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”) 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 had anticipated that the liquidation would be substantially completed by the second half of 2014. However, the orderly sale of each of our remaining assets will take longer to complete than we had anticipated. As a result, we now do not expect to be able to complete the liquidation before the end of this year, and are targeting completion by the end of 2015. The exact timing for completion of the liquidation will be impacted by real estate market conditions and other matters beyond our control. In addition, other events and conditions may arise that may impact our ability and timing to complete the liquidation. Thus, no assurances can be given that we will be able complete the liquidation within a particular date or by the anticipated time frame.
Because the liquidation of the Fund was not imminent, as of December 31, 2013, 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 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 14, 2014, we made liquidation distributions to all Fund Members in the aggregate amount of approximately $0.3 million in accordance with the Plan. This distribution follows liquidation distributions we made on January 26, 2010, April 8, 2010, September 17, 2010, May 25, 2011, and June 15, 2012, 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 G - Members’ Equity 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.
Michael Shustek owns a significant majority of Vestin Mortgage, LLC, a Nevada limited liability company, which is our manager (the “manager” or “Vestin Mortgage”). 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. 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.
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 and other investments in real property.
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, 2013, we no longer have investments in real estate loans. Below is a brief description of our prior business activities.
Employees
We have no employees. Our manager has provided, and will continue to provide, most of the employees necessary to carry our plan of liquidation and dissolution, except as described below regarding Strategix Solutions, LLC. As of December 31, 2013, the Vestin entities had a total of 6 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.
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.
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.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
ITEM 2.
PROPERTIES
Our manager shares office facilities in Las Vegas, Nevada through a sublease with its affiliate, 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.
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.
ITEM 4.
ITEM 4.
MINE SAFETY DISCLOSURE
Not applicable.
PART II
ITEM 5.
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 31, 2014, 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, June 15, 2012, and January 14, 2014, 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, $0.4 million, and $0.3 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 G - Members’ Equity of 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 SEC on May 11, 2009. We will distribute to our members the net proceeds we receive from the sale of our real estate held for sale, 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 are targeting completion of the liquidation by the end of 2015. The exact timing for completion of the liquidation will be impacted by real estate market conditions and other matters beyond our control. In addition, other events and conditions may arise that may impact our ability and timing to complete the liquidation. Thus, no assurances can be given that we will be able complete the liquidation within a particular date or by the anticipated time frame. Because the liquidation of the Fund was not imminent, as of December 31, 2013, 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 the disposition of other non-cash assets;
•
Lawsuits or other claims asserted by or against us;
•
Unanticipated legal, regulatory or administrative requirements; and
•
Delays in settling our remaining obligations.
Recent Sales of Unregistered Securities
None.
Equity Compensation Plan Information
None.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
ITEM 7.
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, 2013, and 2012. 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. The following information contains forward-looking statements, which are subject to risks and uncertainties. Should one or more of these risks or uncertainties materialize, actual results may differ materially from those expressed or implied by the forward-looking statements. Please see “Special Note Regarding Forward-Looking Statements” above for a description of these risks and uncertainties.
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”) 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 had anticipated that the liquidation would be substantially completed by the second half of 2014. However, the orderly sale of each of our remaining assets will take longer to complete than we had anticipated. As a result, we now do not expect to be able to complete the liquidation before the end of this year, and are targeting completion by the end of 2015. The exact timing for completion of the liquidation will be impacted by real estate market conditions and other matters beyond our control. In addition, other events and conditions may arise that may impact our ability and timing to complete the liquidation. Thus, no assurances can be given that we will be able complete the liquidation within a particular date or by the anticipated time frame.
Because the liquidation of the Fund was not imminent, as of December 31, 2013, the financial statements are presented assuming the Fund will continue as a going concern.
We currently have no outstanding loans and our future operations will be focused on disposition of two properties acquired through foreclosure. In addition, we will attempt to convert our other non-cash assets into cash which may be distributed under the Plan. Pursuant to the Plan, we will make liquidating distributions to members as funds become available, subject to a reasonable reserve established to provide for payment of the Company’s ongoing expenses and contract liabilities. Our manager has established a reserve to cover our ongoing expenses and future obligations. As of December 31, 2013, our cash was approximately $0.4 million.
On January 14, 2014, we made liquidation distributions to all Fund Members in the aggregate amount of approximately $0.3 million in accordance with the Plan. This distribution follows liquidation distributions we made on January 26, 2010, April 8, 2010, September 17, 2010, May 25, 2011, and, June 15, 2012, and January 14, 2014, 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, and $0.3 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 G - Members’ Equity of the Notes to the Financial Statements included in Part II, Item 8
ITEM 8.
FINANCIAL STATEMENTS
Page
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
FINANCIAL STATEMENTS
Balance Sheets
Statements of Operations
Statements of Members’ Equity and Other Comprehensive Loss
Statements of Cash Flows
Notes to the Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Members of
Vestin Fund III, LLC
We have audited the accompanying balance sheet of Vestin Fund III, LLC (the “Company”) as of December 31, 2013, and the related statements of operations, members’ equity and other comprehensive income, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides 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, 2013, and the results of its operations and its cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.
/s/ De Joya Griffith, LLC
Henderson, Nevada
March 20, 2014
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
FINANCIAL STATEMENTS
VESTIN FUND III, LLC
BALANCE SHEETS
The accompanying notes are an integral part of these financial statements.
VESTIN FUND III, LLC
STATEMENTS OF OPERATIONS
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
VESTIN FUND III, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2013
NOTE A - ORGANIZATION
Vestin Fund III, LLC was organized in April 2003 as a Nevada limited liability company for the purpose of investing in commercial real estate loans (hereafter referred to as “real estate loans”) and income-producing real property. 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”) 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 had anticipated that the liquidation would be substantially completed by the second half of 2014. However, the orderly sale of each of our remaining assets will take longer to complete than we had anticipated. As a result, we now do not expect to be able to complete the liquidation before the end of this year, and are targeting completion by the end of 2015. The exact timing for completion of the liquidation will be impacted by real estate market conditions and other matters beyond our control. In addition, other events and conditions may arise that may impact our ability and timing to complete the liquidation. Thus, no assurances can be given that we will be able complete the liquidation within a particular date or by the anticipated time frame.
Because the liquidation of the Fund was not imminent, as of December 31, 2013, 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 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 14, 2014, we made liquidation distributions to all Fund Members in the aggregate amount of approximately $0.3 million in accordance with the Plan. This distribution follows liquidation distributions we made on January 26, 2010, April 8, 2010, September 17, 2010, May 25, 2011, and June 15, 2012, 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 G - Members’ Equity 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.
Michael Shustek owns a significant majority of Vestin Mortgage, LLC, a Nevada limited liability company, which is our manager (the “manager” or “Vestin Mortgage”). 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.
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.
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.
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.
Deferred Revenue Recognition
Deferred income 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 F - Related Party Transactions.
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.
Classification of Operating Results from Real Estate Held for Sale
Generally, operating results and cash flows from long-lived assets held for sale are to be classified as discontinued operations as a separately stated component of net income. Our operations related to real estate held for sale are separately identified in the accompanying statements of operations.
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.
Net Income (Loss) Allocated to Members Per Weighted Average Membership Unit
Net income (loss) allocated to members per weighted average membership unit is computed by dividing net income (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.
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, 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.
Financial instruments with concentration of credit and market risk include cash, notes receivable, accounts payable and accrued liabilities, and due to/from related parties.
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, 2013 and 2012, we had approximately $159,000 and $104,000, respectively, in excess of the federally insured limits.
NOTE D - REAL ESTATE HELD FOR SALE
At December 31, 2013, we held two 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, 2013 and 2012 related to our REO totaled approximately $19,000 and $60,000, 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.
During December 2013, we, VRM I and VRM II sold a REO property to an unrelated third party for approximately $1.7 million, of which our portion was approximately $52,000. A net gain of approximately $4,000 was recorded.
During December 2013, we, VRM I and VRM II sold a REO property to an unrelated third party for approximately $0.2 million, of which our portion was approximately $56,000. This property is fully allowed for and a net gain was recorded for the full amount.
We seek to sell properties acquired through foreclosure as quickly as circumstances permit taking into account current economic conditions.
NOTE E - 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 $1.5 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 asset held for sale from the date of this foreclosure. During May and December 2013 we, VRM I and VRM II received distributions in the amount of $797,000 of which our portion was $202,000.
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 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 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.
Our acquisition of VREO XXV was accounted for in accordance with this standard and the Company has allocated the purchase price of VREO XXV based upon the estimated fair value of the net assets acquired and liabilities assumed and the fair value of the non-controlling interest measured at the acquisition date. The estimated fair value of VREO XXV at the time of the acquisition totaled $4.1 million.
We performed an allocation as of the foreclosure date as follows:
In addition, we estimated the fair value of the asset at $1.0 million, which is 25% of the total asset.
The following is a summary of the results of operations related to the investment in equity method investee held for sale for the year ended December 31, 2013 and 2012:
NOTE F - 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, 2013 and 2012.
As of December 31, 2013 and 2012, 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. There were no distributions in 2013.
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 did not pay 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. Vestin Group and Michael 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 by no later than August 2014. Mr. Shustek has assigned all future liquidating distributions for the 292,681 of our units which 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 above.
As of December 31, 2013 and 2012, we had receivables from our manager totaling approximately $0.9 million, primarily related to the withdrawal of the letter of credit referred to above.
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, 2013, we had a receivable from VRM II of approximately $20,000. As of December 31, 2012, we owed VRM II approximately $90,000.
As of December 31, 2012, we owed VRM I approximately $8,000. As of December 31, 2013, we had no receivables or payables.
The net changes in the amounts due to/from related parties have been classified as operating activities on the accompanying statements of cash flows. These activities are primarily related to expenses being incurred from operations and maintenance of investments which are co-owned by related parties. These balances are satisfied in subsequent periods under terms consistent with the underlying vendor terms.
As of December 31, 2013 and 2012, inVestin Nevada Inc., a company wholly owned by our manager’s CEO, (“inVestin”), owned 34,856 of our membership units representing approximately 1.7% of our total membership units. There were no distributions made during the year ended December 31, 2013. During the year ended December 31, 2012, we made liquidating distributions to inVestin of approximately $6,000. Distributions were returned to the company as partial repayment of the letter of credit mentioned above
As of December 31, 2013 and 2012, Shustek Investments, Inc., a company wholly owned by our manager’s CEO, owned 200,000 of our membership units representing approximately 9.9% of our total membership units. There were no distributions during the year ended December 2013. During the year ended December 31, 2012, we made liquidating distributions to Shustek Investments of approximately $35,000. Distributions were returned to the company as partial repayment of letter of credit mentioned above.
As of December 31, 2013 and 2012, Mr. Shustek’s spouse owned 2,963 of our membership units, representing less than 1.0% of our total membership units. There were no distributions during the year ended December 31, 2013. During the year ended December 31, 2012, we made liquidating distributions to Mr. Shustek’s spouse of approximately $400.
See, also, Notes H and I regarding our interest in MVP REIT, an entity managed by a company which is majority-owned and controlled by Michael Shustek.
NOTE G - 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 attempt to maintain a contingency reserve of approximately $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 has the discretion to increase or decrease the amount of the reserve, but will endeavor to 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 year ended December 31, 2013. Based on this review, the value of members’ capital accounts was adjusted from $1.00 per unit to $1.09 per unit, as of January 1, 2014. 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.
Liquidating Distributions
On January 26, 2010, April 8, 2010, September 17, 2010, May 25, 2011, June 15, 2012, and January 14, 2014 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, $0.4 million, and $0.3 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 H - NOTES RECEIVABLE
As of November 30, 2010, we had five loans totaling approximately $19.0 million, of which our portion is approximately $0.9 million, before allowances totaling approximately $7.3 million, of which our portion was approximately $0.5 million, and were guaranteed by common guarantors. Pursuant to agreements entered into on March 16, 2009 and July 2, 2009, which modified these loans, three of these loans continued to be secured by real property and two became unsecured due to the permanent financing being obtained for less than the outstanding balance on the loans. On November 30, 2010, we entered into additional agreements to modify the terms related to these five loans in order to further enhance our investment. Pursuant to these additional agreements, we obtained an additional guarantor, interest in operating profits and aggregate sales proceeds of approximately $543,000 less operating profits previously received related to these properties. The new guarantor is the managing member of the borrowing entities who is also the principal manager of L.L. Bradford and was a former officer of our manager from April 1999 through January 2005. As a result of releasing our deeds of trust we classified these loans as unsecured notes receivable for the same amount and recognized a full allowance on this balance.
During 2013, SERE, the loan guarantor whose managing member is also the principal manager of L.L. Bradford and was a former officer of our manager from April 1999 through January 2005, entered into a purchase agreement with MVP REIT, Inc. (“MVP REIT”) to sell six office buildings associated with the unsecured notes receivables mentioned above. Upon the closing of the sale of each office building, we terminated the unsecured note receivable and received from SERE MVP REIT shares of common stock which equate to the amount of our notes receivables pursuant to MVP REIT’s current offering. We have recorded these shares as Marketable securities - related party on our balance sheet and recognized their receipt as a gain related to recovery of notes receivable previously written off on the consolidated statements of operations for the year ending December 31, 2013.
The following is a summary of the MVP REIT shares we have or will receive in consideration of cancelling the unsecured notes receivable:
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. As of December 31, 2013, the balance is approximately $0.3 million.
NOTE I - INVESTMENT IN MARKETABLE SECURITIES - RELATED PARTY
As of December 31, 2013, we owned 61,714 shares of common stock of MVP REIT, Inc. (“MVP REIT”), a non-traded REIT. The shares were assigned to us by SERE, LLC in consideration of the cancellation of certain unsecured notes, as described in Note H above. We recorded a gain of approximately $551,000 upon receipt of such shares and the shares are recorded on our balance sheet as Investment in related party valued at $551,000. Such amount was determined based upon the offer price for such shares in MVP REIT’s pending public offering.
NOTE J - RECENT ACCOUNTING PRONOUNCEMENTS
No new accounting pronouncements have been defined that would materially impact our financial statements.
NOTE K- LEGAL MATTERS INVOLVING THE MANAGER
[The United States Securities and Exchange Commission (the “Commission”), conducted an investigation of certain matters related to us, our manager, Vestin Capital, VRM I, and VRM II. We fully cooperated during the course of the investigation. On September 27, 2006, the investigation was resolved through the entry of an Administrative Order by the Commission (the “Order”). Our manager, Vestin Mortgage and its Chief Executive Officer, Michael Shustek, as well as Vestin Capital (collectively, the “Respondents”), consented to the entry of the Order without admitting or denying the findings therein.
In the Order, the Commission found that the Respondents violated Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933 through the use of certain slide presentations in connection with the sale of our units and units in Fund II, the predecessor to VRM II. The Respondents consented to the entry of a cease and desist order, the payment by Mr. Shustek of a fine of $100,000 and Mr. Shustek’s suspension from association with any broker or dealer for a period of six months, which expired in March 2007. In addition, the Respondents agreed to implement certain undertakings with respect to future sales of securities. We are not a party to the Order.
In addition to the matters described above, our manager is involved in a number of other legal proceedings concerning matters arising in connection with the conduct of its business activities. Our manager believes it has meritorious defenses to each of these actions and intends to defend them vigorously. Our manager believes that it is not a party to any other pending legal or arbitration proceedings that would have a material adverse effect on our manager’s financial condition or results of operations or cash flows, although it is possible that the outcome of any such proceedings could have a material impact on the manager’s net income in any particular period.
NOTE L - LEGAL MATTERS INVOLVING THE COMPANY
From time to time, we 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 M - SUBSEQUENT EVENTS
The following subsequent events have been evaluated through the date of this filing with the SEC.
On January 14, 2014, we made liquidating distributions to all Fund Members, in the aggregate amount of approximately $0.3 million 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. inVestin, Vestin Mortgage and Shustek Investments returned their entire distribution amounts to us in partial satisfaction of their outstanding obligations to us as described in this report above.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.
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, 2013, 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, 2013, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our manager’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues within our company have been or will be detected. Even effective internal control over financial reporting can only provide reasonable assurance with respect to financial statement preparation. Furthermore, because of changes in conditions, the effectiveness of internal control over financial reporting may vary over time. Our 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.
Management has conducted an assessment, including testing, of the effectiveness of our internal control over financial reporting as of December 31, 2013. 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, 2013, the Company’s internal control over financial reporting is effective based on those criteria.
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 2013 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 2013.
ITEM 9B.
ITEM 9B.
OTHER INFORMATION
None.
PART III
ITEM 10.
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 Mortgage function as the equivalent of our CEO and CFO.
Michael Shustek is the principal executive of our manager. 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 31, 2014 and positions of the individuals who serve as directors, executive officers and certain significant employees of Vestin Mortgage (our manager) or our affiliates:
(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. 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 5 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.
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.
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, 2013 and 2012, 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.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Shown below is certain information as of March 31, 2014, 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 31, 2014.
The following table sets forth the total number and percentage of our membership units beneficially owned as of March 31, 2014 by:
·
our manager’s chief executive officer and other executive officers; and
·
all of our manager’s executive officers 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 31, 2014.
(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 Principle Executive Officer. 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.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
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.
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.
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
During the year ended December 31, 2013 and 2012, De Joya Griffith, LP (“De Joya Griffith”) and JLK Rosenberger, LLP (“JLK”) services to us as follows:
De Joya Griffith and JLK did not perform any non-audit services for us in the years ended December 31, 2013 and 2012.
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.
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
Reference is made to the Exhibit Index appearing immediately after the signature page to this report for a list of exhibits filed as part of this report.
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.
Date: March 31, 2014
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
21.1*
List of Subsidiaries of Vestin Fund III, LLC
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)
*
Filed concurrently herewith.