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| EXCEL - IDEA: XBRL DOCUMENT - VESTIN FUND III LLC | Financial_Report.xls |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended March 31, 2013
Or
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES EXCHANGE ACT OF 1934
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For the transition period from _________ to _________
Commission File Number: 333-105017
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VESTIN FUND III, LLC
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(Exact name of registrant as specified in its charter)
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NEVADA
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87-0693972
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(State or Other Jurisdiction of
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(I.R.S. Employer
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Incorporation or Organization)
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Identification No.)
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8880 W. SUNSET ROAD, SUITE 200, LAS VEGAS, NEVADA 89148
(Address of Principal Executive Offices) (Zip Code)
Registrant’s Telephone Number: 702.227.0965
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark 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 (Section 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 [ X ] No [ ]
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.
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Large accelerated filer [ ]
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Accelerated filer [ ]
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Non-accelerated filer [ ]
(Do not check if a smaller reporting company)
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Smaller reporting company [X]
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
As of May 15, 2013, 2,024,424 membership units in the Company were outstanding.
TABLE OF CONTENTS
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Page
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| 3 | ||
PART I - FINANCIAL INFORMATION
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ITEM 1.
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FINANCIAL STATEMENTS
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VESTIN FUND III, LLC
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BALANCE SHEETS
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ASSETS
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March 31, 2013
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December 31, 2012
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Assets
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Cash and cash equivalents
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$ | 231,000 | $ | 354,000 | ||||
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Notes receivable, net of allowance of $869,000 at March 31, 2013 and $871,000 at December 31, 2012
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-- | -- | ||||||
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Real estate held for sale
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300,000 | 300,000 | ||||||
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Investment in equity method investee held for sale
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1,128,000 | 1,103,000 | ||||||
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Due from related parties
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932,000 | 928,000 | ||||||
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Other assets
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4,000 | 2,000 | ||||||
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Total assets
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$ | 2,595,000 | $ | 2,687,000 | ||||
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LIABILITIES AND MEMBERS' EQUITY
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Liabilities
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Accounts payable and accrued liabilities
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$ | 3,000 | $ | 13,000 | ||||
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Deferred income
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935,000 | 935,000 | ||||||
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Due to related parties
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17,000 | 97,000 | ||||||
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Total liabilities
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955,000 | 1,045,000 | ||||||
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Commitments and contingencies
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Members' equity
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Members' units - authorized 10,000,000 units, 2,024,424 units issued and outstanding at March 31, 2013 and December 31, 2012
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1,640,000 | 1,642,000 | ||||||
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Total members' equity
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1,640,000 | 1,642,000 | ||||||
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Total liabilities and members' equity
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$ | 2,595,000 | $ | 2,687,000 | ||||
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VESTIN FUND III, LLC
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STATEMENTS OF OPERATIONS
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(UNAUDITED)
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For the Three Months Ended
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March 31,
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2013
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2012
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Revenues
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Interest income from investment in real estate loans
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$ | -- | $ | 5,000 | ||||
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Recovery of allowance for doubtful notes receivable
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2,000 | 14,000 | ||||||
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Total revenues
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2,000 | 19,000 | ||||||
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Operating expenses
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Provision for loan loss
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-- | 46,000 | ||||||
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Professional fees
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15,000 | 64,000 | ||||||
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Other
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8,000 | 9,000 | ||||||
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Total operating expenses
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23,000 | 119,000 | ||||||
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Loss from operations
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(21,000 | ) | (100,000 | ) | ||||
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Discontinued operations
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Net gain on sale of real estate held for sale
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-- | 1,000 | ||||||
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Income from equity method investee held for sale
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25,000 | -- | ||||||
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Expenses related to real estate held for sale
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(6,000 | ) | (15,000 | ) | ||||
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Total income (loss) from discontinued operations
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19,000 | (14,000 | ) | |||||
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NET LOSS
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$ | (2,000 | ) | $ | (114,000 | ) | ||
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Net loss allocated to members
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$ | (2,000 | ) | $ | (114,000 | ) | ||
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Net loss allocated to members per weighted average membership unit
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$ | (0.00 | ) | $ | (0.06 | ) | ||
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Weighted average membership units
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2,024,424 | 2,024,424 | ||||||
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VESTIN FUND III, LLC
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STATEMENTS OF OTHER COMPREHENSIVE LOSS
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FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012
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(UNAUDITED)
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2013
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2012
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Net loss
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$ | (2,000 | ) | $ | (114,000 | ) | ||
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Unrealized gains on available-for-sale securities
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Unrealized holding gains
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-- | 36,000 | ||||||
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Net change in unrealized gains on available-for-sale securities
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-- | 36,000 | ||||||
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Total Other Comprehensive Loss, net of tax
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-- | 36,000 | ||||||
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Comprehensive Loss
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$ | (2,000 | ) | $ | (78,000 | ) | ||
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VESTIN FUND III, LLC
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STATEMENT OF MEMBERS' EQUITY
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FOR THE THREE MONTHS ENDED MARCH 31, 2013
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(UNAUDITED)
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Units
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Amount
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Members' equity at December 31, 2012
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2,024,424 | $ | 1,642,000 | |||||
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Net loss
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(2,000 | ) | ||||||
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Members' equity at March 31, 2013 (unaudited)
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2,024,424 | $ | 1,640,000 | |||||
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VESTIN FUND III, LLC
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STATEMENTS OF CASH FLOWS
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(UNAUDITED)
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For the Three Months Ended March 31,
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2013
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2012
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Cash flows from operating activities:
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Net loss
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$ | (2,000 | ) | $ | (114,000 | ) | ||
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Adjustments to reconcile net loss to net cash used in operating activities:
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Provision for loan loss
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-- | 46,000 | ||||||
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Recovery of allowance for doubtful notes receivable
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(2,000 | ) | -- | |||||
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Income from equity method investee held for sale
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(25,000 | ) | -- | |||||
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Change in operating assets and liabilities:
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Accounts payable and accrued liabilities
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(10,000 | ) | (8,000 | ) | ||||
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Due to/from related parties
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(84,000 | ) | 26,000 | |||||
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Other assets
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(2,000 | ) | (6,000 | ) | ||||
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Net cash used in operating activities
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(125,000 | ) | (56,000 | ) | ||||
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Cash flows from investing activities:
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Proceeds from notes receivable
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2,000 | -- | ||||||
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Net cash provided by investing activities
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2,000 | -- | ||||||
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NET CHANGE IN CASH
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(123,000 | ) | (56,000 | ) | ||||
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Cash, beginning of period
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354,000 | 101,000 | ||||||
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Cash, end of period
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$ | 231,000 | $ | 45,000 | ||||
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Non-cash investing and financing activities:
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Write-off of interest receivable and related allowance
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$ | -- | $ | 103,000 | ||||
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Reclassify loan and related allowance to note receivable
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$ | -- | $ | 442,000 | ||||
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Real estate held for sale acquired through foreclosure, net of prior allowance
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$ | -- | $ | 167,000 | ||||
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Unrealized gain on marketable securities - related party
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$ | -- | $ | 36,000 | ||||
VESTIN FUND III, LLC
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2013
(UNAUDITED)
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”) 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 March 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 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 G – Members’ Equity.
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. 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. Because of numerous uncertainties, the liquidation may take longer or shorter than expected. Because the liquidation of the Fund was not imminent, as of March 31, 2013, 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 of 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.
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. Interim results are not necessarily indicative of results for a full year. The information included in this Form 10-Q should be read in conjunction with information included in the 2012 annual report filed on Form 10-K.
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.
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. We have both the intent and ability to hold real estate loans until maturity and therefore, real estate loans are classified and accounted for as held for investment and is carried at amortized cost. Loans sold to or purchased from affiliates are accounted for at the principal balance and no gain or loss is recognized by us or any affiliate. Loan-to-value ratios are 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.
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:
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Declines in real estate market conditions, which can cause a decrease in expected market value;
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Discovery of undisclosed liens for community improvement bonds, easements and delinquent property taxes;
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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;
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Unanticipated legal or business issues that may arise subsequently to loan origination or upon the sale of foreclosed related loan advances;
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Appraisals, which are only opinions of value at the time of the appraisal, may not accurately reflect the value of the property.
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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:
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Management commits to a plan to sell the properties;
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The property is available for immediate sale in its present condition subject only to terms that are usual and customary;
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An active program to locate a buyer and other actions required to complete a sale have been initiated;
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The sale of the property is probable;
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The property is being actively marketed for sale at a reasonable price; and
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Withdrawal or significant modification of the sale is not likely.
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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.
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:
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The length of time and the extent to which the market value has been less than cost;
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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
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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.
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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:
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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.
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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.
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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.
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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.
Reclassifications
Certain amounts in the March 31, 2012 financial statements have been reclassified to conform to the March 31, 2013 presentation. The income (loss) from real estate held for sale section on the Statement of Operations is now presented as Discontinued operations. The reclassification had no impact on the Company’s financial condition, results of operations or cashflows.
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 March 31, 2013 and December 31, 2012, we had no amounts in excess of the federally insured limits.
NOTE D — REAL ESTATE HELD FOR SALE
At March 31, 2013, 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 three months ended March 31, 2013 and 2012 related to our REO totaled approximately $6,000 and $15,000, respectively. Our REO is accounted for at the lower of cost or fair value less costs to sell with fair value based on appraisals and knowledge of local market conditions. We seek to sell properties acquired through foreclosure as quickly as circumstances permit taking into account current economic conditions.
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Beginning balance, January 1, 2013
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Real estate held for sale acquired through foreclosure
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$ | 300,000 | ||
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Additional investment in REO
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-- | |||
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Proceeds on nonrefundable extension fee
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-- | |||
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Write down
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-- | |||
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Sale
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-- | |||
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Ending balance, March 31, 2013
|
$ | 300,000 | ||
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 are reported as an investment under the equity method from the date of this foreclosure. As our ownership percentage of the property is approximately 25%, the property is reported as 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 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 investment in equity method investee held for sale for the three months ended March 31, 2013:
|
For The Three Months Ended March 31, 2013
|
||||
|
Revenue
|
$ | 168,000 | ||
|
Expenses
|
(69,000 | ) ) | ||
|
Net Income
|
$ | 99,000 | ||
|
% of ownership
|
25 | % | ||
|
Equity method income
|
$ | 25,000 | ||
NOTE F — 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.
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 three months ended March 31, 2013 and 2012.
As of March 31, 2013 and 2012, our manager owned 54,863 of our units. There were no distributions in either period.
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 I - Legal Matters Involving The Manager.
As of March 31, 2013 and December 31, 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.
Transactions with Other Related Parties
As of March 31, 2013, we owed VRM II approximately $17,000. As of December 31, 2012, we owed VRM II approximately $90,000.
As of March 31, 2013, we had a receivable from VRM I of approximately $5,000. As of December 31, 2012, we owed VRM I approximately $8,000.
The net change in 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 March 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 1.72% of our total membership units. There were no distributions in either period.
As of March 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 9.88% of our total membership units. There were no distributions in either period.
As of March 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 in either period.
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 $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 March 31, 2013. Based on this review, the value of members’ capital accounts was adjusted from $0.84 per unit to $0.81 per unit, as of April 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.
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 H — RECENT ACCOUNTING PRONOUNCEMENTS
No new accounting pronouncements have been defined that would materially impact our financial statements.
NOTE I— 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 J — 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 K — SUBSEQUENT EVENTS
Management evaluated subsequent events through the date of this filing and determined that no such events have occurred that would require adjustment to or disclosure in the financial statements.
|
ITEM 2.
|
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 three months ended March 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 report on Form 10-Q and our report filed on Form 10-K, Part II, Item 7 for the year ended December 31, 2012.
FORWARD-LOOKING STATEMENTS
Certain statements in this report, including, without limitation, matters discussed under this Item 2, “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-Q. 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 Quarterly Report on Form 10-Q 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.
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 March 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 four properties acquired through foreclosure. 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 contract liabilities. Our manager has established a reserve to cover our ongoing expenses and future obligations. As of March 31, 2013, our cash was approximately $0.2 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 G – Members’ Equity of the Notes to the Financial Statements included in Part I, Item I Financial Statements of this Quarterly Report on Form 10-Q.
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 D – Real Estate Held for Sale of the Notes to the Financial Statements included in Part I, Item I Financial Statements of this Quarterly Report on Form 10-Q.
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 depressed conditions persist in 2013 as the weak economic recovery and the threat of a double dip recession has prevented a recovery of real estate values in our principal markets. 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
Comparison of Operating Results for the three months ended March 31, 2013, to the three months ended March 31, 2012.
|
Total Revenue:
|
2013
|
2012
|
$ Change
|
% Change
|
||||||||||||
|
Interest income from investment in real estate loans
|
$ | -- | $ | 5,000 | $ | (5,000 | ) | (100 | %) | |||||||
|
Recovery of allowance for doubtful notes receivable
|
2,000 | 14,000 | (12,000 | ) | (86 | %) | ||||||||||
|
Total
|
$ | 2,000 | $ | 19,000 | $ | (17,000 | ) | (90 | %) | |||||||
Our revenue from interest income is dependent upon the balance of our investment in real estate loans and the interest earned on these loans. Starting in May 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. Final payments on fully reserved notes receivable in the three months ended March 31, 2012 resulted in a decrease in recovery of allowance for doubtful notes receivable during the same period in 2013.
|
Total Operating Expenses:
|
2013
|
2012
|
$ Change
|
% Change
|
||||||||||||
|
Provision for loan loss
|
$ | -- | $ | 46,000 | $ | (46,000 | ) | 100 | % | |||||||
|
Professional fees
|
15,000 | 64,000 | (49,000 | ) | (77 | %) | ||||||||||
|
Other
|
8,000 | 9,000 | (1,000 | ) | 12 | % | ||||||||||
|
Total
|
$ | 23,000 | $ | 119,000 | $ | (96,000 | ) | (81 | %) | |||||||
Operating expenses decreased as a result of a decrease in the provision for loan loss due to currently having no loans in our portfolio and by a decrease in professional fees due to a decrease in pending litigation.
See Note J – Legal Matters Involving The Company of the Notes to the Financial Statements included in Part I, Item I Financial Statements of this Quarterly Report on Form 10-Q.
|
Total Discontinued Operations
|
2013
|
2012
|
$Change
|
% Change
|
||||||||||||
|
Net gain on sale of real estate held for sale
|
$ | -- | $ | 1,000 | $ | (1,000 | ) | (100 | )% | |||||||
|
Income from equity method investee held for sale
|
25,000 | -- | 25,000 | 100 | % | |||||||||||
|
Expenses related to real estate held for sale
|
(6,000 | ) | (15,000 | ) | 9,000 | 60 | % | |||||||||
|
Total
|
$ | 19,000 | $ | (14,000 | ) | $ | 33,000 | 235 | % | |||||||
During the three months ended March 31, 2012, we recorded net gains of $1,000 on sale of real estate held for sale for properties sold in prior periods due to payments on settlement agreements. There were no similar gains recorded during the three months ended March 31, 2013. During the three months ended March 31, 2013, we received income from equity method investee held for sale and did not have similar income in the three months ended March 31, 2012. The overall decrease in losses from discontinued operations was affected by both the receipt of income from equity method investee held for sale and a decrease in expenses related to real estate held for sale.
For additional information see Note D – Real Estate Held for Sale and Note E – Investment in Equity Method Investee Held for Sale of the Notes to the Financial Statements included in Part I, Item I Financial Statements of this Quarterly Report on Form 10-Q.
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 March 31, 2013. Based on this review, the value of members’ capital accounts was adjusted from $0.84 per unit to $0.81 per unit, as of April 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 G – Members’ Equity of the Notes to the Financial Statements included in Part I, Item I Financial Statements of this Quarterly Report on Form 10-Q.
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 three months ended March 31, 2013, net cash flows used in operating activities totaled approximately $0.1 million. Operating cash flows were used for the payment of normal operating expenses such as, accounting fees, legal bills and expenses related to real estate held for sale. Cash flows provided by investing activities for the three months ended March 31, 2013 totaled approximately $2,000 and were from proceeds from notes receivable.
At March 31, 2013 we had approximately $0.2 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 March 31, 2013 and December 31, 2012, we had no investments in real estate loans. In accordance with the Plan, we will no longer invest in new loans.
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 March 31, 2013, 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. From time to time, we may continue to sell performing investments in real estate loans to our manager or other related parties, without any mark up or mark down. No gain or loss will be recorded on these transactions. For further information regarding related party transactions, refer to Note F – Related Party Transactions of the Notes to the Financial Statements included in Part I, Item I Financial Statements of this Quarterly Report on Form 10-Q.
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
See Note H – Recent Accounting Pronouncements of the Notes to the Financial Statements included in Part I, Item I Financial Statements of this Quarterly Report on Form 10-Q.
|
ITEM 4.
|
CONTROLS AND PROCEDURES
|
(a) Evaluation of Disclosure Controls and Procedures
The Company’s Chief Executive Officer and Chief Financial Officer has evaluated the Company’s disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as of the end of the period covered by this report, and they have concluded that these controls and procedures are effective.
(b) Changes in Internal Control over Financial Reporting
During first quarter we replaced a financial accounting position which we believe enhanced the company’s internal control over financial controls.
PART II – OTHER INFORMATION
|
ITEM 1.
|
LEGAL PROCEEDINGS
|
Please refer to Note I – Legal Matters Involving the Manager and Note J – Legal Matters Involving the Company in the notes to the financial statement under Part I, Item I Financial Statements of this Quarterly Report on Form 10-Q, for information regarding our legal proceedings, which are incorporated herein by reference.
|
ITEM 2.
|
UNREGISTERED SALES OF EQUITY AND USE OF PROCEEDS
|
Market Information
There is no established public trading market for the trading of units.
Holders
As of May 15, 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 G – Members’ Equity of the Notes to the Financial Statements included in Part I, Item I Financial Statements of this Quarterly Report on Form 10-Q.
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 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 anticipate that the liquidation of the sale of foreclosed properties may take five or 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 March 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;
|
|
|
•
|
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 6.
|
EXHIBITS
|
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
|
|
|
101
|
The following material from the Company's quarterly report on Form 10-Q for the three months ended March 31, 2013, formatted in XBRL (eXtensible Business Reporting Language): (i) Balance Sheets as of March 31, 2013 (unaudited) and December 31, 2012, (ii) Statements of Operations for the three months ended March 31, 2013 and 2012, (iii) Statements of Other Comprehensive Income for the three months ended March 31, 2013 and 2012, (iv) Statement of Equity for the three months ended March 31, 2013, (v) Statements of Cash Flows for the three months ended March 31, 2013 and the year ended December 31, 2012 and (vi) Notes to the Financial Statements
|
|
(1)
|
Incorporated herein by reference to our Schedule 14A Definitive Proxy Statement filed on May 11, 2009 (File No. 000-51301)
|
|
|
(2)
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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)
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(3)
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Incorporated herein by reference to our Form 10-Q filed on August 16, 2004 (File No. 333-105017)
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(4)
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Incorporated herein by reference to our Schedule 14A Definitive Proxy Statement filed on January 29, 2007 (File No. 000-51301)
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(5)
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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)
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(6)
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Incorporated herein by reference to our Form 10-KSB filed on March 30, 2005 (File No. 333-105017)
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(7)
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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)
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(8)
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Incorporated herein by reference to the Quarterly Report on Form 10-Q filed on May 14, 2009 (File No. 000-51301)
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(9)
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Incorporated herein by reference to the Proxy Statement dated May 11, 2009 (File No. 000-51301)
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(10)
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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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Pursuant to the requirements 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.
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Vestin Fund III, LLC
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By:
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Vestin Mortgage, LLC., its sole Manager
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By:
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/s/ Michael V. Shustek
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Michael V. Shustek
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Chief Executive Officer and Sole Director of the Manager
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(Principal Executive Officer of Manager)
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By:
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/s/ Tracee Gress
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Tracee Gress
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Chief Financial Officer of the Manager
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(Principal Financial and Accounting Officer of the Manager)
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Date: May 15, 2013
Exhibit 31.1
CERTIFICATIONS
I, Michael V. Shustek, certify that:
1. I have reviewed this Form 10-Q 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:
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(a)
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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 subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
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(b)
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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;
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(c)
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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
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(d)
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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
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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):
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(a)
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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
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(b)
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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.
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Date: May 15, 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.
Exhibit 31.2
CERTIFICATIONS
I, Tracee Gress, certify that:
1. I have reviewed this Form 10-Q 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 subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
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(b)
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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;
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(c)
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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
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(d)
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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
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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):
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|
(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
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(b)
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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: May 15, 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 his employer, Strategix Solutions, LLC.
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:
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(1)
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The Registrant’s Report on Form 10-Q for the three months ended March 31, 2013, 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
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(2)
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The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
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Date: May 15, 2013
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/s/ Michael V. Shustek
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Michael V. Shustek
|
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Chief Executive Officer and Director*
|
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of Vestin Mortgage, LLC., sole Manager of the Registrant
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Date: May 15, 2013
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/s/ Tracee Gress
|
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Tracee Gress
|
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Chief Financial Officer**
|
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of Vestin Mortgage, LLC., sole Manager of the Registrant
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* 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 his employer, Strategix Solutions, LLC.