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 surgeries 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 $30.8 million and $22.8 million in 2009 and 2008, 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.
TRANSACTIONS
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. See “Item 11.”
In May 2009, the Company entered into an agreement to acquire the assets of New York Cryosurgery Equipment LLC, a company which provides mobile cryosurgery equipment and technicians to hospitals for treatment of prostate and renal cancer. This transaction allows us to strengthen our position in the sizeable New York equipment rental market, introduce new customers to our full range of products and services and seek to capitalize on an opportunity that was developing in the medical equipment rental market as physicians considered selling or restructuring of their business interests to comply with the October 2009 deadline arising from a rule change by the U.S. Centers for Medicare & Medicaid Services ("CMS") as described herein.
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.
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, 2009 and 2008, no customer accounted for more than 10% of PRI Medical’s total revenues.
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, 2009 and 2008, company-wide, PRI Medical performed over 32,000 and 22,000 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, 2009, PRI Medical holds interests in seven active LLCs located in California and New York. We previously held interests in thirteen LLCs; however, during the second half of 2009, we ceased operations in six LLCs and began the wind-down and dissolution process. PRI Medical will continue to service the customers previously serviced by such LLCs.
The LLCs will acquire 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. See “Risk Factors.”
For the years ended December 31, 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 non-controlling interest 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.”
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 required 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 2010. 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.
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 1, 2010, the Company employed 135 full-time persons (including three executive officers), 108 of whom were involved in operations activities (most of these were active as field technicians), 14 of whom were involved in sales and marketing, and 13 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 five 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.
NEW GOVERNMENT RULES AND REGULATIONS COULD MATERIALLY ADVERSELY AFFECT OUR RESULTS OF OPERATIONS
The Centers for Medicare & Medicaid Services (“CMS”), in the past year, 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 have made changes to our LLCs as a result of the new rules. In this regard, we are in the process of winding down and dissolving six of our LLCs. Although we believe these dissolutions and restructurings will not have a material adverse affect on us, we cannot give you any assurance that they will not have a material adverse effect on our future operations, relationships with physicians, 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 fully assess the extent to which the new rule will affect our future ability to attract new investors. However, if the new rule should have 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:
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maintaining and enhancing our relationships with customers;
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the education of potential customers about the benefits of our products and services; and
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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:
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we could fail to select the best acquisition or alliance partners;
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we could fail to effectively plan and manage acquisition or alliance strategies;
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management’s attention could be diverted by other business concerns;
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we could encounter problems integrating the acquired or allied operations, technologies or products; and
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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:
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damage to our business reputation;
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loss of customers;
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failure to attract new customers or achieve market acceptance;
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diversion of resources; and
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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:
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conditions and trends in our industry;
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changes in the market valuation of companies similar to us;
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actual or expected variations in our operating results;
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announcements by us or our competitors of the development of new products or technologies or
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strategic alliances or acquisitions; and
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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:
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fluctuations in demand for our products and services;
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the introduction of new products, services or technologies by competitors, entry of new competitors, pricing pressures and other competitive factors;
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our ability to obtain and introduce new surgical equipment products, services and technologies in a timely manner;
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the rate of market acceptance of any new surgical equipment products or services that we offer;
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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;
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our ability to control expenses;
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obsolescence of our existing equipment;
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the timing of regulatory approvals and changes in domestic and regulatory environments;
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the level of capital spending of our customers;
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costs related to acquisitions or alliances, if any; and
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general economic conditions.
POSSIBLE INABILITY TO PAY CASH DIVIDENDS IN THE FUTURE.
For each of the past five fiscal years, we have declared an annual cash dividend ranging from $0.10 per share to $0.40 per share. 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 our primary lender 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.
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.
Item 1.B Unresolved Staff Comments
Not applicable.
Item 2.
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 $12,912, 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 9,300 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 August 31, 2012. We believe that our present facilities are adequate for our reasonably foreseeable needs.
Item 3.
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. The previously outstanding proceeding, 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”) was settled on December 7, 2009 with the Company agreeing to pay $15,000 in exchange for a settlement of all actions against the Emergent Group.
Item 4.
Item 4. Reserved
PART II
Item 5.
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.
All quotations reflect inter-dealer prices, without retail mark-up, markdown or commissions, and may not necessarily represent actual transactions.
As of May 11, 2009, the record date for our 2009 Stockholders Meeting held on June 29, 2010, there were approximately 1,285 beneficial holders of our common stock whose stock was held in street name and approximately 190 additional stockholders of record. The Company’s transfer agent is American Stock Transfer & Trust Company, 59 Maiden Lane, New York, NY 10038.
In June 2009, Russell Investments announced that our common stock would be included in its reconstituted Russell Microcap Index.
Dividend Policy
In December 2009, the Company’s Board of Directors declared a cash dividend of $0.40 per share payable on January 13, 2010 to stockholders of record on December 23, 2009. In December 2008, the Company’s Board of Directors declared a cash dividend of $0.30 per share to our common stockholders of record on December 29, 2008, which was paid on January 12, 2009. 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 our primary lender 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, 2009, the Company had issuances of unregistered Common Stock as follows:
Recent Purchases of Securities
During the year ended December 31, 2009, the Company repurchased 27,942 common shares from a former employee pursuant to the terms and conditions of a settlement agreement and mutual release. Such shares were originally purchased in connection with the Company’s private placement of common stock in 2008, as discussed herein. In addition, during 2009 the Company cancelled 29,412 of unvested restricted Common Stock as a result of employee terminations.
Item 6.
Item 6. Selected Financial Data
Not applicable.
Item 7.
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.
The acquisition of the Services Division in 2008 impacts our operating results for 2009 and 2008 and the comparability of one period to another as discussed herein.
Unaudited Pro Forma Results of Operations for the Years Ended December 31, 2008
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.
The unaudited pro forma condensed results of operations for 2008 includes 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 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 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 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.
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 guidance issued by the FASB, using the modified prospective method. Under this method, compensation cost recognized during the years ended December 31, 2009 and 2008 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 2009 and 2008 we issued 40,000 and 35,000 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, 2009 and 2008 were $24,140 and $12,459, 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.
Results of Operations
The following table sets forth certain selected condensed consolidated statement of operations data for the periods indicated:
Year Ended December 31, 2009 Compared to the Year Ended December 31, 2008
The Company generated revenues of $30,756,460 in 2009 compared to $22,785,922 in 2008. The increase in revenues in 2009 of $7,970,538, or 35% is primarily related to an increase in revenues from our surgical procedures and to the inclusion of revenues from the Services Division for all of 2009. For 2008, revenues from the Services Division are included in our operating results from August 9, 2008 (date of acquisition) to December 31, 2008. “See Unaudited Pro Forma Results of Operations for the Year Ended December 31, 2008.”
Cost of goods sold was $18,266,007 and $13,354,071 for 2009 and 2008, respectively, or 59% of revenues for both 2009 and 2008, respectively. Costs of goods sold primarily consist of payroll costs and related expenses for technicians, cost of disposables consumed, depreciation and amortization related to equipment, insurance costs and other operating costs incurred in rendering mobile medical equipment and technician services. The overall increase in cost of goods sold of $4,911,936 or 37% for 2009 is due to the increase in revenues discussed above and its impact on disposable costs, payroll and related costs. 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 $12,490,453 in 2009 as compared to $9,431,851 in 2008. Gross profit as a percentage of revenues was 41% for both 2009 and 2008, 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 2009 is not necessarily indicative of the margins that may be realized in future periods.
Selling, general, and administrative expenses were $6,008,500 or 20% of revenues for 2009 and $5,241,682 or 23% 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 $766,818 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 $(261,705) in 2009 compared to $(190,916) 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 $70,789 is primarily related to an increase in net interest expense of $42,672, and to decreases in gain on disposal of property and equipment other income of $28,117. The net increase in interest expense relates to new equipment leases entered into during 2009 and the second half of 2008, including the equipment financing lease incurred in connection with the acquisition of the Services Division in August 2008. The decreases in gain on disposal of equipment and other income relates to decreases in such miscellaneous transactions in 2009 compared to 2008.
The non-controlling interest (ownership interests held by third-parties) in net income of limited liability companies was $700,084 in 2009 compared to $960,994 in 2008. As of December 31, 2009 we held ownership interests in seven operating LLCs. During the second half of 2009 we ceased operations in six of our LLCs and are in the process of winding-down and dissolving such entities. As of December 31, 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 non-controlling interest under the full consolidation method.
Net income was $3,285,068 in 2009 compared to $4,144,130 in 2008. Provision for income taxes and deferred tax expense were $566,852 and $1,668,244, respectively, in 2009. In 2008 our provision for income taxes was $225,641. During the fourth quarter of 2008 we recognized a net deferred tax benefit 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 $566,852 and deferred tax expense of $1,668,244 as of December 31, 2009 is comprised of state taxes, federal Alternative Minimum Taxes (AMT), and the utilization of deferred income tax assets. As of December 31, 2009 the Company has net operating loss carryforwards of approximately $3.4 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) and the ultilization of deferred income tax assets. Basic net income per share for 2009 and 2008 was $0.49 and $0.69 (or $0.47 before the recognition of the net deferred tax benefits), respectively, while fully diluted net income per share for 2009 and 2008 was $0.47 and $0.65 (or $0.44 per share before the recognition of the net deferred tax benefits), respectively. Basic and fully diluted weighted average shares outstanding for 2009 were 6,724,465 and 6,983,901, respectively, and 6,003,420 and 6,385,629 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 December 31, 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 December 31, 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-K, the Company was in compliance with such financial covenants.
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. During 2009 and 2008, Warrants to purchase a total of 97,940 and 262,058 of Common Shares, respectively, were exercised with the issuance of 86,781 and 161,358 common shares, respectively. In 2009 and 2008, the Company received proceeds of $77,207 and $61,765, respectively, in connection with the exercise of such Warrants.
The Company had cash and cash equivalents of $7,427,165 at December 31, 2009. Cash provided by operating activities for the year ended December 31, 2009 was $8,060,840. Cash generated from operations includes net income of $3,285,068, depreciation and amortization of $2,190,257, deferred income taxes of $1,668,244, non-controlling interest in income of $700,084, stock-based compensation of $229,988, an increase in provision for doubtful accounts of $24,720, and increases in accounts payable and accrued expenses of $85,136 and $483,969, respectively; and other expense of $13,641; offset by increases in accounts receivable, inventory, prepaid expenses, deposits and other assets, and gain on disposal of property and equipment of $267,009, $52,383, $149,062, $121,846 and $29,967, respectively. Cash used in investing activities was $1,291,476 and consisted of the purchase of property and equipment of $473,829, cash distributions of $949,597 to members of limited liability companies, offset by contributions from new members to limited liability companies of $127,500 and proceeds from the sale of equipment of $4,450. Cash used for financing activities was $3,928,306 and consisted of payment of dividends on common stock of $1,989,750, payments of $2,021,679 on lease obligations, and payment of $39,118 for the buy-back of common stock; offset by proceeds of $34,740 and $87,501 from equipment refinancing and the exercise of common stock options and warrants, respectively.
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, non-controlling interest in 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.
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 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risks.
Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. Our primary exposure to market risk is interest rate risk associated with our short term money market investments. The Company does not have any financial instruments held for hedging or other speculative purposes and does not invest in derivative financial instruments, interest rate swaps or other investments that alter interest rate exposure.
Item 8.
Item 8. Financial Statements
The report of the Independent Registered Public Accounting Firm, Financial Statements and Schedules are set forth beginning on page of this Annual Report on Form 10-K following this page.
EMERGENT GROUP INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
EMERGENT GROUP INC. AND SUBSIDIARIES
CONTENTS
December 31, 2009 and 2008
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, 2009 and 2008 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, 2009 and 2008, 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 19, 2010
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
Emergent Group Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
EMERGENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
NOTE 1 - ORGANIZATION AND BUSINESS
General
Emergent Group Inc. (“Emergent”) is the parent company of PRI Medical Technologies, Inc. (“PRI Medical”), its wholly owned 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 13 below for 2008 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 guidance issued by the Financial Accounting Standards Board (“FASB”), the Company has accounted for its equity investments in its 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. The Company has not experienced losses in such accounts and believes it is not exposed to any significant risk on cash.
EMERGENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
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 as incurred. 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 guidance issued by the FASB on an annual basis or 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 covenants not-to-compete and customer lists of $455,265 and $403,152, net of accumulated amortization, as of December 31, 2009 and 2008, 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 guidance issued by the FASB, 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. The annual amortization of intangible assets for each of the next five years is as follows:
EMERGENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
Fair Value of Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities recorded at fair value in the accompanying consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. The fair value hierarchy distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
Level Input:
Input Definition:
Level I
Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.
Level II
Inputs, other than quoted prices included in Level I, that are observable for the asset or liability through corroboration with market data at the measurement date.
Level III
Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.
The following table summarizes fair value measurements by level at December 31, 2009 for assets and liabilities measured at fair value on a recurring basis:
For certain of the Company’s financial instruments, including cash and money market funds, accounts receivable, prepaid expenses, accounts payable and accrued expenses, the carrying amounts approximate fair value due to their short maturities.
Stock-Based Compensation
On May 5, 2009, the Board approved establishing an Employee Benefit and Compensation Plan (the"2009 Plan") covering 300,000 shares with an effective date of June 29, 2009, the date of stockholder ratification of the 2009 Plan. In April 2002, the Company adopted the 2002 Employee Benefit and Consulting Services Compensation Plan (the “2002 Plan”). Our 2002 Plan and 2009 Plan are substantially identical, except as to the number of shares covered by each respective plan and the 2009 Plan permits issuance of incentive stock options. The 2002 Plan and 2009 Plan are collectively referred to herein as the "Plans." No stock options have been issued under our 2009 Plan.
Compensation costs related to stock options are determined in accordance with guidance issued by the FASB. Company determines the fair value of option grants based on the Black-Scholes option-pricing model using the modified prospective method. Under this method, compensation cost recognized during the years ended December 31, 2009 and 2008 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.
Advertising Expense
The Company expenses advertising in the periods the services are performed. For the years ended December 31, 2009 and 2008, advertising expense was $21,780 and $48,400, 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.
EMERGENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
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, 2009 and 2008, common stock equivalents used in determining fully diluted shares outstanding consist only of options and warrants to purchase common stock. The components of basic and diluted earnings per share are as follows:
Estimates
The preparation of financial statements requires management to make estimates and use 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. We use authoritative pronouncements, historical experience and other data as the basis for making judgments. Actual results could differ from those estimates.
Recently Issued Accounting Pronouncements
In August 2009, the FASB issued ASU 2009-15, which changes the fair value accounting for liabilities. These changes clarify existing guidance that in circumstances in which a quoted price in an active market for the identical liability is not available, an entity is required to measure fair value using either a valuation technique that uses a quoted price of either a similar liability or a quoted price of an identical or similar liability when traded as an asset, or another valuation technique that is consistent with the principles of fair value measurements, such as an income approach (e.g., present value technique). This guidance also states that both a quoted price in an active market for the identical liability and a quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required are Level 1 input fair value measurements. This ASU is effective on January 1, 2010. Adoption of this ASU will not have a material impact on our consolidated financial statements.
In June 2009, the FASB issued changes to the accounting for variable interest entities. These changes require an enterprise to perform an analysis to determine whether the enterprise’s variable interest gives it a controlling financial interest in a variable interest entity; to require ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity; to eliminate the quantitative approach previously required for determining the primary beneficiary of a variable interest entity; to add an additional reconsideration event for determining whether an entity is a variable interest entity when any changes in facts and circumstances occur such that holders of the equity investment at risk, as a group, lose the power from voting rights or similar rights of those investments to direct the activities of the entity that most significantly impact the entity’s economic performance; and to require enhanced disclosures that will provide users of financial statements with more transparent information about an enterprise’s involvement in a variable interest entity. These changes become effective for us beginning on January 1, 2010. The adoption of this change is not expected to have a material impact on our consolidated financial statements.
In June 2009, the FASB issued changes to the accounting for transfers of financial assets. These changes remove the concept of a qualifying special-purpose entity and remove the exception from the application of variable interest accounting to variable interest entities that are qualifying special-purpose entities; limits the circumstances in which a transferor derecognizes a portion or component of a financial asset; defines a participating interest; requires a transferor to recognize and initially measure at fair value all assets obtained and liabilities incurred as a result of a transfer accounted for as a sale; and requires enhanced disclosure; among others. These changes will become effective for us on January 1, 2010.
EMERGENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
Recently Adopted Accounting Pronouncements
On September 30, 2009, we adopted changes issued by the FASB to the authoritative hierarchy of GAAP. These changes establish the FASB Accounting Standards Codification (Codification) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The FASB will no longer issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts; instead the FASB will issue Accounting Standards Updates (ASUs). ASUs will not be authoritative in their own right as they will only serve to update the Codification. These changes and the Codification itself do not change GAAP. Other than the manner in which new accounting guidance is referenced, the adoption of these changes had no impact on our consolidated financial statements.
On July 1, 2009, we adopted changes issued by the FASB to accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued, otherwise known as “subsequent events.” Specifically, these changes set forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. The adoption of these changes had no impact on our consolidated financial statements as management already followed a similar approach prior to the adoption of this new guidance.
On June 30, 2009, we adopted changes issued by the FASB to fair value disclosures of financial instruments. These changes require a publicly traded company to include disclosures about the fair value of its financial instruments whenever it issues summarized financial information for interim reporting periods. Such disclosures include the fair value of all financial instruments, for which it is practicable to estimate that value, whether recognized or not recognized in the statement of financial position; the related carrying amount of these financial instruments; and the method(s) and significant assumptions used to estimate the fair value. Other than the required disclosures (see Fair Value Measurements above), the adoption of these changes had no impact on our consolidated financial statements.
On June 30, 2009, we adopted changes issued by the FASB to fair value accounting. These changes provide additional guidance for estimating fair value when the volume and level of activity for an asset or liability have significantly decreased and includes guidance for identifying circumstances that indicate a transaction is not orderly. This guidance is necessary to maintain the overall objective of fair value measurements, which is, that fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The adoption of these changes had no impact on our consolidated financial statements.
EMERGENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
On June 30, 2009, we adopted changes issued by the FASB to the recognition and presentation of other-than-temporary impairments. These changes amend existing other-than-temporary impairment guidance for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities. The adoption of these changes had no impact on our consolidated financial statements.
On January 1, 2009, we adopted changes issued by the FASB to accounting for business combinations. While retaining the fundamental requirements of accounting for business combinations, including that the purchase method be used for all business combinations and for an acquirer to be identified for each business combination, these changes define the acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as the date that the acquirer achieves control instead of the date that the consideration is transferred. These changes require an acquirer in a business combination, including business combinations achieved in stages (step acquisition), to recognize the assets acquired, liabilities assumed, and any non-controlling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions. This guidance also requires (i) an acquirer to recognize at fair value, at the acquisition date, an asset acquired or liability assumed in a business combination that arises from a contingency if the acquisition-date fair value of that asset or liability can be determined during the measurement period; otherwise the asset or liability should be recognized at the acquisition date if certain defined criteria are met; (ii) contingent consideration arrangements of an acquiree assumed by the acquirer in a business combination be recognized initially at fair value; (iii) subsequent measurements of assets and liabilities arising from contingencies be based on a systematic and rational method depending on their nature and contingent consideration arrangements be measured subsequently; and (iv) disclosures of the amounts and measurement basis of such assets and liabilities and the nature of the contingencies. Additionally, these changes require acquisition-related costs to be expensed in the period in which the costs are incurred and the services are received instead of including such costs as part of the acquisition price. We have not engaged in any significant acquisitions since this new guidance was issued, so there has been no impact to our consolidated financial statements.
On January 1, 2009, we adopted changes issued by the FASB to accounting for intangible assets. These changes amend the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset in order to improve the consistency between the useful life of a recognized intangible asset outside of a business combination and the period of expected cash flows used to measure the fair value of an intangible asset in a business combination. The adoption of these changes did not have a material impact on our consolidated results of operations, financial position or cash flows, and the required disclosures regarding our intangible assets are included herein.
EMERGENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
On January 1, 2009, we adopted changes issued by the FASB to consolidation accounting and reporting that establish accounting and reporting for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. This guidance defines a non-controlling interest, previously called a minority interest, as the portion of equity in a subsidiary not attributable, directly or indirectly, to a parent. These changes require, among other items, that a non-controlling interest be included in the consolidated balance sheet within equity separate from the parent’s equity; consolidated net income to be reported at amounts inclusive of both the parent’s and non-controlling interest’s shares and, separately, the amounts of consolidated net income attributable to the parent and non-controlling interest all in the consolidated statement of operations; and if a subsidiary is deconsolidated, any retained non-controlling equity investment in the former subsidiary be measured at fair value and a gain or loss be recognized in net income based on such fair value. The adoption of these changes had no impact on our consolidated financial statements.
On January 1, 2009, we adopted changes issued by the FASB to fair value accounting and reporting as it relates to nonfinancial assets and nonfinancial liabilities that are not recognized or disclosed at fair value in the consolidated financial statements on at least an annual basis. These changes define fair value, establish a framework for measuring fair value in GAAP, and expand disclosures about fair value measurements. This guidance applies to other GAAP that require or permit fair value measurements and is to be applied prospectively with limited exceptions. The adoption of these changes, as it relates to nonfinancial assets and nonfinancial liabilities, had no impact on our consolidated financial statements. These provisions will be applied at such time a fair value measurement of a nonfinancial asset or nonfinancial liability is required, which may result in a fair value that is materially different than would have been calculated prior to the adoption of these changes.
NOTE 3- INVENTORY
Inventory consists of the following:
EMERGENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
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, 2009, PRI Medical holds interests in seven active LLCs located in California and New York. We previously held interests in thirteen LLCs; however, during the second half of 2009, we ceased operations in six LLCs and began the wind-down and dissolution process. We purchased the assets, primarily representing a customer list, from one such LLC for $88,288. The purchase price is due in two equal installments the first of which was paid in November 2009 with the second installment due in early 2010. In addition, during 2009 we helped to form two 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, 2009 and 2008, in accordance with guidance issued by the FASB, the Company accounted for its equity investments in LLCs in which it holds a non-controlling interest under the full consolidation method whereby transactions between the Company and LLCs have been eliminated through consolidation.
The changes in non-controlling interests for the years ended December 31, 2009 and 2008 are as follows:
EMERGENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
The historical cost value and net book value of property and equipment under lease financing at December 31, 2009 is $8,826,608 and $4,606,435, respectively, and $7,576,999 and $5,018,181, respectively, as of December 31, 2008.
Depreciation and amortization expense for property and equipment was $2,116,581 and $1,630,970 for the years ended December 31, 2009 and 2008, 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 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 December 31, 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 December 31, 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 December 31, 2009 the Company was in compliance with terms of this loan agreement.
The Company incurred total net interest expense of $338,607 and $295,935 for the years ended December 31, 2009 and 2008, respectively, under its various lease obligations.
EMERGENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
NOTE 7 - ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consists of the following:
During 2009, the Company purchased certain assets, primarily representing a customer list, from the third party members one LLC for which the Company serves as its Managing Member. The purchase price of $88,288 is due in two equal installments, the first of which was paid in November 2009 with the second installment due in early 2010. The net balance due of $40,788 is included in accrued expenses and other liabilities in the accompanying balance sheet as of December 31, 2009.
NOTE 8 - 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 $12,912, including reimbursements for common area expenses, tenant improvement costs, property taxes and insurance. Base rent is subject to an annual increase of 4%. Total base rent expense incurred for the years ended December 31, 2009 and 2008 was $134,300 and $128,176, 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 9,300 square feet. Total rent expense incurred for these facilities was $110,617 and $74,844 for the years ended December 31, 2009 and 2008, respectively.
The Company leases certain of its vehicles under various operating and financing leases. The operating leases are scheduled to expire on various dates through June 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, 2009 and 2008 was $170,727 and $146,162, respectively.
At December 31, 2009 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 provide for interest at rates between 5.8% and 10.2% per annum. The monthly capital lease payments range between $917 and $46,378 and terminate through November 2014.
EMERGENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
Future minimum lease payments under operating and capital leases at December 31, 2009 are as follows:
Litigation
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. The previously outstanding proceeding, 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”) was settled on December 7, 2009 with the Company agreeing to pay $15,000 in exchange for a settlement of all actions against the Emergent Group.
NOTE 9 - SHAREHOLDERS' EQUITY
Common Stock
During the year ended December 31, 2009, the Company completed the following transactions:
·
On April 1, 2009, the Company’s Board of Directors approved the issuance of 53,500 shares of restricted common stock to our executive officers and directors, subject to vesting in five equal annual installments commencing in April 2010 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 2009, Warrants to purchase a total of 97,940 shares of Common Stock were exercised with the issuance of 42,663 shares on a cashless basis and warrants to purchase 44,118 shares were issued for cash. The Company received cash proceeds of $77,207 in connection with the exercise of such Warrants.
·
In connection with a preexisting agreement, the Company repurchased 27,942 shares from a former employee in connection with their separation from Company. Such shares were originally issued in connection with the Company’s private placement of common stock in 2008. In addition, we cancelled 16,765 Warrants to purchase common stock in connection
with the repurchase of such shares.
·
The Company cancelled 29,412 unvested shares of restricted Common Stock as a result of employee terminations.
EMERGENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
·
During 2009, we granted 40,000 stock options to purchase common to various employees of the Company, subject to vesting in five equal annual installments commencing December 2010 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 2009 an aggregate of 64,128 employee stock options were exercised, primarily utilizing the cashless exercise provision in the plan, in exchange for 61,615 shares of common stock.
·
In December 2009 the Company’s Board of Directors declared a cash dividend of $0.40 per share to our common shareholders of record on December 23, 2009, which was paid on January 13, 2010.
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, 2009, 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, 2009 and 2008, the Company issued to employees options to purchase 40,000 and 35,000 shares of common stock under the 2002 Plan. The options granted in 2009 and 2008 have a 10-year term and are exercisable at prices ranging from $2.15 to $6.95 per share, respectively. Generally, one-fifth of each issuance vests over five consecutive years. During 2009 and 2008, options to purchase 6,546 and 245 shares, respectively, expired and/or were cancelled due to employee terminations.
On May 5, 2009, the Board approved establishing an Employee Benefit and Compensation Plan (the"2009 Plan") covering 300,000 shares with an effective date of June 29, 2009, the date of stockholder ratification of the 2009 Plan. Our 2002 Plan and 2009 Plan are substantially identical, except as to the number of shares covered by each respective plan and the 2009 Plan permits issuance of incentive stock options. No stock options have been issued under our 2009 Plan.
EMERGENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
Compensation costs related to stock options for the years ended December 31, 2009 and 2008 were $24,140 and $12,459, respectively. In addition, during 2009 we issued 53,500 restricted award shares under the 2002 Plan, as discussed herein. As of December 31, 2009, the number of shares reserved for future options and restricted award shares was 105,457.
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.
A summary of the Company's outstanding options and activity is as follows:
The weighted-average remaining contractual life of the options outstanding at December 31, 2009 is 4.83 years. The intrinsic value of stock options exercised during 2009 and 2008 was $435,474 and $82,267, respectively. In addition, the intrinsic value of options exercisable at December 31, 2009 was $1,291,712.
The exercise prices for the options outstanding at December 31, 2009 ranged from $0.40 to $51.00, and information relating to these options is as follows:
EMERGENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
As of December 31, 2009, the total unrecognized fair value compensation cost related to unvested stock options was $46,660, which is to be recognized over a remaining weighted average period of approximately 3.41 years.
In December 2009, the Company granted 40,000 options to purchase common stock to various employees of the Company. The fair value of such options was $40,031, which was determined using the Black-Scholes option-pricing model with the following assumptions: dividend yields of 5.2% to 9.4%, expected volatility of 36% to 45%, risk-free interest rates of 2.9% to 3.5% 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, 2009 we have 379,997 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 29,412 and 3,000 restricted shares in 2009 and 2008, respectively, 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 $205,848 and $145,080 for the years ended December 31, 2009 and 2008, respectively. Information relating to non-vested restricted award shares is as follows:
EMERGENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
NOTE 10 - INCOME TAXES
The components of the income tax provision (benefit) for the years ended December 31, 2009 and 2008 are as follows:
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, 2009 and 2008:
The tax effects of temporary differences that give rise to deferred income taxes at December 31, 2009 and 2008 are as follows:
As of December 31, 2008, we reversed $1,331,512 of our valuation allowance on deferred tax assets relating to prior year net operating losses. As required by guidance issued by the FASB, 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, 2009, the Company had approximately $3.4 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 2023. Because of statutory ownership changes, the amount of operating loss carryforwards which may be utilized in future years is subject to significant limitations.
EMERGENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
The Company follows guidance issued by the FASB with regard to its accounting for uncertainty in income taxes recognized in the financial statements. Such guidance 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. Our policy is to include interest and penalties related to unrecognized tax benefits in income tax expense. Interest and penalties totaled $-0- for the years ended December 31, 2009 and 2008, respectively. 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 2004, and by the IRS for years through 2005. 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 guidance issued by the FASB did not result in a material impact on the Company’s financial position or results of operations.
NOTE 11 - 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, 2009 and 2008, the Company provided matching contributions to the plan of $14,845 and $13,746, respectively.
NOTE 12 - RELATED PARTY TRANSACTIONS
The Company incurred reimbursable expenses of $35,866 and $35,792 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, 2009 and 2008, 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, 2009 and 2008, respectively. In addition, BJH earned incentive compensation for the year ended December 31, 2009 and 2008 of $385,000 and $223,095, respectively. The Company reimbursed Mr. Haber for business expenses in the amounts of $58,330 and $58,711 for the years ended December 31, 2009 and 2008, respectively.
EMERGENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
NOTE 13 - 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 below, 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 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.
Our acquisition of the Services Division in August 2008 has impacted our operating results for the year ended December 31, 2009 compared to the same period last year as discussed below.
EMERGENT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
Unaudited Pro Forma Results of Operations for the Year Ended December 31, 2008
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.
The unaudited pro forma condensed results of operations for 2008 includes 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 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 2008.
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 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.
Item 9.
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, 2009. There were no significant changes in our internal control over financial reporting during the year ended December 31, 2009 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, 2009.
Item 9.B. Other Information.
Not Applicable.
PART III
Item 10.
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.
__________________
(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.
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 President 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 served 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 Committee and as a 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 has 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); and Myers Industries, Inc. (Lincoln, Illinois); and the advisory board of Trail Blazers Camps, Inc. (New York, New York) a 100 year old social service organization with a year round educational program for disadvantaged children from the Metropolitan New York - New Jersey area.
Independent Directors
Except for Bruce J. Haber, our Chief Executive Officer, each Board member of Emergent is considered by the Board to be an Independent Director as defined in Section 803-A of the AMEX Company guide and under Rule 10-A.3 of the Exchange Act. See "Audit Committee".
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 2010 and approved the 2009 bonuses to the executive officers, the extension of Mr. Buther’s employment contract for an additional one year period through June 30, 2011 and extended the Service Agreement with BJH Management LLC, a corporation which provides the services of Bruce J. Haber to us as Chief Executive Officer, for an additional three-year period.
Compensation Committee Interlocks and Insider Participants
Howard Waltman, Chairman, and K. Deane Reade, Jr. served as members of the Compensation Committee for fiscal 2009. Mark Waldron, a former employee of the Company who served as Chief Executive Officer and President of the Company between August 2000 and January 2003, became a member of the Compensation Committee in November 2008. Except with respect to the foregoing, none of the members of the Compensation Committee have served as an officer or employee of the Company or had any relationship requiring disclosure under Item 404 of Regulation S-K of the Exchange Act.
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:
(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.
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 was filed as Exhibit 10.21 to our Form 10-K for the fiscal year ended December 31, 2008.
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.
·
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:
·
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 was filed as Exhibit 14.1 to our Form 10-K for the fiscal year ended December 31, 2008. 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 2009, none of our officers, directors or 10% or greater stockholders filed any forms late to the best of our knowledge.
Item 11.
Item 11. Executive Compensation.
Summary Compensation Table
The following table sets forth the overall compensation earned over the fiscal years ended December 31, 2009 and 2008 by (1) each person who served as the principal executive officer of the Company during fiscal year 2009; (2) the Company’s two most highly compensated executive officers as of December 31, 2009 with compensation during fiscal year 2009 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, 2009.
(1)
The options and restricted stock awards presented in this table for 2009 and 2008 reflects the entire amount to be expensed over the service period as if the total dollar amount were earned in the year of grant. However, the accompanying financial statements reflect the dollar amount expensed by the company during applicable fiscal year for financial statement reporting purposes pursuant to guidance issued by the FASB. Such guidance 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 of the guidance issued by the FASB 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.
(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 April 1, 2009, Messrs Haber, Buther and McKay were granted restricted stock award shares of 17,500, 11,000 and 3,000, respectively, which vest in equal installments over five years. The market price per share of $6.79 was used to determine the related compensation expense, which is being amortized over the five year vesting period. The restricted stock awards of 17,500 shares, 11,000 shares and 3,000 were valued at $118,825, $74,690 and $20,370, respectively. In addition, 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.
(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)
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 2009 to Messrs. Haber, Buther and McKay on the unvested portion of the restricted stock available was $32,600, $20,400 and $8,000, respectively. 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. These amounts are included in the above table under all other compensation.
(8)
All other compensation includes company-paid medical and dental benefits for Messrs. Haber, Buther and McKay of $14,456 and $15,479; $13,011; $-0-, and $12,059 and $14,835 for 2009 and 2008, respectively, which benefit is not available to all employees.
(9)
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 $907,500) 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 2009 or 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, 2009.
___________
(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 $7.20 per share for our common stock on December 31, 2009.
(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 April 1, 2009, Messer’s Haber, Buther and McKay were granted restricted stock awards of 17,500, 11,000 and 3,000, respectively. 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 one year from the date of grant 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 30,000 options exercised, to purchase 100,000 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 9 to the Summary Compensation Table and in “Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
As of March 22, 2010, the Company had outstanding 6,822,363 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.
_______________
(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 warrants owned by him to purchase 37,500 shares. This table excludes securities owned by members of his family in the name of THW Group LLC, which he disclaims beneficial ownership.]
(4)
Includes options to purchase 100,000 shares.
(5)
Mr. Bruce J. Haber directly owns 315,017 shares of the Company’s Common Stock. Mr. Haber, is the trustee over a family trust which beneficially owns an aggregate of 1,150,519 shares. Also included in the table are 199,186 shares owned by his wife as trustee for Mr. Haber's daughter, which shares he disclaims beneficial ownership. Mr. Haber also holds irrevocable proxies to vote an aggregate of up to 247,750 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 21,177 shares.
(7)
See footnotes (2) through (6) above.
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 22, 2010 and relates to our 2009 Stock Option Plan pursuant to which we may grant options to purchase our common stock:
The following summary information is as of March 22, 2010 and relates to our 2002 Stock Option Plan pursuant to which we have granted options to purchase our common stock:
____________________
(1)
Based upon 215,907 options exercisable at $0.40 per share, 29,000 at $2.15, 12,000 at $3.05, 15,500 at $4.65, and 14,500 at $6.79 and 2,000 options exercisable at $8.00 per share.
The following summary information is as of March 22, 2010 and relates to our 2001 Stock Option Plan pursuant to which we have granted options to purchase our common stock:
____________________
(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.
The following summary information is as of March 1, 2010 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:
____________________
(1)
The Board of Directors of Emergent does not intend to grant additional options under the old PRI Medical Plans.
Item 13.
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 $907,500) 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), 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, 8, 9, 12 and 13 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-K.
Director Independence
For a description of the definition of “independent director,” “financial expert,” and management’s identification of independent directors, see “Item 10.”
Item 14.
Item 14. Principal Accountant Fees and Services.
Audit Fees
For the fiscal year ended December 31, 2009 and 2008, 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 $103,650 and $108,200, respectively.
Financial Information Systems Design and Implementation Fees
For the fiscal years ended December 31, 2009 and 2008, 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, 2009 and 2008, there were $41,940 and $25,650 fees paid or billed for preparation of corporate tax returns and other miscellaneous services.
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.
Part IV
Item 15.
Item 15. Exhibits and Financial Statement Schedules
(a) Financial Statements
The following documents are filed under “Item 8. Financial Statements and Supplementary Data,” pages through, and are included as part of this Form 10-K as the financial statements of the Company for the years ended December 31, 2009 and 2008:
Reports of Independent Registered Public Accounting Firms
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statement of Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(b) Exhibits
Exhibit Number
Description
2.2
Agreement to transfer equity dated August 10, 2000. (2)
3.2
Amendment to Articles of Incorporation. (4)
3.4
By-laws of Registrant. (4)
10.2
Stock Issuance Agreement dated December 30, 2002 with BJH Management LLC. (3)
10.4
Employment Agreement dated December 30, 2002 with Louis Buther. (3)
10.6
Consulting Agreement dated February3, 2003 - Richard Whitman (6)
10.8
Asset Purchase Agreement - Advantage Medical Services, LLC and Non-Competitive, Non-disclosure and Non-Solicitation Agreement (10)
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)
10.12
May 2005 Amendment of Employment Contract of Louis Buther (11)
10.14
July 1, 2006 Amendment to Employment Contract of Louis Buther (14)
10.16
Amendment to Exhibit 10.13 (12)
10.18
Credit Agreement with City National Bank effective June 23, 2008 (16)
10.20
Amendment to City National Bank Line of Credit (18)
10.22
Second Amendment to Credit Agreement (15)
10.24
Amendment to Louis Buther Employment Agreement dated March 4, 2010 (20)
14.1
Code of Ethics (15)
23.1
Consent of Rose, Snyder & Jacobs in connection with Form S-8 Registration Statement (20)
31.2
Rule 13a-14(a) Certification - Chief Financial Officer (20)
32.2
Section 1350 Certification - Chief Financial Officer (20)
99.2
2001 Stock Option Plan (4)
99.4
2009 Employee Benefit and consulting Services Compensation Plan (19)
_________
(1)
Filed as an exhibit to the Registrant's Current Report on Form 8-K, dated January 29, 2001, and incorporated herein by reference.
(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.
(5)
Left Blank Intentionally
(6)
Incorporated by reference to the Registrant’s Form 10-K for its fiscal year ended December 31, 2002.
(7)
Left Blank Intentionally
(8)
Left Blank Intentionally
(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)
Incorporated by reference to the Registrant’s Form 10-Q for its quarter ended September 30, 2009
(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.
(19)
Incorporated by reference to Exhibit B included in the Registrant's definitive (14A) Proxy Statement filed with the SEC on May 8, 2009.
(20)
Filed herewith
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.
Dated: New Rochelle, New York
March 23, 2010
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:
Bruce J. Haber, Mark Waldron, Howard Waltman and K. Deane Reade, Jr. represent all the current members of the Board of Directors.