UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549





FORM
      10-Q





QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF


THE
      SECURITIES EXCHANGE ACT OF 1934


For
      the
      quarter ended November 30, 2005





Commission
      File No. 0-1738


**GENERAL
      KINETICS INCORPORATED**


(Exact
      Name of Registrant as specified in its Charter)






Virginia
                (State
                  of Incorporation)
              54-0594435
                (IRS
                  Employer Identification No)110
                  Sunray Dr, Johnstown, PA
                (Address
                  of principal executive offices)
              15905
                (Zip
                  Code)Registrant's
                  telephone number
              (814)
                  255-6891




Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the Registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.





**YES** **X** **NO**





Indicate
      by check mark whether the registrant is an accelerated filer (as defined in
      Rule
      12b-2 of the Exchange Act):




**YES** **NO X            ******
 
 Indicate
        by check mark whether the registrant is a a shell company (as defined in
        Rule 12b-2 of the Exchange Act):




**YES** **NO** **X**





The
      number of shares outstanding of Registrant's Common Stock, $0.25 par value,
      as
      of January 13, 2006 was 7,118,925.







Page
          1 of
          18






**Page
                  No.**Cautionary
                  Statement
              3Part
                  I: Financial Information Page
              3Item
                  1. Financial StatementsBalance Sheets - November 30, 2005 and May 31, 2005
              4Statements of Operations - Six months ended November 30, 2005 and
                  November
                  30, 2004 andThree months ended November 30, 2005 and November 30,
                  2004
              5Statement of Stockholders’ Deficit
              6- Six months ended November 30, 2005Statements of Cash Flows - Six months ended November 30, 2005
                  and November 30, 2004
              7Notes to Financial Statements
              8Item
                  2. Management’s Discussion and Analysis of Financial Condition and Results
                  of Operations
              9-12Item
                  3. Quantitative and Qualitative Disclosures About Market
                  Risk
              12Item
                  4. Controls and Procedures
              12Part
                  II - Other InformationItem
                  1. Legal Proceedings
              13Item
                  3. Defaults upon Senior Securities
              13Item
                  6. Exhibits
              13







Page
          2 of
          18


**CAUTIONARY
      STATEMENT REGARDING FORWARD LOOKING STATEMENTS**





Certain
      statements contained in this Quarterly Report on Form 10-Q constitute
      "forward-looking statements". In some cases, forward-looking statements can
      be
      identified by the use of forward-looking terminology such as "may," "will,"
      "estimate," "intend," "continue," "believe," "expect" or "anticipate" or the
      negatives thereof, variations thereon or similar terminology. The
      forward-looking statements contained in this Quarterly Report are generally
      located in the material set forth under the headings “Business” and
      "Management's Discussion and Analysis of Financial Condition and Results of
      Operations," but may be found in other locations as well. These forward-looking
      statements generally relate to plans and objectives for future operations and
      are based upon management's reasonable estimates of future results or trends.
      Although the Company believes that the plans and objectives reflected in or
      suggested by such forward-looking statements are reasonable, such plans or
      objectives may not be achieved. Actual results may differ from projected results
      due, but not limited, to unforeseen developments, including developments
      relating to the following:





·
            the
                risk that the Company will not be able to manufacture and complete
                the
                order backlog as scheduled and on budget in order to maintain a positive
                cash flow;


·
            the
                risk that the Company may not be able to obtain sufficient new orders
                to
                achieve positive cash flow;


·
            the
                risk that the Company may not maintain its present financing facility
                or
                obtain additional financing, if
                necessary;


·
            the
                risk that it will not be able to repay, restructure or refinance
                in full
                the approximately $7.32 million principal amount of its outstanding
                convertible debentures which matured on August 14, 2004;


·
            the
                risk that the Company may not be able to continue the necessary
                development of its operations, including maintaining or increasing
                sales
                and production levels, on a profitable basis;


·
            the
                risk the Company may, in the future, have to comply with more stringent
                environmental laws or regulations or more vigorous enforcement policies
                of
                regulatory agencies, and that such compliance could require substantial
                expenditures by the Company;


·
            the
                risk that U.S. defense spending may be substantially reduced;
                and


·
            the
                risk that the Company’s Common Stock will not continue to be quoted on the
                NASD Over The Counter Bulletin
                Board.





You
      should read this Quarterly Report completely and with the understanding that
      actual future results may be materially different from what the Company expects.
      All subsequent written and oral forward-looking statements attributable to
      the
      Company or to persons acting on the Company’s behalf are expressly qualified in
      their entirety by the foregoing factors. These forward-looking statements speak
      only as of the date of the document in which they are made. The Company
      disclaims any obligation or undertaking to provide any updates or revisions
      to
      any forward-looking statement to reflect any change in the Company’s
      expectations or any change in events, conditions or circumstances in which
      the
      forward-looking statement is based.





**PART
      I FINANCIAL INFORMATION**





Item
      1 -
      Financial Statements





The
      unaudited financial statements of General Kinetics Incorporated ("GKI" or the
      "Company") set forth below have been prepared pursuant to the rules and
      regulations of the Securities and Exchange Commission. Certain information
      and
      note disclosures normally included in the annual financial statements prepared
      in accordance with Generally Accepted Accounting Principles (GAAP) have been
      condensed or omitted pursuant to those rules and regulations. Revenues,
      expenses, assets and liabilities vary during the year and GAAP requires the
      Company to make estimates and assumptions in preparing the interim financial
      statements. The Company has made its best effort in establishing good faith
      estimates and assumptions. However, actual results may differ. The Company
      believes that the disclosures made are adequate to make the information
      presented not misleading. The information as of May 31, 2005 is derived from
      audited financial statements.





In
      the
      opinion of management of the Company, the accompanying financial statements
      reflect all adjustments (consisting only of normal recurring adjustments) that
      are necessary for a fair presentation of results for the periods presented.
      These financial statements should be read in conjunction with the audited
      financial statements for the fiscal years ended May 31, 2005 and 2004 set forth
      in the Company's annual report on Form 10-K, as amended, for the fiscal year
      ended May 31, 2005.





Page
          3 of
          18




General
      Kinetics Incorporated













Nov
                  30,
            
            May
                  31,ASSETS
            
            2005
            
            2005Cash
                and cash equivalents
            
            $
            13,200
            
            $
            301,500Marketable
                securities - trading
            
            
            84,000
            
            
            68,700Accounts
                receivable, net of allowance of $20,000
            
            
            880,600
            
            
            531,900Inventories,
                net
            
            
            1,270,400
            
            
            1,072,800Prepaid
                expenses and other
            
            
            24,100
            
            
            53,100Total
                Current Assets
            
            
            2,272,300
            
            
            2,028,000Property,
              Plant and Equipment
            
            
            2,231,700
            
            
            2,285,400Less:
                Accumulated Depreciation and Amortization
            
            
            (1,973,800
            )
            
            (1,989,700
            )257,900
            
            
            295,700Other
              Assets
            
            
            26,600
            
            
            100,600Total
                Assets
            
            $
            2,556,800
            
            $
            2,424,300LIABILITIES
                AND STOCKHOLDERS' DEFICITCurrent
              Liabilities:Advances
                from Factor
            
            $
            566,900
            
            $
            149,400Current
                maturities of long-term debt
            
            
            7,315,000
            
            
            7,315,000Current
                maturities of capital lease
            
            
            48,400
            
            
            60,000Accounts
                payable, trade
            
            
            618,400
            
            
            669,500Accrued
                expenses and other payables
            
            
            875,800
            
            
            741,600Deferred
                gain on sale of building
            
            
            104,100
            
            
            104,100Total
                Current Liabilities
            
            
            9,528,600
            
            
            9,039,600Long-Term
              Liabilities:Capital
                lease - less current maturities
            
            
            85,200
            
            
            102,500Other
                long-term liabilities
            
            
            234,200
            
            
            253,600Deferred
                gain on sale of building
            
            
            260,200
            
            
            312,200Total
                Long-Term Liabilities
            
            
            579,600
            
            
            668,300Total
                Liabilities
            
            
            10,108,200
            
            
            9,707,900Stockholders'
              Deficit:Common
                Stock, $0.25 par value, 50,000,000 shares authorized, 7,645,557 shares
                issued, 7,118,925 shares outstanding
            
            
            1,911,400
            
            
            1,911,400Additional
                Contributed Capital
            
            
            7,337,300
            
            
            7,337,300Accumulated
                Deficit
            
            
            (16,349,900
            )
            
            (16,082,100
            )(7,101,200
            )
            
            (6,833,400
            )Less:
                Treasury Stock, at cost (526,632 shares)
            
            
            (450,200
            )
            
            (450,200
            )Total
                Stockholders' Deficit
            
            
            (7,551,400
            )
            
            (7,283,600
            )Total
                Liabilities and Stockholders' Deficit
            
            $
            2,556,800
            
            $
            2,424,300





Page
          4 of
          18





General
        Kinetics Incorporated






Six
                  Months Ended
              
              Three
                  Months EndedNovember
                  30,
              
              
              November
                  30,
              
              
              November
                  30,
              
              
              November
                  30,2005
              
              
              
              2004
              
              
              
              2005
              
              
              
              2004Net
                  Sales
              
              $
              4,514,300
              
              
              100.0
              %
              $
              3,788,000
              
              
              100.0
              %
              $
              2,229,800
              
              
              100.0
              %
              $
              2,066,300
              
              
              100.0
              %Cost
                  of Sales
              
              
              3,970,500
              
              
              88.0
              %
              
              3,150,300
              
              
              83.2
              %
              
              2,003,500
              
              
              89.9
              %
              
              1,737,700
              
              
              84.1
              %Gross
                  Profit
              
              
              543,800
              
              
              12.0
              %
              
              637,700
              
              
              16.8
              %
              
              226,300
              
              
              10.1
              %
              
              328,600
              
              
              15.9
              %Selling,
                  General & Administrative
              
              
              705,600
              
              
              15.6
              %
              
              695,700
              
              
              18.4
              %
              
              352,700
              
              
              15.8
              %
              
              358,100
              
              
              17.3
              %Total
                  Operating Expenses
              
              
              705,600
              
              
              15.6
              %
              
              695,700
              
              
              18.4
              %
              
              352,700
              
              
              15.8
              %
              
              358,100
              
              
              17.3
              %Operating
                  Income/ (Loss)
              
              
              (161,800
              )
              
              -3.6
              %
              
              (58,000
              )
              
              -1.5
              %
              
              (126,400
              )
              
              -5.7
              %
              
              (29,500
              )
              
              -1.4
              %Other
                  Income (Expense):Interest
                  Expense
              
              
              (106,000
              )
              
              -2.3
              %
              
              (59,400
              )
              
              -1.6
              %
              
              (65,600
              )
              
              -2.9
              %
              
              (11,700
              )
              
              -0.6
              %Gain
                  on Settlement of Debt
              
              
              
              
              
              0.0
              %
              
              1,346,400
              
              
              35.5
              %
              
              -
              
              
              0.0
              %
              
              1,346,400
              
              
              65.2
              %Total
                  Other Income (Expense)
              
              
              (106,000
              )
              
              -2.3
              %
              
              1,287,000
              
              
              34.0
              %
              
              (65,600
              )
              
              -2.9
              %
              
              1,334,700
              
              
              64.6
              %Net
                  Income (Loss)
              
              $
              (267,800
              )
              
              -5.9
              %
              $
              1,229,000
              
              
              32.4
              %
              $
              (192,000
              )
              
              -8.6
              %
              $
              1,305,200
              
              
              63.2
              %Earnings
                  per common share:Basic
                  Income (Loss ) per share
              
              
              ($0.04
              )
              
              
              
              $
              0.17
              
              
              
              
              
              ($0.03
              )
              
              
              
              $
              0.18Basic
              
              
              7,118,925
              
              
              
              
              
              7,118,925
              
              
              
              
              
              7,118,925
              
              
              
              
              
              7,118,925


The
        accompanying notes are an integral part of the financial
        statements.






Page
          5 of
          18




General
      Kinetics
      Incorporated


Statement
        of Stockholders' Deficit
 For
        the Quarter Ended November 30,
        2005
 (Unaudited)
 (In
        hundreds, except per share data)




Additional
              
              
              
              
              
              TotalCommon
                  Stock
              
              Contributed
              
              Accumulated
              
              Treasury
              
              Stockholders'Shares
              
              Amount
              
              Capital
              
              Deficit
              
              Stock
              
              DeficitBalance
                  5/31/04
              
              
              7,645,557
              
              $
              1,911,400
              
              $
              7,337,300
              
              $
              (17,390,900
              )
              $
              (450,200
              )
              $
              (8,592,400
              )Net
                  Gain
              
              
              
              
              
              
              
              
              
              
              
              1,229,000
              
              
              
              
              
              1,229,000Balance
                  11/30/04
              
              
              7,645,557
              
              $
              1,911,400
              
              $
              7,337,300
              
              $
              (16,161,900
              )
              $
              (450,200
              )
              $
              (7,363,400
              )Balance
                  5/31/05
              
              
              7,645,557
              
              $
              1,911,400
              
              $
              7,337,300
              
              $
              (16,082,100
              )
              $
              (450,200
              )
              $
              (7,283,600
              )Net
                  Loss
              
              
              
              
              
              
              
              
              
              
              
              (267,800
              )
              
              
              
              
              (267,800
              )Balance
                  11/30/05
              
              
              7,645,557
              
              $
              1,911,400
              
              $
              7,337,300
              
              $
              (16,349,900
              )
              $
              (450,200
              )
              $
              (7,551,400
              )




The
        accompanying notes are an integral part of the financial
        statements.






Page
          6 of
          18





**General
      Kinetics Incorporated**


Statements
      of Cash Flows


(Unaudited)


(In
      hundreds)






For
                The Quarter EndedNovember
                30,
            
            November
                30,2005
            
            2004Cash
                Flows From Operating Activities:Net
                Income (Loss)
            
            $
            (267,800
            )
            $
            1,229,000Adjustments
                to reconcile net income (loss)to
                net cash provided by (used in) operating activities:Gain
                on sale of building
            
            
            (52,000
            )
            
            (52,000
            )Unrealized
                (gain) loss on marketable equity securities
            
            
            (15,300
            )
            
            (2,800
            )Depreciation
                and amortization
            
            
            41,500
            
            
            43,400Amortization of bond discount
            
            
            -
            
            
            15,100Gain
                from the retirement of debt
            
            
            -
            
            
            (1,346,400
            )Provision
                for doubtful accounts
            
            
            -
            
            
            -Provision
                for inventory obsolescence
            
            
            -
            
            
            -(Increase)
                Decrease in Assets:Accounts
                receivable
            
            
            (348,700
            )
            
            179,800Inventories
            
            
            (197,600
            )
            
            (318,100
            )Prepaid
                expenses
            
            
            29,000
            
            
            (20,100
            )Other
                assets
            
            
            74,000
            
            
            10,400Increase
                (Decrease) in Liabilities:Accounts
                payable - trade
            
            
            (51,100
            )
            
            22,900Accrued
                expenses and other payables
            
            
            134,200
            
            
            30,700Other
                long term liabilities
            
            
            (19,400
            )
            
            (1,200
            )Net cash used in Operating Activites
            
            
            (673,200
            )
            
            (209,300
            )Cash
                Flows from Investing Activities:Acquisition
                of property, plant and equipment
            
            
            (3,700
            )
            
            (36,500
            )Proceeds
                from sale of building
            
            
            -
            
            
            -Net cash used in Investing Activities
            
            
            (3,700
            )
            
            (36,500
            )Cash
                Flows from Financing Activities:Factor/Borrowings
                on Demand Notes Payable
            
            
            417,500
            
            
            (198,600
            )Principal
                payments under capital lease
            
            
            (28,900
            )
            
            (22,300
            )Repayments
                on long term debt
            
            
            -
            
            
            (27,200
            )Net cash provided by (used in) Financing Activities
            
            
            388,600
            
            
            (248,100
            )Net
                decrease in cash and cash equivalents
            
            $
            (288,300
            )
            $
            (493,900
            )Cash
                and Cash Equivalents: Beginning of Period
            
            
            301,500
            
            
            670,000Cash
                and Cash Equivalents: End of Period
            
            $
            13,200
            
            $
            176,100Supplemental
                Disclosures of Cash Flow Information:Cash
                paid during the quarter for:Interest
            
            $
            22,200
            
            $
            21,500Non-cash
                investing and financing activities:Assets
                acquired under capital lease
            
            $
            -
            
            $
            163,000




The
      accompanying notes are an integral part of the financial
      statements.





Page
          7 of
          18




Notes
      to Unaudited Condensed Financial
      Statements




Note
      1 -
      Basis of Presentation





The
      unaudited condensed financial statements at November 30, 2005, and for the
      six
      months ended November 30, 2005 and November 30, 2004, include the accounts
      of
      General Kinetics Incorporated (“GKI” or the “Company”).





The
      financial information included herein is unaudited. In addition, the financial
      information does not include all disclosures required under Generally Accepted
      Accounting Principles (GAAP) because certain note information included in the
      Company's Annual Report has been omitted. However, such information reflects
      all
      adjustments (consisting solely of normal recurring adjustments) which are,
      in
      the opinion of management, necessary to a fair presentation of the results
      of
      the interim periods.





The
      results of operations for the three-month period ended November 30, 2005 are
      not
      necessarily indicative of the results to be expected for the full
      year.





Note
      2 -
      Earnings Per-Share





Earnings
      per-share is based on the weighted average number of shares of common stock
      and
      dilutive common stock equivalents outstanding. Basic earnings per share includes
      no dilution and is computed by dividing net income (loss) available to common
      shareholders by the weighted average number of common shares outstanding for
      the
      period. Diluted earnings per share reflect the potential dilution of securities
      that could share in the earnings.





Note
      3 -
      Notes Payable





At
      November 30, 2005 ,
      convertible debentures were outstanding in an aggregate principal amount of
      approximately $7.32 million. The debentures matured on August 14, 2004, and
      were
      stated to be convertible into common stock at a conversion price of $0.50 per
      share, and to bear interest at 1% per annum, payable annually. The Company
      continues to accrue interest on the debentures. Shares issuable upon conversion
      were also subject to certain rights to registration under the Securities Act
      of
      1933, as amended.





On
      March
      12, 2003, Manassas Partners LLC, a Delaware limited liability company of which
      Larry Heimendinger, Chairman of the Board of Directors of the Company, is the
      managing member, purchased from third parties, at a significant discount, a
      portion of the Company's outstanding convertible debentures in an aggregate
      principal amount of $5,800,000. On July 18, 2005, an additional $290,000 of
      the
      Company's principal outstanding convertible debentures was purchased by Manassas
      Partners LLC, from third parties, at 3% of face value.





In
      October 2004, the Company purchased $1.36 million aggregate principal amount
      of
      debentures from certain debenture holders for a total price (including accrued
      interest) equal to 3% of the principal amount. The Company made a final payment
      to the debenture holders in January 2005. In a separate transaction, in January
      2005, the Company purchased an additional $160,000 aggregate principal amount
      of
      debentures from certain debenture holders for a total price (including accrued
      interest) equal to 3% of the principal amount. As a result of these
      transactions, the Company recognized a gain on the settlement of debt of
      $1,346,400 during the second quarter of fiscal 2005 and $158,400 during the
      third quarter of fiscal 2005.





The
      Company’s cash flow, capital resources, and overall financial condition will not
      be sufficient to repay or refinance in full the approximately $7.32 million
      principal amount of outstanding debentures which matured on August 14, 2004.
      At
      present, the Company is in discussion with certain other debenture holders,
      but
      has decided on no specific plans with respect to the repayment or refinancing
      of
      the debentures. The Company is continuing to review the situation and
      considering its potential alternatives. There can be no assurance, however,
      that
      the Company will be able to come to agreement with the other debenture holders
      with respect to repayment or refinancing of the debentures.





Note
      4 -
      Income Taxes




The
      Company’s estimated effective tax rate for fiscal 2006 is 0%. This estimated
      effective tax rate is lower than the statutory rate due to the existence of
      net
      operating loss carry forwards.





Note
      5 -
      Recent Accounting Pronouncements





In
      March
      2005, the FASB issued FIN 47, Accounting for Conditional Asset Retirement
      Obligations, an interpretation of FASB Statement No. 143 ("FIN 47"), which
      requires an entity to recognize a liability for the fair value of a conditional
      asset retirement obligation when incurred if the liability's fair value can
      be
      reasonably estimated. FIN 47 is effective for fiscal years ending after December
      15, 2005. The Company does not anticipate that the adoption FIN 47 will have
      a
      material impact on its financial statements.


Page
          8 of
          18





In
      May
      2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections."
      SFAS No. 154 replaces APB No. 20, "Accounting Changes," and SFAS No. 3,
      "Reporting Accounting changes in Interim Financial Statements," and establishes
      retrospective application as the required method for reporting change in
      accounting principle. SFAS No. 154 provides guidance for determining whether
      retrospective application of a change in accounting principle is impracticable
      and for reporting a change when retrospective application is impracticable.
      The
      reporting of a correction of an error by restating previously issued financial
      statements is also addressed. SFAS No. 154 is effective for accounting changes
      and corrections of errors made in fiscal years beginning after December 15,
      2005. The Company does not anticipate that the adoption of SFAS No. 154 will
      have a material impact on its financial statements.





Item
      2 -
      Management's Discussion and Analysis of Financial Condition and Results of
      Operations





Three
      Months Ended November 30, 2005 Compared to Three Months Ended November 30,
      2004





Net
      sales
      for the quarter ended November 30, 2005 were approximately $2.2 million compared
      to net sales of approximately $2.1 million for the quarter ended November 30,
      2004. The increase in sales was due primarily to an increase in orders under
      large blanket contracts with prime contractors to the U.S. Department of Defense
      (DOD), in addition to an overall increase of orders from customers involved
      in
      projects related to the U.S. DOD compared to the prior fiscal year.





The
      gross
      margin percentage decreased from 15.9% for the quarter ended November 30, 2004
      to 10.1% for the quarter ended November 30, 2005. The decrease in the gross
      profit percentage was caused by the mix of jobs for the quarter ended November
      30, 2005 as compared to the corresponding quarter of the prior fiscal year
      and
      an increased need for the use of overtime to compensate for work performed
      during the Thanksgiving holiday period. The Company operates as a job shop,
      making a mix of build-to-print enclosures, assembles and parts, standard
      enclosures, and special orders, all with variable quantities depending on the
      current contracts. Therefore, the mix of orders and margins associated with
      those orders can vary significantly between quarters.





Selling,
      general and administrative costs were approximately $352,700 for the quarter
      ended November 30, 2005 as compared to approximately $358,100 for the quarter
      ended November 30, 2004. The small decrease was principally due to a
      decrease in salary costs related to the relocation of positions in Johnstown,
      Pennsylvania.





For
      the
      quarter ended November 30, 2005, the Company had an operating loss of $126,400
      compared to an operating loss of $29,500 for the corresponding quarter of the
      prior year. The increase in operating loss was due principally to an erosion
      of
      gross profit percentage as a result of changes in the types of orders produced
      during the quarter ended November 30, 2005. Management believes that margins
      will increase in future quarters due to changes in operational procedures that
      will increase efficiencies.





Interest
      expense increased from $11,700 in the second quarter of fiscal 2005 to $65,600
      in the second quarter of fiscal 2006. The increase was due to more a extensive
      use of factoring, service fees related to the cancellation of the Key Financial
      factoring agreement and the instatement of the new agreement with Presidential
      Financial Capital Partners.





The
      Company’s estimated effective tax rate for fiscal 2006 is 0%. This estimated
      effective tax rate is lower than the statutory rate due to the existence of
      net
      operating loss carry forwards.





Six
      Months Ended November 30, 2005 Compared to Six Months Ended November 30,
      2004





Net
      sales
      for the six months ended November 30, 2005 were approximately $4.5 million
      compared to net sales of approximately $3.8 million for the six months ended
      November 30, 2004. The increase in sales was due primarily to an increase in
      orders under large blanket contracts with prime contractors to the U.S.
      Department of Defense (DOD), in addition to an overall increase of orders from
      customers involved in projects related to the U.S. DOD compared to the prior
      fiscal year.





The
      gross
      margin percentage decreased from 16.8% for the six months ended November 30,
      2004 to 12.0% for the six months ended November 30, 2005. The decrease in the
      gross profit percentage was caused by the mix of jobs for the six months ended
      November 30, 2005 as compared to the corresponding six months of the prior
      fiscal year and an increased need for the use of overtime to compensate for work
      performed during the Thanksgiving holiday period .
      The
      Company operates as a job shop, making a mix of build-to-print enclosures,
      assembles and parts, standard enclosures, and special orders, all with variable
      quantities depending on the current contracts. Therefore, the mix of orders
      and
      margins associated with those orders can vary significantly between
      quarters.





Selling,
      general and administrative costs were approximately $705,600 for the six months
      ended November 30, 2005 as compared to approximately $695,700 for the six months
      ended November 30, 2004. The small increase was principally due to changes
      in
      commission structure and a greater proportion of sales from the outside sales
      force.


Page
          9 of
          18





For
      the
      six months ended November 30, 2005, the Company had an operating loss of
      $161,800 compared to an operating loss of $58,000 for the corresponding six
      months of the prior year. The increase in operating loss was due principally
      to
      an erosion of gross profit percentage because of changes in the types of orders
      produced during the six months ended November 30, 2005. Management believes
      that
      margins will increase in future quarters due to changes in operational
      procedures that will increase efficiencies.





Interest
      expense increased from $59,400 in the second six months of fiscal 2005 to
      $106,000 in the second six months of fiscal 2006. The increase was due to a
      more
      extensive use of factoring, service fees related to the cancellation of the
      Key
      Financial factoring agreement and the instatement of the new agreement with
      Presidential Financial Capital Partners.





The
      Company’s estimated effective tax rate for fiscal 2006 is 0%. This estimated
      effective tax rate is lower than the statutory rate due to the existence of
      net
      operating loss carry forwards.





**Liquidity
      and Capital Resources**





The
      Company relies upon internally generated funds and accounts receivable factoring
      to finance its operations. During the six months ended November 30, 2005, the
      Company had an operating loss of $161,800. For the fiscal years ended May 31,
      2005 and 2004, the Company had net income of approximately $1,308,700, which
      included a gain on settlement of debt of $1,504,800 and net loss of
      approximately $527,300, respectively. In order to generate the working capital
      required for operations, the Company must continue to generate orders, increase
      its gross margins, and effectively manage operating expenses during the
      remainder of fiscal 2006.





The
      Company must continue to market electronic enclosure products to government
      and
      commercial markets and enter into contracts that the Company can complete with
      favorable profit margins, ship the orders in a timely manner, and control
      operating costs in order to recover from the Company’s liquidity problems and
      seek to operate profitably for the remainder of fiscal 2006.





The
      Company had $618,400 payable to trade creditors at November 30, 2005, as
      compared to $669,500 at May 31, 2005. The reduction in payables to trade
      creditors is being orchestrated to maintain the Company’s good standing with
      vendors.





The
      Company has received significant new orders during the second quarter of fiscal
      2006, and the shippable backlog at November 30, 2005 is $3.3 million as compared
      to $4.3 million at November 30, 2004. The Company must produce and ship this
      backlog of orders on schedule and on budget to generate positive cash flow
      and
      operate profitably in fiscal 2006. The Company must also maintain or increase
      the current level of backlog to provide positive cash flow over the next
      twelve-month period. However, there is no assurance the Company will be
      successful in its efforts to obtain an adequate level of new contracts to
      maintain positive cash flow or profitable operations.





As
      of
      November 30, 2005, the Company had cash and marketable securities totaling
      $97,200. During the quarter ended November 30, 2005, the Company had limited
      cash flow, and had difficulty meeting operating cash flow requirements. The
      Company was only able to meet cash requirements through the aggressive factoring
      of accounts receivable. This cash shortage was caused by the Company utilizing
      funds to make necessary changes in operations, such as decreasing accounts
      payable with key vendors to increase the availability of tactically imperative
      inventory and increasing the capabilities of the work force through cross
      training. The Company has taken, and is continuing to take, steps to address
      production planning through changes and additions to plant supervision,
      regularly updating scheduling and planning procedures, and adding new production
      machinery. The Company is trying to stabilize the level of shipments at a
      profitable level through these changes.





Management
      believes that the Company can meet its operating cash requirements, excluding
      the repayment of the debentures referred to below, through the current fiscal
      year with cash on hand and borrowings from the factoring of accounts receivable
      if the Company can maintain or increase the current level of backlog, and ship
      the scheduled backlog on time and within budget. However, there is no assurance
      the Company will be successful in pursuing its plans or in obtaining additional
      financing to meet those cash requirements. The Company must maintain or increase
      its current level of sales, consistently make timely shipments and produce
      its
      products at adequate profit margins, or the Company will continue to face
      liquidity problems and may be left without sufficient cash to meet its ongoing
      requirements.





The
      accompanying financial statements have been prepared assuming that the Company
      will continue as a going concern. The Company has sustained operating losses
      in
      two of the last three fiscal years, and the Company has significant short-term
      cash commitments, the funding of which are limited to cash flow from operations
      and the factoring of certain accounts receivable, if available. The Company
      is
      also attempting to restructure or repurchase at a discount the remaining
      convertible debentures (discussed below) which matured on August 14, 2004.
      The
      losses and commitments raise significant doubt about the Company’s ability to
      continue as a going concern. The financial statements do not contain any
      adjustments that might result from the outcome of these uncertainties. The
      Company’s former auditors have given a going concern opinion for the last three
      years.





During
      the three months ended November 30, 2005, the Company at its own discretion
      chose to cancel its factoring agreement with Key Capital Partners. This
      cancellation resulted in a one-time cancellation fee of
      $11,000.


Page
          10 of
          18





During
      the quarter ended November 30, 2005, the Company entered into a factoring
      agreement with Presidential Financial Capital Partners (“ PFCP ”)
      that
      provides for advances of up to 86% of specified accounts receivable and a
      revolving credit facility equal to 40% of raw materials inventory or $150,000,
      which ever is less. The Company has drawn on the PFCP facility during fiscal
      2006 as necessary to help alleviate liquidity problems, although, as discussed
      above, the Company will also need to control expenses, maintain the sales
      backlog at appropriate levels, and keep shipment levels in line with booked
      orders in order to meet these requirements. The Company factored accounts
      receivable under the PFCP facility during the quarter ended November 30, 2005.
      There were outstanding advances due to PFCP at November 30, 2005 of $566,900,
      which includes the $150,000 revolving credit facility. PFCP may cancel the
      agreement at any time with 30 days prior notice to the Company.





At
      November 30, 2005 ,
      convertible debentures were outstanding in an aggregate principal amount of
      approximately $7.32 million. The debentures matured on August 14, 2004, and
      were
      stated to be convertible into common stock at a conversion price of $0.50 per
      share, and to bear interest at 1% per annum, payable annually. The Company
      continues to accrue interest on these debentures; the accrued expenses and
      other
      payables at November 30, 2005 include approximately $270,200 in accrued interest
      on debentures. Shares issuable upon conversion were also subject to certain
      rights to registration under the Securities Act of 1933, as amended.





On
      March
      12, 2003, Manassas Partners LLC, a Delaware limited liability company of which
      Larry Heimendinger, Chairman of the Board of Directors of the Company, is the
      managing member, purchased from third parties, at a significant discount, a
      portion of the Company's outstanding convertible debentures in an aggregate
      principal amount of $5,800,000. On July 18, 2005, an additional $290,000 of
      the
      Company's principal outstanding convertible debentures was purchased by Manassas
      Partners LLC, from third parties, at a significant discount.





In
      October 2004, the Company purchased $1.36 million aggregate principal amount
      of
      debentures from certain debenture holders for a total price (including accrued
      interest) equal to 3% of the principal amount. The Company made a final payment
      to the debenture holders in January 2005. In a separate transaction, in January
      2005, the Company purchased an additional $160,000 aggregate principal amount
      of
      debentures from certain debenture holders for a total price (including accrued
      interest) equal to 3% of the principal amount. As a result of these
      transactions, the Company recognized a gain on the settlement of debt of
      $1,346,400 during the second quarter of fiscal 2005 and $158,400 during the
      third quarter of fiscal 2005.





The
      Company’s cash flow, capital resources, and overall financial condition will not
      be sufficient to repay or refinance in full the approximately $7.32 million
      principal amount of outstanding debentures which matured on August 14, 2004.
      At
      present, the Company is in discussion with certain other debenture holders,
      but
      has decided on no specific plans with respect to the repayment or refinancing
      of
      the debentures. The Company is continuing to review the situation and
      considering its potential alternatives. There can be no assurance, however,
      that
      the Company will be able to come to agreement with the other debenture holders
      with respect to repayment or refinancing of the debentures. No payment has
      otherwise been made in respect of interest on the outstanding
      debentures.





**Analysis
      of Cash Flows**





Operating
      activities used $673,200 in cash during the six months ended November 30, 2005.
      This reflects net loss of $ 267,800 and $379,600 in cash utilized by working
      capital items, plus a utilization of $25,800 in net non-cash items. The cash
      used from changes in working capital items includes inventories and receivables
      of $197,600 and $348,700 respectively, and accrued expenses of
      $134,200.





Investing
      activities used $3,700 during the six months ended November 30, 2005, which
      consists primarily of the acquisition of computer equipment. Fully depreciated
      fixed assets were disposed of in the amount of $57,400 during the second quarter
      of fiscal 2006. This disposition had no affect on cash flows.




Financing
      activities provided $388,600 during the six months ended November 30, 2005.
      These activities consisted of $417,500 in advances from the factoring of
      accounts receivable and inventory and $28,900 of cash used for payments under
      capital leases.





**Inflation**





Management
      believes that inflation did not have a material effect on the operations,
      financial position or cash flows of the Company during the six months ended
      November 30, 2005.





**Critical
      Accounting Policies**





The
      Company’s significant accounting policies are more fully described in Note 2 to
      the financial statements in our 2005 Annual Report on Form 10-K, as amended.
      The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States requires management to make estimates
      and assumptions in certain circumstances that affect amounts reported in the
      accompanying financial statements and related notes. In preparing these
      financial statements, management has made its best estimates and judgments
      of
      certain amounts included in the financial statements, giving due consideration
      to materiality. The Company does not believe there is a great likelihood that
      materially different amounts
      would be reported related to the accounting policies described below; however,
      application of these accounting policies involves the exercise of judgment
      and
      the use of assumptions as to future uncertainties and, as a result, actual
      results could differ from these estimates.


Page
          11 of
          18





Work
      in
      process inventory represents actual production costs, including manufacturing
      overhead incurred to date, reduced by amounts identified with revenue recognized
      on units delivered as well as reserves for amounts in excess of estimated net
      realizable value. The costs attributable to units delivered are based on the
      estimated average costs of all units, expected to be produced under multi-unit
      orders. Estimated costs to complete are based on historical experience and
      knowledge of building similar products. On an on-going basis, the Company
      evaluates the estimates of total costs to complete a multi-unit order. Work
      in
      process is reduced by charging any amounts in excess of estimated net realizable
      value to cost of sales as soon as they become known. Interim inventories are
      determined by application of estimated gross profit margins to
      sales.





The
      Company provides an allowance for uncollectible receivables based on experience
      with customers, and individual review of any past due accounts. Although it
      is
      reasonably possible that management’s estimate could change in the near future,
      management is not aware of any events that would result in a change to its
      estimate that would be material to the Company’s financial position or its
      results of operations. At November 30, 2005, the Company had an allowance for
      doubtful accounts of $20,000.





Item
      3 -
      Quantitative and Qualitative Disclosures About Market Risk





*Market
      Risk* - The
      Company is exposed to market risk from changes in the defense budget, and other
      government spending changes, which are completely beyond the control of the
      Company.





*Interest
      Rate Risks* - The
      Company is exposed to risk from changes in interest rates as a result of its
      borrowing activities.





Item
      4
      -Controls and Procedures





The
      Company maintains disclosure controls and procedures that are designed to ensure
      that information required to be disclosed in the Company’s 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 and that such information is accumulated and communicated to
      the
      Company’s management, including the Company’s Chief Executive Officer and Chief
      Financial Officer, as appropriate, to allow timely decisions regarding required
      disclosure.





The
      Company conducted an evaluation of the effectiveness of the design and operation
      of the Company's disclosure controls and procedures that were in place at the
      end of the Company's second quarter of fiscal 2006. This evaluation was carried
      out under the supervision and with the participation of the Company's
      management, including the Company's Chief Executive Officer and Chief Financial
      Officer. Based upon that evaluation, the Company's Chief Executive Officer
      and
      Chief Financial Officer have concluded that the Company's disclosure controls
      and procedures were not effective as of the end of the Company's second quarter
      of fiscal 2006 and that material weaknesses exist in the internal control
      structure of the Company, due in particular to the lack of appropriate resources
      dedicated to external financial reporting. Management of the Company is and
      has
      taken steps to address the weaknesses. Management is adding additional staff
      to
      the external reporting function and reengineering the reporting process to
      increase its efficiency and accuracy.





Page
          12 of
          18


PART
      II
      OTHER INFORMATION





Item
      1.
      Legal Proceedings





Certain
      legal proceedings, in which we are involved, are discussed in Part I, Item
      3 of
      our Annual Report on Form 10-K for the fiscal year ended May 31, 2005. As of
      the
      date hereof, the threatened legal action relating to a former employee alleging
      wrongful dismissal, was settled for an amount based on the employee's salary
      at
      the time of termination.





Item
      3 -
      Defaults Upon Senior Securities





Information
      is incorporated by reference to “Item 2, Management’s Discussion and Analysis of
      Financial Condition and Results of Operations” under the heading “Liquidity and
      Capital Resources.”





Item
      6 -
      Exhibits





31.1 Certification
      of the Chief Executive Officer of the Company pursuant to Rule 13a-14(a) under
      the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of
      the
      Sarbanes-Oxley Act of 2002.


31.2 Certification
      of the Chief Financial Officer of the Company pursuant to Rule 13a-14(a) under
      the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of
      the
      Sarbanes-Oxley Act of 2002.


32.1
      Certification of the Chief Executive Officer of the Company pursuant to 18
      U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
      Act of 2002.


32.2
      Certification of the Chief Financial Officer of the Company pursuant to 18
      U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
      Act of 2002.








Page
          13 of
          18


**SIGNATURES**





Pursuant
      to the requirements of the Securities Exchange Act of 1934, the Registrant
      has
      duly caused this report to be signed on its behalf by the undersigned thereunto
      duly authorized.









**GENERAL
              KINETICS INCORPORATED**Date: January
              17, 2006
            By:
            /s/ Larry
              M. HeimendingerName:
              Larry M. Heimendinger, Chairman of the
              BoardTitle:
              (Principal
              Executive Officer)




Date: January
              17, 2006
            By:
            /s/ Franco
              DeBlasioName:
              Franco DeBlasio, Chief Financial OfficerTitle:
              (Principal
              Accounting Officer and Principal Financial
              Officer)