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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
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Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 2006
Commission File Number: 0-21475
EMERGENT GROUP INC.
(Exact name of registrant as specified in its charter)
Nevada 93-1215401
------ ----------
(State of jurisdiction of Incorporation) (I.R.S. Employer Identification No.)
932 Grand Central Ave.
Glendale, CA 91201
(Address of principal executive offices)
(818) 240-8250
(Registrant's telephone number)
Not Applicable
(Former name, address and fiscal year, if changed since last report)
-----------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [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]
As of November 13, 2006, the registrant had a total of 5,460,789 shares of
Common Stock outstanding.
EMERGENT GROUP INC.
FORM 10-QSB Quarterly Report
Table of Contents
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet as of September 30, 2006 (unaudited) 3
Condensed Consolidated Statements of Income for the Three and Nine Months
Ended September 30, 2006 and 2005 (unaudited) 4
Condensed Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2006 and 2005 (unaudited) 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
Item 3. Controls and Procedures 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submissions of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits 17
Signatures 18
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Emergent Group Inc. and Subsidiaries
Condensed Consolidated Balance Sheet
September 30,
2006
----------------
ASSETS (unaudited)
Current assets
Cash $ 1,029,979
Accounts receivable, net of allowance for doubtful
accounts of $22,225 2,263,544
Inventory, net of reserves of $77,207 728,799
Prepaid expenses 162,820
----------------
Total current assets 4,185,142
Property and equipment, net of accumulated depreciation and
amortization of $4,259,004 3,893,452
Deposits and other assets 134,774
Goodwill 1,192,027
Other intangible assets, net of accumulated amortization
of $100,430 165,855
----------------
Total assets $ 9,571,250
================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of capital lease obligations $ 937,528
Current portion of notes payable 338,620
Accounts payable 733,297
Accrued liabilities and expenses 1,488,665
----------------
Total current liabilities 3,498,110
Capital lease obligations, net of current portion 1,554,450
Notes payable, net of current portion 156,250
----------------
Total liabilities 5,208,810
Minority interest 453,741
Shareholders' equity
Preferred stock, $0.001 par value, non-voting 10,000,000
shares authorized, no shares issued and outstanding -
Common stock, $0.04 par value, 100,000,000 shares authorized
5,460,789 shares issued and outstanding 218,392
Additional paid-in capital 14,877,448
Deferred compensation, net of accumulated amortization of $90,850 (135,204)
Accumulated deficit (11,051,937)
----------------
Total shareholders' equity 3,908,699
----------------
Total liabilities and shareholders' equity $ 9,571,250
================
The accompanying notes are an integral part of these
condensed financial statements.
3
Emergent Group Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- ------------------------------
2006 2005 2006 2005
-------------------------- --------------- --------------
Revenue $ 3,997,933 $3,181,811 $ 11,981,961 $ 9,052,744
Cost of goods sold 2,416,331 1,965,207 7,218,280 5,865,060
------------ ---------- -------------- -------------
Gross profit 1,581,602 1,216,604 4,763,681 3,187,684
Selling, general, and administrative expenses 1,021,690 797,598 2,984,110 2,469,660
------------ ---------- -------------- -------------
Income from operations 559,912 419,006 1,779,571 718,024
Other income (expense)
Interest expense (39,466) (36,036) (128,710) (102,108)
Gain on disposal of property and equipment 15,502 2,056 18,192 51,002
Other income, net 32,401 32,748 108,641 60,043
------------ ---------- -------------- -------------
Total other income (expense) 8,437 (1,232) (1,877) 8,937
------------ ---------- -------------- -------------
Income before provision for income taxes
and minority interest 568,349 417,774 1,777,694 726,961
Provision for income taxes (14,692) - (48,528) -
------------ ---------- -------------- -------------
Income before minority interest 553,657 417,774 1,729,166 726,961
Minority interest in income of consolidated
limited liability companies (107,892) (16,447) (269,599) (95,077)
------------ ---------- -------------- -------------
Net income $ 445,765 $ 401,327 $ 1,459,567 $ 631,884
============ ========== ============== =============
Basic earnings per share $ 0.08 $ 0.08 $ 0.27 $ 0.13
============ ========== ============== =============
Diluted earnings per share $ 0.08 $ 0.08 $ 0.25 $ 0.13
============ ========== ============== =============
Basic weighted average shares outstanding 5,460,789 5,004,551 5,457,704 4,856,271
============ ========== ============== =============
Diluted weighted-average shares outstanding 5,822,186 5,071,024 5,809,343 4,921,764
============ ========== ============== =============
The accompanying notes are an integral part of these
condensed financial statements.
4
Emergent Group Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(unaudited)
September 30,
---------------------------------------------
2006 2005
------------------------ --------------------
Cash flows from operating activities
Net income $ 1,459,567 $ 631,884
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 855,521 801,568
Amortization of finance fees 7,772 -
(Gain) loss on disposal of property and equipment (18,192) (51,002)
Provision for doubtful accounts 1,738 (2,960)
Minority interest in income 269,603 95,077
Other income - non-cash (66,095) -
(Increase) decrease in
Accounts receivable (373,869) (185,898)
Inventory (53,240) 24,106
Prepaid expenses (9,294) (39,101)
Deposits and other assets (12,837) 4,267
Increase (decrease) in
Accounts payable 95,001 696,151
Accrued expenses 113,953 64,767
------------------------ --------------------
Net cash provided by operating activities 2,269,628 2,038,859
------------------------ --------------------
Cash flows from investing activities
Purchase of property and equipment (367,268) (184,875)
Purchase of property and equipment for consolidated LLCs - (650,000)
Cash paid to members of limited liability companies (245,283) (146,239)
Contributions from new members to limited liability companies 90,000 200,000
Proceeds from the sale of property and equipment 21,988 59,752
------------------------ --------------------
Net cash used in investing activities (500,563) (721,362)
------------------------ --------------------
Cash flows from financing activities
Payments on capital lease obligations (494,024) (210,009)
Payment of dividends on common stock (512,861) -
Borrowings under line of credit 11,585,633 4,207,042
Repayments on line of credit (11,585,633) (4,857,042)
Payments on notes payable, net (317,578) (368,654)
Borrowings under note payable - 190,000
Payment of loan fees - (26,785)
------------------------ --------------------
Net cash used in financing activities (1,324,463) (1,065,448)
------------------------ --------------------
Net increase in cash 444,602 252,049
Cash, beginning of period 585,377 351,595
------------------------ --------------------
Cash, end of period $ 1,029,979 $ 603,644
======================== ====================
Supplemental disclosures of cash flow information:
Interest paid $ 142,544 $ 106,992
======================== ====================
Income taxes paid $ 54,531 $ -
======================== ====================
Supplemental schedule of noncash investing and financing activities:
During the nine months ended September 30, 2006, the Company incurred capital
lease obligations of $2,108,932 for the purchase of medical equipment.
The accompanying notes are an integral part of these
condensed financial statements.
5
EMERGENT GROUP INC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS
Emergent Group Inc. ("Emergent") is the parent company of PRI Medical
Technologies, Inc., its wholly owned and only operating subsidiary. PRI
Medical Technologies, Inc. primarily conducted its business through its
wholly owned subsidiary Physiologic Reps ("PRI") until March 2005 at which
time PRI was merged into PRI Medical Technologies, Inc. ("PRI Medical").
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.
2. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Emergent have been prepared pursuant to the rules of the Securities and
Exchange Commission ("SEC"). Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
accounting principles generally accepted in the United States have been
condensed or omitted pursuant to such rules and regulations. These
unaudited condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-KSB for the year
ended December 31, 2005. In the opinion of management, the accompanying
unaudited condensed consolidated financial statements reflect all
adjustments, which are of a normal recurring nature, necessary for a fair
presentation of the results for the periods presented.
The results of operations presented for the three and nine months ended
September 30, 2006 are not necessarily indicative of the results to be
expected for any other interim period or any future fiscal year.
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of Emergent and
its wholly owned subsidiaries. Also, in accordance with the Financial
Accounting Standards Board Interpretation Nos. 46 and 46R, "Consolidation
of Variable Interest Entities" the Company has accounted for its equity
investments in six limited liability companies under the full consolidation
method. All significant inter-company transactions and balances have been
eliminated through consolidation.
Use of Estimates
----------------
The preparation of the condensed consolidated financial statements in
accordance with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported
amounts of income and expenses during the reporting period. Actual results
could differ significantly from those estimates.
Accounts Receivable and Concentration of Business and Credit Risks
------------------------------------------------------------------
We market our services primarily to hospitals and out-patient centers
located in California, Nevada, Utah, Colorado, Arizona and New York. 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 consists of finished goods primarily used in connection with the
delivery of our mobile surgical equipment rental and services business.
Inventory is stated at the lower of cost or market, on a first-in,
first-out basis.
6
Stock-Based Compensation
------------------------
In December 2004, the FASB issued SFAS No. 123(R),"Share-Based Payment".
SFAS 123(R) amends SFAS No. 123,"Accounting for Stock-Based Compensation",
and APB Opinion 25,"Accounting for Stock Issued to Employees." SFAS
No.123(R) requires that the cost of share-based payment transactions
(including those with employees and non-employees) be recognized in the
financial statements. SFAS No. 123(R) applies to all share-based payment
transactions in which an entity acquires goods or services by issuing (or
offering to issue) its shares, share options, or other equity instruments
(except for those held by an ESOP) or by incurring liabilities (1) in
amounts based (even in part) on the price of the entity's shares or other
equity instruments, or (2) that require (or may require) settlement by the
issuance of an entity's shares or other equity instruments. This statement
is effective for public companies qualifying as SEC small business issuers
for the fiscal year beginning after December 15, 2005.
Effective January 1, 2006, we adopted Statement of Financial Accounting
Standards ("SFAS") No. 123R, Share-Based Payment, using the modified
prospective method. Under this method, compensation cost recognized during
the three and nine months ended September 30, 2006 includes compensation
cost for all share-based payments granted prior to, but not yet vested as
of January 1, 2006, based on the grant date fair value estimated in
accordance with the original provisions of SFAS No. 123 amortized over the
remaining vesting period for such options. There were no options granted
during the nine months ended September 30, 2006. The implementation of the
provisions of SFAS No. 123R on January 1, 2006 resulted in additional
compensation costs of $3,030 and $9,343 for the quarter and nine months
ended September 30, 2006, respectively. Basic and diluted earnings per
share of $0.27 and $0.25 for the quarter did not change as a result of
implementing SFAS No. 123R. In addition, the implementation of SFAS No.
123R did not have a significant impact on our financial position, results
of operations or cash flows.
Prior to January, we accounted for employee stock option grants in
accordance with APB No. 25, and had adopted only the disclosure provisions
of SFAS No. 123, Accounting for Stock-Based Compensation. Accordingly, no
stock based compensation expense was recognized for the three and nine
months ended September 30, 2005 as all options were granted with a price
based on the fair value of such options on the grant date. For the three
and nine months ended September 30, 2005, had we adopted the fair value
recognition provisions of SFAS No. 123 to account for our employee stock
options we would have recognized compensation expense of $1,342 and $4,025,
respectively, which assumes that the fair value of such options, as
prescribed by SFAS No. 123, was amortized to expense over the vesting
period of such options. The total fair value of 73,000 options granted
during March 2005 were estimated at $26,831 at the date of grant using the
Black-Scholes valuation model assuming volatility of 150%, a risk free
interest rate of 3.5%, no annual dividends and expected lives of seven
years.
The 2002 Employee Benefit and Consulting Services Compensation Plan (the
"2002 Plan") was adopted in 2002 for the purpose of providing incentives to
key employees, officers, and consultants of the Company who provide
significant services to the Company. As of September 30, 2006, there are
650,000 common shares authorized for grant under the 2002 Plan. However,
325,000 shares of the 650,000 shares represent an increase authorized by
the Company's Board of Directors subject to shareholder approval. 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. As of September 30, 2006, the number of shares reserved for
future awards was 225,138.
7
A summary of the Company's outstanding options and activity is as
follows:
Number of Weighted Average
Shares Exercise Price
---------------------------------------
Outstanding at January 1, 2006 431,099 $ 1.45
Options Granted - $ -
Options Canceled (2,487) $ 0.40
Options Exercised (3,750) $ 0.40
--------
Outstanding at September 30, 2006 424,862 $ 1.35
========
Exercisable at September 30, 2006 307,851 $ 1.71
========
The weighted-average remaining contractual life of the options outstanding
at September 30, 2006 is 6.84 years. The exercise prices for the options
outstanding at September 30, 2006 ranged from $0.40 to $162.16, and
information relating to these options is as follows:
Weighted- Weighted-
Average Average
Exercise Exercise
Weighted-Average Price of Price of
Range of Exercise Stock Options Stock Options Remaining Options Options
Prices Outstanding Exercisable Contractual Life Outstanding Exercisable
- --------------------------------------------------------------------------------------------------
$ 0.40 411,337 294,326 6.89 years $ 0.40 $ 0.40
$ 2.00 - 8.00 4,000 4,000 6.25 years $ 5.00 $ 5.00
$ 20.00 - 51.00 9,354 9,354 4.89 years $ 38.66 $ 38.66
$ 162.16 171 171 0.13 years $ 162.16 $ 162.16
--------- ---------
$ 0.40 - 162.16 424,862 307,851 6.84 years $ 1.35 $ 1.71
========= =========
As of September 30, 2006, the total unrecognized fair value compensation
cost related to unvested stock options was $41,112, which is to be
recognized over a remaining weighted average period of approximately 6.84
years.
In addition to options granted under the 2002 Plan, as of September 30,
2006 we have 110,000 restricted award shares issued and outstanding, which
generally vest in equal installments over five years from the date of
issuance. Such award shares are issued from time to time to executive
officers, directors and employees of the Company. Non-vested award shares
are subject to forfeiture in the event that recipient is no longer employed
by the Company at the time of vesting, subject to the Board's right to
waive the forfeiture provisions. Compensation expense related to such
shares is determined as of the issuance date based on the fair value of the
shares issued and is amortized over the related vesting period.
Compensation expense related to award shares was $3,605 and $12,174 for the
three and nine months ended September 30, 2006, respectively.
Earnings Per Share
------------------
The Company utilizes SFAS No. 128, "Earnings per Share." Basic earnings per
share are computed by dividing earnings available to common shareholders by
the weighted-average number of common shares outstanding. Diluted earnings
per share is computed similar to basic earnings per share except that the
denominator is increased to include the number of additional common shares
that would have been outstanding if the potential common share equivalents
had been issued and if the additional common shares were dilutive. Common
equivalent shares are excluded from the computation if their effect is
anti-dilutive.
Recent Accounting Pronounments
------------------------------
In May 2005, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 154, "Accounting Changes and Error Corrections", an amendment to
Accounting Principles Bulletin (APB) Opinion No. 20, "Accounting Changes",
and SFAS No. 3, "Reporting Accounting Changes in Interim Financial
Statements". Though SFAS No. 154 carries forward the guidance in APB No. 20
and SFAS No. 3 with respect to accounting for changes in estimates, changes
in reporting entity, and the correction of errors, SFAS No. 154 establishes
new standards on accounting for changes in accounting principles, whereby
all such changes must be accounted for by retrospective application to the
financial statements of prior periods unless it is impracticable to do so.
SFAS No. 154 is effective for accounting changes and error corrections made
in fiscal years beginning after December 15, 2005, with early adoption
permitted for changes and corrections made in years beginning after May
2005. The Company implemented SFAS No. 154, effective January 1, 2006,
which did not have a material impact upon the Company's financial position,
results of operations or cash flows.
8
In February 2006, the FASB issued Statement of Financial Accounting
Standards No. 155, "Accounting for Certain Hybrid Financial Instruments"
("SFAS 155"), which amends SFAS No. 133, "Accounting for Derivatives
Instruments and Hedging Activities" ("SFAS 133") and SFAS No. 140,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities" ("SFAS 140"). SFAS 155 amends SFAS 133 to
narrow the scope exception for interest-only and principal-only strips on
debt instruments to include only such strips representing rights to receive
a specified portion of the contractual interest or principle cash flows.
SFAS 155 also amends SFAS 140 to allow qualifying special-purpose entities
to hold a passive derivative financial instrument pertaining to beneficial
interests that itself is a derivative instrument. The Company does not
believe that SFAS 155 will have a material impact on the Company's
financial position, results of operations or cash flows.
In July 2006, the FASB released FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109
(FIN 48). FIN 48 clarifies the accounting and reporting for uncertainties
in income tax law. This interpretation prescribes a comprehensive model for
the financial statement recognition, measurement, presentation and
disclosure of uncertain tax positions taken or expected to be taken in
income tax returns. This statement is effective for fiscal years beginning
after December 15, 2006. The Company is currently in the process of
evaluating the expected effect of FIN 48 on its results of operations and
financial position.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements
(SFAS 157). SFAS 157 establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosures about
fair value measurements. SFAS 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007. The Company is
required to adopt the provision of SFAS 157, as applicable, beginning in
fiscal year 2008. Management does not believe the adoption of SFAS 157 will
have a material impact on the Company's financial position or results of
operations.
3. DEBT OBLIGATIONS
On May 25, 2005, the Company entered into a two-year agreement with a new
lender to provide a revolving credit line (the "Revolver") and term note
(the "Term Note") of up to $1,000,000 collateralized by accounts receivable
and certain fixed assets (collectively referred to herein as the "Credit
Facility"). Advances under the Revolver are based on 80% of each eligible
receivable, as defined. Borrowings under the Revolver and Term Note bear
interest at the prime rate (8.25% as of September 30, 2006), plus 2%. The
Credit Facility also provides for payment of a monthly collateral
management fee equal to 20 basis points (0.02%) on the average daily
outstanding balances under the Credit Facility. In addition, the Credit
Facility provides for an annual fee equal to 1% of the capital availability
amount, as defined, upon closing and on each anniversary of the closing
date. The Company incurred loan and closing costs of $26,785 in connection
with the negotiation and execution of the Credit Facility which is being
amortized over the loan term of 24 months. On May 27, 2005, the Company
borrowed a total of $805,218 under the Credit Facility to pay off amounts
owed under the Company's bank line of credit (the "Bank Line of Credit") of
$654,184 and bank term loan (the "Bank Term Loan") of $151,034, both of
which were due on or before May 31, 2005. As of September 30, 2006, total
borrowings outstanding under the Credit Facility amounted to $73,109 all of
which was outstanding under the Term Note. The Company has $926,891 of
borrowing availability under the Credit Facility as of September 30, 2006.
The terms and conditions of the Credit Facility included limited guarantees
from three executive officers and one director of the Company. In
connection with providing such limited guarantees to the lender, the
guarantors were issued an aggregate of 260,000 shares of the Company's
common stock, of which an aggregate of 196,000 were issued to the executive
officers, and 64,000 shares to one outside director. The guarantors have
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 to the voluntary release from the limited
guarantee by the lender. The Company recorded deferred compensation costs
of $104,000 in connection with the issuance of common stock for the limited
guarantees, which is being amortized to compensation expense over the loan
term of 24 months.
9
In June 2006, the Credit Facility was amended, whereby the minimum
borrowing amount, monthly collateral management fee, early termination fees
and limited guarantees were eliminated. The amended agreement also requires
the Company to maintain a tangible net worth of at least $1.5 million and
requires the lender to pay the Company interest on cash collections in
excess of amounts borrowed under the Revolver at a rate of 3% below the
prime rate. The Company will pay the lender a fee of $30,000, payable in
six equal monthly installments beginning July 1, 2006, in connection with
the amended agreement.
In May 2006 the Company entered into a master lease agreement with a bank
to provide a lease line of credit of $500,000 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 September 30, 2006, we had $424,934 outstanding under the
credit facility payable in monthly installments over a term of 36 to 48
months.
As of September 30, 2006 we have certain outstanding debt and lease
obligations amounting to $140,510 and $30,196, respectively, which require
additional principal payments of up to $187,500, in the event of default.
As of September 30, 2006 and the filing date of this Quarterly Report on
Form 10-QSB, we were in compliance with the terms and conditions of such
debt and lease agreements.
The Company incurred net interest expense of $39,466 and $36,036 for the
three months ended September 30, 2006 and 2005, respectively, and $128,710
and $102,108 for the nine months ended September 30, 2006 and 2005,
respectively.
4. COMMITMENTS AND CONTINGENCIES
Legal Matters
-------------
Byong Y. Kwon, Plaintiff against Daniel J. Yun, Emergent Group Inc.,
Emergent Capital Investment Management, LLC, Metedeconk Holdings, LLC,
Voyager Advisors, LLC, Millennium Tradition Limited (f/k/a Millennium
Heritage, Limited), Emergent Management Company, LLC, Endurance Advisors,
Limited, SK Networks Co., Ltd. (f/k/a SK Global Co., Ltd.), Hye Min Kang,
John Does 1-2 and Richard Roes 1-2 (collectively the "Defendants").
Plaintiff's complaint against the Defendants named above is a civil
lawsuit, which was signed by the clerk on February 2, 2005. This action is
brought in the United States District Court, Southern District of New York
by Plaintiff against the Company, a former director, Daniel Yun, and other
parties to recover money damages for alleged fraud, negligent
misrepresentations and aiding and abetting fraud. The Amended Complaint
alleges that the factual basis involving the action against the Company
involves alleged false representations to Plaintiff to induce him to leave
his then employment in 2001 and accept the Company's and another named
Defendant's alleged offer of employment. Plaintiff seeks compensatory
damages and punitive damages each in the amount of not less than $2,100,000
together with interest thereon, reasonable attorneys' fees and other
specific relief against Defendants other than the Company. Management has
denied the Plaintiff's allegations against the Company and intends to
vigorously defend this lawsuit. During the quarter ended September 30,
2006, there were no material developments in this matter.
5. RELATED PARTY TRANSACTIONS
Transactions with BJH Management
--------------------------------
The Company's Chairman and Chief Executive Officer maintains his primary
office in New York. In this regard, the Company reimbursed BJH Management,
LLC ("BJH"), a company owned by the Company's Chairman and Chief Executive
Officer, for office rent and related expenses totaling $8,134 and $7,477
for the three months ended September 30, 2006 and 2005, and $24,839 and
$25,432 for the nine months ended September 30, 2006 and 2005,
respectively.
Effective, July 1, 2006, the services of the Company's Chairman and Chief
Executive Officer are contracted until June 2007 through BJH Management for
a monthly fee of $15,167. In June 2006, the Company agreed to extend Mr.
Buther's employment contract for one year to June 2007.
6. LIMITED LIABILITY COMPANIES
In connection with expanding its business in certain commercial and
geographic areas, PRI Medical will at times help to form Limited Liability
Companies ("LLCs") in which it will acquire a minority interest and offer
the remaining interest to other investors. These LLCs acquire certain
equipment for use in their respective business activities which generally
focus on surgical procedures. As of September 30, 2006 PRI Medical holds
minority equity interests in six LLCs, which conduct business in California
and Colorado. 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.
10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward-Looking Statements
The information contained in this Form 10-QSB and documents incorporated herein
by reference are intended to update the information contained in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 2005 and such
information presumes that readers have access to, and will have read, the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Risk Factors" and other information contained in such Form 10-KSB
and other Company filings with the Securities and Exchange Commission ("SEC").
This Quarterly Report on Form 10-QSB 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-QSB.
Certain statements contained in Management's Discussion and Analysis,
particularly in "Liquidity and Capital Resources," and elsewhere in this Form
10-QSB 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 new and changing medical technologies into to its product
and service offerings, (d) the Company's ability to meet the terms and
conditions of its debt and lease obligations, and (e) 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., its wholly owned and only operating subsidiary. PRI Medical
Technologies, Inc. primarily conducted its business through its wholly owned
subsidiary Physiologic Reps ("PRI") until March 2005 at which time PRI was
merged into PRI Medical Technologies, Inc. ("PRI Medical"). 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.
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 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.
11
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 relates to our results
of operations for the periods noted and 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,
----------------------------------- -------------------------------------
2006 % 2005 % 2006 % 2005 %
--------------- - -------------- - -------------- - --------------- -
Revenue $ 3,997,933 100% $ 3,181,811 100% $ 11,981,961 100% $ 9,052,744 100%
Cost of goods sold 2,416,331 60% 1,965,207 62% 7,218,280 60% 5,865,060 65%
--------------- --- -------------- --- -------------- --- --------------- ---
Gross profit 1,581,602 40% 1,216,604 38% 4,763,681 40% 3,187,684 35%
Selling, general, and administrative expenses 1,021,690 26% 797,598 25% 2,984,110 25% 2,469,660 27%
--------------- --- -------------- --- -------------- --- --------------- ---
Income from operations 559,912 14% 419,006 13% 1,779,571 15% 718,024 8%
Other income (expense) 8,437 0% (1,232) 0% (1,877) 0% 8,937 0%
--------------- --- -------------- --- -------------- --- --------------- ---
Income before provision for income
taxes and minority interest 568,349 14% 417,774 13% 1,777,694 15% 726,961 8%
Provision for income taxes (14,692) 0% - 0% (48,528) 0% - 0%
--------------- --- -------------- --- -------------- --- --------------- ---
Net income before minority interest 553,657 14% 417,774 13% 1,729,166 14% 726,961 8%
--------------- --- -------------- --- -------------- --- --------------- ---
Minority interest in income of consolidated
limited liability companies (107,892) -3% (16,447) -1% (269,599) -2% (95,077) -1%
--------------- --- -------------- --- -------------- --- --------------- ---
Net income $ 445,765 11% $ 401,327 13% $ 1,459,567 12% $ 631,884 7%
=============== === ============== === ============== === =============== ===
12
Comparison of the Three Months Ended September 30, 2006 to September 30, 2005
The Company generated revenues of $3,997,933 in 2006 compared to $3,181,811 in
2005. The increase in revenues in 2006 of $816,122, or 26% is related to an
increase in revenues from our surgical procedures and to revenues generated from
certain customers of a competitor from who we acquired certain assets in
November 2005. Revenues from our surgical and cosmetic procedures represented
approximately 93% and 7% of total revenues for 2006 and 91% and 9% for 2005,
respectively.
Cost of goods sold was $2,416,331 in 2006 or 60% of revenues compared to
$1,965,207 or 62% in 2005. Costs of good sold primarily consist of payroll costs
and related expenses for technicians, cost of disposables consumed, insurance
costs and other operating costs incurred in rendering mobile medical equipment
and technician services. The overall increase in cost of goods sold of $451,124
or 23% for 2006 is generally due to increases in disposable costs, payroll and
related costs and an increase in depreciation expense. Disposable costs
increased as a result of a change in the mix of surgical procedures rendered to
customers whereby a greater number of higher priced procedures were performed in
2006 compared to 2005 that required more expensive disposable items while
payroll costs increased as a result of the increase in the number of surgical
and cosmetic procedures performed in 2006. Depreciation and amortization expense
increased due to equipment purchases in 2006. The net change in other cost
categories included in cost of goods sold remained relatively unchanged in 2006
compared to 2005.
Gross profit from operations was $1,581,602 in 2006 compared to $1,216,604 in
2005. Gross profit as a percentage of revenues was 40% in 2006 compared to 38%
for 2005. The improvement in our gross profit margin in 2006 is primarily due to
the mix of surgical procedures performed in 2006, whereby we performed a greater
number of higher priced surgical procedures compared to 2005, which resulted in
higher overall margins. In addition, profit 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. Gross margin rates
will vary from period to period depending upon various factors including product
and service mix, pricing considerations, and equipment and technician
utilization rates. The gross margin for 2006 is not necessarily indicative of
the margins that may be realized in future periods.
Selling, general, and administrative expenses were $1,021,690 or 26% of revenues
in 2006 compared to $797,598 or 25% of revenues in 2005. Such costs include,
among others, payroll and related expenses, insurance costs and occupancy costs.
The increase in selling, general and administrative expenses of $224,092 in 2006
is primarily related to increases in incentive compensation and to increases in
sales management and other payroll related expenses.
Other income (expense) was $8,437 in 2006 compared to $(1,232) in 2005. Other
income (expense) includes interest expense, gains and losses on disposal of
property and equipment, and other miscellaneous income and expense items. The
net increase in other income (expense) of $9,669 is primarily related to an
increase in gain on disposal of property and equipment of $13,446 offset by an
increase in interest expense of $3,430 in 2006 compared to 2005.
The minority interest in net income of limited liability companies was $107,892
in 2006 compared to $16,447 in 2005. Minority interest in income relates to the
consolidation of six entities in 2006 and four entities in 2005 in which we hold
an equity investment interest. As of September 30, 2006 and 2005 in accordance
with the Financial Accounting Standards Board Interpretation Nos. 46 and 46R,
"Consolidation of Variable Interest Entities" the Company accounted for its
equity investments in these entities under the full consolidation method.
13
Net income was $445,765 in 2006 compared to $401,327 in 2005. Provision for
income taxes was $14,692 in 2006 compared to $-0- in 2005. The Company has net
operating loss carryforwards for both federal and state tax purposes. The
provision for income taxes of $14,692 as of September 30, 2006 relates to
estimated Alternative Minimum Taxes (AMT) and to minimum state taxes payable.
Basic net income per share for 2006 and 2005 was $0.08 and $0.08, respectively,
while fully diluted net income per share for 2006 and 2005 was $0.08 and $0.08,
respectively. Basic and fully diluted shares outstanding for 2006 were 5,460,789
and 5,822,186, respectively, and 5,004,551 and 5,071,024 for 2005, respectively.
Comparison of the Nine Months Ended September 30, 2006 to September 30, 2005
The Company generated revenues of $11,981,961 in 2006 compared to $9,052,744 in
2005. The increase in revenues in 2006 of $2,929,217, or 32% is related to an
increase in revenues from our surgical procedures and to revenues generated from
certain customers of a competitor from who we acquired certain assets in
November 2005. Revenues from our surgical and cosmetic procedures represented
approximately 93% and 7% of total revenues for 2006 and 89% and 11% for 2005,
respectively.
Cost of goods sold was $7,218,280 in 2006 or 60% of revenues compared to
$5,865,060 or 65% in 2005. Costs of good sold primarily consist of payroll costs
and related expenses for technicians, cost of disposables consumed, insurance
costs and other operating costs incurred in rendering mobile medical equipment
and technician services. The overall increase in cost of goods sold of
$1,353,220 or 23% for 2006 is generally due to increases in disposable costs and
payroll and related costs. Disposable costs increased as a result of a change in
the mix of surgical procedures rendered to customers whereby a greater number of
procedures were performed in 2006 compared to 2005 that required more expensive
disposable items while payroll costs increased as a result of the increase in
the number of surgical and cosmetic procedures performed in 2006. The net change
in other cost categories included in cost of goods sold remained relatively
unchanged in 2006 compared to 2005.
Gross profit from operations was $4,763,681 in 2006 compared to $3,187,684 in
2005. Gross profit as a percentage of revenues was 40% in 2006 compared to 35%
for 2005. The improvement in our gross profit margin in 2006 is primarily due to
certain per procedure prince increases implemented early 2005 for various
surgical and cosmetic procedures and to the mix of surgical procedures
performed. In 2006, we performed a greater number of higher priced surgical
procedures compared to 2005, which resulted in higher overall margins. Profit
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 various factors including product and service
mix, pricing considerations, and equipment and technician utilization rates. The
gross margin for 2006 is not necessarily indicative of the margins that may be
realized in future periods.
Selling, general, and administrative expenses were $2,984,110 or 25% of revenues
in 2006 compared to $2,469,660 or 27% of revenues in 2005. Such costs include,
among others, payroll and related expenses, insurance costs and occupancy costs.
The increase in selling, general and administrative expenses of $514,450 in 2006
is primarily related to increases in incentive compensation and to increases in
sales management and other payroll related expenses.
Other income (expense) was $(1,877) in 2006 compared to $8,937 in 2005. Other
income (expense) includes interest expense, gains and losses on disposal of
property and equipment, and other miscellaneous income and expense items. The
net decrease in other income (expense) relates to an increase in interest
expense of $26,602, a decrease of $32,810 in gain from the disposal of property
and equipment, offset by an increase in other income of $48,598 primarily
related to the write-off of certain vendor obligations.
14
The minority interest in net income of limited liability companies was $269,599
in 2006 compared to $95,077 in 2005. Minority interest in income relates to the
consolidation of six entities in 2006 and four entities in 2005 in which we hold
an equity investment interest. As of September 30, 2006 and 2005 in accordance
with the Financial Accounting Standards Board Interpretation Nos. 46 and 46R,
"Consolidation of Variable Interest Entities" the Company accounted for its
equity investments in these entities under the full consolidation method.
Net income was $1,459,567 in 2006 compared to $631,884 in 2005. Provision for
income taxes was $48,528 in 2006 compared to $-0- in 2005. The Company has net
operating loss carryforwards for both federal and state tax purposes. The
provision for income taxes of $48,528 as of September 30, 2006 relates to
estimated Alternative Minimum Taxes (AMT) and to minimum state taxes payable.
Basic net income per share for 2006 and 2005 was $0.27 and $0.13, respectively,
while fully diluted net income per share for 2006 and 2005 was $0.25 and $0.13,
respectively. Basic and fully diluted shares outstanding for 2006 were 5,457,704
and 5,809,343, respectively, and 4,856,271 and 4,921,764 for 2005, respectively.
Liquidity and Capital Resources
On May 25, 2005, the Company entered into a two-year agreement with a new lender
to provide a revolving credit line (the "Revolver") and term note (the "Term
Note") of up to $1,000,000 collateralized by accounts receivable and certain
fixed assets (collectively referred to herein as the "Credit Facility").
Advances under the Revolver are based on 80% of each eligible receivable, as
defined. Borrowings under the Revolver and Term Note bear interest at the prime
rate (8.25% as of September 30, 2006), plus 2%. The Credit Facility also
provides for payment of a monthly collateral management fee equal to 20 basis
points (0.02%) on the average daily outstanding balances under the Credit
Facility. In addition, the Credit Facility provides for an annual fee equal to
1% of the capital availability amount, as defined, upon closing and on each
anniversary of the closing date. The Company incurred loan and closing costs of
$26,785 in connection with the negotiation and execution of the Credit Facility
which is being amortized over the loan term of 24 months. On May 27, 2005, the
Company borrowed a total of $805,218 under the Credit Facility to pay off
amounts owed under the Company's bank line of credit (the "Bank Line of Credit")
of $654,184 and bank term loan (the "Bank Term Loan") of $151,034, both of which
were due on or before May 31, 2005. As of September 30, 2006, total borrowings
outstanding under the Credit Facility amounted to $73,109 all of which was
outstanding under the Term Note. The Company has $926,891 of borrowing
availability under the Credit Facility as of September 30, 2006.
The terms and conditions of the Credit Facility included limited guarantees from
three executive officers and one director of the Company. In connection with
providing such limited guarantees to the lender, the guarantors were issued an
aggregate of 260,000 shares of the Company's common stock, of which an aggregate
of 196,000 were issued to the executive officers, and 64,000 shares to one
outside director. The guarantors have 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 to the voluntary release from the
limited guarantees by the lender. The Company recorded deferred compensation
costs of $104,000 in connection with the issuance of common stock for the
limited guarantees, which is being amortized to compensation expense over the
loan term of 24 months.
In June 2006, the Credit Facility was amended, whereby the minimum borrowing
amount, monthly collateral management fee, early termination fees and limited
guarantees were eliminated. The amended agreement also requires the Company to
maintain a tangible net worth of at least $1.5 million and requires the lender
to pay the Company interest on cash collections in excess of amounts borrowed
under the Revolver at a rate of 3% below the prime rate. The Company will pay
the lender a fee of $30,000, payable in six equal monthly installments beginning
July 1, 2006, in connection with the amended agreement.
15
In May 2006 the Company entered into a master lease agreement with a bank to
provide a lease line of credit of $500,000 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 September 30, 2006, we had $424,934 outstanding under the credit facility
payable in monthly installments over a term of 36 to 48 months.
As of September 30, 2006 we have certain outstanding debt and lease obligations
amounting to $140,510 and $30,196, respectively, which require additional
principal payments of up to $187,500, in the event of default. As of September
30, 2006 and the filing date of this Quarterly Report on Form 10-QSB, we were in
compliance with the terms and conditions of such debt and lease agreements.
The Company had cash and cash equivalents of $1,029,979 at September 30, 2006.
Cash provided by operating activities for the nine months ended September 30,
2006 was $2,269,628. Cash generated from operations includes net income of
$1,459,567, depreciation and amortization of $855,521, minority interest in net
income of $269,599 and a net increase in accounts payable and accrued expenses
of $208,958; offset by an increase in accounts receivable, prepaid expenses,
inventory, deposits and other assets of $449,240. Cash used in investing
activities was $500,563 related to the purchase of property and equipment of
$367,268 and to cash distributions of $245,283 to members of limited liability
companies, offset by contributions of $90,000 from members in two new limited
liability companies, and net proceeds of $21,988 from the disposition of
property and equipment. Cash used for financing activities was $1,324,463 from
payments on lease and debt obligations of $494,024 and $317,578, respectively,
and payment of dividends on common stock of $512,861. In addition, during the
nine months ended September 30, 2006 we borrowed and repaid $11,585,633 under
our line of credit.
The Company had cash and cash equivalents of $603,644 at September 30, 2005.
Cash provided by operating activities for the nine months ended September 30,
2005 was $2,038,859. Cash generated from operations includes net income of
$631,884, depreciation and amortization of $801,568, minority interest in net
income of $95,077 and an increase in accounts payable and accrued expenses of
$760,918; offset by an increase in accounts receivable of $185,898 and an
increase in prepaid expenses of $39,101. Cash used in investing activities was
$721,362 related to the purchase of property and equipment of $834,875, which
includes $650,000 purchased on behalf of consolidated limited liability
companies, and to cash distributions of $146,239 to limited liability companies,
offset by net proceeds of $59,752 from the disposition of property and equipment
and capital contributions of $200,000 from members in two new limited liability
companies. Cash used for financing activities was $1,065,448 from net repayments
of $650,000 on our revolving line of credit, borrowings of $190,000 under notes
payable, payments on lease and debt obligations of $210,009 and $368,654,
respectively, and payment of loan costs of $26,785.
We anticipate that our future liquidity requirements will arise from the need to
finance our accounts receivable and inventories, and from the need to fund our
current debt and lease obligations and capital expenditures. The primary sources
of funding for such requirements will be cash generated from operations,
borrowings under debt facilities and trade payables, and raising additional
capital from the sale of equity or other securities. The Company believes that
it can generate sufficient cash flow from these sources to fund its operations
for at least the next twelve months.
Item 3. Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in the Company's Exchange Act
reports is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms, and that such information is accumulated
and communicated to the Company's management, including its Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure based closely on the definition of "disclosure
controls and procedures" in Rule 13a-15(e). In designing and evaluating the
disclosure controls and procedures, management recognized that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures. The Company carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and the Company's
Chief Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. Based on the foregoing, the
Company's Chief Executive Officer and Chief Financial Officer concluded that the
Company's disclosure controls and procedures were effective at the reasonable
assurance level at the end of our most recent quarter ended September 30, 2006.
There have been no changes in the Company's disclosure controls and procedures
or in other factors that could affect the disclosure controls subsequent to the
date the Company completed its evaluation.
Management has not yet completed, and is not yet required to have completed, its
assessment of the effectiveness of internal control over financial reporting as
required by Section 404 of the Sarbanes-Oxley Act of 2002, as amended.
16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Note 4 to Notes to Condensed Consolidated Financial Statements
included herein for a description of legal matters.
Item 2. Changes in Securities
(a) In the third quarter ended September 30, 2006 there were no sales of
unregistered securities.
(b) Rule 463 of the Securities Act is not applicable to the Company.
(c) In the third quarter ended September 30, 2006 there were no
repurchases by the Company of its Common Stock.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submissions of Matters to a Vote of Security Holders
In the third quarter ended September 30, 2006 there were no matters
submitted to a vote of security holders.
Item 5. Other Information
None.
Item 6. Exhibits
Except for the exhibits listed below, other required exhibits have
been previously filed with the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended.
Number Exhibit Description
- --------------------------
11.1 Statement re: computation of earnings per share. See condensed consolidated
statement of operations and notes thereto.
31.1 Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) under
the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002*
31.2 Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) under
the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002*
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
99.1 Press Release*
------------------------
* Filed herewith.
17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
EMERGENT GROUP INC.
Date: November 13, 2006 By: /s/ Bruce J. Haber
-----------------------
Bruce J. Haber,
Chairman and Chief Executive Officer
Date: November 13, 2006 By: /s/ William M. McKay
-------------------------
William M. McKay,
Chief Financial Officer and Secretary
18