Forward-Looking Statements

The information contained in this Form 10-Q and documents incorporated herein by reference are intended to update the information contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2008 and such information presumes that readers have access to, and will have read, the "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Risk Factors" and other information contained in such Form 10-K and other Company filings with the Securities and Exchange Commission ("SEC").

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

Overview

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

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

On August 2, 2008, the Company entered into an agreement to acquire the assets of the Surgical Services Division (the "Services Division") of PhotoMedex, Inc. The Services Division provides mobile laser services in 11 Northeast, Middle Atlantic and Southeast states, serving 18 individual local markets expanding PRI's geographic coverage to a total of 16 states. Revenues of the Services Division were $7,667,000 for the year ended December 31, 2007. The purchase price for the Services Division was approximately $3,149,735, 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 assets of the Company, the proceeds from the private sale of our restricted Common Stock as discussed elsewhere in this Form 10-Q, with the balance paid from existing cash.

Our acquisition of the Services Division in August 2008 has impacted our operating results for the nine months ended September 30, 2009 compared to the same period last year as discussed below.

Unaudited Pro Forma Results for the Three and Nine Months Ended September 30, 2008

The historical operating results for the Company include the operating results for the Services Division from January 1, 2009 to September 30, 2009. Presented below are the 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, with pro forma results presented from January 1, 2008 through August 8, 2008, after which our historical results are included in such pro forma results of operations.

                                          Pro Forma Results of Operations
                                         Three Months          Nine Months
                                            Ended                 Ended
                                        September 30,         September 30,
                                             2008                  2008

Pro forma revenue                      $      7,131,272       $   20,198,859

Pro forma income from operations       $      1,207,800       $    3,315,288

Pro forma provision for income taxes   $        (81,885 )     $     (234,043 )

Pro forma net income                   $        790,074       $    2,138,789

Pro forma basic earnings per share     $           0.12       $         0.34

Pro forma diluted earnings per share   $           0.12       $         0.31

The unaudited pro forma condensed results of operations for 2008 include pro forma adjustments for the period from January 1, 2008 to August 8, 2008 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 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 the nine months ended September 30, 2008.

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

Critical Accounting Policies

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

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

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

Results of Operations

The following table sets forth certain selected unaudited condensed consolidated statements of income data for the periods indicated in dollars and as a percentage of total revenues. The following discussions relate to our results of operations for the periods noted which include the results of operations for the Services Division acquired on August 8, 2008, as discussed herein, for the periods from January 1, 2009 to September 30, 2009 and from August 9, 2008 to September 30, 2008. The results of operations for the periods noted are not necessarily indicative of the results expected for any other interim period or any future fiscal year. In addition, we note that the period-to-period comparison may not be indicative of future performance.

                                     Three Months Ended                                          Nine Months Ended
                                        September 30,                                              September 30,
                       2009            %            2008            %             2009            %             2008            %

Revenue             $ 7,981,464          100 %   $ 6,394,974          100 %   $ 23,105,272          100 %   $ 15,800,812          100 %
Cost of goods
sold                  4,802,495           60 %     3,751,747           59 %     13,839,056           60 %      9,067,764           57 %
Gross profit          3,178,969           40 %     2,643,227           41 %      9,266,216           40 %      6,733,048           43 %
Selling, general,
and
administrative
expenses              1,490,174           19 %     1,498,459           23 %      4,442,338           19 %      3,753,553           24 %
Income from
operations            1,688,795           21 %     1,144,768           18 %      4,823,878           21 %      2,979,495           19 %
Other income
(expense)               (80,116 )         -1 %       (70,502 )         -1 %       (223,295 )         -1 %       (143,577 )         -1 %
Income before
provision for
income
taxes and
minority interest     1,608,679           20 %     1,074,266           17 %      4,600,583           20 %      2,835,918           18 %
Provision for
income taxes           (553,000 )         -7 %       (77,972 )         -1 %     (1,604,634 )         -7 %       (213,472 )         -1 %
Net income before
minority interest     1,055,679           13 %       996,294           16 %      2,995,949           13 %      2,622,446           17 %
Minority interest
in income of
consolidated
limited liability
companies              (225,023 )         -3 %      (254,484 )         -4 %       (597,030 )         -3 %       (737,368 )         -5 %
Net income          $   830,656           10 %   $   741,810           12 %   $  2,398,919           10 %   $  1,885,078           12 %

Comparison of the Three Months Ended September 30, 2009 to September 30, 2008

The Company generated revenues of $7,981,464 in 2009 compared to $6,394,974 in 2008. The increase in revenues in 2009 of $1,586,490, or 25% is primarily related to the inclusion of revenues from the Services Division, which we acquired in August 2008 and from an increase in revenues from our other surgical procedures.

Cost of goods sold was $4,802,495 in 2009 or 60% of revenues, compared to $3,751,747 or 59% of revenues for 2008. 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 $1,050,748 or 28% for 2009 is due to the inclusion of costs for the Services Division, which we acquired in August 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 2009 and 2008. The net change in other cost categories included in cost of goods sold remained relatively consistent in 2009 compared to 2008.

Gross profit from operations was $3,178,969 in 2009, compared to $2,643,227 in 2008. Gross profit as a percentage of revenues was 40% for 2009 compared to 41% for 2008. 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 2009 is not necessarily indicative of the margins that may be realized in future periods.

Selling, general, and administrative expenses were $1,490,174 or 19% of revenues for 2009 and $1,498,459 or 23% of revenues for 2008. Such costs include, among others, payroll and related expenses, insurance costs and occupancy costs. The decrease in selling and general and administrative expenses of $8,285 is related to the fact that we recognized compensation expense of $93,937 in the prior year quarter in connection with our private placement of common stock and certain other acquisition related expenses, while no such expense was recognized in 2009. The decrease in such expenses in 2009 compared to 2008 offset increases in performance-based incentive compensation and to increases in sales management and other payroll related expenses for 2009 compared to 2008

Other income (expense) was $(80,116) in 2009 compared to $(70,502) in 2008. 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 $9,614 is primarily related to an increase in net interest expense of $5,892; offset by a net decease in gain on the disposal of property and equipment and other income of $3,722. The net increase in interest expense relates to new equipment leases entered into during 2009 and 2008, including the equipment financing lease incurred in connection with the acquisition of the Services Division in August 2008. The net decrease in gain on disposal of property and equipment and other income is related to a decrease in such miscellaneous income items in 2009 compared to 2008.

The minority interest (ownership interests held by third-parties) in net income of limited liability companies was $225,023 in 2009 compared to $254,484 in 2008. In 2009 and 2008, we held ownership interests in thirteen and eleven entities, respectively. During the quarter ended September 30, 2009 three LLCs ceased operations and we began the wind-down and dissolution process. The decrease in minority interest in earnings is related to the winding-down of operations for such LLCs. As of September 30, 2009 and 2008, in accordance with guidance issued by the FASB, the Company accounted for its equity investments in entities in which it holds a minority interest under the full consolidation method.

Net income was $830,656 in 2009 compared to $741,810 in 2008. Provision for income taxes was $553,000 in 2009 as compared to $77,972 in 2008. During the fourth quarter of 2008 we recognized deferred tax benefits of $1,331,512 related to operating losses from prior years. We did not reverse the valuation allowance until it was "more likely than not" that the tax asset would be realized. The provision for income taxes of $553,000 as of September 30, 2009 is comprised of state taxes, federal Alternative Minimum Taxes (AMT), and the utilization of deferred income tax assets. At December 31, 2008, the Company had net operating loss carryforwards of approximately $7.6 million for federal tax purposes. Basic net income per share for 2009 and 2008 was $0.12 and $0.12, respectively, while fully diluted net income per share for 2009 and 2008 was $0.12 and $0.11, respectively. Basic and fully diluted weighted average shares outstanding for 2009 were 6,745,663 and 7,089,598, respectively, and 6,183,074 and 6,606,416 for 2008, respectively.

Comparison of the Nine Months Ended September 30, 2009 to September 30, 2008

The Company generated revenues of $23,105,272 in 2009 compared to $15,800,812 in 2008. The increase in revenues in 2009 of $7,304,460, or 46% is primarily related to the inclusion of revenues from the Services Division, which we acquired in August 2008 and from an increase in revenues from our other surgical procedures.

Cost of goods sold was $13,839,056 in 2009 or 60% of revenues, compared to $9,067,764 or 57% of revenues for 2008. 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 $4,771,292 or 53% for 2009 is due to the inclusion of costs for the Services Division, which we acquired in August 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 2009 and 2008. The net change in other cost categories included in cost of goods sold remained relatively consistent in 2009 compared to 2008.

Gross profit from operations was $9,266,216 in 2009 compared to $6,733,048 in 2008. Gross profit as a percentage of revenues was 40% in 2009 compared to 43% in 2008. 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 2009 is not necessarily indicative of the margins that may be realized in future periods.

Selling, general, and administrative expenses were $4,442,338 or 19% of revenues for 2009 and $3,753,553 or 24% of revenues for 2008. Such costs include, among others, payroll and related expenses, insurance costs and occupancy costs. The increase in selling, general and administrative expenses of $688,785 in 2009 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 $(223,295) in 2009 compared to $(143,577) in 2008. 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 $79,718 is primarily related to an increase in net interest expense of $55,745; offset by a net decrease in gain on disposal of property and equipment and other income of $23,973. The net increase in interest expense relates to new equipment leases entered into during 2009 and 2008, including the equipment financing lease incurred in connection with the acquisition of the Services Division in August 2008. The net decrease in gain on disposal of property and equipment and other income is related to a decrease in such miscellaneous income items in 2009 compared to 2008.

The minority interest (ownership interests held by third-parties) in net income of limited liability companies was $597,030 in 2009 compared to $737,368 in 2008. In 2009 and 2008, we held ownership interests in thirteen and eleven entities, respectively. The decrease in the minority interest in income for 2009 is related to the fact that three LLCs ceased operations during the third quarter of 2009 and began the wind-down and dissolution process. In addition, the LLCs generated lower earnings during the nine months ended September 30, 2009 compared to 2008. As of September 30, 2009 and 2008, in accordance with guidance issued by the FASB, the Company accounted for its equity investments in entities in which it holds a minority interest under the full consolidation method.

Net income was $2,398,919 in 2009 compared to $1,885,078 in 2008. Provision for income taxes was $1,604,634 in 2009 as compared to $213,472 in 2008. During the fourth quarter of 2008 we recognized deferred tax benefits of $1,331,512 related to operating losses from prior years. We did not reverse the valuation allowance until it was "more likely than not" that the tax asset would be realized. The provision for income taxes of $1,604,634 as of September 30, 2009 is comprised of state taxes, federal Alternative Minimum Taxes (AMT), and the utilization of deferred income tax assets. At December 31, 2008 the Company had net operating loss carryforwards of approximately $7.6 million for federal tax purposes. Basic net income per share for 2009 and 2008 was $0.36 and $0.32, respectively, while fully diluted net income per share for 2009 and 2008 was $0.34 and $0.30, respectively. Basic and fully diluted weighted average shares outstanding for 2009 were 6,710,175 and 7,059,774, respectively, and 5,856,867 and 6,284,005 for 2008, respectively.

Liquidity and Capital Resources

The Company entered into a new credit agreement (the "Agreement") with a bank in June 2008, which was amended and renewed in August 2009. The Agreement, as amended, provides for a line of credit of $1.5 million and is collateralized by substantially all unencumbered assets of the Company. Advances under the Agreement bear interest at the prime rate, plus one-half of one percent (3.75% as of September 30, 2009), 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, 2010. As of September 30, 2009 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 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. As of the filing date of this Form 10-Q, the Company was in compliance with such financial covenants.

In May 2009, the Company purchased certain medical equipment from a limited liability company for approximately $111,000. The purchase price was satisfied through the use of lease financing.

The Company had cash and cash equivalents of $5,957,808 at September 30, 2009. Cash provided by operating activities for the nine months ended September 30, 2009 was $5,921,788. Cash generated from operations includes net income of $2,398,919, depreciation and amortization of $1,620,057, deferred income taxes of $1,217,122, minority interest in net income of $597,030, stock-based compensation of $170,494, an increase in provision for doubtful accounts of $21,415, and increases in accounts payable and accrued expenses of $396,288 and $262,699, respectively; and inventory and other expense-noncash of $7,812; offset by increases in accounts receivable, prepaid expenses, deposits and other assets, and gain on disposal of property and equipment of $547,292; $89,329; $125,377, and $8,050, respectively. Cash used in investing activities was $1,104,436 and consisted of the purchase of property and equipment of $517,582, cash distributions of $703,404 to members of limited liability companies, offset by contributions from new members to limited liability companies of $112,500 and proceeds from the sale of equipment of $4,050. Cash used for financing activities was $3,445,651 and consisted of payment of dividends on common stock of $1,989,750, and payments of $1,492,241 on lease obligations; offset by proceeds of $34,740 and $1,600 from equipment refinancing and the exercise of common stock options, respectively.

The Company had cash and cash equivalents of $2,577,791 at September 30, 2008. Cash provided by operating activities for the nine months ended September 30, 2008 was $3,347,051. Cash generated from operations includes net income of $1,885,078, depreciation and amortization of $1,174,050, minority interest in net income of $737,368, stock-based compensation of $203,702, a decrease in inventory of $69,457, an increase in provision for doubtful accounts of $32,524, increases in accounts payable and accrued expenses and other liabilities of $364,281 and $102,019, respectively; offset by increases in accounts receivable . . .