NOTE 1 - NATURE OF OPERATIONS

Resource America, Inc. (the "Company") (NASDAQ: REXI) is a specialized asset management company that uses industry specific expertise to evaluate, originate, service and manage investment opportunities through its real estate, commercial finance and financial fund management operating segments. As a specialized asset manager, the Company seeks to develop investment funds for outside investors for which the Company provides asset management services, typically under long-term management and operating arrangements either through a contract with, or as the manager or general partner of, the sponsored fund. The Company limits its investment funds to investment areas where it owns existing operating companies or has specific expertise. The Company manages assets on behalf of institutional and individual investors and Resource Capital Corp. (“RCC”) (NYSE: RSO), a diversified real estate finance company that qualifies as a real estate investment trust (“REIT”).

All references to “fiscal”, unless otherwise noted, refer to the Company's fiscal year, which ends on September 30. For example, a reference to “fiscal 2011” means the 12-month period that ended on September 30, 2011. All references to quarters, unless otherwise noted, refer to the quarters of the Company's fiscal year.

The Company conducts real estate operations through the following subsidiaries:

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Resource Capital Partners, Inc. acts as the general partner for most of the Company's real estate investment entities and provides asset management services to the entire portfolio;

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Resource Real Estate Management, Inc. (“Resource Residential”) provides property management services to the entire multifamily apartment portfolio, including fund assets, distressed assets and joint venture assets;

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Resource Real Estate Funding, Inc., on behalf of RCC, manages the commercial real estate debt portfolio comprised principally of A notes, whole mortgage loans, mortgage participations, B notes, mezzanine debt and related commercial real estate securities. In addition, it manages a separate portfolio of discounted real estate and real estate loans; and

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Resource Real Estate, Inc. manages loans, owned assets and ventures, which are collectively referred to as the “legacy portfolio.”

The Company conducts its financial fund management operations primarily through the following six operating entities:

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Apidos Capital Management, LLC (“Apidos”), finances, structures and manages investments in bank loans, high yield bonds and equity investments through collateralized debt obligation (“CDO”) issuers, managed accounts and a credit opportunities fund;

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Trapeza Capital Management, LLC (“TCM”), a joint venture between us with an unrelated third-party, 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 through CDO issuers and related partnerships. TCM together with the Trapeza CDO issuers and Trapeza partnerships, are collectively referred to as Trapeza;

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Resource Financial Institutions Group, Inc. (“RFIG”), serves as the general partner for seven company-sponsored affiliated partnerships which invest in financial institutions;

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Ischus Capital Management, LLC (“Ischus”), finances, structures and manages investments in asset-backed securities (“ABS”) including residential mortgage-backed securities (“RMBS”) and commercial mortgage-backed securities (“CMBS”);

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Resource Capital Markets, Inc., through the Company's registered broker-dealer subsidiary, Resource Securities, Inc., (“Resource Securities”) (formerly Chadwick Securities, Inc.) acts as an agent in the primary and secondary markets for structured finance securities and manages accounts for institutional investors; and

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Resource Capital Manager, Inc. (“RCM”), an indirect wholly-owned subsidiary, provides investment management and administrative services to RCC under a management agreement between RCM and RCC.

The Company conducts its commercial finance operations through LEAF Commercial Capital, Inc. (“LEAF”) and LEAF Financial Corporation (“LEAF Financial”). LEAF Financial sponsored and manages four publicly-held investment entities as the general and limited partner or managing member and originated and acts as the servicer of the leases and loans sold to those entities.

LEAF Commercial Capital, Inc. On January 4, 2011, LEAF Financial Corporation, the Company's commercial finance subsidiary, raised or obtained commitments for up to $236.0 million of equity and debt capital to expand its leasing platform through LEAF Commercial Capital, Inc., its new lease origination and servicing subsidiary, through contributions from LEAF Financial, RCC and Guggenheim Securities, LLC and its affiliate (“Guggenheim”). LEAF Financial contributed its leasing platform and directly held leases and loans, while RCC committed to investing up to $36.2 million of capital in the form of preferred stock and warrants (exercisable into LEAF common stock). A portion of RCC's investment consisted of the contribution of leases and loans it had previously acquired from LEAF Financial. Guggenheim arranged a new financing facility for LEAF of $110.0 million, which can be expanded up to $200.0 million upon mutual agreement, to fund new originations (see Note 12).

As of September 30, 2011, RCC had fully funded its commitment to LEAF and, accordingly, owns a total of a 3,743 shares of LEAF Series A preferred stock (including paid-in-kind, or PIK shares) and has warrants to purchase 4,800 shares of LEAF common stock at an exercise price of $0.01 per share (representing 48% of LEAF's common stock on a fully-diluted basis). For the 2011 calendar year, the preferred stock carried a coupon of 10%, of which 2% was paid in cash and 8% was PIK. For the nine months ended September 30, 2011, the PIK interest of $2.0 million was converted into approximately 1,974 shares of preferred stock (including 752 shares that were issued in October 2011).

In addition, LEAF issued to Guggenheim a warrant to purchase up to 500 shares of LEAF common stock (exercise price of $0.01 per share) as well as the right, as amended, to acquire up to an additional 150 shares of LEAF common stock from LEAF on the same terms (representing 6.5% of LEAF's common stock on a fully-diluted basis), if by December 31, 2011, specified ratings targets for the notes issued in connection with the Guggenheim credit facility have not been obtained.

Subsequent to fiscal 2011, on November 16, 2011, the Company obtained an additional outside investment in LEAF by a third-party private equity firm (the “November 2011 LCC Transaction”; see Note 27). As a result of this investment, the Company's equity interest in LEAF was reduced from 78.7% to 15.7% (on a fully diluted basis). Accordingly, the Company has determined that it no longer controls LEAF, and, effective with that investment, has deconsolidated it for financial statement purposes. On a go-forward basis, the Company will reflect its investment in LEAF under the equity method of accounting.