**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**







**FORM
      10-QSB**





(Mark
      One)





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


For
      the
      quarterly period ended September
      30, 2006





[ 
                ]
            TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934


For
      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
              
              (State
                or other jurisdiction
              of
                incorporation or
                organization)
            87-0485313
              (I.R.S.
                Employer
              Identification
                Number)





3191
      Temple Ave., Suite 250, Pomona, CA91768


(Address
      of principal executive offices) and (Zip
      Code)




(909)
      444-9500


Issuer’s
      telephone number, including area code





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. [X] Yes [  ] No





Indicate
      the number of shares outstanding of each of the Issuer’s classes of common
      stock, as of the latest practicable date.





Class
              $.001
                PAR VALUE COMMON STOCK
            
            Outstanding
                as of September 30,
                2006
              128,382,181
                SHARES




1




**GENERAL
        ENVIRONMENTAL MANAGEMENT, INC.**
 **QUARTERLY
        REPORT ON FORM 10QSB**
 **FOR
        THE FISCAL QUARTER ENDED SEPTEMBER 30, 2006**
 
 **TABLE
        OF CONTENTS**


**Page
                  No.****Part
                  I**
              **Financial
                  Information**Item
                  1
              Financial
                  Statements (unaudited)
              3Condensed
                  Consolidated Balance Sheets as of September 30, 2006 (Unaudited)
                  and
                  December 31, 2005
              3Condensed
                  Unaudited Consolidated Statements of Operations for the Three Months
                  and
                  Nine Months ended September 30, 2006 and 2005
              4Condensed
                  Unaudited Consolidated Statement of Stockholders’ Equity for the Nine
                  Months Ended September 30, 2006
              5Condensed
                  Unaudited Consolidated Statements of Cash Flows for the Nine Months
                  Ended
                  September 30, 2006 and 2005
              6Notes
                  to the Unaudited Condensed Consolidated Financial
                  Statements
              8Item
                  2
              Management’s
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              23Item
                  3
              Controls
                  and Procedures
              29**Part
                  II**
              **Other
                  Information**
              30Item
                  1
              Legal
                  Proceedings
              30Item
                  2
              Changes
                  in Securities
              30Item
                  3
              Defaults
                  Upon Senior Securities
              30Item
                  4
              Submission
                  of Matters to a Vote of Security Holders
              30Item
                  5
              Other
                  Information
              30Item
                  6
              Exhibits
                  and Reports on Form 8K
              30**Signatures**
              31**CEO
                  Certification**
              32**CFO
                  Certification**
              33
  2
  PART
          1 -
          FINANCIAL INFORMATION
 
 Item
          1.
          Financial Statements.
 
 **GENERAL
          ENVIRONMENTAL MANAGEMENT, INC. AND SUBSIDIARIES**
 **CONDENSED
          CONSOLIDATED BALANCE SHEETS**
  **September
                      30,**
                  ****
                  **December
                      31,**
                  ********
                  ****
                  **2006**
                  ****
                  **2005**(Unaudited)**ASSETS**CURRENT
                    ASSETS:Cash
                  
                  $
                  695,067
                  
                  $
                  47,995Accounts
                      receivable, net of allowance for doubtful accounts of$238,013
                      and $236,021, respectively
                  
                  
                  6,117,142
                  
                  
                  5,143,754Prepaid
                      expenses and other current assets
                  
                  
                  510,024
                  
                  
                  126,268Total
                      Current Assets
                  
                  
                  7,322,233
                  
                  
                  5,318,017Property
                      and Equipment - Net of accumulated depreciation of$1,093,196
                      and $865,814, respectively
                  
                  
                  2,821,435
                  
                  
                  2,478,556Restricted
                      cash
                  
                  
                  885,128
                  
                  
                  566,698Intangibles,
                      net
                  
                  
                  1,465,817
                  
                  
                  306,996Deferred
                      financing fees
                  
                  
                  398,860
                  
                  
                  -Deferred
                      acquisition costs
                  
                  
                  1,979,363
                  
                  
                  -Restricted
                      cash, potential acquisition (See Note 7)
                  
                  
                  24,910,510
                  
                  
                  -Deposits
                  
                  
                  181,381
                  
                  
                  59,120Goodwill
                  
                  
                  644,647
                  
                  
                  644,647TOTAL
                      ASSETS
                  
                  $
                  40,609,374
                  
                  $
                  9,374,034**LIABILITIES
                    AND STOCKHOLDERS’ EQUITY**
 CURRENT
                        LIABILITIES:Notes
                        payable - financing agreement
                    
                    $
                    -
                    
                    $
                    1,094,780Accounts
                        payable
                    
                    
                    3,559,286
                    
                    
                    3,920,923Accrued
                        expenses
                    
                    
                    1,637,294
                    
                    
                    414,616Accrued
                        disposal costs
                    
                    
                    561,818
                    
                    
                    789,414Payable
                        to related party
                    
                    
                    496,904
                    
                    
                    121,123Deferred
                        rent
                    
                    
                    20,327
                    
                    
                    16,255Current
                        portion of notes payable
                    
                    
                    93,353
                    
                    
                    83,106Current
                        portion of notes payable to investors
                    
                    
                    705,545
                    
                    
                    1,359,448Total
                        Current Liabilities
                    
                    
                    7,074,527
                    
                    
                    7,799,665LONG-TERM
                        LIABILITIES :Financing
                        agreements, net of current portion
                    
                    
                    2,495,109
                    
                    
                    -Financing
                        on potential acquisition ( See Note 7)
                    
                    
                    24,246,542
                    
                    
                    -Notes
                        payable, net of current portion
                    
                    
                    1,635,482
                    
                    
                    1,536,652Notes
                        payable to investors, net of current portion
                    
                    
                    810,329
                    
                    
                    -Total
                        Long-Term Liabilities
                    
                    
                    29,187,462
                    
                    
                    1,536,652Commitments
                      and
                      contingenciesSTOCKHOLDERS’
                        EQUITYSeries
                        A convertible preferred stock, net of offering costs of $
                        37,732, 8% dividend, liquidation,preference
                        $1 per share, $.001 par value, 50,000,000 shares
                        authorized, none and 250,000 sharesissued
                        and outstanding, respectively
                    
                    
                    -
                    
                    
                    212,628Common
                        stock, $.001 par value, 200,000,000 shares authorized, 128,382,181and
                        27,893,576 sharesissued
                        and outstanding, respectively
                    
                    
                    128,383
                    
                    
                    27,895Series
                        B convertible preferred stock, net of offering costs of
                        $60,960 liquidation preference $1 pershare,
                        $.001 par value, 50,000,000 shares authorized, 1,016,000
                        shares and none issued andoutstanding,
                        respectively
                    
                    
                    1,016Additional
                        paid in capital
                    
                    
                    24,912,766
                    
                    
                    13,083,970Accumulated
                        deficit
                    
                    
                    (20,694,780
                    )
                    
                    (13,286,776
                    )Total
                        Stockholders' Equity
                    
                    
                    4,347,385
                    
                    
                    37,717TOTAL
                        LIABILITIES AND STOCKHOLDERS’ EQUITY
                    
                    $
                    40,609,374
                    
                    $
                    9,374,034
  See
              accompanying notes to the condensed consolidated financial
              statements
 3
 **GENERAL
                ENVIRONMENTAL MANAGEMENT, INC. AND SUBSIDIARIES**
 **CONDENSED
                CONSOLIDATED STATEMENTS OF OPERATIONS**
 **(UNAUDITED)**
  **Nine
                            months ended**
                        ****
                        **Three
                            months ended**
                        ********
                        ****
                        **September
                            30,**
                          **2006**
                        ****
                        **September
                            30,**
                          **2005**
                        ****
                        **September
                            30,**
                          **2006**
                        ****
                        **September
                            30,**
                          **2005**REVENUES
                        
                        $
                        15,019,548
                        
                        $
                        12,702,467
                        
                        $
                        7,021,791
                        
                        $
                        5,161,211COST
                            OF REVENUES
                        
                        
                        11,316,559
                        
                        
                        10,516,971
                        
                        
                        5,189,863
                        
                        
                        4,010,194GROSS
                            PROFIT
                        
                        
                        3,702,989
                        
                        
                        2,185,496
                        
                        
                        1,831,928
                        
                        
                        1,151,017OPERATING
                            EXPENSES
                        
                        
                        6,532,789
                        
                        
                        6,109,085
                        
                        
                        2,590,040
                        
                        
                        1,635,368OPERATING
                            LOSS
                        
                        
                        (2,829,800
                        )
                        
                        (3,923,589
                        )
                        
                        (758,112
                        )
                        
                        (484,351
                        )OTHER
                            INCOME (EXPENSE):Interest
                            income
                        
                        
                        15,610
                        
                        
                        9,467
                        
                        
                        3,939
                        
                        
                        3,335Interest
                            and financing costs
                        
                        
                        (3,174,233
                        )
                        
                        (533,172
                        )
                        
                        (2,277,346
                        )
                        
                        (166,420
                        )Other
                            non-operating income
                        
                        
                        79,830
                        
                        
                        131,879
                        
                        
                        27,018
                        
                        
                        24,649Net
                            Loss
                        
                        
                        (5,908,593
                        )
                        
                        (4,315,415
                        )
                        
                        (3,004,501
                        )
                        
                        (622,787
                        )Preferred
                            stock dividend
                        
                        
                        (21,871
                        )
                        
                        -
                        
                        
                        (5,000
                        )
                        
                        -Modification
                          of terms of Series AConvertible
                            preferred stock uponconversion
                        
                        
                        (522,500
                        )
                        
                        (157,414
                        )
                        
                        (505,629
                        )
                        
                        (157,414
                        )Beneficial
                          conversion feature onissuance
                            of Series B convertiblepreferred
                            stock
                        
                        
                        (955,040
                        )
                        
                        -
                        
                        
                        (955,040
                        )
                        
                        -Net
                            Loss applicable to common share holders
                        
                        $
                        (7,408,004
                        )
                        $
                        (4,472,829
                        )
                        $
                        (4,470,170
                        )
                        $
                        (780,201
                        )Calculations
                          of net loss per commonshare,
                            basic and diluted:
                        
                        $
                        (.19
                        )
                        $
                        (.18
                        )
                        $
                        (.07
                        )
                        $
                        (.03
                        )Weighted
                          average shares of common stockoutstanding,
                            basic and diluted
                        
                        
                        39,269,845
                        
                        
                        25,201,622
                        
                        
                        61,222,046
                        
                        
                        27,566,236






See
      accompanying notes to the condensed
      consolidated financial statements


4




**GENERAL
        ENVIRONMENTAL MANAGEMENT, INC. AND SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY**
 **FOR
        THE NINE MONTHS ENDED SEPTEMBER 30, 2006**
 (UNAUDITED)
  ****
              
              **Preferred
                  Stock**
              
              **Preferred
                  Stock**
              
              **Additional**
              
              ****
              
              ********
              
              **Common
                  Stock**
              
              **Series
                  A**
              
              **Series
                  B**
              
              **Paid-in**
              
              **Accumulated**
              
              ********
              
              **Shares**
              
              **Amount**
              
              **Shares**
              
              **Amount**
              
              **Shares**
              
              **Amount**
              
              **Capital**
              
              **Deficit**
              
              **Total**Balance,
                  January 1, 2006
              
              
              27,893,576
              
              $
              27,895
              
              
              250,000
              
              $
              212,628
              
              
              
              
              $
              -
              
              $
              13,083,970
              
              $
              (13,286,776
              )
              $
              37,717Issuance
                  of common stock for finders fees
              
              
              247,059
              
              
              247
              
              
              -
              
              
              -
              
              
              
              
              
              
              
              
              209,753
              
              
              -
              
              
              210,000Issuance
                of common
                stock for settlement of payable torelated
                  party
              
              
              110,000
              
              
              110
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              55,990
              
              
              
              
              
              56,100Valuation
                of
                warrants and beneficial conversion featureon
                  convertible notes payable
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,921,430
              
              
              
              
              
              2,921,430Issuance
                of Common
                Shares Related to Legalsettlement
                  with Shareholders
              
              
              66,000
              
              
              66
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              6,534
              
              
              
              
              
              6,600Beneficial
                Conversion Feature on Convertible noteIssued
                  related to Legal Settlement with Shareholder
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              30,000
              
              
              
              
              
              30,000Common
                stock issued
                and issuable on conversion ofdebt
              
              
              95,065,546
              
              
              95,065
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              4,658,212
              
              
              
              
              
              4,753,277Modification
                of
                terms of conversion of Series APreferred
                  Stock to common stock
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              522,500
              
              
              (522,500
              )
              
              -Conversion
                  of Series A preferred stock to common
              
              
              5,000,000
              
              
              5,000
              
              
              (250,000
              )
              
              (212,628
              )
              
              
              
              
              
              
              
              207,628
              
              
              
              
              
              -Issuance
                  of Series B convertible preferred stock
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,016,000
              
              
              1,016
              
              
              954,024
              
              
              
              
              
              955,040Beneficial
                Conversion Feature on Series B Preferredstock
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              955,040
              
              
              (955,040
              )
              
              -Valuation
                  of warrants on placement and advisory fees
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,134,857
              
              
              
              
              
              1,134,857Fair
                  value of vested options
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              172,828
              
              
              
              
              
              172,828Preferred
                  stock dividends
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (21,871
              )
              
              (21,871
              )Net
                  loss for the nine months ended September 30, 2006
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (5,908,593
              )
              
              (5,908,593
              )Balance,
                  September 30, 2006
              
              
              128,382,181
              
              $
              128,383
              
              
              -
              
              $
              -
              
              
              1,016,000
              
              $
              1,016
              
              $
              24,912,766
              
              $
              (20,694,780
              )
              $
              4,347,385






**See
      accompanying notes to consolidated financial statements**


5




**GENERAL
        ENVIRONMENTAL MANAGEMENT, INC. AND SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF CASH FLOWS**
 **(UNAUDITED)**
  **Nine
                    Months Ended**
                  **September
                    30,**
                ********
                ****
                **2006**
                ****
                **2005**OPERATING
                    ACTIVITIESNet
                    loss
                
                $
                (5,908,593
                )
                $
                (4,315,415
                )Adjustments
                    to reconcile net loss to cashused
                    in operating activities:Depreciation
                    and amortization
                
                
                471,168
                
                
                192,031Amortization
                    of discount on notes
                
                
                81,735
                
                
                129,424Issuance
                    of warrants and common shares for services
                
                
                1,489,429
                
                
                914,258Fair
                    value of vested options
                
                
                172,828
                
                
                -Amortization
                    of discount on convertible debt
                
                
                541,860
                
                
                -Amortization
                    of deferred financing fees
                
                
                177,655
                
                
                -Reduction
                    of financing costs from issuanceof
                    common shares for accounts payable
                
                
                (53,900
                )
                
                -Changes
                    in assets and liabilities:Accounts
                    Receivable
                
                
                (973,388
                )
                
                (1,395,720
                )Prepaid
                    and other current assets
                
                
                (173,259
                )
                
                662Supplies
                    inventory
                
                
                -
                
                
                7,256Accounts
                    Payable
                
                
                (361,637
                )
                
                (529,960
                )Accrued
                    interest on convertible notes
                
                
                370,431
                
                
                60,689Payable
                    to related party
                
                
                (334,832
                )
                
                (301,004
                )Accrued
                    expenses and other liabilities
                
                
                864,194
                
                
                793,234NET
                    CASH USED IN OPERATING ACTIVITIES
                
                
                (3,636,309
                )
                
                (4,444,545
                )INVESTING
                    ACTIVITIES:Acquisition
                
                
                (1,500,000
                )
                
                -Increase
                    in deposit for acquisition
                
                
                (24,910,510
                )
                
                -Increase
                    in deferred fees - acquisition
                
                
                (1,697,057
                )
                
                -Increase
                    in deposit and restricted cash
                
                
                (318,430
                )
                
                (68,819
                )Increase
                    in permits
                
                
                -
                
                
                (64,453
                )Additions
                    to property and equipment
                
                
                (224,630
                )
                
                (83,203
                )NET
                    CASH USED IN INVESTING ACTIVITIES
                
                
                (28,650,627
                )
                
                (216,475
                )FINANCING
                    ACTIVITIESNet
                    advances (payments) on Line of credit
                
                
                (1,094,780
                )
                
                -Net
                    advances from notes payable - factor
                
                
                -
                
                
                164,832Issuance
                    of notes payable
                
                
                128,522
                
                
                1,187,500Repayments
                    of convertible notes
                
                
                -
                
                
                (125,076
                )Repayment
                    of long term debts
                
                
                -
                
                
                -Payments
                    of notes to investors
                
                
                -
                
                
                -Payments
                    of notes payable
                
                
                (79,337
                )
                
                (185,677
                )Net
                    proceeds from issuance of acquisition notes
                
                
                23,810,000
                
                
                -Net
                    proceeds from issuance of notes
                
                
                4,142,223
                
                
                895,000Proceeds
                    from issuance of convertible preferred stock
                
                
                955,040
                
                
                225,000Proceeds
                    from issuance of common stock
                
                
                -
                
                
                1,528,706Proceeds
                    from exercise of warrants
                
                
                -
                
                
                565,626Proceeds
                    from issuance of convertible notes
                
                
                4,753,277
                
                
                -Deferred
                    financing fees
                
                
                (426,550
                )
                
                -Advances
                    from related parties
                
                
                745,613
                
                
                -NET
                    CASH PROVIDED BY FINANCING ACTIVITIES
                
                
                32,934,008
                
                
                4,255,911NET
                    INCREASE (DECREASE) IN CASH
                
                
                647,072
                
                
                (405,109
                )Cash
                    and cash equivalents at beginning of period
                
                
                47,995
                
                
                553,658CASH
                    AND CASH EQUIVALENTS AT END OF PERIOD
                
                $
                695,067
                
                $
                148,549SUPPLEMENTAL
                    DISCLOSURE OF CASH FLOW INFORMATION:Cash
                    paid for:Interest
                    expense
                
                $
                242,549
                
                $
                185,224
  See
          accompanying notes to consolidated
          financial statements
 6
 **GENERAL
              ENVIRONMENTAL MANAGEMENT, INC. AND SUBSIDIARIES**
 **CONDENSED
              CONSOLIDATED STATEMENTS OF CASH FLOWS**
 **(UNAUDITED)**
  **Nine
                        Months Ended**
                      **September
                        30,**
                    ********
                    ****
                    **2006**
                    ****
                    **2005**


SUPPLEMENTAL
                  DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:Value
                  of warrants issued to lenders recorded as debt discount
              
              $
              1,191,262
              
              $
              -Value
                  of beneficial conversion feature of notes issued recordedas
                  debt discount
              
              
              932,168
              
              
              -Valuation
                  of warrants issued to advisors recorded as financing costs
              
              
              197,723
              
              
              -Conversion
                  of related party debt of $110,000 into common stock valued at
                  $56,100
              
              
              110,000
              
              
              -Issuance
                  of common stock for financing costs
              
              
              210,000
              
              
              -Deferred
                  financing cost included in payable to related party
              
              
              75,000
              
              
              -Value
                  of warrants and beneficial conversion feature on convertible
                  notes
              
              
              955,039
              
              
              -Conversion
                  of Preferred stock to common stock
              
              
              212,628
              
              
              -Valuation
                  of warrants allocated to deferred fees
              
              
              282,306
              
              
              -Modification
                  of Series A preferred stock
              
              
              522,500
              
              
              -Preferred
                  stock dividend included in accounts payable
              
              
              21,871
              
              
              -Common
                  stock issued and issuable on conversion of debt
              
              
              4,753,277






See
      accompanying notes to consolidated
      financial statements


7




**GENERAL
        ENVIRONMENTAL MANAGEMENT, INC AND SUBSIDIARIES**
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 
 1. **ORGANIZATION
        AND PRINCIPAL ACTIVITIES**
  ORGANIZATION
        AND DESCRIPTION OF BUSINESS
 
 Ultronics
        Corporation (a development stage company) ( “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. The Company’s fiscal year end is
        December 31.
 
 On
        February 14, 2005 the Company acquired all of the outstanding shares of General
        Environmental Management, Inc (“GEM”), a Delaware Corporation in exchange for
        18,914,408 shares of its class A common stock and as a result GEM became
        a
        wholly owned subsidiary of Ultronics 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. 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.
 
 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 with regard to Regulation S-B and, 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 periods
        presented. The results for the interim periods are not necessarily indicative
        of
        results for the entire year. The financial statements presented herein should
        be
        read in conjunction with the financial statements included in the Company's
        Annual Report on Form 10-KSB for the year ended December 31, 2005 filed with
        the
        Securities and Exchange Commission.
 
 GOING
        CONCERN
 
 The
        accompanying consolidated financial statements have been prepared assuming
        the
        company will continue as a going concern. The Company incurred a net loss
        of
        $5,908,593 and utilized cash in operating activities of $3,636,309 during
        the
        nine months ended September 30, 2006. As of September 30, 2006 the Company
        had
        current assets exceeding current liabilities by $247,706. 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 improved operational results, cost cutting practices, and the integration
        of the acquisition made by the Company during the first quarter of 2006.
        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.
  8
 **GENERAL
          ENVIRONMENTAL MANAGEMENT, INC AND SUBSIDIARIES**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
  **2.**  **SUMMARY
        OF SIGNIFICANT ACCOUNTING POLICIES**
 
 (a)  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.
 
 (b)
        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.
  (c)
        Concentration of Credit Risk
  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.
  9
  **GENERAL
          ENVIRONMENTAL MANAGEMENT, INC AND SUBSIDIARIES**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 The
        Company’s trade receivables result primary from removal or transportation of
        waste, and the concentration of credit risk is limited to a broad customer
        base
        located through out the Western United States.
  During
        the nine months ended September 30, 2006 and 2005, one customer accounted
        for
        12.3% and 28.6% of revenues, respectively. As of September 30, 2006 , there
        was
        one customer that accounted for 26% of accounts receivable.
  (d)
        Income Taxes
 
 The
        Company accounts for income taxes using the asset and liability method whereby
        deferred income tax assets and liabilities are recognized for the tax
        consequences of temporary differences by applying statutory tax rates applicable
        to future years to the difference between the financial statement carrying
        amounts and the tax bases of certain assets and liabilities. Changes in deferred
        tax assets and liabilities include the impact of any tax rate changes enacted
        during the year.
 
 (e)
        Deferred Costs
 
 The
        Company has deferred financing fees of $731,618, which includes long
        term and short term of $398,860 and $332,758, respectively, and deferred
        acquisition costs of $1,979,363 at September 30, 2006 related to a potential
        acquisition and related financing. These costs will be capitalized as part
        of
        the acquisition cost or reflected as a deferred financing fee upon consummation
        of transaction, or expensed if such transaction is not consummated.
 
 (f)
        Stock
        Compensation Costs
 
 Statement
        of Financial Accounting Standards No. 123, "Accounting for Stock-Based
        Compensation" ("SFAS No. 123"), established a fair value method of accounting
        for stock-based compensation plans and for transactions in which an entity
        acquires goods or services from non-employees in exchange for equity
        instruments. SFAS No. 123 was amended by Statement of Financial Accounting
        Standards No. 148, "Accounting for Stock-Based Compensation -Transition and
        Disclosure", which required companies to disclose in interim financial
        statements the pro forma effect on net income (loss) and net income (loss)
        per
        common share of the estimated fair market value of stock options or warrants
        issued to employees. Through December 31, 2005, the Company accounted for
        stock-based compensation utilizing the intrinsic value method prescribed
        in
        Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
        to
        Employees" ("APB No. 25"), with pro forma disclosures of net income (loss)
        as if
        the fair value method had been applied. Accordingly, compensation cost for
        stock
        options was measured as the excess, if any, of the fair market price of the
        Company’s stock at the date of grant over the amount an employee must pay to
        acquire the stock.
 
 As
        the
        exercise price of stock options and warrants issued to employees was not
        less
        than the fair market value of the Company's common stock on the date of grant,
        and in accordance with accounting for such options utilizing the intrinsic
        value
        method, there was no related compensation expense recorded in the Company's
        2005
        consolidated financial statements. The fair value of stock options and warrants
        issued to officers, directors and employees at not less than fair market
        value
        of the Company's common stock on the date of grant was estimated using the
        Black-Scholes option-pricing model, and the effect on the Company's results
        of
        operations is reflected below in a pro forma disclosure as if such stock
        options
        and warrants had been accounted for pursuant to SFAS No. 123.
  10
 **GENERAL
          ENVIRONMENTAL MANAGEMENT, INC AND SUBSIDIARIES**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 **Nine
                  Months
                  Ended**
              ********
              **September
                  30,**
              ********
              **2005**Net
                loss
              $
              (4,315,415
              )Less:
                stock based employee compensation expense
                determinedunder
                the fair value method for all
                awards
              
              (539,296
              )Pro
                  forma net loss
              $
              (4,854,711
              )Basic
                loss per weighted average share, as
                reported
              $
              (.17
              )Pro
                forma Basic loss per weighted average share
              $
              (.19
              )
  In
        December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS
        No.
        123 (revised 2004), “Share Based Payment" ("SFAS No. 123R"), a revision to SFAS
        No. 123, “Accounting for Stock-Based Compensation". SFAS No. 123R superseded APB
        No. 25 and amended SFAS No. 95, "Statement of Cash Flows". Effective January
        1,
        2006, SFAS No. 123R requires that the Company measure the cost of employee
        services received in exchange for equity awards based on the grant date fair
        value of the awards, with the cost to be recognized as compensation expense
        in
        the Company's financial statements over the vesting period of the awards.
        Accordingly, the Company now recognizes compensation cost for equity-based
        compensation for all new or modified grants issued after December 31, 2005.
        In
        addition, commencing January 1, 2006, the Company recognizes the unvested
        portion of the grant date fair value of awards issued prior to adoption of
        SFAS
        No. 123R based on the fair values previously calculated for disclosure purposes
        over the remaining vesting period of the outstanding stock options and
        warrants.
 
 The
        Company adopted 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 remain unvested on the effective
        date.
 
 The
        total
        stock based compensation expense for the nine months ended September 30,
        2006
        was $172,828. The value of the unvested options to employees that will be
        amortized over future periods was $345,678 at September 30, 2006. The fair
        value
        of options was estimated on the date of grant using the Black-Scholes option
        pricing model with the following weighted-average assumptions for the periods
        indicated:
 ****
                **Nine
                    Months
                    Ended**
                ********
                ****
                **September
                    30, **2006****
                ****Dividend
                  yield
                
                
                --Risk-free
                  interest rate
                
                
                3.69%Expected
                  volatility
                
                
                44.5%Expected
                  life of options
                
                
                8.0
                  years
  (g)
          Earnings <loss> per share
  Basic earnings (loss) per common share
          (EPS) are
          based on the weighted average number of common shares outstanding during
          each
          period. Diluted earnings per common share are based on shares outstanding
          (computed as under basic EPS) and potentially dilutive common shares. As
          of
          September 30, 2006 and 2005, the Company had granted stock options for
          2,033,000
          and 1,970,500 shares of common stock, respectively, that are potentially
          dilutive common shares but are not included in the computation of loss
          per share
          because their effect would be anti-dilutive. As of September 30, 2006 and
          2005,
          the Company had granted warrants for 22,276,555 and 5,218,651 shares of
          common
          stock, respectively, that are potentially dilutive common shares but are
          not
          included in the computation of loss per share because their effect would
          be
          anti-dilutive.
   11
  **GENERAL
          ENVIRONMENTAL MANAGEMENT, INC AND SUBSIDIARIES**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 (h)
        Recent Accounting Pronouncements
 
 In
        September 2006, the Financial Accounting Standards Board ("FASB") issued
        Statement of Financial Accounting Standards No. 157, "Fair Value Measurements"
        ("SFAS No. 157"), which establishes a formal framework for measuring fair
        value
        under GAAP. SFAS No. 157 defines and codifies the many definitions of fair
        value
        included among various other authoritative literature, clarifies and, in
        some
        instances, expands on the guidance for implementing fair value measurements,
        and
        increases the level of disclosure required for fair value measurements. Although
        SFAS No. 157 applies to and amends the provisions of existing FASB and AICPA
        pronouncements, it does not, of itself, require any new fair value measurements,
        nor does it establish valuation standards. SFAS No. 157 applies to all other
        accounting pronouncements requiring or permitting fair value measurements,
        except for: SFAS No. 123(R), share-based payment and related pronouncements,
        the
        practicability exceptions to fair value determinations allowed by various
        other
        authoritative pronouncements, and AICPA Statements of Position 97-2 and 98-9
        that deal with software revenue recognition. SFAS No. 157 is effective for
        financial statements issued for fiscal years beginning after November 15,
        2007,
        and interim periods within those fiscal years.
 
 In
        June
        2006, the FASB issued FASB Interpretation No. 48, "Accounting for Uncertainty
        in
        Income Taxes, an interpretation of FASB Statement No.109 ("FIN 48"). FIN
        48
        provides criteria for the recognition, measurement, presentation and disclosure
        of uncertain tax positions that has an effect on a company's financial
        statements accounted for in accordance with SFAS No. 109, "Accounting for
        Income
        Taxes", as a result of positions taken or expected to be taken in a company's
        tax return. A tax benefit from an uncertain position may be recognized only
        if
        it is "more likely than not" that the position is sustainable based on its
        technical merits. The provisions of FIN 48 are effective for fiscal years
        beginning after December 15, 2006. The Company is currently evaluating the
        potential effect that the adoption of FIN 48 will have on the Company's
        financial statement presentation and disclosures.
  **3.**  **ACQUISITIONS**
 
 On
        March
        10, 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. In consideration of the
        acquisition of the issued and outstanding common stock of K2M, the Company
        paid
        $1.5 million in cash to the stockholders of K2M. As a result of the agreement,
        K2M became a wholly-owned subsidiary of the registrant.
  The
        purchase price was allocated as follows:
 
 Property
                and Equipment
              
              
              345,630Intangibles
                - Customer lists
              
              
              1,327,608Accrued
                Liabilities
              
              
              (38,088
              )Note
                Payable
              
              
              (135,150
              )Total
              
              $
              1,500,000
 
 The
        Company allocated the excess of net assets acquired to customer lists and
        expects to amortize these amounts over five years. The Company has not yet
        finalized the purchase price allocation which may change upon the completion
        of
        an independent third party evaluation of the assets purchased.
  The
        following sets out the pro forma operating results for the nine months ended
        September 30, 2006 and 2005 for the Company had the acquisition occurred
        as of
        January 1, 2005:
  12
 
 **Unaudited**
              ********
              ****
              **Nine
                  months ended September
                  30,**
              ********
              ****
              **Pro
                  Forma (Unaudited)**
              ********
              ****
              **2006**
              ****
              **2005**Net
                sales
              
              $
              15,537,923
              
              $
              14,490,717Cost
                of sales
              
              
              11,579,893
              
              
              11,032,216Gross
                  profit
              
              
              3,958,030
              
              
              3,458,501Operating
                expenses
              
              
              6,883,048
              
              
              7,009,122Operating
                  loss
              
              
              (2,925,018
              )
              
              (3,550,621
              )Other
                income (expense):Interest
                income
              
              
              15,610
              
              
              9,467Interest
                expense and amortization of deferred
                financing costs
              
              
              (3,175,341
              )
              
              (533,172
              )Other
                non-operating income
              
              
              79,830
              
              
              131,879NET
                  LOSS
              
              $
              (6,004,919
              )
              $
              (3,942,447
              )Loss
                per weighted average share, basic and
                diluted
              
              $
              (.15
              )
              $
              (.16
              )
 
 **4.
        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 September 30, 2006:
  Permit
                costs
              
              $
              315,894Customer
                lists - K2M mobile
                Treatment
              
              
              1,327,608Accumulated
                amortization
              
              
              (177,685
              )$
              1,465,817
  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 five years. Goodwill at September 30, 2006 and December 31, 2005 was
        $644,647.
 
 
 **5.**  **RELATED
        PARTY TRANSACTIONS**
 
 During
        the quarter ended September 30, 2006 the Company incurred $360,000 in fees
        for
        advisory services provided by 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. As
        a part
        of this advisory agreement, the Company also issued 7,500,000 warrants, valued
        at $705,766, to purchase common stock at $0.05 per share. The company used
        the
        black scholes valuation model to determine the value of the warrants. The
        Company allocated the fees and warrant values to specific tasks outlined
        in the
        advisory agreement. This included $426,306 related to the proposed acquisition,
        $319,730 related to the issuance of convertible notes and $319,730 related
        to
        general corporate matters.
  13
 **GENERAL
          ENVIRONMENTAL MANAGEMENT, INC AND SUBSIDIARIES**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 As
        of
        September 30, 2006 the Company owed General Pacific Partners $ 496,904 for
        advances and fees related to advisory services. These amounts due are unsecured,
        non- interest bearing and due on demand.
 
 During
        the nine months ended September 30, 2006, General Pacific Partners made advances
        to the Company totaling $550,000. The proceeds were used for due diligence
        on a
        proposed capital raise and working capital until proceeds from the capital
        raise
        were received. The rate of interest on the advance is 10% per annum. The
        funds
        are due December 31, 2006. As of November 10, 2006, $250,000 of the advance
        had
        been repaid.
 
 During
        the quarter ended March 31, 2006, the Company converted $110,000 of amounts
        due
        to GPP for services in exchange for the issuance of 110,000 shares of the
        Company’s common stock. The shares issued were valued at the market price at the
        date of issuance, which resulted in a reduction in cost of $53,900 upon
        conversion that has been offset to operating expenses in the accompanying
        statement of operations.
  **6.
        SECURED FINANCING AGREEMENTS**
 
 Secured
        financing consists of the following notes payable at September 30, 2006 and
        December 31, 2005:
  **September
                  30,**
                **2006**
              ****
              **December
                  30,**
                **2005**(a)
                  Line of credit - Laurus Agreement
              
              $
              -
              
              $
              1,094,780(b)
                  Secured convertible Term Note
              
              
              1,757,576
              
              
              -Secured
                  non- convertible Revolving Note
              
              
              2,710,841
              
              
              -Valuation
                  Discount
              
              
              (1,973,308
              )
              
              -2,495,109
              
              
              1,094,780Less
                current portion
              
              
              -
              
              
              (1,094,780
              )Financing
                  agreement, net of current portion
              
              $
              2,495,109
              
              $
              -
  (a)
        The
        Company’s wholly owned subsidiary, General Environmental Management, Inc. of
        Delaware entered into a revolving accounts receivable funding agreement (the
        “Agreement”) with a lender beginning May 2002. The Agreement was amended on
        October 14, 2004 and again on December 12, 2005. Under the terms of the December
        12, 2005 amended Agreement, the lender purchased from General Environmental
        Management, Inc. of Delaware’s accounts receivable (the “Purchased Accounts”),
        advancing cash to General Environmental Management, Inc. of Delaware up to
        80%
        of the Purchased Accounts, up to a maximum indebtedness of $2,000,000. The
        amended agreement was to continue until March 31, 2006. The amounts due to
        the
        lender under this agreement were $1,094,780 as of December 31, 2005. The
        loan
        was paid off in full and terminated on March 3, 2006.
  (b)On
        March 3, 2006, the Company entered into a series of agreements with Laurus
        Master Fund, Ltd. ("Laurus"), each dated as of February 28, 2006, whereby
        the
        Company issued to Laurus (i) a secured convertible term note ("Note") in
        the
        principal amount of $2.0 million; (ii) a Secured Non-Convertible Revolving
        Note
        of up to $5.0 million; and, (iii) a warrant
        ("Warrant") to purchase up to 3,218,000 shares of our common stock at a price
        of
        $0.87 per share .
        The
        Company also agreed to pay out of the Loan proceeds $245,000 to Laurus Capital
        Management, LLC, the investment advisor to Laurus, and $40,000 to Laurus
        Capital
        Management, LLC as reimbursement for its due diligence and legal fees and
        expenses incurred in connection with the transaction. The Company also incurred
        an additional $ 41,193 of closing costs for total closing costs of $326,193.
  14
 **GENERAL
          ENVIRONMENTAL MANAGEMENT, INC AND SUBSIDIARIES**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 The
        principal amount of the Note carries an interest rate of prime plus three
        and
        one half percent, subject to adjustment, and such interest is payable monthly.
        The Company must also make monthly principal payments in the amount of $60,606
        commencing June 1, 2006. The amount outstanding under this loan at September
        30,2006 was $1,757,576. The Note is secured by all of our assets and the
        assets
        of our direct subsidiary, General Environmental Management, Inc. (Delaware)
        and
        its direct subsidiary, General Environmental Management of Rancho Cordova,
        LLC,
        a California Limited Liability Company (including the real property owed
        by
        General Environmental Management of Rancho Cordova, LLC), as well as by a
        pledge
        of the equity interests of General Environmental Management, Inc. (Delaware)
        and
        General Environmental Management of Rancho Cordova, LLC.
 
 The
        principal amount of the Note and accrued interest thereon is convertible
        into
        shares of our common stock at a price of $0.85 per share, subject to
        anti-dilution adjustments. Under the terms of the Note, the monthly principal
        payment amount of approximately $60,606 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. Laurus has the option
        to
        convert the entire principal amount of the Note, together with interest thereon,
        into shares of our common stock, provided that such conversion does not result
        in Laurus beneficially owning at any one time more that 4.99% of our outstanding
        shares of common stock. The Company has agreed to make its best efforts register
        all of the shares that are issuable upon conversion of the Note and exercise
        of
        the 3,218,000 Warrants. The Company has granted Laurus a right of first refusal
        with respect to any debt or equity financings.
 
 The
        revolving note allows the Company to borrow a maximum amount of $5,000,000,
        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 3.5%, but in no event less than 8%
        per
        annum. The Revolving Note is secured by all assets of the Company and is
        subject
        to the same security agreement as discussed above. As of September 30, 2006,
        the
        Company had outstanding borrowings of $2,710,841 against the line of
        credit.
 
 The
        Company calculated that the fair value of the warrants issued to Laurus as
        $1,191,262 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 3.68%, expected
        volatility of 109.33% and an expected term for the warrants of 7 years. The
        Company determined that the beneficial conversion feature of the convertible
        note approximated $932,168. The closing costs paid to Laurus of $326,193,
        the
        value of the warrants issued to the Laurus of $1,191,262 and the $932,168
        of
        calculated BCF have been reflected by the Company as a valuation discount
        and
        offset to the face amount of the Notes. Such discount is being amortized
        to
        interest expense over the life of the loan based upon the effective interest
        method.
 
 In
        conjunction with the financing, the Company also incurred fees to various
        investment advisors that facilitated the transaction. These fees totaled
        $716,000, of which $210,000 was paid through the issuance of 247,059 shares
        of
        our common stock. In addition, the Company issued these finders warrants
        to
        purchase 534,118 shares of common stock at a price of $0.87 per share. The
        Company calculated that the fair value of the warrants issued to the finders
        was
        $197,723 based upon the relative value of the black scholes valuation of
        the
        warrants and the underlying debt amount. The fees paid to the finders and
        the
        value of the warrants issued to the finders have been reflected as deferred
        financing costs in the accompanying balance sheet and are being amortized
        over
        the life of the loan. For the Black Scholes calculation, the Company assumed
        no
        dividend yield, a risk free interest rate of 3.68%, expected volatility of
        109.33% and an expected term for the warrants of 7 years.
  15
 **GENERAL
          ENVIRONMENTAL MANAGEMENT, INC AND SUBSIDIARIES**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 **7.
        FINANCING ON POTENTIAL ACQUISITION**
 
 On
        August
        10, 2006, the Company entered into a series of agreements (“Agreements”) with
        Laurus Master Fund, Ltd. ("Laurus") whereby the Company agreed to issue to
        Laurus (i) a secured three (3) year term note ("Note") in the face amount
        of
        $29.5 million; and (ii) seven (7) year warrants ("August Warrants") to purchase
        13,636,362 shares (the “Warrant Shares”) of our common stock at an exercise
        price of $.24 per share. The total Note proceeds received were $25 million.
        The
        Company also agreed to pay, out of the Loan proceeds, an Investment Fee of
        $1,155,000 to Laurus Capital Management, LLC, the manager of Laurus, and
        the sum
        of approximately $120,000 to Laurus as reimbursement for Laurus' structuring
        and
        due diligence fees, legal fees, and expenses incurred in connection with
        the
        transaction.
 
 The
        Note
        proceeds, less the fees, resulted in net proceeds of $24,910,510 are being
        held
        in an escrow account (the “Escrow) and reflected on the accompanying balance
        sheet as “restricted cash, potential acquisition”, such funds are to be released
        upon certain conditions to be satisfied by certain dates, among which
        are:
 
 1.
        The
        Company raises a minimum of $16 million through the sale of our equity
        securities on or before September 30, 2006, with best efforts to raise an
        additional $3 million (total $19 million.)
 
 2.
        The
        Company provide Laurus with evidence that the Company has entered into a
        definitive agreement to acquire a target company (“Target”) by a certain date,
        and the Company complete the acquisition (the “Acquisition) the Target (see
“Description of Acquisition” below) for purchase price of $35
        million.
 
 3.
        The
        Target, contemporaneously with the payment of the purchase price and acquisition
        of Target by us, issue to Laurus, a warrant (the “Target Warrant), with no
        expiration date, to purchase 35% (reduced to 30% in the event we are successful
        in raising $19 million in equity) of the equity securities of the Target
        at a
        nominal price per Warrant.
 
 4.
        That
        there are executed a number of agreements, including providing security and
        collateral to Laurus for the repayment of the Note and other
        obligations.
 
 5.
        That
        certain waivers, consents, and releases are obtained.
 
 If
        the
        Company completes the Acquisition, Laurus will provide a $5 million Revolving
        Note (the “Revolving Note”) to be secured by the accounts receivable of the
        Target. The interest rate on this credit facility is Prime plus 2%.
 
 In
        the
        event that the Company does not complete the Acquisition, or is unable to
        fulfill other conditions of the Escrow, the funds in escrow will be returned
        to
        Laurus. However, Laurus will not be obligated to return any fees or expenses
        to
        us. The seven (7) year warrants ("August Warrants") to purchase 13,636,362
        shares of our common stock at an exercise price of $.24 per share will be
        deemed
        cancelled.
 
 The
        principal amount of the Note will carry an interest rate of prime plus two
        percent (but at least 8.00%), subject to adjustment, and will require that
        the
        Company must make monthly payments of at least $416,666.66 commencing April
        1,
        2007, toward the outstanding non-restricted principal amount. The Note will
        be
        secured by a pari passu basis with other secured lenders, all of our assets
        and
        the assets of our subsidiaries, General Environmental Management, Inc.
        (Delaware) and its subsidiary, General Environmental Management of Rancho
        Cordova LLC, a California Limited Liability Company, K2M Mobile Treatment
        Service, Inc. a California corporation, and by a pledge of all of our stock
        in
        General Environmental Management, Inc. (Delaware), General Environmental
        Management of Rancho Cordova LLC, K2M Mobile Treatment Services, Inc, and
        Target. As of September 30, 2006, $24,246,542 was outstanding on this
        note.
  16
 **GENERAL
          ENVIRONMENTAL MANAGEMENT, INC AND SUBSIDIARIES**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 If
        the
        Company completes the Acquisition, the proceeds from the Note will be released,
        and the Company and our subsidiaries (including Target) are expected to enter
        into a new series of additional agreements with Laurus. Among other things,
        the
        Company will issue an Amended and Restated Secured Convertible Term Note
        (the
“Convertible Note”) to replace the Note. $12.5 million of the principal amount
        of the Convertible Note will be convertible into shares of our common stock
        at a
        price of $0.17 per share (73,529,411 shares) subject to certain adjustments.
        Under the terms of the proposed Convertible Note, the monthly principal payment
        amount of approximately $416,666.66, plus the monthly interest payment
        (together, the "Monthly Payment"), will be payable in cash. The Company and
        our
        subsidiaries, including Target as an obligor and guarantor, will also amend
        and
        restate certain agreements relating to our existing credit facility with
        Laurus,
        provide additional security, and other agreements.
 
 Under
        the
        terms of the Warrants and the Convertible Note, Laurus may exercise the Warrants
        or convert the Convertible Notes, provided that such exercise and/or conversion
        do not result in Laurus beneficially owning more that 4.99% of our outstanding
        shares of common stock at any one time. Laurus may waive this provision on
        60
        days notice to the Company. The Company has agreed that it will register
        all of
        the shares that are issuable upon exercise of the AugustWarrants and conversion
        of the Convertible Note.
 
 To
        obtain
        the required $16 million in equity, the Company intends to sell shares of
        common
        stock or preferred stock at the equivalent of $.05 per share of common stock,
        to
        accredited investors in private placement transactions.
 
 Of
        the
        $16 million in equity we are required to raise, we have raised a total of
        approximately $5,769,277. These funds were raised during the period May 22,
        2006
        through September 30, 2006 through the sale of convertible notes (the May
        Convertible Notes”) and the sale of preferred stock (“Series B Preferred
        Stock”). Each one dollar of principal of the May Convertible Notes is
        convertible into 20 shares of the Company’s Common Stock. The May Convertible
        Notes were convertible at any time at the option of the Company. The Company
        converted the May Convertible Notes on August 31, 2006 into 95,065,546 shares
        of
        common stock. Each one dollar of principal of the Series B Preferred Stock
        is
        convertible into 20 shares of the Company’s Common Stock. The Series B Preferred
        Stock is convertible at any time at the option of the Company.
 
 Although
        the Agreements provide that the Company must have raised  $16 million by
        September 30, 2006, the Company continues to have discussions with Laurus
        to
        provide debt financing for the transaction.  Although these discussions are
        continuing in good faith, there is no assurance that Laurus will provide
        funding
        for the Acquisition.  If Laurus decides not to provide funding, or the
        Company fails to raise the necessary equity capital required under the
        Agreements, then the escrow account of $24,910,510 would be returned to Laurus
         as an offset against the note payable balance of $24,246,542.
 
 The
        Company currently has 200 million shares of Common Stock and 5 million Series
        A
        Preferred Stock 19 million Series B preferred Stock and 26 million shares
        of
“Blank Check” Preferred Stock authorized. Since the Company has 128,382,181
        shares of common stock outstanding, the authorized number of shares of Common
        Stock would be insufficient to issue, or reserve for issuance, those number
        of
        shares of common stock which would otherwise be issued to raise the requisite
        $16 million at the proposed per share price of $.05 and the shares that would
        be
        issuable upon the conversion of the Convertible Note. Accordingly, in order
        to
        facilitate the raising of this capital, the Board of Directors designated
        a
        Series “B” Preferred Stock (the “Series “B”), subject to obtaining any requisite
        consents from the holders of Series A Preferred Stock. The terms of the Series
        B
        provide that each share of Series “B” will: (i) be automatically converted into
        20 shares of Common Stock upon the approval and filing of an Amendment to
        the
        Articles of Incorporation increasing the authorized common shares; (ii) be
        entitled to cast 20 votes per share to vote at any meeting of the stockholders
        of the Common Stock, (iii) be entitled to receive any dividends on the same
        basis as common stockholders based on the ratio into which they would be
        convertible; and (iii) be entitled to a liquidation preference, only over
        the
        holders of the shares of Common Stock.
  17
 **GENERAL
          ENVIRONMENTAL MANAGEMENT, INC AND SUBSIDIARIES**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 In
        the
        event the Company completes the Acquisition, it will then seek to increase
        the
        number of authorized Common Stock to one billion shares by calling a meeting
        of
        the stockholders (the “Meeting”) to approve an amendment (the “Amendment”) to
        the Articles of Incorporation providing for such increase.
 
 In
        order
        to conduct the Meeting, the Company is required to provide our stockholders
        with
        a Proxy Statement that has been filed with the United States Securities &
Exchange Commission (“SEC”.) The Company expects that it will take a minimum of
        60 days after the Acquisition, until the Meeting may be held.
 
 In
        anticipation of the sale of the equivalent of approximately 320 million shares
        of Common Stock, and the possible issuance of more than 86 million shares
        of
        Common Stock to Laurus upon the exercise of its warrants, the conversion
        of the
        Convertible Note, and the conversion of the Series B Preferred Stock, the
        Company plans to reduce the total amount of Common Stock outstanding to below
        30
        million. Accordingly, at the stockholders’ meeting, the Board of Directors
        intends to seek the approval of stockholders to authorize a one for twenty
        “reverse split” of the issued and outstanding common stock, which would become
        effective immediately after the filing of the Amendment.
  **8.
        STOCKHOLDERS’ EQUITY**
 
 Common
        Stock for Services
 
 The
        Company issued 110,000 shares of common stock valued at $56,100 to General
        Pacific Partners in settlement of $110,000 of accounts payable due to them,
        resulting in a gain on settlement of $53,900. See Note 5, Related Party
        Transactions.
 
 As
        part
        of the fee arrangement related to the secured financing agreement (See Note
        6),
        the Company issued 247,059 shares of common stock valued at $210,000 to its
        financial advisor.
 
 As
        part
        of a legal settlement with a shareholder, the Company issued 66,000 shares
        of
        common stock valued at $6,600.
 
 During
        the nine months ended September 30, 2006, the Company recognized employee
        and
        consultant compensation cost of $172,828 related to the fair value of options
        vested during the period.
 
 Issuance
        of common stock for conversion of debt
 
 In
        May,
        2006, the Board of Directors authorized the private placement sale to accredited
        investors of up to $10 million in convertible notes (the (May Convertible
        Notes"). Each one dollar of principal of the May Convertible Notes was
        convertible into 10 shares of the Company's Common Stock. The May Convertible
        Notes were convertible at the Company's option at any time. The May Convertible
        Notes were unsecured and carried an interest rate of eight percent (8%) per
        annum and were due within one year. Principal and interest were convertible
        at
        the option of the Company into common shares equivalent to $0.05 per share.
        On
        August 9, 2006 the Board of Directors authorized a modification in the terms
        of
        the May Convertible Notes so that each one dollar of principal of the May
        Convertible Note was convertible into 20 shares of Common Stock. The additional
        shares of Common Stock were issued upon conversion of the May Convertible
        Notes.
        On August 9, 2006 the Company ceased any further sale of the May Convertible
        Notes. From May 2006 to August 2006, the Company issued one hundred twenty
        nine
        of these convertible notes totaling $4,753,277. On August 31, 2006, the total
        balance of the convertible notes was converted into 95,065,546 shares of
        common
        stock.
  18
 **GENERAL
          ENVIRONMENTAL MANAGEMENT, INC AND SUBSIDIARIES**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 The
        Company determined that the difference between the conversion price and the
        Company's stock price on the date of issuance of the notes gave rise to a
        beneficial conversion feature of $4,753,277, and recorded such amount as
        a
        valuation discount and an increase to paid in capital. This amount was to
        be
        recognized as interest expense over the period the notes were outstanding
        using
        the effective interest method until the notes were converted. Through August
        31,
        2006, the date of conversion, $600,277 of this discount had been amortized
        as
        interest cost and is reflected in the accompanying statement of operations.
        Upon
        conversion, the remaining unamortized balance of the valuation discount was
        charged to paid in capital, resulting in a net increase to paid on capital
        of $4,153,000.
 
 In
        connection with the sale of these notes, the Company entered into a Placement
        Agent Agreement with Ascendiant Securities LLC ("Ascendiant") pursuant to
        which
        Ascendiant received a commission of 6% of all monies received by us, aggregating
        $227,992 and a number of warrants that was equal to 6% of the number of shares
        into which the May Convertible Notes are convertible, aggregating 4,559,834
        warrants. The company used the black scholes valuation model and determined
        that
        the value of the warrants issued to the placement agent was $429,090. For
        the
        Black Scholes calculation, the Company assumed no dividend yield, a risk
        free
        interest rate of 3.68%, expected volatility of 93.49% and an expected term
        for
        the warrants of 3 years. Also in conjunction with the placement of these
        notes,
        advisory fees of $108,000 in cash and $211,729 relating to the valuation
        of
        warrants issued to related party were allocated to the notes (see Note 9).
        Upon
        conversion of the notes to common stock, the aggregate amount of these fees
        of
        $976,810 were reflected as interest costs in the accompanying statement of
        operations for the nine months ended September 30, 2006.
  Preferred
        Stock.
 
 During
        the year ended December 31, 2005, the Company raised $225,000 (net of offering
        costs of $25,000) through the issuance of 250,000 units of Series A convertible
        preferred stock. Each unit consisting of one share of Series A Convertible
        Preferred Stock was convertible into one share of common stock. The stock
        has a
        dividend rate of 8% and accordingly, $21,871 has been accrued as dividends
        and
        charged to net loss attributed to common shareholders. During the third quarter,
        the Board of Directors voted to adjust the conversion rate from one share
        of
        common stock to twenty shares of common stock. Based upon this modification,
        the
        Company determined that a charge of $522,500 was required to capital and
        to net
        loss attributed to common shareholders. At September 30, 2006, the 250,000
        shares of Series A Convertible Preferred Stock was converted into 5,000,000
        shares of common stock.
 
 During
        the period September 1, 2006 to September 30, 2006, the Company raised $955,040
        (net of offering costs of $60,960) through the issuance of 1,016,000 units
        of
        Series B convertible preferred stock. Each unit consists of one share of
        Series
        B Convertible Preferred Stock convertible into twenty shares of common stock.
        The stock has a par value of $.001 per share, participates on the same basis
        with common shareholders related to receipt of dividends, and shall have
        voting
        rights equal to the number of shares into which each share of Series B Preferred
        Stock is convertible. The proceeds were used to provide working capital funding.
        Based upon the existence of these conversion features, the Company determined
        that a beneficial conversion feature of $955,040 was required to be recorded
        as
        of the date of issuance and has been accounted for as an adjustment to capital
        and to net loss attributed to common shareholders.
 
 In
        addition, 1,219,200 warrants, valued at $114,730 using the black scholes
        valuation model were issued as commissions for the placement of the Series
        B -
        Preferred Stock. These warrants were not accounted for by the Company as
        there
        would not have been any net effect to paid in capital.
 
 In
        the
        event of any liquidation, dissolution or winding up of the Company, whether
        voluntary or involuntary, or the sale of substantially all of its assets
        (each
        such event, a "Liquidation"), the holders of shares of Series B Convertible
        Preferred Stock will be entitled to be paid out of the assets of the Company
        available for distribution to its stockholders before payment to the holders
        of
        Junior Stock by reason of their ownership thereof, a Liquidation Price equal
        to
        (i) One Dollar ($1.00) per share, subject to adjustment, plus an amount equal
        to
        all accrued, but unpaid, dividends on such share of Series A Convertible
        Preferred Stock since the original issue date. After the payment of this
        Liquidation Price, the holders of shares of Junior Stock then outstanding
        shall
        be entitled to receive the remaining assets and funds of the Company available
        for distribution to its stockholders.
  19
 **GENERAL
          ENVIRONMENTAL MANAGEMENT, INC AND SUBSIDIARIES**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 **9.
        STOCK OPTIONS AND WARRANTS**
 
 Stock
        Options
 
 Prior
        to
        acquisition by the Company, General Environmental Management, Inc. of Delaware’s
        Board of Directors approved and implemented the 2005 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 2,643,500 shares. The
        Board of Directors of the Company granted a total of 1,988,500 options to
        86
        employees and to two consultants. The exercise price for the options ranged
        between $1.00 and $1.60 market value of the stock at the date of the grant.
 
 On
        April
        1, 2006 the Company granted 100,000 options to employees. The exercise price
        for
        these options is $0.86, the market value of the stock at the date of the
        grant.
 
 On
        July
        1, 2006 the Company granted 277,600 options to employees. The exercise price
        for
        these options is $0.22, the market value of the stock at the date of the
        grant.
 
 The
        Company issues stock options to employees, directors and consultants under
        the
        2005 Stock Option Plan. Employee and Non-employee options vest according
        to the
        terms of the specific grant and expire 8 years from date of grant. Stock
        option
        activity for the quarter ended September 30, 2006 was as follows:
 
 **Weighted
                  Avg.**
              
              **Weighted
                  Avg.**
              
              **Intrinsic****Options**
              
              **Exercise
                  Price**
              
              **Value**Options,
                  January 1, 2006
              
              
              1,680,500
              
              
              1.06
              
              
              -Options
                  granted
              
              
              377,600
              
              
              0.39
              
              
              -Options
                  exercised
              
              
              -
              
              
              -
              
              
              -Options
                  cancelled
              
              
              (25,100
              )
              
              1.02
              
              
              -Options,
                  September 30, 2006
              
              
              2,033,000
              
              $
              1.02
              
              
              -Options
                  excisable, September 30, 2006
              
              
              1,291,285
              
              $
              .99
              
              
              -
  Warrants
 
 Prior
        to
        the acquisition by the Company, General Environmental Management, Inc. of
        Delaware had issued warrants through the sale of common stock; the issuance
        of
        convertible notes, and for services. Under the terms of the agreement and
        plan
        of merger these warrants became exercisable into the same number of shares
        in
        the Company’s stock on the same terms as issued. As of September 30, 2006 there
        were 22,276,555 warrants outstanding with exercise prices ranging from $0.05
        to
        $4.00 per share of common stock, and expiration dates through February of
        2013.
 
 During
        the quarter ended June 30, 2006 the Company granted 3,752,118 warrants at
        a
        price of $0.87. These warrants were issued in conjunction with the secured
        financing agreement described in Note 6.
  20
 **GENERAL
          ENVIRONMENTAL MANAGEMENT, INC AND SUBSIDIARIES**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 During
        the quarter ended September 30, 2006 the company granted 13,279,033 warrants
        related to advisory and finders fees described in Note 7 and 8.
  **Warrants**Warrants
                outstanding, January 1, 2006
              
              
              5,245,404Warrants
                granted
              
              
              17,031,151Warrants
                exercised
              
              
              -Warrants
                expired
              
              
              -Warrants
                  outstanding, September 30, 2006
              
              
              22,276,555
  **10.COMMITMENTS
        AND CONTINGENCIES**
 
 ENVIRONMENTAL
 
 The
        Company is regulated as a hazardous waste transporter and is subject to various
        stringent federal, state, and local environmental laws and regulations relating
        to pollution, protection of public health and the environment, and occupational
        safety and health. The Company is subject to periodic inspection by the
        Department of Toxic Substance Control. The Company has not been subject to
        any
        contingencies pursuant to any environmental law or regulation. Although
        compliance with these laws and regulations may affect the costs of the Company’s
        operations, compliance costs to date have not been material.
 
 ASSET
        RETIREMENT COSTS AND OBLIGATIONS
 
 In
        accordance with its Part B operating permit, the Company is liable for certain
        costs involving the ultimate closure of its facilities. These expenses include
        costs of decommissioning, remediation, and incremental direct administration
        costs of closing the facilities. Upon acquisition of General Environmental
        Management of Rancho Cordova, LLC in June 2004, the Company continued that
        subsidiary’s implementation of SFAS No. 143, “Accounting for Asset Retirement
        Obligations,” which addresses financial accounting and reporting obligations
        associated with the retirement of tangible long-lived assets and the related
        asset retirement costs. The statement which became effective January 1, 2003,
        requires that a fair value of a liability for an asset retirement obligation
        be
        recognized in the period in which it is incurred and capitalized as part
        of the
        carrying amount of the long lived asset. When a liability is initially recorded,
        the entity capitalizes the cost by increasing the carrying value of the related
        long lived asset. Over time, the liability is accreted to its present value
        each
        period, and the capitalized cost is depreciated over the useful life of the
        related asset. On an annual basis the liability to fulfill the retirement
        obligation is required to be reviewed and adjusted if necessary. Management’s
        review of the liability in 2005 determined no adjustment was necessary. The
        Company determined the estimated obligation, based on current requirements
        and
        proposed regulatory changes and is intended to approximate fair value. The
        estimate of fair value is based on the best available information, including
        the
        results of present value techniques. Once the retirement costs were determined,
        the Company inflated those costs to the expected time of payments and discounts
        the expected future costs back to present value. The costs have been inflated
        in
        current dollars until the expected time of payment using an inflation rate
        of
        2.5 percent and have discounted these costs to present value using a
        credit-adjusted risk-free interest rate of 5.5 percent. The accretion of
        the
        liability, based on the effective interest method, and amortization of the
        property and equipment, recognized over the estimated life of the location,
        will
        be included in the operating costs and expenses. The discount rate, which
        is
        based on the rates for the United States Treasury bonds, and the inflation
        rate
        is reviewed by the Company on an annual basis. Upon acquisition of the Part
        B
        permit and facility, the Company’s share of obligation, was a present value
        liability of $35,846 and a net increase to plant and equipment of
        $35,846.
  21
 **GENERAL
          ENVIRONMENTAL MANAGEMENT, INC AND SUBSIDIARIES**
 **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 In
        the
        State of California, the environmental regulatory agencies overseeing the
        Company’s operations require the Company to provide assurance that funds will be
        available for these costs. The Company has a cash deposit of $585,128 to
        cover
        the ultimate cost of closure at its facility and is reflected as restricted
        cash
        in the accompanying balance sheet.
 
 LEGAL
        PROCEEDINGS
 
 The
        Company is party to legal proceedings that arise through the normal course
        of
        business. The outcomes of these proceedings are not expected to have a material
        impact on these financial statements.
 
 OTHER
        CONTINGENCIES
 
 The
        Company is subject to various regulatory requirements, including the procurement
        of requisite licenses and permits at its facilities and for its vehicles
        and
        drivers. These licenses and permits, without which the Company’s operations
        would be adversely affected, are subject to periodic renewal. The
 Company
        anticipates that, once a license or permit is issued with respect to a facility,
        the license or permit will be renewed at the end of its term if the facility’s
        operations are in compliance with the applicable regulatory
        requirements.
 
 Under
        the
        Company’s insurance programs, coverage is obtained for catastrophic exposures,
        as well as those risks required to be insured by law or contract. The company
        retains a certain amount of risk through per occurrence deductibles on its
        insurance policies.
  22
 
 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 10QSB to be filed by us in the fiscal
        year 2006.
 
 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.
  23
 
 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.
 
 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.
 
 GEM,
        prior to the acquisition by the Company, focused its efforts in the second
        half
        of 2004 on integration of the above noted purchases and on continued organic
        growth. During 2005 the company streamlined its operations to achieve greater
        efficiencies at the TSDF and at its field service operations in both Southern
        and Northern California, the states of Washington and Alaska.
 
 In
        March
        2006, GEM acquired the assets of K2M Mobile Treatment Services, a California
        based provider of Mobile Wastewater treatment and vapor recovery services.
        This
        acquisition broadens our customer base in the Western United States as well
        as
        adding the Gulf Coast to our geographic reach.
 
 The
        accompanying consolidated statements have been prepared assuming that the
        Company will continue as a going concern. The company incurred a net loss
        of
        $5,908,593 and utilized cash in operating activities of $3,636,309 during
        the
        nine months ended September 30, 2006. The Company currently has a positive
        working capital position, as current assets exceed current liabilities by
        $247,706 as of September 30, 2006. There can be no assurances that the Company
        will be able to maintin its surplus working capital, as such, there is doubt
        about the Company’s ability to continue as a going concern.
  COMPARISON
        OF THREE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
 
 Revenues
 
 Total
        revenues were $7,021,791 for the three months ended September 30, 2006,
        representing an increase of $1,860,580
        or 36.1% compared to the three months ended September 30, 2005. The increase
        in
        revenue can be attributed to the acquisition of K2M in March 2006 and increased
        volume in the enviroconstruction market segment
  24
  Cost
        of
        Revenues
 
 Cost
        of
        revenues for the three months ended September 30, 2006 were $5,189,863 or
        74% of
        revenue, as compared to $4,010,194 or 78% of revenue for the three months
        ended
        September 30, 2005. The cost of revenues includes disposal costs,
        transportation, outside labor and operating supplies. The change in the cost
        of
        revenue in comparison to the prior year is primarily due to efficiencies
        obtained from continuing cost reduction programs and also from the acquisition
        of K2M Mobile Treatment Services which produces higher margin
        returns.
 
 Operating
        Expenses
 
 Operating
        expenses for the three months ended September 30, 2006 were $2,590,040 or
        36.9%
        of revenue as compared to $1,635,368 or 31.6% of revenue for the same period
        in
        2005. Operating expenses include sales and administrative salaries and benefits,
        insurance, rent, legal, accounting and other professional fees. The increase
        in
        expenses from the prior periods is attributable to increase in sales and
        administrative salaries, benefits and insurance related to the acquisition
        of
        K2M and advisory fees related to potential acquisitions. The increase in
        the
        cost as a percentage of revenue resulted from the inclusion of fees and expenses
        related to the pending acquisition.
  Depreciation
        and Amortization
 
 Depreciation
        and amortization expenses for the three months ended September 30, 2006 were
        $227,208, or 3.2% of revenue, as compared to $49,218, or 1.0% of revenue
        for the
        same period in 2005. The increase in expenses is related to the increase
        in
        property, plant and equipment and increased amortization expense related
        to
        intangibles acquired from recent acquisitions.
 
 Interest
        Expense
 
 Interest
        expense for the three months ended September 30, 2006 was $2,277,346 or 32%
        of
        revenue, as compared to $166,420, or 3.2% of revenue for the same period
        in
        2005. 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 $515,000 resulting from the amortization of valuation
        discounts on convertible notes, $204,000 resulting from the amortization
        of
        valuation discounts on the Laurus transaction, $977,000 resulting from the
        write
        off of deferred fees related to the notes converted to common stock during
        the
        quarter, $185,000 in net interest on the financing for proposed acquisitions
        and
        interest on other borrowing such as the line of credit, secured notes and
        advances.
 
 Other
        Non-Operating Income
 
 The
        Company had other non-operating income for the three months ended September
        30,
        2006 of $27,018,or .38 % of revenue, and $24,649 for the same period in 2005.
        Non-Operating income for the three months ended September 30, 2006 consisted
        of
        continuing rental income from the lease of an office building in Rancho Cordova,
        California.
 
 Net
        Loss
 
 The
        net
        loss for the three months ended September 30, 2006 was $3,004,501 or 42.8%
        of
        revenue as compared to a loss of $622,787, or 12.1% of revenue for the same
        period in 2005. The loss is attributable to a general and administrative
        infrastructure created in anticipation of a larger revenue base to be developed
        through acquisition and organic growth, additional financing costs related
        to
        the acquisition of K2M and restructuring of the Company’s current borrowing
        facility. It also includes amortization of deferred finance fees and
        amortization of valuation discounts generated from the beneficial conversion
        feature related to the fair value of warrants and conversion features of
        long
        term debt.
  25
  COMPARISON
        OF NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
 
 Revenues
 
 For
        the
        nine months ended September 30, 2006, the Company reported consolidated revenue
        of $15,019,548 representing an increase of $2,317,081 or 18.2 % compared
        to the
        nine months ended September 30, 2005. The increase in revenue can be attributed
        to organic growth and the acquisition of K2M in March 2006.
 
 Cost
        of
        Revenues
 
 Cost
        of
        revenues for the nine months ended September 30, 2006 were $11,316,559 or
        75.3 %
        of revenue, as compared to $10,516,971 or 83 % of revenue for the nine months
        ended September 30, 2005. The cost of revenue includes disposal costs,
        transportation, outside labor and operating supplies. The change in the cost
        of
        revenue in comparison to the prior year is primarily due to efficiencies
        obtained from continuing cost reduction programs and also from the acquisition
        of K2M Mobile Treatment Services which produces higher margin
        returns.
  Operating
        Expenses
 
 Operating
        expenses for the nine months ended September 30, 2006 were $6,532,789 or
        43% of
        revenue as compared to $ 6,109,085 or 48% of revenue for the same period
        in
        2005. Operating expenses include sales and administrative salaries and benefits,
        insurance, rent, legal and accounting and other professional fees. The increase
        in expenses from the prior period is attributable to increase in sales and
        administrative salaries, benefits and insurance related to the acquisition
        of
        K2M and advisory fees related to potential acquisitions. The improvement
        in the
        cost as a percentage of revenue resulted from control of expenses, the
        elimination of the fees incurred in the reverse merger of the February 2005
        and
        the Company’s ability to achieve economies of scale during the integration of
        recent acquisitions.
  Depreciation
        and Amortization
 
 Depreciation
        and amortization expenses for the nine months ended September 30, 2006 were
        $471,168 or 3.1% of revenue, as compared to $192,031 or 1.5% of revenue for
        the
        same period in 2005. The increase in expenses is related to the increase
        in
        property, plant and equipment and increased amortization expense related
        to
        intangibles acquired from recent acquisitions.
 
 Interest
        Expense
 
 Interest
        expense for the nine months ended September 30, 2006 were $3,174,233 or 21%
        of
        revenue, as compared to $ 533,172 or 4.2% of revenue for the same period
        in
        2005. 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 $600,000 resulting from the amortization of valuation
        discounts on convertible notes, $476,000 resulting from the amortization
        of
        valuation discounts on the Laurus transaction, $977,000 resulting from the
        write
        off of deferred fees related to the notes converted to common stock during
        the
        quarter, $185,000 in net interest on the financing for proposed acquisitions
        and
        interest on other borrowing such as the line of credit, secured notes and
        advances.
  26
 
 Other
        Non-Operating Income
 
 The
        Company had other non-operating income for the nine months ended September
        30,
        2006 of $79,830 or .5% of revenue, and $131,879 for the same period in 2005.
        Non-Operating income for the nine months consisted of continuing rental income
        from the lease of an office building in Rancho Cordova, California.
  Net
        Loss
 
 The
        net
        loss for the nine months ended September 30, 2006 was $5,908,593, or 39%
        of
        revenue as compared to a loss of $4,315,415 or 34% of revenue for the same
        period in 2005.The loss is attributable to a general and administrative
        infrastructure created in anticipation of a larger revenue base to be developed
        through acquisition and organic growth, additional financing costs related
        to
        the acquisition of K2M and restructuring of the Company’s current borrowing
        facility. It also includes amortization of deferred finance fees and
        amortization of valuation discounts generated from the beneficial conversion
        feature related to the fair value of warrants and conversion features of
        long
        term debt.
  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
        September 30, 2006 was $1,996,717 as compared to $1,201,850 for the same
        period
        in 2005. Net cash used in operations for the nine months ended September
        30,
        2006 was $3,636,309 as compared to $ 4,444,545 for the same period in
        2005.
 
 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
        $5,908,593 and utilized cash in operating activities of $3,636,309 during
        the
        nine months ended September 30, 2006. 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, cost cutting
        practices, and the completion of the integration of acquisitions. 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.
 
 Cash
        Flows for the Nine Months Ended September 30, 2006
 
 Operating
        activities for the nine months ended September 30, 2006 used $3,636,309 in
        cash.
        Accounts receivable, net of allowances for bad debts, totaled $6,117,142
        as of
        September 30, 2006 as compared to the December 31, 2005 balance of $5,143,754.
        The increase in accounts receivable is directly related to the increase in
        sales
        over the same period for 2006 as noted above. Accounts payable totaled
        $3,559,286 as of September 30, 2006 as compared to an accounts payable balance
        of $3,920,923 for December 31, 2005. The decrease in accounts payable over
        the
        prior year was due to efficiencies obtained in the integration of the company’s
        operations and the provision of additional working capital from
        investors.
  27
 
 The
        Company used cash for the acquisition of K2M, investment in property and
        equipment, and in deposits for potential acquisitions totaling $28,650,627
        for
        the nine months ended September 30, 2006. The company used $216,475 in cash
        for
        investment purposes during the same period in 2005.
 
 The
        Company raised $32,934,008 cash from financing activities, net of repayments
        of
        debt and the payoff of the former lender’s line of credit, through the issuance
        of notes related to the new financing transaction, advances from a related
        party
        and proceeds from the issuance of acquisition notes as describe in Note
        7.
  **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
 
 (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.
  28
 
 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.
 
 **Recent
        Accounting Pronouncements**
 
 In
        September 2006, the Financial Accounting Standards Board ("FASB") issued
        Statement of Financial Accounting Standards No. 157, "Fair Value Measurements"
        ("SFAS No. 157"), which establishes a formal framework for measuring fair
        value
        under GAAP. SFAS No. 157 defines and codifies the many definitions of fair
        value
        included among various other authoritative literature, clarifies and, in
        some
        instances, expands on the guidance for implementing fair value measurements,
        and
        increases the level of disclosure required for fair value measurements. Although
        SFAS No. 157 applies to and amends the provisions of existing FASB and AICPA
        pronouncements, it does not, of itself, require any new fair value measurements,
        nor does it establish valuation standards. SFAS No. 157 applies to all other
        accounting pronouncements requiring or permitting fair value measurements,
        except for: SFAS No. 123(R), share-based payment and related pronouncements,
        the
        practicability exceptions to fair value determinations allowed by various
        other
        authoritative pronouncements, and AICPA Statements of Position 97-2 and 98-9
        that deal with software revenue recognition. SFAS No. 157 is effective for
        financial statements issued for fiscal years beginning after November 15,
        2007,
        and interim periods within those fiscal years.
 
 In
        June
        2006, the FASB issued FASB Interpretation No. 48, "Accounting for Uncertainty
        in
        Income Taxes, an interpretation of FASB Statement No.109 ("FIN 48"). FIN
        48
        provides criteria for the recognition, measurement, presentation and disclosure
        of uncertain tax positions that has an effect on a company's financial
        statements accounted for in accordance with SFAS No. 109, "Accounting for
        Income
        Taxes", as a result of positions taken or expected to be taken in a company's
        tax return. A tax benefit from an uncertain position may be recognized only
        if
        it is "more likely than not" that the position is sustainable based on its
        technical merits. The provisions of FIN 48 are effective for fiscal years
        beginning after December 15, 2006. The Company is currently evaluating the
        potential effect that the adoption of FIN 48 will have on the Company's
        financial statement presentation and disclosures.
  ITEM
        3.
        Controls and Procedures
 
 As
        required by Rule 13a-15 under the Securities Exchange Act of 1934 (the "Exchange
        Act"), we carried out an evaluation of the effectiveness of the design and
        operation of our disclosure controls and procedures as of September 30, 2006.
        This evaluation was carried out under the supervision and with the participation
        of our CEO, Mr. Tim Koziol and our CFO, Mr. Brett Clark. Based upon that
        evaluation, our CEO and CFO concluded that our disclosure controls and
        procedures are effective in timely alerting management to material information
        relating to us that is required to be included in our periodic SEC filings.
        There have been no significant changes in our internal controls or in other
        factors that could significantly affect internal controls subsequent to the
        date
        we carried out our evaluation.
  29
 
 Disclosure
        controls and procedures are controls and other procedures that are designed
        to
        ensure that information required to be disclosed in our reports filed or
        submitted under the Exchange Act is recorded, processed, summarized and
        reported, within the time periods specified in the Securities and Exchange
        Commission's rules and forms. Disclosure controls and procedures include,
        without limitation, controls and procedures designed to ensure that information
        required to be disclosed in our reports filed under the Exchange Act is
        accumulated and communicated to management, including our CEO and CFO, to
        allow
        timely decisions regarding required disclosure.
 
 Part
        II.
        Other Information
 
 None.
  PART
        II -
        OTHER INFORMATION
  PART
        II -
        OTHER INFORMATION
  **Item
          1. Legal Proceedings**
 
 No
          litigation other than that in the normal course of business
 
 **Item
          2. Unregistered Sales of Securities and Use of Proceeds**
 
 From
          September 1, 2006 to September 30, 2006, the Company sold 1,016,000 shares
          of
          Series B Convertible Preferred Stock, par value $.001 per share (“Series B”) at
          $1.00 per share to 33 accredited investors. Net offering costs were $60,960
          (6%).  Each share of Series B Convertible Preferred Stock is automatically
          convertible into twenty shares of common stock when the Company amends
          its
          Articles of Incorporation to increase the amount of its authorized common
          stock
          to an amount that would be sufficient to issue the number of shares necessary
          to
          convert all Series B into common stock. Each share of Series B is entitled
          to
          participate on the same basis with common shareholders related to receipt
          of
          dividends, and has voting rights equal to the number of shares into which
          each
          share of Series B is convertible.  The proceeds were used to provide
          working capital funding.
 
 **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)
                Exhibits
 
 Exhibit
                    2.1
                Plan
                    of purchase, sale, reorganization, arrangement, liquidation,
                    or succession
                    - Acquisition of General Environmental Management, Inc.; incorporated
                    by
                    reference previously filed on form 8K with the commission on
                    12/23/2004
 
 Exhibit
                    2.2
                Notification
                    of the completion of the acquisition effective 2/14/05; incorporated
                    by
                    reference previously filed with the commission on form 8K on
                    2/18/05
 
 Exhibit
                    22.1
                Published
                    report regarding matters submitted to a vote of security holders;
                    incorporated by reference filed on PRE 14A filed with the commission
                    on
                    2/22/05
 
 Exhibit
                    22.2
                Amendments
                    to Articles of Incorporation or Bylaws; incorporated by reference
                    and
                    filed with the commission on
                    3/23/05
 
 Exhibit
                    31.1
                CEO
                    Certification - Page 32
  Exhibit
                      31.2
                  CFO
                      Certification - Page 33
  Exhibit
                    32.1
                CEO
                    Certification - Page 34
 Exhibit
                        32.2
                    CFO
                        Certification - Page 35
 
 (b)
                Reports
                    on Form 8-K
 1.
          Material definitive agreement and Sales of Equity; filed with the Commission
          on
          3/7/06
 2.
          Stock
          Purchase agreement K2M; filed with the Commission on 3/16/06
 3.
          Material definitive agreement to acquire Pollution Control Industries ;
          filed
          with the Commission on 8/16/06
 4.
          Sales
          of Equity Securities; filed with the Commission on 9/6/06
 5.
          Material definitive agreement filed with the Commission on 9/25/06
  30
  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**Date: November
                20, 2006
              By:
              /s/ Timothy
                J. KoziolTimothy J. Koziol
                President, CEO and
                Chairman of the Board of Directors  Date: November
                20, 2006
              By:
              /s/ Brett
                M.
                ClarkBrett M. Clark
                Vice President of Finance,
                Chief Financial
                  Officer




31