SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C.  20549





FORM
10-K





[X]
            ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
      1934





For the fiscal year ended
December 31, 2008


or




[  ]
              TRANSITION
      REPORT PURSUANT TO SECTION 12 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For the
transition period from  ____ to
___                                 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 or organization)
            (I.R.S. Employer
      Identification Number)10939
      Pendleton Street
              Sun
      Valley, California
            91352(Address of
      principal executive offices)
            (Zip
      Code)Registrant’s
      telephone number, including area code:
            (818)
      394-2800


\Securities registered
pursuant to Section 12 (b) of the Act:  None





Securities
registered pursuant to Section 12 (g) of the Act:  Common Stock, $.04
Par Value





Check
whether the Registrant is not required to file reports pursuant to Section 13 or
15(d) of the Exchange Act. [  ]





Indicate
by check mark whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days. Yes X.   No ___.





Indicate
by check mark if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in part III of this
Form 10-K or any amendment to this Form 10-K [X].





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company as
defined by Rule 12b-2 of the Exchange Act: smaller reporting company
[X].




Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).Yes [  ] No [X]




State
Issuer’s revenues for its most recent fiscal year: $22,785,922.





As of
March 26, 2009, the number of shares held by non-affiliates was approximately
3,020,000 shares. The approximate market value based on the last sale (i.e.
$8.93 per share as of March 26, 2009) of the Company’s Common Stock was
approximately $26,968,600.





The
number of shares outstanding of the Registrant’s Common Stock (inclusive of book
entry shares that are subject to vesting) as of March 26, 2009, was
6,663,755.








1









FORWARD-LOOKING
STATEMENTS





We believe this annual report contains
“forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements are subject to risks and
uncertainties and are based on the beliefs and assumptions of our management,
based on information currently available to our management. When we use words
such as “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates,”
“should,” “likely” or similar expressions, we are making forward-looking
statements. Forward-looking statements include information concerning our
possible or assumed future results of operations set forth under “Business”
and/or “Management's Discussion and Analysis of Financial Condition and Results
of Operations.”





Forward-looking statements are not
guarantees of performance. They involve risks, uncertainties and assumptions.
Our future results and stockholder values may differ materially from those
expressed in the forward-looking statements. Many of the factors that will
determine these results and values are beyond our ability to control or predict.
Stockholders are cautioned not to put undue reliance on any forward-looking
statements. For those statements, we claim the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995. For a discussion of some of the factors that may cause actual
results to differ materially from those suggested by the forward-looking
statements, please read carefully the information under “Risk Factors.” In
addition to the Risk Factors and other important factors discussed elsewhere in
this annual report, you should understand that other risks and uncertainties
presented in our public announcements and SEC filings could affect our future
results and could cause results to differ materially from those suggested by the
forward-looking statements.








2









PART
I


Item 1. Business





THE
COMPANY





Emergent
Group Inc. (“Emergent”) is the parent company of PRI Medical Technologies, Inc.,
its wholly owned and primary operating subsidiary (“PRI Medical”). Emergent and
PRI Medical are referred to collectively hereinafter as the “Company.” PRI
Medical is a provider of surgical equipment on a fee for service basis to
hospitals, surgical care centers and other health care providers. PRI Medical
serves both large and small health care providers, including: 1) smaller
independent hospitals and physicians who cannot afford to buy surgical equipment
because of budget constraints or cannot justify buying due to limited usage; and
2) larger, well-financed hospitals that may be able to purchase equipment for
use in their own facility but may choose not to because reimbursement or
utilization rates for certain procedures do not warrant a capital commitment.
Additionally, infrequent utilization may not justify the cost of training and
retention of technicians to operate such equipment. PRI Medical is also able to
provide its technicians to support hospital-owned surgical equipment on a fee
for service basis, thus improving efficiency and reducing costs for the
hospital. Reduced operating costs and improved flexibility for hospitals are
elements of the PRI Medical value proposition to its customers.





PRI
Medical makes mobile surgical services available to its customers by providing
mobile lasers and other surgical equipment on a per procedure basis to
hospitals, outpatient surgery centers, and physician offices along with
technical support and disposable supplies required to utilize the
equipment.





PRI Medical’s mobile surgical services
focuses on primarily surgical care.Physicians perform surgery at hospitals or
surgery centers by renting PRI Medical’s laser or other equipment and receive
PRI Medical’s technical support and expertise that is provided with the
equipment, allowing the staff to concentrate on their patient care duties
without the distraction of setup and running of the equipment.





PRI
Medical has approximately 800 active accounts in 16 states and experiences a
high rate of repeat business from the hospitals, surgery centers and doctors we
serve. The market encompasses many disciplines including general surgery,
orthopedic surgery, otolaryngology, urology, obstetrics, gynecology, podiatry,
dermatology, and plastic/cosmetics. Equipment is increasingly becoming more
specialized to specific medical procedures, and the coordination of technical
training of the physician regarding the use of equipment is an integral part of
PRI Medical's business.





PRI Medical’s healthcare distribution
network allows physicians, hospitals and healthcare facilities access to new
medical equipment without the expense of acquisition. PRI Medical is able to
help manufacturers bring advanced medical technologies to market by using its
distribution channels and its relationships with hospitals, doctors and other
healthcare facilities to introduce selected additional surgical products and
services to end users on a ‘fee per procedure’ model. PRI Medical had revenues
of approximately $22.8 million and $17.7 million in 2008 and 2007, respectively.
By making new technologies available to physicians PRI Medical seeks to become a
provider of innovative medical device and support services to the healthcare
community early in a product’s life cycle.








3






RECENT
DEVELOPMENTS





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 $3,149,735, plus certain
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-K, with the balance paid from existing
cash.





The
purchase price for the acquired assets of $3,149,735, plus certain closing
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 $358,864.
Equipment and vehicles are being depreciated over three to five years 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 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 shares 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.





PRODUCTS AND
SERVICES





PRI Medical’s technicians provide
surgical equipment and related technical services support to physicians and
operating room (“O.R.”) personnel in hospitals, surgical care centers and other
health-related facilities on a per-procedure basis. Mobile surgical services are
ordered from 24 hours to several months in advance of surgery, and re-confirmed
with the customer the day before the medical procedure by PRI Medical’s
scheduling department. Upon arrival at the customer site, PRI Medical’s
technician set up the equipment, posts required warning notices outside the
O.R., issues safety equipment to the O.R. staff, provides any disposable
materials needed, and supplies equipment certifications and/or documentation
required for hospital record keeping. Technician-only services are also made
available to hospitals and surgery facilities that sometimes find that
outsourcing of trained technicians without renting equipment to be a
cost-effective alternative to training and staffing their own
personnel.





PRI Medical’s equipment encompasses
CO2, Nd:YAG, Pulse Dye, KTP/YAG, Diode, Greenlight HPS, Holmium YAG, Lithotripsy
and Cryosurgery technology. PRI Medical has established working relationships
with leading manufacturers and is sometimes an introducer of technology in its
markets. PRI Medical reviews developments in the medical field to stay abreast
of new and emerging technologies and to obtain new surgical medical equipment.
In this regard, PRI Medical has, in recent years, added equipment to provide for
services in lithotripsy, cryosurgery, transmyocardial revascularization,
advanced visualization technology, microwave therapy, and prostate surgery. The
Company strives to develop and expand strategic relationships in order to
enhance its product lines and improve its access to new medical
devices.





PRI Medical also provides its customers
with disposable products and/or ancillary equipment that are needed for a given
medical procedure. The revenue from disposable products is primarily related to
laser and cryosurgery equipment rentals requiring fibers, probes, and disposable
kits proprietary to a specific manufacturer’s equipment. Customers may benefit
from this added service by lowering their inventory levels of infrequently used
products.








4







MARKETING AND
SALES





PRI Medical markets its mobile surgical
equipment and services business largely through the efforts of its direct sales
force, which focuses on providing high-quality service and products to customers
and on obtaining new customer accounts. In conjunction with its sales efforts,
PRI Medical sponsors educational seminars on new laser and other surgical
equipment technologies, which are attended by its current and prospective
customers. These seminars allow PRI Medical’s direct sales force to introduce
new technologies and procedures to its customer base early in the product’s life
cycle.





PRI Medical’s sales representatives
attend national and regional physician medical seminars and trade shows to
present PRI Medical’s services and products. PRI Medical also markets its
products and services through direct mail marketing of literature and
promotional materials, which describe PRI Medical’s complete range of surgical
equipment and services to hospitals, surgery centers and
physicians.





MARKET





PRI Medical currently serves customers
in 16 states. Each location is staffed with full-time technicians and sales
representatives, as appropriate to the business opportunities. During the years
ended December 31, 2008 and 2007, no customer accounted for more than 10%
of PRI Medical’s total sales.





PRI Medical provides mobile
laser/surgical services to customers in each market served. Each location is
staffed with full-time trained technicians and is equipped with a variety of
surgical equipment to meet customer needs. During the years ended December 31,
2008 and 2007, company-wide, PRI Medical performed over 22,000 and 16,000
procedures, respectively.





INVESTMENTS





Investments In Limited
Liability Companies





In connection with expanding its
business, PRI Medical participates with others in the formation of Limited
Liability Companies (“LLCs”) in which it will acquire either a minority or
majority interest and the remaining interests are held by other investors. These
LLCs acquire certain medical equipment for use in their respective business
activities which generally focus on surgical procedures. As of December 31,
2008, PRI Medical currently holds interests in eleven LLCs in Colorado and
California. During 2008 and 2007, PRI Medical participated in the formation
of five 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, the Company 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.





For the
years ended December 31, 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 LLCs in
which it holds minority interests under the full consolidation method whereby
transactions between the Company and LLCs have been eliminated through
consolidation. “See Management’s Discussion and Analysis of Financial Condition
and Results of Operations.”






5







GOVERNMENT
REGULATION





The healthcare industry is subject to
extensive federal and state regulation. In 2008, the Centers for Medicare &
Medicaid Services (“CMS”) issued new regulations regarding physician ownership
of rental equipment. The new regulation may require changes in the business
methods or ownership of some of the LLCs. Promulgation of new laws and
regulations, or changes in or re-interpretations of existing laws or
regulations, may significantly affect the Company’s business, operating results
or financial condition. The Company is not currently subject to regulation,
however, a court or governmental body could make a determination that the
Company’s business should be regulated. The Company’s operations might be
negatively impacted if it had to comply with government regulations.
Furthermore, the manufacturers of medical equipment utilized by the Company are
subject to extensive regulation by the Food and Drug Administration (“FDA”).
Failure of such manufacturers to comply with FDA regulations could result in the
loss of approval by the FDA of such medical equipment, which could adversely
affect the Company’s operating results or financial condition. In addition,
certain of our customers are subject to the Medicare reimbursement rules and
regulations as well as similar state-level regulations. Our business could be
negatively impacted if such customers were found to be non-compliant with such
regulations and/or ineligible for such reimbursements. As consolidation among
physician groups continues and provider networks continue to be created,
purchasing decisions may shift to persons with whom the Company has not had
prior contact. The Company cannot be certain that it will be able to maintain
its physician, vendor and/or manufacturer relationships under such
circumstances.





POTENTIAL EXPOSURE TO
LIABILITY





Physicians, hospitals and other
providers in the healthcare industry are subject to lawsuits, which may allege
medical malpractice or other claims. Many of these lawsuits result in
substantial defense costs and judgments or settlements. The Company does not
engage in the practice of medicine, nor does it control the practice of medicine
by physicians utilizing its services or their compliance with regulatory
requirements directly applicable to such physicians or physician groups.
However, the services the Company provides to physicians, including actions by
its technicians, its establishment of protocols and its training programs, could
give rise to liability claims. The Company may become involved in material
litigation in the future and it is possible that a claim or claims arising from
such litigation might exceed the Company’s insurance coverage. Currently, the
Company’s current product liability insurance coverage expires in April 2009. In
the future, depending on market conditions, there can be no assurances that the
Company can maintain such insurance coverage or obtain new coverage from a
different insurance carrier should the need arise.






6






COMPETITION





The market for PRI Medical’s mobile
surgical services is highly competitive. Companies, particularly in the laser
surgery industry, often compete by price, thereby impacting profit margins. In
addition, PRI Medical faces many existing and future competitors of various size
and scale. Some of our competitors have significantly greater financial and
management resources than the Company. Competitors in our market include
Healthtronics, a publicly held company, and multiple privately held companies in
each local PRI Medical branch location. In spite of such competition, the
Company believes that it can compete successfully but can give no assurances
with regard to its ability to compete. In addition, the Company’s business could
be adversely affected if our customers elect to purchase surgical equipment
directly from the manufacturers and hire their own technicians.





EMPLOYEES





As of March 16, 2009, the Company
employed 146 full-time persons (including three executive officers), 119 of whom
were involved in operations activities (most of these were active as field
technicians), 13 of whom were involved in sales and marketing, and 14 of whom
were involved in administration, information technology, and accounting. In
addition, the Company may employ part-time and occasional employees as
technicians to handle overload situations. None of our employees are represented
by collective bargaining agreements. We believe that our relationship with our
employees is good.





Item
1.A    Risk Factors





WE HAVE
INCURRED LOSSES IN THE PAST AND MAY INCUR LOSSES IN THE FUTURE.





For the past several years we have
reported positive operating results; however, in 2004 we showed break-even
results and incurred significant operating losses in the years preceding 2004.
Our ability to generate positive operating results are dependent upon many
factors and variables including market conditions for our products and services,
changing technologies within the medical equipment industry, and competition.
Although we have shown improvement in our net operating results over the last
four years, there can be no assurances that we will continue to achieve positive
operating results in future periods.




WE FACE
INTENSE COMPETITION.




The surgical equipment rental and
services industry is highly competitive. Our operations compete with services
provided by numerous local, regional and national equipment and service
providers. Certain of these competitors are larger or have far greater financial
resources than us. There can be no assurance that we will not encounter
increased competition, which could have a negative impact on our business,
results of operations or financial condition.




OUR CORE
BUSINESS IN MOBILE SURGICAL SERVICES HAS BEEN VERY PRICE
COMPETITIVE.




The market for our services and
equipment is highly competitive. Competitors often compete by lowering prices,
thus impacting profit margins. We can provide no assurances that we will be
successful (profitable) in a highly competitive market.




OUR
BUSINESS IS SUBJECT TO ADVERSE CHANGES IN GOVERNMENT REGULATION.




Many aspects of our business in
delivering surgical equipment and related services may be impacted by changes in
federal and state regulations. We could encounter difficulties in meeting the
requirements of new or changing regulations. In addition, certain of our
customers are subject to the Medicare reimbursement rules and regulations as
well as similar state-level regulations. Our business could be negatively
impacted if such customers were found to be non-compliant with such regulations
and/or ineligible for such reimbursements.






7






NEW
GOVERNMENT RULES AND REGULATIONS COULD MATERIALLY ADVERSELY AFFECT OUR RESULTS
OF OPERATIONS





The
Centers for Medicare & Medicaid Services (“CMS”) recently issued a rule that
amended regulations that implement the Stark Law. Under the rule, effective
October 1, 2009, certain physician-owned ventures (including laser and
cryotherapy limited liability companies managed by PRI) will not be able to
contract with hospitals for the lease of space or equipment under a
per-procedure or per-click payment arrangement if an LLC investor is a physician
practicing at the hospital. CMS has also issued an answer in the form of a
“Frequently Asked Question” on its website, where it indicates that the
provision of lithotripsy services may be considered a service contract and not a
lease of space or equipment. Thus, according to the FAQ advice from CMS, our
lithotripsy LLCs (even if they have physician investors) may continue to
contract with hospitals on a per-procedure payment basis so long as the contract
is a service arrangement rather than a leasing arrangement. If the LLC provides
a technician and related support when providing lithotripsy services, we believe
such arrangement is a service arrangement. We believe that most of our LLCs will
be in compliance with the new rule by October 1, 2009.  We are
considering options for two of our LLCs including restructuring ownership of the
LLCs, through repurchasing or buying out the physician investors’ interests in
the LLCs. Although we believe these restructurings will not have a material
adverse affect on us, we cannot give you any assurance that these restructurings
would not have a material adverse effect on our operations, relationships with
investors, financial condition or results of operations.





In
addition, this new rule may make new investments by physicians or other
investors in our LLCs less attractive. At this time we are unable to assess the
extent to which the new rule will affect our ability to attract new investors.
However, if the new rule has a negative effect on our current investor
relationships, then our operations and results of operations could be materially
adversely affected.





WE MAY
HAVE DIFFICULTIES IN ESTABLISHING SERVICE CAPABILITIES WITH NEW MEDICAL DEVICES
UNRELATED TO OUR CURRENT BUSINESS.




Establishing a market presence with new
technologies may require us to build new sales and support infrastructure. We
may have difficulty hiring the appropriate personnel and establishing the
necessary relationships with equipment vendors and others for us to successfully
penetrate any new market.




OUR
INDUSTRY IS UNPREDICTABLE AND CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGES AND
EVOLVING STANDARDS, AND, IF WE FAIL TO ADDRESS CHANGING MARKET CONDITIONS, OUR
BUSINESS AND OPERATING RESULTS WILL BE HARMED.




Our industry is characterized by rapid
technological change, frequent new product introductions, changes in customer
requirements and evolving industry standards. Our equipment could quickly become
obsolete due to new technological developments in medical devices. This could
lead to a significant financial impact since most of our equipment is generally
financed and depreciated over a period of several years. Because this market is
subject to rapid change, it is difficult to predict our potential size or future
growth rate. Our success in generating revenues in this market will depend on,
among other things:




·
            maintaining
      and enhancing our relationships with
customers;




·
            the
      education of potential customers about the benefits of our products and
      services; and








8






·
            our
      ability to accurately predict and obtain new products, services and
      technologies to meet industry
standards.




We cannot assure you that our
expenditures for the acquisition of new products and technologies will result in
their introduction or, if such products or technologies are introduced, that
they or the related services will achieve sufficient market acceptance. We may
need to expend significant resources to acquire new products and services in the
future, which may adversely impact our profitability. However, the failure to
make such expenditures to address rapid technological changes in the industry
could adversely affect our business.




FAILURE
TO SUCCESSFULLY COMPLETE AND MANAGE GROWTH STRATEGIES COULD ADVERSELY AFFECT OUR
BUSINESS, PROFITABILITY AND GROWTH PROSPECTS.




Part of our growth strategy may include
future acquisitions and alliances involving complementary products, services,
technologies and businesses. If we are unable to overcome the potential problems
and inherent risks related to such acquisitions and alliances, our business,
profitability and growth prospects could suffer. Our ability to expand
successfully through acquisitions and alliances depends on many factors,
including our ability to identify appropriate prospects and negotiate and close
transactions. Even if future acquisitions or alliances are
completed:




·
            we
      could fail to select the best acquisition or alliance
      partners;




·
            we
      could fail to effectively plan and manage acquisition or alliance
      strategies;




·
            management’s
      attention could be diverted from other business
  concerns;




·
            we
      could encounter problems integrating the acquired or allied operations,
      technologies or products; and




·
            the
      acquisition or alliance could have adverse effects on our existing
      business relationships with suppliers and/or
  customers.




Many companies compete for acquisition
and alliance opportunities in our industry. Some of our competitors are
companies that have significantly greater financial and management resources
than us. This may reduce the likelihood that we will be successful in completing
alliances necessary to the future success of our business.




Possible growth in the number of
employees and in sales, combined with the challenges of managing geographically
dispersed operations, may place a significant strain on our management systems
and resources. We expect that we will need to continue to improve our
information technology systems, financial and managerial controls, reporting
systems and procedures and continue to expand, train and manage our work force.
The failure to effectively manage growth could disrupt our business and
adversely affect our operating results.




SOME OF
OUR PRODUCTS ARE COMPLEX IN DESIGN AND MAY CONTAIN DEFECTS THAT ARE NOT DETECTED
UNTIL DEPLOYED BY CUSTOMERS, WHICH COULD INCREASE OUR COSTS AND REDUCE OUR
REVENUES.




Many of our products are inherently
complex in design and require ongoing regular maintenance. As a result of the
technical complexity of the equipment and certain fibers and other products used
in the delivery of our services, changes in our suppliers’ manufacturing
processes or the inadvertent use of defective or contaminated materials by such
suppliers could result in a material adverse effect on our ability to achieve
acceptable product reliability. To the extent that such product reliability is
not achieved, we could experience, among other things:






9






·
            damage
      to our business reputation;




·
            loss
      of customers;




·
            failure
      to attract new customers or achieve market
  acceptance;




·
            diversion
      of resources; and




·
            legal
      actions by customers.




The
occurrence of any one or more of the foregoing factors could seriously harm our
business, our financial condition and results of operations.




IF WE
LOSE SENIOR MANAGEMENT AND KEY EMPLOYEES ON WHOM WE DEPEND, OUR BUSINESS COULD
SUFFER.




We have employment contracts with our
Chief Executive Officer, and President and Chief Operating Officer who are
considered key employees of the Company. We currently do not have “key-person”
life insurance policies to cover the lives of executive officers or any other
key employees. The ability to continue to attract and retain highly skilled
personnel will be a critical factor in determining our future success.
Competition for highly skilled personnel is intense and we may not be successful
in attracting, assimilating or retaining qualified personnel to fulfill current
or future needs. If we cannot recruit, train, retain and effectively manage key
employees, our business, profitability and growth prospects could
suffer.




WE MAY
NEED SUBSTANTIAL ADDITIONAL FINANCING TO ACHIEVE OUR STRATEGIC
GOALS.




Much of our future growth and our
ability to meet existing debt, lease and vendor obligations depend upon our
ability to expand our customer base and on our ability to acquire new
technologies related to medical surgical equipment. Such endeavors may require
additional capital resources in addition to cash from operations. These
initiatives may require us to raise significant sums of additional capital,
which may or may not be available. In addition, raising additional capital may
result in substantial dilution to existing shareholders. We can provide no
assurances that such financing will be available to us in the future on
satisfactory terms, if at all.




PAST
TRADING MARKET FOR OUR COMMON STOCK WAS SPORADIC.




In the past, there was a limited and
sporadic public market for our common stock.  While our common stock
is currently traded on the NYSE Alternext US LLC under the symbol “LZR,” we can
provide no assurances that an established public market for our common stock
will continue in the future.




THE PRICE
OF OUR STOCK MAY FLUCTUATE.




The
market price of our common stock may be as highly volatile, or more so, as the
stock market in general or, for that of micro cap stocks, and the technology
sector more specifically. Stockholders may have difficulty selling their common
stock following periods of such volatility due to the market's adverse reaction
to such volatility. Many of the factors leading to such volatility are well
beyond our control and could include:




·
            conditions
      and trends in our industry;




·
            changes
      in the market valuation of companies similar to
  us;




·
            actual
      or expected variations in our operating
results;




·
            announcements
      by us or our competitors of the development of new products or
      technologies or




·
            strategic
      alliances or acquisitions; and






10








·
            changes
      in members of our senior management or other key
  employees.




These and other factors may adversely
affect the price of our common stock, regardless of its future operating results
and we cannot assure you that our common stock will trade at prices similar to
the stock of our competitors or other similar companies.




WE MAY
EXPERIENCE QUARTERLY AND ANNUAL FLUCTUATIONS IN OUR OPERATING RESULTS IN THE
FUTURE, WHICH MAKES OUR PAST PERFORMANCE AN UNRELIABLE INDICATION OF FUTURE
PERFORMANCE.




Our operating results may vary
significantly from quarter to quarter and from year to year in the future. A
number of factors, many of which are outside of our control, may cause these
variations, including:




·
            fluctuations
      in demand for our products and
services;




·
            the
      introduction of new products, services or technologies by competitors,
      entry of new competitors, pricing pressures and other competitive
      factors;




·
            our
      ability to obtain and introduce new surgical equipment products, services
      and technologies in a timely
manner;




·
            the
      rate of market acceptance of any new surgical equipment products or
      services that we offer;




·
            delays
      or reductions in customer orders of our products and services in
      anticipation of the introduction of new or enhanced products and services
      by our competitors or us;




·
            our
      ability to control expenses;




·
            obsolescence
      of our existing equipment;




·
            the
      timing of regulatory approvals and changes in domestic and regulatory
      environments;




·
            the
      level of capital spending of our
customers;




·
            costs
      related to acquisitions or alliances, if any;
  and




·
            general
      economic conditions.





Due to these and other factors, we
believe that our operating results in future quarters and years may differ from
expectations, and quarter-to-quarter and year-to-year comparisons of our past
operating results may not be meaningful. You should not rely on our results for
any quarter or year as an indication of future performance.




POSSIBLE INABILITY TO PAY CASH
DIVIDENDS IN THE FUTURE.




In
December 2008, the Company’s Board of Directors declared a cash dividend of $.30
per share payable on January 12, 2009 to stockholders of record on December 29,
2008. In December 2007, the Company’s Board of Directors declared a cash
dividend of $0.30 per share to our common stockholders of record on December 28,
2007, which was paid on January 9, 2008. Our Board of Directors will determine
our future dividend policy on the basis of various factors, including our
results of operations, financial condition, capital
requirements, investment and acquisition opportunities and the potential
availability of outside capital in the financial markets. Further, our bank
covenants with City National Bank may prohibit or restrict our ability to pay
cash dividends in future periods. We can give no assurances that cash or other
dividends will be declared and paid in future periods.




11






Item
1.B  Unresolved Staff Comments




Not applicable.




Item 2.Properties





The Company maintains its principal
executive offices at 10939 Pendleton Street, Sun Valley, California 91352, where
it leases approximately 13,000 square feet of office/warehouse space for its
operations. The facility is leased under a five-year lease agreement, which
expires in December 2011, and currently provides for monthly rent of
approximately $12,600, including reimbursements for common area expenses, tenant
improvement costs, property taxes and insurance. Base rent is subject to an
annual increase of 4%. The Company also leases an aggregate of approximately
8,950 square feet of space for its field and sales offices located in various
states on the west and east coast. Such office/warehouse leases expire on
various dates through June 2011. We believe that our present facilities are
adequate for our reasonably foreseeable needs.





Item 3. Legal
Proceedings





From time to time, we may become
involved in litigation arising out of operations in the normal course of
business. As of the filing date of this Form 10-K, we are not a party to any
pending legal proceedings, except as follows:





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”).





The civil
lawsuit, which was signed by the clerk on February 2, 2005, is brought in the
United States District Court, Southern District of New York, is an action 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 35-page 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 is vigorously defending this lawsuit.





Item 4.Submission of Matters to a
Vote of Security Holders.





No
matters were submitted to a vote of security holders during the fourth quarter
of fiscal 2008.






12







PART
II





Item 5.Market for Common Equity and
Related Stockholder Matters and Issuer Purchases of
Equity Securities.





Our
common stock trades on the NYSE Alternext US LLC under the symbol “LZR” and
previously on the OTC Electronic Bulletin Board under the symbol “EMGP.” The
following table sets forth the range of high and low closing sale prices of our
Common Stock for our last two fiscal periods.




Quarters Ended
                              
                              High
                              
                              
                              LowMarch
      31, 2007
                              
                              
                              3.90
                              
                              
                              
                              3.12June
      30, 2007
                              
                              
                              4.02
                              
                              
                              
                              3.15September
      30, 2007
                              
                              
                              4.00
                              
                              
                              
                              2.90December
      31, 2007
                              
                              
                              3.80
                              
                              
                              
                              3.00March
      31, 2008
                              
                              
                              3.50
                              
                              
                              
                              2.95June
      30, 2008
                              
                              
                              3.20
                              
                              
                              
                              2.60September
      30, 2008
                              
                              
                              3.25
                              
                              
                              
                              2.06December
      31, 2008
                              
                              
                              8.07
                              
                              
                              
                              2.99





All quotations reflect
inter-dealer prices, without retail mark-up, markdown or commissions, and may
not necessarily represent actual transactions.





As of September 4, 2008, there were
approximately 1,132 beneficial holders of our common stock based upon 376
stockholders of record and an estimated 756 beneficial holders whose stock was
held in street name. The Company’s transfer agent is American Stock Transfer
& Trust Company, 59 Maiden Lane, New York, NY 10038.





Dividend
Policy





In
December 2008, the Company’s Board of Directors declared a cash dividend of $.30
per share payable on January 12, 2009 to stockholders of record on December 29,
2008. In December 2007, the Company’s Board of Directors declared a cash
dividend of $0.30 per share to our common stockholders of record on December 28,
2007, which was paid on January 9, 2008. Our Board of Directors will determine
our future dividend policy on the basis of various factors, including our
results of operations, financial condition, capital
requirements, investment and acquisition opportunities and the potential
availability of outside capital in the financial markets. Further, our bank
covenants with City National Bank may prohibit or restrict our ability to pay
cash dividends in future periods. We can give no assurances that cash or other
dividends will be declared and paid in future periods.





Recent Sales of Unregistered
Securities





During the year ended December 31,
2008, the Company had issuances of unregistered Common Stock as
follows:





On July
30, 2008, we received $1,130,890 from the sale of 665,229 Units at an offering
price of $1.70 per Unit to 15 investors. Each Unit consisted of one share of
Common Stock and a Warrant to purchase 0.6 shares 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. No commissions were paid in connection this transaction.
Exemption is claimed for the sale of these restricted securities pursuant to
Rule 506 of Regulation D promulgated under Section 4(2) of the Securities Act of
1933, as amended.








13







In
December 2008, Warrants to purchase a total of 226,764 shares of Common Stock
were exercised with the issuance of 161,358 shares on a cashless basis and
warrants to purchase 35,294 shares were issued for cash. The Company received
proceeds of $61,765 in connection with the exercise of such Warrants. Exemption
is claimed under Section 3(a)(9) of the Securities Act of 1933, as amended, as
an exchange of securities without any cash or commissions being
paid.





Recent Purchases of
Securities





During
the year ended December 31, 2008, the Company had no repurchases of its Common
Stock. However, the Company cancelled 3,000 shares of restricted Common Stock as
a result of employee terminations.





Item 6.  Selected
Financial Data





Not applicable.





Item 7.Management’s Discussion and
Analysis of Financial Condition and Results of
Operations





The following discussion should be read
in conjunction with our consolidated financial statements and the notes thereto
appearing elsewhere in this Form 10-K. All statements contained herein that are
not historical facts, including, but not limited to, statements regarding
anticipated future capital requirements, our future plan of operations, our
ability to obtain debt, equity or other financing, and our ability to generate
cash from operations, are based on current expectations. These statements are
forward-looking in nature and involve a number of risks and uncertainties that
may cause the Company’s actual results in future periods to differ materially
from forecasted results.





Overview





PRI Medical is a provider of mobile
surgical equipment, on a fee for service basis, to hospitals, surgical care
centers and other health care providers. PRI Medical serves both large and small
health care providers and makes mobile surgical services available to its
customers by providing this equipment on a per procedure basis to hospitals, out
patient surgery centers, and physician offices. PRI Medical provides mobile
lasers and other surgical equipment with technical support required to ensure
the equipment is working correctly.





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 $3,149,735, plus certain
costing 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-K, 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.






14






Unaudited
Pro Forma Results for the Year Ended December 31, 2008 and 2007





The historical operating results for
the Company include the operating results for the Services Division from August
9, 2008 to December 31, 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 January 1,
2008 and 2007, respectively.




Pro
      Forma Results of Operations
                          Year Ended December
      31,2008
                        
                        
                        2007Pro
      forma revenue
                        
                        $
                        27,183,969
                        
                        
                        $
                        25,328,715Pro
      forma income from operations
                        
                        $
                        4,525,962
                        
                        
                        $
                        3,415,972Pro
      forma net income
                        
                        $
                        4,398,841
                        
                        
                        $
                        2,249,914Pro
      forma basic earnings per share
                        
                        $
                        0.69
                        
                        
                        $
                        0.36Pro
      forma diluted earnings per share
                        
                        $
                        0.65
                        
                        
                        $
                        0.34


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 January 1, 2008 and 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.





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 accounting principles
generally accepted in the United States. The preparation of financial statements
requires management 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. 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.








15







Revenue Recognition. 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.





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 years ended
December 31, 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 2008 and
2007 we issued 35,000 and 12,500 stock options to various employees,
respectively. Such options generally 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 years ended December 31, 2008 and 2007 were $12,459 and $10,864,
respectively. In addition, as discussed herein, the Company issues restricted
shares from time to time to officers and directors and to employees.
Compensation costs related to such shares is determined on the issuance date and
is amortized over the related vesting period.









16






Results of
Operations





The following table sets forth certain
selected condensed consolidated statement of operations data for the periods
indicated:




Year
      Ended December 31,2008
                            
                            
                            %
                            
                            
                            2007
                            
                            
                            %Revenue
                            
                            $
                            22,785,922
                            
                            
                            
                            100%
                            
                            
                            $
                            17,661,541
                            
                            
                            
                            100%Cost
      of goods sold
                            
                            
                            13,354,071
                            
                            
                            
                            59%
                            
                            
                            
                            10,473,805
                            
                            
                            
                            59%Gross
      profit
                            
                            
                            9,431,851
                            
                            
                            
                            41%
                            
                            
                            
                            7,187,736
                            
                            
                            
                            41%Selling,
      general, and administrative expenses
                            
                            
                            5,241,682
                            
                            
                            
                            23%
                            
                            
                            
                            4,390,996
                            
                            
                            
                            25%Income
      from operations
                            
                            
                            4,190,169
                            
                            
                            
                            18%
                            
                            
                            
                            2,796,740
                            
                            
                            
                            16%Other
      income (expense)
                            
                            
                            (190,916
                            )
                            
                            
                            -1%
                            
                            
                            
                            (152,104
                            )
                            
                            
                            -1%Income
      before provision for incometaxes
      and minority interest
                            
                            
                            3,999,253
                            
                            
                            
                            17%
                            
                            
                            
                            2,644,636
                            
                            
                            
                            15%Provision
      for income taxes
                            
                            
                            (225,641
                            )
                            
                            
                            -1%
                            
                            
                            
                            (193,922
                            )
                            
                            
                            -1%Deferred
      tax benefits
                            
                            
                            1,331,512
                            
                            
                            
                            6%
                            
                            
                            
                            10,088
                            
                            
                            
                            0%Net
      income before minority interest
                            
                            
                            5,105,124
                            
                            
                            
                            22%
                            
                            
                            
                            2,460,802
                            
                            
                            
                            14%Minority
      interest in income of consolidatedlimited
      liability companies
                            
                            
                            (960,994
                            )
                            
                            
                            -4%
                            
                            
                            
                            (692,209
                            )
                            
                            
                            -4%Net
      income
                            
                            $
                            4,144,130
                            
                            
                            
                            18%
                            
                            
                            $
                            1,768,593
                            
                            
                            
                            10%


Year
Ended December 31, 2008 Compared to the Year Ended December 31,
2007





The
Company generated revenues of $22,785,922 in 2008 compared to $17,661,541 in
2007. The increase in revenues in 2008 of $5,124,381, or 29% is primarily
related to an increase in revenues from our surgical procedures and to the
inclusion of revenues from the Services Division since August 9,
2008.





Cost of
goods sold was $13,354,071 and $10,473,805 for 2008 and 2007, respectively, or
59% of revenues for both periods. 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 increase in cost of goods sold of $2,880,266 or
28% for 2008 is due to the inclusion of costs for the Services Division since
August 9, 2008 as well as increases in disposable costs, payroll and related
costs, depreciation and amortization expenses and to increases in equipment
maintenance costs. Disposable costs increased due to increased sales volume,
payroll and payroll related costs increased due to an increase in the number of
employees, depreciation and amortization expense increased due to equipment
purchases in 2008 and late 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 $9,431,851 in 2008 as compared to $7,187,736 in 2007.
Gross profit as a percentage of revenues was 41% for both 2008 and 2007,
respectively. 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.






17







Selling,
general, and administrative expenses were $5,241,682 or 23% of revenues for 2008
and $4,390,996 or 25% 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 $850,686 in 2008 is primarily
related to increases in performance-based incentive compensation and to
increases in sales management and other payroll related expenses.





Other
income (expense) was $(190,916) in 2008 compared to $(152,104) in 2007. Other
income (expense) includes interest income and expense, gains and losses on
disposal of property and equipment, and other miscellaneous income and expense
items. The net increase in other expense of $38,812 is primarily related to an
increase in net interest expense of $83,513, gain on disposal of property and
equipment of $20,723 and to an increase in other income of $23,978. The net
increase in interest expense relates to new equipment leases entered into during
2008 and the second half of 2007, including the equipment financing lease
incurred in connection with the acquisition of the Services Division in August
2008. The increase in gain on disposal of equipment and other income relates to
equipment sales and to the write-off of certain miscellaneous items in
2008.





The
minority interest (ownership interests held by third-parties) in net income of
limited liability companies was $960,994 in 2008 compared to $692,209 in 2007.
In 2008 and 2007, we held ownership interests in eleven and ten entities,
respectively. As of December 31, 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 $4,144,130 in 2008 compared to $1,768,593 in 2007. Provision for
income taxes was $225,641 in 2008 as compared to $193,922 in 2007. During the
fourth quarter of 2008 and 2007 we recognized deferred tax benefits of
$1,331,512 and $10,088, respectively, related to operating losses from prior
years. As required by SFAS 109, we did not reverse the valuation allowance until
it was “more likely than not” that the tax asset would be realized. The Company
has net operating loss carryforwards of approximately $7.6 million for federal
tax purposes. The provision for income taxes of $225,641 as of December 31, 2008
is related to state taxes and to Alternative Minimum Taxes (AMT). Basic net
income per share for 2008 and 2007 was $0.69 and $0.32 (or $0.47 and $0.32 per
share, respectively, before the recognition of the deferred tax benefits),
respectively, while fully diluted net income per share for 2008 and 2007 was
$0.65 and $0.31 (or $0.44 and $0.30 per share, respectively, before the
recognition of the deferred tax benefits), respectively. Basic and fully diluted
weighted average shares outstanding for 2008 were 6,003,420 and 6,385,629,
respectively, and 5,533,348 and 5,798,015 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 (3.75% as of December 31, 2008), 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 March 17, 2009 Company was in
compliance with the terms of its revolving credit agreement and no amounts have
been drawn under this facility.





In connection with the acquisition of
the assets of the Services Division, on July 31, 2008, the Company received
gross proceeds totaling $1,130,890 from 15 investors who purchased the Company’s
Common Stock and Warrants. In this regard, the Company sold 665,229 Units 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 shares 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. In December 2008, Warrants
to purchase a total of 262,058 shares of Common Stock were exercised with the
issuance of 161,358 shares on a cashless basis and 35,294 shares on a cash
basis. The Company received proceeds of $61,765 in connection with the exercise
of such Warrants.






18







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 Medical’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 $3,149,735, plus
certain 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.





The
Company had cash and cash equivalents of $4,586,107 at December 31, 2008. Cash
provided by operating activities for the year ended December 31, 2008 was
$6,022,993. Cash generated from operations includes net income of $4,144,130,
depreciation and amortization of $1,689,785, minority interest in net income of
$960,994, stock-based compensation of $251,478, a decrease in inventory of
$135,369, an increase in provision for doubtful accounts of $41,524, increases
in accounts payable and accrued expenses and other liabilities of $473,607 and
$513,764, respectively; offset by the recognition of non-cash deferred tax
benefits of $1,331,512, gain on disposal of property and equipment of $28,937,
increases in accounts receivable of $741,608 and prepaid expenses and deposits
and other assets of $66,906 and $18,695, respectively. Cash used in investing
activities was $2,549,696 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 $337,861, cash distributions of $950,828 to members of
limited liability companies, offset by contributions from new members to limited
liability companies of $108,750 and proceeds from the sale of equipment of
$29,978. Cash used for financing activities was $1,930,844 and consisted of
payment of dividends on common stock of $1,686,095, and payments on lease and
debt obligations of $1,406,975 and $100,889; offset by net proceeds of
$1,126,270 from the private placement of Common Stock, proceeds of $75,000 from
equipment refinancing and proceeds from the exercise of warrants and stock
options of $61,845. In addition, during the year ended December 31, 2008 we
borrowed and repaid $8,172,638 under our previous revolving line of credit
agreement.





The
Company had cash and cash equivalents of $3,043,654 at December 31, 2007. Cash
provided by operating activities for the year ended December 31, 2007 was
$4,669,748. Cash generated from operations includes net income of $1,768,593,
depreciation and amortization of $1,511,191, minority interest in net income of
$692,209, decreases in inventory of $314,799, accounts receivable of $96,668,
deposits and other assets of $33,192, and stock-based compensation expense of
$100,699 and increases in accounts payable and accrued expenses of $185,677;
offset by an increase in prepaid expenses of $12,960. Cash used in investing
activities was $843,399 related to the purchase of property and equipment of
$271,260 and to cash distributions of $721,719 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
$145,000. Cash used for financing activities was $2,101,307 from payments on
lease and debt obligations of $1,062,873 and $238,185, respectively, payment of
loan fees of $10,000, and payment of dividends on common stock of $1,094,249;
offset by proceeds from equipment refinancing of $300,000 and proceeds of $4,000
from the exercise of common stock options. In addition, during the year ended
December 31, 2007 we borrowed and repaid $16,676,000 under our revolving line of
credit.








19





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 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 operations for at least the next twelve months.





Forward-Looking
Statements





The Private Securities Litigation
Reform Act of 1995 (the Act) provides a safe harbor for forward-looking
statements made by or on behalf of our Company. Our Company and its
representatives may from time to time make written or verbal forward-looking
statements, including statements contained in this report and other Company
filings with the Securities and Exchange Commission and in our reports to
stockholders. Statements that relate to other than strictly historical facts,
such as statements about the Company's plans and strategies and expectations for
future financial performance are forward-looking statements within the meaning
of the Act. Generally, the words “believe,” “expect,” “intend,” “estimate,”
“anticipate,” “will” and other similar expressions identify forward-looking
statements. The forward-looking statements are and will be based on management's
then current views and assumptions regarding future events and operating
performance, and speak only as of their dates. The Company undertakes no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise. See “Risk Factors”
for a discussion of events and circumstances that could affect our financial
performance or cause actual results to differ materially from estimates
contained in or underlying our forward-looking statements.





Item 8.Financial
Statements




The report of the Independent
Registered Public Accounting Firm, Financial Statements and Schedules are set
forth beginning on page F-1 of this Annual Report on Form 10-K following this
page.






20


EMERGENT
GROUP INC. AND SUBSIDIARIES
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
 
 
 
 
 
 
 
 
 
 
 
  
 EMERGENT
GROUP INC. AND SUBSIDIARIES
 CONTENTS
 December
31, 2008 and 2007
  
 
 PageREPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
                      
                      F-1CONSOLIDATED
      FINANCIAL STATEMENTSConsolidated
      Balance Sheets
                      
                      F-2Consolidated
      Statements of Income
                      
                      F-3Consolidated
      Statements of Shareholders’ Equity
                      
                      F-4Consolidated
      Statements of Cash Flows
                      
                      F-5Notes
      to Consolidated Financial Statements
                      
                      F-6
      – F-21
     
  REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
 
 
 To the
Board of Directors and Shareholders
 Emergent
Group Inc. and Subsidiaries
 
 We have audited the accompanying
consolidated balance sheets of Emergent Group Inc. and Subsidiaries (the
“Company”) as of December 31, 2008 and 2007 and the related consolidated
statements of income, shareholders’ equity, and cash flows for the years then
ended.  These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these
financial statements based on our audits.
 
 We conducted our audits in accordance
with the standards established by the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial reporting. Our
audits included consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Emergent Group Inc. and
Subsidiaries as of December 31, 2008 and 2007, and the results of their
operations and cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America.
 
 
 
 ROSE,
SNYDER & JACOBS
 A
Corporation of Certified Public Accountants
 
 
 Encino,
California
 March 20,
2009
    F-1
  Emergent Group Inc. and Subsidiaries
 Consolidated
Balance Sheets
   December
      31,2008
                      
                      
                      2007ASSETSCurrent
      assetsCash
                      
                      $
                      4,586,107
                      
                      
                      $
                      3,043,654Accounts
      receivable, net of allowance for doubtfulaccounts
      of $58,984 and $17,460
                      
                      
                      3,759,834
                      
                      
                      
                      2,313,084Inventory,
      net
                      
                      
                      837,143
                      
                      
                      
                      504,792Prepaid
      expenses
                      
                      
                      231,763
                      
                      
                      
                      164,857Deferred
      income taxes
                      
                      
                      986,000
                      
                      
                      
                      915,488Total
      current assets
                      
                      
                      10,400,847
                      
                      
                      
                      6,941,875Property
      and equipment, net of accumulated depreciation andamortization
      of $7,247,482 and $5,954,233
                      
                      
                      6,070,228
                      
                      
                      
                      4,142,230Goodwill
                      
                      
                      1,120,058
                      
                      
                      
                      1,120,058Deferred
      income taxes
                      
                      
                      1,261,000
                      
                      
                      
                      -Other
      intangible assets, net of accumulated amortization of$226,997
      and $172,355
                      
                      
                      403,152
                      
                      
                      
                      93,930Deposits
      and other assets
                      
                      
                      84,934
                      
                      
                      
                      104,758Total
      assets
                      
                      $
                      19,340,219
                      
                      
                      $
                      12,402,851LIABILITIES
      AND SHAREHOLDERS' EQUITYCurrent
      liabilitiesCurrent
      portion of capital lease obligations
                      
                      $
                      1,909,057
                      
                      
                      $
                      1,143,198Current
      portion of notes payable
                      
                      
                      -
                      
                      
                      
                      100,888Dividends
      payable
                      
                      
                      1,989,750
                      
                      
                      
                      1,686,095Accounts
      payable
                      
                      
                      1,538,797
                      
                      
                      
                      709,027Accrued
      expenses and other liabilities
                      
                      
                      1,997,312
                      
                      
                      
                      1,559,046Total
      current liabilities
                      
                      
                      7,434,916
                      
                      
                      
                      5,198,254Capital lease
      obligations, net of current portion
                      
                      
                      3,344,820
                      
                      
                      
                      2,341,710Total
      liabilities
                      
                      
                      10,779,736
                      
                      
                      
                      7,539,964Minority
      interest
                      
                      
                      696,430
                      
                      
                      
                      592,807Commitments
      and contingencies, note 9
                      
                      
                      -
                      
                      
                      
                      -Shareholders'
      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 authorized6,631,576
      and 5,619,392 shares issued and outstanding
                      
                      
                      265,260
                      
                      
                      
                      224,772Additional
      paid-in capital
                      
                      
                      16,235,368
                      
                      
                      
                      14,836,263Accumulated
      deficit
                      
                      
                      (8,636,575
                      )
                      
                      
                      (10,790,955
                      )Total
      shareholders' equity
                      
                      
                      7,864,053
                      
                      
                      
                      4,270,080Total
      liabilities and shareholders' equity
                      
                      $
                      19,340,219
                      
                      
                      $
                      12,402,851
 
  The
accompanying notes are an integral part of these financial
statements.
     F-2
   Emergent
Group Inc. and Subsidiaries
 Consolidated
Statements of Income
   Year
      Ended December 31,2008
                                  
                                  
                                  2007Revenue
                                  
                                  $
                                  22,785,922
                                  
                                  
                                  $
                                  17,661,541Cost
      of goods sold
                                  
                                  
                                  13,354,071
                                  
                                  
                                  
                                  10,473,805Gross
      profit
                                  
                                  
                                  9,431,851
                                  
                                  
                                  
                                  7,187,736Selling,
      general, and administrative expenses
                                  
                                  
                                  5,241,682
                                  
                                  
                                  
                                  4,390,996Income
      from operations
                                  
                                  
                                  4,190,169
                                  
                                  
                                  
                                  2,796,740Other
      income (expense)Interest
      expense, net
                                  
                                  
                                  (295,935
                                  )
                                  
                                  
                                  (212,422
                                  )Gain
      on disposal of property and equipment
                                  
                                  
                                  28,937
                                  
                                  
                                  
                                  8,214Other
      income, net
                                  
                                  
                                  76,082
                                  
                                  
                                  
                                  52,104Total
      other income (expense)
                                  
                                  
                                  (190,916
                                  )
                                  
                                  
                                  (152,104
                                  )Income
      before provision for income taxes,deferred
      tax benefit, and minority interest
                                  
                                  
                                  3,999,253
                                  
                                  
                                  
                                  2,644,636Provision
      for income taxes
                                  
                                  
                                  (225,641
                                  )
                                  
                                  
                                  (193,922
                                  )Deferred
      tax benefits
                                  
                                  
                                  1,331,512
                                  
                                  
                                  
                                  10,088Net
      income before minority interest
                                  
                                  
                                  5,105,124
                                  
                                  
                                  
                                  2,460,802Minority
      interests in income of consolidatedlimited
      liability companies
                                  
                                  
                                  (960,994
                                  )
                                  
                                  
                                  (692,209
                                  )Net
      income
                                  
                                  $
                                  4,144,130
                                  
                                  
                                  $
                                  1,768,593Basic
      earnings per share
                                  
                                  $
                                  0.69
                                  
                                  
                                  $
                                  0.32Diluted
      earnings per share
                                  
                                  $
                                  0.65
                                  
                                  
                                  $
                                  0.31Basic
      weighted average shares outstanding
                                  
                                  
                                  6,003,420
                                  
                                  
                                  
                                  5,533,348Diluted
      weighted-average shares outstanding
                                  
                                  
                                  6,385,629
                                  
                                  
                                  
                                  5,798,015
  The
accompanying notes are an integral part of these financial
statements.
    F-3
  Emergent
Group Inc. and Subsidiaries
 Consolidated
Statements of Shareholders' Equity
  AdditionalCommon Stock
                                                
                                                
                                                Paid-In
                                                
                                                
                                                AccumulatedShares
                                                
                                                
                                                Amount
                                                
                                                
                                                Capital
                                                
                                                
                                                Deficit
                                                
                                                
                                                TotalBalance,
      January 1, 2007
                                                
                                                
                                                5,428,604
                                                
                                                
                                                $
                                                217,143
                                                
                                                
                                                $
                                                14,739,193
                                                
                                                
                                                $
                                                (10,873,453
                                                )
                                                
                                                $
                                                4,082,883Common
      stock issued as restricted stock awards
                                                
                                                
                                                115,500
                                                
                                                
                                                
                                                4,620
                                                
                                                
                                                
                                                (4,620
                                                )
                                                
                                                
                                                
                                                
                                                
                                                
                                                -Exercise
      of common stock options
                                                
                                                
                                                75,288
                                                
                                                
                                                
                                                3,009
                                                
                                                
                                                
                                                991
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                4,000Amortization
      of stock-based compensation
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                100,699
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                100,699Dividend
      declared to common shareholders
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                (1,686,095
                                                )
                                                
                                                
                                                (1,686,095
                                                )Net
      income
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                1,768,593
                                                
                                                
                                                
                                                1,768,593Balance,
      December 31, 2007
                                                
                                                
                                                5,619,392
                                                
                                                
                                                
                                                224,772
                                                
                                                
                                                
                                                14,836,263
                                                
                                                
                                                
                                                (10,790,955
                                                )
                                                
                                                
                                                4,270,080Common
      stock issued as restricted stock awards,net
      of 3,000 shares cancelled
                                                
                                                
                                                132,409
                                                
                                                
                                                
                                                5,296
                                                
                                                
                                                
                                                (5,296
                                                )
                                                
                                                
                                                
                                                
                                                
                                                
                                                -Exercise
      of common stock options
                                                
                                                
                                                17,894
                                                
                                                
                                                
                                                716
                                                
                                                
                                                
                                                (636
                                                )
                                                
                                                
                                                
                                                
                                                
                                                
                                                80Exercise
      of common stock warrants
                                                
                                                
                                                196,652
                                                
                                                
                                                
                                                7,867
                                                
                                                
                                                
                                                53,898
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                61,765Amortization
      of stock-based compensation
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                157,540
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                157,540Warrant
      expense related to private placement
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                93,938
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                93,938Common
      stock issued related to private placement
                                                
                                                
                                                665,229
                                                
                                                
                                                
                                                26,609
                                                
                                                
                                                
                                                1,099,661
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                1,126,270Dividend
      declared to common shareholders
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                (1,989,750
                                                )
                                                
                                                
                                                (1,989,750
                                                )Net
      income
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                4,144,130
                                                
                                                
                                                
                                                4,144,130Balance,
      December 31, 2008
                                                
                                                
                                                6,631,576
                                                
                                                
                                                $
                                                265,260
                                                
                                                
                                                $
                                                16,235,368
                                                
                                                
                                                $
                                                (8,636,575
                                                )
                                                
                                                $
                                                7,864,053
   The
accompanying notes are an integral part of these financial
statements.
   F-4
   Emergent
Group Inc. and Subsidiaries
 Consolidated
Statements of Cash Flows
 Years
      Ended December 31,2008
                                              
                                              
                                              2007Cash
      flows from operating activitiesNet
      income
                                              
                                              $
                                              4,144,130
                                              
                                              
                                              $
                                              1,768,593Adjustments
      to reconcile net income to net cashprovided
      by operating activities:Depreciation
      and amortization
                                              
                                              
                                              1,685,618
                                              
                                              
                                              
                                              1,482,732Amortization
      of finance fees
                                              
                                              
                                              4,167
                                              
                                              
                                              
                                              28,459Gain
      on disposal of property and equipment
                                              
                                              
                                              (28,937
                                              )
                                              
                                              
                                              (8,214
                                              )Provision
      for doubtful accounts
                                              
                                              
                                              41,524
                                              
                                              
                                              
                                              (2,018
                                              )Minority
      interest in income
                                              
                                              
                                              960,994
                                              
                                              
                                              
                                              692,209Stock-based
      compensation expense
                                              
                                              
                                              251,478
                                              
                                              
                                              
                                              100,699Deferred
      income taxes
                                              
                                              
                                              (1,331,512
                                              )
                                              
                                              
                                              (10,088
                                              )(Increase)
      decrease in assets and liabilities, net of assets acquiredAccounts
      receivable
                                              
                                              
                                              (741,608
                                              )
                                              
                                              
                                              96,668Inventory
                                              
                                              
                                              135,369
                                              
                                              
                                              
                                              314,799Prepaid
      expenses
                                              
                                              
                                              (66,906
                                              )
                                              
                                              
                                              (12,960
                                              )Deposits
      and other assets
                                              
                                              
                                              (18,695
                                              )
                                              
                                              
                                              33,192Increase
      (decrease) inAccounts
      payable
                                              
                                              
                                              473,607
                                              
                                              
                                              
                                              (41,010
                                              )Accrued
      expenses and other liabilities
                                              
                                              
                                              513,764
                                              
                                              
                                              
                                              226,687Net
      cash provided by operating activities
                                              
                                              
                                              6,022,993
                                              
                                              
                                              
                                              4,669,748Cash
      flows from investing activitiesPurchase
      of property and equipment
                                              
                                              
                                              (337,861
                                              )
                                              
                                              
                                              (271,260
                                              )Purchase
      of assets from PhotoMedex
                                              
                                              
                                              (1,399,735
                                              )
                                              
                                              
                                              -Cash
      paid to members of limited liability companies
                                              
                                              
                                              (950,828
                                              )
                                              
                                              
                                              (721,719
                                              )Contributions
      from new members to limited liability companies
                                              
                                              
                                              108,750
                                              
                                              
                                              
                                              145,000Proceeds
      from the sale of property and equipment
                                              
                                              
                                              29,978
                                              
                                              
                                              
                                              4,580Net
      cash used in investing activities
                                              
                                              
                                              (2,549,696
                                              )
                                              
                                              
                                              (843,399
                                              )Cash
      flows from financing activitiesPayments
      on capital lease obligations
                                              
                                              
                                              (1,406,975
                                              )
                                              
                                              
                                              (1,062,873
                                              )Payments
      on dividends declared
                                              
                                              
                                              (1,686,095
                                              )
                                              
                                              
                                              (1,094,249
                                              )Borrowings
      under line of credit
                                              
                                              
                                              8,172,638
                                              
                                              
                                              
                                              16,676,000Repayments
      on line of credit
                                              
                                              
                                              (8,172,638
                                              )
                                              
                                              
                                              (16,676,000
                                              )Payments
      on notes payable
                                              
                                              
                                              (100,889
                                              )
                                              
                                              
                                              (238,185
                                              )Proceeds
      from private placement of common stocks
                                              
                                              
                                              1,126,270
                                              
                                              
                                              
                                              -Proceeds
      from equipment refinancing
                                              
                                              
                                              75,000
                                              
                                              
                                              
                                              300,000Proceeds
      from exercise of options to purchase common stock
                                              
                                              
                                              80
                                              
                                              
                                              
                                              4,000Proceeds
      from exercise of warrants to purchase common stock
                                              
                                              
                                              61,765
                                              
                                              
                                              
                                              -Payment
      of loan fees
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (10,000
                                              )Net
      cash used in financing activities
                                              
                                              
                                              (1,930,844
                                              )
                                              
                                              
                                              (2,101,307
                                              )Net
      increase in cash
                                              
                                              
                                              1,542,453
                                              
                                              
                                              
                                              1,725,042Cash,
      beginning of period
                                              
                                              
                                              3,043,654
                                              
                                              
                                              
                                              1,318,612Cash,
      end of period
                                              
                                              $
                                              4,586,107
                                              
                                              
                                              $
                                              3,043,654Supplemental
      disclosures of cash flow information:Interest
      paid
                                              
                                              $
                                              323,834
                                              
                                              
                                              $
                                              256,779Income
      taxes paid
                                              
                                              $
                                              373,310
                                              
                                              
                                              $
                                              95,567Supplemental
      schedule of noncash investing and financing activities:During
      the year ended December 31, 2008 and 2007, the Company incurred capital
      lease obligationsof
      $3,175,944 and $1,806,508, respectively, for medical equipment. The lease
      obligation of $3,175,944 incurredduring
      the year ended December 31, 2008 includes $1,750,000 of equipment
      financing incurred inconnection
      with the acquisition of the assets of the Services Division from
      PhotoMedex, Inc. as further discussedherein.
      In addition, equipment purchases of $356,160 are included in accounts
      payable in the accompanyingbalance
      sheet as of December 31, 2008 for which the Company is arranging lease
      financing.
  The
accompanying notes are an integral part of these financial
statements.
 F-5
  EMERGENT
GROUP INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008 and 2007
    NOTE
1 - ORGANIZATION AND BUSINESS
 
 General
 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 hereinafter referred to as the “Company.” PRI Medical provides
mobile laser/surgical services on a per procedure basis to hospitals,
out-patient surgery centers, and physicians' offices. Medical lasers and other
equipment are provided to customers along with technical support personnel to
ensure that such equipment is operating correctly. PRI Medical currently offers
its services in 16 states located in the Western and Eastern United
States.
 
 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.”
 
 Acquisition
 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 year ended December 31, 2008 include the results of
operations for the Services Division from August 9, 2008 to December 31, 2008.
In addition, unaudited pro forma information is presented in Note 14 below for
2008 and 2007 assuming that the acquisition of assets had occurred on the dates
stated therein.
 
 NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Principles of
Consolidation
 The
consolidated financial statements include the accounts of Emergent and its
wholly owned subsidiaries. In addition, in accordance with the Financial
Accounting Standards Board Interpretation No. 46R, “Consolidation of Variable
Interest Entities” the Company has accounted for its equity investments in
eleven limited liability companies under the full consolidation method. All
significant inter-company transactions and balances have been eliminated through
consolidation.
 
 Revenue
Recognition
 Revenue
is recognized when the 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.
 
 Cash
 Cash
consists of cash on hand and in banks. The Company maintains cash at several
financial institutions. At times, such cash balances may be in excess of the
Federal Deposit Insurance Corporation insurance limit of $250,000. As of
December 31, 2008, the uninsured portion of balances at such banks amounted to
$2,069,661. The Company has not experienced losses in such accounts and believes
it is not exposed to any significant risk on cash.
    F-6
   EMERGENT
GROUP INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008 and 2007
 
 Accounts Receivable and
Concentration of Business and Credit Risks
 We market
our services primarily to hospitals, out-patient centers and physicians
throughout 16 states located in the Western and 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 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
is stated at the lower of cost or market. Cost is determined by the first-in,
first-out method.
 
 Property and
Equipment
 Property
and equipment are recorded at cost, less accumulated depreciation and
amortization. Depreciation and amortization are provided using the straight-line
method over the estimated useful lives of generally five years. Betterments,
renewals, and extraordinary repairs that extend the life of the assets are
capitalized; other repairs and maintenance charges are expensed asincurred. The
cost and related accumulated depreciation and amortization applicable to retired
assets are removed from the Company's accounts, and the gain or loss on
dispositions, if any, is recognized in the consolidated statements of
income.
 
 Impairment of Long-Lived
Assets and Intangibles
 The
Company reviews its long-lived assets for impairment in accordance with
Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting
Standards (“SFAS”) 144 annually whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of the assets to future net cash flows expected to be generated
by the assets. If the assets are not considered recoverable, the Company will
recognize an impairment charge that is measured by the amount by which the
carrying amount exceeds the fair value of the assets. In addition to goodwill,
other intangible assets include covenant not-to-compete and customer lists of
$403,152 and $93,930, net of accumulated amortization, as of December 31, 2008
and 2007, respectively. Covenants not-to-compete and customer lists are
generally amortized over their estimated useful lives of five to ten years. The
Company, in accordance with SFAS 142, reviews goodwill for impairment at least
annually or whenever events or circumstances are more likely than not to reduce
the fair value of goodwill below its carrying amount.
 
 Fair Value of Financial
Instruments
 For
certain of the Company’s financial instruments, including cash, accounts
receivable, prepaid expenses, accounts payable, and accrued expenses, the
carrying amounts approximate fair value due to their short
maturities.
    F-7
    EMERGENT
GROUP INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008 and 2007
 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 years ended December
31, 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
stock options for the years ended December 31, 2008 and 2007 were $12,459 and
$10,864, 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 December 31, 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
December 31, 2008, the number of shares reserved for future awards was
182,457.
  Advertising
Expense
 The
Company expenses advertising in the periods the services are performed. For the
years ended December 31, 2008 and 2007, advertising expense was $48,400 and
$33,374, respectively.
 
 Income
Taxes
 The
Company accounts for income taxes under the liability method, which requires the
recognition of deferred income tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred income taxes are
recognized for the tax consequences in future years of differences between the
tax bases of assets and liabilities and their financial reporting amounts at
each period end based on enacted tax laws and statutory tax rates applicable to
the periods in which the differences are expected to affect taxable income.
Valuation allowances are established, when necessary, to reduce deferred income
tax assets to the amount expected to be realized. The provision for income
taxes, if any, represents the tax payable for the period and the change during
the period in deferred income tax assets and liabilities.
 
 Earnings Per
Share
 The
Company utilizes SFAS No. 128, "Earnings per Share." Basic earnings per share is
computed by dividing income 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 shares 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. As of December 31, 2008 and 2007,
common stock equivalents used in determining fully diluted shares outstanding
consist only of options to purchase common stock. The components of basic and
diluted earnings per share are as follows:
   F-8
   EMERGENT
GROUP INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008 and 2007
  Year
      Ended December 31,2008
                                                
                                                
                                                2007Numerator
      -Net
      income attributable to common shareholders
                                                
                                                $
                                                4,144,130
                                                
                                                
                                                $
                                                1,768,593Denominator
      -Weighted-average
      number of common shares outstanding during the period
                                                
                                                
                                                6,003,420
                                                
                                                
                                                
                                                5,533,348Dilutive
      effect of stock options and warrants
                                                
                                                
                                                382,209
                                                
                                                
                                                
                                                264,667Common
      stock and common stock
                                                  equivalents
      used for diluted earnings per share
                                                
                                                
                                                6,385,629
                                                
                                                
                                                
                                                5,798,015
  Estimates
 The
preparation of financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
 
 Recently Issued Accounting
Pronouncements
 
 In
      March 2008, the FASB issued Statement of Financial Accounting Standards
      ("SFAS") No. 161, Disclosures about Derivative Instruments and Hedging
      Activities, an amendment of FASB Statement No. 133. SFAS No. 161 requires
      enhanced disclosures about a company's derivative and hedging activities.
      These enhanced disclosures will discuss (a) how and why a company uses
      derivative instruments, (b) how derivative instruments and related hedged
      items are accounted for under FASB Statement No. 133 and its related
      interpretations and (c) how derivative instruments and related hedged
      items affect a company's financial position, results of operations and
      cash flows. SFAS No. 161 is effective for fiscal years beginning on or
      after November 15, 2008, with earlier adoption allowed. We do not
      anticipate that the adoption of this accounting pronouncement will have a
      material effect on our consolidated financial
  statements.
 
 In
February 2008, the FASB issued FASB Staff Position No. 157-2, Effective Date of
FASB Statement No. 157, which delays the effective date of SFAS 157 for
nonfinancial assets and nonfinancial liabilities to fiscal years beginning after
November 15, 2008. Therefore, we will delay application of SFAS 157 to our
nonfinancial assets and nonfinancial liabilities. We do not anticipate that the
delayed adoption of this accounting pronouncement will have a material effect on
our consolidated financial statements.
 
 In
December 2007, the FASB issued SFAS No. 141(R), Business Combinations, and SFAS
No. 160, Accounting and Reporting of Noncontrolling Interests in Consolidated
Financial Statements, an amendment of ARB No. 51. These new standards will
significantly change the financial accounting and reporting of business
combination transactions and noncontrolling (or minority) interests in
consolidated financial statements. SFAS 141(R) is required to be adopted
concurrently with SFAS 160 and is effective for business combination
transactions for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after
    F-9
   EMERGENT
GROUP INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008 and 2007
 
 December
15, 2008. Early adoption is prohibited. We do not anticipate that the adoption
of this accounting pronouncement will have a material effect on our consolidated
financial statements.
  In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities-Including an Amendment of FASB Statement No.
115, which is effective for us in fiscal years beginning after July 1, 2008.
This statement permits an entity to choose to measure many financial instruments
and certain other items at fair value at specified election dates. Subsequent
unrealized gains and losses on items for which the fair value option has been
elected will be reported in earnings. We do not anticipate that the adoption of
this accounting pronouncement will have a material effect on our consolidated
financial statements.
 
 NOTE
      3 – INVENTORY
 
 Inventory
consists of the following:
  December
      31,2008
                              
                              
                              2007Fibers,
      kits and other disposables
                              
                              $
                              881,472
                              
                              
                              $
                              559,791Less:
      reserve for excess/obsolete inventory
                              
                              
                              (44,329
                              )
                              
                              
                              (54,999
                              )Total
                              
                              $
                              837,143
                              
                              
                              $
                              504,792
  
 NOTE
      4 - EQUITY INVESTMENT IN LIMITED LIABILITY
  COMPANIES
 
 In
connection with expanding its business, PRI Medical participates with others in
the formation of Limited Liability Companies (“LLCs”) in which it will acquire
either a minority or majority interest and the remaining interests are held by
other investors. These LLCs acquire certain medical equipment for use in their
respective business activities which generally focus on surgical procedures. As
of December 31, 2008, PRI Medical currently holds interests in eleven LLCs in
Colorado and California. During 2008 and 2007, PRI Medical participated in
the formation of five 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.
 
 For the
years ended December 31, 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 its LLCs
under the full consolidation method whereby transactions between the Company and
LLCs have been eliminated through consolidation.
    F-10
   EMERGENT
GROUP INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008 and 2007
 NOTE
5 - PROPERTY AND EQUIPMENT
 
 
 Property
and equipment consists of the following:
  December
      31,2008
                          
                          
                          2007Rental
      equipment
                          
                          $
                          12,083,492
                          
                          
                          $
                          9,056,874Furniture
      and fixtures, including computers
                          
                          
                          368,916
                          
                          
                          
                          306,823Capitalized
      software cost
                          
                          
                          161,777
                          
                          
                          
                          114,214Transportation
      equipment
                          
                          
                          618,823
                          
                          
                          
                          533,850Leasehold
      improvements
                          
                          
                          84,702
                          
                          
                          
                          84,70213,317,710
                          
                          
                          
                          10,096,463Less
      accumulated depreciation and amortization
                          
                          
                          7,247,482
                          
                          
                          
                          5,954,233Total
                          
                          $
                          6,070,228
                          
                          
                          $
                          4,142,230
  
 The
historical cost value and net book value of property and equipment under lease
financing at December 31, 2008 is $7,576,999 and $5,018,181, respectively, and
$4,873,738 and $3,402,935, respectively, as of December 31, 2007.
 
 Depreciation
and amortization expense for property and equipment was $1,630,970 and
$1,424,896 for the years ended December 31, 2008 and 2007,
respectively.
 
 NOTE
6 - LINE OF CREDIT
 
 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 December 31, 2008 the Company was in compliance with the terms of its
revolving credit agreement and no amounts have been drawn under this
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 was in compliance with its financial covenants
under this financing agreement as of December 31, 2008.
 
 Loan fee
amortization expense related to the Company’s previous credit agreements was
$-0- and $28,459
for the years ended December 31, 2008 and 2007, respectively.
   F-11
  EMERGENT
GROUP INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008 and 2007
 NOTE
7 - NOTES PAYABLE
 
 As of
December 31, 2007 the Company was obligated under a note payable of $100,888 to
certain principals of the seller in connection with the purchase of certain
operating assets, non-compete agreements and customer list acquired during 2005.
The note provided for quarterly principal payments of $25,222, as adjusted,
beginning on February 1, 2006. The note balance was fully repaid during
2008.
 
 NOTE
8 - ACCRUED EXPENSES AND OTHER LIABILITIES
 
 Accrued
expenses and other liabilities consists of the following:
  December
      31,2008
                                      
                                      
                                      2007Accrued
      payroll and payroll related amounts
                                      
                                      $
                                      1,378,082
                                      
                                      
                                      $
                                      880,702Accrued
      payable – vendors
                                      
                                      
                                      76,687
                                      
                                      
                                      
                                      112,456Accrued
      payable – equipment purchases
                                      
                                      
                                      -
                                      
                                      
                                      
                                      75,000Accrued
      professional fees
                                      
                                      
                                      71,308
                                      
                                      
                                      
                                      47,708Sales
      taxes payable
                                      
                                      
                                      137,533
                                      
                                      
                                      
                                      99,488Other
                                      
                                      
                                      333,702
                                      
                                      
                                      
                                      343,692Total
                                      
                                      $
                                      1,997,312
                                      
                                      
                                      $
                                      1,559,046
   NOTE
9 - COMMITMENTS AND CONTINGENCIES
 
 Operating and Capital
Leases
 The
Company maintains its principal executive offices in Sun Valley, California,
where it leases approximately 13,000 square feet of office/warehouse space for
its operations. The facility is leased under a five-year lease agreement, which
currently provides for monthly rent of approximately $12,539, including
reimbursements for common area expenses, tenant improvement costs, property
taxes and insurance. Base rent is subject to an annual increase of 4%. Total
rent expense incurred for the years ended December 31, 2008 and 2007 was
$128,176 and $117,483, respectively. In addition, the Company leases several
other office/warehouse facilities in various states in the Western and Eastern
United States with a total of approximately 8,950 square feet. Total rent
expense incurred for these facilities was $74,844 and $43,368 for the years
ended December 31, 2008 and 2007, respectively.
 
 The
Company leases certain of its vehicles under various operating and financing
leases. The operating leases are scheduled to expire between February 2009 and
August 2013. Thereafter, such leases will continue under a month-to-month lease
term until such time the vehicles are either returned to the lessor or
purchased. Total rental expenses for vehicles for the years ended December 31,
2008 and 2007 was $146,162 and $88,137, respectively.
 
 The
Company is obligated under a master lease agreement with a bank. This agreement
is for the financing of equipment purchases. Under the agreement, the Company
may finance equipment purchases on an installment basis at a rate of interest
determined at each respective borrowing date. Such rates will generally
approximate the bank’s prime rate. As of December 31, 2008, we had $2,369,997
outstanding under the lease line of credit payable in monthly installments over
a term of 36 to 48 months, which is included in the table below.
    F-12
   EMERGENT
GROUP INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008 and 2007
 
 At
December 31, 2008 the Company is obligated under certain capital equipment
leases with various finance companies, including the equipment lease financing
incurred in August 2008 in connection with the acquisition of the assets of the
Services Division. The capital leases bear interest at rates between 5.82% and
11.44% per annum. The monthly capital lease payments range between $508 and
$46,378 and terminate through August 2013.
 
 Future
minimum lease payments under operating and capital leases at December 31, 2008
are as follows:
  Year
      Ending December 31,
                            
                            Operating
                              Leases
                            
                            
                            Capital
                              Leases2009
                            
                            $
                            207,391
                            
                            
                            $
                            2,222,6672010
                            
                            
                            179,160
                            
                            
                            
                            1,765,3732011
                            
                            
                            158,922
                            
                            
                            
                            1,330,8792012
                            
                            
                            -
                            
                            
                            
                            449,6062013
                            
                            
                            -
                            
                            
                            
                            81,247Total
      minimum lease payments
                            
                            $
                            545,473
                            
                            
                            
                            5,849,772Less
      amounts representing interest
                            
                            
                            
                            
                            
                            
                            595,895Less
      current portion
                            
                            
                            
                            
                            
                            
                            1,909,057Long-term
      portion
                            
                            
                            
                            
                            
                            $
                            3,344,820
     Litigation
 
 From time
to time, we may become involved in litigation arising out of operations in the
normal course of business. Except for the matter discussed below, as of December
31, 2008, we are not a party to any pending legal proceedings the outcome of
which could reasonably be expected to have a material adverse effect on our
operating results or financial position.
 
 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”).
 
 The civil
lawsuit, which was signed by the clerk on February 2, 2005, is brought in the
United States District Court, Southern District of New York, is an action 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. Management does
not believe that this matter will have a significant impact on the Company’s
financial position or results of operations.
     F-13
   EMERGENT
GROUP INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008 and 2007
 NOTE
10 - SHAREHOLDERS' EQUITY
 
 Common
Stock
 
 During
the year ended December 31, 2008, the Company completed the following
transactions:
 
 ·
                In
      March 2008, the Company’s Board of Directors approved the issuance of
      105,000 shares of restricted common stock to our executive officers and
      directors, subject to vesting in five equal annual installments commencing
      in March 2009 and the forfeiture of the non-vested portion in the event
      that recipient is no longer serving as an employee of our Company at the
      time of vesting, subject to the Board’s right to waive the forfeiture
      provisions.
 
 ·
                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 Comapny incurred legal costs of $4,620 in connection with
      this transaction. 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.
 
 ·
                In
      December 2008, Warrants to purchase a total of 226,764 shares of Common
      Stock were exercised with the issuance of 161,358 shares on a cashless
      basis and warrants to purchase 35,294 shares were issued
      for cash. The Company received proceeds of $61,765 in connection with
      the exercise of such Warrants.
 
 ·
                The
      Company cancelled 3,000 shares of restricted Common Stock as a result of
      employee terminations.
 
 ·
                In
      August 2008, the Company granted 30,409 restricted award shares to certain
      employees of the Company, subject to vesting over a five year period
      commencing August 11, 2009 and the forfeiture of the non-vested portion in
      the event that recipient is no longer serving as an employee of our
      Company at the time of vesting, subject to the Board’s right to waive the
      forfeiture provisions.
 
 ·
                In
      December 2008, 35,000 options to purchase common stock were granted to
      various employees of the Company, subject to vesting in five equal annual
      installments commencing December 2009 and the forfeiture of the non-vested
      portion in the event that recipient is no longer serving as an employee of
      our Company at the time of vesting, subject to the Board’s right to waive
      the forfeiture provisions.
 
 ·
                During
      2008, an aggregate of 19,492 employee stock options were exercised,
      primarily utilizing the cashless exercise provision in the plan, in
      exchange for 17,894 shares of common
stock.
 
 ·
                On
      December 12, 2008 the Company’s Board of Directors declared a cash
      dividend of $0.30 per share to our common shareholders of record on
      December 29, 2008, which was paid on January 12,
  2009.
 
    F-14
  EMERGENT
GROUP INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008 and 2007
 
 Stock Option
Plans
 
 In April
2002, the Company adopted the 2002 Employee Benefit and Consulting Services
Compensation Plan (the “2002 Plan”). The purpose of the 2002 Plan is to provide
incentive to key employees, officers, and consultants of the Company who provide
significant services to the Company. As of December 31, 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.
 
 Since
shareholder approval was not obtained on or before April 1, 2003, all incentive
stock options granted under the 2002 Plan have automatically become
non-statutory stock options, and the Board is limited to granting non-statutory
stock options under the 2002 Plan.
 
 Non-statutory
stock options may be granted at any price determined by the Board even if the
exercise price of the options is at a price below the fair market value of the
Company’s common stock on the date of grant. The purchase price of an incentive
stock option may not be less than the fair market value of the common stock at
the time of grant, except in the case of a 10% shareholder who receives an
incentive stock option; the purchase price may not be less than 110% of such
fair market value. The aggregate fair market value of the stock for which
incentive stock options are exercisable by any employee during any calendar year
must not exceed $100,000.
 
 During
the years ended December 31, 2008 and 2007, the Company issued to employees
options to purchase 35,000 and 12,500 shares of common stock under the 2002
Plan. The options granted in 2008 and 2007 have a 10-year term and are
exercisable at $2.15 and $3.05 per share, respectively. Generally, one-fifth of
each issuance vests over five consecutive years. During the years ended December
2008 and 2007, options to purchase 245 shares expired and options to purchase
5,850 shares were cancelled due to employee terminations.
 
 The
Company has established two other stock option plans, neither of which have any
material amount of shares authorized and/or outstanding under the Plan. However,
outstanding shares under such plans are included in the table
below.
    F-15
  EMERGENT
GROUP INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008 and 2007
   A summary
of the Company's outstanding options and activity is as follows:
 Number
      of
                              Options
                            
                            
                            Weighted-
                              Average
                              Exercise
                              PriceOutstanding,
      January 1, 2007
                            
                            
                            398,912
                            
                            
                            $
                            1.20Granted
                            
                            
                            12,500
                            
                            
                            $
                            3.05Exercised
                            
                            
                            (84,186
                            )
                            
                            $
                            0.44Canceled
                            
                            
                            (5,850
                            )
                            
                            $
                            0.40Outstanding,
      December 31, 2007
                            
                            
                            321,376
                            
                            
                            $
                            1.48Granted
                            
                            
                            35,000
                            
                            
                            $
                            2.15Exercised
                            
                            
                            (19,492
                            )
                            
                            $
                            0.40Canceled
                            
                            
                            (245
                            )
                            
                            $
                            27.20Outstanding,
      December 31, 2008
                            
                            
                            336,639
                            
                            
                            $
                            1.59Exercisable,
      December 31, 2008
                            
                            
                            272,227
                            
                            
                            $
                            1.57
 The
weighted-average remaining contractual life of the options outstanding at
December 31, 2008 is 5.04 years. The intrinsic value of stock options exercised
during 2008 and 2007 was $82,267 and $267,437, respectively. In addition, the
intrinsic value of options exercisable at December 31, 2008 was
$1,851,144.
 
 The
exercise prices for the options outstanding at December 31, 2008 ranged from
$0.40 to $162.00, and information relating to these options is as
follows:
  Weighted
                                              WeightedAverage
                                              Average
                                              
                                              Average
                                              
                                              
                                              AverageWeighted-
                                              
                                              
                                              Weighted
                                              
                                              
                                              
                                              
                                              Remaining
                                              Remaining
                                              
                                              Exercise
                                              
                                              
                                              ExerciseRange
      of
                                              
                                              
                                              Stock
                                              
                                              
                                              Stock
                                              
                                              Contractual
                                              Contractual
                                              
                                              Price
      of
                                              
                                              
                                              Price
      ofExercise
                                              
                                              
                                              Options
                                              
                                              
                                              Options
                                              
                                              Life
      of Options
                                              Life
      of Options
                                              
                                              Options
                                              
                                              
                                              OptionsPrices
                                              
                                              
                                              Oustanding
                                              
                                              
                                              Exercisable
                                              
                                              Outstanding
                                              Exercisable
                                              
                                              Outstanding
                                              
                                              
                                              Exercisable$
                                              0.40
                                              
                                              
                                              
                                              279,535
                                              
                                              
                                              
                                              257,220
                                              
                                              4.35
      years
                                              4.21
      years
                                              
                                              $
                                              0.40
                                              
                                              
                                              $
                                              0.40$
                                              2.15
      - 8.00
                                              
                                              
                                              
                                              49,500
                                              
                                              
                                              
                                              7,404
                                              
                                              9.21
      years
                                              7.85
      years
                                              
                                              $
                                              2.61
                                              
                                              
                                              $
                                              4.05$
                                              20.00
      - 51.00
                                              
                                              
                                              
                                              7,599
                                              
                                              
                                              
                                              7,599
                                              
                                              2.68
      years
                                              2.68
      years
                                              
                                              $
                                              38.78
                                              
                                              
                                              $
                                              38.78$
                                              162.00
                                              
                                              
                                              
                                              5
                                              
                                              
                                              
                                              5
                                              
                                              0.40
      years
                                              0.39
      years
                                              
                                              $
                                              162.00
                                              
                                              
                                              $
                                              162.00$
                                              0.40
      - 162.00
                                              
                                              
                                              
                                              336,639
                                              
                                              
                                              
                                              272,228
                                              
                                              5.04
      years
                                              4.27
      years
                                              
                                              $
                                              1.59
                                              
                                              
                                              $
                                              1.57
   As of
December 31, 2008, the total unrecognized fair value compensation cost related
to unvested stock options was $21,614, which is to be recognized over a
remaining weighted average period of approximately 4.3 years.
   F-16
  EMERGENT
GROUP INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008 and 2007
  Number
                                        Outstanding
                                      
                                      
                                      Weighted
                                        Average
                                        Remaining
                                        Contractual
      Life
                                        (in
      years)
                                      
                                      
                                      Weighted
                                        Average
                                        Exercise
      Price
                                      
                                      
                                      Weighted
                                        Average
                                        Grant
      Date
                                        Fair
      ValueNon
      Vested, January 1, 2007
                                      
                                      
                                      104,351
                                      
                                      
                                      
                                      5.25
                                      
                                      
                                      $
                                      0.40
                                      
                                      
                                      $
                                      0.28Granted
                                      
                                      
                                      12,500
                                      
                                      
                                      
                                      
                                      
                                      
                                      $
                                      3.05
                                      
                                      
                                      $
                                      0.89Forfeited
                                      
                                      
                                      (5,850
                                      )
                                      
                                      
                                      
                                      
                                      
                                      $
                                      0.40
                                      
                                      
                                      $
                                      0.28Vested
                                      
                                      
                                      (43,180
                                      )
                                      
                                      
                                      
                                      
                                      
                                      $
                                      0.40
                                      
                                      
                                      $
                                      0.29Non
      Vested, December 31, 2007
                                      
                                      
                                      67,821
                                      
                                      
                                      
                                      4.76
                                      
                                      
                                      $
                                      0.89
                                      
                                      
                                      $
                                      0.37Granted
                                      
                                      
                                      35,000
                                      
                                      
                                      
                                      
                                      
                                      
                                      $
                                      2.15
                                      
                                      
                                      $
                                      0.15Forfeited
                                      
                                      
                                      -
                                      
                                      
                                      
                                      
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -Vested
                                      
                                      
                                      (38,410
                                      )
                                      
                                      
                                      
                                      
                                      
                                      $
                                      0.57
                                      
                                      
                                      $
                                      0.37Non
      Vested, December 31, 2008
                                      
                                      
                                      64,411
                                      
                                      
                                      
                                      7.90
                                      
                                      
                                      $
                                      1.76
                                      
                                      
                                      $
                                      0.34
  
 In
December 2008, the Company granted 35,000 options to purchase common stock to
various employees of the Company. The fair value of such options was $5,352,
which was determined using the Black-Scholes option-pricing model with the
following assumptions: dividend yields of 10%, expected volatility of 25%,
risk-free interest rates of 3.0% and expected life of seven years.
 
 The
Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
 
 In
addition to options granted under the 2002 Plan, as of December 31, 2008 we have
357,909 restricted award shares issued and outstanding, which 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
recipient is no longer employed by the Company at the time of vesting, subject
to the Board’s right to waive the forfeiture provisions. The Company cancelled
3,000 restricted shares in 2008 due to employee terminations. 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. Compensation expense related to award shares was $145,080 and $68,169
for the years ended December 31, 2008 and 2007, respectively.
    F-17
    EMERGENT
GROUP INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008 and 2007
 NOTE
11 - INCOME TAXES
 
 The
components of the income tax provision (benefit) for the years ended December
31, 2008 and 2007 are as follows:
  2008
                          
                          
                          2007Current
                          
                          $
                          225,641
                          
                          
                          $
                          193,922Deferred
                          
                          
                          (1,331,512
                          )
                          
                          
                          (10,088
                          )Total
                          
                          $
                          (1,105,871
                          )
                          
                          $
                          183,834
  A
reconciliation of the provision for income tax expense with the expected income
tax computed by applying the federal statutory income tax rate to income before
provision for income taxes was as follows for the years ended December 31, 2008
and 2007:
  2008
                          
                          
                          2007Income
      tax computed at federal statutory tax rate
                          
                          
                          34.00
                          %
                          
                          
                          34.00
                          %State
      taxes, net of federal benefit
                          
                          
                          3.52
                          
                          
                          
                          2.76Minority
      interest
                          
                          
                          (8.17
                          )
                          
                          
                          (9.06
                          )Other
                          
                          
                          1.50
                          
                          
                          
                          1.83Decrease
      in valuation allowance
                          
                          
                          (58.51
                          )
                          
                          
                          (23.06
                          )Total
                          
                          
                          27.65
                          %
                          
                          
                          6.47
                          %
 
 
 The tax
effects of temporary differences that give rise to deferred income taxes at
December 31, 2008 and 2007 are as follows:
  2008
                          
                          
                          2007Property
      and equipment
                          
                          $
                          (565,729
                          )
                          
                          $
                          (237,769
                          )Capital
      loss carryover
                          
                          
                          0
                          
                          
                          
                          1,321,645Net
      operating loss carryforwards
                          
                          
                          2,588,456
                          
                          
                          
                          3,160,312Other
                          
                          
                          224,273
                          
                          
                          
                          11,263Total
      gross deferred tax assets
                          
                          
                          2,247,000
                          
                          
                          
                          4,255,451Less
      valuation allowance
                          
                          
                          0
                          
                          
                          
                          3,339,963Net
      deferred tax assets
                          
                          $
                          2,247,000
                          
                          
                          $
                          915,488
  
 As of
December 31, 2008 and 2007, we reversed $1,331,512 and $915,488, respectively,
of our valuation allowance on deferred tax assets relating to prior year net
operating losses. As required by SFAS 109, we did not reverse the valuation
allowance until it was more likely than not that the tax asset would be
realized.
 
 As of
December 31, 2008, the Company had approximately $7.6 million in federal net
operating loss carryforwards attributable to losses incurred since the Company’s
inception that may be offset against future taxable income through 2020. Because
of statutory ownership changes, the amount of operating loss carryforwards which
may be utilized in future years is subject to significant
limitations.
    F-18
    EMERGENT
GROUP INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008 and 2007
 The
Company has adopted Financial Accounting Standards Board (“FASB”) Interpretation
No. 48 (“FIN 48”), “Accounting
for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109”.FIN 48 clarifies the accounting for uncertainty in income taxes
recognized in an enterprise's financial statements in accordance with FASB
Statement 109, "Accounting for Income Taxes",
and prescribes a recognition threshold of more likely than not and a measurement
process for financial statement recognition and measurement of a tax position
taken or expected to be taken in a tax return. In making this assessment, a
company must determine whether it is more likely than not that a tax position
will be sustained upon examination, based solely on the technical merits of the
position and must assume that the tax position will be examined by taxing
authorities. The
Company files income tax returns with the Internal Revenue Service (“IRS”) and
various state jurisdictions. For jurisdictions in which tax filings are
prepared, the Company is no longer subject to income tax examinations by
state tax authorities for years through 2003, and by the IRS for years through
2004. The Company’s net operating loss carryforwards are subject to IRS
examination until they are fully utilized and such tax years are closed. Our
review of prior year tax positions using the criteria and provisions presented
in FIN 48 did not result in a material impact on the Company’s financial
position or results of operations.
 
 NOTE
12 - BENEFIT PLAN
 
 The
Company has a profit sharing plan established in accordance with Section 401(k)
of the Employee Retirement Income Security Act of 1974, as amended.
Substantially all full-time employees with specific periods of service are
eligible to participate. Employee contributions to the plan are elective. For
the years ended December 31, 2008 and 2007, the Company provided matching
contributions to the plan of $13,746 and $13,167, respectively.
 
 NOTE
13 - RELATED PARTY TRANSACTIONS
 
 The
Company incurred reimbursable expenses of $35,792 and $41,476 to BJH Management,
LLC, which is owned by the Company’s Chairman and Chief Executive Officer, for
office rent and related expenses for the years ended December 31, 2008 and 2007,
respectively.
 
 Pursuant
to a Service Agreement dated as of July 1, 2006 (the “Services Agreement”), the
Company entered into an agreement with BJH Management LLC (“BJH”) to secure the
services of Bruce J. Haber (“Haber”) as its Chief Executive Officer and as its
Chairman of the Board. The Service Agreement provides for a monthly fee of
$15,167 and reimbursement of ordinary and necessary business expenses incurred
in connection with such services. Pursuant to the Services Agreement, for
services provided, the Company paid BJH base fees of $182,000, for each of the
years ended December 31, 2008 and 2007, respectively. In addition, BJH earned
incentive compensation for the year ended December 31, 2008 and 2007 of $223,095
and $156,500, respectively. The Company reimbursed Mr. Haber for business
expenses in the amounts of $58,711 and $59,755 for the years ended December 31,
2008 and 2007, respectively.
   F-19
   EMERGENT
GROUP INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008 and 2007
 
 NOTE
14 – 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 $3,149,735, 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-K, with the
balance paid from existing cash.
 
 The
purchase price for the acquired assets of $3,149,735, 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 $358,864.
Equipment and vehicles are being depreciated over three to five years 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 December 31, 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 January 1, 2008 and 2007,
respectively.
   F-20
    EMERGENT
GROUP INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008 and 2007
 
 Pro
      Forma Results of Operations
                                Year
      Ended December 31,2008
                              
                              
                              
                              2007Pro
      forma revenue
                              
                              $
                              27,183,969
                              
                              
                              $
                              25,328,715Pro
      forma income from operations
                              
                              $
                              4,525,962
                              
                              
                              $
                              3,415,972Pro
      forma net income
                              
                              $
                              4,398,841
                              
                              
                              $
                              2,249,914Pro
      forma basic earnings per share
                              
                              $
                              0.69
                              
                              
                              $
                              0.36Pro
      forma diluted earnings per share
                              
                              $
                              0.65
                              
                              
                              $
                              0.34
   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 January 1, 2008 and 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.
 
 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.








F-21








Item 9.Changes in and Disagreements
with Accountants on Accounting and Financial Disclosure.





None.





Item
9.A.(T)  Controls and Procedures.





Under the
supervision and with the participation of our management, including the Chief
Executive Officer and Chief Financial Officer, we have evaluated the
effectiveness of our disclosure controls and procedures as required by Exchange
Act Rule 13a-15(b) as of the end of the period covered by this report. Based on
that evaluation, the Chief Executive Officer and Chief Financial Officer have
concluded that these disclosure controls and procedures are
effective.




Report
of Management on Internal Control Over Financial Reporting





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting for the Company. Internal control over
financial reporting is a process to provide reasonable assurance regarding the
reliability of our financial reporting for external purposes in accordance with
accounting principles generally accepted in the United States of America.
Internal control over financial reporting includes maintaining records that in
reasonable detail accurately and fairly reflect our transactions; providing
reasonable assurance that transactions are recorded as necessary for preparation
of our financial statements; providing reasonable assurance that receipts and
expenditures of company assets are made in accordance with management
authorization; and providing reasonable assurance that unauthorized acquisition,
use or disposition of company assets that could have a material effect on our
financial statements would be prevented or detected on a timely basis. Because
of its inherent limitations, internal control over financial reporting is not
intended to provide absolute assurance that a misstatement of our financial
statements would be prevented or detected.





Management
conducted an evaluation of the effectiveness of our internal control over
financial reporting based on the framework in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on this evaluation, management concluded that the
company’s internal control over financial reporting was effective as of
December 31, 2008. There were no significant changes in our internal
control over financial reporting during the year ended December 31, 2008
that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting. Our independent auditors have not
audited and are not required to audit this assessment of our internal control
over financial reporting for the fiscal year ended December 31,
2008.





Item
9.B.  Other Information.





Not Applicable.






21








PART
III





Item
10.  Directors, Executive Officers and Corporate
Governance.





The
names, ages and principal occupations of the Company's present officers and
directors are listed below.




Name (1)
            
            Age
            
            First
      Became Director
              and/or Officer
            
            PositionBruce
      J. Haber
            
            56
            
            2003
            
            Chairman
      of the Board and Chief Executive OfficerLouis
      Buther
            
            55
            
            2003
            
            President
      and Chief Operating OfficerWilliam
      M. McKay
            
            54
            
            2002
            
            Chief
      Financial Officer, Treasurer and SecretaryMark
      Waldron
            
            41
            
            2000
            
            DirectorHoward
      Waltman
            
            76
            
            2001
            
            DirectorK.
      Deane Reade, Jr.
            
            68
            
            2005
            
            Director


__________________





(1)           Directors
are elected at the annual meeting of stockholders and hold office until
thefollowing annual meeting.





The terms
of all officers expire at the annual meeting of directors following the annual
stockholders meeting. Officers serve at the pleasure of the Board and may be
removed, either with or without cause, by the Board of Directors, and a
successor elected by a majority vote of the Board of Directors, at any
time.  There is currently one vacancy on the Company’s Board of
Directors.





Bruce J. Haber has served as Chairman
of the Board and Chief Executive Officer since January 31, 2003. Mr. Haber is
currently President of BJH Management, LLC, a management firm specializing in
turnaround consulting and private equity investments, which served as a
consultant to the Company between October 2001 and January 2003. From October
2001 until December 2002, Mr. Haber served on the Board of Directors of EB2B
Commerce, Inc. a computer software company. From March 2002 to December 2002 Mr.
Haber served as Chairman of the Board and as a turnaround consultant to EB2B.
Mr. Haber was founder, President and CEO of MedConduit.com, Inc., a healthcare
e-commerce B2B from 2000 to 2001. Mr. Haber served as Executive Vice President
and a Director of Henry Schein, Inc., an international distributor of healthcare
products, as well as President of their Medical Group from 1997 to 1999. From
1981 to 1997, Mr. Haber served as President, CEO and Director of Micro
Bio-Medics, Inc., and Caligor Medical Supply Company, a distributor of physician
and hospital supplies, which merged with Henry Schein in 1997.  Mr.
Haber is currently a director of a number of privately held companies and serves
as a Trustee of Mercy College, Dobbs Ferry, New York. Mr. Haber holds a Bachelor
of Science degree from the City College of New York and a Master of Business
Administration from Baruch College in New York.





Louis
Buther has served as President of the Company since January 31, 2003. Mr. Buther
has served as an independent consultant since 2000, including providing
consulting services to the Company between October 2001 and January 2003. From
1997 through 2000, Mr. Buther was Senior Vice President of the Medical Division
of Henry Schein, Inc. From 1983 to 1997, Mr. Buther served as Vice President of
Micro Bio-Medics, Inc., and Caligor Medical Supply Company, which merged with
Henry Schein in 1997. Mr. Buther holds an Associates Art Science Degree in
Chemistry from Bronx Community College and a Bachelor of Science Degree in
Pharmacy from Long Island University.








22








William M. McKay has served as Chief
Financial Officer of the Company since August 2002. From August 2000 to August
2002, he served as Chief Financial Officer and as a consultant for EV Global
Motors Company, a privately held consumer products company. From December 1998
to July 2000 Mr. McKay served as Chief Financial Officer and Secretary for
Internet Dynamics, Inc., a privately held software development company. From
February 1998 to November 1998, he served as Chief Financial Officer for Koo Koo
Roo, Inc., a publicly held food services company. From May 1995 to February
1998, Mr. McKay served as Chief Financial Officer and Secretary for View Tech,
Inc., a publicly held technology company. Mr. McKay also has ten years of public
accounting experience with Deloitte & Touche, where he last served as a
senior manager in its audit department. Mr. McKay is a member of the American
Institute of Certified Public Accountants and holds a Bachelor of Science Degree
in business administration with an emphasis in accounting from the University of
Southern California - Los Angeles.





Mark
Waldron has served as a director of the Company since August 2000 and he
currently serves as a member of the Compensation Committee. Mr. Waldron also
served as President and Chief Executive Officer of the Company between August
2000 and January 2003. Since 1998, Mr. Waldron's principal occupation has been
as a private investor. Mr. Waldron is the co-founder of Arcticor Structures
Inc., a Canadian manufacturing company, and of Woodfield Development
Corporation, a real estate development company. Mr. Waldron is a former Vice
President of J.P. Morgan in New York and was with the firm from 1993 to 1998.
Mr. Waldron received his MBA from Northwestern University's Kellogg School of
Management, and prior to attending business school worked in the derivatives
capital markets group of Bankers Trust Company (now Deutsche Bank). He received
a BA (Honors) from the Ivey School of Business at the University of Western
Ontario in 1989.





Howard
Waltman has served as a director of the Company and Chairman of the Compensation
Committee since 2001 and he currently serves as a member of the Audit Committee.
Since 2000, Mr. Waltman has acted as a private investor for a family limited
liability corporation. Since 1986, Mr. Waltman serves as a director of Express
Scripts, Inc. (“ESI”), and was its Chairman from 1986 to 2000. ESI was formed in
1986 as a subsidiary of Sanus, a company formed in 1983 by Mr. Waltman, who
served as its Chairman of the Board from 1983 to 1987. Sanus was acquired by New
York Life Insurance Company in 1987. ESI provides mail order pharmacy services
and pharmacy claims processing services and was spun out of Sanus and taken
public in June 1992. Mr. Waltman also founded Bradford National Corp. in 1968,
which was sold to McDonnell Douglas Corporation in 1981. From 1996 to 2000, Mr.
Waltman served as a director of Computer Outsourcing Services, Inc. Mr. Waltman
is currently a director of a number of privately held companies.





K. Deane
Reade, Jr. has been a Director of the Company since September 2005. He currently
serves as Chairman of the Audit Committeeand
as member of the Compensation Committee.Mr. Reade is a
founder and, since 1975, has served as President and a director of Bangert,
Dawes, Reade, Davis & Thom, Incorporated, a private investment banking firm
with offices in New York and San Francisco. Between 1989 and 1996, Mr. Reade
served as Managing Director of John Hancock Capital Growth Management, Inc. and
was a General Partner of its affiliate Gramercy Hills Partners. Mr. Reade
is a graduate of Rutgers University. He’s served as a director
of:ABC Estonian
Shares, a closed end fund (Isle of Man, UK); Abakus Management Co., an
investment management company (Tallinn, Estonia); Myers Industries, Inc.
(Lincoln, Illinois). He currently serves as a Trustee of aprivate trust, acharitable foundation and
the advisory board of Trail Blazers Camps, Inc. (New York, N.Y.) a 100 year old
social service organization with a year round educational program for
disadvantaged children from the Metropolitan New York - New Jersey
area.






23






COMMITTEES





The
Company has no standing or nominating committees of the Board of Directors or
committees performing similar functions.





Compensation
Committee





Since
October 7, 2008, the Compensation Committee consists of Howard Waltman, as
Chairman, and K. Deane Reade, Jr. and Mark Waldron as its other members. The
Compensation Committee has such powers and functions as may be assigned to it by
the Board of Directors from time to time; however, such functions shall, at a
minimum, include the following:





·
            to
      review and approve corporate goals and objectives relevant to senior
      executive compensation, evaluate senior executive performance in light of
      those goals and objectives, and to set the senior executive compensation
      levels based on this evaluation;





·
            to
      approve employment contracts of its officers and employees and consulting
      contracts of other persons;





·
            to
      make recommendations to the Board with respect to incentive compensation
      plans and equity-based plans, including, without limitation, the Company’s
      stock options plans; and





·
            to
      administer the Company’s stock option plans and grant stock options or
      other awards pursuant to such
plans.





Since
November 10, 2008, our common stock is listed and trades on the NYSE Alternext
US LLC. Continuation of our listing requires that we abide by Exchange rules
which prohibit the Company’s Chief Executive Officer from being present during
voting or deliberations as to his compensation and it requires that the
compensation of our Chief Executive Officer and other officers to be determined
by the Compensation Committee. The Compensation Committee met in March 2009 and
approved the 2008 bonuses to the executive officers and permitting Mr. Buther's
contract to automatically renew for an additional year through June 30,
2010.





Audit
Committee





The
members of the Company’s audit committee consist of Howard Waltman and K. Deane
Reade, Jr. as its Chairman, each of whom is determined by Management to be an
independent director (as defined below). K. Deane Reade, Jr. may be deemed a
“Financial Expert” (as defined below) within the meaning of Sarbanes Oxley Act
of 2002, as amended.




“Independent
director” is defined under Section 803A of the AMEX Company Guide as a person
other than an executive officer or employee of the company. No director
qualifies as independent unless the issuer's board of directors affirmatively
determines that the director does not have a relationship that would interfere
with the exercise of independent judgment in carrying out the responsibilities
of a director. The following is a non-exclusive list of persons who shall not be
considered independent:





(a)           a
director who is, or during the past three years was, employed by the company,
other than prior employment as an interim executive officer (provided the
interim employment did not last longer than one year);





(b)           a
director who accepted or has an immediate family member who accepted any
compensation from the company in excess of $120,000 during any period of twelve
consecutive months within the three years preceding the determination of
independence, other than the following:








24







(i)
            compensation
      for board or board committee
service;





(ii)
            compensation
      paid to an immediate family member who is an employee (other than an
      executive officer) of the company;





(iii)
            compensation
      received for former service as an interim executive officer (provided the
      interim employment did not last longer than one year;
  or





(iv)
            benefits
      under a tax-qualified retirement plan, or non-discretionary
      compensation;





(c)           a
director who is an immediate family member of an individual who is, or at any
time during the past three years was, employed by the company as an executive
officer;





(d)           a
director who is, or has an immediate family member who is, a partner in, or a
controlling shareholder or an executive officer of, any organization to which
the company made, or from which the company received, payments (other than those
arising solely from investments in the company's securities or payments under
non-discretionary charitable contribution matching programs) that exceed 5% of
the organization's consolidated gross revenues for that year, or $200,000,
whichever is more, in any of the most recent three fiscal years;





(e)           a
director who is, or has an immediate family member who is, employed as an
executive officer of another entity where at any time during the most recent
three fiscal years any of the issuer's executive officers serve on the
compensation committee of such other entity; or





(f)           
a director who is, or has an immediate family member who is, a current partner
of the company's outside auditor, or was a partner or employee of the company's
outside auditor who worked on the company's audit at any time during any of the
past three years.





As a smaller reporting company, we are
only required to maintain an audit committee of at least two members, comprised
solely of independent directors who also meet the requirements of Rule 10A-3
under the Securities Exchange Act of 1934.  In order to be considered
to be independent for purposes of Rule 10A-3, a member of an audit committee of
a listed issuer that is not an investment company may not, other than in his or
her capacity as a member of the audit committee, the board of directors, or any
other board committee: (A) accept directly or indirectly any consulting,
advisory, or other compensatory fee from the issuer or any subsidiary thereof,
provided that, unless the rules of the national securities exchange or national
securities association provide otherwise, compensatory fees do not include the
receipt of fixed amounts of compensation under a retirement plan (including
deferred compensation) for prior service with the listed issuer (provided that
such compensation is not contingent in any way on continued service); or (B) be
an affiliated person of the issuer or any subsidiary thereof.





The term
“Financial Expert” is defined as a person who has the following attributes: an
understanding of generally accepted accounting principals and financial
statements; has the ability to assess the general application of such principals
in connection with the accounting for estimates, accruals and reserves;
experience preparing, auditing, analyzing or evaluating financial statements
that present a breadth and level of complexity of accounting issues that are
generally comparable to the breadth and complexity of issues that can reasonably
be expected to be raised by the Company’s financial statements, or experience
actively supervising one or more persons engaged in such activities; an
understanding of internal controls and procedures for financial reporting; and
an understanding of audit committee functions.






25








Audit Committee
Charter




Effective
November 10, 2008, the Board adopted an amended written charter for its Audit
Committee.  The Audit Committee is required to meet at least quarterly
and at such other times as is necessary to fulfill its responsibilities. A copy
of the Audit Committee Charter is filed as Exhibit 10.21 to this Form
10-K.





PURPOSE


The purpose of the Audit Committee (the
Committee”) is to assist the Company’s Board in fulfilling its oversight
responsibilities by reviewing: the financial reports and other financial
information provided by the Company to any government body or the public; the
Company’s system of internal controls regarding finance, accounting, legal
compliance and ethics that management and the Board have established; and the
Company’s auditing, accounting and financial reporting
processes.  Consistent with this function, the Committee should
encourage continuous improvement of, and should foster adherence to, the
Company’s policies, procedures and practices at all levels.  The
Committee’s primary duties and responsibilities are to:




·
            Serve
      as an independent and objective party to monitor the Company’s financial
      reporting process and internal control
system;




·
            Provide
      an open avenue of communication among the independent auditors,
      management, and the Board;




·
            oversee
      management's preparation of the Company's financial statements and
      management's conduct of the accounting and financial reporting
      processes;




·
            oversee
      management's maintenance of internal controls and procedures for financial
      reporting;




·
            oversee
      the Company's compliance with applicable legal and regulatory
      requirements, including without limitation, those requirements relating to
      financial controls and reporting;




·
            oversee
      the independent auditor's qualifications and
  independence;




·
            oversee
      the performance of the independent auditors, including the annual
      independent audit of the Company's financial
  statements;




·
            prepare
      any report required to be prepared by the Committee pursuant to the rules
      of the SEC to be included in the Company's proxy statement;
      and




·
            discharge
      such duties and responsibilities as may be required of the Committee by
      the provisions of applicable law or rule or regulation of the American
      Stock Exchange and the Sarbanes-Oxley Act of
  2002.




In
carrying out its purposes, there shall be free and open communication between
the Committee, independent auditors, and management of the Company.





RESPONSIBILITIES





The
following shall be the principal responsibilities and recurring processes of the
Committee in carrying out its oversight responsibilities.





Oversight
of the financial statements and relations with the independent
auditors:




·
            Relationship
      with Independent Auditors—The independent
      auditors shall report directly and are ultimately accountable to the
      Committee in its capacity as a committee of the Board. The Committee shall
      have sole authority and responsibility to appoint, compensate, oversee,
      evaluate and, where appropriate, replace the independent auditors. The
      Committee shall discuss with the auditors their independence from
      management and the Company and the matters included in the written
      disclosures required by the Independence Standards
  Board.






26






·
            Annually,
      the Committee shall review and recommend for stockholder ratification the
      selection of the Company's independent
auditors.




·
            The
      Committee shall pre-approve all audit and permitted non-audit services
      provided by the independent
auditors.




·
            The
      Committee periodically shall meet separately with management and with the
      Company's independent auditors.




·
            Annually,
      the Committee shall obtain from the independent auditors a formal written
      statement delineating all relationships between the independent auditors
      and the Company consistent with Independence Standards Board Standard 1,
      discuss with the independent auditors any such disclosed relationships and
      their impact on the independent auditors' independence, and take or
      recommend that the Board take appropriate action regarding the
      independence of the independent
auditors.




·
            Periodic
      Reviews—Prior to the filing of the Company's Quarterly Reports on Form
      10-Q, the Committee shall review with management and the independent
      auditors the interim financial statements and other information to be
      included in the Form 10-Q, including the Company's disclosures under
      "Management's Discussion and Analysis of Financial Condition and Results
      of Operations" ("MD&A"). Also, the Committee shall discuss the results
      of the quarterly review and any other matters required to be communicated
      to the Committee by the independent auditors under generally accepted
      auditing standards.




·
            Annual
      Reviews—The Committee shall review with management and the independent
      auditors the financial statements and other financial information,
      including the Company's disclosure under MD&A, to be included in the
      Company's Annual Report on Form 10-K (or the annual report to shareholders
      if distributed prior to the filing of the Form 10-K). Also, the Committee
      shall discuss the results of the annual audit and any other matters
      required to be communicated to the Committee by the independent auditors
      under auditing standards of The Public Company Accounting Oversight Board
      (“PCAOB”). Based on the review and discussions described above, the
      Committee shall recommend to the Board of Directors whether the financial
      statements should be included in the Annual Report on Form 10­K. The
      Committee shall prepare the Audit Committee report to be included in the
      Company's proxy statements when and as required by the Applicable
      Rules.




·
            The
      Committee shall establish and maintain procedures for (i) receiving,
      retaining and addressing complaints regarding the Company's accounting,
      internal controls or auditing matters and (ii) the confidential, anonymous
      submission by employees of concerns regarding questionable accounting or
      auditing matters, in accordance with the Applicable
  Rules.




·
            The
      Committee will have responsibility for reviewing and approving all
      proposed related party transactions as required by AMEX listing
      requirements.




Code of
      Ethics





Effective March 3, 2003, the Securities
& Exchange Commission requires registrants like the Company to either adopt
a code of ethics that applies to the Company’s Chief Executive Officer and Chief
Financial Officer or explain why the Company has not adopted such a code of
ethics. For purposes of item 406 of Regulation S-K, the term “code of ethics”
means written standards that are reasonably designed to deter wrongdoing and to
promote:






27







·
            Honest
      and ethical conduct, including the ethical handling of actual or apparent
      conflicts of interest between personal and professional
      relationships;


·
            Full,
      fair, accurate, timely and understandable disclosure in reports and
      documents that the Company files with, or submits to, the Securities &
      Exchange Commission and in other public communications made by the
      Company;


·
            Compliance
      with applicable governmental law, rules and
  regulations;


·
            The
      prompt internal reporting of violations of the code to an appropriate
      person or persons identified in the code;
and


·
            Accountability
      for adherence to the code.





On
October 7, 2008, the Company adopted a new code of ethics effective November 10,
2008 which is filed as Exhibit 14.1 to this Form 10-K. Changes to the Code of
Ethics will be filed under a Form 8-K or quarterly or annual report under the
Exchange Act.





Compliance with Section
16(a) of the Exchange Act





Section
16(a) of the Securities Exchange Act of 1934, as amended, requires our officers
and directors, and persons who own more than ten percent of a registered class
of our equity securities, to file reports of ownership and changes in ownership
with the Securities and Exchange Commission (the
“Commission”).  Officers, directors and greater than ten percent
stockholders are required by the Commission's regulations to furnish us with
copies of all Section 16(a) forms they file. During fiscal 2008, none of our
officers, directors or 10% or greater stockholders filed any forms late to the
best of our knowledge.





Item
11.  Compensation of Directors and Executive
Officers.





Summary
Compensation Table




The
following table sets forth the overall compensation earned over the fiscal years
ended December 31, 2008 and 2007 by (1) each person who served as the principal
executive officer of the Company during fiscal year 2008; (2) the Company’s two
most highly compensated executive officers as of December 31, 2008 with
compensation during fiscal year 2008 of $100,000 or more; and (3) those two
individuals, if any, who would have otherwise been in included in section (2)
above but for the fact that they were not serving as an executive of the Company
as of December31, 2008.




Salary
      CompensationName and
                                                        Principal
                                                        Position
                                                      Fiscal
                                                        Year
                                                      
                                                      Salary ($)
                                                      
                                                      
                                                      
                                                      Bonus
($)
                                                      
                                                      
                                                      Restricted
      Stock
                                                        Awards
                                                        (1)(5)(6)(7)
                                                      
                                                      
                                                      Options
                                                        Awards
                                                        ($)(1)
                                                      
                                                      
                                                      Non-Equity
                                                        Incentive Plan
                                                        Compensation
                                                        ($)
                                                      
                                                      
                                                      Nonqualified
                                                        Deferred
                                                        Compensation
                                                        Earnings ($)
                                                      
                                                      
                                                      All Other
                                                        Compensation
                                                        ($)(2)(3)(8)
                                                        (9)(10)
                                                      
                                                      
                                                      Total ($)Bruce
      J. Haber
                                                      2008
                                                      
                                                      $
                                                      182,000
                                                      (8)
                                                      
                                                      
                                                      $
                                                      223,095
                                                      
                                                      
                                                      $
                                                      49,267
                                                      
                                                      
                                                      
                                                      -0-
                                                      
                                                      
                                                      
                                                      -0-
                                                      
                                                      
                                                      
                                                      -0-
                                                      
                                                      
                                                      $
                                                      83,412
                                                      
                                                      
                                                      $
                                                      537,773Chief
      ExecutiveOfficer
      (4)
                                                      2007
                                                      
                                                      $
                                                      182,000
                                                      
                                                      
                                                      
                                                      $
                                                      156,500
                                                      
                                                      
                                                      $
                                                      32,385
                                                      
                                                      
                                                      
                                                      -0-
                                                      
                                                      
                                                      
                                                      -0-
                                                      
                                                      
                                                      
                                                      -0-
                                                      
                                                      
                                                      $
                                                      19,200
                                                      
                                                      
                                                      $
                                                      390,085Louis
      Buther
                                                      2008
                                                      
                                                      $
                                                      161,000
                                                      
                                                      
                                                      
                                                      $
                                                      223,095
                                                      
                                                      
                                                      $
                                                      30,792
                                                      
                                                      
                                                      
                                                      -0-
                                                      
                                                      
                                                      
                                                      -0-
                                                      
                                                      
                                                      
                                                      -0-
                                                      
                                                      
                                                      
                                                      24,806
                                                      
                                                      
                                                      $
                                                      439,693President
                                                      2007
                                                      
                                                      $
                                                      161,000
                                                      
                                                      
                                                      
                                                      $
                                                      156,500
                                                      
                                                      
                                                      $
                                                      20,913
                                                      
                                                      
                                                      
                                                      -0-
                                                      
                                                      
                                                      
                                                      -0-
                                                      
                                                      
                                                      
                                                      -0-
                                                      
                                                      
                                                      $
                                                      12,000
                                                      
                                                      
                                                      $
                                                      350,413William
      M. McKay
                                                      2008
                                                      
                                                      $
                                                      140,000
                                                      
                                                      
                                                      
                                                      $
                                                      139,047
                                                      
                                                      
                                                      $
                                                      12,317
                                                      
                                                      
                                                      $
                                                      2,184
                                                      
                                                      
                                                      
                                                      -0-
                                                      
                                                      
                                                      
                                                      -0-
                                                      
                                                      
                                                      $
                                                      25,565
                                                      
                                                      
                                                      $
                                                      319,113Chief
      Financial
                                                      2007
                                                      
                                                      $
                                                      140,000
                                                      
                                                      
                                                      
                                                      $
                                                      105,750
                                                      
                                                      
                                                      $
                                                      10,148
                                                      
                                                      
                                                      $
                                                      2,184
                                                      
                                                      
                                                      
                                                      -0-
                                                      
                                                      
                                                      
                                                      -0-
                                                      
                                                      
                                                      $
                                                      21,588
                                                      
                                                      
                                                      $
                                                      279,670Officer
      (9)


________________


(1)
            Reflects
      dollar amount expensed by the company during applicable fiscal year for
      financial statement reporting purposes pursuant to FAS 123R. FAS 123R
      requires the company to determine the overall value of the stock awards
      and options as of the date of grant. The stock awards are valued based on
      the fair market value of such shares on the date of grant and are charged
      to compensation expense over the related vesting period. The options are
      valued at the date of grant based upon the Black-Scholes method of
      valuation, which is expensed over the service period over which
      the options become vested. As a general rule, for
      time-in-service-based options, the company will immediately expense any
      option or portion thereof which is vested upon grant, while expensing the
      balance on a pro rata basis over the remaining vesting term of the
      option. For a description FAS 123R and the assumptions used in
      determining the value of the options under the Black-Scholes model of
      valuation, see the notes to the consolidated financial statements included
      with this Form 10-K.






28






(2)
            Includes
      all other compensation not reported in the preceding columns, including
      (i) perquisites and other personal benefits, or property, unless the
      aggregate amount of such compensation is less than $10,000; (ii) any
      “gross-ups” or other amounts reimbursed during the fiscal year for the
      payment of taxes; (iii) discounts from market price with respect to
      securities purchased from the company except to the extent available
      generally to all security holders or to all salaried employees; (iv) any
      amounts paid or accrued in connection with any termination (including
      without limitation through retirement, resignation, severance or
      constructive termination, including change of responsibilities) or change
      in control; (v) contributions to vested and unvested defined contribution
      plans; (vi) any insurance premiums paid by, or on behalf of, the company
      relating to life insurance for the benefit of the named executive officer;
      and (vii) any dividends or other earnings paid on stock or option awards
      that are not factored into the grant date fair value required to be
      reported in a preceding column.




(3)
            Includes
      compensation for service as a director described under Director
      Compensation, below.




(4)
            The
      services of Bruce J. Haber are provided to the Company pursuant to a
      Services Agreement with BJH Management LLC, a privately held company owned
      by Bruce Haber.




(5)
            On
      March 6, 2008, Messrs Haber, Buther and McKay were granted restricted
      stock award shares of 40,000, 25,000 and 10,000, respectively, which vest
      in equal installments over five years. The market price per share of $3.05
      was used to determine the related compensation expense, which is being
      amortized over the five year vesting period. The restricted stock awards
      of 40,000 shares, 25,000 shares and 10,000 were valued at $122,000,
      $76,250 and $30,500, respectively. On March 19, 2007, Messrs Haber, Buther
      and McKay were granted restricted stock award shares of 40,000, 25,000 and
      10,000, respectively, which vest in equal installments over five years.
      The market price per share of $3.25 was used to determine the related
      compensation expense, which is being amortized over the five year vesting
      period. The restricted stock awards of 40,000, 25,000, and 10,000 shares
      were valued at $130,000, $81,250, and $32,500,
    respectively.





(6)
            In
      November 2005, Messrs Haber, Buther and McKay were granted restricted
      stock award shares of 40,000, 25,000 and 15,000, respectively, which vest
      in equal installments over five years. Compensation expense at $0.57 per
      share related to such restricted award shares are being amortized over the
      five year vesting period. At December 31, 2005, the restricted stock
      awards of 40,000 shares, 25,000 shares and 15,000 shares were valued at
      $22,800, $14,250 and  $8,550, respectively, based upon a
      discounted six-month weighted average due to the limited and sporadic
      market for the Company’s Common
Stock.





(7)
            In
      May 2005, the Company issued restricted shares to Messrs. Haber, Buther
      and McKay of 89,500, 64,000 and 47,000 in connection with providing
      limited loan guarantees to the lender in connection with the Company’s new
      $1 million credit facility as discussed elsewhere in this Form 10-K. The
      institutional lender released these limited guarantees in June 2006. The
      guarantors had each entered into an agreement with the Company to return
      the shares that they received in consideration of their limited guarantee
      in the event the guarantor on his own volition breaches (other than a
      breach that is cured within the terms of the limited guarantee agreement)
      or terminates his own respective limited guarantee, prior to the payment
      in full of the Company’s obligations to the lender or the voluntary
      release from the limited guarantees by the lender. Compensation expense at
      $0.40 per share related to the shares issued for the limited guarantee is
      amortized over the initial loan term of 24 months and the related expense
      for 2007 pertaining to each officer is included under restricted stock
      awards.





(8)
            As
      described in footnotes 5 and 6 above, Messrs. Haber, Buther and McKay
      received restricted stock awards that vest over a five year period. The
      amount of dividends declared in 2008 to Messrs. Haber, Buther and McKay on
      the unvested portion of the restricted stock available was $26,400,
      $16,500 and $7,200, respectively. The amount of dividends declared in 2007
      to Messrs. Haber, Buther and McKay on the unvested portion of the
      restricted stock available was $19,200, $12,000 and $5,700, respectively.
      These amounts are included in the above table under all other
      compensation.








29







(9)
            All
      other compensation includes company-paid medical and dental benefits for
      Messrs. Haber and McKay of $15,479 and $-0- and $14,835 and $15,888 for
      2008 and 2007, respectively, which benefit is not available to all
      employees.





(10)
            On
      July 30, 2008, we received $1,130,890 from a private placement of 665,229
      Units at an offering price of $1.70 per Unit to 15 investors. Each Unit
      consisted of one share of Common Stock and a Warrant to purchase .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 and are
      exercisable at any time from the date of issuance to the expiration date.
      Of the 665,231 Units, 533,825 Units (equivalent to $907,503) were
      purchased by our officers and directors. The Company recorded a non-cash
      compensation expense of $93,937 as determined by the Black Scholes
      Valuation Model since the Warrants were issued below the Black Scholes
      valuation price per share. The portion of the compensation expense that
      relates to the executive officers named in the table above is included in
      other compensation.





All other
compensation in the table above does not include the business use of an
apartment and/or automobile which is made available to our officers and other
employees who come in from out of town to work at our executive offices in Sun
Valley, California.





For a
description of the material terms of each named executive officers’ employment
agreement, including the terms of any contract, agreement, plan or other
arrangement that provides for any payment to a named executive officer in
connection with his or her resignation, retirement or other termination, or a
change in control of the company see section below entitled “Employment
Agreements.”




No
outstanding common share purchase option or other equity-based award granted to
or held by any named executive officer in 2008 were re-priced or otherwise
materially modified, including extension of exercise periods, the change of
vesting or forfeiture conditions, the change or elimination of applicable
performance criteria, or the change of the bases upon which returns are
determined, nor was there any waiver or modification of any specified
performance target, goal or condition to payout.




Executive
Officer Outstanding Equity Awards At Fiscal Year-End




The
following table provides certain information concerning any common share
purchase options, stock awards or equity incentive plan awards held by each of
our named executive officers that were outstanding as of December 31,
2008.




Option Awards
                                                                
                                                                Stock AwardsName
                                                                
                                                                Number of
                                                                  Securities
                                                                  Underlying
                                                                  Unexercised
                                                                  Options(#)
                                                                  Exercisable
                                                                
                                                                Number of
                                                                  Securities
                                                                  Underlying
                                                                  Unexercised
                                                                  Options(#)
                                                                  Unexercisable
                                                                
                                                                Equity
                                                                  Incentive
                                                                  Plan
                                                                  Awards:
                                                                  Number of
                                                                  Securities
                                                                  Underlying
                                                                  Unexercised
                                                                  Unearned
                                                                  Options (#)
                                                                
                                                                Option
                                                                  Exercise
                                                                  Price ($)
                                                                
                                                                Option
                                                                  Expiration
                                                                  Date
                                                                
                                                                Number of
                                                                  Shares or
                                                                  Units of
                                                                  Stock That
                                                                  Have Not
                                                                  Vested (#)
                                                                
                                                                Market
                                                                  Value of
                                                                  Shares or
                                                                  Units of
                                                                  Stock
      That
                                                                  Have Not
                                                                  Vested
                                                                
                                                                Equity
                                                                  Incentive
                                                                  Plan
                                                                  Awards:
                                                                  Number
                                                                  of
                                                                  Unearned
                                                                  Shares,
                                                                  Units or
                                                                  Other
                                                                  Rights
                                                                  That Have
                                                                  Not
                                                                  Vested
                                                                
                                                                Equity
                                                                  Incentive Plan
                                                                  Awards:
                                                                  Market or
                                                                  Payout Value of
                                                                  Unearned
                                                                  Shares, Units or
                                                                  Other Rights
                                                                  That Have Not
                                                                  VestedBruce
      J. Haber (1)(2)(3)
                                                                
                                                                -0-
                                                                
                                                                -0-
                                                                
                                                                -0-
                                                                
                                                                N/A
                                                                
                                                                N/A
                                                                
                                                                88,000
                                                                
                                                                $598,400
                                                                
                                                                NA
                                                                
                                                                NALouis
      Buther (1)(2)(3)
                                                                
                                                                -0-
                                                                
                                                                -0-
                                                                
                                                                -0-
                                                                
                                                                N/A
                                                                
                                                                N/A
                                                                
                                                                55,000
                                                                
                                                                $374,000
                                                                
                                                                NA
                                                                
                                                                NAWilliam
      McKay (1)(2)(3)(4)
                                                                
                                                                108,000
                                                                
                                                                10,000
                                                                
                                                                -0-
                                                                
                                                                $0.40
                                                                
                                                                3/31/12
                                                                
                                                                24,000
                                                                
                                                                $163,200
                                                                
                                                                NA
                                                                
                                                                NA


___________


(1)
            In
      November 2005, the Company granted restricted stock awards to its
      executive officers for services rendered and to be rendered of 40,000
      shares to Bruce J. Haber, our CEO and Chairman, 25,000 shares to Louis
      Buther, our President and 15,000 shares to William M. McKay, our CFO. All
      of the aforementioned shares shall vest in five equal annual amounts
      commencing November 2, 2006 and the non-vested portion is subject to
      forfeiture in the event that the holder is no longer serving as an officer
      or director of the Company, subject to the Board’s right to waive this
      forfeiture provision. The market values presented were computed based on
      the closing price of $6.80 per share for our common stock on December 31,
      2008.








30







(2)
            On
      March 19, 2007, the Company granted restricted stock awards to its
      executive officers and directors for services rendered and to be rendered
      of 40,000 shares to Bruce J. Haber, 25,000 shares to Louis Buther and
      10,000 shares to William M. McKay. All of the aforementioned shares shall
      vest in five equal annual amounts commencing March 19, 2008 and the
      non-vested portion is subject to forfeiture in the event that the holder
      is no longer serving as an officer or director of the Company, subject to
      the Board’s right to waive this forfeiture
  provision.





(3)
            On
      March 6, 2008, the Company granted restricted stock awards to its
      executive officers and directors for services rendered and to be rendered
      of 40,000 shares to Bruce J. Haber, 25,000 shares to Louis Buther and
      10,000 shares to William M. McKay. All of the aforementioned shares shall
      vest in five equal annual amounts commencing March 6, 2009 and the
      non-vested portion is subject to forfeiture in the event that the holder
      is no longer serving as an officer or director of the Company, subject to
      the Board’s right to waive this forfeiture
  provision.





(4)
            In
      March 2005, Mr. McKay was granted 25,000 common stock options at an
      exercise price of $0.40 per share. Such options will vest in five equal
      annual installments from the date of issuance commencing March 22, 2006.
      In 2002 and 2003 Mr. McKay was granted 30,000 and 75,000 common stock
      options at an exercise price of $0.40 per share, respectively. Two-fifths
      of such options were immediately vested with the remainder vesting in
      equal installments over three years from the date of issuance. Stock
      options, net of 12,000 options exercised, to purchase 108,000 shares are
      fully vested as of the filing date of this Form
  10-K.





The
foregoing table does not include warrants sold to officers, directors and other
investors as part of a private placement transaction of the Company’s
securities, which transaction is described in footnote 10 to the Summary
Compensation Table and in “Item 13.” The following table sets forth certain
information concerning these Warrants issued to executive officers in the
private placement in 2008:





Name
                  
                  Number
      of
                    Warrants
                    Purchased
      (1)
                  
                  
                  Number
      of
                    Warrants
                    Exercised
      (2)
                  
                  
                  Number
      of
                    Warrants
                    Unexercised
      (2)
                  
                  
                  Exercise
                    Price
                  
                  Expiration
                    Date
                  
                  2008
                    Compensation
                    Expense
      (4)Bruce
      J. Haber
                    and
      Family Trust
                  
                  
                  176,470
                  
                  
                  
                  176,470
                  
                  
                  
                  -0-
                  
                  
                  $
                  1.75
                  
                  07/31/2013
                  
                  $
                  41,532Louis
      Buther
                  
                  
                  35,294
                  
                  
                  
                  35,294
                  
                  
                  
                  -0-
                  
                  
                  $
                  1.75
                  
                  07/31/2013
                  
                  $
                  8,306William
      McKay
                  
                  
                  15,000
                  
                  
                  
                  15,000
                  
                  
                  
                  -0-
                  
                  
                  $
                  1.75
                  
                  07/31/2013
                  
                  $
                  3,530


________________


(1)
            All
      Warrants are (were) immediately exercisable.(2)
            Based
      upon number of Warrants exercised as of December 31,
  2008.(3)
            Includes
      Warrants to purchase 105,882 shares purchased by a family trust in which
      Mr. Haber disclaims beneficial ownership.(4)
            The
      amount reflects the non-cash compensation expense recorded by the Company
      in 2008 due to the issuance of warrants in a private placement to
      executive officers and other investors exercisable below the market value
      per share as determined by the Black Scholes computation
      mode.




31








Employment
Agreements





Each of
the following executive officers is a party to an employment agreement with the
Company.




Name
                                
                                Position
                                
                                
                                
                                Annual 
      Annual Salary
                                
                                
                                BonusBruce
      J. Haber
                                
                                Chief
      Executive Officer
                                
                                
                                
                                $
                                182,000
                                (3)
                                
                                
                                (1)Louis
      Buther
                                
                                President
                                
                                
                                
                                $
                                161,000
                                
                                
                                
                                (1)William
      M. McKay
                                
                                Chief
      Financial Officer
                                
                                
                                
                                $
                                140,000
                                
                                
                                
                                (2)


___________


(1)
              In
      the event that pre-tax profits (subject to certain adjustments approved by
      the Compensation Committee) before Management’s bonuses are at least
      $1,035,000 for a calendar year, then BJH Management LLC, for the benefit
      of Mr. Haber, and Louis Buther shall each receive the following: a bonus
      of $50,000, increasing to $75,000, if pre-tax profits are $1,150,000 plus
      6% each of pre-tax profits over $1,150,000. Such bonus, if earned, will be
      paid within 30 days after the end of each fiscal year end of the
      Company.(2)
              Discretionary
      bonus as determined by the Compensation Committee based upon company and
      individual performance.(3)
              The
      salary shown for  Mr. Haber was paid to BJH in connection with
      the Services Agreement, as discussed elsewhere in this Form
      10-K.


A summary
of each executive’s service or employment agreement is as
follows:




Services Agreement – BJH
Management LLC





Pursuant to a Service Agreement dated
as of July 1, 2006 (the “Services Agreement”), the Company entered into an
agreement with BJH Management LLC (“BJH”) to secure the services of Bruce J.
Haber (“Haber”) as its Chief Executive Officer and as its Chairman of the Board.
The Agreement provides that during the term of the Services Agreement, Haber
shall be nominated for re-election to the Board. The Services Agreement, as
amended, provides for certain rights and benefits to BJH and Haber for a term
expiring on June 30, 2010 (which term is renewed annually thereafter unless
either the Company or BJH gives the other party 90 days written notice of
termination prior to the end of term) and certain obligations of BJH and Haber
to the Company, all of which are summarized as follows:





·
            Annual
      fee of $182,000, which may be increased at the sole discretion of the
      Board;




·
            Bonuses
      based upon milestones as described in the table and footnotes
      above;




·
            Three
      weeks paid vacation;




·
            Reimbursement
      of reasonable travel, entertainment and office rent and other expenses
      incurred in connection with our
business;




·
            Indemnification
      for any claim or lawsuit which may be asserted against Haber or BJH when
      acting in any capacity for the Company or its business, to the fullest
      extent permitted by law, including participation in director and officer
      liability insurance;




·
            Hospitalization,
      medical and dental insurance for Haber as is customary for most senior
      officers of the Company or reimburse BJH for such
  benefits;




·
            During
      the term of the Services Agreement and for a six-month period thereafter,
      Haber and BJH shall not (except in the case of a sale or change in control
      of the Company) directly or indirectly (i) become interested, such as
      owner, officer, director, stockholder, employee or consultant in a company
      that competes with the current business of the Company provided that
      ownership of not more than 20% of a competitor shall be permissible, (ii)
      participate in the solicitation of any business of any type conducted by
      the Company from any person or entity which was or is a client, customer
      or prospective client or customer and/or (iii) recruit for employment at
      another place of employment or induce or seek to cause such person to
      terminate his employment with the Company with the exception of Louis
      Buther, President, and Haber’s Executive Assistant;
  and








32








·
            BJH
      and Haber have also agreed to certain confidentiality provisions during
      the term of the Services Agreement. BJH agreed to grant the Company the
      right to seek equitable relief in connection with any breach of a covenant
      not to compete or confidentiality
provision.




Termination by the Company with
Cause. The Company may terminate the Services Agreement for cause
(“Cause”) in the event (i) of Haber’s commission of an act involving fraud,
embezzlement, or theft against the property or personnel of Company, (ii) Haber
shall be convicted of, or plead nolo contendere to a
felony or engages in other criminal conduct that could reasonably be expected to
have a material adverse affect on the business, assets, properties, prospects,
results of operations or financial condition of Company, or (iii) of the breach
by Haber or BJH of the restrictive covenants contained in the Services Agreement
regarding confidentiality and non-compete restrictions. In the event the
Services Agreement is terminated for Cause, BJH’s Base Fee and any unearned
Milestone Bonus and all benefits shall terminate immediately upon such
discharge, and Company shall have no further obligations to BJH except for
payment and reimbursement for any monies due which right to payment or
reimbursement accrued prior to such termination.





Death or
Disability.  The Company may terminate the Services Agreement
upon the disability or death of Haber by giving written notice to BJH. In the
case of Haber’s disability, such termination will become effective immediately
upon the giving of such notice unless otherwise specified by the Company.
“Disability” shall mean that for a period of more than six consecutive months in
any 12-month period Haber is unable to perform the essential functions of his
position because of physical, mental or emotional incapacity resulting from
injury, sickness or disease. Upon any such termination, the Company shall be
relieved of all its obligations under the Services Agreement, except for payment
of the BJH Base Fee and Milestone Bonus earned and unpaid through the effective
date of termination.





Termination by BJH.BJH may
terminate this Agreement at any time by giving thirty (30) days’ prior written
notice to the Company.  The Company shall be relieved of all of its
obligations under this Agreement, except for payment of the BJH Base Fee and
Milestone Bonus earned and unpaid through the effective date of termination and
those obligations which relate to director and officer liability insurance and
indemnification to the full extent permitted by law.





Employment Agreement – Louis
Buther





The
Company has an employment agreement dated as of December 30, 2002 with Louis
Buther (“Buther”) pursuant to which Buther was hired as the Company’s President
and agreed to devote his full business time, effort and attention to the
Company. Buther’s Employment Agreement, as amended, provides for certain rights
and benefits to Buther, currently for a term expiring on June 30, 2009
(which term is renewed annually thereafter unless either the Company or Buther
gives to other party 90 days written notice of termination prior to the end of
term, noting that the Compensation Committee in March 2009 voted to allow the
term of Mr. Buther’s contract to automatically be renewed for an additional year
until June 30, 2010) and it also provides for certain obligations of Buther to
the Company, which are summarized as follows:





·
            Annual
      salary of $161,000 which may be increased at the sole discretion of the
      Board;








33








·
            Bonuses
      based upon milestones as described in the table and footnotes
      above;




·
            Three
      weeks paid vacation;




·
            Reimbursement
      of reasonable travel, entertainment and office rent and other expenses
      incurred in connection with our
business;




·
            Indemnification
      for any claim or lawsuit which may be asserted against Buther when acting
      in any capacity for the Company or its business, to the fullest extent
      permitted by law, including participation in director and officer
      liability insurance;




·
            Hospitalization,
      medical and dental insurance for Buther as is customary for most senior
      officers of the Company or reimburse Buther for such
    benefits;




·
            During
      the term of the Employment Agreement and for a six-month period
      thereafter, Buther shall not (except in the case of a sale or change in
      control of the Company) directly or indirectly (i) become interested, such
      as owner, officer, director, stockholder, employee or consultant in a
      company that competes with the current business of the Company provided
      that ownership of not more than 50% of the outstanding securities of any
      class of any entity that is traded on a national securities exchange or
      traded in the over-the-counter market of a competitor shall be
      permissible, (ii) participate in the solicitation of any business of any
      type conducted by the Company from any person or entity which was or is a
      client, customer or prospective client or customer and/or (iii) recruit
      for employment at another placement of employment or induce or seek to
      cause such person to terminate his employment with the Company with the
      exception of Bruce J. Haber, Chief Executive Officer, and Haber’s
      Secretary and Buther has also agreed to certain confidentiality provisions
      during the term of the Employment Agreement. Buther agreed to grant the
      Company the right to seek equitable relief in connection with any breach
      of a covenant not to compete or confidentiality
  provision.




Termination by the Company with
Cause. The Company may terminate the Employment Agreement for cause
(“Cause”) in the event (i) of Buther’s commission of an act involving fraud,
embezzlement, or theft against the property or personnel of Company, (ii) Buther
shall be convicted of, or plead nolo contendere to a
felony or engages in other criminal conduct that could reasonably be expected to
have a material adverse affect on the business, assets, properties, prospects,
results of operations or financial condition of Company, or (iii) of the breach
by Buther of the restrictive covenants contained in the Employment Agreement
regarding confidentiality and non-compete restrictions. In the event the
Employment Agreement is terminated for Cause, Buther’s Base Fee and any unearned
Milestone Bonus and all benefits shall terminate immediately upon such
discharge, and Company shall have no further obligations to Buther except for
payment and reimbursement for any monies due which right to payment or
reimbursement accrued prior to such termination.





Death or
Disability.  The Company may terminate the Employment Agreement
upon the disability or death of Buther by giving written notice to Buther. In
the case of Buther’s disability, such termination will become effective
immediately upon the giving of such notice unless otherwise specified by the
Company.  “Disability” shall mean that for a period of more than six
consecutive months in any 12-month period Buther is unable to perform the
essential functions of his position because of physical, mental or emotional
incapacity resulting from injury, sickness or disease. Upon any such
termination, the Company shall be relieved of all its obligations under the
Employment Agreement, except for payment of the Buther Base Fee and Milestone
Bonus earned and unpaid through the effective date of termination.





Termination by
Buther.  Buther may terminate this Agreement at any time by
giving thirty (30) days’ prior written notice to the Company.  The
Company shall be relieved of all of its obligations under this Agreement, except
for payment of the Buther Base Fee and Milestone Bonus earned and unpaid through
the effective date of termination and those obligations which relate to director
and officer liability insurance and indemnification to the full extent permitted
by law.






34







Employment Arrangement –
William M. McKay





In August 2002, William M. McKay became
the Company’s Chief Financial Officer pursuant to an engagement letter. As CFO,
he is currently receiving a base salary of $140,000 per annum, and is eligible
to receive annual bonuses as described herein, subject to approval by the
Compensation Committee, based upon individual and/or Company performance. In
addition, Mr. McKay receives Company-paid health insurance benefits as well as
an automobile allowance of $300 per month.  Since the commencement of
his employment in 2002, Mr. McKay has received ten-year options to purchase an
aggregate of 130,000 shares of the Company’s Common Stock at an exercise price
of $.40 per share with varying vesting dates. He has also received restricted
stock award grants totaling 35,000 shares of common stock as more fully
described herein. In the event that the Company terminates Mr. McKay without
cause or upon termination subsequent to a change in control, he shall be
entitled to receive six months severance pay.





Director
Compensation





Directors
do not presently receive compensation for serving on the Board or on its
committees other than the grant of stock options and/or restricted stock awards.
Depending on the number of meetings and the time required for the Company’s
operations, the Company may decide to compensate its directors in the
future.





Restricted
Stock Awards





On March 6, 2008, the Company granted
restricted stock awards to its executive officers and directors for services
rendered and to be rendered of 40,000 shares to Bruce J. Haber, our CEO and
Chairman, 25,000 shares to Louis Buther, our President, 10,000 shares to William
M. McKay, our CFO and 10,000 shares to each of our directors Howard Waltman,
Mark Waldron and K. Deane Reade, Jr. All of the aforementioned shares were
issued at a price of $3.05 per share and shall vest in five equal annual amounts
commencing March 6, 2009 and the non-vested portion is subject to forfeiture in
the event that the holder is no longer serving as an officer or director of the
Company, subject to the Board’s right to waive this forfeiture
provision.





On March
19, 2007, the Company granted restricted stock awards to its executive officers
and directors for services rendered and to be rendered of 40,000 shares to Bruce
J. Haber, our CEO and Chairman, 25,000 shares to Louis Buther, our President,
10,000 shares to William M. McKay, our CFO and 10,000 shares to each of our
directors Howard Waltman, Mark Waldron and K. Deane Reade, Jr. All of the
aforementioned shares were issued at a price of $3.25 per share and shall vest
in five equal annual amounts commencing March 19, 2008 and the non-vested
portion is subject to forfeiture in the event that the holder is no longer
serving as an officer or director of the Company, subject to the Board’s right
to waive this forfeiture provision.





On
November 2, 2005, the Company granted restricted stock awards to its executive
officers and directors for services rendered and to be rendered of 40,000 shares
to Bruce J. Haber, our CEO and Chairman, 25,000 shares to Louis Buther, our
President, 15,000 shares to William M. McKay, our CFO, 10,000 shares to each of
our directors Howard Waltman and Mark Waldron and 5,000 shares to our director
K. Deane Reade, Jr. All of the aforementioned shares were issued at a prices of
$0.57 per share and shall vest in five equal annual amounts commencing November
2, 2006 and the non-vested portion is subject to forfeiture in the event that
the holder is no longer serving as an officer or director of the Company,
subject to the Board’s right to waive this forfeiture provision.








35







Travel
Expenses




All
directors shall be reimbursed for their reasonable out of pocket expenses
associated with attending the meeting.




Compensation
Table




The
following table shows the overall compensation earned for the 2008 fiscal year
with respect to each non-employee and non-executive director as of December 31,
2008.





DIRECTOR COMPENSATIONName and
                                                                  Principal
                                                                  Position
                                                                
                                                                Fees
                                                                  Earned
                                                                  or Paid
                                                                  in Cash
                                                                  ($)
                                                                
                                                                
                                                                Stock
                                                                  Awards ($)(5)
                                                                
                                                                
                                                                Option
                                                                  Awards ($)
                                                                  (1)
                                                                
                                                                
                                                                Non-Equity
                                                                  Incentive Plan
                                                                  Compensation
                                                                  ($) (2)
                                                                
                                                                
                                                                Nonqualified
                                                                  Deferred
                                                                  Compensation
                                                                  Earnings ($)
                                                                
                                                                
                                                                All Other
                                                                  Compensation ($)
                                                                  (3)(4)(6)
                                                                
                                                                
                                                                Total ($)K.
      Deane Reade, Jr., Director
                                                                
                                                                $
                                                                -0-
                                                                
                                                                
                                                                $
                                                                10,338
                                                                
                                                                
                                                                $
                                                                -0-
                                                                
                                                                
                                                                
                                                                -0-
                                                                
                                                                
                                                                
                                                                -0-
                                                                
                                                                
                                                                $
                                                                10,984
                                                                
                                                                
                                                                $
                                                                21,322Howard
      Waltman, Director
                                                                
                                                                $
                                                                -0-
                                                                
                                                                
                                                                $
                                                                10,908
                                                                
                                                                
                                                                $
                                                                -0-
                                                                
                                                                
                                                                
                                                                -0-
                                                                
                                                                
                                                                
                                                                -0-
                                                                
                                                                
                                                                $
                                                                15,253
                                                                
                                                                
                                                                $
                                                                26,161Mark
      Waldron, Director
                                                                
                                                                $
                                                                -0-
                                                                
                                                                
                                                                $
                                                                10,908
                                                                
                                                                
                                                                $
                                                                -0-
                                                                
                                                                
                                                                
                                                                -0-
                                                                
                                                                
                                                                
                                                                -0-
                                                                
                                                                
                                                                $
                                                                13,245
                                                                
                                                                
                                                                $
                                                                24,153






(1)
            Reflects
      dollar amount expensed by the company during applicable fiscal year for
      financial statement reporting purposes pursuant to FAS 123R. FAS 123R
      requires the company to determine the overall value of the restricted
      stock awards and options as of the date of grant based upon the
      Black-Scholes method of valuation, and to then expense that value over the
      service period over which the restricted stock awards and options become
      vested. As a general rule, for time-in-service-based options, the
      company will immediately expense any restricted stock awards and option or
      portion thereof which is vested upon grant, while expensing the balance on
      a pro rata basis over the remaining vesting term of the restricted stock
      awards and options. For a description FAS 123R and the assumptions
      used in determining the value of the restricted stock awards and options
      under the Black-Scholes model of valuation, see the notes to the financial
      statements included with this Form
10-K.




(2)
            Excludes
      awards or earnings reported in preceding
  columns.




(3)
            Includes
      all other compensation not reported in the preceding columns, including
      (i) perquisites and other personal benefits, or property, unless the
      aggregate amount of such compensation is less than $10,000; (ii) any
      “gross-ups” or other amounts reimbursed during the fiscal year for the
      payment of taxes; (iii) discounts from market price with respect to
      securities purchased from the company except to the extent available
      generally to all security holders or to all salaried employees; (iv) any
      amounts paid or accrued in connection with any termination (including
      without limitation through retirement, resignation, severance or
      constructive termination, including change of responsibilities) or change
      in control; (v) contributions to vested and unvested defined contribution
      plans; (vi) any insurance premiums paid by, or on behalf of, the company
      relating to life insurance for the benefit of the director; (vii) any
      consulting fees earned, or paid or payable; (viii) any annual costs of
      payments and promises of payments pursuant to a director legacy program
      and similar charitable awards program; and (ix) any dividends declared or
      other earnings paid on stock or option awards that are not factored into
      the grant date fair value required to be reported in a preceding
      column.




(4)
            The
      three named directors noted in the above table received restricted stock
      awards in November 2005 and March 2007 and 2008. Such restricted stock
      awards vest in equal annual installments over a five year period. The
      amount of dividends paid in 2008 to Messrs. Reade, Waltman and Waldron on
      the unvested portion of the restricted stock award was $6,000, $6,600, and
      $6,600, respectively. These amounts are included in the above table under
      all other compensation.






36








(5)
            On
      March 6, 2008, the Company granted restricted stock awards for services
      rendered and to be rendered of 10,000 shares to each of our directors
      Howard Waltman, Mark Waldron and K. Deane Reade, Jr. All of the
      aforementioned shares were granted at a price of $3.05 per share and shall
      vest in five equal annual amounts commencing March 6, 2009 and the
      non-vested portion is subject to forfeiture in the event that the holder
      is no longer serving as an officer or director of the Company, subject to
      the Board’s right to waive this forfeiture provision.
              
              On March 19, 2007, the Company granted
      restricted stock awards for services rendered and to be rendered of 10,000
      shares to each of our directors Howard Waltman, Mark Waldron and K. Deane
      Reade, Jr. All of the aforementioned shares were granted at a price of
      $3.25 per share and shall vest in five equal annual amounts commencing
      March 19, 2008 and the non-vested portion is subject to forfeiture in the
      event that the holder is no longer serving as an officer or director of
      the Company, subject to the Board’s right to waive this forfeiture
      provision.
              
              On
      November 2, 2005, the Company granted restricted stock awards for services
      rendered and to be rendered of 10,000 shares to each of our directors
      Howard Waltman and Mark Waldron and 5,000 shares to our director K. Deane
      Reade, Jr. All of the aforementioned shares were granted at a price of
      $0.57 per share and shall vest in five equal annual amounts commencing
      November 2, 2006 and the non-vested portion is subject to forfeiture in
      the event that the holder is no longer serving as an officer or director
      of the Company, subject to the Board’s right to waive this forfeiture
      provision.
                
                The
      amounts shown as stock award expense represent the amortization of
      compensation expense related to such restricted awards shares for the year
      ended December 31,
2008.





(6)
            On
      July 30, 2008, we received $1,130,890 from a private placement of 665,231
      Units at an offering price of $1.70 per Unit to 15 investors. Each Unit
      consisted of one share of Common Stock and a Warrant to purchase .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 and are
      exercisable at any time from the date of issuance to the expiration date.
      Of the 665,229 Units, 533,825 Units (equivalent to $907,503) were
      purchased by our officers and directors. The Company recorded a non-cash
      compensation expense of $93,937 as determined by the Black Scholes
      Valuation Model since the Warrants were issued below the Black Scholes
      valuation price per share. The portion of the compensation expense that
      relates to the directors named in the table above is included in other
      compensation.






37






The
following table sets forth certain information concerning Warrants issued to
directors in the private placement in 2008:





Name
                
                Number
      of
                  Warrants
                  Purchased
      (1)
                
                
                Number
      of
                  Warrants
                  Exercised
      (2)
                
                
                Number
      of
                  Warrants
                  Unexercised
      (2)
                
                
                Exercise
                  Price
                
                Expiration
                  Date
                
                2008
                  Compensation
                  Expense
      (3)K.
      Deane Reade, Jr.
                
                
                21,176
                
                
                
                -0-
                
                
                
                21,176
                
                
                $
                1.75
                
                07/31/2013
                
                $
                4,984Howard
      Waltman
                  and
      Family LLC
                
                
                44,118
                
                
                
                -0-
                
                
                
                44,118
                
                
                
                1.75
                
                07/31/2013
                
                $
                8,653Mark
      Waldron
                
                
                28,235
                
                
                
                -0-
                
                
                
                28,235
                
                
                
                1.75
                
                07/31/2013
                
                $
                6,645


The
foregoing table does not include warrants sold to officers and other investors
as part of a private placement transaction of the Company’s securities, which
transaction is described in footnote 10 to the Summary Compensation Table and in
“Item 13.”





(1)
            All
      Warrants were immediately
exercisable.




(2)
            Based
      upon number of Warrants exercised as of December 31, 2008, if
      any.




(3)
            The
      amount reflects the non-cash compensation expense recorded by the Company
      in 2008 due to the issuance of the Warrants in a Private Placement to
      executive officers, directors and other investors, which were exercisable
      below the market value per share as determined by the Black Scholes value
      method.




2002 Employee and Consulting
Compensation Plan





On April 1, 2002, the Company
established an Employee Benefit and Consulting Compensation Plan (the “2002
Plan”) covering 325,000 shares, which was approved by stockholders on August 5,
2003. Since stockholder approval was not obtained by April 1, 2003, all
outstanding Incentive Stock Options granted under the 2002 Plan became
Non-Statutory Stock Options and no Incentive Stock Options could be thereafter
granted under the 2002 Plan. On March 30, 2007, the Compensation Committee of
the Board of Directors approved a 325,000 share increase in the number of shares
covered by the Plan to 650,000 shares. As of March 16, 2009, there were 330,834
stock options outstanding under the 2002 Plan, 172,457 shares of common stock
available for grant and 146,709 shares which have been issued pursuant to the
2002 Plan.





Administration





Our Board
of Directors, Compensation Committee or both, in the sole discretion of our
Board, administer the 2002 Plan. The Board, subject to the provisions of the
2002 Plan, has the authority to determine and designate officers, employees,
directors and consultants to whom awards shall be made and the terms, conditions
and restrictions applicable to each award (including, but not limited to, the
option price, any restriction or limitation, any vesting schedule or
acceleration thereof, and any forfeiture restrictions). The Board may, in its
sole discretion, accelerate the vesting of awards. The Board of Directors must
approve all grants of Options and Stock Awards issued to our officers or
directors.





Types of
Awards





The 2002 Plan is designed to enable
us to offer certain officers, employees, directors and consultants of us and our
subsidiaries equity interests in us and other incentive awards in order to
attract, retain and reward such individuals and to strengthen the mutuality of
interests between such individuals and our stockholders. In furtherance of this
purpose, the 2002 Plan contains provisions for granting non-statutory stock
options (and originally incentive stock options which have now become
non-statutory stock options) and Common Stock Awards.








38









Stock Options. A “stock
option” is a contractual right to purchase a number of shares of Common Stock at
a price determined on the date the option is granted. The option price per share
of Common Stock purchasable upon exercise of a stock option and the time or
times at which such options shall be exercisable shall be determined by the
Board at the time of grant. Such option price shall not be less than 100% of the
fair market value of the Common Stock on the date of grant. The option price
must be paid in cash, money order, check or Common Stock of the Company. The
Options may also contain at the time of grant, at the discretion of the Board,
certain other cashless exercise provisions.





Options
shall be exercisable at the times and subject to the conditions determined by
the Board at the date of grant, but no option may be exercisable more than ten
years after the date it is granted. If the Optionee ceases to be an employee of
our company for any reason other than death, any option (originally granted as
an incentive stock option) exercisable on the date of the termination of
employment may be exercised for a period of thirty days or until the expiration
of the stated term of the option, whichever period is shorter. In the event of
the Optionee’s death, any option (originally granted as an incentive stock
option) exercisable at the date of death may be exercised by the legal heirs of
the Optionee from the date of death until the expiration of the stated term of
the option or six months from the date of death, whichever event first occurs.
In the event of disability of the Optionee, any Options (originally granted as
an incentive stock option) shall expire on the stated date that the Option would
otherwise have expired or 12 months from the date of disability, whichever event
first occurs. The termination and other provisions of a non-statutory stock
option shall be fixed by the Board of Directors at the date of grant of each
respective option.





Common Stock Award. “Common
Stock Awards” are shares of Common Stock that will be issued to a recipient at
the end of a restriction period, if any, specified by the Board if he or she
continues to be an employee, director or consultant of us. If the recipient
remains an employee, director or consultant at the end of the restriction
period, the applicable restrictions will lapse and we will issue a stock
certificate representing such shares of Common Stock to the participant. If the
recipient ceases to be an employee, director or consultant of us for any reason
(including death, disability or retirement) before the end of the restriction
period, unless otherwise determined by the Board, the restricted stock award
will be terminated.





Eligibility





Our
officers, employees, directors and consultants of Emergent Group and our
subsidiaries are eligible to be granted stock options, and Common Stock Awards.
Eligibility shall be determined by the Board; however, all Options and Stock
Awards granted to officers and directors must be approved by the
Board.





Termination or Amendment of
the 2002 Plan





The Board
may at any time amend, discontinue, or terminate all or any part of the 2002
Plan, provided, however, that unless otherwise required by law, the rights of a
participant may not be impaired without his or her consent, and provided that we
will seek the approval of our stockholders for any amendment if such approval is
necessary to comply with any applicable federal or state securities laws or
rules or regulations.





Awards





During
2008 and 2007, we granted 35,000 and 12,500 common stock options to employees of
the Company at an exercise price of $2.15 and $3.05 per share, respectively. As
of March 16, 2009, options to purchase a total of 146,709 common shares have
been exercised under the Plan. Unless sooner terminated, the 2002 Plan will
expire on March 31, 2012 and no awards may be granted after that
date.






39







It is not
possible to predict the individuals who will receive future awards under the
2002 Plan or the number of shares of Common Stock covered by any future award
because such awards are wholly within the discretion of the Board. The table
below contains information as of December 31, 2008 on the known benefits
provided to certain persons and group of persons under the 2002 Plan. Such table
does not include options that have been exercised.





Number
      of Shares subject to Options
                  
                  
                  Range
      of exercise price ($) per Share
                  
                  
                  Value
      of unexercised options at Dec. 31 2008 (1)Bruce
      J. Haber, Chief Executive Officer
                  
                  
                  -0-
                  
                  
                  $
                  -0-
                  
                  
                  $
                  -0-Louis
      Buther, President
                  
                  
                  -0-
                  
                  
                  $
                  -0-
                  
                  
                  $
                  -0-William
      M. McKay, Chief Financial Officer
                  
                  
                  108,000
                  
                  
                  $
                  0.40
                  
                  
                  $
                  691,200
                  (1)Three
      Executive Officers as a group
                  
                  
                  108,000
                  
                  
                  $
                  0.40
                  
                  
                  $
                  691,200
                  (1)Two
      non-employee Directors and two former Directors as a group
                  
                  
                  55,000
                  
                  
                  $
                  0.40
                  
                  
                  $
                  352,000
                  (1)Non-Executive
      Officer
                    Employees
      and Consultants
                  
                  
                  99,629
                  
                  
                  $
                  0.40
                  
                  
                  $
                  637,626
                  (1)





_________


(1)
            Value
      is calculated by multiplying (a) the difference between the market value
      per share at December 31, 2008 and the option exercise price by (b) the
      number of shares of Common Stock underlying the number of vested options.
      The value of unexercised options as of December 31, 2008 was determined
      based on the closing price for our common stock of $6.80 per
      share.





Other 2001 Stock Option
Plans





The Company has established two other
stock option plans, neither of which have any material amount of shares
authorized and/or outstanding under the Plan.





PRI Medical Deferred
Contribution Plan





PRI
Medical has adopted a defined contribution retirement plan, which qualifies
under Section 401(k) of the Internal Revenue Code. This Plan covers
substantially all employees with over one year of service. PRI Medical currently
provides matching contributions of 6% of each participant’s deferral up to a
maximum of 15% of eligible contributions. Except for PRI Medical’s 401(k) Plan,
the Company has no other annuity, pension, or retirement benefits for its
employees. For the years ended December 31, 2008 and 2007, the Company
contributed matching contributions to the Plan of $13,746 and $13,167,
respectively.








40







Item 12.  Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.





As of
March 16, 2009, the Company had outstanding 6,663,755 shares of Common Stock.
The only persons of record who presently hold or are known to own (or believed
by the Company to own) beneficially more than 5% of the outstanding shares of
such class of stock is listed below. The following table also sets forth certain
information as to holdings of the Company's Common Stock of all officers and
directors individually, and all officers and directors as a group.





Name
      and Address of Beneficial Owner (1)
                    
                    Number
      of Common
                      Shares
                    
                    
                    Approximate
                      PercentageOfficers
      and DirectorsMark
      Waldron
                      10939
      Pendleton Street
                      Sun
      Valley, CA 91352
                    
                    
                    546,768
                    (2)
                    
                    
                    8.2Howard
      Waltman
                      140
      Deerfield
                      Tenafly,
      NJ 07670
                    
                    
                    163,824
                    (3)
                    
                    
                    2.4William
      M. McKay
                      10939
      Pendleton Street
                      Sun
      Valley, CA 91352
                    
                    
                    272,302
                    (4)
                    
                    
                    4.0Bruce
      J. Haber, c/o BJH Management, LLC
                      145
      Huguenot Street, Suite 405
                      New
      Rochelle, NY  10801
                    
                    
                    1,664,772
                    (5)
                    
                    
                    25.0Louis
      Buther
                      10939
      Pendleton Street
                      Sun
      Valley, CA 913521
                    
                    
                    755,542
                    
                    
                    
                    11.3K.
      Deane Reade, Jr.
                      605
      Third Avenue
                      New
      York, NY 10158
                    
                    
                    96,471
                    (6)
                    
                    
                    1.4All
      current and proposed executive officers and directors as a group (six)
      persons
                    
                    
                    3,499,679
                    (7)
                    
                    
                    50.75%
      StockholdersArie
      Kanofsky
                      385
      West John Street
                      Hicksville,
      NY 11801
                    
                    
                    505,000
                    
                    
                    
                    7.6


________________


(1)
            All
      shares are directly owned, and the sole investment and voting power is
      held, by the persons named unless otherwise
  noted.


(2)
            Includes
      options to purchase 93 shares.


(3)
            Includes
      ­­­­­­­­­options/warrants owned by him
      to purchase 97,059 shares. This table excludes 300,597 shares and warrants
      to purchase 22,059 shares owned by members of his family in the name of
      THW Group LLC. Mr. Waltman no longer exercises voting and investment
      control over this company.


(4)
            Includes
      options to purchase 118,000 shares.


(5)
            Mr.
      Bruce J. Haber directly owns 315,067 shares of the Company’s Common Stock.
      His wife, Michela I. Haber, is the trustee over two family trusts which
      beneficially own an aggregate of 1,349,605shares which are included in the
      table above even though he disclaims beneficial ownership of such
      1,349,605 shares. Mr. Haber also holds irrevocable proxies to vote an
      aggregate of 282,337 shares of Common Stock until such shares are sold to
      an unaffiliated third party, which shares are not reflected in the table
      above.


(6)
            Includes
      warrants to purchase 21,777 shares.


(7)
            See
      footnotes (2) through (5) above.








41







The
Company does not know of any arrangement or pledge of its securities by persons
now considered in control of the Company that might result in a change of
control of the Company.





Securities Authorized for
Issuance under Equity Compensation Plans.





The following summary information is as
of March 16, 2009 and relates to our 2002 Stock Option Plan pursuant to which we
have granted options to purchase our common stock:





(a)
                    
                    
                    (b)
                    
                    
                    (c)Plan
      category
                    
                    Number of shares of
      common stock to be issued upon exercise
                      of outstanding
      options
                    
                    
                    Weighted
      average
                      exercise
      price of
                      outstanding
                      options
      (1)
                    
                    
                    Number of
      securities
                      remaining available
      for
                      future issuance
      under
                      equity compensation
      plans
                      (excluding
      shares
                      reflected in
      column (a)Equity
      compensation
                      Plans  (2)
                    
                    
                    330,834
                    
                    
                    $
                    0.90
                    
                    
                    
                    172,457


____________________





(1)
            Based
      upon 270,834 options exercisable at $0.40 per share, 15,500 at $4.65,
      30,000 at $2.15, 12,500 options exercisable at $3.05 per share and 2,000
      options exercisable at $8.00 per
share.





The following summary information is as
of March 16, 2009 and relates to our 2001 Stock Option Plan pursuant to which we
have granted options to purchase our common stock:





(a)
                    
                    
                    (b)
                    
                    
                    (c)Plan
      category
                    
                    Number of shares of
      common stock to be issued upon exercise
                      of outstanding
      options
                    
                    
                    Weighted
      average
                      exercise
      price of
                      outstanding
                      options
      (1)
                    
                    
                    Number of
      securities
                      remaining
      available for
                      future
      issuance under
                      equity
      compensation plans
                      (excluding
      shares
                      reflected in
      column (a)(2)Equity
      compensation
                      Plans
                    
                    
                    6,875
                    
                    
                    $
                    40.00
                    
                    
                    
                    -0-


____________________




(1)
              All
      options are exercisable at $40.00 per share.(2)
              The
      Board of Directors does not intend to grant additional options under the
      2001 Plan.






42







The
following summary information is as of March 16, 2009 and relates to our Stock
Option Plans of PRI Medical which were assumed by Emergent and pursuant to which
we have granted options to purchase our common stock:





(a)
                    
                    
                    (b)
                    
                    
                    (c)Plan
      category
                    
                    Number of shares of
      common stock to be issued upon exercise
                      of outstanding
      options
                    
                    
                    Weighted
      average
                      exercise price
      of
                      outstanding
                      options
      (1)
                    
                    
                    Number of
      securities
                      remaining available
      for
                      future issuance
      under
                      equity compensation
      plans
                      (excluding
      shares
                      reflected in column
      (a)Equity
      compensation
                      Plans  (2)
                    
                    
                    729
                    
                    
                    $
                    28.12
                    
                    
                    
                    -0-


____________________





(1)
            Based
      upon 724 options exercisable at $27.20 per share and 5 options exercisable
      at $162.00 per share.





(2)
            The
      Board of Directors of Emergent does not intend to grant additional options
      under the old PRI Medical Plans.






Item 13.  Certain
Relationships, Related Transactions and Director
Independence.





On July
30, 2008, we received $1,130,890 from the sale of 665,229 Units at an offering
price of $1.70 per Unit to 15 investors. Each Unit consisted of one share of
Common Stock and a Warrant to purchase 0.6 shares 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. Exemption is claimed for the sale of these restricted securities
pursuant to Rule 506 of Regulation D promulgated under Section 4(2) of the
Securities Act of 1933, as amended.





Of the
665,229 Units, 533,825 Units (equivalent to $907,503) were purchased by our
officers and directors.  In this respect, the following officers and
directors purchased Units in the private placement offering:  Mark
Waldron (47,059 Units), K. Deane Reade, Jr. (35,294 Units), Bruce J. Haber
Grantor Retained Annuity Trust (176,471 Units), Howard & Theodora Waltman
TIC (36,765 Units), The THW Group, LP (a trust for the benefit of the family of
Howard Waltman) (36,765 Units), William M. McKay (25,000 Units), Louis Buther
(58,824 Units), and Bruce J. Haber (117,647 Units).





Except as
otherwise described above and in Items 1,7, 8, 11 and 12 of this Form 10-K,
there have been no reportable transactions with the Company’s officers,
directors and/or affiliated persons required to be disclosed pursuant to Item
404 of Regulation S-B.





Director
Independence





For a description of the definition of
“independent director,” “financial expert,” and management’s identification of
independent directors, see Item 10 under “Audit Committee.”





Item
14.  Principal Accountant Fees
and Services.





Audit
Fees





For the
fiscal year ended December 31, 2008 and 2007, the aggregate fees billed for
professional  services  rendered by Rose, Snyder &
Jacobs (“independent auditors”) for the audit of the Company’s annual
financial statements and the reviews of its financial statements included in the
Company's quarterly reports and filings under the Securities Act of 1933 totaled
approximately $108,200 and $87,500, respectively.






43







Financial
Information Systems Design and Implementation Fees





For the
fiscal years ended December 31, 2008 and 2007, there were no fees billed for
professional services by the Company’s independent auditors rendered in
connection with, directly or indirectly, operating or supervising the operation
of its information system or managing its local area network.





All
Other Fees





For the
fiscal years ended December 31, 2008 and 2007, there were $25,650 and $21,400
fees paid or billed for preparation of corporate tax returns.





Audit
Committee – Pre-Approval





All services provided to the Company by
Rose, Snyder & Jacobs as detailed above, were pre-approved by the board of
Directors and all work of said firm was performed solely by their permanent
employees.





Item
15.Exhibits and Financial
Statement Schedules





(a)
            Financial
      Statements





The
following documents are filed under “Item 8. Financial Statements and
Supplementary Data,”pages F-1 through F-21, and are included as part of
this Form 10-K as the financial statements of the Company for the years ended
December 31, 2008 and 2007:





Reports
of Independent Registered Public Accounting Firms


Consolidated
Balance Sheets


Consolidated
Statements of Income


Consolidated
Statements of Cash Flows


Consolidated
Statement of Shareholders’ Equity


Notes to
Consolidated Financial Statements






44






(b)                      Exhibits




Number
                                                                    
                                                                    Exhibit
      Description2.1
                                                                    
                                                                    Agreement
      and Plan of Reorganization and Merger, dated as of January 23, 2001, among
      MRM Registrant and MRM Acquisition Inc. (1)2.2
                                                                    
                                                                    Agreement
      to transfer equity dated August 10, 2000. (3)3.1
                                                                    
                                                                    Articles
      of Incorporation of Registrant. (5)3.2
                                                                    
                                                                    Amendment
      to Articles of Incorporation. (5)3.3
                                                                    
                                                                    2003
      Amendment to Articles of Incorporation. (9)3.4
                                                                    
                                                                    By-laws
      of Registrant. (5)10.1
                                                                    
                                                                    Consulting
      Agreement dated October 15, 2001 with BJH Management LLC.
    (4)10.2
                                                                    
                                                                    Stock
      Issuance Agreement dated December 30, 2002 with BJH Management LLC.
      (4)10.3
                                                                    
                                                                    Employment
      Agreement dated December 30, 2002 with Bruce J. Haber. (4)10.4
                                                                    
                                                                    Employment
      Agreement dated December 30, 2002 with Louis Buther. (4)10.5
                                                                    
                                                                    Engagement
      Letter – William M. McKay (4)10.6
                                                                    
                                                                    Consulting
      Agreement dated February3, 2003 – Richard Whitman (6)10.7
                                                                    
                                                                    Reps,
      Medical Resources Financial, Inc. and Emergent Group Inc.
    (13)10.8
                                                                    
                                                                    Asset
      Purchase Agreement – Advantage Medical Services, LLC and Non-Competitive,
      Non-disclosure and Non-Solicitation Agreement (10)10.9
                                                                    
                                                                    Accounts
      Receivable Purchase Agreement executed May 25, 2005 by and among Access
      Capital, EGI and EGI’s wholly-owned subsidiary, PRI Medical Technologies,
      Inc. (11)10.10
                                                                    
                                                                    May
      2005 Letter Agreement by and among EGI and the limited guarantors, Bruce
      J. Haber, Mark Waldron, William M. McKay and Louis Buther
    (11)10.11
                                                                    
                                                                    May
      2005 Amendment to Employment Contract of Bruce Haber (11)10.12
                                                                    
                                                                    May
      2005 Amendment of Employment Contract of Louis Buther (11)10.13
                                                                    
                                                                    Services
      Agreement dated July 1, 2006 with BJH Management LLC (14)10.14
                                                                    
                                                                    July
      1, 2006 Amendment to Employment Contract of Louis Buther
    (14)10.15
                                                                    
                                                                    Facility
      Lease – Sun Valley, California (12)10.16
                                                                    
                                                                    Amendment
      to Exhibit 10.13 (12)10.17
                                                                    
                                                                    March
      2007 Amendment to Exhibit 10.4 (12)10.18
                                                                    
                                                                    Credit
      Agreement with City National Bank effective June 23, 2008
    (16)10.19
                                                                    
                                                                    Asset
      Purchase Agreement to purchase the Surgical Division of PhotoMedex, Inc.
      (17)10.20
                                                                    
                                                                    Amendment
      to City National Bank Line of Credit (18)10.21
                                                                    
                                                                    Audit
      Committee Charter effective November 10, 2008 (15)11.1
                                                                    
                                                                    Statement
      re: computation of per share earnings (see consolidated financial
      statements and notes thereto).14.1
                                                                    
                                                                    Code
      of Ethics (15)21.1
                                                                    
                                                                    Subsidiaries
      of Registrant listing the state or other jurisdiction of each subsidiary
      other than subsidiaries which would not constitute a significant
      subsidiary in Rule 1-02(w) of Regulation S-X. (15)23.1
                                                                    
                                                                    Consent
      of Rose, Snyder & Jacobs  in connection with Form S-8
      Registration Statement (15)31(a)
                                                                    
                                                                    Rule
      13a-14(a) Certification – Chief Executive Officer (15)31(b)
                                                                    
                                                                    Rule
      13a-14(a) Certification – Chief Financial Officer (15)32(a)
                                                                    
                                                                    Section
      1350 Certification – Chief Executive Officer (15)32(b)
                                                                    
                                                                    Section
      1350 Certification – Chief Financial Officer (15)99.1
                                                                    
                                                                    2002
      Stock Option Plan. (4)99.2
                                                                    
                                                                    2001
      Stock Option Plan. (4)99.3
                                                                    
                                                                    March
      23, 2004 amendment to 2002 Stock Option Plan, subject to stockholder
      approval (10)_________








(1)
              
              Filed
      as an exhibit to the Registrant's Current Report on Form 8-K, dated
      January 29, 2001, and incorporated herein by
    reference.(1)
              
              Filed
      as an exhibit to the Registrant’s Form 10-K for its fiscal year ended
      December 31, 2000.(2)
              
              Incorporated
      by reference to the Registrant’s Form 8-K – August 31, 2000 (date of
      earliest event).(3)
              
              Incorporated
      by reference to the Registrant’s Form 10-K for its fiscal year ended
      December 31, 2001.(4)
              
              Incorporated
      by reference to the Registrant’s Form S-4 Registration Statement filed May
      8, 2001.(6)
              
              Incorporated
      by reference to the Registrant’s Form 10-K for its fiscal year ended
      December 31, 2002.(7)
              
              Incorporated
      by reference to Registrant’s Form 10-KSB for its fiscal year ended
      December 31, 2003.(8)
              
              Incorporated
      by reference to the Registrant’s Form 8-K – June 27, 2003 (date of
      earliest event).(9)
              
              Incorporated
      by reference to the Registrant’s Form 10-QSB for its quarter ended
      September 30,2003.(10)
              
              Incorporated
      by reference to the Registrant’s Form 10-QSB for its quarter ended
      September 30, 2005.(11)
              
              Incorporated
      by reference to the Registrant’s Form 10-QSB for its quarter ended June
      30, 2005.(12)
              
              Incorporated
      by reference to the Registrant’s Form 10-KSB for the fiscal year ended
      December 31, 2006.(13)
              
              Incorporated
      by reference to the Registrant’s Form 10-KSB for the fiscal year ended
      December 31, 2004.(14)
              
              Incorporated
      by reference to the Registrant’s Form 8-K, dated July 1,
    2006.(15)
              
              Filed
      herewith.(16)
              
              Incorporated
      by reference to the Registrant’s Form 8-K – date of earliest event
      reported – June 23, 2008.(17)
              
              Incorporated
      by reference to the Registrant’s Form 8-K – date of earliest event
      reported– August 1, 2008.(18)
              
              Incorporated
      by reference to the Registrant’s Form 8-K – date of earliest event
      reported– August 8, 2008.










45








SIGNATURES





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




EMERGENT
      GROUP INC.Dated:  New
      Rochelle, New York
              By:
              /s/ Bruce
      J. HaberMarch
      24, 2009
              
              Bruce
      J. Haber, Chairman of theBoard
      and Chief Executive Officer







Pursuant
to the requirements of the Securities Exchange Act of 1934, this Report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated:








Signatures
            
            Title
            
            Date/s/ Bruce
      J. Haber
              
              Bruce J. Haber
            
            Chairman of the
      Board and Chief Executive Officer
            
            March 24,
    2009/s/
      William M. McKay
              
              William M. McKay
            
            Chief
      Financial Officer,
              Secretary
      and Treasurer
            
            March 24,
    2009/s/ Mark
      Waldron
              
              Mark Waldron
            
            Director
            
            March 24,
    2009/s/
      Howard Waltman
              
              Howard Waltman
            
            Director
            
            March 24,
    2009/s/ K.
      Deane Reade, Jr
              
              K. Deane
      Reade, Jr.
            
            Director
            
            March 24,
    2009










Bruce J.
Haber, Mark Waldron, Howard Waltman and K. Deane Reade, Jr. represent all the
current members of the Board of Directors.