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Article by DailyStocks_admin    (03-24-08 08:40 AM)

Resource America Inc. CEO JONATHAN Z COHEN bought 19,049 shares on 03-18-2008 at 9.98

BUSINESS OVERVIEW

General

We are a specialized asset management company that uses industry specific expertise to generate and administer investment opportunities in the commercial finance, real estate and financial fund management sectors. As a specialized asset manager, we seek to develop investment funds for outside investors for which we provide asset management services. We typically maintain an investment in the investment vehicles we sponsor. As of September 30, 2007, we managed $16.7 billion of assets. As of November 30, 2007, we managed $17.3 billion of assets.

We limit our fund development and asset management services to asset classes in which we have specific expertise. We believe this strategy enhances the return on investment we can achieve for our funds. In our commercial finance operations, we focus on originating small and middle-ticket equipment leases and commercial notes secured by business-essential equipment, including technology, commercial and industrial equipment and medical equipment. In our real estate operations, we concentrate on investments in multi-family and commercial real estate and real estate mortgage loans including whole loans, first priority interests in commercial mortgage loans, known as A notes, subordinated interests in first mortgage loans, known as B notes, and mezzanine loans. In our financial fund management operations, we concentrate on trust preferred securities of banks, bank holding companies, insurance companies and other financial companies, bank loans, asset-backed securities.

We have greatly expanded all three sectors since 2003 and assets under management have grown from $2.1 billion, excluding our former energy subsidiary, at September 30, 2003 to $16.7 billion at September 30, 2007. We distribute our products through numerous channels including a highly proprietary large broker dealer/financial planner network.

We attract investment funds through the sponsorship of investment vehicles, which historically have included public and private investment partnerships, TIC programs, a REIT and CDO issuers. We arrange for the funding of these vehicles through short, medium and longer-term bank financing, equity investments and, historically, CDOs. We believe that we have developed a unique combination of origination channels to provide such funding, including a network of international and national banks and investment banks both for our short, medium and longer-term debt financing (including, historically, our CDOs) and for equity financing of RCC, and a national network of independent broker-dealers for our investment partnerships and TIC programs.

We believe that current credit market conditions have created opportunities for us, principally in our commercial finance business. In commercial finance, we acquired the equipment leasing division of Pacific Capital Bank in June 2007 and, subsequent to our 2007 fiscal year end, acquired the equipment leasing division of NetBank from the Federal Deposit Insurance Corporation, or the FDIC, out of receivership, and the equipment finance subsidiary of Lehman Brothers Bank, FSB. The two acquisitions subsequent to our fiscal year end increased our commercial finance assets under management by $0.6 billion, to approximately $1.7 billion as of November 30, 2007. The equipment leases and notes were acquired on behalf of our investment partnerships. In real estate, we acquired a real estate property management group on October 1, 2007, that will allow us to directly manage properties held by the real estate investment programs we manage. We also, on behalf of an institutional joint venture partner, purchased a portfolio of mortgage loans from the U.S. Department of Housing and Urban Development, or HUD, at a substantial discount. In our third sector, financial fund management, we completed five collateralized debt obligation, or CDO, issuances in the second half of fiscal 2007. In addition, one CDO priced subsequent to fiscal 2007 year end and we expect it to close in December 2007. Of these six CDOs, three were collateralized loan obligation, or CLO issuances, including the one we expect to close in December 2007. Due to the current state of the credit markets we believe that the CDO market in general will slow substantially in 2008 limiting our ability to generate additional assets under management through this channel, although, we believe that current market conditions have had less effect on our ability to sponsor CLOs and, consequently, we may be able to sponsor CLO vehicles in 2008. Even under current market conditions, we expect that our financial fund management sector will provide us with a continuing stream of fee income from existing CDOs and funds we manage.

Commercial Finance

General. Through our commercial finance subsidiary, LEAF Financial Corporation, or LEAF, we focus our commercial finance operations on equipment leases and secured loans to small and mid-sized companies. Our equipment lease financing is generally for “business-essential” equipment including technology, commercial, industrial and medical equipment, with a primary financed transaction size of under $2.0 million and an average size of between $50,000 to $100,000. LEAF generates equipment leases and loans through both direct originations and portfolio acquisitions which we discuss “− LEAF Acquisitions,” below. LEAF’s strategy for direct originations involves marketing to direct sales organizations which offer financing by LEAF as part of their marketing package. Some of these direct origination companies include Textron, Dell, 3M, Gateway, Respironics, Sullivan-Schein and Smurfit-Stone. Our secured loans are generally used by borrowers to acquire professional practices, such as dental or veterinary practices, and business franchises.

During fiscal 2007, we originated $779.2 million in commercial finance assets (based on book value). As of September 30, 2007, we managed a commercial finance portfolio totaling $1.1 billion, including $756.0 million on behalf of three public limited partnerships we sponsored, $243.0 million for our own account, $83.0 million on behalf of RCC and $11.0 million pursuant to an arrangement with a subsidiary of Merrill Lynch, Pierce, Fenner & Smith Incorporated, or Merrill Lynch, pursuant to which we originate, service and manage equipment leases with tax-exempt entities. The partnerships have raised a total of $130.0 million and $143.0 million through September 30 and November 30, 2007, respectively

LEAF Acquisitions. On November 30, 2007, LEAF acquired the business of Dolphin Capital Corp., an equipment finance subsidiary of Lehman Brothers Bank, FSB. The total purchase price of $170.5 million included a portfolio of small ticket leases acquired by LEAF and an investment partnership managed by LEAF. In addition, LEAF retained the Dolphin lease origination and management platform as well as the small ticket leasing team including senior management, origination and operations personnel.

On November 7, 2007, LEAF acquired at a discount substantially all of the assets of NetBank Business Finance, a division of NetBank, from the Federal Deposit Insurance Corporation for $412.5 million. LEAF acquired the portfolio on behalf of investment partnerships that it manages. LEAF intends to sell the assets acquired in this transaction to our investment partnerships by June 30, 2008. The portfolio included over 10,000 leases and loans to small businesses throughout the United States. In addition, LEAF intends to continue the lease origination and management platform in Columbia, South Carolina and to retain its small ticket leasing team.

In June 2007, LEAF acquired substantially all of the assets of the leasing division of Pacific Capital Bank N.A., or PCB, principally a portfolio of small ticket leases and notes, at a total cost of $282.2 million. LEAF's investment partnerships acquired $269.5 million of the PCB portfolio, of which $201.7 million were acquired during the quarter ended June 30, 2007. LEAF retained the PCB lease origination and management platform as well as its small ticket leasing team including senior management, originations, and operations personnel.

Including the acquisitions described above, LEAF’s assets under management have increased to approximately $1.7 billion at November 30, 2007.

We receive acquisition fees, management fees and reimbursements of our operating and administrative expenses incurred from the leasing partnerships we manage. Acquisition fees range from 1% to 2%. Servicing fees range from 1% to 4% of gross rental payments.

Merit Capital Advance. LEAF started a new joint venture, Merit Capital Advance, or Merit, an indirect subsidiary of LEAF, in March 2007 with a financial institution to provide capital advances to small companies based on factoring their future credit card receipts. The Merit operations had finance revenues of $516,000 and expenses of $1.8 million, which reduced LEAF’s operating income by $1.3 million.

Real Estate

General. Our real estate operations involve:





the sponsorship and management of real estate investment partnerships and TIC programs;





the management, solely for RCC, of general investments in commercial real estate debt. These investments may include first mortgage debt, whole loans, mortgage participations, subordinate notes, mezzanine debt and related commercial real estate securities;





the acquisition, in September 2007 of a portfolio of real estate loans at a discount from the HUD on behalf of an institutional partner, through a joint venture; and





to a lesser extent, the management and resolution of a legacy portfolio of real estate loans and property interests that we acquired at various times between 1991 and 1999.

Real Estate Investment Partnerships and TIC Programs. Since 2003, we have sponsored seven real estate investment funds, six of which have commenced operations (one was still in the startup phase) and seven TIC programs in which investors acquire undivided fractional interests in real properties through a tenant-in-common structure. The partnerships and TIC programs have raised a total of $205.2 million comprised of $129.3 million and $75.9 million, respectively. These partnerships and TIC programs have acquired interests in 31 multi-family apartment complexes comprising 8,432 units. The combined acquisition cost of the real estate controlled by all programs is $511.6 million, including interests owned by third parties. We receive acquisition, debt placement, and bridge equity fees from the partnerships and TIC programs in their acquisition stage. These fees, in the aggregate, have ranged from 1.75% to 2% of the acquisition costs of the properties or the debt financing, in the case of debt placement fees. In their operational state, we receive property management fees of 5% of gross revenues and partnership or program management fees of 1% on our partnership and TIC interests. We typically subcontract our property management obligations to third party property managers, who are paid 3% to 4% of gross revenues.

Resource Property Manager. Effective October 1, 2007, we established a new property management division, Resource Real Estate Management, Inc., or RREM, based in Omaha, Nebraska to facilitate the management of the majority of the real estate in our investment programs. To the fullest extent practicable, all new property acquisitions will be managed by RREM and the property management of existing properties will be assumed during the first quarter of fiscal year 2008. We believe that the ability to manage our own properties will enhance property performance for our limited partners and lead to increasing profitability for us.

Distressed Real Estate Opportunities. We sponsored and are managing, a partnership that acquired a pool of eleven mortgages from the HUD. This portfolio was acquired at an overall discount of 51% to face value of approximately $75.0 million. We intend to resolve these loans through a combination of foreclosures, modifications, restructurings and sales. We are pursuing other opportunities to add assets to this venture and other distress real estate opportunities.

Resource Capital Corp. As of September 30, 2007, we managed approximately $921.5 million of commercial real estate loan assets on behalf of RCC, including $762.9 million held in CDOs we sponsored in which RCC holds the equity interests. We discuss RCC in more detail in “Resource Capital Corp.,” below.

Legacy Portfolio of Loan and Property Interests. In addition to our real estate investment partnerships, TIC programs and RCC’s commercial loan portfolio, we have a legacy portfolio of real estate loans and property interests. Between fiscal 1991 and 1999, our real estate operations focused on the purchase of commercial real estate loans at discounts to their outstanding loan balances and the appraised value of their underlying properties. As a result of our ownership, management and resolution of some of these loans, we have acquired direct and indirect property interests. Since fiscal 1999, we have focused on managing and resolving our existing portfolio. During fiscal 2007, the number of loans in this portfolio remained at nine through the sale of one loan and the addition of one loan. In addition, we sold a partial interest in a real estate venture and received net proceeds of $2.9 million. However, we may sell, purchase or originate portfolio loans or real property investments in the future as part of our management process or as opportunities arise.

In applying Financial Accounting Standards Board Interpretation 46, “Consolidation of Variable Interest Entities,” as revised, or FIN 46-R, our real estate operations consolidates certain variable interest entities, or VIEs, to which we have determined that we are the primary beneficiary. The assets, liabilities, revenues and costs and expenses of the VIEs that are included in our consolidated financial statements are not ours. The liabilities of the VIEs will be satisfied from the cash flows of the respective VIE’s consolidated assets, not from our assets, since we have no legal obligation to satisfy those liabilities.

Financial Fund Management

General . We focus our financial fund management operations on the sponsorship and management of CDO issuers and the management of RCC. We conduct our financial fund management operations through five principal subsidiaries:





Trapeza Capital Management, LLC, or Trapeza, a joint venture between us and an unrelated third party, which originates, structures, finances and manages investments in trust-preferred securities and senior debt securities of banks, bank holding companies, insurance companies and other financial companies.





Apidos Capital Management, LLC, or Apidos, which finances, structures and manages investments in bank loans.





Ischus Capital Management, LLC, or Ischus, which finances, structures and manages investments in asset-backed securities or ABS, including residential mortgage-backed securities, or RMBS, and commercial mortgage-backed securities, or CMBS.





Resource Europe, which finances, structures and manages investments in international bank loans.





Resource Financial Institutions Group, Inc., or RFIG, which serves as the general partner for four company-sponsored affiliated partnerships which invest in financial institutions.

CDOs . Historically, through September 30, 2007, we have focused our financial fund management operations on the sponsorship of CDO issuers whose notes are backed by assets purchased through Trapeza, Apidos, Ischus and Resource Europe and the management of their assets. In general, CDOs are issued by special purpose entities, or CDO issuers, that hold portfolios of debt obligations. A CDO issuer typically issues two or more series of notes of different seniority, as well as equity (sometimes referred to as “preference shares”) to fund the purchase of a portfolio of assets. The series of notes are typically rated based on portfolio quality, diversification and, among the series of notes being issued. The equity issued by the CDO issuer is the “first loss” piece of the CDO issuer’s capital structure, but is also generally entitled to all residual amounts available for payment after the CDO issuer’s obligations to the holders of the notes have been satisfied. In a typical CDO transaction, we acquire assets for the CDO issuer principally in transactions with the issuers of those assets, and are responsible for the evaluation of assets proposed for inclusion in the CDO issuer’s portfolio. We analyze the creditworthiness of the issuers of the portfolio assets, the assets themselves and the asset servicers through a credit committee made up of individuals with expertise in the targeted asset class. In general, CDOs must be rated by one or more rating agencies in order for them to be eligible for many of the institutional investors to whom they are marketed; accordingly, we apply rating agency standards when evaluating assets for inclusion in a CDO issuer’s portfolio. We typically fund the initial acquisition of a CDO issuer’s portfolio assets through a secured warehouse credit facility prior to the CDO closing. At closing, the warehouse facility is refinanced through the issuance of various tranches of liabilities. Recently, global credit markets have been subject to substantial volatility and reduced liquidity which has significantly limited opportunities to obtain CDO funding. Although from July 1, 2007 to November 30, 2007 we priced two CDOs (one of which we closed), we cannot assure you that, in the future, we will be able to sponsor CDOs on acceptable terms, or at all, which would limit the growth of our assets under management in, and the management fees we earn from our financial fund management operations.

We derive revenues from our financial fund management operations through management and administration fees. We also receive distributions on amounts we invest directly in CDOs or in limited partnerships we form that purchase equity in our CDO issuers. Management fees vary by CDO issuers but, excluding CDO issuers managed on behalf of RCC, have ranged from an annual fee of between 0.08% and 0.75% of the par value of the CDO issuer’s portfolio assets. For the Trapeza CDO issuers we manage, we share these fees with our co-sponsors. For CDO issuers managed on behalf of RCC, we receive fees directly from RCC pursuant to our management agreement in lieu of asset management fees from the CDO issuers. We describe the management fees we receive from RCC in “− Resource Capital Corp” below. CDO fees are payable monthly, quarterly or semi-annually, as long as we continue to manage portfolio assets on behalf of the CDO issuer. Our interest in distributions from the CDO issuers varies with the amount of our equity interest. We have earned incentive distribution interests in four partnerships in which we have invested that hold equity interests in CDO issuers.

Resource Capital Corp.

RCC, a publicly-traded (NYSE:RSO) REIT that we sponsored in fiscal 2005, invests in a diversified portfolio of whole loans, B notes, CMBS and other real estate-related loans and commercial finance assets. At September 30, 2007, we owned 2.0 million shares of RCC common stock, or about 7.8% of RCC’s outstanding common stock and held options to acquire 2,166 shares (at an average price per share of $15.00) and warrants to acquire an additional 100,088 shares (at $15.00 per share).

We manage RCC through Resource Capital Manager, Inc., or RCM, an indirect wholly-owned subsidiary. At September 30, 2007, we managed approximately $2.4 billion of assets on behalf of RCC (see “ − General.”) Under our management agreement with RCC, RCM receives a base management fee, incentive compensation and a reimbursement for out-of-pocket expenses. The base management fee is 1/12 th of 1.50% of RCC’s equity per month. The management agreement defines “equity” as, essentially, shareholder’s equity, subject to adjustment for non-cash equity compensation expense and non-recurring changes to which the parties agree. The incentive compensation is 25% of the amount by which RCC’s quarterly net income exceeds an amount equal to the weighted average issuance price of RCC’s common shares, multiplied by the greater of 2% or 0.50% plus one-fourth of the ten-year treasury rate. RCM receives at least 25% of our incentive compensation in additional shares of RCC common stock and has the option to receive more of our incentive compensation in stock under the management agreement. We also receive an acquisition fee of 1% of the carrying value of the commercial finance assets we sell to RCC. In fiscal 2007, the management, incentive and acquisition fees we received from RCC were $9.0 million, or 7% of our consolidated revenues. These fees have been reported as revenues through our operating segments.

Credit Facilities

Through our subsidiaries, we have access to five separate credit facilities, which we describe in this section. We also have arranged three credit facilities for our CDO issuers relating to their accumulation of U.S. and European bank loans for which we are a guarantor. The aggregate amount of losses guaranteed under these facilities, which we describe in “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Contractual Obligations and Other Commercial Commitments” was $26.8 million at September 30, 2007.

Financial fund management – Secured warehouse credit facilities.

In July 2007, a $300.0 million facility was opened with affiliates of Morgan Stanley Bank, or Morgan Stanley. The associated CDO is anticipated to close in fiscal 2008. The interest rate is the London Inter-Bank Offered Rate, or LIBOR, plus 75 basis points. The facility provides for a guarantee by us of $6.0 million, and is secured by an escrow deposit of $3.0 million at September 30, 2007. As of September 30, 2007, the balance outstanding was $48.6 million, net of $2.0 million of loans sold not settled.

In January 2007, a EUR 400.0 million (approximately $570.9 million at September 30, 2007) facility was opened with Morgan Stanley. We anticipate that the associated CDO will close in fiscal 2008. The interest rate is European LIBOR plus 75 basis points. The facility provides for a guarantee by us of $11.6 million and is secured by an escrow deposit of $4.3 million at September 30, 2007. As of September 30, 2007, the balance outstanding was $73.8 million, net of $149.7 million of loans sold not settled.

In August 2006, a facility was opened with affiliates of Credit Suisse Securities (USA) LLC, or Credit Suisse, for up to $400.0 million. The associated CDO priced on November 20, 2007 and is anticipated to close on December 19, 2007. We will provide the equity of $21.3 million for this investment and it is anticipated that we will syndicate all or a portion of this investment in the future. The interest rate is LIBOR plus 62.5 basis points. The facility provides for a guarantee by us as well as an escrow deposit. As of September 30, 2007, the balance outstanding was $164.4 million, net of $1.0 million of loans sold not settled.

Commercial finance - Secured revolving credit facilities

In June 2007, a $100.0 million short-term revolving credit facility was entered into with a commercial bank with an original maturity date of August 2007 which was extended to and expired on October 31, 2007. Interest is charged at one of three rates: (i) LIBOR plus 1.75%, (ii) one-month LIBOR divided by the sum of 1 minus the LIBOR reserve percent, plus 1.75%; and (iii) the higher of the lender’s base rate or the federal funds rate plus 50 basis points. As of September 30, 2007, there were no outstanding borrowings on this facility.

In December 2006, a $250.0 million line of credit with Morgan Stanley was assumed from RCC by LEAF. As part of the agreement, LEAF reimbursed RCC $125,000 for the commitment fees it had paid and assumed a liability for an additional $725,000 of commitment fees and other costs. The facility is non-recourse to LEAF and expires in October 2009. The underlying equipment being leased or financed collateralizes the borrowings. Interest is charged at one of two rates based on the utilization of the facility: (i) one-month LIBOR plus 60 basis points on borrowings up to $100.0 million and (ii) one-month LIBOR plus 75 basis points on borrowings in excess of $100.0 million. Interest and principal payments are due monthly. We use interest rate swap agreements to mitigate fluctuations in LIBOR. The swap agreements terminate at various dates ranging from November 2011 to November 2020. As of September 30, 2007, the borrowings outstanding on this facility were $137.6 million.

In July 2006, LEAF entered into a $150.0 million revolving warehouse credit facility with a group of banks led by National City Bank that expires on July 31, 2009. Interest is charged at one of two rates: (i) LIBOR plus 150 basis points, or (ii) the prime rate. In September 2007, LEAF entered into an interest rate swap agreement for $75.0 million for this facility in order to mitigate fluctuations in LIBOR. The swap agreement terminates in September 2009. The underlying equipment being leased or financed collateralizes the borrowings. Outstanding borrowings as of September 30, 2007 were $83.9 million.

CEO BACKGROUND

Carlos C. Campbell , 70, has been a member of our Board of Directors since 1990. President of C.C. Campbell and Company (a management consulting firm) since 1985. Director of PICO Holdings, Inc. (a publicly-traded diversified holding company) since 1998. Director of Herley Industries, Inc. (a publicly-traded RF/Microwave Solutions company) since 2005.

Edward E. Cohen , 68, has been a member of our Board of Directors since 1988. Chairman of our Board since 1990. Chief Executive Officer from 1988 to 2004. President from 2000 to 2003. Chairman of the Board of Resource Capital Corp. (a publicly-traded real estate investment trust managed by us) since its formation in 2005. Chairman of the Managing Board of Atlas Pipeline Partners GP, LLC (general partner of Atlas Pipeline Partners, L.P., a publicly-traded natural gas pipeline limited partnership) since its formation in 1999. Chairman, Chief Executive Officer and President of Atlas America, Inc. (a publicly-traded energy company formerly owned by us) since its formation in 2000. Chairman and Chief Executive Officer of Atlas Pipeline Holdings GP, LLC (a wholly-owned subsidiary of Atlas America that is the general partner of Atlas Pipeline Holdings, L.P., a publicly-traded limited partnership owns Atlas Pipeline Partners GP, LLC) since its formation in 2006. Chairman and Chief Executive Officer of Atlas Energy Resources, LLC (a publicly-traded energy company) since its formation in 2006. Chairman of the Board of Brandywine Construction & Management, Inc. (a property management company) since 1994.

Hersh Kozlov, 60, has been a member of our Board of Directors since January 2007. Partner at Wolf, Block, Schorr and Solis-Cohen LLP (a law firm) since 2001. Presidential appointee to national Advisory Committee for Trade Policy and Negotiations from 2002 to 2004.

Continuing Directors to Serve until the 2009 Annual Meeting :

Jonathan Z. Cohen , 37, has been a member of our Board of Directors since 2002. President since 2003 and Chief Executive Officer since 2004. Chief Operating Officer from 2002 to 2004. Executive Vice President from 2001 to 2003. Senior Vice President from 1999 to 2001. Chief Executive Officer, President and a Director of Resource Capital Corp. since its formation in 2005. Vice Chairman of the Managing Board of Atlas Pipeline Partners GP, LLC since its formation in 1999. Vice Chairman of Atlas America, Inc. since its formation in 2000. Vice Chairman of Atlas Pipeline Holdings GP, LLC since its formation in 2006. Vice Chairman of Atlas Energy Resources, LLC since its formation in 2006.

Kenneth A. Kind , 54, has been a member of our Board of Directors since 2004. Vice President of Medi-Promotions, Inc. (a healthcare advertising company) since 1991. Director of Van Ameringen Foundation (a private charitable foundation) since 1995.

John S. White , 67, has been a member of our Board of Directors since 1993. Executive Director of the Investment Program Association (a national trade association) since 2007. Consultant in the financial services industry from 2006 to 2007. Senior Vice President of Royal Alliance Associates, Inc. (an independent broker/dealer and a wholly-owned subsidiary of American International Group, Inc.) from 2002 to 2006. Chief Executive Officer and President of DCC Securities Corporation (a securities brokerage firm) from 1989 to 2002. Director of TRM Corporation (a publicly-traded consumer services company) since 2007. Mr. White is also a certified public accountant.

Michael J. Bradley , 63, has been a member of our Board of Directors since 2005. Co-owner and Managing Director of BF Healthcare, Inc. (a supplier of physician services to hospitals and assisted living facilities) since 1999. Director of The Bancorp, Inc. (a publicly-traded bank holding company) since 2005. Managing Board Member of Atlas Pipeline Partners GP, LLC from 2004 to 2005. Chairman of the Board of First Executive Bank from 1988 to 1998. Vice Chairman of First Republic Bank from 1998 to 2003.

Andrew M. Lubin , 61, has been a member of our Board of Directors since 1994. President of Delaware Financial Group, Inc. (a private investment firm) since 1990.

Jeffrey F. Brotman , 44, Executive Vice President since June 2007. Co-founder of Ledgewood, P.C. (a Philadelphia-based law firm) and affiliated with the firm from 1992 until June 2007, serving as managing partner from 1995 until March 2006. Mr. Brotman is also a non-active certified public accountant and an Adjunct Professor at the University of Pennsylvania Law School. Mr Brotman has also been Chairman of the Board of Directors of TRM Corporation since September 2006 and was its President and Chief Executive Officer from March 2006 through June 2007.

Thomas C. Elliott , 34, Senior Vice President – Finance and Operations since 2006. Senior Vice President–Finance from 2005 to 2006. Vice President – Finance from 2001 to 2005. Chief Financial Officer of Resource Financial Fund Management, Inc. (our wholly-owned asset management subsidiary) since 2004. Chief Financial Officer, Chief Accounting Officer and Treasurer of Resource Capital Corp. from 2005 to 2006 and Senior Vice President – Finance and Operations since 2006. From 1997 to 2001, Mr. Elliott held various financial positions at Fidelity Leasing, Inc., our former subsidiary, including Manager of Financial Planning, Director of Asset Securitization and Treasurer.

Alan F. Feldman , 44, Senior Vice President since 2002. Chief Executive Officer of Resource Real Estate, Inc. (our wholly-owned real estate subsidiary) since 2004. Vice President at Lazard Freres & Co. (an investment bank) from 1998 to 2002. Executive Vice President at PREIT-Rubin, Inc. (the management subsidiary of Pennsylvania Real Estate Investment Trust, a publicly-traded real estate investment trust) and its predecessor, The Rubin Organization, from 1992 to 1998.

Steven J. Kessler , 64, Executive Vice President since 2005 and Chief Financial Officer since 1997. Senior Vice President from 1997 to 2005. Senior Vice President ? Finance of Resource Capital Corp. since 2005. Vice President-Finance and Acquisitions at Kravco Company (a national shopping center developer and operator) from 1994 to 1997. From 1983 to 1993, Mr. Kessler was employed by Strouse Greenberg & Co. (a regional full service real estate company) ending as Chief Financial Officer and Chief Operating Officer. Prior thereto, Partner at Touche Ross & Co. (now Deloitte & Touche LLP), independent public accountants. Trustee of GMH Communities Trust (a publicly-traded specialty housing real estate investment trust) since 2004.

Arthur J. Miller , 48, Vice President, Corporate Controller and Chief Accounting Officer since 2004. Chief Accounting Officer at Mothers Work, Inc. (a national retailer/manufacturer of maternity wear) from 1999 to 2004. Vice President, Controller and Chief Accounting Officer of CAI Wireless Systems, Inc. (a wireless telecommunications company) from 1995 to 1999. Mr. Miller started his financial career with Arthur Anderson LLP, independent public accountants. Mr. Miller is a certified public accountant.

Michael S. Yecies , 40, Senior Vice President since 2005 and Chief Legal Officer and Secretary since 1998. Vice President from 1998 to 2005. Senior Vice President since 2007 and Chief Legal Officer and Secretary of Resource Capital Corp. since 2005. Attorney at Duane Morris LLP (an international law firm) from 1994 to 1998.

SHARE OWNERSHIP

(1) Includes vested units representing the right to receive one share of common stock per unit granted under our 1997 Non-Employee Directors Deferred Stock and Deferred Compensation Plan in the following amounts: Mr. Campbell – 34,690 units; Mr. Lubin – 34,690 units; and Mr. White – 34,690 units.


(2) Includes vested units representing the right to receive one share of common stock per unit granted under our 2002 Non-Employee Directors Deferred Stock and Deferred Compensation Plan in the following amounts: Mr. Campbell – 10,987 units; Mr. Lubin – 10,987 units; and Mr. White – 10,987 units.


(3) Includes shares allocated under our Employee Stock Ownership Plan (“ESOP”) in the following amounts: Mr. J. Cohen – 2,237 shares; Mr. Elliott – 773 shares; Mr. Feldman – 677 shares; Mr. Kessler – 2,331 shares; and Mr. Yecies – 1,815 shares, as to which each has voting power.


(4) Includes shares allocated under our Investment Savings Plan, or 401(k) plan, in the following amounts: Mr. E. Cohen – 21,984 shares; Mr. J. Cohen – 17,207 shares; Mr. Elliott – 6,277 shares; Mr. Feldman – 5,582 shares; Mr. Kessler – 17,293 shares; Mr. Miller – 1,168 shares; and Mr. Yecies – 3,114 shares, as to which each has voting power.


(5) Includes 2,312 shares issuable on exercise of options granted under our 1997 Key Employee Stock Option Plan.


(6) Includes shares issuable on exercise of options granted under our 1999 Key Employee Stock Option Plan in the following amounts: Mr. E. Cohen – 637,089 shares; Mr. J. Cohen – 450,980 shares; Mr. Elliott – 8,767 shares; Mr. Kessler – 49,796 shares; and Mr. Yecies – 69,381 shares.


(7) Includes shares issuable on exercise of options granted under our 2002 Key Employee Stock Option Plan in the following amounts: Mr. E. Cohen – 392,073 shares; Mr. J. Cohen – 286,908 shares; Mr. Elliott – 43,604 shares; Mr. Feldman – 363,504 shares; Mr. Kessler – 27,697 shares; and Mr. Yecies – 23,127 shares.


(8) Includes shares issuable on exercise of options granted under our 2005 Omnibus Equity Compensation Plan in the following amounts: Mr. E. Cohen – 4,839 shares; Mr. J. Cohen – 275,000 shares; Mr. Kessler – 35,000 shares; Mr. Miller – 2,000 shares; and Mr. Yecies – 3,750 shares.


(9) Includes 449,516 shares held by a private charitable foundation of which Mr. E. Cohen serves as a co-trustee. Mr. E. Cohen disclaims beneficial ownership of these shares .


(10) Includes 92,500 shares held in trusts for the benefit of Mr. E. Cohen’s spouse and/or children. Mr. E. Cohen disclaims beneficial ownership of these shares. 46,250 of these shares are also included in the shares referred to in footnote 11 below.


(11) Includes 46,250 shares held in a trust of which Mr. J. Cohen is a co-trustee and co-beneficiary. These shares are also included in the shares referred to in footnote 10 above.



(12)


This information is based on Schedule 13G/A filed with the SEC on February 9, 2007. Includes 576,200 shares as to which sole voting and dispositive power is claimed and 511,900 shares as to which shared voting and dispositive power is claimed. Mr. Cooperman’s address is 88 Pine Street, Wall Street Plaza, 31 st Floor, New York, NY 10005.


(13) This information is based on Schedule 13G/A filed with the SEC on July 26, 2007. Includes 3,600 shares as to which sole voting and dispositive power is claimed and 2,798,166 shares as to which shared voting and dispositive power is claimed. Dr. Shubin Stein’s address is 1995 Broadway, Suite 1801, New York, NY 10023.


(14) The address for all our directors and officers is One Crescent Drive, Suite 203, Navy Yard Corporate Center, Philadelphia, PA 19112.

MANAGEMENT DISCUSSION FROM LATEST 10K

Overview

We are a specialized asset management company that uses industry specific expertise to generate and administer investment opportunities in the commercial finance, real estate and financial fund management sectors. As a specialized asset manager, we seek to develop investment funds for outside investors for which we provide asset management services. We typically maintain an investment in the investment vehicles we sponsor. As of September 30, 2007, we managed $16.7 billion of assets. As of November 30, 2007, we managed $17.3 billion of assets.

We limit our fund development and asset management services to asset classes in which we have specific expertise. We believe this strategy enhances the return on investment we can achieve for ourselves and for the investors in our funds. In our commercial finance operations, we focus on originating small and middle-ticket equipment leases and commercial notes secured by business-essential equipment, including technology, commercial and industrial equipment and medical equipment. In our real estate operations, we concentrate on investments in multi-family and commercial real estate and real estate mortgage loans including whole loans, first priority interests in commercial mortgage loans, known as A notes, subordinated interests in first mortgage loans, known as B notes, and mezzanine loans. In our financial fund management operations, we concentrate on trust preferred securities of banks, bank holding companies, insurance companies and other financial companies, bank loans, asset-backed securities

We have greatly expanded all three sectors since 2003 and assets under management have grown from $2.1 billion, excluding our former energy subsidiary, at September 30, 2003 to $16.7 billion at September 30, 2007. We distribute our products through numerous channels including a highly proprietary large broker-dealer/financial planner network.

As a specialized asset manager, we are affected by conditions in the financial markets and, in particular, have been affected by the recent volatility and reduction in liquidity in the global credit markets. These conditions have resulted in our recording the following:





a $7.6 million charge, net of tax, to reflect the other-than-temporary impairment of certain investments, primarily equity investments in a portfolio of asset-backed securities managed by us;





a $2.6 million charge, net of tax, to reflect losses from the sale of loans held for investment taken in order to reduce exposure to corporate bank loans, principally in Europe; and





a charge of $2.9 million, net of tax, related to a European real estate investment fund that did not close due to the unfavorable market conditions.

Principally as a result of these charges, our net income in fiscal 2007 decreased significantly from our net income for fiscal 2005 and 2006.

We attract investment funds through the sponsorship of investment vehicles, which historically have included public and private investment partnerships, TIC programs, a REIT and CDO issuers. We arrange for the funding of these vehicles through short, medium and longer-term bank financing, equity investments and, historically, CDOs. We believe that we have developed a unique combination of origination channels to provide such funding, including a network of international and national banks and investment banks both for our short, medium and longer-term debt financing (including, historically, our CDOs) and for equity financing of RCC, and a national network of independent broker-dealers for our investment partnerships and TIC programs.

We believe that current credit market conditions have created opportunities for us, principally in our commercial finance business. In commercial finance, we acquired the equipment leasing division of Pacific Capital Bank in June 2007 and, subsequent to our 2007 fiscal year end, acquired the equipment leasing division of NetBank from the FDIC, out of receivership, and the equipment finance subsidiary of Lehman Brothers Bank, FSB. The two acquisitions subsequent to our fiscal year end increased our commercial finance assets under management by $0.6 billion, to approximately $1.7 billion as of November 30, 2007. In real estate, we acquired a real estate property management group on October 1, 2007, that will allow us to directly manage properties held by the real estate investment programs we manage. We also, on behalf of an institutional joint venture partner, purchased a portfolio of mortgage loans from HUD, at a substantial discount. In our third sector, financial fund management, we completed five collateralized debt obligation, or CDO, issuances in the second half of fiscal 2007. In addition, one CDO priced subsequent to fiscal 2007 year end and we expect it to close in December 2007. Of these six CDOs, three were collateralized loan obligation, or CLO issuances, including the one we expect to close in December 2007. Due to the current state of the credit markets we believe that the CDO market in general will slow substantially in 2008 limiting our ability to generate additional assets under management through this channel, although, we believe that current market conditions have had less effect on our ability to sponsor CLOs and, consequently, we may be able to sponsor CLO vehicles in 2008. Even under current market conditions, we expect that our financial fund management sector will provide us with a continuing stream of fee income from existing CDOs and funds we manage.

Assets Under Management

We increased our assets under management by $4.6 billion to $16.7 billion at September 30, 2007 from $12.1 billion at September 30, 2006. The growth in our assets under management was the result of:





an increase in the financial fund management assets we manage on behalf of individual and institutional investors and RCC, both in the United States and in Europe;





an increase in real estate assets managed on behalf of RCC and limited partnerships and TIC property interests that we sponsor; and





an increase in commercial finance assets managed on behalf of the limited partnerships we sponsor, and RCC.

Results of Operations: Commercial Finance

During fiscal 2007, we continued to expand our commercial finance operations by increasing assets under management by $480.0 million (78%) to $1.1 billion for fiscal 2007. During fiscal 2007, we increased originations of new equipment financing by $355.6 million (84%) to $779.2 million from $423.6 million in fiscal 2006. Our growth in originations was driven by our June 2007 acquisition of substantially all of the assets of the leasing division of Pacific Capital, N.A., or PCB, our continued growth in new and existing vendor programs, the introduction of new commercial finance products and the expansion of our sales staff. As of September 30, 2007, we managed approximately 29,000 leases and notes that had an average original finance value of $50,000 with an average term of 51 months.

The PCB acquisition included a portfolio of small ticket leases and loans, customer lists, lease origination team and business platform and other intangibles. The total purchase price of $282.2 million included $269.5 million of equipment leases and notes, of which $201.7 million were assigned and subsequently acquired by our investment partnerships.

During fiscal 2007, we earned acquisition fees on $577.6 million in commercial financing assets acquired for our investment entities as compared to $254.3 million for fiscal 2006, an increase of $323.3 million (127%). Fiscal 2007 includes $4.0 million of acquisition fees earned on the leases and notes sold to the funds in the PCB acquisition.

In March 2007, we entered a new line of business, Merit Capital Advance, LLC, or Merit, to provide capital to small businesses through a credit card receipt advance program. As of September 30, 2007, Merit had originations of $6.9 million.

In December 2006, LEAF Equipment Leasing Income Fund III, or LEAF III, an equipment leasing partnership we sponsor, began a public offering of up to $120.0 million of limited partnership interests.

Revenues − Fiscal 2007 Compared to Fiscal 2006

Revenues increased $16.9 million (71%) to $40.7 million for fiscal 2007 from $23.8 million for fiscal 2006. We attribute these increases primarily to the following:





a $7.9 million (87%) increase in commercial finance revenues due to the growth in lease originations and our decision to hold more direct financing leases and notes on our balance sheet. We increased our commercial finance assets by $134.0 million to $243.0 million at September 30, 2007 and increased our lease originations $355.6 million (84%), including $268.0 million from PCB;





a $4.7 million (81%) increase in asset acquisition fees resulting from the increase in leases sold. Sales of leases increased by $323.3 million to $577.6 million for fiscal 2007, principally related to the PCB leases and notes acquired by our investment partnerships;





a $3.7 million (48%) increase in fund management fees resulting from an increase in assets under management to $1.1 billion at September 30, 2007 from $612.7 million at September 30, 2006; and





a $607,000 (45%) increase in other income, reflecting gains on dispositions which may vary significantly from period to period.

Costs and Expenses − Fiscal 2007 Compared to Fiscal 2006

LEAF costs and expenses increased $3.5 million (24%) for fiscal 2007, primarily related to increased wages and benefits of $2.8 million to support its expanded operations. The number of LEAF employees increased by 123 (105%) to 240 at September 30, 2007, of which 28 were related to the new Merit operations, 20 were hired in conjunction with the PCB acquisition, 46 were additional sales personnel, and 29 were additional credit, operations and servicing staff.

Merit, which began operating in fiscal 2007, incurred costs and expenses of $1.8 million, of which $871,000 were related to wages and benefits.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Overview of the Three Months Ended December 31, 2007 and 2006

We are a specialized asset management company that uses industry specific expertise to generate and administer investment opportunities in the commercial finance, real estate and financial fund management sectors. As a specialized asset manager, we seek to develop investment funds for outside investors for which we provide asset management services. We typically maintain an investment in the investment vehicles we sponsor. As of December 31, 2007, we managed $17.9 billion of assets.

We limit our services to asset classes in which we have specific expertise. We believe this strategy enhances the return on investment we can achieve. In our commercial finance operations, we focus on originating small and middle-ticket equipment leases and commercial notes secured by business-essential equipment, including technology, commercial and industrial equipment and medical equipment. In our real estate operations, we concentrate on investments in distressed real estate loans, ownership operation and management of multi-family and commercial real estate, and originating or purchasing real estate mortgage loans including whole loans, first priority interests in commercial mortgage loans (known as A notes) and, to a lesser extent, subordinated interests in first mortgage loans, known as B notes, and mezzanine loans. In our financial fund management operations, we concentrate on trust preferred securities of banks, bank holding companies, insurance companies and other financial companies, bank loans and asset-backed securities.

We have continued to develop our existing operations with the sponsorship of new investment funds and have expanded the distribution of our products through a large broker/dealer/financial planner network that we have developed. Additionally, we have undertaken several initiatives to further expand the scope of our asset management operations, in particular through the sponsorship of RAI Acquisition Corp., a specialty purpose acquisition corporation formed for the purpose of acquiring one or more businesses.

During the later half of 2007 and continuing in 2008, credit markets in the United States and throughout much of the rest of the world have been extremely volatile and challenging. We believe that such credit market conditions have created opportunities for us, principally in our commercial finance and real estate businesses, as demonstrated by the four acquisitions we have made since June 30, 2007 totaling $940.2 million.

Due to the current status of global credit markets, we continue to believe that the CDO markets will slow substantially in 2008, limiting our ability to generate additional assets under management through this channel. Our CDO vehicles have been significantly affected by these conditions and, in particular, have been impacted by continued credit market turbulence and reduction in global liquidity. Specifically, two secured warehouse credit facilities which we consolidated under FIN 46-R have been impacted. We determined to end these facilities on their expiration dates of January 11 and January 16, 2008, respectively. We had provided limited guarantees totaling $18.8 million under these facilities which were supported by escrow deposits of $14.8 million. The expiration of these facilities necessitated the sale of the loans securing them in late January and early February 2008 which resulted in the reclassification and caused a $10.2 million charge, net of tax, to be recorded in the quarter ended December 31, 2007 and triggered our guarantee. As a result, our escrow deposits have been retained by the warehouse lenders and we will be required to pay an additional $4.6 million to cover our guarantee in February 2008. As of February 2008, we have no further commitments under these credit facilities. In addition to the $10.2 million charge, net of tax, our loans held-for-sale, our assets under management, our borrowings and our restricted cash will decrease by $112.6 million, $134.4 million, $143.1 million and $14.8 million, respectively.

Assets Under Management

We increased our assets under management by $4.3 billion to $17.9 billion at December 31, 2007 from $13.6 billion at December 31, 2006. The growth in our assets under management was the result of:





an increase in the financial fund management assets we manage on behalf of individual and institutional investors, RCC and us, both in the United States and in Europe;





an increase in real estate assets managed on behalf of RCC and limited partnerships and TIC property interests that we sponsor; and





an increase in commercial finance assets managed on behalf of the limited partnerships we sponsor, and RCC.

Revenues

The revenues in each of our business segments are generated by the fees we earn for structuring and managing the investment vehicles we sponsor on behalf of individual and institutional investors, RCC and ML and the income produced by the assets and investments we manage for our own account.

Results of Operations: Commercial Finance

During the three months ended December 31, 2007, our commercial finance operations increased assets under management to $1.7 billion as compared to $681.6 million at December 31, 2006, an increase of $1.0 billion (149%). Originations of new equipment financing for the three months ended December 31, 2007 increased by $601.0 million (466%) to $730.1 million from $129.1 million for the three months ended December 31, 2006. Our growth was driven by our recent acquisitions of the net business assets of Dolphin Capital Corp, the acquisition of the $412.5 million NetBank Business Finance leasing portfolio from the Federal Deposit Insurance Corporation, or FDIC, our continued growth in new and existing vendor programs, the introduction of new commercial finance products and the expansion of our sales staff. As of December 31, 2007, we managed approximately 89,300 leases and notes that had an average original finance value of $24,000 with an average term of 49 months.

The November 2007 acquisition of Dolphin Capital Corp., an equipment finance subsidiary of Lehman Brothers Bank, significantly expanded our commercial finance operations origination capability and assets under management. The total purchase price of $170.5 million included a $169.0 million portfolio of small ticket leases acquired directly by LEAF Equipment Leasing Income Fund III, L.P., or LEAF III. In addition, we retained Dolphin Capital Corp.’s team of 70 highly experienced personnel, including senior management, origination and operations.

In November 2007, we also acquired a $412.5 million portfolio, at a discount, comprised of over 10,000 leases and small business loans originated by NetBank Business Finance, the equipment leasing division of NetBank which was being operated in receivership by the FDIC. In addition, we hired approximately 70 of the former NetBank Business Finance employees in Columbia, South Carolina. These employees have further expanded our third party funding business unit which we established with our June 2007 acquisition of the leasing division of Pacific Capital Bank. Financing for this acquisition was provided principally by Morgan Stanley Bank. We intend to sell the NetBank portfolio to our investment partnerships by April 2008. Until then, we expect to carry the leases and loans and related debt on our consolidated balance sheets, thereby increasing our investment in commercial finance assets, borrowings, finance revenues, interest expense and provision for credit losses.

During the three months ended December 31, 2007, we earned acquisition fees on $304.8 million in commercial financing assets acquired for our investment entities as compared to $88.0 million for the three months ended December 31, 2006, an increase of $216.8 million (246%).


Revenues in our commercial finance operations increased $20.9 million (295%) to $28.0 million in the three months ended December 31, 2007 as compared to the three months ended December 31, 2006. We attribute this increase primarily to the following:





an $11.3 million increase in commercial finance revenues primarily as a result of the NetBank assets acquired from the FDIC and the growth in lease originations. We intend to sell the NetBank portfolio to our investment partnerships by April 2008. The sale is predicated on LEAF III raising sufficient capital to acquire this portfolio and assuming our existing Morgan Stanley debt. Upon the sale, our finance revenues and interest expense will decrease significantly; however, we will earn asset acquisition fees at the time of sale in addition to ongoing fund asset management fees;





Merit, which began operations in March 2007, generated revenue of $2.2 million for three months ended December 31, 2007;





a $4.7 million (467%) increase in asset acquisition fees resulting from the increase in leases sold. Sales of leases increased by $216.8 million to $304.8 million for the three months ended December 31, 2007, principally related to Dolphin Capital Corp. leases and notes acquired by LEAF III in November 2007;





a $1.5 million (63%) increase in fund management fees resulting from the $1.0 billion increase in assets under management; and





a $1.2 million (167%) increase in other income, primarily reflecting net gains on equipment finance dispositions, which vary widely from period to period.

Costs and Expenses − Three Months Ended December 31, 2007 as Compared to the
Three Months Ended December 31, 2006

Costs and expenses from our commercial finance operations increased $5.9 million (163%) to $9.6 million in the three months ended December 31, 2007 as compared to three months ended December 31, 2006. We attribute this increase primarily to the following:





an increase of $2.9 million in wages and benefit costs. The number of full-time employees increased to 366 (208%) as of December 31, 2007 from 119 as of December 31, 2006 due to our recent acquisitions of Pacific Capital Bank, NetBank and Dolphin Capital Corp. and to support our expanded operations. Wages and benefit costs will increase in future periods with the full quarter’s impact of the new employees;





an increase of $1.6 million in operating expenses as a result of our increase in origination capabilities, primarily due to our recent acquisitions; and





an increase of $1.4 million for Merit which began operations in March 2007, of which $600,000 was related to wages and benefits for 37 employees and $800,00 related to general and administrative expenses.

Results of Operations: Real Estate

In real estate, we manage four classes of assets:





commercial real estate debt, principally A notes, whole loans, mortgage participations, B notes, mezzanine debt and related commercial real estate securities;





real estate investment limited partnerships, limited liability companies and TIC property interests;





real estate loans, owned assets and ventures, known collectively as our legacy portfolio; and





a portfolio of real estate loans, acquired at a discount from the U.S. Department of Housing and Urban Development, or HUD.




the transition of property management from third party managers to our internal multi-family manager, Resource Residential, which commenced operations in October 2007;





the continuing volatility and reduction in liquidity in global credit markets have decreased transactions and financings which affect our commercial real estate debt platform;





an increased number of distressed real estate opportunities that are available to purchase; and





growth in our real estate business through the sponsorship of real estate investment partnerships and the sponsorship of TIC property interests.

We support our real estate investment partnerships by making long-term limited partnership investments. In addition, from time to time, we make bridge investments in the underlying partnerships and TIC property interests to facilitate acquisitions. We record losses on these equity method investments primarily as a result of depreciation and amortization expense recorded by the partnerships and TIC property interests. As additional investors are admitted to the partnerships and TIC programs, we transfer our bridge investment to new investors at our original cost and recognize a gain approximately equal to the previously recognized loss.

Gains on resolution of loans, FIN 46-R assets and other real estate assets (if any) and the amount of fees received (if any) vary from transaction to transaction. There have been in the past, and we expect that in the future there will be, significant period-to-period variations in our gains on resolution and fee income. Moreover, it is anticipated that gains on resolution will likely decrease in the future as we complete the resolution of our legacy portfolio.

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