UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C.   20549





FORM
10-Q







Quarterly
Report Pursuant to Section 13 or 15(d) of the


Securities
Exchange Act of 1934




For
the Quarterly Period Ended September 30,
2008








Commission
File Number:  0-21475




EMERGENT GROUP
INC.


(Exact
name of registrant as specified in its charter)




Nevada
            93-1215401(State
      of jurisdiction of Incorporation)
            (I.R.S.
      Employer Identification No.)




10939
Pendleton Street


Sun Valley, CA
91352


(Address
of principal executive offices)





(818)
394-2800


(Registrant’s
telephone number)





Not
Applicable


(Former
name, address and fiscal year, if changed since last report)




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  ý
  No  o




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
definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.




Large accelerated
      filer o
            
            Accelerated
      filer oNon-accelerated
      filer o
            (Do
      not check if a smaller reporting company)
            Smaller
      reporting company ý




Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes  o   No 
ý




As of
November 13, 2008, the registrant had a total of 6,421,440 shares of Common
Stock outstanding.











EMERGENT
GROUP INC.





FORM
10-Q Quarterly Report





Table
of Contents




PagePART
      I.  FINANCIAL INFORMATIONItem
      1.  Financial
      StatementsCondensed
      Consolidated Balance Sheets as of September 30, 2008 (unaudited) and
      December 31, 2007
              3Condensed Consolidated Statements of Income for the Three and Nine
      Months Ended September, 2008 and 2007 (unaudited)
              4Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
      September 30, 2008 and 2007 (unaudited)
              5Notes to Condensed Consolidated Financial Statements
              7Item
      2.  Management’s
      Discussion and Analysis of Financial Condition and
      Results of Operations
              13Item
      3.  Quantitative
      and Qualitative Disclosures and Market Risk
              18Item
      4.  Controls
      and Procedures
              18PART
      II.  OTHER INFORMATION
              19Item
      1.  Legal
      Proceedings
              19Item1A. 
      Risk
      Factors
              19Item
      2.  Changes
      in Securities
              19Item
      3.  Defaults
      Upon Senior Securities
              19Item
      4.  Submissions
      of Matters to a Vote of Security Holders
              19Item
      5.  Other
      Information
              19Item
      6.  Exhibits
              19Signatures
              20


2






PART
I.  FINANCIAL INFORMATION





Item 1.  Financial
Statements








Emergent
Group Inc. and Subsidiaries
 Condensed
Consolidated Balance Sheets


September
      30,
              
              
              December
      31,2008
              
              
              2007ASSETS
              
              (Unaudited)Current
      assetsCash
              
              $
              2,577,791
              
              
              $
              3,043,654Accounts
      receivable, net of allowance for doubtfulaccounts
      of $49,984 and $17,460
              
              
              4,281,351
              
              
              
              2,313,084Inventory,
      net
              
              
              903,055
              
              
              
              504,792Prepaid
      expenses
              
              
              246,335
              
              
              
              164,857Deferred
      income taxes
              
              
              915,488
              
              
              
              915,488Total
      current assets
              
              
              8,924,020
              
              
              
              6,941,875Property
      and equipment, net of accumulated depreciation andamortization
      of $6,764,137 and $5,954,233
              
              
              6,197,024
              
              
              
              4,142,230Goodwill
              
              
              1,120,058
              
              
              
              1,120,058Other
      intangible assets, net of accumulated amortization of$205,526
      and $172,355
              
              
              419,623
              
              
              
              93,930Deposits
      and other assets
              
              
              79,384
              
              
              
              104,758Total
      assets
              
              $
              16,740,109
              
              
              $
              12,402,851LIABILITIES
      AND SHAREHOLDERS' EQUITYCurrent
      liabilitiesCurrent
      portion of capital lease obligations
              
              $
              1,855,551
              
              
              $
              1,143,198Current
      portion of notes payable
              
              
              25,222
              
              
              
              100,888Accounts
      payable
              
              
              1,133,311
              
              
              
              709,027Dividends
      payable
              
              
              -
              
              
              
              1,686,095Accrued
      expenses and other liabilities
              
              
              1,933,059
              
              
              
              1,559,046Total
      current liabilities
              
              
              4,947,143
              
              
              
              5,198,254Capital lease
      obligations, net of current portion
              
              
              3,600,316
              
              
              
              2,341,710Total
      liabilities
              
              
              8,547,459
              
              
              
              7,539,964Minority
      interest
              
              
              702,900
              
              
              
              592,807Shareholders'
      equityPreferred
      stock, $0.001 par value, non-voting 10,000,000shares
      authorized, no shares issued and outstanding
              
              
              -
              
              
              
              -Common
      stock, $0.04 par value, 100,000,000 shares authorized6,421,440
      and 5,619,392 shares issued and outstanding
              
              
              256,817
              
              
              
              224,772Additional
      paid-in capital
              
              
              16,138,810
              
              
              
              14,836,263Accumulated
      deficit
              
              
              (8,905,877
              )
              
              
              (10,790,955
              )Total
      shareholders' equity
              
              
              7,489,750
              
              
              
              4,270,080Total
      liabilities and shareholders' equity
              
              $
              16,740,109
              
              
              $
              12,402,851







The
accompanying notes are an integral part of these condensed consolidated
financial statements.




3







Emergent
Group Inc. and Subsidiaries
 Condensed
Consolidated Statements of Income
 (Unaudited)








Three
      Months Ended
              
              
              Nine
      Months EndedSeptember
      30,
              
              
              September
      30,2008
              
              
              2007
              
              
              2008
              
              
              2007Revenue
              
              $
              6,394,974
              
              
              $
              4,467,011
              
              
              $
              15,800,812
              
              
              $
              13, 181, 307Cost
      of goods sold
              
              
              3,751,747
              
              
              
              2,685,863
              
              
              
              9,067,764
              
              
              
              7,876,615Gross
      profit
              
              
              2,643,227
              
              
              
              1,781,148
              
              
              
              6,733,048
              
              
              
              5,304,692Selling,
      general, and administrative expenses
              
              
              1,498,459
              
              
              
              1,036,
      272
              
              
              
              3,753,553
              
              
              
              3,224,372Income
      from operations
              
              
              1,144,768
              
              
              
              744,876
              
              
              
              2,979,495
              
              
              
              2,080,320Other
      income (expense)Interest
      expense, net
              
              
              (79,800
              )
              
              
              (54,208
              )
              
              
              (205,936
              )
              
              
              (165,810
              )Gain
      on disposal of property and equipment
              
              
              -
              
              
              
              -
              
              
              
              28,937
              
              
              
              8,214Other
      income, net
              
              
              9,298
              
              
              
              512
              
              
              
              33,422
              
              
              
              36,604Total
      other income (expense)
              
              
              (70,502
              )
              
              
              (53,696
              )
              
              
              (143,577
              )
              
              
              (120,992
              )Income
      before provision for income taxesand
      minority interest
              
              
              1,074,266
              
              
              
              691,180
              
              
              
              2,835,918
              
              
              
              1,959,328Provision
      for income taxes
              
              
              (77,972
              )
              
              
              (39,086
              )
              
              
              (213,472
              )
              
              
              (134,498
              )Income
      before minority interest
              
              
              996,294
              
              
              
              652,094
              
              
              
              2,622,446
              
              
              
              1,824,830Minority
      interest in income of consolidatedlimited
      liability companies
              
              
              (254,484
              )
              
              
              (221,646
              )
              
              
              (737,368
              )
              
              
              (516,066
              )Net
      income
              
              $
              741,810
              
              
              $
              430,448
              
              
              $
              1,885,078
              
              
              $
              1,308,764Basic
      earnings per share
              
              $
              0.12
              
              
              $
              0.08
              
              
              $
              0.32
              
              
              $
              0.24Diluted
      earnings per share
              
              $
              0.11
              
              
              $
              0.07
              
              
              $
              0.30
              
              
              $
              0.22Basic
      weighted average shares outstanding
              
              
              6,183,074
              
              
              
              5,566,448
              
              
              
              5,856,867
              
              
              
              5,518,920Diluted
      weighted-average shares outstanding
              
              
              6,606,416
              
              
              
              5,873,137
              
              
              
              6,284,005
              
              
              
              5,825,085






The
accompanying notes are an integral part of these condensed consolidated
financial statements.




4





Emergent
Group Inc. and Subsidiaries


Condensed
Consolidated Statements of Cash Flows
 (Unaudited)


Nine
      Months EndedSeptember
      30,2008
              
              
              2007Cash
      flows from operating activitiesNet
      income
              
              $
              1,885,078
              
              
              $
              1,308,764Adjustments
      to reconcile net income to net cashprovided
      by operating activities:Depreciation
      and amortization
              
              
              1,169,883
              
              
              
              1,092,113Amortization
      of finance fees
              
              
              4,167
              
              
              
              25,959Gain
      on disposal of property and equipment
              
              
              (28,937
              )
              
              
              (8,214
              )Provision
      for doubtful accounts
              
              
              32,524
              
              
              
              5,000Minority
      interest in income
              
              
              737,368
              
              
              
              516,066Stock-based
      compensation expense
              
              
              203,702
              
              
              
              76,785(Increase)
      decrease in assets and liabilities, net of assets acquiredAccounts
      receivable
              
              
              (1,102,861
              )
              
              
              120,263Inventory
              
              
              69,457
              
              
              
              344,101Prepaid
      expenses
              
              
              (81,478
              )
              
              
              (71,910
              )Deposits
      and other assets
              
              
              (8,152
              )
              
              
              31,384Increase
      (decrease) inAccounts
      payable
              
              
              364,281
              
              
              
              6,931Accrued
      expenses and other liabilities
              
              
              102,019
              
              
              
              45,731Net
      cash provided by operating activities
              
              
              3,347,051
              
              
              
              3,492,973Cash
      flows from investing activitiesPurchase
      of property and equipment
              
              
              (331,554
              )
              
              
              (312,515
              )Purchase
      of assets from PhotoMedex
              
              
              (1,399,735
              )
              
              
              -Cash
      paid to members of limited liability companies
              
              
              (697,621
              )
              
              
              (489,803
              )Contributions
      from new members of limited liability companies
              
              
              84,375
              
              
              
              55,000Proceeds
      from the sale of property and equipment
              
              
              29,978
              
              
              
              4,580Net
      cash used in investing activities
              
              
              (2,314,557
              )
              
              
              (742,738
              )Cash
      flows from financing activitiesPayments
      on capital lease obligations
              
              
              (942,485
              )
              
              
              (814,283
              )Payments
      on dividends declared
              
              
              (1,686,095
              )
              
              
              (1,094,249
              )Borrowings
      under line of credit
              
              
              8,172,638
              
              
              
              12,246,000Repayments
      on line of credit
              
              
              (8,172,638
              )
              
              
              (12,246,000
              )Payments
      on notes payable
              
              
              (75,667
              )
              
              
              (211,993
              )Proceeds
      from private placement of common stock
              
              
              1,130,890
              
              
              
              -Proceeds
      from equipment refinancing
              
              
              75,000
              
              
              
              -Proceeds
      from exercise of common stocks
              
              
              -
              
              
              
              4,000Payment
      of loan fees
              
              
              -
              
              
              
              (10,000
              )Net
      cash used in financing activities
              
              
              (1,498,357
              )
              
              
              (2,126,525
              )Net
      (decrease) increase in cash
              
              
              (465,863
              )
              
              
              623,710Cash,
      beginning of period
              
              
              3,043,654
              
              
              
              1,318,612Cash,
      end of period
              
              $
              2,577,791
              
              
              $
              1,942,322Supplemental
      disclosures of cash flow information:Interest
      paid
              
              $
              225,395
              
              
              $
              192,134Income
      taxes paid
              
              $
              292,497
              
              
              $
              86,315
     5
 Supplemental
schedule of noncash investing and financing activities:
 During
the nine months ended September 30, 2008 and 2007, the Company incurred capital
lease obligations of
$2,913,444 and $1,204,532, respectively, for medical equipment. The lease
obligation of $2,913,444 incurred during
the nine months ended September 30, 2008 includes $1,750,000 of equipment
financing incurred in connection
with the acquisition of the assets of the Services Division from PhotoMedex,
Inc. as further discussed herein.
In addition, equipment purchases of $347,500 are included in accrued expenses
and other liabilities in the accompanying
balance sheet as of September 30, 2008 for which the Company is arranging lease
financing.




6






EMERGENT
GROUP INC and SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





1.
            BUSINESS





Emergent
Group Inc. (“Emergent”) is the parent company of PRI Medical Technologies, Inc.
(“PRI Medical”), its wholly owned and only operating subsidiary. Emergent and
PRI Medical are referred to collectively hereinafter as the “Company.” PRI
Medical provides mobile laser/surgical services, along with technical support,
on a per procedure basis to hospitals, out-patient surgery centers, and
physicians' offices.





As
further discussed herein, on August 8, 2008 the Company acquired the assets of
the Surgical Services Division (the “Services Division”) of PhotoMedex, Inc. The
operating results for the three and nine months ended September 30, 2008 include
the results of operations for the Services Division from August 9, 2008 to
September 30, 2008. In addition, unaudited pro forma information is presented in
Note 7 below for 2008 and 2007 assuming that the acquisition of assets had
occurred on the dates statedtherein.





2.
            BASIS
      OF PRESENTATION





The
accompanying unaudited condensed consolidated financial statements of Emergent
have been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC"). Certain information and footnote disclosures
normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States have been condensed or
omitted pursuant to such rules and regulations. These unaudited condensed
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto included in the Company’s
Annual Report on Form 10-KSB for the year ended December 31, 2007. In the
opinion of management, the accompanying unaudited condensed consolidated
financial statements reflect all adjustments, which are of a normal recurring
nature, necessary for a fair presentation of the results for the periods
presented.





The
results of operations presented for the three and nine months ended September
30, 2008 and 2007 are not necessarily indicative of the results to be expected
for any other interim period or any future fiscal year.





Principles of
Consolidation


The
consolidated financial statements include the accounts of Emergent and its
wholly owned subsidiaries. Also, in accordance with the Financial Accounting
Standards Board Interpretation No. 46R, “Consolidation of Variable Interest
Entities”, the Company has accounted for its minority equity investments in
certain limited liability companies under the full consolidation method. All
significant intercompany transactions and balances have been eliminated through
consolidation.





Use of
Estimates


The
preparation of the condensed consolidated financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of income and expenses during the
reporting period. Actual results could differ significantly from those
estimates.





Accounts Receivable and
Concentration of Business and Credit Risks


We market
our services primarily to hospitals and out-patient centers located in
California, Nevada, Utah, Colorado and Arizona. In addition, in connection with
the acquisition of the assets of the Services Division on August 8, 2008, we now
provide services to customers in 11 states in the Eastern United States. Our
equipment rental and technician services are subject to competition from other
similar businesses. Our accounts receivable represent financial instruments with
potential credit risk. We offer credit terms and credit limits to most of our
customers based on the creditworthiness and past payment histories of such
customers. However, we retain the right to place such customers on credit hold
should their account become delinquent. We maintain an allowance for doubtful
accounts for estimated losses should customers fail to make required payments.
In addition, we monitor the age of customer account balances, historical bad
debt experience, customer creditworthiness, customer specific information, and
changes in payment patterns when making estimates of the collectibility of trade
receivables. Accounts receivable are written off when all collection attempts
have failed. Our allowance for doubtful accounts will be increased if
circumstances warrant. Based on the information available, management believes
that our net accounts receivable are collectible.





Inventory


Inventory
consists of finished goods primarily used in connection with the delivery of our
mobile surgical equipment rental and services business. Inventory is stated at
the lower of cost or market, on a first-in, first-out basis.




7





Stock-Based
Compensation




Compensation
costs related to stock options are determined in accordance with SFAS
No. 123R, “Share-Based Payments”, using the modified prospective method.
Under this method, compensation cost recognized during the quarters ended
September 30, 2008 and 2007 includes compensation cost for all share-based
payments granted prior to but not yet vested as of January 1, 2006, and all
grants subsequent to that date, based on the grant date fair value, which is
amortized over the remaining vesting period for such options. During August 2008
we issued 35,000 stock options to various employees. Such options vest in equal
installments over five years and unvested options are subject to forfeiture
should the respective employee leave the company. Compensation costs related to
total stock options outstanding for the three months ended September 30, 2008
and 2007 were $3,178 and $2,668, respectively, and $9,107 and $8,090 for the
nine months ended September 30, 2008 and 2007, respectively.






The 2002
Employee Benefit and Consulting Services Compensation Plan (the “2002 Plan”) was
adopted in 2002 for the purpose of providing incentives to key employees,
officers, and consultants of the Company who provide significant services to the
Company. As of September 30, 2008, there are 650,000 common shares authorized
for grant under the 2002 Plan. Options will not be granted for a term of more
than ten years from the date of grant. Generally, options will vest evenly over
a period of five years, and the 2002 Plan expires in March 2012. Incentive stock
options granted under the 2002 Plan are non-statutory stock options. As of
September 30, 2008, the number of shares reserved for future awards was
182,957.




A summary
of the Company's outstanding options and activity is as follows:




Number of
      Shares
              
              
              Weighted
      Average Exercise PriceOutstanding
      at January 1, 2008
              
              
              321,376
              
              
              $
              1.48Options
      Granted
              
              
              35,000
              
              
              $
              2.15Options
      Canceled
              
              
              -
              
              
              $
              -Options
      Exercised
              
              
              (558
              )
              
              $
              0.40Outstanding
      at September 30, 2008
              
              
              355,818
              
              
              $
              1.55Exercisable
      at September 30, 2008
              
              
              282,131
              
              
              $
              1.54




The
weighted-average remaining contractual life of the options outstanding at
September 30, 2008 is 5.30 years. The exercise prices for the options
outstanding at September 30, 2008 ranged from $0.40 to $162.00, and information
relating to these options is as follows:




Range
      of Exercise Prices
              
              
              Stock
      Options Outstanding
              
              
              Stock
      Options Exercisable
              
              
              Weighted-Average
      Remaining Contractual Life of Options Exercisable
              
              
              Weighted-Average
      Exercise Price of Options Outstanding
              
              
              Weighted-Average
      Exercise Price of Options Exercisable$
              0.40
              
              
              
              
              
              
              298,469
              
              
              
              269,271
              
              
              
              4.51
              
              years
              
              
              $
              0.40
              
              
              $
              0.40$
              2.15
      - 8.00
              
              
              
              
              
              
              49,500
              
              
              
              5,011
              
              
              
              7.34
              
              years
              
              
              $
              2.61
              
              
              $
              4.85$
              20.00
      - 51.00
              
              
              
              
              
              
              7,844
              
              
              
              7,844
              
              
              
              2.85
              
              years
              
              
              $
              38.41
              
              
              $
              38.41$
              162.16
              
              
              
              
              
              
              5
              
              
              
              5
              
              
              
              0.65
              
              years
              
              
              $
              162.00
              
              
              $
              162.00$
              0.40
      - 162.16
              
              
              
              
              
              
              
              355,818
              
              
              
              282,131
              
              
              
              4.52
              
              years
              
              
              $
              1.55
              
              
              
              1.54






8






As of
September 30, 2008, the total unrecognized compensation cost related to unvested
stock options was $34,824, which is to be recognized over a remaining weighted
average vesting period of approximately 3.6 years.




WeightedAverageRemaining
              
              
              WeightedNumber
              
              
              Contractual
      Life
              
              
              AverageOutstanding
              
              
              (in
      years)
              
              
              Exercise
      PriceNon
      Vested, January 1, 2008
              
              
              67,821
              
              
              
              7.17
              
              
              $
              0.89Granted
              
              
              35,000
              
              
              
              
              
              
              $
              2.15Forfeited
              
              
              -
              
              
              
              
              
              
              $
              -Vested
              
              
              (29,134
              )
              
              
              
              
              
              $
              0.40Non
      Vested, September30, 2008
              
              
              73,687
              
              
              
              8.56
              
              
              $
              1.68





In
addition to options granted under the 2002 Plan, as of September 30, 2008, we
have 360,909 restricted award shares issued and outstanding, of which 44,000 are
fully vested. We issued 30,409 restricted shares to certain employees in August
2008 and 105,000 shares were granted to executive officers and directors in each
of March 2008 and 2007, respectively. Award shares generally vest in equal
installments over five years from the date of issuance. Such award shares are
issued from time to time to executive officers, directors and employees of the
Company. Non-vested award shares are subject to forfeiture in the event that the
recipient is no longer employed by the Company at the time of vesting, subject
to the Board’s right to waive the forfeiture provisions. Compensation expense
related to such shares is determined as of the issuance date based on the fair
value of the shares issued and is amortized over the related vesting period.
Total fair value related to the award shares issued in August 2008 was $65,379,
while the fair value for shares issued in March 2008 and 2007 was $320,250 and
$341,250, respectively. Compensation costs are amortized over the vesting period
of five years. Compensation expense related to outstanding award shares was
$40,247 and $20,669 for the three months ended September 30, 2008 and 2007,
respectively, and $105,214 and $47,029 for the nine months ended September 30,
2008 and 2007, respectively.





Earnings Per
Share


The
Company utilizes SFAS No. 128, "Earnings per Share." Basic earnings per share
are computed by dividing earnings available to common shareholders by the
weighted-average number of common shares outstanding.  Diluted
earnings per share is computed similar to basic earnings per share except that
the denominator is increased to include the number of additional common shares
that would have been outstanding if the potential common share equivalents had
been issued and if the additional common shares were dilutive. Common equivalent
shares are excluded from the computation if their effect is
anti-dilutive.





Three
      Months Ended
              
              Nine
      Months EndedSeptember
      30,
              
              September
      30,2008
              
              
              2007
              
              
              2008
              
              
              2007Numerator
      -Net
      income attributable to commonshareholders
              
              $
              741,810
              
              
              $
              430,448
              
              
              $
              1,885,078
              
              
              $
              1,308,764Denominator
      -Weighted-average
      number of commonshares
      outstanding during the period
              
              
              6,183,074
              
              
              
              5,566,448
              
              
              
              5,856,867
              
              
              
              5,518,920Dilutive
      effect of stock options and
      warrants
              
              
              423,343
              
              
              
              306,689
              
              
              
              427,138
              
              
              
              306,165Common
      stock and common stockequivalents
      used for diluted earnings per share
              
              
              6,606,417
              
              
              
              5,873,137
              
              
              
              6,284,005
              
              
              
              5,825,085





Recent Accounting
Pronounments




In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS
157). SFAS 157 establishes a framework for measuring fair value in generally
accepted accounting principles, and expands disclosures about fair value
measurements. SFAS 157 is effective for financial statements issued for
fiscal years beginning after November 15, 2007. The Company is required to
adopt the provisions of SFAS 157, as applicable, beginning in fiscal year
2008.  The adoption of SFAS 157 did not have a material impact on the
Company's financial position or results of operations.




9






3.           DEBT OBLIGATIONS




The
Company entered into a new credit agreement (the “Agreement”) with a bank in
June 2008, which was amended in August 2008. The Agreement, as amended, provides
for a line of credit of $1.5 million and is collateralized by substantially all
assets of the Company. Advances under the Agreement bear interest at the prime
rate, plus one-half of one percent, with interest payable monthly. Subject to
the terms of the Agreement, the Company may request and repay advances from time
to time through the expiration date. The Agreement includes certain financial
covenants that must be met including a covenant that for a period of not less
than thirty (30) consecutive days during the loan term, that no loan amount will
be outstanding under the Agreement. The Agreement expires on August 3, 2009. As
of September 30, 2008 the Company was in compliance with the terms of its
revolving credit agreement and no amounts have been drawn under the
facility.





In
connection with the acquisition of the Services Division, we entered into an
equipment lease financing loan with a bank for $1,750,000. The equipment lease
is collaterialized by the acquired assets and other unencumbered assets of the
Company and provides for monthly payments of principal and interest of $46,378
commencing on September 1, 2008 over 42 months, with interest at 6.4%. The lease
financing agreement also requires Emergent to meet certain financial covenants
over the loan term.





The
Company incurred total net interest expense of $79,800 and $54,208 for the three
months ended September 30, 2008 and 2007, respectively, and $205,936 and
$165,810 for the nine months ended September 30, 2008 and 2007,
respectively.





4.
            COMMITMENTS
      AND CONTINGENCIES





Legal
Matters


Byong Y.
Kwon, Plaintiff against Daniel J. Yun, Emergent Group Inc., Emergent Capital
Investment Management, LLC, Metedeconk Holdings, LLC, Voyager Advisors, LLC,
Millennium Tradition Limited (f/k/a Millennium Heritage, Limited), Emergent
Management Company, LLC, Endurance Advisors, Limited, SK Networks Co., Ltd.
(f/k/a SK Global Co., Ltd.), Hye Min Kang, John Does 1-2 and Richard Roes 1-2
(collectively the “Defendants”).





Plaintiff’s
complaint against the Defendants named above is a civil lawsuit, which was
signed by the clerk on February 2, 2005. This action is brought in the United
States District Court, Southern District of New York by Plaintiff against the
Company, a former director, Daniel Yun, and other parties to recover money
damages for alleged fraud, negligent misrepresentations and aiding and abetting
fraud. The Amended Complaint alleges that the factual basis involving the action
against the Company involves alleged false representations to Plaintiff to
induce him to leave his then employment in 2001 and accept the Company’s and
another named Defendant’s alleged offer of employment. Plaintiff seeks
compensatory damages and punitive damages each in the amount of not less than
$2,100,000 together with interest thereon, reasonable attorneys’ fees and other
specific relief against Defendants other than the Company. Management has denied
the Plaintiff’s allegations against the Company and intends to vigorously defend
this lawsuit. During the quarter ended September 30, 2008, there were no
material developments in this matter.





5.
            RELATED
      PARTY TRANSACTIONS





Transactions with BJH
Management


The
services of the Company’s Chairman and Chief Executive Officer are contracted
through BJH Management for a monthly fee of $15,167. In March 2007, the services
agreement with BJH Management was extended to June 30, 2010.





The
Company’s Chairman and Chief Executive Officer maintains his primary office in
New York. In this regard, the Company reimbursed BJH Management, LLC (“BJH”), a
company owned by the Company’s Chairman and Chief Executive Officer, for office
rent and other reimbursable expenses totaling $13,064 and $8,479 for the three
months ended September 30, 2008 and 2007, respectively and $33,551 and $30,063
for the nine months ended September 30, 2008 and  2007,
respectively.





6.           LIMITED
LIABILITY COMPANIES





In
connection with expanding its business, PRI Medical will at times help to form
Limited Liability Companies (“LLCs”) in which it will acquire either a minority
or majority interest and offer the remaining interests to other investors in
order to help reduce our risk of financial investment in new technologies. These
LLCs acquire certain medical equipment for use in their respective business
activities which generally focus on surgical procedures. PRI Medical helped to
form and acquire equity interests in various LLCs in Colorado and California and
currently holds interests in ten LLCs as of September 30, 2008. During the
second half of 2007, PRI Medical helped to form four new LLCs. Such LLCs
acquired medical equipment for rental purposes under equipment financing leases.
The third party investors in each respective LLC generally provide the lease
financing company with individual proportionate lease guarantees based on their
respective ownership percentages in the LLCs. In addition, PRI Medical will
provide such financing companies with its corporate guarantee based on its
respective ownership interest in each LLC. In certain instances, PRI Medical has
provided such financing companies with an overall corporate guarantee in
connection with equipment financing transactions. In such instances, the
individual investors in each respective LLC will generally indemnify PRI Medical
against losses, if any,
incurred in connection with its corporate guarantee.




10






7.           ACQUISITION
OF THE ASSETS OF THE SERVICES DIVISION OF PHOTOMEDEX, INC.





On August
2, 2008, the Company entered into an agreement to acquire the assets of the
Surgical Services Division (the “Services Division”) of PhotoMedex, Inc. The
Services Division provides mobile laser services in 11 Northeast, Middle
Atlantic and Southeast states, serving 18 individual local markets expanding
PRI’s geographic coverage to a total of 16 states. Revenues of the Services
Division were $7,667,000 for the year ended December 31, 2007. The purchase
price for the Services Division was approximately $3,096,325, subject to certain
post closing adjustments, plus closing costs. The acquisition was closed on
August 8, 2008, at which time the purchase price was paid by the Company through
borrowings from a bank of $1,750,000 under a fully amortizing capital equipment
lease arrangement, which is collateralized by the acquired assets and other
unencumbered assets of the Company, the proceeds from the private sale of our
restricted Common Stock as discussed elsewhere in this Form 10-Q, with the
balance paid from existing cash.





The
purchase price for the acquired assets of $3,096,325, plus certain acquisition
costs was allocated to accounts receivable of $761,959, inventory of $467,720,
equipment and vehicles of $1,594,670 and to customer list for $329,512.
Equipment and vehicles are being depreciated over threeto fiveyears while the customer list is being amortized over ten
years.





In
connection with the acquisition of the assets of the Services Division, on July
31, 2008, the Company received investment commitments totaling $1,130,890 from
15 investors to purchase the Company’s Common Stock. The commitments consisted
of 665,229 Units and at an offering price of $1.70 per Unit. Each Unit consisted
of one share of Common Stock and a Warrant to purchase 0.6 share of Common Stock
at an exercise price of $1.75 per whole share. The Warrants expire at the close
of business on July 31, 2013. Of the 665,229 Units, 533,825 Units (equivalent to
$907,503) were purchased by officers and directors of the Company.





We
anticipate that such acquisition will have an impact on future operating results
and the comparability of one period to another.





Unaudited
Pro Forma Results of Operations for the Three and Nine Months Ended September
30, 2007





The
historical operating results for the Company include the operating results for
the Services Division from August 9, 2008 to September 30, 2008. Presented below
are the comparative summarized pro forma operating results and earnings per
share for the Company assuming that the acquisition of assets of the Services
Division had been completed on July 1, 2008 and January 1, 2008 and on July 1,
2007 and January 1, 2007, respectively.




Pro
      Forma Results of OperationsThree
      Months Ended
                
                
                Nine
      Months EndedSeptember
      30,
                
                
                September
      30,2008
                
                
                2007
                
                
                2008
                
                
                
                2007Pro
      forma revenue
                
                $
                7,131,272
                
                
                $
                6,366,211
                
                
                $
                20,198,859
                
                
                
                18,908,835Pro
      forma income from operations
                
                $
                1,207,800
                
                
                $
                960,368
                
                
                $
                3,315,288
                
                
                
                2,593,857Pro
      forma net income
                
                $
                790,074
                
                
                $
                606,607
                
                
                $
                2,138,789
                
                
                
                1,714,272Pro
      forma basic earnings per share
                
                $
                0.12
                
                
                $
                0.10
                
                
                $
                0.34
                
                
                $
                0.28Pro
      forma diluted earnings per share
                
                $
                0.12
                
                
                $
                0.09
                
                
                $
                0.31
                
                
                $
                0.26


The
unaudited pro forma condensed results of operations for 2008 and 2007 include
pro forma adjustments to adjust depreciation and amortization expense based on
asset values and related depreciation and amortization periods ascribed by the
Company, interest expense incurred in connection with acquisition financing,
certain acquisition related costs, and the estimated impact on state taxes
related to the income of the Services Division. In connection with the
acquisition transaction Emergent raised additional capital through the private
placement of its Common Stock and the issuance of Warrants to purchase Common
Stock in July 2008. The pro forma common and fully diluted shares outstanding
assume completion of this transaction on July 1, 2008 and January 1, 2008 and on
July 1, 2007 and January 1, 2007, respectively, and include the effects of this
transaction in its basic and fully diluted shares outstanding. The issuance of
the Warrants resulted in compensation expense of $93,937, which is also included
in the pro forma adjustments for 2007.




11




The
unaudited pro forma results for the periods presented above are not necessarily
indicative of what actual results would have resulted had the acquisition
transaction described herein occurred at the dates stated above nor do they
purport to indicate the results of future operations of Emergent and the
Services Division acquired from PhotoMedex, Inc. Furthermore, no effect has been
given in the unaudited pro forma condensed statements of income for synergistic
benefits that may be realized from the acquisition of the Services Division or
costs that may be incurred in integrating operations. The unaudited condensed
pro forma combined statements of income as presented herein should be read in
conjunction with the accompanying notes, the historical financial statements and
notes to the financial statements of Emergent set forth in Emergent’s periodic
and current reports filed with the Securities and Exchange Commission and the
carve-out audited and unaudited financial statements and notes of the Services
Division as previously filed in Form 8-K.





8.           Subsequent
Event





On
November 4, 2008 the Company received notice from the NYSE Alternext US LLC (the
“Exchange”) that it had been approved for the listing of its Common Stock on the
Exchange. Effective November 10, 2008 the Company’s Common Stock began trading
on the Exchange under the symbol “LZR.”





12





Item 2. Management's
Discussion and Analysis of Financial Condition and Results of
Operations





Forward-Looking
Statements





The
information contained in this Form 10-Q and documents incorporated herein by
reference are intended to update the information contained in the Company’s
Annual Report on Form 10-KSB for the year ended December 31, 2007 and such
information presumes that readers have access to, and will have read, the
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations,” “Risk Factors” and other information contained in such Form 10-KSB
and other Company filings with the Securities and Exchange Commission
(“SEC”).





This
Quarterly Report on Form 10-Q contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. These forward-looking
statements involve risks and uncertainties, and actual results could be
significantly different than those discussed in this Form 10-Q. Certain
statements contained in Management's Discussion and Analysis, particularly in
"Liquidity and Capital Resources," and elsewhere in this Form 10-Q are
forward-looking statements. These statements discuss, among other things,
expected growth, future revenues and future performance. Although we believe the
expectations expressed in such forward-looking statements are based on
reasonable assumptions within the bounds of our knowledge of our business, a
number of factors could cause actual results to differ materially from those
expressed in any forward-looking statements, whether oral or written, made by us
or on our behalf. The forward-looking statements are subject to risks and
uncertainties including, without limitation, the following: (a) changes in
levels of competition from current competitors and potential new competition,
(b) possible loss of significant customer(s), (c) the Company’s ability to
effectively integrate into its operations the recently acquired assets and
customers of the Surgical Services Division of PhotoMedex, Inc., as discussed
elsewhere in this Form 10-Q, and its ability to integrate new and changing
medical technologies into to its product and service offerings, (d) the risk of
equipment vendors not making their equipment and technologies available to
equipment rental and service companies such as ours, (e) the Company’s ability
to meet the terms and conditions of its debt and lease obligations, and (f)
changes in availability or terms of working capital financing from vendors and
lending institutions. The foregoing should not be construed as an exhaustive
list of all factors that could cause actual results to differ materially from
those expressed in forward-looking statements made by us. All forward-looking
statements included in this document are made as of the date hereof, based on
information available to the Company on the date thereof, and the Company
assumes no obligation to update any forward-looking statements.





Overview





Emergent
Group Inc. (“Emergent”) is the parent company of PRI Medical Technologies, Inc.
(“PRI Medical”), its wholly owned and only operating subsidiary. Emergent and
PRI Medical are referred to collectively hereinafter as the “Company.” PRI
Medical provides mobile laser/surgical services, along with technical support,
on a per procedure basis to hospitals, out-patient surgery centers, and
physicians' offices.





Acquisition
of the Assets of the Services Division of PhotoMedex, Inc.





On August
2, 2008, the Company entered into an agreement to acquire the assets of the
Surgical Services Division (the “Services Division”) of PhotoMedex, Inc. The
Services Division provides mobile laser services in 11 Northeast, Middle
Atlantic and Southeast states, serving 18 individual local markets expanding
PRI’s geographic coverage to a total of 16 states. Revenues of the Services
Division were $7,667,000 for the year ended December 31, 2007. The purchase
price for the Services Division was approximately $3,096,325, subject to certain
post closing adjustments, plus closing costs. The acquisition was closed on
August 8, 2008, at which time the purchase price was paid by the Company through
borrowings from a bank of $1,750,000, under a fully amortizing capital equipment
lease arrangement, which is collateralized by the acquired assets and other
unencumbered assets of the Company, the proceeds from the private sale of our
restricted Common Stock as discussed elsewhere in this Form 10-Q, with the
balance paid from existing cash.





We
anticipate that such acquisition will have an impact on future operating results
and the comparability of one period to another.




13






Unaudited
Pro Forma Results for the Three Months and Nine Months Ended September 30,
2007





The
historical operating results for the Company include the operating results for
the Services Division from August 9, 2008 to September 30, 2008. Presented below
are the comparative summarized pro forma operating results and earnings per
share for the Company assuming that the acquisition of assets of the Services
Division had been completed on July 1, 2008 and January 1, 2008 and on July 1,
2007 and January 1, 2007, respectively.




Pro
      Forma Results of OperationsThree
      Months Ended
              
              
              Nine
      Months EndedSeptember
      30,
              
              
              September
      30,2008
              
              
              2007
              
              
              2008
              
              
              2007Pro
      forma revenue
              
              $
              7,131,272
              
              
              $
              6,366,211
              
              
              $
              20,198,859
              
              
              
              18,908,835Pro
      forma income from operations
              
              $
              1,207,800
              
              
              $
              960,368
              
              
              $
              3,315,288
              
              
              
              2,593,857Pro
      forma net income
              
              $
              790,074
              
              
              $
              606,607
              
              
              $
              2,138,789
              
              
              
              1,714,272Pro
      forma basic earnings per share
              
              $
              0.12
              
              
              $
              0.10
              
              
              $
              0.34
              
              
              $
              0.28Pro
      forma diluted earnings per share
              
              $
              0.12
              
              
              $
              0.09
              
              
              $
              0.31
              
              
              $
              0.26


The
unaudited pro forma condensed results of operations for 2008 and 2007 include
pro forma adjustments to adjust depreciation and amortization expense based on
asset values and related depreciation and amortization periods ascribed by the
Company, interest expense incurred in connection with acquisition financing,
certain acquisition related costs, and the estimated impact on state taxes
related to the income of the Services Division. In connection with the
acquisition transaction Emergent raised additional capital through the private
placement of its Common Stock and the issuance of Warrants to purchase Common
Stock in July 2008. The pro forma common and fully diluted shares outstanding
assume completion of this transaction on July 1, 2008 and January 1, 2008 and on
July 1, 2007 and January 1, 2007 and include the effects of this transaction in
its basic and fully diluted shares outstanding. The issuance of the Warrants
resulted in compensation expense of $93,937, which is also included in the pro
forma adjustments for 2007.





The
unaudited pro forma results for 2008 and 2007 are not necessarily indicative of
what actual results would have resulted had the acquisition transaction
described herein occurred on the dates stated above nor do they purport to
indicate the results of future operations of Emergent and the Services Division
acquired from PhotoMedex, Inc. Furthermore, no effect has been given in the
unaudited pro forma condensed statements of income for synergistic benefits that
may be realized from the acquisition of the Services Division or costs that may
be incurred in integrating operations. The unaudited condensed pro forma
combined statements of income as presented herein should be read in conjunction
with the accompanying notes, the historical financial statements and notes to
the financial statements of Emergent set forth in Emergent’s periodic and
current reports filed with the Securities and Exchange Commission and the
carve-out audited and unaudited financial statements and notes of the Services
Division as previously filed in Form 8-K.





Critical
Accounting Policies





Our
discussion and analysis of our financial condition and results of operations are
based upon our financial statements, which have been prepared in accordance with
generally accepted accounting principles in the United States. The preparation
of financial statements requires managers to make estimates and disclosures on
the date of the financial statements. On an on-going basis, we evaluate our
estimates including, but not limited to, those related to revenue recognition,
inventory valuation and property and equipment. We use authoritative
pronouncements, historical experience and other assumptions as the basis for
making judgments. Actual results could differ from those estimates. We believe
that the following critical accounting policies affect our more significant
judgments and estimates in the preparation of our financial
statements.





Revenue Recognition. Revenue
is recognized once our mobile rental and technicians services are performed and
billable. We are required to make judgments based on historical experience and
future expectations, as to the realizability of goods and services billed to our
customers. These judgments are required to assess the propriety of the
recognition of revenue based on Staff Accounting Bulletin (“SAB”) No. 104,
“Revenue Recognition,” and related guidance. We make such assessments based on
the following factors: (a) customer-specific information, and (b) historical
experience for issues not yet identified.





Inventory Valuation. We are
required to make judgments based on historical experience and future
expectations as to the realizability of our inventory. We make these assessments
based on the following factors: (a) existing orders and usage, (b) age of the
inventory, and (c) historical experience.





Property and Equipment. We
are required to make judgments based on historical experience and future
expectations as to the realizability of our property and equipment. We made
these assessments based on the following factors: (a) the estimated useful lives
of such assets, (b) technological changes in our industry, and (c) the changing
needs of our customers.




14






Results
of Operations





The
following table sets forth certain selected unaudited condensed consolidated
statements of income data for the periods indicated in dollars and as a
percentage of total revenues. The following discussions relate to our results of
operations for the periods noted which include the results of operations for the
Services Division acquired on August 8, 2008, as discussed herein. The results
of operations for the periods noted are not necessarily indicative of the
results expected for any other interim period or any future fiscal year. In
addition, we note that the period-to-period comparison may not be indicative of
future performance.




Three
      Months Ended
              
              
              
              
              
              Nine
      Months EndedSeptember
      30,
              
              
              
              
              
              September
      30,2008
              
              
              %
              
              
              2007
              
              
              %
              
              
              2008
              
              
              %
              
              
              2007
              
              
              %Revenue
              
              $
              6,394,974
              
              
              
              100
              %
              
              $
              4,467,011
              
              
              
              100
              %
              
              $
              15,800,812
              
              
              
              100
              %
              
              $
              13,181,307
              
              
              
              100
              %Cost
      of goods sold
              
              
              3,751,747
              
              
              
              59
              %
              
              
              2,685,863
              
              
              
              60
              %
              
              
              9,067,764
              
              
              
              57
              %
              
              
              7,876,615
              
              
              
              60
              %Gross
      profit
              
              
              2,643,227
              
              
              
              41
              %
              
              
              1,781,148
              
              
              
              40
              %
              
              
              6,733,048
              
              
              
              43
              %
              
              
              5,304,692
              
              
              
              40
              %Selling,
      general, and administrative
              
              
              1,498,459
              
              
              
              23
              %
              
              
              1,036,272
              
              
              
              23
              %
              
              
              3,753,553
              
              
              
              24
              %
              
              
              3,224,372
              
              
              
              24
              %Income
      from operations
              
              
              1,144,768
              
              
              
              18
              %
              
              
              744,876
              
              
              
              17
              %
              
              
              2,979,495
              
              
              
              19
              %
              
              
              2,080,320
              
              
              
              16
              %Other
      income (expense)
              
              
              (70,502
              )
              
              
              -1
              %
              
              
              (53,696
              )
              
              
              -1
              %
              
              
              (143,577
              )
              
              
              -1
              %
              
              
              (120,992
              )
              
              
              -1
              %Income
      before provision for incometaxes
      and minority interest
              
              
              1,074,266
              
              
              
              17
              %
              
              
              691,180
              
              
              
              16
              %
              
              
              2,835,918
              
              
              
              18
              %
              
              
              1,959,328
              
              
              
              15
              %Provision
      for income taxes
              
              
              (77,972
              )
              
              
              -1
              %
              
              
              (39,086
              )
              
              
              -1
              %
              
              
              (213,472
              )
              
              
              -1
              %
              
              
              (134,498
              )
              
              
              -1
              %Net
      income before minority interest
              
              
              996,294
              
              
              
              16
              %
              
              
              652,094
              
              
              
              15
              %
              
              
              2,622,446
              
              
              
              17
              %
              
              
              1,824,830
              
              
              
              14
              %Minority
      interest in income of consolidatedlimited
      liability companies
              
              
              (254,484
              )
              
              
              -4
              %
              
              
              (221,646
              )
              
              
              -5
              %
              
              
              (737,368
              )
              
              
              -5
              %
              
              
              (516,066
              )
              
              
              -4
              %Net
      income
              
              $
              741,810
              
              
              
              12
              %
              
              $
              430,448
              
              
              
              10
              %
              
              $
              1,885,078
              
              
              
              12
              %
              
              $
              1,308,764
              
              
              
              10
              %




Comparison
of the Three Months Ended September 30, 2008 to September 30, 2007





The
Company generated revenues of $6,394,974 in 2008 compared to $4,467,011 in 2007.
The increase in revenues in 2008 of $1,927,963 or 43% is primarily related to
the inclusion of revenues of $1,011,785 from the Services Division since August
8, 2008 and to an increase in revenues from our surgical
procedures.





Cost of
goods sold was $3,751,747 in 2008 or 59% of revenues for 2008 compared to
$2,685,863 or 60% of revenues for 2007, respectively. Costs of goods sold
primarily consist of payroll costs and related expenses for technicians, cost of
disposables consumed, depreciation and amortization related to equipment,
insurance costs and other operating costs incurred in rendering mobile medical
equipment and technician services. The overall dollar increase in cost of goods
sold of $1,065,884 or 40% for 2008 is due to the inclusion of costs from the
Services Division since August 8, 2008,  increases in disposable
costs, equipment maintenance costs, and to depreciation and amortization
expense. Exclusive of the effects of the Services Division, disposable costs
increased as a result of increased volume in surgical cases where more expensive
disposable items were used. Depreciation and amortization expense increased due
to equipment purchases in 2008 and 2007. The net change in other cost categories
included in cost of goods sold remained relatively consistent in 2008 compared
to 2007.





Gross
profit from operations was $2,643,227 in 2008 compared to $1,781,148 in 2007.
Gross profit as a percentage of revenues was 41% in 2008 compared to 40% in
2007. Gross margins may vary from quarter to quarter depending on the type of
surgical procedures performed due to the fact that certain procedures require
more expensive disposable items. In addition, gross margin rates will vary from
period to period depending upon other factors including pricing considerations,
and equipment and technician utilization rates. The gross margin for 2008 is not
necessarily indicative of the margins that may be realized in future
periods.





Selling,
general, and administrative expenses were $1,498,459 or 23% of revenues in 2008
compared to $1,036,272 or 23% of revenues in 2007. Such costs include, among
others, payroll and related expenses, insurance costs and occupancy costs. The
increase in selling, general and administrative expenses of $462,187 in 2008 is
due to the inclusion of costs from the Services Division since August 8, 2008,
the inclusion of certain non-recurring administrative costs of approximately
$188,000 either directly or indirectly related to such acquisition and to
increases in incentive compensation related to improved operating performance.
In addition, selling expenses increased as a result of increases in incentive
compensation and other payroll costs to advance new product lines.




15






Other
income (expense) was $(70,502) in 2008 compared to $(53,696) in 2007. Other
income (expense) includes interest expense and income, gains and losses on
disposal of property and equipment, and other miscellaneous income and expense
items. The net increase in other income (expense) of $(16,806) is primarily
related to the increase in net interest expense for 2008. Interest expense
increased due to the inclusion of interest expense for equipment financing in
connection with the acquisition of the Services Division on August 8, 2008 and
to interest expense incurred for other equipment leases entered into during the
current and prior year; offset by an increase in other miscellaneous income of
$8,786.





The
minority interest (ownership interests held by non-affiliates) in net income of
limited liability companies was $254,484 in 2008 compared to $221,646 in 2007.
In 2008 and 2007 we held either minority or majority interests in ten and seven
entities, respectively. As of September 30, 2008 and 2007, in accordance with
the Financial Accounting Standards Board Interpretation No. 46R, “Consolidation
of Variable Interest Entities”, the Company accounted for its equity investments
in entities in which it holds a minority interest under the full consolidation
method.





Net
income was $741,810 in 2008 compared to $430,448 in 2007. The increase in net
income of $311,362 for 2008 compared to 2007 is attributable to the changes in
revenues and expenses as discussed above. Provision for income taxes was $77,972
in 2008 compared to $39,086 in 2007. The Company has net operating loss
carryforwards for federal tax purposes. The provision for income taxes of as of
September 30, 2008 relates to state taxes and to federal Alternative Minimum
Taxes (AMT). Basic and fully diluted net income per share for 2008 was $0.12 and
$0.11, respectively, compared to basic and fully diluted net of income per share
for 2007 of $0.08 and $0.07, respectively. Basic and fully diluted shares
outstanding for 2008 were 6,183,074 and 6,606,416, respectively, and 5,566,448
and 5,873,137 for 2007, respectively.





Comparison
of the Nine Months Ended September 30, 2008 to September 30, 2007





The
Company generated revenues of $15,800,812 in 2008 compared to $13,181,307 in
2007. The increase in revenues in 2008 of $2,619,505, or 20% is related to the
inclusion of revenues of $1,011,785 from the Services Division since August 8,
2008 and to an increase in revenues from our surgical procedures.





Cost of
goods sold was $9,067,764 or 57% of revenues in 2008 compared to $7,876,615 or
60% of revenues for 2007. Costs of goods sold primarily consists of payroll
costs and related expenses for technicians, cost of disposables consumed,
insurance costs and other operating costs incurred in rendering mobile medical
equipment and technician services. The overall dollar increase in cost of goods
sold of $1,191,149 or 15% for 2008 is due to the inclusion of costs from the
Services Division since August 8, 2008, and to increases in disposable costs,
payroll and related costs and an increase in depreciation and amortization
expense; offset by a decrease of $164,261 in equipment rental costs. Exclusive
of the cost impact of the Services Division, disposable costs increased as a
result of increased volume in surgical cases where more expensive disposable
items were used, while payroll costs increased as a result of the increase in
the number of surgical procedures performed in 2008 compared to 2007.
Depreciation and amortization expense increased due to equipment purchases in
2008 and 2007, while equipment rental expense decreased, in part, due to
equipment purchased that was previously rented. The net change in other cost
categories included in cost of goods sold remained relatively unchanged in 2008
compared to 2007.





Gross
profit from operations was $6,733,048 in 2008 compared to $5,304,692 in 2007.
Gross profit as a percentage of revenues was 43% in 2008 compared to 40% in
2007. Gross margins after disposable costs will vary depending on the type of
surgical procedure performed due to the fact that certain procedures require
more expensive disposable items. In addition, gross margin rates will vary from
period to period depending upon other factors including pricing considerations,
and equipment and technician utilization rates. The gross margin for 2008 is not
necessarily indicative of the margins that may be realized in future
periods.





Selling,
general, and administrative expenses were $3,753,553 or 24% of revenues for 2008
and $3,224,372 or 24% of revenues for 2007. Such costs include, among others,
payroll and related expenses, insurance costs and occupancy costs. The increase
in selling, general and administrative expenses of $529,181 in 2008 is due to
the inclusion of operating costs from the Services Division since August 8,
2008, the inclusion of certain non-recurring administrative costs of
approximately $188,000 either directly or indirectly related to such acquisition
and to increases in incentive compensation related to improved operating
performance. In addition, selling expenses increased as a result of increases in
incentive compensation and other payroll costs to advance new product
lines.




16






Other
income (expense) was $(143,577) in 2008 compared to $(120,992) in 2007. Other
income (expense) includes interest expense and income, gains and losses on
disposal of property and equipment, and other miscellaneous income and expense
items. The net increase in other income (expense) of $(22,585) for 2008 is
primarily related to the increase in net interest expense for 2008. Interest
expense increased due to the inclusion of interest expense for equipment
financing in connection with the acquisition of the Services Division on August
8, 2008 and to interest expense incurred for other equipment leases entered into
during the current and prior year; offset by an increase in gain on disposal of
property and equipment and other miscellaneous income of $17,541.





The
minority interest in net income of limited liability companies was $737,368 in
2008 compared to $516,066 in 2007. Minority interest in income relates to the
consolidation of ten entities in 2008 and seven entities in 2007 in which we
hold either a minority or majority equity investment interest. As of September
30, 2008 and 2007, in accordance with the Financial Accounting Standards Board
Interpretation No. 46R, “Consolidation of Variable Interest Entities”, the
Company accounted for its equity investments in these entities under the full
consolidation method.





Net
income was $1,885,078 in 2008 compared to $1,308,764 in 2007. The increase in
net income of $576,314 for 2008 compared to 2007 is attributable to the changes
in revenues and expenses as discussed above. Provision for income taxes was
$213,472 in 2008 compared to $134,498 in 2007. The Company has net operating
loss carryforwards for federal tax purposes. The provision for income taxes of
$213,472 as of September 30, 2008 relates to state taxes and to estimated
Alternative Minimum Taxes (AMT). Basic and fully diluted net income per share
for 2008 was $0.32 and $0.30, respectively, compared to basic and fully diluted
net income per share for 2007 of $0.24 and $0.22, respectively. Basic and fully
diluted shares outstanding for 2008 were 5,856,867 and 6,284,005, respectively,
and 5,518,920 and 5,825,085 for 2007, respectively.





Liquidity
and Capital Resources





The
Company entered into a new credit agreement (the “Agreement”) with a bank in
June 2008, which was amended in August 2008. The Agreement, as amended, provides
for a line of credit of $1.5 million and is collateralized by substantially all
assets of the Company. Advances under the Agreement bear interest at the prime
rate, plus one-half of one percent, with interest payable monthly. Subject to
the terms of the Agreement, the Company may request and repay advances from time
to time through the expiration date. The Agreement includes certain financial
covenants that must be met including a covenant that for a period of not less
than thirty (30) consecutive days during the loan term, that no loan amount will
be outstanding under the Agreement. The Agreement expires on August 3, 2009. As
of September 30, 2008 the Company was in compliance with the terms of its
revolving credit agreement and no amounts have been drawn under the
facility.





In
connection with the acquisition of the assets of the Services Division, on July
31, 2008, the Company received investment commitments totaling $1,130,890 from
15 investors to purchase the Company’s Common Stock. The commitments consisted
of 665,229 Units and at an offering price of $1.70 per Unit. Each Unit consisted
of one share of Common Stock and a Warrant to purchase 0.6 share of Common Stock
at an exercise price of $1.75 per whole share. The Warrants expire at the close
of business on July 31, 2013. Of the 665,229 Units, 533,825 Units (equivalent to
$907,503) were purchased by officers and directors of the Company.





On August
2, 2008, the Company entered into an agreement to acquire the assets of the
Surgical Services Division (the “Services Division”) of PhotoMedex, Inc. The
Services Division provides mobile laser services in 11 Northeast, Middle
Atlantic and Southeast states, serving 18 individual local markets expanding
PRI’s geographic coverage to a total of 16 states. Revenues of the Services
Division were $7,667,000 for the year ended December 31, 2007. The purchase
price for the Services Division was approximately $3,096,325,
plus closing costs. The acquisition was closed on August 8, 2008, at which time
the purchase price was paid by the Company through borrowings from a bank of
$1,750,000, under a fully amortizing capital equipment lease arrangement, which
is collateralized by the acquired assets and other unencumbered assets of the
Company, the proceeds from the private sale of our restricted common stock as
discussed in the preceding paragraph, with the balance paid from existing cash.
The aforementioned capital equipment lease agreement provides for monthly
payments of principal and interest starting on September 1, 2008 of $46,378 over
42 equal monthly installments.




17






The
Company had cash and cash equivalents of $2,577,791 at September 30, 2008. Cash
provided by operating activities for the nine months ended September 30, 2008
was $3,347,051. Cash generated from operations includes net income of
$1,885,078, depreciation and amortization of $1,174,050, minority interest in
net income of $737,368, stock-based compensation of $203,702, a decrease in
inventory of $69,457, an increase in provision for doubtful accounts of $32,524,
increases in accounts payable and accrued expenses and other liabilities of
$364,281 and $102,019, respectively; offset by increases in accounts receivable
of $1,102,861 and prepaid expenses  and deposits and other assets of
$81,478 and $8,152, respectively. Cash used in investing activities was
$2,314,557 and consisted of cash paid of $1,399,735 in connection with the
acquisition of the assets of the Services Division, purchase of property and
equipment of $331,554, cash distributions of $697,621 to members of limited
liability companies, offset by contributions from new members to limited
liability companies of $84,375 and proceeds from the sale of equipment of
$29,978. Cash used for financing activities was $1,498,357 and consisted of
payment of dividends on common stock of $1,686,095, and payments on lease and
debt obligations of $942,485 and $75,667; offset by net proceeds of $1,130,890
from the private placement of Common Stock and proceeds of $75,000 from
equipment refinancing. In addition, during the nine months ended September 30,
2008 we borrowed and repaid $8,172,638 under our previous revolving line of
credit agreement.





The
Company had cash and cash equivalents of $1,942,322 at September 30, 2007. Cash
provided by operating activities for the nine months ended September 30, 2007
was $3,492,973. Cash generated from operations includes net income of
$1,308,764, depreciation and amortization of $1,118,072, minority interest in
net income of $516,066, decreases in inventory of $344,101, accounts receivable
of $120,263, deposits and other assets of $31,384 and stock-based compensation
expense of $76,785 and increases in accounts payable and accrued expenses of
$52,662; offset by an increase in prepaid expenses of $71,910. Cash used in
investing activities was $742,738 related to the purchase of property and
equipment, net of reimbursements, of $312,515 and to cash distributions of
$489,803 to members of limited liability companies; offset by net proceeds of
$4,580 from the disposition of property and equipment and contributions from new
members to limited liability companies of $55,000. Cash used for financing
activities was $2,126,525 from payments on lease and debt obligations of
$814,283 and $211,993, respectively, payment of loan fees of $10,000, and
payment of dividends on common stock of $1,094,249. In addition, during the nine
months ended September 30, 2007 we borrowed and repaid $12,246,000 under our
revolving line of credit.





We
anticipate that our future liquidity requirements will arise from the need to
finance our accounts receivable and inventories, and from the need to fund our
current debt and lease obligations and capital expenditures. The primary sources
of funding for such requirements will be cash generated from operations,
borrowings under debt facilities and trade payables, and raising additional
capital from the sale of equity or other securities. The Company believes that
it can generate sufficient cash flow from these sources to fund its on-going
operations for at least the next twelve months.





Item 3. Quantitative and
Qualitative Disclosures About  Market Risk




Market
risk is the risk of loss arising from adverse changes in market rates and
prices, such as interest rates, foreign currency exchange rates and commodity
prices. Our primary exposure to market risk is interest rate risk associated
with our short term money market investments. The Company does not have any
financial instruments held for hedging or other speculative purposes and does
not invest in derivative financial instruments, interest rate swaps or other
investments that alter interest rate exposure. The Company does not have any
credit facilities with variable interest rates.





Item 4. Controls and
Procedures




We
maintain disclosure controls and procedures, which are designed to ensure that
information required to be disclosed in the reports we file or submit under the
Securities Exchange Act of 1934, as amended, is recorded, processed, summarized
and reported within the time periods specified in the Securities and Exchange
Commissions rules and forms, and that such information is accumulated and
communicated to our management, including our CEO and CFO, as appropriate, to
allow timely decisions regarding required disclosure.






Under the
supervision and with the participation of our management, including our CEO and
CFO, an evaluation was performed on the effectiveness of the design and
operation of our disclosure controls and procedures as of the end of the period
covered by this quarterly report. Based on that evaluation, our management,
including our CEO and CFO, concluded that our disclosure controls and procedures
were effective as of the end of the period covered by this report.






There
were no changes in the Company’s internal controls over financial reporting
during the most recently completed fiscal quarter that have materially affected
or are reasonably likely to materially affect the Company’s internal control
over financial reporting.




18





PART
II.  OTHER INFORMATION




Item
      1.
            Legal
    ProceedingsSee Note 4 to Notes
      to Condensed Consolidated Financial Statements included herein for a
      description of legal matters.Item
      1A.
            Risk
FactorsAs
      a  Smaller Reporting Company as defined Rule 12b-2 of the
      Exchange Act and in item 10(f)(1) of Regulation S-K, we are electing
      scaled disclosure reporting obligations and therefore are not required to
      provide the information requested by this Item 1A.Item 2.
            Changes in
      Securities




(a)
            On
      July 31, 2008, the Company received investment commitments totaling
      $1,130,890 from 15 investors to purchase the Company’s Common Stock. The
      commitments consisted of 665,229 Units with an offering price of $1.70 per
      Unit. Each Unit consisted of one share of Common Stock and a Warrant to
      purchase 0.6 share of Common Stock at an exercise price of $1.75 per whole
      share. The Warrants expire at the close of business on July 31, 2013. Of
      the 665,229 Units, 533,825 Units (equivalent to $907,503) were purchased
      by officers and directors of the
Company.


(b)
            Rule
      463 of the Securities Act is not applicable to the
  Company.


(c)
            In
      the third quarter ended September 30, 2008 there were no repurchases by
      the Company of its Common Stock.




Item 3.
              Defaults Upon Senior SecuritiesNone.Item 4.
              Submissions of Matters to a Vote of Security
    HoldersIn the third quarter ended September 30, 2008
      there were no matters submitted to a vote of security
holders.Item 5.
              Other InformationOn November 4, 2008 the Company received
      notice from the NYSE Alternext US LLC (the “Exchange”) that it had been
      approved for the listing of its Common Stock on the Exchange. Effective
      November 10, 2008 the Company’s Common Stock began trading on the Exchange
      under the symbol “LZR.”Item
      6.
              ExhibitsExcept
      for the exhibits listed below, other required exhibits have been
      previously filed with the Securities and Exchange Commission under the
      Securities Exchange Act of 1934, as
amended.


Number
Exhibit Description


____________________________________________





11.1
            Statement
      re: computation of earnings per share.  See condensed
      consolidated statement of operations and notes
  thereto.


31.1
            Certification
      of Chief Executive Officer Pursuant to Rule 13a-14(a) under the Securities
      Exchange Act of 1934, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002*


31.2
            Certification
      of Chief Financial Officer Pursuant to Rule 13a-14(a) under the Securities
      Exchange Act of 1934, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002*


32.1
            Certification
      of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002*


32.2
            Certification
      of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002*


99.1
            Press
      Release Re: Quarterly Results*


99.2
            Press
      Release Re: NYSE Alternext US
Exchange*


99.3
            Press
      Release Re: NYSE Alternext US
Exchange*


________________________


* Filed
herewith.




19




SIGNATURES


Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.






EMERGENT GROUP
      INC.November
      13, 2008
              By:
              /s/ Bruce
      J. HaberBruce
      J. HaberChairman
      and Chief Executive Officer


November
      13, 2008
              By:
              /s/ William
      M. McKayWilliam
      M. McKayChief
      Financial Officer and Secretary















20