UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
  FORM
10-Q
  (Mark
One)
   x
              QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For the quarterly
      period  ended June
      30, 2009o
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the Transition period from __________ to
  ____________
  Commission File No. 33-55254-38
 General
Environmental Management, Inc.
 (Exact
name of Small Business Issuer as specified in its charter)
  NEVADA
                  
                  87-0485313(State
      or other jurisdiction of incorporation or organization)
                  
                  (I.R.S.
      Employer Identification
Number)
  3191
      Temple Ave., Suite 250, Pomona CA
                      
                      91768(Address
      of principal executive offices)
                      
                      Zip
      Code
  Issuer’s
      telephone number, including area code (909)
      444-9500
  Indicate
by check mark whether the Issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Issuer was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.
 xYes  oNo
  Indicate
by check mark whether the registrant has submitted electronically and posted on
it corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulations S-T ($232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
 o Yes x No
  Indicate
by check mark whether the registrant is a large accelerated filer, a non-
accelerated filer, or a smaller reporting company.  See the
definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
  Large
      accelerated filer    o
                Accelerated
      filer    oNon-accelerated
      filer      o  (Do
      not check if a smaller reporting company)
                Smaller
      reporting company x
  Indicate
by check mark whether the registrant is a shell company ( as defined in Rule
12b-2 of the Exchange Act).  o
Yes   x No
  APPLICABLE
ONLY TO CORPORATE ISSUERS
  State the
number of shares outstanding of each of the issuer’s classes of common equity,
as of the latest practical date.  As of August 19, 2009, there were
14,632,653 shares of the issuer’s $.001 par value common stock issued and
outstanding.
  1
  GENERAL
ENVIRONMENTAL MANAGEMENT, INC.
 QUARTERLY
REPORT ON FORM 10-Q
 FOR
THE SIX MONTHS ENDED JUNE 30, 2009
  TABLE
OF CONTENTS
  PagePart
      1
                      Financial
      Information
                      3Item
      1
                      Financial
      Statements (Unaudited)
                      3Condensed
      Consolidated Balance Sheets  as of  June 30, 2009
      (Unaudited)and
      December 31, 2008
                      3Condensed
      Unaudited Consolidated Statements of Operations for the Three
      Months  and Six Months ended June 30, 2009 and
    2008
                      5Condensed
      Unaudited Consolidated Statement of Stockholders’ Deficiency for the
      Six   Months Ended June 30, 2009
                      6Condensed
      Unaudited Consolidated Statements of Cash Flows for the Six Months Ended
      June 30, 2009 and 2008
                      7Notes
      to the Unaudited Condensed Consolidated Financial
    Statements
                      9Item
      2
                      Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operation
                      30Item
      3
                      Quantitative
      and Qualitative Disclosures About Market Risk
                      38Item
      4
                      Controls
      and Procedures
                      38Part
      II
                      Other
      Information
                      39Item
      1
                      Legal
      Proceedings
                      39Item
      1A
                      Risk
      Factors
                      39Item
      2
                      Unregistered
      Sales of Equity Securities and Use of Proceeds
                      39Item
      3
                      Defaults
      Upon Senior Securities
                      39Item
      4
                      Submission
      of Matters to a Vote of Security Holders
                      39Item
      5
                      Other
      Information
                      39Item
      6
                      Exhibits
      and Reports on Form 8K
                      39Signatures
                      40CEO
      Certification
                      AttachedCFO
      Certification
                      Attached
  2
  PART
1 - FINANCIAL INFORMATION
  Item
1.  Financial Statements.
  GENERAL
ENVIRONMENTAL MANAGEMENT, INC. AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED BALANCE SHEETS
   June
      30,
                  
                  
                  December
      31,2009
                  
                  
                  2008(Unaudited)ASSETSCURRENT
      ASSETS:Cash
                  
                  $
                  84,875
                  
                  
                  $
                  375,983Accounts
      receivable, net of allowance for doubtful accounts of $172,896 and
      $174,834, respectively
                  
                  
                  4,569,540
                  
                  
                  
                  6,729,743Prepaid
      expenses and other current assets
                  
                  
                  628,564
                  
                  
                  
                  537,289Total
      Current Assets
                  
                  
                  5,282,979
                  
                  
                  
                  7,643,015Property
      and Equipment – net of accumulated depreciation $3,672,772 and
      $2,917,056,  respectively
                  
                  
                  9,648,660
                  
                  
                  
                  7,783,208Restricted
      cash
                  
                  
                  1,000,036
                  
                  
                  
                  1,199,784Intangible
      assets, net
                  
                  
                  783,172
                  
                  
                  
                  864,781Deferred
      financing fees
                  
                  
                  417,148
                  
                  
                  
                  513,412Deposits
                  
                  
                  351,246
                  
                  
                  
                  291,224Goodwill
                  
                  
                  946,119
                  
                  
                  
                  946,119TOTAL
      ASSETS
                  
                  $
                  18,429,360
                  
                  
                  $
                  19,241,543(Continued)
  3
  GENERAL
ENVIRONMENTAL MANAGEMENT, INC. AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED BALANCE SHEETS (Continued)
   June
      30,
                      
                      
                      December
      31,2009
                      
                      
                      2008(Unaudited)LIABILITIES
      AND STOCKHOLDERS’ DEFICIENCYCURRENT
      LIABILITIES:Accounts
      payable
                      
                      $
                      5,336,055
                      
                      
                      $
                      3,499,178Accrued
      expenses
                      
                      
                      2,182,020
                      
                      
                      
                      2,620,224Accrued
      disposal costs
                      
                      
                      538,444
                      
                      
                      
                      743,474Payable
      to related party
                      
                      
                      742,754
                      
                      
                      
                      706,868Deferred
      rent
                      
                      
                      47,627
                      
                      
                      
                      41,202Derivative
      liabilities
                      
                      
                      6,692,798
                      
                      
                      
                      -Current
      portion of financing agreement
                      
                      
                      1,736,255
                      
                      
                      
                      10,366,544Current
      portion of long term obligations
                      
                      
                      772,639
                      
                      
                      
                      794,278Current
      portion of capital lease obligations
                      
                      
                      1,033,087
                      
                      
                      
                      623,007Total
      Current Liabilities
                      
                      
                      19,081,679
                      
                      
                      
                      19,394,775LONG-TERM
      LIABILITIES :Financing
      agreement, net of current portion
                      
                      
                      6,459,025
                      
                      
                      
                      -Long
      term obligations, net of current portion
                      
                      
                      535,689
                      
                      
                      
                      535,689Capital
      lease obligations, net of current portion
                      
                      
                      3,373,833
                      
                      
                      
                      1,751,854Convertible
      notes payable
                      
                      
                      467,864
                      
                      
                      
                      489,605Total
      Long-Term  Liabilities
                      
                      
                      10,836,411
                      
                      
                      
                      2,777,148STOCKHOLDERS’
      DEFICIENCYCommon
      stock, $.001 par value, 1,000,000,000 shares authorized, 13,822,503 and
      12,691,409 shares issued and outstanding
                      
                      
                      13,824
                      
                      
                      
                      12,692Additional
      paid in capital
                      
                      
                      53,424,670
                      
                      
                      
                      53,585,035Accumulated
      deficit
                      
                      
                      (64,927,224
                      )
                      
                      
                      (56,528,107
                      )Total
      Stockholders' Deficiency
                      
                      
                      (11,488,730
                      )
                      
                      
                      (2,930,380
                      )TOTAL
      LIABILITIES AND STOCKHOLDERS’ DEFICIENCY
                      
                      $
                      18,429,360
                      
                      
                      $
                      19,241,543
 See accompanying notes to the condensed consolidated financial
statements.
  4
  GENERAL
ENVIRONMENTAL MANAGEMENT, INC. AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
 (UNAUDITED)
   Three
      months ended
                          
                          
                          Six months
      endedJune
      30, 2009
                          
                          
                          June
      30, 2008
                          
                          
                          June
      30, 2009
                          
                          
                          June
      30, 2008REVENUES
                          
                          $
                          6,803,372
                          
                          
                          $
                          9,406,585
                          
                          
                          $
                          15,005,242
                          
                          
                          $
                          16,358,238COST
      OF REVENUES
                          
                          
                          6,668,193
                          
                          
                          
                          7,822,370
                          
                          
                          
                          13,864,908
                          
                          
                          
                          13,467,714GROSS
      PROFIT
                          
                          
                          135,179
                          
                          
                          
                          1,584,215
                          
                          
                          
                          1,140,334
                          
                          
                          
                          2,890,524OPERATING
      EXPENSES
                          
                          
                          2,595,953
                          
                          
                          
                          1,956,313
                          
                          
                          
                          4,699,551
                          
                          
                          
                          3,805,927OPERATING
      LOSS
                          
                          
                          (2,460,774
                          )
                          
                          
                          (372,098
                          )
                          
                          
                          (3,559,217
                          )
                          
                          
                          (915,403
                          )OTHER
      INCOME (EXPENSE):Interest
      income
                          
                          
                          142
                          
                          
                          
                          2,795
                          
                          
                          
                          609
                          
                          
                          
                          9,812Interest
      and financing costs
                          
                          
                          (1,000,198
                          )
                          
                          
                          (844,711
                          )
                          
                          
                          (1,994,386
                          )
                          
                          
                          (1,661,319
                          )Gain
      on disposal of fixed assets
                          
                          
                          65,725
                          
                          
                          
                          -
                          
                          
                          
                          65,725
                          
                          
                          
                          -Loss
      on derivative financial instruments
                          
                          
                          (2,252,622
                          )
                          
                          
                          -
                          
                          
                          
                          (1,700,110
                          )
                          
                          
                          -Loss
      on extinguishment of debt
                          
                          
                          (2,187,351
                          )
                          
                          
                          -
                          
                          
                          
                          (2,187,351
                          )
                          
                          
                          -Other
      non-operating income
                          
                          
                          10,923
                          
                          
                          
                          9,030
                          
                          
                          
                          19,340
                          
                          
                          
                          16,693Net
      Loss
                          
                          $
                          (7,824,155
                          )
                          
                          $
                          (1,204,984
                          )
                          
                          $
                          (9,355,390
                          )
                          
                          $
                          (2,550,217
                          )Net
      loss per common share, basic and diluted
                          
                          $
                          (.60
                          )
                          
                          $
                          (.10
                          )
                          
                          $
                          (.73
                          )
                          
                          $
                          (.20
                          )Weighted
      average shares of common stockoutstanding,
      basic and diluted
                          
                          
                          13,053,274
                          
                          
                          
                          12,473,885
                          
                          
                          
                          12,873,347
                          
                          
                          
                          12,473,885
   See
accompanying notes to the condensed consolidated financial
statements
  5
  GENERAL
ENVIRONMENTAL MANAGEMENT, INC. AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIENCY (UNAUDITED)
 FOR
THE SIX MONTHS ENDED JUNE 30, 2009
   AdditionalCommon
      Stock
                                
                                
                                Paid-in
                                
                                
                                AccumulatedShares
                                
                                
                                Amount
                                
                                
                                Capital
                                
                                
                                Deficit
                                
                                
                                TotalBalance,
      December  31, 2008
                                
                                
                                12,691,409
                                
                                
                                $
                                12,692
                                
                                
                                $
                                53,585,035
                                
                                
                                $
                                (56,528,107
                                )
                                
                                $
                                (2,930,380
                                )Cumulative
      effect of change in accounting principleJanuary
      1, 2009 reclassification of embedded featureof
      equity linked financial instruments to derivativeliabilities
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                (1,674,036
                                )
                                
                                
                                956,273
                                
                                
                                
                                (717,763
                                )Fair
      value of warrants issued for services
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                293,035
                                
                                
                                
                                
                                
                                
                                
                                293,035Stock
      compensation cost for value of vested options
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                453,075
                                
                                
                                
                                
                                
                                
                                
                                453,075Issuance
      of shares on exercise of  options
                                
                                
                                250
                                
                                
                                
                                
                                
                                
                                
                                187
                                
                                
                                
                                
                                
                                
                                
                                187Issuance
      of shares on exercise of warrants
                                
                                
                                6,250
                                
                                
                                
                                6
                                
                                
                                
                                3,744
                                
                                
                                
                                
                                
                                
                                
                                3,750Issuance
      of shares to related party on conversion of debt
                                
                                
                                524,594
                                
                                
                                
                                526
                                
                                
                                
                                314,230
                                
                                
                                
                                
                                
                                
                                
                                314,756Issuance
      of shares to secured lender
                                
                                
                                600,000
                                
                                
                                
                                600
                                
                                
                                
                                449,400
                                
                                
                                
                                
                                
                                
                                
                                450,000Net
      loss for  the six  months ended June
      30,  2009
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                (9,355,390
                                )
                                
                                
                                (9,355,390
                                )Balance,
      June 30,  2009
                                
                                
                                13,822,503
                                
                                
                                $
                                13,824
                                
                                
                                $
                                53,424,670
                                
                                
                                $
                                (64,927,224
                                )
                                
                                $
                                (11,488,730
                                )
   See
accompanying notes to the condensed consolidated financial
statements
  6
  GENERAL
ENVIRONMENTAL MANAGEMENT, INC. AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
 (UNAUDITED)
   Six Months
      EndedJune 30,2009
                            
                            
                            2008OPERATING
      ACTIVITIESNet
      Loss
                            
                            $
                            (9,355,390
                            )
                            
                            $
                            (2,550,217
                            )Adjustments
      to reconcile net loss to cash provided by(used
      in) operating activitiesDepreciation
      and amortization
                            
                            
                            837,325
                            
                            
                            
                            467,096Amortization
      of discount on financing agreement
                            
                            
                            908,543
                            
                            
                            
                            904,354Fair
      value of vested options
                            
                            
                            453,075
                            
                            
                            
                            427,135Issuance
      of warrants for services
                            
                            
                            293,035
                            
                            
                            
                            -Amortization
      of discount on notes
                            
                            
                            128,037
                            
                            
                            
                            -Amortization
      of deferred financing fees
                            
                            
                            96,264
                            
                            
                            
                            168,900Loss
      on derivative instruments
                            
                            
                            1,700,110
                            
                            
                            
                            -Loss
      on extinguishment of debt
                            
                            
                            2,187,351
                            
                            
                            
                            -Changes
      in assets and liabilities:Accounts
      Receivable
                            
                            
                            2,160,203
                            
                            
                            
                            (401,571
                            )Prepaid
      and other current assets
                            
                            
                            (91,276
                            )
                            
                            
                            (349,401
                            )Deposits
      and restricted cash
                            
                            
                            139,726
                            
                            
                            
                            (19,592
                            )Accounts
      Payable
                            
                            
                            1,836,877
                            
                            
                            
                            (1,021,093
                            )Accrued
      interest on related party notes
                            
                            
                            23,430
                            
                            
                            
                            16,001Accrued
      interest on convertible notes
                            
                            
                            15,759
                            
                            
                            
                            19,014Accrued
      expenses and other liabilities
                            
                            
                            (636,809
                            )
                            
                            
                            1,449,585NET
      CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
                            
                            
                            696,260
                            
                            
                            
                            (889,789
                            )INVESTING
      ACTIVITIESAdditions
      to property and equipment
                            
                            
                            (229,859
                            )
                            
                            
                            (201,959
                            )NET
      CASH USED IN INVESTING ACTIVITIES
                            
                            
                            (229,859
                            )
                            
                            
                            (201,959
                            )FINANCING
      ACTIVITIESNet
      advances from notes payable- financing agreement
                            
                            
                            (542,232
                            )
                            
                            
                            (118,177
                            )Advances
      from related parties
                            
                            
                            217,888
                            
                            
                            
                            -Proceeds
      from exercise of options and warrants
                            
                            
                            3,937
                            
                            
                            
                            -Issuance
      of notes payable to related party
                            
                            
                            -
                            
                            
                            
                            516,500Payment
      of notes payable
                            
                            
                            (21,639
                            )
                            
                            
                            (19,360
                            )Repayment
      of convertible notes
                            
                            
                            (37,500
                            )
                            
                            
                            (30,000
                            )Payment
      on capital leases
                            
                            
                            (377,963
                            )
                            
                            
                            (172,996
                            )NET
      CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
                            
                            
                            (757,509
                            )
                            
                            
                            175,967DECREASE  IN
      CASH AND CASH EQUIVALENTS
                            
                            
                            (291,108
                            )
                            
                            
                            (915,781
                            )Cash
      at beginning of period
                            
                            
                            375,983
                            
                            
                            
                            954,581CASH
      AT END OF PERIOD
                            
                            $
                            84,875
                            
                            
                            $
                            38,800SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:Cash
      paid for:Interest
      Expense
                            
                            $
                            768,486
                            
                            
                            $
                            558,112
   
 See
accompanying notes to the condensed consolidated financial
statements
  7
  GENERAL
ENVIRONMENTAL MANAGEMENT, INC. AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
 (UNAUDITED)
   Six Months
      EndedJune 30,2009
                      
                      
                      2008SUPPLEMENTAL
      DISCLOSURE OF NON – CASH INVESTING AND FINANCING
    ACTIVITIES:Acquisition
      of leased equipment and capital lease obligations
                      
                      $
                      2,391,309
                      
                      
                      $
                      1,096,458Issuance
      of common stock to related party for conversion of
    liabilities
                      
                      
                      314,756
                      
                      
                      
                      -Issuance
      of common stock to related party for extension of debt
                      
                      
                      -
                      
                      
                      
                      220,000Fair
      value of warrants and valuation discount after
modification
                      
                      
                      5,165,720
                      
                      
                      
                      -Fair
      value of warrants issued to related party for extension of
      debt
                      
                      
                      -
                      
                      
                      
                      222,500Cumulative
      effect of adoption of accounting principle and
    establishmentof
      derivative liability on:Notes
      payable
                      
                      
                      1,408,828
                      
                      
                      
                      -Stockholders’
      deficiency
                      
                      
                      717,763
                      
                      
                      
                      -
   See
accompanying notes to the condensed consolidated financial
statements
  8
  GENERAL
ENVIRONMENTAL MANAGEMENT, INC AND SUBSIDIARIES
 NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008 (UNAUDITED)
   1. ORGANIZATION
AND PRINCIPAL ACTIVITIES
  ORGANIZATION
AND DESCRIPTION OF BUSINESS
  Ultronics
Corporation  ( “the Company”)  was incorporated in the state
of Nevada on March 14, 1990 to serve as a vehicle to effect a merger, exchange
of capital stock, asset acquisition or other business combination with a
domestic or foreign private business.  On February 14, 2005 the
Company acquired all of the outstanding shares of General Environmental
Management, Inc (“GEM”), a Delaware Corporation.  The acquisition was
accounted for as a reverse merger (recapitalization) with GEM deemed to be the
accounting acquirer, and Ultronics Corporation the legal
acquirer.  Subsequent to the acquisition, the Company changed its name
to General Environmental Management, Inc.
  GEM is a
fully integrated environmental service firm structured to provide EHS compliance
services, field services, transportation, off-site treatment, and on-site
treatment services.  Through its services GEM assists clients in
meeting regulatory requirements for the disposal of hazardous and non-hazardous
waste.
  BASIS OF
PRESENTATION
  The
condensed consolidated interim financial statements included herein have been
prepared by the Company, pursuant to the rules and regulations of the Securities
and Exchange Commission, in the opinion of management, include all adjustments
which, except, as described elsewhere herein, are of a normal recurring nature,
necessary for a fair presentation of the financial position, results of
operations, and cash flows for the period presented. The financial statements
presented herein should be read in conjunction with the financial statements
included in the Company’s Annual Report on Form 10-K for the year ended December
31, 2008 filed with the Securities and Exchange Commission.
  The
results for the interim periods are not necessarily indicative of results for
the entire year.
  GOING
CONCERN
  The  accompanying
condensed consolidated financial statements have been prepared assuming the
Company will continue as a going concern. The Company incurred a net loss of
$9,355,390 during the six months  ended June 30, 2009, and as of June
30, 2009  the Company had current liabilities exceeding current assets
by $13,798,700 and had a stockholders’ deficiency of $11,488,730. These matters
raise substantial doubt about the Company’s ability to continue as a going
concern.
  Management
is continuing to raise capital through the issuance of debt and equity. In
addition, management believes that the Company will begin to operate profitably
due to increased size, improved operational results and cost cutting practices.
However, there can be no assurances that the Company will be successful in this
regard or will be able to eliminate its working capital deficit or operating
losses. The accompanying condensed consolidated financial statements do not
contain any adjustments which may be required as a result of this
uncertainty.
  9
  2. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
   (a)  Principles
of Consolidation
  The
consolidated financial statements include the accounts of General Environmental
Management, Inc., a Nevada corporation, and its wholly owned subsidiaries,
General Environmental Management, Inc., a Delaware corporation, GEM Mobile
Treatment Services, Inc., a California corporation, Island Environmental
Services, Inc., a California corporation and General Environmental Management of
Rancho Cordova, LLC. Inter-company accounts and transactions have been
eliminated.
  (b)  Use
of estimates
  The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires the Company’s
management to make certain estimates and assumptions.  These estimates
and assumptions affect the reported amounts of assets and liabilities and
disclosure of the contingent assets and liabilities at the date of the financial
statements.  These estimates and assumptions will also affect the
reported amounts of certain revenues and expenses during the reporting
period.  Actual results could differ materially based on any changes
in the estimates and assumptions that the Company uses in the preparation of its
financial statements that are reviewed no less than annually.  Actual
results could differ materially from these estimates and assumptions due to
changes in environmental-related regulations or future operational plans, and
the inherent imprecision associated with estimating such future
matters.
  (c)
Revenue Recognition
  The
Company recognizes revenue when persuasive evidence of an arrangement exists,
delivery has occurred or services have been rendered, the price is fixed or
determinable, and collection is reasonably assured.
  The
Company is a fully integrated environmental service firm structured to provide
field services, technical services, transportation, off-site treatment, on-site
treatment services, and environmental health and safety (“EHS”) compliance
services.  Through our services, we assist clients in meeting
regulatory requirements from the designing stage to the waste disposition stage.
The technicians who provide these services are billed at negotiated rates, or
the service is bundled into a service package.  These services are
billed and revenue recognized when the service is performed and completed. When
the service is billed, client costs are accumulated and accrued.
  Our field
services consist primarily of handling, packaging, and transporting a wide
variety of liquid and solid wastes of varying amounts. We provide the fully
trained labor and materials to properly package hazardous and non-hazardous
waste according to requirements of the Environmental Protection Agency and the
Department of Transportation. Small quantities of laboratory chemicals are
segregated according to hazard class and packaged into appropriate containers or
drums. Packaged waste is profiled for acceptance at a client’s selected
treatment, storage and disposal facility (TSDF) and tracked electronically
through our systems. Once approved by the TSDF, we provide for the
transportation of the waste utilizing tractor-trailers or bobtail trucks. The
time between picking up the waste and transfer to an approved TSDF is usually
less than 10 days.  The Company recognizes revenue for waste picked up
and received waste at the time pick up or receipt occurs and recognizes the
estimated cost of disposal in the same period. For the Company’s TSDF located in
Rancho Cordova, CA, costs to dispose of waste materials located at the Company’s
facilities are included in accrued disposal costs.  Due to the limited
size of the facility, waste is held for only a short time before transfer to a
final treatment, disposal or recycling facility.
  10
  (d)
Concentrations of Credit Risks
  The
Company’s financial instruments that are exposed to concentrations of credit
risk consist principally of cash and trade receivables.  The Company
places its cash in what it believes to be credit-worthy financial
institutions.  However, cash balances have exceeded FDIC insured
levels at various times.  The Company has not experienced any losses
in such accounts and believes it is not exposed to any significant risk in
cash.
  The
Company’s trade receivables result primarily from removal or transportation of
waste, and the concentration of credit risk is limited to a broad customer base
located throughout the Western United States.
  During
the six months ended June 30, 2009 and 2008, one customer accounted for 9% and
15% of revenues, respectively. During the three months ended June 30, 2009 and
2008, one customer accounted for 9% and 16% of revenue. As of  June
30, 2009 and December 31, 2008 there was one customer that accounted for 6% and
5% of accounts receivable, respectively.
  (e) Fair
Value of Financial Instruments
  Fair
Value Measurements are determined by the Company's adoption of Statement of
Financial Accounting Standards ("SFAS") No. 157, Fair Value Measurements ("SFAS
157") as of January 6, 2008, with the exception of the application of the
statement to non-recurring, non-financial assets and liabilities as permitted.
The adoption of SFAS 157 did not have a material impact on the Company's fair
value measurements. SFAS 157 defines fair value as the price that would be
received to sell an asset or paid to transfer a liability in the principal or
most advantageous market for the asset or liability in an orderly transaction
between market participants at the measurement date. SFAS 157 establishes a fair
value hierarchy, which prioritizes the inputs used in measuring fair value into
three broad levels as follows:
  Level 1-
Quoted prices in active markets for identical assets or
liabilities.
 Level 2-
Inputs, other than the quoted prices in active markets, that are observable
either directly or indirectly.
 Level 3-
Unobservable inputs based on the Company's assumptions.
  SFAS 157
requires the use of observable market data if such data is available without
undue cost and effort.
  The
following table presents certain investments and liabilities of the Company’s
financial assets measured and recorded at fair value on the Company’s condensed
consolidated balance sheets on a recurring basis and their level within the fair
value hierarchy as of June 30, 2009 (unaudited):
  Level
      1
                    
                    
                    Level
      2
                    
                    
                    Level
      3
                    
                    
                    TotalFair
      value of warrants and embedded derivatives
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    $
                    6,692,798
                    
                    
                    $
                    6,692,798
  See
Notes 7 and 11 for more information on these financial
instruments.
  11
 
  (f)  Derivative
Financial Instruments
 The
Company does not use derivative instruments to hedge exposures to cash flow,
market or foreign currency risks. The Company evaluates all of its financial
instruments to determine if such instruments are derivatives or contain features
that qualify as embedded derivatives. For derivative financial instruments that
are accounted for as liabilities, the derivative instrument is initially
recorded at its fair value and is then re-valued at each reporting date, with
changes in the fair value reported in the condensed consolidated statements of
operations.  For stock-based derivative financial instruments, the
Company uses the Black-Scholes option pricing model to value the derivative
instruments at inception and on subsequent valuation dates.  The
classification of derivative instruments, including whether such instruments
should be recorded as liabilities or as equity, is evaluated at the end of each
reporting period.  Derivative instrument liabilities are classified in
the balance sheet as current or non-current based on whether or not net-cash
settlement of the derivative instrument could be required within 12 months of
the balance sheet date.
  (g) Stock
Compensation Costs
  The
Company periodically issues stock options and warrants to employees and
non-employees in non-capital raising transactions for services and for financing
costs. The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 123R effective January 1, 2006, and is using the modified prospective method
in which compensation cost is recognized beginning with the effective date (a)
based on the requirements of SFAS No. 123R for all share-based payments granted
after the effective date and (b) based on the requirements of SFAS No. 123R for
all awards granted to employees prior to the effective date of SFAS No. 123R
that remained unvested on the effective date. The Company accounts for stock
option and warrant grants issued and vesting to non-employees in accordance with
EITF No. 96-18: "Accounting for Equity Instruments that are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services” and
EITF No. 00-18: “Accounting Recognition for Certain Transactions involving
Equity Instruments Granted to Other Than Employees” whereas the value of the
stock compensation is based upon the measurement date as determined at either a)
the date at which a performance commitment is reached, or b) at the date at
which the necessary performance to earn the equity instruments is
complete.
  (h) Net
Loss per Share
  Statement
of Financial Accounting Standards No. 128, "Earnings per Share", requires
presentation of basic earnings per share ("Basic EPS") and diluted earnings per
share ("Diluted EPS").  Basic income (loss) per share is computed by
dividing income (loss) available to common stockholders by the weighted average
number of common shares outstanding during the period.  Diluted
earnings per share gives effect to all dilutive potential common shares
outstanding during the period.
  These
potentially dilutive securities were not included in the calculation of loss per
share for the three months and six months ended June 30, 2009 and 2008 because
the Company incurred a loss during such periods and thus their effect would have
been anti-dilutive.  Accordingly, basic and diluted loss per share is
the same for the three and six months ended June 30, 2009 and 2008.
  At June
30, 2009 and 2008, potentially dilutive securities consisted of convertible
securities, outstanding common stock purchase warrants and stock options to
acquire an aggregate of 22,467,687 shares and 11,853,566 shares,
respectively.
  12
  (i)
Recent Accounting Pronouncements
  In
December 2007, Financial Accounting Standards Board (FASB) Statement 141R,
“Business Combinations (revised 2007)” (SFAS 141R”) was issued.  SFAS
141R replaces SFAS 141 “Business Combinations”.  SFAS 141R requires
the acquirer of a business to recognize and measure the identifiable assets
acquired, the liabilities assumed, and any non-controlling interest in the
acquiree at fair value. SFAS 141R also requires transactions costs related to
the business combination to be expensed as incurred. SFAS 141R applies
prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008.  The effective date, as well as the adoption date
for the Company was January 1, 2009.  Although SFAS 141R may impact
our reporting in future financial periods, we have determined that the standard
did not have any impact on our historical consolidated financial statements at
the time of adoption.
  In April
2008 the FASB issued FASB Staff Position (“FSP”) No. 142-3, “Determination of
the Useful Life of Intangible Assets” (“FSP 142-3”), which amends the factors
that should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under SFAS
142.  This pronouncement requires enhanced disclosures concerning a
company’s treatment of costs incurred to renew or extend the term of a
recognized intangible asset. FST 142-3 is effective for financial statements
issued for fiscal years beginning after December 15, 2008.  The
effective date, as well as the adoption date for the Company was January 1,
2009.  Although FSP 142-3 may impact our reporting in future financial
periods, we have determined that the standard did not have any impact on our
historical consolidated financial statements at the time of
adoption.
  In April
2009, the FASB issued FSP No. FAS 141(R)-1, “Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from Contingencies.”
FSP No. FAS 141(R)-1 amends and clarifies FASB Statement No. 141(R), to
address application issues raised on initial recognition and measurement,
subsequent measurement and accounting and disclosure of assets and liabilities
arising from contingencies in a business combination. FSP No. FAS 141(R)-1 is
effective for the first annual reporting period on or after December 31,
2008. The impact of FSP No. FAS 141(R)-1 on the
Company’s  consolidated financial statements will depend on the number
and size of acquisition transactions, if any, engaged in by the
company.
  In April
2009, the FASB issued FSP FAS 157-4, “Determining Fair Value When the Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly” (FSP FAS 157-4). FSP FAS 157-4
provides additional guidance for estimating fair value in accordance with SFAS
No. 157, Fair Value Measurements, when the volume and level of activity for the
asset or liability have significantly decreased. FSP FAS 157-4 also includes
guidance on identifying circumstances that indicate a transaction is not
orderly. FSP FAS 157-4 is effective for interim and annual reporting periods
ending after June 15, 2009, with early adoption permitted for periods ending
after March 15, 2009. FSP FAS 157-4 does not require disclosures for earlier
periods presented for comparative purposes at initial adoption. In periods after
initial adoption, FSP FAS 157-4 requires comparative disclosures only for
periods ending after initial adoption. The Company does not expect the changes
associated with adoption of FSP FAS 157-4 will have a material effect on the on
its financial statements and disclosures.
  Other
recent accounting pronouncements issued by the FASB (including its Emerging
Issues Task Force), the AICPA, and the SEC did not or are not believed by
management to have a material impact on the Company's present or future
consolidated financial statements.
  13
  3.
ACQUISITION
  On August
31, 2008, the Company entered into a stock purchase agreement with Island
Environmental Services, Inc. of Pomona, California ("Island"), a privately held
company, pursuant to which the Company acquired all of the issued and
outstanding common stock of Island, a California-based provider of hazardous and
non-hazardous waste removal and remediation services to a variety of private and
public sector establishments. In consideration of the acquisition of the issued
and outstanding common stock of Island, the Company paid $2.25 million in cash
to the stockholders of Island and issued $1.25 million in three year promissory
notes (“Notes”, see note 9).  Other consideration is payable based on
the performance of the acquired entity.  The Notes bear interest at
8%, payable quarterly, and the entire principal is due 36 months after closing.
As a result of the agreement, Island becomes a wholly-owned subsidiary of the
Company.
  The
acquisition of Island has been accounted for as a purchase in accordance with
SFAS No. 141, “Business Combinations,” and the operations of the company have
been consolidated since September 1, 2008, the effective date of the
acquisition. The $3.5 million purchase price was allocated as follows based upon
the fair value of the acquired assets, as determined by management with the
assistance of an independent valuation firm to determine the components of the
acquired business.
  Current
      assets and liabilities
                                  
                                  $
                                  809,339Property
      and Equipment
                                  
                                  
                                  2,759,220Total
                                  
                                  $
                                  3,568,559
  The
Company allocated the excess of net assets acquired to property and equipment
based upon a preliminary valuation. The Company has not yet finalized the
purchase price allocation which may change upon the completion of a final
analysis of assets and liabilities.
  The terms
of purchase agreement include an accelerated note payment and a contingent
earn-out which could be payable to the sellers upon the recapture by Island of
EBITDA in excess of $1,100,000 during the twelve month period following the
acquisition.  If the EBITDA in excess of $1,100,000 is achieved,
additional payments could be made to the sellers.  If the EBITDA is
not achieved, the current note payable of $1,250,000 will have an accelerated
payment due of $750,000 in September, 2009 and no contingent earn-out will be
made. As the Company does not presently expect it will reach the first
twelve months milestone, the $750,000 note has been reflected as current (see
Note 9).
  14
  The
following sets out the pro forma operating results for the three and six months
ended June 30, 2008 for
the Company had the acquisition occurred as of January 1, 2008:
 Three
      months endedJune
      30, 2008
                                              
                                              Six months
      endedJune 30,
      2008(Unaudited)
                                              
                                              (Unaudited)REVENUES
                                              
                                              $
                                              10,805,192
                                              
                                              $
                                              19,158,153COST
      OF REVENUES
                                              
                                              
                                              8,712,821
                                              
                                              
                                              15,227,453GROSS
      PROFIT
                                              
                                              
                                              2,092,371
                                              
                                              
                                              3,930,700OPERATING
      EXPENSES
                                              
                                              
                                              2,629,884
                                              
                                              
                                              5,166,631OPERATING
      LOSS
                                              
                                              
                                              (537,513
                                              )
                                              
                                              (1,235,931
                                              )OTHER
      INCOME (EXPENSE):Interest
      income
                                              
                                              
                                              6,777
                                              
                                              
                                              24,498Interest
      and financing costs
                                              
                                              
                                              (845,523
                                              )
                                              
                                              (1,664,718
                                              )Other
      non-operating income
                                              
                                              
                                              24,878
                                              
                                              
                                              35,259Net
      Loss
                                              
                                              $
                                              (1,351,381
                                              )
                                              $
                                              (2,840,892
                                              )Net
      loss per common share, basic and diluted
                                              
                                              $
                                              (.11
                                              )
                                              $
                                              (.23
                                              )Weighted
      average shares of common stockoutstanding,
      basic and diluted
                                              
                                              
                                              12,473,885
                                              
                                              
                                              12,473,885
  15
  4. PROPERTY
AND EQUIPMENT
  Property
and Equipment consists of the following at:
 
 June
      30,
                        2009
                      
                      
                      December
      31,
                        2008,(Unaudited)Land
                      
                      $
                      905,000
                      
                      
                      $
                      905,000Building
      and improvements
                      
                      
                      1,140,655
                      
                      
                      
                      1,140,656Vehicles
                      
                      
                      2,617,524
                      
                      
                      
                      2,687,128Equipment
      and furniture
                      
                      
                      438,118
                      
                      
                      
                      411,064Warehouse
      equipment
                      
                      
                      7,852,816
                      
                      
                      
                      5,277,892Leasehold
      improvements
                      
                      
                      331,473
                      
                      
                      
                      242,678Asset
      retirement obligations
                      
                      
                      35,846
                      
                      
                      
                      35,84613,321,432
                      
                      
                      
                      10,700,264Less
      accumulated depreciation and amortization
                      
                      
                      3,672,772
                      
                      
                      
                      2,917,056Property
      and equipment net of accumulated depreciation and
    amortization
                      
                      $
                      9,648,660
                      
                      
                      $
                      7,783,208
  Property
and equipment includes assets under capital lease with a cost of $5,639,855 and
$3,248,546 and accumulated amortization of $1,174,981 and $805,912 as of June
30, 2009 and December 31, 2008, respectively.
  Depreciation
and amortization expense was $837,325 and $467,096 for the six months ended June
30, 2009 and 2008 respectively.
  16
  5.
GOODWILL AND INTANGIBLE ASSETS
  The
Company accounts for goodwill and intangible assets pursuant to SFAS No. 142,
Goodwill and Other Intangible Assets.  Under SFAS 142, intangibles
with definite lives continue to be amortized on a straight-line basis over the
lesser of their estimated useful lives or contractual terms.  Goodwill
and intangibles with indefinite lives are evaluated at least annually for
impairment by comparing the asset’s estimated fair values with its carrying
value, based on cash flow methodology.
  Intangible
assets consist of the following at:
 
 June 30,
                            2009
                          
                          
                          December
      31,
                            2008(Unaudited)Rancho
      Cordova acquisition – permit
                          
                          $
                          475,614
                          
                          
                          $
                          475,614Prime
      acquisition – customers
                          
                          
                          400,422
                          
                          
                          
                          400,422GMTS  acquisition
      – customers
                          
                          
                          438,904
                          
                          
                          
                          438,904GMTS  acquisition
      – permits
                          
                          
                          27,090
                          
                          
                          
                          27,090Accumulated
      amortization
                          
                          
                          (558,858
                          )
                          
                          
                          (477,249
                          )$
                          783,172
                          
                          
                          $
                          864,781
  Permit
costs have been capitalized and are being amortized over the life of the permit,
including expected renewal periods.  Customer Lists acquired are being
amortized over their useful life.
  6.
RELATED PARTY TRANSACTIONS
  The
Company has entered into several transactions with General Pacific Partners
(“GPP”), a company operated by a prior member of the Board of Directors of the
Company’s wholly owned subsidiary, General Environmental Management, Inc. of
Delaware.  GPP owns 7% of the Company’s common stock at June 30,
2009.  The following summarizes the transactions with GPP during the
six months ended June 30, 2009 and December 31, 2008.
  Advances
from Related Party
 
 June
      30,
                      2009
                    
                    
                    December
      31,
                      2008(Unaudited)Notes
      from GPP
                    
                    $
                    472,500
                    
                    
                    $
                    472,500Advances
                    
                    
                    112,500
                    
                    
                    
                    -Financing
      Fees
                    
                    
                    100,000
                    
                    
                    
                    250,000Accrued
      Interest and LC Fees
                    
                    
                    57,754
                    
                    
                    
                    93,692Valuation
      discount
                    
                    
                    -
                    
                    
                    
                    (109,324
                    )$
                    742,754
                    
                    
                    $
                    706,868
  17
 During
February and March 2008, General Pacific Partners made two unsecured advances to
the Company totaling $472,500. The proceeds were used for working capital
purposes. The rate of interest on the advances is 10% per annum. The funds were
originally due six months from the date of issuance. On June 30, 2008, the
maturity date was extended an additional six months to February 14, 2009 and
March 19, 2009. In connection with the note extension the Company issued (i)
200,000 shares of its common stock valued at $220,000 and, (ii) a warrant to
purchase up to 225,000 shares of its common stock at a price of $0.60 for a
period of seven (7) years. The Company valued the warrants at $222,500 using a
Black - Scholes option pricing model.  For the Black - Scholes
calculation, the Company assumed no dividend yield, a risk free interest rate of
4.78 %, expected volatility of 75.88 % and an expected term for the warrants of
7 years.  The value of the common shares of $220,000 and value of the
warrants of $222,500 has been reflected by the Company as a valuation discount
at issuance and offset to the face amount of the Notes.  The Valuation
discount is being amortized to interest expense over the life of the loan based
upon the effective interest method. Finance costs for the six months ended June
30, 2009 includes $109,324 for amortization of this discount. The valuation
discount was fully amortized at June 30, 2009.  On February 13, 2009
the maturity date was extended until March 31, 2010. As of June 30, 2009,
$472,500 remained
outstanding.
  In 2008,
GPP provided services related to the financing completed with CVC California,
LLC. Pursuant to these services the Company agreed to pay GPP $250,000. The cash
paid has been reflected as part of deferred financing fees on the accompanying
balance sheet at June 30, 2009 and December 31, 2008.
  During
the six months ended June 30, 2009 GPP agreed to convert $150,000 of the cash
owed to them into 250,000 shares of the Company’s common stock. The balance due
to GPP as of June 30, 2009 is $100,000.  During the six months ended June
30, 2009, the Company incurred $164,756 for other fees and costs, for which
the Company issued 274,594 shares of its common stock in settlement for amounts
due.
  During the
six months ended June 30, 2009 a related individual made an unsecured
advance with no formal terms of repayment to the Company totaling $115,000. The
proceeds were used for working capital purposes. During the quarter the Company
made one payment on the advance of $2,500. At June 30, 2009 the balance due on
the advance was $112,500.
  Letter
of Credit Services
  On July
1, 2008 the Company entered into an agreement with GPP wherein GPP would provide
letters of credit to support projects contracted to GEM. The fees under the
agreement consisted of (i) a commitment fee of 2% of the value of the letter of
credit, (ii) interest at a rate to be negotiated, and (iii) a seven year warrant
to purchase shares of the Company’s common stock at $0.60 per
share.  Accrued fees amounted to $19,945 at June 30, 2009 and December
31, 2008 and are included accrued interest and LC fees in the accompanying
table.
  Software
Support
  In 2008,
the Company entered into a three year agreement with Lapis Solutions, LLC,
(Lapis) a company managed by a prior member of the Board of Directors of the
Company’s wholly owned subsidiary, General Environmental Management, Inc. of
Delaware, wherein Lapis would provide support and development services for the
Company’s proprietary software GEMWARE. Services costs related to the agreement
total $10,800 per month. As of June 30, 2009 and December 31, 2008, $230,940 and
$92,555 respectively, of the fees had been prepaid to Lapis and included in the
accompanying condensed balance sheets as part of prepaid expenses.
  18
  Related
Party Lease Agreement
  During
the third quarter ended September 30, 2007, the Company entered into a lease for
$180,846 of equipment with current investors of the Company.  The
lease transaction was organized by General Pacific Partners, a related party,
with these investors.  The lease has been classified as a capital
lease and included in property and equipment (See note 10) and requires payments
of $4,000 per month beginning August 1, 2007 through 2012.  As an
inducement to enter into the lease, the Company issued the leasing entity
100,000 two year warrants to purchase common stock at $1.20. These warrants were
valued at $187,128 using the Black - Scholes valuation model and such cost is
being amortized to expense over the life of the lease.  For the Black
- Scholes calculation, the Company assumed no dividend yield, a risk free
interest rate of 4.78 %, expected volatility of 56.60 % and an expected term for
the warrants of 2 years.
  7. SECURED
FINANCING AGREEMENTS
  During
the period 2008 through 2009, the Company entered into a series of financings
with CVC California,
LLC (“CVC”). The
amounts due under these financings at June 30, 2009 and December 31, 2008 are as
follows:
  June
      30,
                          
                          
                          December
      31,2009
                          
                          
                          2008(Unaudited)Secured
      Notes from CVC California
                          
                          $
                          13,169,677
                          
                          
                          $
                          13,547,909Valuation
      Discount
                          
                          
                          (4,974,397
                          )
                          
                          
                          (3,181,365
                          )8,195,280
                          
                          
                          
                          10,366,544Less
      current portion
                          
                          
                          (1,736,255
                          )
                          
                          
                          (10,366,544
                          )Financing
      agreement, net of current portion
                          
                          $
                          6,459,025
                          
                          
                          $
                          -
 Note
Agreements with CVC California
  On
September 4, 2008 General Environmental Management, Inc. (the “Company”) entered
into a series of agreements with CVC California, LLC, a Delaware limited
liability company (“CVC”), each dated as of August 31, 2008, whereby the Company
issued to CVC (i) a secured convertible term note ("Note") in the principal
amount of $6.5 million and (ii) a secured non-convertible revolving credit note
("Revolving Note") of up to $7.0 million; (iii) 6 year warrants  to
purchase 1,350,000 shares of our common stock at a price of $0.60 per share;
(iv) 6 year warrants to purchase 1,350,000 shares of our common stock at a price
of $1.19 per share; and, (v) 6 year warrants to purchase 300,000 shares of our
common stock at a price of $2.25 per share.   The principal
amount of the Note carries an interest rate of nine and one half percent,
subject to adjustment, with interest payable monthly commencing October 1, 2008.
The Note further provides that commencing on April 1, 2009, the Company will
make monthly principal payments in the amount of $135,416 through August 31,
2011. Although the stated principal amount of the Term Loan was $6,500,000, the
Lender was only required to fund $5,000,000, with the difference being treated
as a discount to the note.
  (i). The
principal amount of the Note and accrued interest thereon is convertible into
shares of our common stock  at a price of $3.00 per share, subject to
anti-dilution adjustments. Under the terms of the Note, the monthly principal
payment amount of approximately $135,416 plus the monthly interest
payment  (together, the "Monthly Payment"), is payable in either cash
or, if certain criteria are met, including the effectiveness of a current
registration statement covering the shares of our common stock into which the
Note is
convertible, through the issuance of our common stock. The Company has agreed to
register all of the shares that are issuable upon conversion of the Note and
exercise of warrants. As of  June 30, 2009 and December 31, 2008 the
Company had an outstanding balance of $6,364,583 under the note.
  19
  (ii). The
revolving note allows the Company to borrow a maximum amount of $7,000,000,
based on a borrowing base of 90% of all eligible receivables, which are
primarily accounts receivables under 90 days. The interest rate on this line of
credit is in the amount of prime plus 2.0%, but in no event less than 7% per
annum. The Revolving Note is secured by all assets of the Company and is subject
to the same security agreement as discussed below. The note is due August 31,
2011. As of June 30, 2009 and December 31, 2008 the Company had an outstanding
balance of $6,641,770 and $7,047,909 (including accrued interest) under the
revolving note.  We project that the Company will maintain a minimum
balance of $6,000,000 under the revolving note.
  The Notes
are secured by all of our assets and the assets of our direct subsidiary,
General Environmental Management, Inc. (Delaware) and its direct subsidiaries,
General Environmental Management of Rancho Cordova LLC, a California Limited
Liability Company (including the real property owned by General Environmental
Management of Rancho Cordova LLC), GEM Mobile Treatment Services Inc., Island
Environmental Services, Inc. as well as by a pledge of the equity interests of
General Environmental Management, Inc. (Delaware), General Environmental
Management of Rancho Cordova LLC, GEM Mobile Treatment Services Inc. and Island
Environmental Services, Inc.
  The
Company is subject to various negative covenants with respect to the Revolving
Credit and Term Loan Agreement (the "Agreement") with CVC California, LLC (the
"Lender").  The Company is in compliance with all the covenants in the
Agreement, except under Section 6.18 of the Agreement.  Section 6.18
requires that EBITDA of the Company not be less than (a) $1,000,000 for the
fiscal quarter ending September 30, 2008, (b) $2,000,000 for the two (2)
consecutive fiscal quarters ending December 31, 2008, (c) $3,000,000 for the
three (3) consecutive fiscal quarters ending March 31, 2009, or (d) $4,000,000
in any four (4) consecutive fiscal quarters ending on or after June 30, 2009;
provided, however, that it shall not be an Event of Default if actual EBITDA in
any measuring period is within 10% of the required minimum EBITDA for such
measuring period as set forth in this Section 6.18, so long as actual EBITDA for
the next succeeding measuring period hereunder is equal to or greater than the
required EBITDA for such.
  For the
fiscal quarter ending June 30, 2009, the Company was not able to achieve the
EBITDA required in the next succeeding measuring period.
  20
  The
Agreement provides that upon the occurrence of any Event of Default, and at all
times thereafter during the continuance thereof: (a) the Notes, and any and all
other Obligations, shall, at the Lender’s option become immediately
due and payable, both as to principal, interest and other charges, (b) all
outstanding Obligations under the Notes, and all other outstanding Obligations,
shall bear interest at the default rates of interest provided in certain
promissory Notes (the "Notes"), (c) the Lender may file suit against the Company
on the Notes and against the Company and the Subsidiaries under the other Loan
Documents and/or seek specific performance or injunctive relief thereunder
(whether or not a remedy exists at law or is adequate), (d) the Lender shall
have the right, in accordance with the Security Documents, to exercise any and
all remedies in respect of such or all of the Collateral as the Lender may
determine in its discretion (without any requirement of marshalling of assets or
other such requirement, all of which are hereby waived by the Company), and (e)
the Revolving Credit Commitment shall, at the Lender’s option, be immediately
terminated or reduced, and the Lender shall be under no further obligation to
consider making any further Advances.
  The Company
had discussions with CVC to obtain a waiver of the Default and continued to
operate in the normal course of business and receive advances under the
Revolving Credit Commitment facility.
  On June
1, 2009, the Company and CVC entered into an Amendment to the Agreement to
modify the terms of the agreement and relieve the events of
default.
  The terms
require the EBITDA will not be less than (a) $670,000 for the fiscal quarter
ending September 30, 2009, (b) $660,000 for the fiscal quarter ending December
31, 2009, or (c) in any succeeding fiscal quarter, an amount which is more than
$10,000 less than the required minimum EBITDA in the immediately preceding
fiscal quarter (i.e., $650,000 for the fiscal quarter ending March 31, 2010,
$640,000 for the fiscal quarter ending June 30, 2010, etc.).  For
purposes of assessing interest at the default rates provided in the Notes, any
failure to comply with this Section 6.18 shall be deemed to be an Event of
Default at the end of the subject fiscal quarter (and not deferred until such
non-compliance is reported), but for all other purposes, such non-compliance
shall not be deemed an Event of Default (i) unless (A)the Company fails, within
thirty (30) days after the conclusion of the subject fiscal quarter, to reach
written agreement with the Lender on a plan to cure such non-compliance, or (B)
if such a curative plan is agreed upon, the Company fails to complete the cure
within sixty (60) days after the conclusion of the subject fiscal quarter, or
(ii) if (A) the Company shall have received, during or within sixty (60) days
after the conclusion of the subject fiscal quarter, net cash proceeds from the
issuance of Common Stock in a dollar amount at least equal to the amount by
which the Company failed to achieve the required minimum EBITDA), which net cash
proceeds amount (or requisite portion thereof) are, for purposes hereof, added
to EBITDA to the extent necessary (on a dollar-for-dollar basis) to eliminate
the EBITDA shortfall in such fiscal quarter, and/or (B) to the extent that such
net cash proceeds are not applied to cure an EBITDA shortfall as aforesaid
(“Excess Cash Proceeds”), and provided that the Company has made or
simultaneously makes a prepayment of principal under the Term Note out of such
net cash proceeds (which prepayment shall be applied to the principal
installments thereunder in direct order of maturity, and shall be without
requirement of any premium or penalty) in an amount equal to one-half of the
Excess Cash Proceeds, an amount equal to one-half of the Excess Cash Proceeds
are, for purposes hereof, added to EBITDA in the first fiscal quarter
immediately following the fiscal quarter in which the Excess Cash Proceeds were
received by the Company.
  The
Company will not permit the ratio of (a) EBITDA, plus any permitted additions to
EBITDA, minus any and all dividends, distributions and/or redemption payments
made by the Company to its shareholders or other holders of equity interests, to
(b) Fixed Charges, to be less than 1.0 to 1.0 for any four (4) consecutive
fiscal quarters ending on or after September 30, 2009.
  The
Company will not make any payments of any kind (whether in cash, in kind or
otherwise) to or on behalf of GPP (General Pacific Partners, LLC) or any of its
Affiliates, provided that the foregoing limitation shall not be applicable to
scheduled payments which are made as and when due under the outstanding
Equipment Lease Agreement between GEM-DE and P-1 Leasing (an affiliate of
GPP).
  21
  The
Convertible Term Note was amended as follows:
  (a) The
monthly principal payment that was due under the Term Note on May 1, 2009, and
the monthly principal payment becoming due under the Term Note on June 1, 2009,
shall instead be due and payable on August 31, 2011 (which payments shall be in
addition to the payments otherwise scheduled to be due and payable on such date
in accordance with the Term Note).
  (b) The
Conversion Price (as such term is defined in the Term Note) currently in effect
under the Term Note is hereby reduced to $.75 per share of Common Stock, subject
to further adjustment from time to time in accordance herewith and in accordance
with the Term Note.  In addition to any and all other adjustments, the
Conversion Price shall be adjusted, effective December 1, 2009, to be an amount
equal to the weighted average Trading Price (as such term is defined in the Term
Note) of the Common Stock during the period from May 1, 2009 through November
30, 2009 (the “Measuring Period”), but in no event less than $.60 per share of
Common Stock; provided, however, that if, at any time and from time to time
during such Measuring Period, there shall occur any stock split, stock dividend,
combination of shares, recapitalization or other such event relating to the
Common Stock, then appropriate adjustment shall be made to the Trading Prices
used in such calculation, and the minimum $.60 Conversion Price, to fairly
reflect the effects of each such stock split, stock dividend, combination of
shares, recapitalization or other such event.  The Company shall, as
promptly as practicable after November 30, 2009, provide to the Lender a
detailed written calculation of the adjusted Conversion Price in accordance with
this paragraph
  (c) In
the event that the Company shall hereafter receive, at any time and from time to
time, any Excess Cash Proceeds (as such term is defined in the modified Section
6.18 of the Loan Agreement as set forth above), the Company shall be required to
make a prepayment of principal under the Term Note (which prepayment shall be
applied to the principal installments thereunder in direct order of maturity,
and shall be without requirement of any premium or penalty) in an amount equal
to one-half of such Excess Cash Proceeds.  If such Excess Cash
Proceeds are received during the sixty (60) day period following the close of a
fiscal quarter in which there was an EBITDA shortfall under Section 6.18 of the
Loan Agreement, such prepayment shall be due and payable within one (1) Business
Day after the receipt of such Excess Cash Proceeds, and otherwise shall be due
and payable on the first (1st) Business Day after the conclusion of the fiscal
quarter in which such Excess Cash Proceeds are received.
  The
Warrants were amended or cancelled, as the case may be, as follows:
 (a)  Warrant
to purchase 1,350,000 of the Company's common stock issued by the Company to the
Lender pursuant to the Loan Agreement is hereby amended so as to change the
current Exercise Price thereunder to $.70 per share of Common Stock, subject to
further adjustment hereafter from time to time in accordance with such
Warrant.
  (b)  Warrant
to purchase 300,000 of the Company's common stock issued by the Company to the
Lender pursuant to the Loan Agreement is hereby cancelled, and shall be
destroyed by the Lender promptly following the effectiveness of this Amendment
No. 1.
  (c) In
the event that, at any time from and after the date of this Amendment No. 1,
there shall occur any Event of Default under Section 7.01(b) of the Loan
Agreement, then the exercise price applicable under each of the remaining
outstanding Warrants shall thereupon automatically (and without requirement of
any further writing) be reduced to $.01 per share of Common Stock (provided
that, if the Exercise Price under any such Warrant is then already less than
$.01 per share, then there shall be no increase in such Exercise Price by reason
of this paragraph 4(c)).
  22
 CVC
waived the Events of  Default consisting of the non-payment by the
Company of the principal installments due under the Term Note on May 1, 2009 and
June 1, 2009, and further waived  the Events of Default consisting of
the failure of the Company to comply with Section 6.18 of the Loan Agreement for
the periods ended December 31, 2008 and March 31, 2009, and waived all rights to
collect the increased interest chargeable under the Notes by reason of the
foregoing Events of Default.
  The
Company paid a fee in consideration of the waivers and amendments which
consisted of issuing to CVC (a) 600,000 shares of its Common Stock valued at
$450,000, and (b) issuing to CVC a promissory note in the principal amount of
$164,000, bearing interest at the rate of 7% per annum (which interest shall be
payable monthly in arrears on the first day of each calendar month commencing
June 1, 2009) and maturing in full on August 31, 2011.
  Valuation
Discount and Modification of Debt
  Inconnection with the
initial CVC financing during 2008, the Company paid closing fees of $405,000 and
issued warrants to acquire an aggregate of 3,000,000 shares of our common stock
as described above to CVC. The Company calculated that the fair value of the
warrants issued was $1,674,036, based upon the relative value of the Black
Scholes valuation of the warrants and the underlying debt amount.  For
the Black Scholes calculation, the Company assumed no dividend yield, a risk
free interest rate of 4.78%, expected volatility of 78.57% and an expected term
for the warrants of 7 years. The closing fees of $405,000 paid to CVC, the
relative value of the warrants of $1,674,036 and the $1,500,000 discount on
issuance was reflected by the Company as a valuation discount at issuance and
offset to the face amount of the Notes. The Valuation discount is being
amortized to interest expense over the life of the loan based upon the effective
interest method.  The Company amortized $397,671 of note discount
during the period ended December 31, 2008, resulting in valuation discount of
$3,181,365 at December 31, 2008.
  Concurrent
with the cumulative adjustment related to the adoption of EITF 07-05 as
discussed in Note 11, the Company further recorded valuation discount of
$1,408,828 at January 1, 2009. During the period January 1, 2009 through June 1,
2009, the Company amortized $717,220 of the note discount, leaving an
unamortized note discount of 3,872,973 as of June 1, 2009.
  As
discussed above, on June 1, 2009, the Company and CVC entered into an Amendment
to the Agreement to modify the terms of the agreement and relieve the events of
default.  The Company analyzed the current accounting guidance and
determined that the modifications constituted a substantial modification of debt
terms, and thus, has considered the old loan and derivative liabilities to be
extinguished and a new loan and derivative liabilities were incurred consistent
with the provisions of EITF No. 96-19.  As such, the balance of the
valuation discount of $3,872,973 and the fair value of derivative liabilities of
$2,299,622 (gain) that existed on June 1, 2009 before modification, the
value of the 600,000 shares valued at $450,000 and the issuance by the Company
of a $164,000 promissory note were considered as debt modification expense,
resulting in an aggregate charge of $2,187,351 at June 1, 2009 relating to the
net loss on extinguishment of debt.
  Concurrent
with the accounting for the issuance of the new debt after the extinguishment on
June 1, 2009, the Company reflected a new valuation discount of $5,165,720 based
upon the fair value of the derivative liability and warrants (see Note 11).
During the period June 1, 2009 through June 30, 2009, the Company amortized
$191,323 of the new note discount, leaving an unamortized note discount of
$4,974,397 as of June 30, 2009.
 8.
CONVERTIBLE NOTES PAYABLE
  During
the period March 4, 2004 through June 22, 2004, the Company entered into a Loan
and Security Agreement with several investors to provide the funding necessary
for the purchase of the Transfer Storage Disposal Facility (TSDF) located in
Rancho Cordova, California.  The notes are secured by the TSDF, carry
an interest rate of eight percent (8%) per annum, and principal and interest are
convertible at $30.00 per share into common stock.  In addition, the
note holders were issued warrants to purchase common stock.  The notes
were initially due June 30, 2009, but have been extended to September 30, 2011.
 As of December 31, 2008, notes payable of $422,500 plus accrued interest
of $67,105 remain outstanding. As of June 30, 2009, notes payable of $385,000
plus accrued interest of $82,864 remain outstanding.
  23
  9.
LONG TERM OBLIGATIONS
  Long term
debt consists of the following at June 30, 2009 and December 2008:
  June
      30,
                            2009
                          
                          
                          December
      31,
                            2008(Unaudited)(a)
      Vehicle notes
                          
                          $
                          8,078
                          
                          
                          $
                          12,865(b)
      Equipment notes
                          
                          
                          50,250
                          
                          
                          
                          67,102(c)
      Notes Payable, Island Acquisition
                          
                          
                          1,250,000
                          
                          
                          
                          1,250,0001,308,328
                          
                          
                          
                          1,329,967Less
      current portion
                          
                          
                          (772,639
                          )
                          
                          
                          (794,278
                          )Notes
      payable, net of current portion
                          
                          $
                          535,689
                          
                          
                          $
                          535,689
  (a) Note
payable in monthly installments of $815 including interest at 1.9% per annum,
through April 2010. The note is secured by a vehicle.
  (b) The
equipment note is for equipment utilized by GEM Mobile Treatment Services. It
requires monthly payments of $3,417 with an interest rate of 12.35% and matures
in October 2010. The note is secured by the equipment.
  (c) On
August 31, 2008, the Company entered into a stock purchase agreement with Island
Environmental. As part of the consideration for the purchase, the Company issued
two three year promissory notes totaling $1.25 million.
  The first
note is payable to the former owners in the amount of $1,062,500.  The
second note is payable to NCF Charitable Trust in the amount of
$187,500.  The notes bear interest at eight percent (8%) with interest
only payments payable quarterly and the entire balance of interest and principal
payableAugust
31, 2011.  The notes shall provide that there shall be a partial
principal payment at the end of August 31, 2009 of up to $637,500 with respect
to the note in favor of the sellers and $112,500 with respect to the note in
favor of NCT.
  The
current note payable of $1,250,000 could have an accelerated payment due of
$750,000 in September 2009.  The accelerated note payment could be
payable to the sellers if EBITDA in excess of $1,100,000 during the twelve month
period following the acquisition is not achieved.  Based on the
Company’s current assessment, it is likely that the target EBITDA will not be
achieved and the accelerated payment has been classified as current in the
financial statements.
  24
  10.
OBLIGATIONS UNDER CAPITAL LEASES
  The
Company has entered into various capital leases for equipment with monthly
payments ranging from $598 to $41,741 per month, including interest, at interest
rates ranging from 7% to 19.7% per annum. At June 30, 2009, monthly payments
under these leases aggregated $140,255. The leases expire at various dates
through 2014. The amounts outstanding under the capital lease obligations were
$4,406,920 and $2,374,861 as of June 30, 2009 and December 31, 2008,
respectively.
  Minimum
future payments under capital lease obligations are as follows:
  Years
      Ending December 31,2009
                                      
                                      
                                      786,8112010
                                      
                                      
                                      1,374,3402011
                                      
                                      
                                      1,301,5592012
                                      
                                      
                                      1,138,9682013
                                      
                                      
                                      719,451Thereafter
                                      
                                      
                                      244,242Total
      payments
                                      
                                      
                                      5,565,371Less:
      amount representing interest
                                      
                                      
                                      (1,158,451
                                      )Present
      value of minimum lease payments
                                      
                                      
                                      4,406,920Less:
      current
      portion
                                      
                                      
                                      (1,033,087
                                      )Non-current
      portion
                                      
                                      $
                                      3,373,833
 11.
DERIVATIVE LIABILITIES
  In June 2008, the FASB
finalized Emerging Issues Task Force (“EITF”) 07-05, “Determining Whether an
Instrument (or Embedded Feature) is indexed to an Entity’s Own Stock.” Under
EITF 07-05, instruments which do not have fixed settlement provisions are deemed
to be derivative instruments.  The conversion feature of the Company’s
Secured Financing Agreements (described in Note 7), and the related warrants, do
not have fixed settlement provisions because their conversion and exercise
prices, respectively, may be lowered if the Company issues securities at lower
prices in the future.  The Company was required to include the reset
provisions in order to protect the note holders from the potential dilution
associated with future financings.  In accordance with EITF 07-05, the
conversion feature of the notes was separated from the host contract (i.e., the
notes) and recognized as an embedded derivative instrument.  Both the
conversion feature of the notes and the warrants have been re-characterized as
derivative liabilities.  SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities,” (“FAS 133”) requires that the fair value of
these liabilities be re-measured at the end of every reporting period with the
change in value reported in the statement of
operations.
  25
  The
derivative liabilities were valued using a probability weighted
Black-Scholes-Merton valuation technique with the following weighted average
assumptions:
  June
      30,
                                            2009
                                          
                                          
                                          June
      1,
                                            2009
                                          
                                          
                                          December
      31,
                                            2008
                                          
                                          
                                          August
      31,
                                            2008Conversion
      feature:Risk-free
      interest rate
                                          
                                          
                                          1.14
                                          %
                                          
                                          
                                          1.14
                                          %
                                          
                                          
                                          1.66
                                          %
                                          
                                          
                                          1.66
                                          %Expected
      volatility
                                          
                                          
                                          88.02
                                          %
                                          
                                          
                                          88.02
                                          %
                                          
                                          
                                          78.66
                                          %
                                          
                                          
                                          78.57
                                          %Expected
      life (in years)
                                          
                                          
                                          2.17
                                          
                                          
                                          
                                          2.25
                                          
                                          
                                          
                                          2.67
                                          
                                          
                                          
                                          3.00Expected
      dividend yield
                                          
                                          
                                          0.0
                                          %
                                          
                                          
                                          0.0
                                          %
                                          
                                          
                                          0.00
                                          %
                                          
                                          
                                          0.0
                                          %Warrants:Risk-free
      interest rate
                                          
                                          
                                          2.66
                                          %
                                          
                                          
                                          2.66
                                          %
                                          
                                          
                                          4.78
                                          %
                                          
                                          
                                          4.78
                                          %Expected
      volatility
                                          
                                          
                                          88.02
                                          %
                                          
                                          
                                          88.02
                                          %
                                          
                                          
                                          78.66
                                          %
                                          
                                          
                                          78.57
                                          %Expected
      life (in years)
                                          
                                          
                                          5.17
                                          
                                          
                                          
                                          5.25
                                          
                                          
                                          
                                          5.67
                                          
                                          
                                          
                                          6.00Expected
      dividend yield
                                          
                                          
                                          0.00
                                          %
                                          
                                          
                                          0.00
                                          
                                          
                                          
                                          0.00
                                          %
                                          
                                          
                                          0.00
                                          %Fair
      Value:Conversion
      feature
                                          
                                          
                                          $4,779,927
                                          
                                          
                                          
                                          $3,637,437
                                          
                                          
                                          
                                          $624,385
                                          
                                          
                                          
                                          $1,145,544Warrants
                                          
                                          
                                          1,912,871
                                          
                                          
                                          
                                          1,528,283
                                          
                                          
                                          
                                          1,502,205
                                          
                                          
                                          
                                          2,113,423$6,692,798
                                          
                                          
                                          
                                          $5,165,720
                                          
                                          
                                          
                                          $2,126,590
                                          
                                          
                                          
                                          $3,258,967
  The risk-free interest
rate was based on rates established by the Federal Reserve.  The
expected volatility is based on the Company’s historical volatility for its
common stock.  The expected life of the conversion feature of the
notes was based on the term of the notes and the expected life of the warrants
was determined by the expiration date of the warrants.  The expected
dividend yield was based on the fact that the Company has not paid dividends to
common shareholders in the past and does not expect to pay dividends to common
shareholders in the future.
  EITF 07-05 implemented in
the first quarter of 2009 and is reported as a cumulative change in accounting
principles.  The cumulative effect on the accounting for the
conversion feature of the note and the warrants on January 1,
2009 are as follows:
  Additional
                        
                        
                        Accumulated
                        
                        
                        Derivative
                        
                        
                        ConvertibleDerivative
      Instrument:
                        
                        Paid-in
      Capital
                        
                        
                        Deficit
                        
                        
                        Liability
                        
                        
                        NoteConversion
      feature
                        
                        $
                        -
                        
                        
                        $
                        393,875
                        
                        
                        $
                        624,385
                        
                        
                        $
                        (1,018,261
                        )Warrants
                        
                        $
                        (1,674,036
                        )
                        
                        $
                        562,398
                        
                        
                        $
                        1,502,205
                        
                        
                        $
                        (390,567
                        )$
                        (1,674,036
                        )
                        
                        $
                        956,273
                        
                        
                        $
                        2,126,590
                        
                        
                        $
                        (1,408,828
                        )
  The
warrants were originally recorded at their relative fair value as an increase in
additional paid-in capital. The change in the accumulated deficit includes gains
resulting from decreases in the fair value of the derivative liabilities through
December 31, 2008.  The derivative liability amounts reflect the fair
value of each derivative instrument as of the January 1, 2009 date of
implementation.  The convertible note amount represents the discount
recorded upon adoption of EITF 07-05.  This discount will be
recognized on a monthly basis through the maturity date of the notes.
  As of
June 30, 2009, the derivative liabilities amounted to $6,692,798.  For
the three and six months ended June 30, 2009, the Company recorded a change
in fair value of the derivative liabilities of  $(2,252,622) and
$(1,700,110), respectively.  At June 30, 2008, no derivative
instruments were recorded.
  As
further discussed in Note 7, concurrent with the accounting for the issuance of
the new debt after the extinguishment on June 1, 2009, the Company reflected a
new valuation discount of $5,165,720 based upon the fair value of the derivative
liability and warrants.
  26
  12.
STOCK OPTIONS AND WARRANTS
  Options
  On March
28, 2007 the Board of Directors approved and implemented the 2007 Stock Option
Plan (the “Plan”).  The plan authorized option grants to employees and
other persons closely associated with the Company for the purchase of up to
5,500,000 shares.  The Board of Directors granted a total of 4,397,500
options to 102 employees and one consultant.  The exercise price of
the options was $1.19.
  On
January 2, 2009 the Stock Option Committee approved the issuance of 34,500
options to twenty eight employees. The exercise price for the options was $0.75
per share and was based on the closing market price on the date of issuance. For
the Black - Scholes calculation, the Company assumed no dividend yield, a risk
free interest rate of 4.78 %, expected volatility of 78.66 % and an expected
term for the options of 8 years.
  On
January 7, 2009 the Stock Option Committee approved the issuance of 570,000
options to thirteen employees. The exercise price for the options was $0.75 per
share and was based on the closing market price on the date of issuance. For the
Black - Scholes calculation, the Company assumed no dividend yield, a risk free
interest rate of 4.78 %, expected volatility of 78.66 % and an expected term for
the options of 8 years.
  A summary
of the option activity during the period is as follows:
  Weighted
      Avg.
                      
                      
                      Weighted
      Avg.
                      
                      
                      Weighted
      Avg.Options
                      
                      
                      Exercise
      Price
                      
                      
                      Life
      in YearsOptions
      outstanding, January 1, 2009
                      
                      
                      4,787,340
                      
                      
                      
                      1.64
                      
                      
                      
                      8.36Options
      granted
                      
                      
                      604,500
                      
                      
                      
                      0.75
                      
                      
                      
                      9.58Options
      exercised
                      
                      
                      (250
                      )
                      
                      
                      0.75
                      
                      
                      
                      -Options
      cancelled
                      
                      
                      (435,696
                      )
                      
                      
                      1.95
                      
                      
                      
                      -Options
      outstanding, June 30, 2009
                      
                      
                      4,955,894
                      
                      
                      
                      1.51
                      
                      
                      
                      8.06Options
      exercisable, June 30, 2009
                      
                      
                      3,567,217
                      
                      
                      
                      1.61
                      
                      
                      
                      7.90
  The
aggregate intrinsic value of the 4,955,894 options outstanding and 3,567,217
options exercisable as of June 30, 2009 was $89,868 and $28,250, respectively.
The aggregate intrinsic value for the options is calculated as the difference
between the price of the underlying awards and quoted price of the Company's
common shares for the options that were in-the-money as of June 30,
2009.
  For the
six months ended June 30, 2009 and 2008, the fair value of options vesting
during the period was $453,075 and $427,135 respectively, and has been reflected
as compensation cost. As of June 30, 2009, the Company has unvested options
valued at $963,105 which will be reflected as compensation cost over the
estimated remaining vesting period of 33 months.
  27
  Warrants
  A summary
of the warrant activity during the period is as follows:
  Range
      of
                    exercise
      prices
                  
                  
                  Weighted
                    Avg.in
      YearsWarrants
      outstanding, January 1, 2009
                  
                  
                  9,527,894
                  
                  
                  $
                  0.60-$37.50
                  
                  
                  
                  4.86Warrants
      granted
                  
                  
                  353,950
                  
                  
                  $
                  0.60-$0.75
                  
                  
                  
                  4.93Warrants
      exercised
                  
                  
                  (6,250
                  )
                  
                  $
                  0.60
                  
                  
                  
                  -Warrants
      expired
                  
                  
                  (865,507
                  )
                  
                  $
                  0.60-$37.50
                  
                  
                  
                  -Warrants
      outstanding, June 30, 2009
                  
                  
                  9,010,087
                  
                  
                  $
                  0.60-$37.50
                  
                  
                  
                  4.69
  The
aggregate intrinsic value of the 9,010,087 warrants outstanding as of June 30,
2009 was $1,555,905. The aggregate intrinsic value for the warrants is
calculated as the difference between the price of the underlying shares and
quoted price of the Company's common shares for the warrants that were
in-the-money as of June 30, 2009.
  13.           INCOME
TAXES
  The
Company's net deferred tax assets consisted of the following at June 30, 2009
and December 31, 2008:
  June
      30,
                        2009
                      
                      
                      December
      31,
                        2008(Unaudited)Deferred
      tax asset, net operating loss
                      
                      $
                      16,519,489
                      
                      
                      $
                      14,184,661Less
      valuation allowance
                      
                      
                      (16,519,489
                      )
                      
                      
                      (14,184,661
                      )Net
      deferred tax asset
                      
                      $
                      -
                      
                      
                      $
                      -
  As of
June 30, 2009, the Company had federal net operating loss carry forwards of
approximately $48,586,732 expiring in various years through 2025, which can be
used to offset future taxable income, if any. No deferred asset benefit for
these operating losses has been recognized in the financial statements
due  to the uncertainty as to their realizability in future
periods.
  As a
result of the Company's significant operating loss carryforward and the
corresponding valuation allowance, no income tax expense (benefit) has been
recorded at June 30, 2009 or December 31, 2008.
  28
  Reconciliation
      of the effective income tax rate to the United States statutory income tax
      rate for the six months ended June 30, 2009 and 2008 is as
      follows:
 Six
      months ended June
      30,2009
                        
                        2008Tax
      expense at U.S. statutory income tax rate
                        (34.0)%
                        
                        (34.0)%Increase
      in the valuation allowance
                        34.0
                        
                        34.0Effective
      rate
                        -
                        
                        -
 Effective
January 1, 2007, the Company adopted Financial Accounting Standards Board
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes (“FIN
48”) an interpretation of FASB Statement No. 109, Accounting for Income Taxes.”
The Interpretation addresses the determination of whether tax benefits claimed
or expected to be claimed on a tax return should be recorded in the financial
statements. Under FIN 48, we may recognize the tax benefit from an uncertain tax
position only if it is more likely than not that the tax position will be
sustained on examination by the taxing authorities, based on the technical
merits of the position. The tax benefits recognized in the financial statements
from such a position should be measured based on the largest benefit that has a
greater than fifty percent likelihood of being realized upon ultimate
settlement. FIN 48 also provides guidance on derecognition, classification,
interest and penalties on income taxes, accounting in interim periods and
requires increased disclosures. At the date of adoption, and as
of  June 30, 2009, the Company does not have a liability for
unrecognized tax uncertainties.
  The
Company files income tax returns in the U.S. federal jurisdiction and various
states. The Company is subject to U.S. federal or state income tax examinations
by tax authorities for years after 2002. During the periods open to examination,
the Company has net operating loss and tax credit carry forwards for U.S.
federal and state tax purposes that have attributes from closed periods. Since
these NOLs and tax credit carry forwards may be utilized
in future periods, they remain subject to examination.
  The
Company’s policy is to record interest and penalties on uncertain tax provisions
as income tax expense. As of June 30, 2009 the Company has no accrued interest
or penalties related to uncertain tax positions.
  14.
                SUBSEQUENT
      EVENTS On August
17, 2009, the Company divested the assets of GEM Mobile Treatment Services (GEM
MTS). GEM MTS was sold to MTS Acquisition Company, Inc., a holding company, and
will be owned and operated by two former senior executives of GEM. Consideration
for the sale was in the form of promissory notes in the aggregate amount of $5.6
million, the assignment of approximately $1.0 million of accounts payable and
possible future royalties. The consideration was immediately assigned to CVC
California, LLC, ("CVC") GEM's senior secured lender. As the notes are paid to
CVC, GEM's indebtedness to CVC will be reduced. Total reduction in indebtedness
to CVC could amount to more than $7 million. The Company has not yet analyzed
the accounting effect of the transaction, but the Company does not believe that
it has met the criteria for recognition of a sale under the current accounting
criteria, as the Company has not transferred all the risks and rewards to the
buyer. As such, we do not expect there to be a gain on the
transaction.
 29
  ITEM
2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations
  FORWARD
LOOKING STATEMENTS
  In
addition to historical information, this Quarterly Report contains
forward-looking statements, which are generally identifiable by use
of  the words “believes”, “expects”, “intends”, “anticipates”, “plans
to”, “estimates”, “ projects”, or similar expressions.  These
forward-looking statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from those reflected in these
forward-looking statements.  Factors that might cause such a
difference include, but are not limited to, those discussed in the section
entitled “Management’s Discussion and Analysis of Financial Condition and
Results of Operations – Factors That May Affect Future
Results”.  Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect management’s opinions only as of the
date hereof.  We undertake no obligation to revise or publicly release
the results of any revision to these forward-looking
statements.  Readers should carefully review the risk factors
described in other documents the company files from time to time with the
Securities and Exchange Commission  ( the “SEC”), including the
Quarterly Reports on form 10-Q filed by us in the fiscal year 2009.
  Statements
made in this Form 10-Q (the “Quarterly Report”) that are not historical or
current facts are “forward-looking statements” made pursuant to the safe harbor
provisions of Section 27A of the Securities Act of 1933, as amended (the “Act”),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”).  We intend that such forward-looking statements be
subject to the safe harbors for such statements.  We wish to caution
readers not to place undue reliance on any such forward-looking statements,
which speak only as of the date made.  Any forward-looking statements
represent management’s best judgment as to what may occur in the
future.  The forward-looking statements included herein are based on
current expectations that involve numerous risks and uncertainties.
 Assumptions relating to the foregoing involve judgments with respect to,
among other things, future economic, competitive and market conditions and
future business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond our control.  Although we
believe that the assumptions underlying the forward-looking statements are
reasonable, any of the assumptions could be inaccurate and, therefore, there can
be no assurance that the forward-looking statements included in this Quarterly
Report will prove to be accurate.  In light of the significant
uncertainties inherent in the forward-looking statements included herein, the
inclusion of such information should not be regarded as a representation by us
or any other person that our objectives and plans will be
achieved.  We disclaim any obligation subsequently to revise any
forward-looking statements to reflect events or circumstances after the date of
such statement or to reflect the occurrence of anticipated or unanticipated
events.
  The
words “we,” “us,” “our,” and the “Company,” refer to General Environmental
Management, Inc.  The words or phrases “may,” “will,” “expect,”
“believe,” “anticipate,” “estimate,” “approximate,” or “continue,” “would be,”
“will allow,” “intends to,” “will likely result,” “are expected to,” “will
continue,” “is anticipated,” “estimate,” “project,” or similar expressions, or
the negative thereof, are intended to identify “forward-looking
statements.”  Actual results could differ materially from those
projected in the forward looking statements as a result of a number of risks and
uncertainties, including but not limited to:  (a) our failure to
implement our business plan within the time period we originally planned to
accomplish; and (b) other risks that are discussed in this Quarterly Report or
included in our previous filings with the Securities and Exchange Commission
(“SEC”).
  OVERVIEW
  Ultronics
Corporation (Ultronics) was a non-operating company formed for the purpose of
evaluating opportunities to acquire an operating company.  On February
14, 2005 Ultronics acquired General Environmental Management, Inc. through a
reverse merger between Ultronics Acquisition Corp., a wholly owned subsidiary of
Ultronics and General Environmental Management, Inc., whereby General
Environmental Management, Inc. (GEM) was the surviving entity.
  The
acquisition was accounted for as a reverse merger (recapitalization) with GEM
deemed to be the accounting acquirer, and Ultronics Corporation the legal
acquirer.  Accordingly, the historical financial information presented
in the financial statements is that of GEM as adjusted to give effect to any
difference in the par value of the issuer’s and the accounting acquirer stock
with an offset to capital in excess of par value.  The basis of the
assets, liabilities and retained earnings of GEM, the accounting acquirer, have
been carried over in the recapitalization.  Subsequent to the
acquisition, the Company changed its name to General Environmental Management,
Inc. GEM is a fully integrated environmental service firm structured to provide
EHS compliance services, field services, transportation, off-site treatment, and
on-site treatment services.  Through its services GEM assists clients
in meeting regulatory requirements for the disposal of hazardous and
non-hazardous waste.  GEM provides its clients with access to GEMWare,
an internet based software program that allows clients to maintain oversight of
their waste from the time it leaves their physical control until final
disposition by recycling, destruction, or landfill.  The GEM business
model is to grow both organically and through acquisitions.
  30
  During
2003 and 2004 GEM acquired the assets of Envectra, Inc., Prime Environmental
Services, Inc. (Prime) and 100% of the membership interest in Pollution Control
Industries of California, LLC, now named General Environmental Management of
Rancho Cordova, LLC.  The assets of Envectra, Inc. included an
internet based integrated environmental management software now marketed by the
Company as GEMWare.  The acquisition of the assets of Prime resulted
in a significant increase in the revenue stream of the company and a presence in
the Washington State and Alaska markets through Prime’s Seattle
office.  All Prime services are now offered under the GEM
name.  The primary asset of Pollution Control Industries of
California, LLC was a fully permitted Part B Treatment Storage Disposal Facility
(TSDF) in Rancho Cordova, California.  The facility provides waste
management services to field service companies and allows the Company to bulk
and consolidate waste into larger more cost effective containers for outbound
disposal.
  During
2006, the Company entered into a stock purchase agreement with K2M Mobile
Treatment Services, Inc. of Long Beach, California ("K2M"), a privately held
company, pursuant to which the Company  acquired all of the issued and
outstanding common stock of K2M. K2M is a California-based provider of mobile
wastewater treatment and vapor recovery services. Subsequent to the acquisition
in March 2006, the Company opened a vapor recovery service division in Houston,
Texas and will be looking to expand its operations in the Gulf coast
area.
  On August
31, 2008, the Company entered into a stock purchase agreement with Island
Environmental Services, Inc. of Pomona, California ("Island"), a privately held
company, pursuant to which the Company acquired all of the issued and
outstanding common stock of Island, a California-based provider of hazardous and
non-hazardous waste removal and remediation services to a variety of private and
public sector establishments.
   COMPARISON
OF THREE  MONTHS ENDEDJUNE30,
2009 AND 2008
  Revenues
  Total
revenues were $6,803,372 for the three months ended June 30, 2009, representing
a decrease of $2,603,213 or 28% compared to the three months ended June 30,
2008.  The decrease in revenue can be primarily attributed to the
decrease  in the field service sector for GEM, Inc. The field service
work consists  of remediation projects.  One project
completed in June 2008 totaled $1.5 million. No projects of this magnitude were
engaged in 2009.  These decreases were partially offset by increases
in GEM Mobile Treatment Services and the inclusion of Island Environmental
Services in the three months ended June 30,
2009.
  
 Cost of
Revenues
  Cost of
revenues for the three months ended June 30, 2009 were $6,668,193 or 98% of
revenue, as compared to $7,822,370 or 83.1% of revenue for the three months
ended June 30, 2008.  The cost of revenues includes disposal costs,
transportation, fuel, outside labor and operating supplies. The change in the
cost of revenue in comparison to the prior year is primarily due to negative
margins at Island Environmental Services.
  Operating
Expenses
  Operating
expenses for the three months ended June 30, 2009 were $2,595,953 or 38.2% of
revenue as compared to $1,956,313 or 20.8% of revenue for the same period in
2008. Operating expenses include sales and administrative salaries and benefits,
insurance, rent, legal, accounting and other professional fees. Theincrease
in operating expenses is primarily attributable to increase in rent and
insurance and the inclusion of Island Environmental Services in the three months
ended June 30, 2009.
  31
  Depreciation
and Amortization
  Depreciation
and amortization expenses for the three months ended June 30, 2009 were $425,561
or 6.3% of revenue, as compared to $240,301 or 2.5% of revenue for the same
period in 2008. The increase in expense is due to additions to property, plant
and equipment and increase of assets acquired under capitalized
leases.
  Interest
and financing costs
  Interest
and financing costs for the three months ended June 30, 2009 were $1,000,198 or
14.7% of revenue, as compared to $844,711 or 8.9% of revenue for the same period
in 2008.  Interest expense consists of interest on the line of credit,
short and long term borrowings, and advances to related parties.  It
also includes amortization of deferred finance fees and amortization of
valuation discounts generated from beneficial conversion features related to the
fair value of warrants and conversion features of long term debt.  The
increase in interest expense is due to additional interest incurred on higher
balances on the line of credit.
  Other
Non-Operating Income
  The
Company had other non-operating income for the three months ended June 30, 2009
of $10,923 or 0.2 %
of  revenue, and $9,030  or 0.1% of revenue for the same
period in 2008.  Non-Operating income  for the three months
ended June 30, 2009  and June 30, 2008 consisted of continuing rental
income from the lease of warehouse space in Kent, Washington.
  Loss on
derivative financial instruments
  In
accordance with EITF 07-05 (See Note 11) which is effective at the end of 2008,
the conversion feature of our convertible notes was recognized as an embedded
derivative instrument.  Both the conversion feature of the notes and
the warrants have been  re-characterized as derivative
liabilities.  SFAS No. 133 requires that the fair value of these
liabilities be re-measured at the end of every reporting period with the change
in value reported in the statement of operations.  For the three
months ended June 30, 2009, the Company recorded a loss on derivative financial
instruments of $2,252,622.
  Net
Loss
  The net
loss for the three months ended June 30, 2009 was $7,824,155 or 115.0% of
revenue as compared to a loss of $1,204,984, or 12.8% of revenue for the same
period in 2008.  The higher loss is attributable to reductions in
operating margins over the three months ended June 30, 2009 and losses incurred
at Island Environmental Services and losses on derivative financial
instruments.
  32
  COMPARISON
OF SIX  MONTHS ENDED JUNE  30, 2009 AND
2008
  Revenues
  For the
six months ended June 30, 2009, the Company reported consolidated revenue of
$15,005,242 representing
a decrease of $1,352,996, or 8.3% compared to the six months ended June 30,
2008.  The decrease in revenue can be primarily attributed to the
decrease in the field service sector for GEM, Inc. These decreases were
partially offset by increases in GEM Mobile Treatment Services and the inclusion
of Island Environmental Services for the six months ended June 30,
2009.
  Cost of
Revenues
  Cost of
revenues for the six months ended June 30, 2009 were $13,864,908 or 92.4% of
revenue, as compared to $13,467,714 or 82.3% of revenue for the six months
ended June 30, 2008.  The cost of revenues includes disposal costs,
transportation, fuel, outside labor and operating supplies. The change in the
cost of revenue in comparison to the prior year is primarily due to negative
margins at Island Environmental Services.
  Operating
Expenses
  Operating
expenses for the six months ended June 30, 2009 were $4,699,551 or 31.3% of
revenue as compared to $3,805,927 or 23.3% of revenue for the same period in
2008. Operating expenses include sales and administrative salaries and benefits,
insurance, rent, legal, accounting and other professional fees. The increase in
operating expenses is primarily attributable to increase in rent and insurance
and the inclusion of Island Environmental Services for the six months ended June
30, 2009.
  Depreciation
and Amortization
  Depreciation
and amortization expenses for the six months ended June 30, 2009 were $837,325
or 6% of revenue, as compared to $467,096 or 2.8% of revenue for the same period
in 2008. The increase in expense is due to additions to property, plant and
equipment and increase of assets acquired under capitalized leases.
  Interest
and financing costs
  Interest
and financing costs for the six months ended June 30, 2009 were $1,994,386 or
13.3% of revenue, as compared to $1,661,319 or 10.1% of revenue for the
same period in 2008.  Interest expense consists of interest on the
line of credit, short and long term borrowings, and advances to related
parties.  It also includes amortization of deferred finance fees and
amortization of valuation discounts generated from beneficial conversion
features related to the fair value of warrants and conversion features of long
term debt.  The increase in interest expense is due to additional
interest incurred on higher balances on the line of credit.
  Other
Non-Operating Income
  The
Company had other non-operating income for the six months ended June 30, 2009 of
$19,340 or .10% of
revenue, and $16,693  or .10% of revenue for the same period in
2008.  Non-Operating income for the six months ended June 30, 2009 and
June 30, 2008 consisted of continuing rental income from the lease of warehouse
space in Kent, Washington.
  33
  Loss on
derivative financial instruments
  In
accordance with EITF 07-05 (See Note 11) which is effective at the end of 2008,
the conversion feature of our convertible notes was recognized as an embedded
derivative instrument.  Both the conversion feature of the notes and
the warrants have been  re-characterized as derivative
liabilities.  SFAS No. 133 requires that the fair value of these
liabilities be re-measured at the end of every reporting period with the change
in value reported in the statement of operations.  For the six months
ended June 30, 2009, the Company recorded a loss on derivative financial
instruments of $1,700,110.
  Net
Loss
  The net
loss for the six months ended June 30, 2009 was $9,355,390 or 62.3% of revenue
as compared to a loss of $2,550,217, or 15.6% of revenue for the same period in
2008.  The higher loss is attributable to reductions in operating
margins over the six months ended June 30, 2009 losses incurred at Island
Environmental Services and losses on derivative financial
instruments.
   LIQUIDITY
AND CAPITAL RESOURCES
  Cash
  Our
primary sources of liquidity are cash provided by operating, investing, and
financing activities.  Net cash used in operations for the three
months ended June 30, 2009 was $499,393 as compared to net cash used in
operations of $382,971 for the same period in 2008. Net cash provided by
operations for the six months ended June 30, 2009 was $696,260 as compared to
net cash used in operations of $889,789 for the same period in
2008.
  Liquidity
  The
accompanying consolidated financial statements have been prepared assuming that
the company will continue as a going concern.  The Company incurred a
net loss of $9,355,390 and utilized cash in operating activities of $696,260
during the six  months ended June 30, 2009. As of June 30, 2009 the
Company had current liabilities exceeding current assets by $13,798,700,
primarily because of the reclassification of long term debt to current resulting
from covenant provisions under the ComVest notes and had a stockholders’
deficiency of $11,488,730. These matters raise substantial doubt about the
Company’s ability to continue as a going concern.
  Management
is continuing to raise capital through the issuance of debt and equity and
believes it will be able to raise sufficient capital over the next twelve months
to finance operations. In addition, management believes that the company will
begin to operate profitably due to improved operational results and cost
reductions   made in late 2008.  However, there can be
no assurances that the Company will be successful in this regard or will be able
to maintain its working capital surplus or eliminate operating
losses.  The accompanying financial statements do not contain any
adjustments which may be required as a result of this uncertainty.The
Company’s capital requirements consist of general working capital needs,
scheduled principal and interest payments on debt, obligations, and capital
expenditures.  The Company’s capital resources consist primarily of
cash generated from operations and proceeds from issuances of debt and common
stock.  The Company’s capital resources are impacted by changes in
accounts receivable as a result of revenue fluctuations, economic trends and
collection activities.
  On August 17,
2009, the Company divested the assets of GEM Mobile Treatment Services 
(GEM MTS).  GEM MTS was sold to MTS Acquisition Company, Inc., a holding
company, and will be owned and operated by two former senior executives of
GEM.  Consideration for the sale was in the form of promissory notes in the
aggregate amount of $5.6 million, the assignment of approximately $1.0 million
of accounts payable and possible future royalties.  The consideration was
immediately assigned to CVC California, LLC, ("CVC") GEM's senior secured
lender.  As the notes are paid to CVC, GEM's indebtedness to CVC will be
reduced. Total reduction in indebtedness to CVC could amount to more than $7
million.  The Company has not yet analyzed the accounting effect of the
transaction, but the Company does not believe that it has met the criteria for
recognition of a sale under the current accounting criteria, as the Company has
not transferred all the risks and rewards to the buyer.  As such, we do not
expect there to be a gain on the transaction.
 34
  Cash
Flows for the Six Months Ended June 30, 2009
  Operating
activities for the six months ended June 30, 2009 produced $696,260 in cash.
Accounts receivable, net of allowances for bad debts, were reduced by $2,160,203
as of June 30, 2009 and accounts payable were increased
by $1,836,877.  Depreciation and amortization for the six months
ended June 30, 2009 totaled $837,325. The net loss of $9,355,390 included a
number of non-cash items incurred by the Company including expenses of $453,075
representing the fair value of vested options, $908,543 representing
amortization of discount on financing agreements, $293,035 representing warrants
issued for services, $128,037 representing amortization of note discounts,
$96,264 representing amortization of deferred financing fees, $2,187,351
representing a loss on extinguishment and a derivative loss of $1,700,110.
Prepaid expenses increased by $96,729 and accrued expenses decreased by
$636,809.
  The
Company used cash for investment in plant, property and equipment and deposits
totaling approximately $229,859 for the six months ended June 30, 2009. Capital
expenditures increased due to the acquisition of equipment at GEM Mobile
Treatment Services. Financing activities used $757,509 for the six months ended
June 30, 2009 to reduce notes payable and make payments on capital
leases.
  These
activities resulted in a $291,108 reduction in cash balances from year end
December 31, 2008 to the  end of the quarter June 30, 2009.
   CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
  The
preparation of our consolidated financial statements requires us to make
estimates that affect the reported amounts of assets, liabilities, revenues and
expenses.  The following are the areas that we believe require the
greatest amount of estimates in the preparation of our financial statements:
allowances for doubtful accounts, impairment testing and accruals for disposal
costs for waste received at our TSDF.
  (a)
Allowance for doubtful accounts
  We
establish an allowance for doubtful accounts to provide for accounts receivable
that may not be collectible. In establishing the allowance for doubtful
accounts, we analyze specific past due accounts and analyze historical trends in
bad debts.  In addition, we take into account current economic
conditions.  Actual accounts receivable written off in subsequent
periods can differ materially from the allowance for doubtful accounts
provided.
  (b)
Impairment of Long-Lived Assets
  Statement
of Financial Accounting Standards No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets”, established guidelines regarding when impairment
losses on long-lived assets, which include property and equipment, should be
recognized and how impairment losses should be measured.  This
statement also provides a single accounting model for long-lived assets to be
disposed of and significantly changes the criteria that would have to be met to
classify an asset as held-for-sale.  The Company periodically reviews,
at least annually, such assets for possible impairment and expected losses. If
any losses are determined to exist they are recorded in the period when such
impairment is determined.
  35
 (c)
Revenue Recognition
  The
Company recognizes revenue when persuasive evidence of an arrangement exists,
delivery has occurred or services have been rendered, the price is fixed or
determinable, and collection is reasonably assured.
  The
Company is a fully integrated environmental service firm structured to provide
field services, technical services, transportation, off-site treatment, on-site
treatment services, and environmental health and safety (“EHS”) compliance
services.  Through our services, we assist clients in meeting
regulatory requirements from the designing stage to the waste disposition stage.
The technicians who provide these services are billed at negotiated rates, or
the service is bundled into a service package.  These services are
billed and revenue recognized when the service is performed and completed. When
the service is billed, expected costs are accumulated and accrued.
  Our field
services consist primarily of handling, packaging, and transporting a wide
variety of liquid and solid wastes of varying amounts. We provide the fully
trained labor and materials to properly package hazardous  and
non-hazardous waste according to requirements of the Environmental Protection
Agency and the Department of Transportation. Small quantities of laboratory
chemicals are segregated according to hazard class and packaged into appropriate
containers or drums. Packaged waste is profiled for acceptance at a client’s
selected treatment, storage and disposal facility (TSDF) and tracked
electronically through our systems. Once approved by the TSDF, we provide for
the transportation of the waste utilizing tractor-trailers or bobtail trucks.
The time between picking up the waste and transfer to an approved TSDF is
usually less than 10 days.  The Company recognizes revenue for waste
picked up and received waste at the time pick up or receipt occurs and
recognizes the estimated cost of disposal in the same period. For the Company’s
TSDF located in Rancho Cordova, CA, costs to dispose of waste materials located
at the Company’s facilities are included in accrued disposal
costs.  Due to the limited size of the facility, waste is held for
only a short time before transfer to a final treatment, disposal or recycling
facility. Revenue is recognized on contracts with retainage when services have
been rendered and collectability is reasonably assured.
  (d)
Derivative Financial Instruments
  The
Company does not use derivative instruments to hedge exposures to cash flow,
market or foreign currency risks. The Company evaluates all of its financial
instruments to determine if such instruments are derivatives or contain features
that qualify as embedded derivatives. For derivative financial instruments that
are accounted for as liabilities, the derivative instrument is initially
recorded at its fair value and is then re-valued at each reporting date, with
changes in the fair value reported in the condensed consolidated statements of
operations.  For stock-based derivative financial instruments, the
Company uses the Black-Scholes option pricing model to value the derivative
instruments at inception and on subsequent valuation dates.  The
classification of derivative instruments, including whether such instruments
should be recorded as liabilities or as equity, is evaluated at the end of each
reporting period.  Derivative instrument liabilities are classified in
the balance sheet as current or non-current based on whether or not net-cash
settlement of the derivative instrument could be required within 12 months of
the balance sheet date.
  36
  Recent
Accounting Pronouncements
  In
December 2007, Financial Accounting Standards Board (FASB) Statement 141R,
“Business Combinations (revised 2007)” (SFAS 141R”) was issued.  SFAS
141R replaces SFAS 141 “Business Combinations”.  SFAS 141R requires
the acquirer of a business to recognize and measure the identifiable assets
acquired, the liabilities assumed, and any non-controlling interest in the
acquiree at fair value. SFAS 141R also requires transactions costs related to
the business combination to be expensed as incurred. SFAS 141R applies
prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008.  The effective date, as well as the adoption date
for the Company was January 1, 2009.  Although SFAS 141R may impact
our reporting in future financial periods, we have determined that the standard
did not have any impact on our historical consolidated financial statements at
the time of adoption.
  In April
2008 the FASB issued FASB Staff Position (“FSP”) No. 142-3, “Determination of
the Useful Life of Intangible Assets” (“FSP 142-3”), which amends the factors
that should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under SFAS
142.  This pronouncement requires enhanced disclosures concerning a
company’s treatment of costs incurred to renew or extend the term of a
recognized intangible asset. FST 142-3 is effective for financial statements
issued for fiscal years beginning after December 15, 2008.  The
effective date, as well as the adoption date for the Company was January 1,
2009.  Although FSP 142-3 may impact our reporting in future financial
periods, we have determined that the standard did not have any impact on our
historical consolidated financial statements at the time of
adoption.
  In April
2009, the FASB issued FSP No. FAS 141(R)-1, “Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from Contingencies.”
FSP No. FAS 141(R)-1 amends and clarifies FASB Statement No. 141(R), to
address application issues raised on initial recognition and measurement,
subsequent measurement and accounting and disclosure of assets and liabilities
arising from contingencies in a business combination. FSP No. FAS 141(R)-1 is
effective for the first annual reporting period on or after December 31,
2008. The impact of FSP No. FAS 141(R)-1 on the
Company’s  consolidated financial statements will depend on the number
and size of acquisition transactions, if any, engaged in by the
company.
  In April
2009, the FASB issued FSP FAS 157-4, “Determining Fair Value When the Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly” (FSP FAS 157-4). FSP FAS 157-4
provides additional guidance for estimating fair value in accordance with SFAS
No. 157, Fair Value Measurements, when the volume and level of activity for the
asset or liability have significantly decreased. FSP FAS 157-4 also includes
guidance on identifying circumstances that indicate a transaction is not
orderly. FSP FAS 157-4 is effective for interim and annual reporting periods
ending after June 15, 2009, with early adoption permitted for periods ending
after March 15, 2009. FSP FAS 157-4 does not require disclosures for earlier
periods presented for comparative purposes at initial adoption. In periods after
initial adoption, FSP FAS 157-4 requires comparative disclosures only for
periods ending after initial adoption. The Company does not expect the changes
associated with adoption of FSP FAS 157-4 will have a material effect on the on
its financial statements and disclosures.
  The
Company does not believe that the adoption of the above recent pronouncements
will have a material effect on the Company’s consolidated results of operations,
financial position, or cash flows.
  37
  ITEM
3.  Quantitative and Qualitative Disclosures About Market
Risk
  Not
required
  ITEM
4. Controls and Procedures
  Evaluation
of Disclosure Controls and Procedures
  We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission’s rules and forms and that such information
is accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow for timely
decisions regarding required disclosure. In designing and evaluating the
disclosure controls and procedures, management recognizes that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and management
is required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures. Our disclosure controls and procedures were
designed to provide reasonable assurance that the controls and procedures would
meet their objectives.
  As
required by SEC Rule 13a-15(b), we carried out an evaluation, under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures as of the end of
the period covered by this report. Based on the foregoing, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and
procedures were effective at the reasonable assurance level.
  38
  PART
II - OTHER INFORMATION
  Item
1. Legal Proceeding
  On July
5, 2007, a lawsuit was instituted by Romic Environmental Technologies Corp.
(“RET”) against the Company and four of its senior executives, Namki Yi, the
Vice President of Corporate Development, Betty McKee, the Director of Systems
& Financial Analysis, Mindy Rath, the Director of Sales and Gary
Bowling, the Regional General Manager for Southern CA, all of whom were formerly
employed by RET.  The lawsuit was brought in the Superior Court of the
State of California, County of Los Angeles.  In the lawsuit, RET alleges
that the Company and the four executives are liable to RET for among other
things, Violation of Non-Disclosure Agreements and Termination Protection
Agreements, Intentional Interference with contracts, and Violation of Trade
Secrets and Unfair Competition. RET alleges damages of Fifteen Million Dollars
and requests certain injunctive relief. The Company believes that the
lawsuit has no merit, and intends to vigorously defend the action. However, an
adverse outcome of this lawsuit would have a material adverse affect on our
business and financial condition.
  Item
1A.  Risk Factors
  No
material changes from risk factor as previously disclose.
  Item
2. Unregistered
Sales of Securities and Use of Proceeds – S-1/A  Registration
Statement
  None
  Item
3. Defaults
upon Senior Securities-None
 Item
4. Submission
of Matters to a Vote of Security Holders -None
  Item
5. Other
Information - None
  Item
6. Exhibits and Reports
  (a)
                          Exhibits31.1-
      Section 302 Certification CEO31.2-
      Section 302 Certification CFO32.1-
      Section 906 Certification CEO32.1-
      Section 906 Certification CFO(b)
                          Reports
      on Form 8-K1.
      Stock Purchase agreement Island Environmental Svcs.; filed with the
      Commission on 9/24/082.
      Material definitive agreement and Sales of Equity; filed with the
      Commission on 9/24/083.
      Amendment to Revolving Credit and Term Loan Agreement , filed with the
      Commission on June 4,
2009
  39
  SIGNATURES
  In
accordance with the requirements of the Exchange Act, the registrant has caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
   GENERAL
ENVIRONMENTAL MANAGEMENT, INC
  Dated:
              August
      19, 2009
              
              /s/
      Timothy J. KoziolTimothy
      J. Koziol, CEO and Chairman of the Board of DirectorsDated:
              August
      19, 2009
              
              /s/
      Brett M. ClarkExecutive
      Vice President of Finance, Chief Financial
  Officer
   40