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Resource America/LEAF Financial---Trend Continues Down

Resource America, Inc., (NASDAQ-REXI) Philadelphia, Pennsylvania reported their last quarter, which was the first half of the year for them. While the headline discussed "non-GAAP," a look at the consolidated financial statement shows a net loss of $4.26 million for the last three months with a total $4.83 million loss for the six months ending March 31, 2011, meaning the first quarter was much
better than the second.

Much of this is due to loss of revenues, and while the balance sheet looks good, it comes from "additional paid in capital." The real concern is the current ratio, going 2 to 1 in the wrong direction including restricted cash of $21.4 million. Also note borrowings are up from the last three months to $180.6 million (see below from consolidated balance sheet).

Six Months—March 31, 2011 to September 30, 2010

(in thousands-consolidated financial statement)

According to Chip Brian of, “SmarTrend identified a Downtrend for Resource America (NASDAQ:REXI) on February 14, 2011 at $6.41. In approximately 3 months, Resource America has returned 5.2% as of today's recent price of $6.07 (time of writing article).

“In the past 52 weeks, shares of Resource America have traded between a low of $3.50 and a high of $7.47 and are now at $6.07, which is 73% above that low price.

“Resource America is currently below its 50-day moving average of $6.34 and should find support at its 200-day moving average of $6.03. Look for these moving averages to decline to confirm the company's downward momentum.”

To give the actual numbers from the press release ( not SEC filing)  shows
changes in the mix, particularly the six month ending March 31, 2010 the commercial finance revenues were $16.2 million , but 2011 are $7.9 million.

(in thousands)

While the argument can be made about assets, this company has basically earned its cash flow from management income, with the equipment leasing division perhaps the best example, and an indication of the problem.

The Cohen families are major shareholders and rumors that they would buy back the company have been floating since the end of their last year financial statement. There are major natural gas holdings in Pennsylvania, and the Edward E. Cohen (1) and his families holding in Atlas Energy gives them the ability to buy the company back from the public, but what is their gain, as the cash flow is not positive. There are other indicators of this, and note the borrowings. While they have the ability, the question is what is value in doing so? Definitely Edward E. Cohen’s deep pockets, integrity, and high regarding in the financial community, as evidenced by his very articulate interview on “Mad Money” (2) and recent opening of the New York Stock Exchange (3) as well as Chevron acquiring Atlas Energy for $4.3 billion are indications of the family’s abilities (4).

As important his son Jonathan Z. Cohen, CEO of Resource America, former COO, has seen Resource America the stock go up from $3.50 to Friday’s closing of $6.12.

The only advantage in taking the company private would be not having to report to the Security Exchange Commission, although it does have value to investors; however, with the Cohen’s involved, perhaps that is not as important to the marketplace. The trend toward more apartment living and property management is growing, as well as the fees involved are attractive.

In the latest press release (SEC filings not made at this time) there are acquisition and management fees mentioned, such as receiving a $64,000 acquisition fee and management fees and debt serving fees on two of the loans to be received in the future, plus the proceeds of the sale of apartments, and that its property management subsidiary increased from 52 properties managing 14,913 units to 54 properties managing 14,456 units, the condition of its leasing entity LEAF Financial, as well as the new entity of LEAF Commercial, apparently underwritten by Guggenheim Securities, LLC, gives a better look into the on goings of the parent.

The press release states:
"-- Lease Origination/Platform Expansion: LEAF Commercial continues to focus its origination efforts to better serve its equipment vendor customers, support its independent equipment dealers and enhance its manufacturer branch networks through its full service processing center in Moberly, MO. In addition, through its Philadelphia, PA processing center, LEAF Commercial will support the captive finance arms of its manufacturer clients, as well as bank outsourcing and direct marketing to end users in select vertical markets."

As reported earlier, LEAF Financial is working on a skeleton staff, and most business is from the computer division in Moberly, Missouri ( formerly Dolphin Capital).

"-- Increased Key Metrics: As a result of the capital raise announced in January 2011 and the refocusing of resources on the expansion of the platform, our commercial finance operation has shown significant increases in key business metrics for the second fiscal quarter ended March 31, 2011 as compared to the first fiscal quarter ended December 31, 2010:

Credit Applications up 31%
Lease Originations up 73%
Approved Backlog up 79%


While these numbers look "attractive," they are not. Credit applications being up 31% is no big deal. What is more revealing, and seems to have impressed
the press release writer, but in reality the "Approved Backlog" exceeds "Lease Originations." This means the lessees aren't signing the lease contracts.

As Leaf Commercial, the new entity being supported by Guggenhiem, approaches the vendor market, they will have to overcome the negative reputation and past baggage left by LEAF Financial.  Why they kept the name is questionable.  It certainly won’t be easy if all they intend to do is go after the same type of business they did before. 
Clients as well as vendors know about the changes in LEAF Financial, as
in January, the main staff at LEAF Financial was down to about 15 in Collections and another 5 in Litigation within Jim Grant Collections and Litigation department; that’s about 1/3 of staff left, according to Leasing News sources.

The facts remain that Bob Hunter, Executive Vice President of Sales & Marketing, on the Executive Board, is gone, Bill Conway laid off, Vice-President of Credit, Colleen White, Director of Operations laid off, and a host of others, as well as the 2009 SEC LEAF filings showed 377 employees; February down to 271; reportedly to 113 in July, closes down LEAF Specialty, 80 in Missouri, the copier division with extremely low rates (5), and with the latest cuts, the unofficial count is 11, mostly executives who have been with CEO Crit DeMent at previous companies.

The point is the SEC filings report 688 employees for Resource America, in which LEAF Financial would have been one of their largest units.

Jonathan Cohen, CEO and President, in the Resource America press on the last three months points to the growth in real estate revenues, but states,” Our balance sheet is in good shape with approximately $16.5 million in cash and after the closing of our non-core real estate sale in June (under contract now) we expect to book a gain of $8.5 million and take in approximately $17 million of additional cash after taxes."

It does not answer the losses in the LEAF Financial funds or in the refinancing costs as well as the employee cutbacks, which have been quite dramatic for
LEAF Financial.

Full Press Release:

(1) Resource America Management Team:

(2) Atlas Energy CEO Ed Cohen on CNBC's Made Money 4-27-10 (8:13) (before Chevron $4.5 Billion 11-9-10)

(3) April 28, 2011 Atlas Energy Rings the NYSE Closing Bell

(4) Chevron $4.5 Billion announcement (11-9-10)

(5) LEAF Copier Rates:

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: Re-written article at suggestion and hopefully have also caughtall typo's by eyesite rather than by Microsoft word.