	354,000		$	101,000

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VESTIN FUND III, LLC

STATEMENTS OF CASH FLOWS (CONTINUED)

	12/31/12		12/31/11
Supplemental disclosures of cash flows information:
Interest paid during the period	$	--	$	4,000

Non-cash investing and financing activities:
Write-off of interest receivable and related allowance	$	103,000	$	--
Reclassify loan and related allowance to note receivable	$	622,000	$	--
Real estate held for sale acquired through foreclosure, net of prior allowance	$	167,000	$	--
Investment in equity method investee – held for sale acquired through foreclosure, net of prior allowance	$	1,049,000	$	--
Recognition of unrealized loss on marketable securities – related party	$	--	$	35,000
Unrealized loss on marketable securities - related party	$	--	$	(32,000	)

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VESTIN FUND III, LLC

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2012

NOTE A — ORGANIZATION

At a special meeting of our members held on July 2, 2009, a majority of the members voted to approve the dissolution and winding up of the Fund, in accordance with the Plan of Complete Liquidation and Dissolution (the “Plan”) as set forth in Annex A of the Fund’s proxy statement filed with the Securities and Exchange Commission (the “SEC”) pursuant to Section 14(a) of the Securities and Exchange Act of 1934 on May 11, 2009. The Plan became effective upon its approval by the members on July 2, 2009. As a result, we have commenced an orderly liquidation and we no longer invest in new real estate loans. We anticipate that the liquidation will be substantially completed by the second half of 2014. However, because of numerous uncertainties, the liquidation may take longer or shorter than expected. Because the liquidation of the Fund was not imminent, as of December 31, 2012, the financial statements are presented assuming the Fund will continue as a going concern. Pursuant to the Plan, we will make liquidating distributions to members on a quarterly basis or as funds become available, subject to a reasonable reserve established to provide for payment of the Company’s ongoing expenses and contingent liabilities. Our members no longer have the right to have their units redeemed by us and we no longer honor any outstanding redemption requests effective as of July 2, 2009.

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.

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NOTE B — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The financial statements of the Company have been prepared in accordance with the accounting principles generally accepted in the United States of America (“GAAP”). In the opinion of management, all normal recurring adjustments considered necessary to give a fair presentation of operating results for the periods presented have been included.

Management Estimates

The preparation of financial statements in conformity with 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 on performing loans when earned according to the terms of the loans, using the effective interest method. We do not accrue interest income on loans once they are determined to be non-performing. A loan is non-performing 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. Interest is recognized on impaired loans on the cash basis method.

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Deferred Revenue Recognition

Deferred revenue supports the amount of sales proceeds withheld on a sale of our building during November 2006, with which we were required to establish an irrevocable stand by letter of credit which was to expire August 31, 2014. See Note N – Legal Matters Involving The Company and Note H – Related Party Transactions.

Investments in Real Estate Loans

Prior to July 2, 2009, we may have, from time to time, acquired or sold investments in real estate loans from or to our manager or other related parties pursuant to the terms of our Operating Agreement without a premium. The primary purpose was to either free up capital to provide liquidity for various reasons, such as loan diversification, or place excess capital in investments to maximize the use of our capital. Selling or buying loans allowed us to diversify our loan portfolio within these parameters. Due to the short-term nature of the loans we made and the similarity of interest rates in loans we normally would invest in, the fair value of a loan typically approximated its carrying value. Accordingly, discounts or premiums typically did 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. Generally, our real estate loans require interest only payments with a balloon payment of the principal at maturity. 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 initially based on appraisals obtained at the time of loan origination and are updated, when new appraisals are received or when management’s assessment of the value has changed, to 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 Company considers a loan to be impaired when, based upon current information and events, it believes it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. The Company’s impaired loans include troubled debt restructuring, and performing and non-performing loans in which full payment of principal or interest is not expected. The Company calculates an allowance required for impaired loans based on the present value of expected future cash flows discounted at the loan’s effective interest rate, or at the loan’s observable market price or the fair value of its collateral.

Loans that have been modified from their original terms are evaluated to determine if the loan meets the definition of a Troubled Debt Restructuring (“TDR”). When the Company modifies the terms of an existing loan that is considered a TDR, it is considered performing as long as it complies with the modified terms of the loan agreement. If the modification calls for deferred interest, it is recorded as interest income as cash is collected.

Allowance for Loan Losses

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

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

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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. In recent years, we have revised estimates of our allowance for loan losses. Circumstances that have and may continue to cause significant changes in our estimated allowance include, but are not limited to:

Declines in real estate market conditions, which can cause a decrease in expected market value;

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

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

Unanticipated legal or business issues that may arise subsequently to loan origination or upon the sale of foreclosed related loan advances;

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

Real Estate Held for Sale

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

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

Management commits to a plan to sell the properties;

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

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

The sale of the property is probable;

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

Withdrawal or significant modification of the sale is not likely.

Discontinued Operations

We have reclassified for all periods presented in the accompanying consolidated statements of operations, the amounts related to discontinued operations and real estate held for sale, in accordance with the applicable accounting criteria. In addition, the assets and liabilities related to the discontinued operations are reported separately in the accompanying consolidated balance sheets as real estate held for sale, assets held for sale, and liabilities related to assets held for sale.

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Investment in Marketable Securities – Related Party

We are required to evaluate our available-for-sale investment for other-than-temporary impairment charges. We will determine when an investment is considered impaired (i.e., decline in fair value below its amortized cost), and evaluate whether the impairment is other than temporary (i.e., investment value will not be recovered over its remaining life). If the impairment is considered other than temporary, we will recognize an impairment loss equal to the difference between the investment’s cost and its fair value.

According to the SEC Staff Accounting Bulletin, Topic 5: Miscellaneous Accounting, M - Other Than Temporary Impairment of Certain Investments in Debt and Equity Securities, there are numerous factors to be considered in such an evaluation and their relative significance will vary from case to case. The following are a few examples of the factors that individually or in combination, indicate that a decline is other than temporary and that a write-down of the carrying value is required:

The length of time and the extent to which the market value has been less than cost;

The financial condition and near term prospects of the issuer, including any specific events which may influence the operations of the issuer such as changes in technology that may impair the earnings potential of the investment of the discontinuance of a segment of the business that may affect the future earnings potential, or

The intent and ability of the holder to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value.

Fair Value Disclosures

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e. “the exit price”) in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various valuation approaches, including quoted market prices and discounted cash flows. The established hierarchy for inputs used, in measuring fair value, maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from independent sources. Unobservable inputs are inputs that reflect a company’s judgment concerning the assumptions that market participants would use in pricing the asset or liability developed based on the best information available under the circumstances. The fair value hierarchy is broken down into three levels based on the reliability of inputs as follows:

Level 1 – Valuations based on quoted prices in active markets for identical instruments that the Company is able to access. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.

Level 2 – Valuations based on quoted prices in active markets for instruments that are similar, or quoted prices in markets that are not active for identical or similar instruments, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.

Level 3 – Valuations based on inputs that are unobservable and significant to the overall fair value measurement, which utilize the Company’s estimates and assumptions.

If the volume and level of activity for an asset or liability have significantly decreased, we will still evaluate our fair value estimate as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. In addition, since we are a public reporting company, we are required to make our fair value disclosures for interim reporting periods.

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Net Loss Allocated to Members Per Weighted Average Membership Unit

Net loss allocated to members per weighted average membership unit is computed by dividing net loss calculated in accordance with GAAP by the weighted average number of membership units outstanding for the period.

Segments

We operate as one business segment.

Reclassifications

Certain amounts in the December 31, 2011 financial statements have been reclassified to conform to the December 31, 2012 presentation.

Income Taxes

Limited liability companies (“LLCs”) are not liable for federal or state income taxes and, therefore, no provision for income taxes is made in the accompanying financial statements. Rather, a proportionate share of the LLC’s income, deductions, credits and tax preference items are reported to the individual members for inclusion in their tax returns.

NOTE C — FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK

Financial instruments consist of cash, interest and other receivables, notes receivable, accounts payable and accrued liabilities and due to/from related parties. The carrying value of these instruments approximates their fair values due to their short-term nature. We describe Investment in real estate loans further in Note K – Fair Value.

Financial instruments with concentration of credit and market risk include cash, interest and other receivables, marketable securities - related party, notes receivable, accounts payable and accrued liabilities, due to/from related parties, and loans secured by deeds of trust.

We maintain cash deposit accounts and certificates of deposit, which, at times, may exceed federally insured limits. To date, we have not experienced any losses. As of December 31, 2012 and 2011, we had no amounts in excess of the federally insured limits.

As of December 31, 2012 we had no investments in real estate loans. As of December 31, 2011, 56% and 28% of our loans were in Oregon and Nevada, respectively. As a result of this geographical concentration of our real estate loans, the downturn in the local real estate markets in these states has had a material adverse effect on us.

NOTE D — INVESTMENTS IN REAL ESTATE LOANS

As of December 31, 2012, we had no investments in real estate loans. As of December 31, 2011, all of our loans provided for interest only payments with a “balloon” payment of principal payable and any accrued interest payable in full at the end of the term.

In addition, we have previously invested in real estate loans that require borrowers to maintain interest reserves funded from the principal amount of the loan for a period of time. At December 31, 2011, we had no investments in real estate loans that had interest reserves.

Loan Portfolio

Historically we had five available real estate loan products consisting of commercial, construction, acquisition and development, land and residential.

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Investments in real estate loans as of December 31, 2011, were as follows:

Loan Type	Number of Loans		Balance *		Weighted Average Interest Rate			Portfolio Percentage			Current Weighted Average Loan-To-Value, Net of Allowance for Loan Losses

Commercial		4	$	2,271,000		10.52	%		84.90	%		89.60	%
Construction		1		404,000		8.00	%		15.10	%		89.83	%
Total		5	$	2,675,000		10.14	%		100.00	%		89.64	%

*	Please see Balance Sheet Reconciliation below.

The “Weighted Average Interest Rate” as shown above is based on the contractual terms of the loans for the entire portfolio including non-performing loans. The weighted average interest rate on performing loans only, as of December 31, 2011 was 4.49%. Please see “Non-Performing Loans” and “Asset Quality and Loan Reserves” below for further information regarding performing and non-performing loans.

Loan-to-value ratios are generally based on the most recent appraisals and may not reflect subsequent changes in value and include allowances for loan losses. Recognition of allowance for loan losses will result in a maximum loan-to-value ratio of 100% per loan.

The following is a schedule of priority of real estate loans as of December 31, 2011.

Loan Type	Number of Loans		December 31, 2011 Balance *		Portfolio Percentage

First deeds of trust		2	$	1,924,000		71.93	%
Second deeds of trust		3		751,000		28.07	%
Total		5	$	2,675,000		100.00	%

*	Please see Balance Sheet Reconciliation below.

The following is a schedule by geographic location of investments in real estate loans as of December 31, 2011:

	December 31, 2011 Balance *		Portfolio Percentage

Arizona	$	200,000		7.48	%
Nevada		755,000		28.22	%
Oregon		1,520,000		56.82	%
Texas		200,000		7.48	%
Total	$	2,675,000		100.00	%

*	Please see Balance Sheet Reconciliation below.

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Balance Sheet Reconciliation

The following table reconciles the balance of the loan portfolio to the amount shown on the accompanying Balance Sheet at December 31, 2011.

	December 31, 2011 Balance
Balance per loan portfolio	$	2,675,000
Less:
Allowance for loan losses (a)		(1,236,000	)
Balance per balance sheet	$	1,439,000

(a)	Please refer to Specific Reserve Allowance below.

Non-Performing Loans

As of December 31, 2012, we had no non-performing loans. As of December 31, 2011, we had three loans considered non-performing (i.e., 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). These loans were carried on our books at a value of approximately $1.2 million, net of allowance for loan losses of approximately $0.7 million, which did not include the allowances of approximately $0.5 million relating to performing loans as of December 31, 2011.

Loan Type	Number Of Non-Performing Loans		Balance at December 31, 2012		Number Of Non-Performing Loans		Balance at December 31, 2011

Commercial		--	$	--	$	3	$	1,920,000

Commercial – As of December 31, 2012 we had no loans on our portfolio. During 2012 we received a payment in full on one non-performing loan and foreclosed on the other two. As of December 31, 2011, three of our four commercial loans were considered non-performing. The outstanding balance on the three non-performing loans was $31.8 million, of which our portion is approximately $1.9 million. As of December 31, 2011, these loans have been non-performing for 0 and 43 months.

Asset Quality and Loan Reserves

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

The conclusion that a real estate loan is uncollectible or that collectability is doubtful is a matter of judgment. On a quarterly basis, our manager evaluates our real estate loan portfolio for impairment. The fact that a loan is temporarily past due does not necessarily mean that the loan is non-performing. 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 collectability 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;

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Evaluation of industry trends; and

Estimated net realizable value of any underlying collateral in relation to the loan amount.

Based upon this evaluation, a determination is made as to whether the allowance for loan losses is adequate to cover any potential losses. Additions to the allowance for loan losses are made by charges to the provision for loan loss. As of December 31, 2011, we have provided a specific reserve allowance for all non-performing loans and all performing loans based on updated appraisals of the underlying collateral and/or our evaluation of the borrower. The following is a breakdown of allowance for loan losses related to performing and non-performing loans as of December 31, 2011:

	As of December 31, 2011
	Balance		Allowance for loan losses *			Balance, net of allowance

Non-performing loans – related allowance	$	1,920,000	$	(705,000	)	$	1,215,000
Performing loans – related allowance		755,000		(531,000	)		224,000

Total	$	2,675,000	$	(1,236,000	)	$	1,439,000

* Please refer to Specific Reserve Allowances above.

Specific Reserve Allowances

The following table is a roll-forward of the allowance for loan losses for the years ended December 31, 2012 and 2011 by loan type.

Loan Type	Balance at 12/31/2011		Specific Reserve Allocation		Sales		Loan Pay Downs			Transfers to REO or Notes Receivables			Balance at 12/31/2012

Commercial	$	1,055,000	$	46,000	$	--	$	(200,000	)	$	(901,000	)	$	--
Construction		181,000		--		--		(181,000	)		--			--
Total	$	1,236,000	$	46,000	$	--	$	(381,000	)	$	(901,000	)	$	--

Commercial – During 2012, all of our commercial loans had a specific reserve allowance and as of December 31, 2012 were reclassified as notes receivable, paid in full or foreclosed upon.

Construction – During 2012 our one construction loan had a specific reserve allowance as of December 31, 2011 was reclassified as a notes receivable.

Loan Type	Balance at 12/31/10		Specific Reserve Allocation		Sales		Loan Pay Downs		Transfers to REO		Balance at 12/31/11

Commercial	$	840,000	$	215,000	$	--	$	--	$	--	$	1,055,000
Construction		177,000		4,000		--		--		--		181,000
Total	$	1,017,000	$	219,000	$	--	$	--	$	--	$	1,236,000

Commercial – As of December 31, 2011, all of our commercial loans had a specific reserve allowance totaling approximately $20.1 million, of which our portion is approximately $1.1 million. The outstanding balance on these loans was approximately $34.2 million, of which our portion was $2.3 million.

Construction – As of December 31, 2011, our one construction loan had a specific reserve allowance totaling approximately $3.2 million, of which our portion is approximately $0.2 million. The outstanding balance on this loan was approximately $7.2 million, of which our portion is approximately $0.4 million.

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Troubled Debt Restructuring

As of December 31, 2012, we had no loans which met the definition of a Troubled Debt Restructuring or TDR. As of December 31, 2011, we had three loans totaling approximately $1.0 million that met the definition of a TDR. When the Company modifies the terms of an existing loan that is considered TDR, it is considered performing as long as it is in compliance with the modified terms of the loan agreement. If the modification calls for deferred interest, it is recorded as interest income as cash is collected. Impairment on these loans is generally determined by the lesser of the value of the underlying collateral or the present value of expected future cash flows. During the previous 12 months there has been one loan that became a TDR loan and it remained performing. The following is a breakdown of our TDR loans that were considered performing and non-performing loans as of December 31, 2011:

As of December 31, 2011
	Total				Performing				Non-Performing
Loan Type	Number of Loans		Fund Balance		Number of Loans		Fund Balance		Number of Loans		Fund Balance

Commercial		2	$	551,000		1	$	351,000		1	$	200,000
Construction		1		405,000		1		405,000		--		--
Total		3	$	956,000		2	$	756,000		1	$	200,000

Commercial –As of December 31, 2011 we had four commercial loans, two of which, at each date, were modified pursuant to TDR. As of December 31, 2011 two of these loans were secured by second deeds of trust and were considered performing prior to their restructuring, whereby they had their interest rates reduced.

Construction – As of December 31, 2011 we had one construction loan that was modified pursuant to TDR.

The reduction in TDR loans was a result of a first position lender foreclosed on a fully allowed for second position loan, reclassifying second position loans as fully allowed for notes receivable due to receiving payoffs on the first position loans releasing the collateral and accepting a deed-in-lieu on another property which is now reported as assets held for sale.

NOTE E — INVESTMENT IN MARKETABLE SECURITIES – RELATED PARTY

As of December 31, 2011, we owned 114,117 shares of VRM II’s common stock, representing approximately 0.90% of the total outstanding shares. On June 11, 2012, our Chairman and Chief Executive Officer, Michael Shustek purchased these shares. This sale resulted in a gain of approximately $27,000.

At December 31, 2011, our manager evaluated the near-term prospects of VRM II in relation to the severity and duration of the unrealized loss. Based on that evaluation and current market conditions, we determined there was an other-than-temporary impairment on our investment in VRM II as of December 31, 2011. We reversed our unrealized other comprehensive losses and realized a loss on our investment to its fair value of $1.17 per share as of December 31, 2011, totaling approximately $0.2 million and recognizing an impairment of approximately $0.2 million.

NOTE F — REAL ESTATE HELD FOR SALE

At December 31, 2012, we held four properties with a total carrying value of approximately $0.3 million, which were acquired through foreclosure and recorded as investments in REO. Expenses incurred during the year ended December 31, 2012 and 2011 related to our REO totaled approximately $60,000 and $43,000, respectively. Our REO is accounted for at the lower of cost or fair value less costs to sell with fair value based on appraisals and knowledge of local market conditions. We seek to sell properties acquired through foreclosure as quickly as circumstances permit taking into account current economic conditions.

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During April 2012, we, VRM I and VRM II sold a property to an unrelated third party for approximately $0.5 million, of which our portion was approximately $0.2 million. This transaction resulted in a net gain for us of approximately $3,000. A consultation fee of approximately $17,000 was paid to our manager.

On February 7, 2012, we, VRM I and VRM II entered into a Deed in Lieu Agreement with a borrower resolving the foreclosure of our secured loan which had matured on December 31, 2011, with a principal balance of approximately $11.8 million, of which our portion was approximately $0.2 million. Our subsidiary 1701 Commerce, LLC (“1701 Commerce”), pursuant to the Deed in Lieu Agreement received a deed to the property which had secured the loan. The property, which is being operated as the Sheraton – Forth Worth, Texas, is the subject of litigation relating to the validity, priority, nature, and extent of liens claimed by other parties that may secure claims of approximately $46 million. On March 26, 2012, 1701 Commerce filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the Northern District of Texas, Ft. Worth Division, to reorganize its financial affairs and to avoid a pending foreclosure of the property that had been scheduled by a mortgage lien holder and to preserve and protect 1701 Commerce’s equity and the interests of the other creditors of the property. Due to the uncertainty and disputes involving this property, we recorded this investment as Other Real Estate Owned on the balance sheet until August 23, 2012 when the Bankruptcy Court issued an order allowing the bankruptcy to proceed despite a motion to dismiss it and required 1701 Commerce to deposit $1 million as additional collateral with the court which was funded by us, VRM I and VRM II, and gave 1701 Commerce until November 24, 2012, which has now been extended indefinitely to obtain confirmation of a reorganization plan. We hold an interest of approximately 2%, VRM I holds an interest of approximately 8% and VRM II holds an interest of approximately 90% in 1701 Commerce.

The asset purchase agreement previously entered into on September 24, 2012 was cancelled by the buyer. On January 31, 2013, 1701 Commerce entered into a non exclusive asset purchase agreement to sell its assets in consideration of $49 million. Upon the satisfaction of all conditions included in the agreement, subject to payment of certain approved claims and court approval, the balance of the purchase price will be paid by cash to 1701 Commerce. Pursuant to this sale agreement, this asset will be reported as an asset held for sale.

If the property is not sold by March 4, 2013, the senior lender is set to foreclose on March 5, 2013 and the Company will lose its interest in the property. Due to the uncertainties and timing, our Manager believes the net proceeds from this investment has been fully depleted therefore a loss of approximately $0.2 has been recognized which is included in loss from assets held for sale for the year ended December 31, 2012.

In August, 2011, VREO XVIII, LLC, an entity owned by us, VRM I and VRM II entered into a purchase and sale agreement to sell one of the REO assets. The terms of the sale provided for an all cash transaction in the amount of $2 million, with a closing to occur within 60 days. The date of closing was extended several times, but ultimately, the transaction cancelled, as the purchaser was unable to obtain financing. In 2012, non-refundable extension fees in the amount of $30,000 were collected, of which our portion was approximately $1,000.

As of December 31, 2012, three of our four REO properties consisted of raw land which did not have operations. The following is summary of the results of operations related to the one remaining REO for the period from September 1, 2012 (foreclosure) through September 30, 2012:


Revenue	$	1,099,000
Expenses		(1,004,000	)

Net Income	$	95,000

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We seek to sell properties acquired through foreclosure as quickly as circumstances permit taking into account current economic conditions.

Beginning balance, January 1, 2012	$	596,000
Real estate held for sale acquired through foreclosure		167,000
Additional investment in REO		20,000
Proceeds on nonrefundable extension fee		(1,000	)
Write down		(302,000	)
Sale		(180,000	)
Ending balance, December 31, 2012	$	300,000

NOTE G – INVESTMENTS IN EQUITY METHOD INVESTEE HELD FOR SALE

During May 2012, we, VRM I and VRM II foreclosed on a loan with a balance of approximately $6.0 million, of which our portion was approximately $1.1 million. The property includes 23 cottage units in a retirement community located in Eugene, Oregon. The property includes operations, which will be reported as an investment under the equity method from the date of this foreclosure. The property will be an investment in equity method investee held for sale.

We account for investments using the equity method of accounting if the investments give us the ability to exercise significant influence, but not control, over the investees. Significant influence is generally deemed to exist if we have an ownership interest in the voting stock of an incorporated investee of between 20% and 50%, although other factors, such as representation on an investee’s board of managers, specific voting and veto rights held by each investor and the effects of commercial arrangements, are considered in determining whether equity method accounting is appropriate. We record our respective interests in the losses or income of such investees within the equity-method investees held for sale category on our statements of operations for each period. The carrying amount of our equity-method investments held for sale is recorded on our consolidated balance sheets as investments in equity-method investees held for sale.

We evaluate our investments in the equity-method investees for impairment each quarter by comparing the carrying amount of each investment to its fair value. Because no active market exists for the investees’ limited liability company membership interests, we evaluate our investments in the equity-method investees for impairment based on our evaluation of the fair value of the equity-method investees’ net assets relative to their carrying values. If we ever were to determine that the carrying values of our investments in equity-method investees were greater than their fair values, we would write the investments down to their fair values.

The following is a summary of the results of operations related to the assets held for sale for the three months ended December 31, 2012 and the period from May 1, 2012 (foreclosure) through December 31, 2012:

	For The Three Months Ended December 31, 2012			For The Period from May 1, 2012 (foreclosure) through December 31, 2012

Revenue	$	169,000		$	435,000
Expenses		(72,000	)		(220,000	)

Net Income	$	97,000		$	215,000

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NOTE H — RELATED PARTY TRANSACTIONS

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. No management fees were recorded during the years ended December 31, 2012 and 2011.

As of December 31, 2012 and 2011, our manager owned 54,863 of our units. During the year ended December, 2012, we made liquidating distributions to our manager of approximately $9,000, in accordance with the Plan. This distribution was returned to the company as partial repayment of the letter of credit mentioned below. During the year ended December 31, 2011, we made liquidating distributions to our manager of approximately $8,000, in accordance with the Plan.

In 2006, in connection with the sale of an office building located in Las Vegas, Nevada, we arranged for a $985,000 letter of credit in favor of the purchaser of the building (the “Purchaser”), which could be drawn upon by the Purchaser should Vestin Group default on its lease obligations and was supported by our restricted cash. Vestin Group is currently engaged in litigation with the Purchaser and has not paid certain amounts allegedly due under its lease. In 2009, $285,000 of the letter of credit was drawn by the Purchaser. In November 2010, the Purchaser drew the final $700,000 from the letter of credit. In February 2011, the court granted a summary judgment to the Purchaser. Vestin Group and Mike Shustek have provided us with a written agreement to fully indemnify and hold us harmless for any such withdrawals, including the full amount of the $985,000 drawn to date under the letter of credit. Vestin Group’s obligation is to make us whole no later than August 2014. However, Mr. Shustek has assigned all future liquidating distributions for the 292,681 units he holds directly and indirectly to the company to commence paying such obligation. In June 2012, we made distributions of approximately $50,000 directly and indirectly to Mr. Shustek, which we have recorded as revenue and decreased the receivable discussed below. For a discussion of litigation between us, Vestin Group and the building owner, see Note M - Legal Matters Involving The Manager.

As of December 31, 2011, we had receivables from our manager totaling approximately $1.0 million, primarily related to the withdrawal of the letter of credit referred to above. As of December 31, 2012, the outstanding balance is approximately $0.9 million.

During May 2012, our manager received total consultation fees of approximately $17,000, related to the sale of a VRM I, VRM II and our REO property.

Transactions with Other Related Parties

As of December 31, 2012, we owed VRM I approximately $8,000. As of December 31, 2011, we had no amounts due to or from VRM I.

As of December 31, 2012, we owed VRM II $90,000. As of December 31, 2011, we had receivables from VRM II of approximately $13,000.

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As of December 31, 2012 and 2011, inVestin Nevada Inc., a company wholly owned by our manager’s CEO, (“inVestin”), owned 34,856 of our membership units representing approximately 1.72% of our total membership units. During the three months ended June 30, 2012, we made liquidating distributions to inVestin of approximately $6,000. This distribution was returned to the company as partial repayment of the letter of credit mentioned above. No additional distributions were made during the remainder of 2012, and a total of $5,000 in distributions were made during the year ended December 31, 2011.

As of December 31, 2012 and 2011, Shustek Investments, Inc., a company wholly owned by our manager’s CEO, owned 200,000 of our membership units representing approximately 9.88% of our total membership units. During the three months ended June 30, 2012, we made liquidating distributions to Shustek Investments of approximately $35,000. This distribution was returned to the company as partial repayment of letter of credit mentioned above. No additional distributions were made during the remainder of 2012 and a total of $30,000 in distributions were made during the year ended December 31, 2011.

As of December 31, 2012 and 2011, Mr. Shustek’s spouse owned 2,963 of our membership units, representing less than 1.0% of our total membership units. During the three months ended June 30, 2012, we made liquidating distributions to Mr. Shustek’s spouse of approximately $400. No additional distributions were made during the remainder of 2012, and distributions totaling less than $1,000 were made during the year ended December 31, 2011.

NOTE I — MEMBERS’ EQUITY

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 were paid monthly to members; however, on August 27, 2008, we suspended payment of distributions as a result of our current losses.

Contingency Reserve

In accordance with the Plan, we established a contingency reserve of $300,000 for the payment of ongoing expenses, any contingent liabilities or to account for loan or other investment losses: however the amount of the reserve may fluctuate based on cash expenditure requirements. Our manager will have the discretion to increase or decrease the amount of the reserve, but will ensure that the reserve is adequate to pay our outstanding obligations. The amount of the contingency reserve is based upon estimates and opinions of our manager or through consultation with an outside expert, if our manager determines that it is advisable to retain such expert. In determining the size of the reserve, our manager reviewed, among other things, the value of our non-performing assets and the likelihood of repayment, our estimated contingent liabilities and our estimated expenses, including without limitation, estimated professional, legal and accounting fees, rent, payroll and other taxes, miscellaneous office expenses, facilities costs and expenses accrued in our financial statements.

Value of Members’ Capital Accounts

In accordance with Section 7.8 of our Operating Agreement, our manager reviewed the value of our assets during the three months ended December 31, 2012. Based on this review, the value of members’ capital accounts was adjusted from $0.94 per unit to $0.84 per unit, as of January 1, 2013. 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.

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Liquidating Distributions

On January 26, 2010, April 8, 2010, September 17, 2010, May 25, 2011 and June 15, 2012, we made liquidating distributions to all Fund Members, in the aggregate amount of approximately $1.0 million, $0.9 million, $0.3 million, $0.3 million and $0.4 million, respectively, in accordance with the Plan. The amounts distributed to each Member of the Fund were calculated based upon the percentage ownership interest of such Member in the Fund.

Redemption Limitation

In accordance with the Plan, our members no longer have the right to have their units redeemed by us and we no longer honor any outstanding redemption requests effective as of July 2, 2009.

NOTE J — NOTES RECEIVABLE

During July 2009, we, VRM I, and VRM II entered into a promissory note, totaling approximately $1.4 million, of which our portion is $82,000, with the borrowers of a construction loan, as part of the repayment terms of the loan. In addition, we received a principal pay off on the loan of approximately $0.3 million, which reflected our book value of the loan, net of allowance for loan loss of approximately $0.2 million. The promissory note accrues interest over a 60-month period with an interest rate of 7%, with the first monthly payment due on the 37th month. The remaining note balance and accrued interest will be due at maturity. Payments will be recognized as income when received. The balance of $88,000 was fully reserved as of December 31, 2012.

During July 2009, we, VRM I, and VRM II entered into a promissory note, totaling approximately $1.3 million, of which our portion is $74,000, with the borrowers of a construction loan, as part of the repayment of the loan. In addition, we received a principal pay off on the loan of approximately $0.2 million, which reflected our book value of the loan, net of allowance for loan loss of approximately $0.2 million. The promissory note accrues interest over a 60-month period with an interest rate of 7%, with the first monthly payment due on the 37th month. The remaining note balance and accrued interest will be due at maturity. Payments will be recognized as income when received. The balance of $84,000 was fully reserved as of December 31, 2012.

During January 2012 we, VRM I and VRM II rewrote one of our existing loans. The interest rate of this loan was changed from 3% paying monthly with 5% accruing to 7% paid monthly. The amount of the loan allowance of approximately $0.2 million and the interest currently accrued on the existing loan, which was fully allowed for, of approximately $58,000 was moved to notes receivable. In April 2012, we received a payment on the new loan which was less than the amount owed. The difference of $46,000 was recorded as a loan allowance as of March 31, 2012 and was reclassified to notes receivable during April 2012.

During February 2012, we, VRM I and VRM II received a payment in full satisfaction of an investment in real estate loan secured by a first deed of trust and a partial payment of an investment in real estate loan secured by a second deed of trust on the same real estate. The remaining balance due on the second deed of trust was previously fully allowed for, of approximately $0.4 million was moved to notes receivable and remains fully allowed for. During March 2012, a payment of approximately $14,000 was received and recognized as gain related to pay off of notes receivable, including recovery of allowance for notes receivable. Additionally, we receive monthly payments of approximately $1,000. As of December 31, 2012, the balance is approximately $0.3 million.

NOTE K — FAIR VALUE

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, our degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an asset or liability will be classified in its entirety based on the lowest level of input that is significant to the measurement of fair value.

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Fair value is a market-based measure considered from the perspective of a market participant who holds the asset or owes the liability rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, our own assumptions are set to reflect those that market participants would use in pricing the asset or liability at the measurement date. We use prices and inputs that are current as of the measurement date, including during periods of market dislocation, such as the recent illiquidity in the auction rate securities market. In periods of market dislocation, the observability of prices and inputs may be reduced for many instruments. This condition may cause our financial instruments to be reclassified from Level 1 to Level 2 or Level 3 and/or vice versa.

Our valuation techniques will be consistent with at least one of the three possible approaches: the market approach, income approach and/or cost approach. Our Level 1 inputs are based on the market approach and consist primarily of quoted prices for identical items on active securities exchanges. Our Level 2 inputs are primarily based on the market approach of quoted prices in active markets or current transactions in inactive markets for the same or similar collateral that do not require significant adjustment based on unobservable inputs. Our Level 3 inputs are primarily based on the income and cost approaches, specifically, discounted cash flow analyses, which utilize significant inputs based on our estimates and assumptions.

The following tables present the valuation of our financial assets as of December 31, 2011, measured at fair value on a recurring basis by input levels. There were no assets as of December 31, 2012.

	Fair Value Measurements at Reporting Date Using
	Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at 12/31/2011		Carrying Value on Balance Sheet at 12/31/2011
Assets
Investment in marketable securities - related party	$	145,000	$	--	$	--	$	145,000	$	145,000
Investment in real estate loans	$	--	$	--	$	1,440,000	$	1,440,000	$	1,439,000

The following table presents the changes in our financial assets and liabilities that are measured at fair value on a recurring basis using significant unobservable inputs (Level 3) from January 1, 2012 to December 31, 2012. There were no liabilities measured at fair value on a recurring basis using significant unobservable inputs as of December 31, 2012 and 2011.

	Investment in real estate loans

Balance on January 1, 2012	$	1,440,000
Change in temporary valuation adjustment included in net loss
Purchase and additions of assets
Transfer of allowance on real estate loans converted to unsecured notes receivable		577,000
Reduction of allowance on real estate loan following settlement of loan		200,000
Transfer of allowance on real estate loan to investment in equity method investee held for sale		471,000
Transfer of allowance on real estate loan to other real estate held		33,000
New loan investment resulting from rewriting existing loan		224,000
Sales, pay downs and reduction of assets
Settlement of real estate loan		(200,000	)
Conversion of real estate loans to unsecured notes receivable		(979,000	)
Transfer of real estate loan to other real estate owned		(200,000	)
Transfer of real estate loans to investment in equity method investee held for sale		(1,520,000	)
Increase in allowance for loan losses		(46,000	)

Balance on December 31, 2012, net of temporary valuation adjustment	$	--

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	Investment in real estate loans

Balance on January 1, 2011	$	1,660,000
Change in temporary valuation adjustment included in net loss
Increase in allowance for loan losses		(219,000	)
Temporary change in estimated fair value based on future cash flows		(1,000	)
Transfer to Level 1		--
Transfer to Level 2		--

Balance on December 31, 2011, net of temporary valuation adjustment	$	1,440,000

NOTE L — RECENT ACCOUNTING PRONOUNCEMENTS

No new accounting pronouncements have been defined that would materially impact our financial statements.

NOTE M— LEGAL MATTERS INVOLVING THE MANAGER

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

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

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

NOTE N — LEGAL MATTERS INVOLVING THE COMPANY

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

NOTE O — SUBSEQUENT EVENTS

The following subsequent events have been evaluated through the date of this filing with the SEC.

During March 2013, We, VRM I and VRM II entered into an agreement to satisfy a Notes Receivable due from guarantors of approximately $2.4 million. Pursuant to the agreement, the guarantors shall make quarterly payments of cash totaling $36,000 or shares of VRM I or VRM II’s common stock totaling $24,000 beginning June 30, 2013. The guarantors may prepay the debt at any time for $720,000 in cash or $480,000 of VRM I or VRM II’s common stock. Lastly, the guarantors may accelerate the retirement of the debt by transferring $350,000 in shares of VRM I or VRM II’s common stock on or before March 31, 2015.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our manager, including our manager’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required financial disclosure. In connection with the preparation of this Report on Form 10-K, our manager carried out an evaluation, under the supervision and with the participation of our manager’s CEO and CFO, as of December 31, 2012, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) under the Exchange Act. Based upon our manager’s evaluation, our manager’s CEO and CFO concluded that, as of December 31, 2012, our disclosure controls and procedures were not effective to provide reasonable assurance that information we are required to disclose in our reports under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our CFO and CEO, as appropriate to allow timely decisions regarding required disclosure due to the material weakness in our internal control over financial reporting as described below.

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

The certifications of our manager’s CEO and CFO required under Section 302 of the Sarbanes-Oxley Act have been filed as Exhibits 31.1 and 31.2 to this report.

Management’s Report on Internal Control over Financial Reporting

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

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Management has conducted an assessment, including testing, of the effectiveness of our internal control over financial reporting as of December 31, 2012. In making its assessment of internal control over financial reporting, management used the criteria in Internal Control -- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment, management, with the participation of the Chief Executive and Chief Financial Officers of the Manager, believes that, as of December 31, 2012, we did not maintain effective internal control over financial reporting due to the material weakness described below.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. We identified the following material weakness in our assessment of the effectiveness of internal control over financial reporting:

Material weakness relates to the monitoring and review of work performed in the preparation of the financial statements, footnotes and financial data provided to the Company's registered public accounting firm in connection with the annual audit. We have experienced turnover in several members of our accounting staff that have resulted in deficiencies including the lack of control over preparation of the financial statements, and proper application of accounting policies.

After a review of the Company's current review and approval of certain aspects of the accounting process, management concluded that the inadequate review and approval process represented a material weakness.

Plan of Remediation

To remediate the aforementioned material weakness, our Manager has reviewed the Company's current review and approval processes, to insure that all accounting reconciliations, journal entries and complex transactions are reviewed and approved on a timely basis. Since December 31, 2012, we have replaced accounting staff and have reassigned duties to enhance our internal review and approval process.

Changes in Internal Control Over Financial Reporting

As required by Rule 13a-15(d) under the Exchange Act, our management, including our manager’s CEO and CFO, has evaluated our internal control over financial reporting to determine whether any changes occurred during the fourth fiscal quarter of 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, there has been no such change during the fourth fiscal quarter of 2012.

ITEM 9B.

OTHER INFORMATION

None.

PART III

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

We do not have a Board of Directors or any corporate officers. We are managed by Vestin Mortgage, a privately held company which is majority owned by Vestin Group, Inc. The powers, responsibilities and obligations of our manager are set forth in our Operating Agreement. The CEO and CFO of Vestin Group function as the equivalent of our CEO and CFO.

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

Our manager is responsible for overseeing management of the Company’s risks.

The following table sets forth the names, ages as of March 28, 2013 and positions of the individuals who serve as directors, executive officers and certain significant employees of Vestin Mortgage (our manager) or our affiliates:

Name	Age	Title

Michael V. Shustek	54	President, Chief Executive Officer and Chairman
Tracee Gress (1)	42	Chief Financial Officer
Michael J. Whiteaker	63	Vice President of Regulatory Affairs

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(1) During April 2009, we entered into an accounting services agreement with Strategix Solutions, LLC (“Strategix Solutions”), a Nevada limited liability company, for the provision of accounting and financial reporting services. Strategix Solutions also provides accounting and financial reporting services to VRM I and VRM II. The CFO of our manager and other members of our accounting staff are employees of Strategix Solutions. Strategix Solutions is managed by LL Bradford and Company, LLC ("LL Bradford"), a certified public accounting firm that has provided non-audit accounting services to us. The principal manager of LL Bradford was a former officer of our manager from April 1999 through January 1, 2005. Strategix Solutions is owned by certain partners of LL Bradford, none of whom are currently or were previously officers of our manager. On January 14, 2013, Eric Bullinger resigned his position as Chief Financial Officer as Vestin Realty Mortgage I, Inc., Vestin Realty Mortgage II, Inc and the equivalent of Chief Financial Officer of Vestin Fund III, LLC (hereafter referred to collectively as the “Vestin Entities”). On January 14, 2013, the Board of Directors appointed Tracee Gress as the Chief Financial Officer of the Vestin Entities. As of December 31, 2012, Strategix Solutions dedicates to us a total of three employees.

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

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

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

Tracee Gress has acted as the equivalent of our Chief Financial Officer (CFO) since January 14, 2013. In addition, Ms. Gress was appointed as the Chief Financial Officer of Vestin Realty Mortgage I, Inc. (“VRM I”) and Vestin Realty Mortgage II, Inc. (“VRM II”). Ms. Gress’ services are furnished to us pursuant to an accounting services agreement entered into by our manager and Strategix Solutions. Strategix Solutions is managed by LL Bradford, a certified public accounting firm, and provides accounting and financial reporting services on our behalf. Ms. Gress is a Certified Public Accountant and has worked for LL Bradford for approximately 4 years. Ms. Gress has audited various public and private companies. Additionally, she has also acted as Chief Financial Officer for various private companies. She received a Bachelor of Business Administration degree in Accounting from the University of Nevada, Las Vegas.

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

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Code of Ethics

As we do not have any executive officers we have not adopted a Code of Ethics. However, our manager has adopted a Code of Ethics.

ITEM 11.

EXECUTIVE COMPENSATION

We do not compensate any executive officers. We are required to pay our manager a management (acquisition and advisory) fee and certain other fees in accordance with the terms of our Operating Agreement. For the years ended December 31, 2012 and 2011, no such fees were paid. In addition, we may pay our manager or its affiliates for services rendered in selling properties acquired through foreclosure. We also pay a fee to Strategix Solutions which is based upon the wages of the employees providing the services.

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Shown below is certain information as of March 28, 2013, with respect to beneficial ownership, as that term is defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), of number of membership units by the only persons or entities known to us to be a beneficial owner of more than 5% of the outstanding membership units. Unless otherwise noted, the percentage ownership is calculated based on 2,024,424 membership units as of March 28, 2013.

Name and Address of Beneficial Owner	Amount and Nature of Beneficial Ownership	Percent of Class

Michael V. Shustek 8880 West Sunset Rd, Ste 200 Las Vegas, NV 89118	Sole voting and investment power of 289,718 units & shared voting and investment power of 2,963 units held by his spouse	14.5%

The following table sets forth the total number and percentage of our membership units beneficially owned as of March 28, 2013 by:

each of our manager’s directors;

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

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

Unless otherwise noted, the percentage ownership is calculated based on 2,024,424 units of our total outstanding membership units as of March 28, 2013.

		Common Shares Beneficially Owned
Beneficial Owner	Address	Number	Percent

Michael V. Shustek (1)	8880 West Sunset Rd, Ste 200 Las Vegas, NV 89148	292,681	14.5%
All directors and executive officers of our manager as a group		292,681	14.5%

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(1)

Includes 54,863 units held by our manager and 200,000 units held by Shustek Investments, 34,856 units held by inVestin and 2,963 units held by his spouse. Mr. Shustek is the Chairman, President and Chief Executive Officer of our manager and indirectly owns a significant majority of the membership units of our manager through Vestin Group, Inc. a company wholly owned by Mr. Shustek. Mr. Shustek is the sole owner, Chairman, President and Chief Executive Officer of Shustek Investments, Inc. Mr. Shustek is the sole owner, Chairman, President and Chief Executive Officer of inVestin Nevada, Inc. Mr. Shustek has sole voting and investment power in all these units, except for the units held by his spouse.

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

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

ITEM 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES

During the years ended December 31, 2012 and 2011, JLK Rosenberger, LLP (“JLK”) provided services to us as follows:

	December 31, 2012		December 31, 2011
Audit Fees	$	55,000	$	46,000
Audit Related Fees	$	--	$	--
Tax Fees	$	--	$	--
All Other Fees	$	--	$	--

JLK did not perform any non-audit services for us in the years ended December 31, 2012 and 2011.

Our manager has direct responsibility to review and approve the engagement of the independent auditors to perform audit services or any permissible non-audit services. All audit and non-audit services to be provided by the independent auditors must be approved in advance by our manager. Our manager may not engage the independent auditors to perform specific non-audit services proscribed by law or regulation. All services performed by independent auditors under engagements entered into on or after January 21, 2005, were approved by our manager pursuant to their pre-approval policy, and none was approved pursuant to the de minimis 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, FINANCIAL STATEMENT SCHEDULES

The following are filed as part of this Report:

(a) 1. Financial Statements

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

(a) 3. Exhibits

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EXHIBIT INDEX

Exhibit No.		Description of Exhibits
2.1(1)		Plan of Complete Liquidation and Dissolution
3.1(2)		Articles of Organization
3.2(3)		Certificate of Amendment to Articles of Organization
3.3(4)		Amended and Restated Operating Agreement (included as Exhibit A to the prospectus)
4.4(5)		Distribution Reinvestment Plan
10.9(6)		Office lease agreement dated March 31, 2003 by and between Luke Properties, LLC and Vestin Group, Inc.
10.10(7)		Indemnification agreement dated March 25, 2009 by and between Vestin Group, Inc. and Vestin Fund III, LLC
10.11 (8)		Agreement between Strategix Solutions, LLC and Vestin Fund III, LLC for accounting services.
10.12 (9)		Plan of Complete Liquidation and Dissolution
10.13 (10)		Deed in Lieu
31.1		Section 302 Certification of Michael V. Shustek
31.2		Section 302 Certification of Tracee Gress
32		Certification Pursuant to 18 U.S.C. Sec. 1350

(1)		Incorporated herein by reference to our Schedule 14A Definitive Proxy Statement filed on May 11, 2009 (File No. 000-51301)
(2)		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)
(3)		Incorporated herein by reference to our Form 10-Q filed on August 16, 2004 (File No. 333-105017)
(4)		Incorporated herein by reference to our Schedule 14A Definitive Proxy Statement filed on January 29, 2007 (File No. 000-51301)
(5)		Incorporated herein by reference to Exhibit 4.4 of our Post-Effective Amendment No. 5 to Form S-11 Registration Statement filed on April 28, 2006 (File No. 333-105017)
(6)		Incorporated herein by reference to our Form 10-KSB filed on March 30, 2005 (File No. 333-105017)
(7)		Incorporated herein by reference to the Annual Report on Form 10-K for the year ended December 31, 2008 filed on March 27, 2009 (File No. 000-51301)
(8)		Incorporated herein by reference to the Quarterly Report on Form 10-Q filed on May 14, 2009 (File No. 000-51301)
(9)		Incorporated herein by reference to the Proxy Statement dated May 11, 2009 (File No. 000-51301)
(10)		Incorporated herein by reference to the Annual Report on Form 10-K filed on May 16, 2012 (File No. 000-51301)

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Vestin Fund III, LLC
	By:		Vestin Mortgage, LLC., its sole Manager

	By:		/s/ Michael V. Shustek
			Michael V. Shustek
			Chief Executive Officer and Sole Director of the Manager
			(Principal Executive Officer of Manager)

	By:		/s/ Tracee Gress
			Tracee Gress
			Chief Financial Officer of the Manager
			(Principal Financial and Accounting Officer of the Manager)

Date: March 28, 2013

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Exhibit 31.1

CERTIFICATIONS

I, Michael V. Shustek, certify that:

1. I have reviewed this Form 10-K of Vestin Fund III, LLC;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: March 28, 2013

/s/ Michael V. Shustek

Michael V. Shustek

Chief Executive Officer and Director of the Manager*

Vestin Mortgage, LLC, sole Manager of Vestin Fund III, LLC

* Michael V. Shustek functions as the equivalent of the Chief Executive Officer of the Registrant.

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Exhibit 31.2

CERTIFICATIONS

I, Tracee Gress, certify that:

1. I have reviewed this Form 10-K of Vestin Fund III, LLC;

(a)

(b)

(c)

(d)

(a)

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: March 28, 2013

/s/ Tracee Gress

Tracee Gress

Chief Financial Officer of the Manager*

Vestin Mortgage, LLC, sole Manager of Vestin Fund III, LLC

*Tracee Gress functions as the equivalent of Chief Financial Officer for Vestin Fund III LLC pursuant to an accounting services agreement entered into between Vestin Fund III LLC and her employer, Strategix Solutions, LLC.

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Exhibit 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

Michael V. Shustek, as Chief Executive Officer and Director of Vestin Mortgage, LLC., the sole manager of Vestin Fund III, LLC (the “Registrant”), and Tracee Gress, as Chief Financial Officer of Vestin Mortgage, LLC., hereby certify, pursuant to 18 U.S.C. Sec. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)

The Registrant’s Report on Form 10-K for the year ended December 31, 2012, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

Date: March 28, 2013

/s/ Michael V. Shustek

Michael V. Shustek

Chief Executive Officer and Director*

of Vestin Mortgage, LLC, sole Manager of the Registrant

Date: March 28, 2013

/s/Tracee Gress

Tracee Gress

Chief Financial Officer**

of Vestin Mortgage, LLC., sole Manager of the Registrant

* Michael V. Shustek functions as the equivalent of the Chief Executive Officer of the Registrant for purposes of 18 U.S.C. Section 1350.

**Tracee Gress functions as the equivalent of Chief Financial Officer of the Registrant for purposes of 18 U.S.C. Section 1350, pursuant to an accounting services agreement entered into between Vestin Fund III LLC and her employer, Strategix Solutions, LLC

VESTIN FUND III LLC - FORM 10-K - March 28, 2013

VESTIN FUND III LLC Reports