Document:

Exhibit 10.36

Exhibit 10.36

AMENDED AND RESTATED
SECOND AMENDMENT TO LEASE

THIS AMENDED AND RESTATED SECOND AMENDMENT TO LEASE  (the "Amended and Restated Second Amendment") is made as of the 28th day of January 2010 and deemed effective as of January 1, 2010 (the "Effective Date") by and among, 6800 BROKEN SOUND LLC, a Florida limited liability company (the "Landlord") and FRIENDFINDER NETWORKS INC. (formerly known as Penthouse Media Group Inc.), a Nevada corporation (the "Tenant").

RECITALS

WHEREAS, Landlord and Tenant entered into that certain Lease dated January 1, 2005, as amended on June 14, 2006 (together, the "Lease") concerning approximately 3,533 square feet of that certain office building located at 6800 Broken Sound Parkway, Boca Raton, Florida; and 

WHEREAS, Landlord and Tenant desire to amend the Lease in order to extend the Term for six (6) additional months; and 

WHEREAS, this Amended and Restated Second Amdendment to Lease amends and restates the Second Amendment to Lease dated December 18, 2009.

NOW THEREFORE, in consideration of the foregoing, the mutual covenants and conditions contained in this Amended and Restated Second Amendment, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Amended and Restated Second Amendment, intending to be legally bound, agree as follows:

	1.

The recitals set forth above are true and correct and by this reference are incorporated herein in their entirety.  All capitalized terms used herein which are not otherwise defined herein shall have the respective meanings ascribed to them in the Lease.

	2.

The Expiration Date as set forth in Article 1, Basic Provisions shall be amended as follows:  “...Sixty (60) full calendar months following the Commencement Date...” shall be deleted and replaced with “...Sixty-six (66) full calendar months following the Commencement Date....”

	3.

Amendment to Exhibit D shall be amended by adding the following: 

				
	Period

	Base Rent
Per SF

	Annual
Base Rent (1)
	Monthly
Base Rent (1)

	January 1, 2010 – June 30, 2010

	$16.88

	$59,646.31
	$4,970.53

(1)  Plus applicable sales tax and CAM.

	4.

Except as herein modified, all other terms and conditions of the Lease shall remain in full force and effect.  

IN WITNESS WHEREOF, Landlord and Tenant have respectively executed this Amended and Restated Second Amendment as of the day and year first above written.

LANDLORD:

6800 BROKEN SOUND LLC, a Florida limited liability company

By:  /s/ Marc H. Bell

Name:  Marc H. Bell

Title:  Managing Member

TENANT:

FRIENDFINDER NETWORKS INC. a Nevada Corporation

By:  /s/ Paul Asher

Name:  Paul Asher

Title:  Secretary

2ex10-41.htm

    
      

      

    

    Exhibit
10.41

    

    

    

    

    

    

    

    

    

    

    CALIFORNIA
LIVING WATERS, INC. AND SUBSIDIARY

    CONSOLIDATED
FINANCIAL STATEMENTS

    FOR
THE YEAR ENDED DECEMBER 31, 2008 AND

    FOR
THE TEN MONTHS ENDED OCTOBER 31, 2009 AND 2008

     

     

     

     

     

     

     

     

     

    
 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    CALIFORNIA
LIVING WATERS, INC. AND SUBSIDIARY

    

    

    CONTENTS

    

    

    
      	
              PAGE

            	
              1

            	
              REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

            
	 
      	 
      	 
      
	
              PAGE

            	
              2

            	
              BALANCE
      SHEETS AS OF OCTOBER 31, 2009 (UNAUDITED) AND DECEMBER 31,
      2008

            
	 
      	 
      	 
      
	
              PAGE

            	
              3

            	
              STATEMENTS
      OF OPERATIONS FOR THE TEN MONTHS ENDED OCTOBER 31, 2009 AND 2008
      (UNAUDITED) AND THE YEAR  ENDED DECEMBER 31,
  2008

            
	 
      	 
      	 
      
	
              PAGE

            	
              4

            	
              STATEMENT
      OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE TEN MONTHS ENDED OCTOBER 31,
      2009 (UNAUDITED) AND FOR THE YEAR ENDED DECEMBER 31,
  2008

            
	 
      	 
      	 
      
	
              PAGE

            	
              5

            	
              STATEMENTS
      OF CASH FLOWS FOR THE TEN MONTHS ENDED OCTOBER 31, 2009 AND 2008
      (UNAUDITED) AND FOR THE YEAR ENDED DECEMBER 31, 2008

            
	 
      	 
      	 
      
	
              PAGES

            	
              6

            	
              NOTES
      TO FINANCIAL STATEMENTS FOR THE TEN MONTHS ENDED OCTOBER 31, 2009 AND 2008
      (UNAUDITED) AND FOR THE YEAR ENDED DECEMBER 31,
  2008

            

    

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    REPORT
OF INDEPENDENT REGISTERED PUBLIC ACOUNTING FIRM

     

    The Board
of Directors

    California
Living Waters, Inc. and Subsidiary

    

    

          We
have audited the accompanying consolidated balance sheet of California Living
Waters, Inc. (the "Company") as of December 31, 2008 and the related
consolidated statements of operations, stockholders' equity  and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audit.

    

          We
conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated  financial statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provide a reasonable basis for our
opinion.

    

          In
our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of California Living
Waters, Inc. and subsidiary as of  December 31, 2008 and the results
of their operations and their cash flows for the year then ended, in conformity
with accounting principles generally accepted in the United States of
America.

    

          As
more fully discussed in Note 11, on October 31, 2009, the Company entered into a
stock purchase agreement with General Environmental Management, Inc. (GEM), a
publicly held company, pursuant to which GEM acquired all of the issued and
outstanding common stock of the Company.

    

    

    Weinberg
& Company, P.A.

    

    Los
Angeles, Ca.

    January
22, 2010

    

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    CALIFORNIA
LIVING WATERS, INC. AND SUBSIDIARY

    CONSOLIDATED
BALANCE SHEETS

     

    
      	 
      	 	
              October
      31,

            	 	 	
              December
      31,

            
	 
      	 	
              2009

            	 	 	
              2008

            
	 	 	(Unaudited)	 	 	 
	ASSETS	 	 	 	 	 
	
              CURRENT
      ASSETS

            	 	 	 	 	 
	
              Cash
      and cash equivalents

            	 	$	492,193	 	 	$	466,028	 
	
              Accounts
      receivable, net of allowance for doubtful accounts of $10,000 and
      $ 10,000

            	 	 	1,331,224	 	 	 	1,254,936	 
	
              Prepaid
      expenses and other current assets

            	 	 	85,361	 	 	 	108,162	 
	
              Total
      Current Assets

            	 	 	1,908,778	 	 	 	1,829,126	 
	 
      	 	 	 	 	 	 	 	 
	
              PROPERTY
      AND EQUIPMENT – net of accumulated depreciation of
      $1,767,135  and $ 1,339,212

            	 	 	10,777,655	 	 	 	12,459,449	 
	 
      	 	 	 	 	 	 	 	 
	
              Other
      assets :

            	 	 	 	 	 	 	 	 
	
              Permits
      and franchises, net of accumulated amortization of $781,801 and
      $647,193

            	 	 	1,486,503	 	 	 	1,621,111	 
	
              Deferred
      loan fees, net of accumulated amortization of $109,284 and
      $80,766

            	 	 	162,854	 	 	 	191,372	 
	
              Other
      noncurrent assets

            	 	 	179,707	 	 	 	149,428	 
	 
      	 	 	 	 	 	 	 	 
	
              TOTAL
      ASSETS

            	 	$	14,515,497	 	 	$	16,250,486	 
	 
      	 	 	 	 	 	 	 	 
	
              LIABILITIES
      AND STOCKHOLDERS’ EQUITY

            	 	 	 	 	 	 	 	 
	 
      	 	 	 	 	 	 	 	 
	
              CURRENT
      LIABILITIES

            	 	 	 	 	 	 	 	 
	
              Accounts
      payable

            	 	$	635,665	 	 	$	771,977	 
	
              Accrued
      expenses

            	 	 	128,232	 	 	 	217,093	 
	
              Current
      portion of long – term debt

            	 	 	716,488	 	 	 	587,873	 
	
              Total
      Current Liabilities

            	 	 	1,480,385	 	 	 	1,576,943	 
	 
      	 	 	 	 	 	 	 	 
	
              LONG-TERM
      LIABILITIES

            	 	 	 	 	 	 	 	 
	
              Non-current
      portion of long-term debt

            	 	 	3,736,203	 	 	 	5,188,987	 
	
              Subordinated
      related party notes payable

            	 	 	1,800,000	 	 	 	1,800,000	 
	
              Deferred
      income taxes

            	 	 	2,659,933	 	 	 	2,672,336	 
	
              Total
      Liabilities

            	 	 	9,676,521	 	 	 	11,238,266	 
	 
      	 	 	 	 	 	 	 	 
	
              COMMITMENTS
      & CONTINGENCIES

            	 	 	 	 	 	 	 	 
	 
      	 	 	 	 	 	 	 	 
	
              STOCKHOLDERS’
      EQUITY

            	 	 	 	 	 	 	 	 
	
              Common
      stock, no par value, 1,000 shares authorized, 600 shares issued and
      outstanding

            	 	 	-	 	 	 	-	 
	
              Paid-in
      capital

            	 	 	4,946,236	 	 	 	5,100,877	 
	
              Accumulated
      deficit

            	 	 	(107,260	)	 	 	(
      88,657	)
	
              Total
      Stockholders' Equity

            	 	 	4,838,976	 	 	 	5,012,220	 
	 
      	 	 	 	 	 	 	 	 
	
              TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY

            	 	$	14,515,497	 	 	$	16,250,486	 

    

    
       

      See
accompanying notes to the consolidated financial statements.

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

       

    

    CALIFORNIA
LIVING WATERS, INC. AND SUBSIDIARY

    CONSOLIDATED
STATEMENTS OF OPERATIONS

    FOR
THE YEAR ENDED DECEMBER 31, 2008 AND

    FOR
THE TEN MONTHS ENDED OCTOBER 31, 2009 AND 2008 (UNAUDITED)

    

    

    
      	 	 	 	 	 	 	 
	 
      	 	
              Ten
      Months Ended

            	 	 	
              Year
      ended

            	 
	 
      	 	
              October
      31,

            	 	 	
              October
      31,

            	 	 	
              December
      31,

            	 
	 
      	 	
              2009

            	 	 	
              2008

            	 	 	
              2008

            	 
	 
      	 	
              (Unaudited)

            	 	 	
              (Unaudited)

            	 	 	 	 
	
              REVENUES

            	 	$	5,291,866	 	 	$	6,217,063	 	 	$	7,615,880	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 
	
              COST
      OF REVENUES

            	 	 	3,650,471	 	 	 	3,729,312	 	 	 	4,593,040	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 
	
              GROSS
      PROFIT

            	 	 	1,641,395	 	 	 	2,487,751	 	 	 	3,022,840	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 
	
              OPERATING
      EXPENSES

            	 	 	988,259	 	 	 	1,602,758	 	 	 	1,992,184	 
	
               LOSS ON SALE OF PROPERTY 

            	 	 	 305,129 	   	   	   	  - 	   	   	   	  - 	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 
	
              OPERATING
      INCOME

            	 	 	 348,006 	 	 	 	884,993	 	 	 	1,030,656	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 
	
              OTHER
      INCOME (EXPENSE):

            	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	
              Interest
      income

            	 	 	413	 	 	 	5,341	 	 	 	-	 
	
              Interest
      expense

            	 	 	(379,486	)	 	 	(431,199	)	 	 	(521,882	)
	
              Other
      non-operating income

            	 	 	60	 	 	 	-	 	 	 	5,256	 
	
              Total
      other expenses

            	 	 	 (379,013 	 ) 	 	 	(425,858	)	 	 	(516,626	)
	 
      	 	 	 	 	 	 	 	 	 	 	 	 
	
              INCOME
      (LOSS) BEFORE INCOME TAXES

            	 	 	 (31,007 	 ) 	 	 	459,135	 	 	 	514,030	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	
              Provisions
      for income taxes 

            	 	 	  12,403	 	 	 	(183,654	)	 	 	(205,612	)
	 
      	 	 	 	 	 	 	 	 	 	 	 	 
	
              NET
      INCOME (LOSS)

            	 	$	 (18,604 	 ) 	 	$	275,481	 	 	$	308,418	 

    

    

    See
accompanying notes to the consolidated financial statements

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    CALIFORNIA
LIVING WATERS, INC. AND SUBSIDIARY

    CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY

    FOR
THE YEAR ENDED DECEMBER 31, 2008 AND

    FOR
THE TEN MONTHS ENDED OCTOBER 31, 2009 AND 2008 (UNAUDITED)

     

    

    
      	 
      	 	 	 	 	
              Additional

            	 	 	 	 	 	 	 
	 
      	 	
              Common
      Stock

            	 	 	
              Paid-in

            	 	 	
              Accumulated

            	 	 	 	 
	 
      	 	
              Shares

            	 	 	
              Amount

            	 	 	
              Capital

            	 	 	
              Deficit

            	 	 	
              Total

            	 
	
              Balance,
      January  1, 2008

            	 	 	600	 	 	$	-	 	 	$	5,100,877	 	 	$	(397,075	)	 	$	4,703,802	 
	
              Net
      income for the year ended December 31, 2008

            	 	 	 	 	 	 	 	 	 	 	-	 	 	 	308,418	 	 	 	308,418	 
	
              Balance,
      December 31, 2008

            	 	 	600	 	 	 	-	 	 	 	5,100,877	 	 	 	(88,657	)	 	 	5,012,220	 
	
              Net
      loss for the ten months ended October 31, 2009

            	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(18,603	)	 	 	(18,603	)
	
              Distribution
      to shareholder

            	 	 	 	 	 	 	 	 	 	 	(154,641	)	 	 	 	 	 	 	(154,641	)
	
              Balance,
      October 31,  2009 (Unaudited)

            	 	 	600	 	 	$	-	 	 	$	4,946,236	 	 	$	(107,260	)	 	$	4,838,976	 

    

    

    See
accompanying notes to the consolidated financial statements

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

     CALIFORNIA
LIVING WATERS, INC. AND SUBSIDIARY

    CONSOLIDATED
STATEMENTS OF CASHFLOWS

    FOR
THE YEAR ENDED DECEMBER 31, 2008

    AND
FOR THE TEN MONTHS ENDED OCTOBER 31, 2009 AND
2008  (UNAUDITED)

    

    
      	 
      	 	
              Ten
      Months Ended

            	 	 	
              Year
      Ended

            	 
	 
      	 	
              October
      31,

            	 	 	
              October
      31,

            	 	 	
              December
      31,

            	 
	 
      	 	
              2009

            	 	 	
              2008

            	 	 	
              2008

            	 
	 	 	(Unaudited)	 	 	(Unaudited)	 	 	 	 
	
              CASH
      FLOWS FROM OPERATING ACTIVITIES :

            	 	 	 	 	 	 	 	 	 
	
              Net
      income (loss)

            	 	$	(18,603	)	 	$	275,481	 	 	$	308,418	 
	
              Adjustments
      to reconcile net income (loss) to net  cash provided by
      operating activities:

            	 	 	 	 	 	 	 	 	 	 	 	 
	
              Loss
      on disposal of Property

            	 	 	305,129	 	 	 	-	 	 	 	-	 
	
              Depreciation
      and Amortization

            	 	 	562,531	 	 	 	662,884	 	 	 	760,057	 
	
              Amortization
      of deferred financing fees

            	 	 	28,518	 	 	 	19,835	 	 	 	17,434	 
	
              Amortization
      of note discount

            	 	 	20,893	 	 	 	-	 	 	 	38,513	 
	
              Deferred
      income taxes

            	 	 	(12,403	)	 	 	191,210	 	 	 	213,168	 
	
              Changes
      in operating assets and liabilities:

            	 	 	 	 	 	 	 	 	 	 	 	 
	
              (Increase)
      decrease in:

            	 	 	 	 	 	 	 	 	 	 	 	 
	
              Accounts
      receivable

            	 	 	(76,288	)	 	 	(729,798	)	 	 	(646,936	)
	
              Prepaid
      and other current assets

            	 	 	(7,478	)	 	 	(162,882	)	 	 	(40,666	)
	
              Increase
      (decrease) in:

            	 	 	 	 	 	 	 	 	 	 	 	 
	
              Accounts
      payable

            	 	 	(136,312	)	 	 	498,803	 	 	 	730,585	 
	
              Accrued
      expenses and other liabilities

            	 	 	(88,861	)	 	 	332,903	 	 	 	31,190	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	
              Net
      cash provided by  Operating Activities

            	 	 	577,126	 	 	 	1,088,436	 	 	 	1,411,763	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 
	
              CASH
      FLOWS FROM INVESTING ACTIVITIES:

            	 	 	 	 	 	 	 	 	 	 	 	 
	
              Purchase
      of property and equipment

            	 	 	(251,773	)	 	 	(1,073,345	)	 	 	(1,305,827	)
	
              Net
      Cash Used In Investing Activities

            	 	 	(251,773	)	 	 	(1,073,345	)	 	 	(1,305,827	)
	 
      	 	 	 	 	 	 	 	 	 	 	 	 
	
              CASHF
      LOWS FROM FINANCING ACTIVITIES:

            	 	 	 	 	 	 	 	 	 	 	 	 
	
              Proceeds
      from borrowings on long – term debt

            	 	 	400,267	 	 	 	-	 	 	 	230,00	 
	
              Payments
      of notes payable

            	 	 	(544,814	)	 	 	(260,990	)	 	 	(359,311	)
	
              Distribution
      to shareholders

            	 	 	(154,641	)	 	 	-	 	 	 	-	 
	
              Net
      Cash Used In Financing Activities

            	 	 	(299,188	)	 	 	(260,990	)	 	 	(129,311	)
	 
      	 	 	 	 	 	 	 	 	 	 	 	 
	
              NET
      INCREASE (DECREASE) IN CASH

            	 	 	26,165	 	 	 	(245,899	)	 	 	(23,375	)
	
              CASH
      – BEGINNING OF YEAR

            	 	 	466,028	 	 	 	489,403	 	 	 	489,403	 
	
              CASH
      – END OF PERIOD

            	 	$	492,193	 	 	$	243,504	 	 	$	466,028	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 
	
              SUPPLEMENTAL
      DISCLOSURE OF CASHFLOW INFORMATION:

            	 	 	 	 	 	 	 	 	 	 	 	 
	
              Cash
      paid for:

            	 	 	 	 	 	 	 	 	 	 	 	 
	
              Interest
      expense

            	 	$	399,269	 	 	$	431,199	 	 	$	521,882	 
	
              Income
      Taxes

            	 	$	-	 	 	$	-	 	 	$	-	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 
	
              NONCASH
      INVESTING AND FINANCING ACTIVITIES:

            	 	 	 	 	 	 	 	 	 	 	 	 
	
              Assumption
      of Notes Payable upon purchase of Property

            	 	$	-	 	 	$	-	 	 	$	1,200,515	 
	
              Assumption
      of Notes Payable by purchaser upon
      sale of Property

            	 	$	1,200,515	 	 	$	-	 	 	$	-	 

    

     

    See
accompanying notes to the consolidated financial statements

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    CALIFORNIA
LIVING WATERS, INC. AND SUBSIDIARY

    NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS

    FOR
THE YEAR ENDED DECEMBER 31, 2008  AND

    FOR
THE TEN MONTHS ENDED OCTOBER 31, 2009

     
 

    

    NOTE 1  
ORGANIZATION
AND DESCRIPTION OF BUSINESS

    

    Nature of
Business

    

    The
Company’s business is performed primarily through its wholly owned subsidiary,
Santa Clara Waste Water Company dba Southern California Waste
Water.

    

    Santa
Clara Waste Water Company ("SCWW") was incorporated on April 16, 1959 in the
State of California. The Company's principal business activity is providing
wastewater treatment for companies and haulers in Ventura County, California,
and in adjacent counties.

    

    Basis of
Presentation

    

    The
interim financial statements included herein have been prepared by the Company,
pursuant to the rules and regulations of the Securities and Exchange Commission,
and in the opinion of management, include all adjustments which, of a normal
recurring nature, necessary for a fair presentation of the financial position,
results of operations, and cash flows for the period presented. The results for
the interim periods are not necessarily indicative of results for the entire
year.

     

    NOTE 2  
SUMMARY OF
PRINCIPAL ACCOUNTING POLICIES

     

    Use of
Estimates

    

    The
Company's financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America ("GAAP"). The
preparation of these financial statements requires the Company to make estimates
and judgments that affect the reported amounts in the financial statements and
accompanying notes. The Company bases its estimates and judgments on historical
experience and on various other assumptions that the Company believes are
reasonable under the circumstances. GAAP requires the Company to make estimates
and judgments in several areas, including those related to the recoverability of
accounts receivable, costs to dispose of wastewater on hand and the useful lives
of property and equipment and intangible assets. These estimates are based on
management's knowledge about current events and expectations about actions the
Company may undertake in the future. Actual results could differ materially from
those estimates.

    

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    Basis of
Accounting

    

    The
Company reorganized under a Chapter 11 bankruptcy of SCWW proceeding during 2004
and adopted  fresh-start reporting in accordance with the American
Institute of Certified Public Accountants   Statement of Position
90-7, Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code. Accordingly, all
assets and liabilities were restated to reflect their reorganization value,
which approximated fair value at the date of reorganization. The financial
statements have been prepared using the accrual basis of accounting. Under the
accrual basis of accounting, revenues are recorded when earned and expenses are
recorded at the time the liabilities are incurred.

    

    Revenue
Recognition

    

    The
Company recognizes revenue at the time its customers unload untreated wastewater
at the Company's facility. Concurrent with the recognition of revenue, the
Company records the estimated costs to treat and dispose of the wastewater on
hand.

    

    Accounts
Receivable

    

    Accounts
receivable are customer obligations due under normal trade terms. Management
reviews accounts receivable on a regular basis to determine if any such amounts
will potentially be uncollected, based on contracted terms and how recently
payments have been received. The Company includes any balances that are
determined to be uncollectible in its allowance for doubtful accounts. After all
attempts to collect a receivable have failed, the receivable is written off.
Based on the information available, management believes the Company's accounts
receivable, net of allowance for doubtful accounts, are
collectible.

    

    Fair Value of Financial
Instruments

    

    The
carrying amount of certain of the Company's financial instruments, including
accounts receivable
and accounts payable, approximates fair value due to the relatively short
maturity of such
instruments. The carrying value of the Company's notes payable approximates fair
value based on
prevailing interest rates.

    

    Intangible
Assets

    

    The
Company accounts for intangible assets pursuant guidance of Financial Accounting
Standards Board. In accordance with this guidance, intangibles with definite
lives continue to be amortized on a straight-line basis over the lesser of their
estimated useful lives or contractual terms.  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.  If any losses are determined to exist they are recorded
in the period when such impairment is determined. Based upon management’s
assessment, there are no indicators of impairment of its intangibles at October
31, 2009 and December 31, 2008.

    

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

       

    

    Impairment of Long-Lived
Assets

    

    The
Financial Accounting Standards Board 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. Based upon management’s assessment,
there are no indicators of impairment of its long lived assets at October 31,
2009 or December 31, 2008.

    

    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.

    

    The
Company’s trade receivables result primarily from waste water treatment
services, and the concentration of credit risk is limited to a broad customer
base located throughout Southern California.

     

    Sales to
one customer comprised approximately 24% of sales for the year ended December
31, 2008. Sales to another customer comprised approximately 22% and 26% of sales
for the periods ended October 31, 2009 and 2008.

    

    Amounts
receivable from one customer comprised 22% of total accounts receivable at
December 31, 2008. Amounts receivable from another customer comprised 24% of
total accounts receivable at October 31, 2009.

    

    Income
Taxes

    

    Income
taxes are recorded under the liability method. Under the liability
method, deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year­end, based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Temporary differences for the Company include
the carrying value of property and equipment and intangible assets, and net
operating loss carry forwards.

    

    Property and
Equipment

    

    Property
and equipment acquired prior to the reorganization under Chapter 11 of SCWW are
stated at the fair value of those assets as of the date of reorganization.
Effective January 1, 2005, newly acquired property and equipment are stated at
cost. The Company provides for depreciation using the straight-line method over
the useful lives of related assets as follows:

     

    
      	
              Vehicles

            	 
      	
               
      5  -  6  Years

            
	
              Machinery
      and Equipment

            	 
      	
               7 
      - 22  Years

            
	
              Furniture
      and fixtures

            	 
      	
                      10  Years

            
	
              Plant
      and Pipeline

            	 
      	
              20 
      -  22 years

            
	
              Land
      improvements

            	 
      	
                      
       20 years

            

    

    

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    

    Recent Accounting
Pronouncements

    

    In April
2009, the FASB issued FSP FAS 107-1 and APB 28-1, “Interim Disclosures about
Fair Value of Financial Instruments” (FSP FAS 107-1 and APB 28-1). FSP FAS 107-1
and APB 28-1 amend SFAS No. 107, “Disclosures About Fair Value of Financial
Instruments”, to require disclosures about fair value of financial instruments
for interim reporting periods of publicly traded companies as well as in annual
financial statements. FSP FAS 107-1 and APB 28-1 also amend APB Opinion No.
28, “Interim Financial
Reporting”, to require those disclosures in summarized financial information at
interim reporting periods. FSP FAS 107-1 and APB 28-1 are effective for interim
reporting periods ending after June 15, 2009, with early adoption permitted for
periods ending after March 15, 2009. FSP FAS 107-1 and APB 28-1 does not require
disclosures for earlier periods presented for comparative purposes at initial
adoption. In periods after initial adoption, FSP FAS 107-1 and APB 28-1 requires
comparative disclosures only for periods ending after initial adoption. The
Company does not expect the changes associated with adoption of FSP FAS 107-1
and APB 28-1 will have a material effect on its financial statements and
disclosures.

    

    In June
2009, the FASB issued authoritative guidance on accounting standards
codification and the hierarchy of generally accepted accounting principles.” The
FASB Accounting Standards CodificationTM (“Codification”) has become the source
of authoritative accounting principles recognized by the FASB to be applied by
nongovernmental entities in the preparation of financial statements in
accordance with GAAP. All existing accounting standard documents are superseded
by the Codification and any accounting literature not included in the
Codification will not be authoritative. However, rules and interpretive releases
of the Securities Exchange Commission (“SEC”) issued under the authority of
federal securities laws will continue to be sources of authoritative GAAP for
SEC registrants. The FASB authoritative guidance is effective for interim and
annual reporting periods ending after September 15, 2009. Therefore, beginning
with our quarter ending September 30, 2009, all references made by it to GAAP in
its consolidated financial statements now use the new Codification numbering
system. The Codification does not change or alter existing GAAP and, therefore,
it does not have an impact on our financial position, results of operations and
cash flows.

    

    On July
1, 2009, the Company adopted authoritative guidance issued by the FASB on
business combinations. The guidance retains the fundamental requirements that
the acquisition method of accounting (previously referred to as the purchase
method of accounting) be used for all business combinations, but requires a
number of changes, including changes in the way assets and liabilities are
recognized and measured as a result of business combinations. It also requires
the capitalization of in-process research and development at fair value and
requires the expensing of acquisition-related costs as incurred. We will apply
this guidance to business combinations completed after July 1,
2009.  Adoption of the new guidance did not have a material impact on
our financial statements.

    

    In
October 2009, the FASB issued authoritative guidance on revenue recognition that
will become effective for the Company beginning July 1, 2010, with earlier
adoption permitted.  Under the new guidance on arrangements that
include software elements, tangible products that have software components that
are essential to the functionality of the tangible product will no longer be
within the scope of the software revenue recognition guidance, and
software-enabled products will now be subject to other relevant revenue
recognition guidance.  We believe adoption of this new guidance will
not have a material impact on our financial statements.

    

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

       

    

    In May
2009, the FASB issued new requirements for reporting subsequent events. These
requirements set forth the period after the balance sheet date during which
management of a reporting entity should evaluate events or transactions that may
occur for potential recognition or disclosure in the financial statements, the
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements, and
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. Disclosure of the date through which an
entity has evaluated subsequent events and the basis for that date is also
required.

    

    Other
recent accounting pronouncements issued by the FASB (including its Emerging
Issues Task Force), the AICPA, and the SEC did not or are not believed by
management to have a material impact on the Company's present or future
consolidated financial statements.

     

    NOTE 3  
PROPERTY AND
EQUIPMENT

     

    Property
and Equipment consists of the following as of October 31, 2009 and December 31,
2008

    

    
      	 
      	 	
              October
      31,

               2009

            	 	 	
              December
      31,

               2008

            	 
	
              Plant
      and Equipment

            	 	$	6,953,406	 	 	$	6,953,406	 
	
              Land

            	 	 	3,225,000	 	 	 	4,730,644	 
	
              Machinery
      & Equipment

            	 	 	1,927,121	 	 	 	1,675,348	 
	
              Land
      Improvements

            	 	 	241,569	 	 	 	241,569	 
	
              Vehicles

            	 	 	122,090	 	 	 	122,090	 
	
              Construction
      in progress

            	 	 	62,543	 	 	 	62,543	 
	
              Furniture
      and Fixtures

            	 	 	13,061	 	 	 	13,061	 
	 
      	 	 	12,544,790	 	 	 	13,798,661	 
	
              Less
      accumulated depreciation

            	 	 	(1,767,135	)	 	 	(1,339,212	)
	
              Property
      and equipment net of accumulated depreciation

            	 	$	10,777,655	 	 	$	12,459,449	 

    

    

    Depreciation
expense was $427,923 and $528,537 for the ten months ended October 31, 2009 and
2008, respectively, and $597,811 for the year ended December 31,
2008.

     

    In
October 2009, the Company sold real estate located next to the SCWW facility
that was purchased in December 2008, with a recorded value of $1,505,644.
The property was sold to Petro Flow, LLC, a company controlled by the CEO of
SCWW.  The only consideration received by the Company was the
assumption of two notes in an aggregate amount of $1,200,515 secured by the
property to Saticoy and Avalon Real Estate (see Note 4 to the Financial
Statements).  As a result, the Company recorded a loss on sale of
fixed assets of $305,129 during the ten months ended October
31, 2009.

    

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    NOTE 4  
NOTES
PAYABLE

     

    Notes
payable consist of the following at October 31, 2009 and December 31,
2008:

    

    
      	 
      	 	
              October
      31,

            	 	 	
              December
      31,

            	 
	 
      	 	
              2009

            	 	 	
              2008

            	 
	 
      	 	
              (unaudited)

            	 	 	 	 
	
              (a)
      Notes Payable, National Bank of California

            	 	$	4,120,707	 	 	$	3,911,425	 
	
              (b)
      Note payable, Wiker Trust

            	 	 	280,000	 	 	 	330,000	 
	
              (c)
      Note payable, Saticoy

            	 	 	-	 	 	 	549,493	 
	
              (d)
      Note payable, Avalon Real Estate

            	 	 	-	 	 	 	651,022	 
	
              (e)
      Note payable, Agua de Oro 2

            	 	 	57,146	 	 	 	103,030	 
	
              (f)
      Note payable, So. Calif. Management Services, Inc. (“SCM”)

            	 	 	-	 	 	 	230,000	 
	
              (g)
      Note payable,  OMNI Bank

            	 	 	25,854	 	 	 	48,799	 
	
              (h)  Note
      payable, Carol Cole

            	 	 	28,900	 	 	 	33,900	 
	
              Total
      notes payable

            	 	 	4,512,607	 	 	 	5,857,669	 
	
              Less
      Note discount

            	 	 	59,916	 	 	 	80,809	 
	
              Less
      current portion

            	 	 	716,488	 	 	 	587,873	 
	
              Notes
      payable, net of current portion

            	 	$	3,736,203	 	 	 	5,188,987	 

    

     

    (a) Notes
payable to National Bank of California consists of the following at October 31,
2009 and December 31, 2008

    

    
      	
              (i)
      Note payable, National Bank of California 1

            	 	$	1,788,776	 	 	$	1,846,295	 
	
              (ii)
      Note payable, National Bank of California 2

            	 	 	1,710,400	 	 	 	1,759,666	 
	
              (iii)
      Note payable, National Bank of California 3

            	 	 	66,883	 	 	 	110,970	 
	
              (iv)
      Note payable, National Bank of California 4

            	 	 	154,381	 	 	 	194,494	 
	
              (v)
      Note payable , National Bank of California 5

            	 	 	400,267	 	 	 	-	 
	
              Total

            	 	$	4,120,707	 	 	$	3,911,425	 

    

    

     (i)
Note payable to National Bank of California, 80% guaranteed by the USDA and
various related parties of the Company, bears interest at Prime plus 1%, and is
payable over 20 years. The loan is secured by a first lien on all assets and
commercial real estate of the Company, including the pipeline, and is due in
2026.

    

    (ii) Note
payable National Bank of California, 80% guaranteed by the USDA and various
related parties of the Company, bears interest at Prime plus 1%, and is payable
over 20 years. The loan is secured by a first lien on all assets and commercial
real estate of the Company, including the pipeline, and is due in
2026.

    

    (iii)
Note payable to National Bank of California, 80% guaranteed by the USDA and
various insiders of the Company, bears interest at Prime plus 1%, and is payable
over 5 years. The loan is secured by a first lien on all assets and commercial
real estate of the Company, and is due in 2011.

    

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

       

      (iv) Note
payable guaranteed by various related parties of the Company at Prime plus 2%,
payable over five years. This loan is secured by equipment and is cross
collateralized to all other notes with National Bank of
California.

    

     

    (v)  Note
payable to National Bank of California, secured primarily by accounts
receivable, bearing interest at Prime plus 2%.  The note is due on
March 5, 2010.

     

    The above
loans are subject to certain covenants with the senior lender, National Bank of
California.  The affirmative covenants apply to the financial results
of the Company’s subsidiary, SCWW, and include certain ratio requirements such
as current ratio, Debt / Worth ratio and debt service.  At December
31, 2008, SCWW was not in compliance with the current ratio covenant resulting
from a short term loan used for the purchase of real estate.  The bank
granted a waiver to this covenant for that period.  At October 31,
2009, SCWW was in compliance with all financial covenants and
ratios.

     

    (b) The
Wiker Trust obligation is interest only, bearing interest at 7.75% per annum,
due August 1, 2012. This is an unsecured note that is subordinated to the
National Bank of California notes.

     

    (c) Note
payable for the acquisition of real estate adjacent to the operating facility at
7%, payable in monthly installments of $2,333 beginning January 1, 2009 for six
months until June 30, 2009 when all unpaid interest is due and
payable.  The note is secured by the purchased real
estate.  From July 1, 2009 until December 31, 2010, interest only
payments will be made with the entire principal balance due on December 31,
2010.  On October 31, 2009, SCWW sold the real estate to Petro Flow,
LLC, a company owned by the CEO of SCWW.  Petro Flow assumed the
outstanding balance of the debt.

     

    (d) Note
payable for the acquisition of real estate adjacent to the operating facility at
7%.  Principal and all accrued interest due on June 30,
2010.  The note is secured by the purchased real estate. On October
31, 2009, SCWW sold the real estate to Petro Flow, LLC, a company owned by the
CEO of SCWW.  Petro Flow assumed the outstanding balance of the
debt.

     

    (e) An
unsecured four-year note, bearing interest at 15%, payable in monthly
installments of $6,130, including interest. This note is subordinated to the
National Bank of California notes.

    

    (f) Note
due to Southern California Management Services, Inc. ("SCM") for the purchase of
equipment. Amount is due on demand and bears interest at 7.75% per annum. The
note was repaid on January 2009. The CEO of SCWW is the President of SCM. This
obligation is subordinated to the National Bank of California notes. This note
was repaid January 2009.

     

    (g)
Amount due to Omni, which was assumed from SCM, relating to the purchase of
equipment. The note bears interest at 10.88% per annum, payable in 36 monthly
installments of principal and interest at $2,456. This obligation is
subordinated at the National Bank of California notes. During 2007 the Company
assumed this debt owed by the CEO to Omni in exchange for
equipment.

    

    (h) An
unsecured four-year note, bearing interest at 15%, payable in monthly
installments of $6,130, including interest. This note is subordinated to the
National Bank of California notes.

    

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    Future
annual maturities under these notes payable, plus the $1,800,000 subordinated
note discussed
in Note 5 are as follows at  October 31,2009:

    

    
      	
              Year
      Ended December 31,

            	 	 	 
	
               Remainder of
      2009

            	 	 	 
	
              2009

            	 	$	587,873	 
	
              2010

            	 	 	1,651,348	 
	
              2011

            	 	 	1,375,868	 
	
              2012

            	 	 	1,157,970	 
	
              2013

            	 	 	315,467	 
	
              Thereafter

            	 	 	2,569,143	 
	 
      	 	$	7,657,669	 

    

     

    NOTE 5  
SUBORDINATED
NOTES PAYABLE

    

    The
Company has two notes payable that are subordinated to the notes payable to
National Bank of California (see Note 4). The subordinated Notes Payable consist
of the following at October 31, 2009 and December 31, 2008.

    

    
      	
              (a)
      Note payable, Wiker Trust

            	 	$	800,000	 	 	$	800,000	 
	
              (b)
      Note payable, US Environmental Response

            	 	 	1,000,000	 	 	 	1,000,000	 
	
                Total

            	 	$	1,800,000	 	 	$	1,800,000	 

    

    

    (a) The
Wiker Trust obligation is interest only, bearing interest at 7.75% per annum,
due August 1, 2012. This is an unsecured note that is subordinated to the
National Bank of California notes. The Wiker Trust is a charitable remainder
trust who made the initial loan to the Company in order to fund the acquisition
of SCWW in 2004.  The CEO of SCWW is a trustee of the Wiker
Trust.

     

    (b) The
United States Environmental  Response (“USER”) note, formerly held by
Aqua de Oro, is a four year note, bearing interest at 7.75%, payable in monthly
installments of $6,458 for 7 years, with all remaining principal and interest
due on July 31, 2011. The CEO of SCWW is the President of USER. The balance due
represents funds paid by Company to the court appointed disbursing agent for the
benefit of approved creditors. This is an unsecured note that is subordinated to
the National Bank of California notes and all debts allowed in the Company's
bankruptcy reorganization.

    

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    NOTE 6  
PERMITS AND
FRANCHISES

    

    As of the
date of reorganization the Company had permits and franchise agreements. The
permits
and franchise agreements were valued based on the projected net operating income
of the five year
period following the reorganization, discounted at 12%. The permits allow the
pipeline to connect
to the City of Oxnard water works system and have a five year life, although
they are renewable
indefinitely, in five year increments, at minimal costs. The franchises are
related to the use of
the pipeline and have a 20 year life. The total value of the permits and
franchises are being
amortized over a remaining contractual life of the franchise agreements of 14
years commencing
at the date of reorganization. The value of the permits and franchises as of the
date of
reorganization was $2,252,654. Accumulated amortization of the permits and
franchises was $647,193
and $781,801 as of December 31,2008 and October 31, 2009,
respectively.

    

    Amortization
of the permits and franchises for the next five years is expected to be as
follows:

    

    
      	
              Years
      ending December 31,

            	 	 	 
	
              Remainder
      of 2009

            	 	$	160,904	 
	
              2010

            	 	 	160,904	 
	
              2011

            	 	 	160,904	 
	
              2012

            	 	 	160,904	 
	
              2013

            	 	 	160,904	 
	
              Thereafter

            	 	 	816,591	 
	 
      	 	$	1,621,111	 

    

     

    NOTE 7  
STOCKHOLDER’S
EQUITY

    

    In
accordance with the fresh start accounting requirements of SOP 90-7, retained
earnings for SCWW at December 31, 2004 were $0. The Company's common stock has
no par value, therefore SCWW and the Company's stockholder's equity at December
31, 2004 was all attributed to paid-in capital.

     

    NOTE 8  
RELATED PARTY
TRANSACTIONS

    

    The
Company has notes payable to Agua de Oro in the amount of $l,000,000 and
$103,030 at December 31, 2008 and $1,000,000 and $57,146 at October 31, 2009.
The CEO of the Company is the President of Agua de Oro.

    

    The
Company has a note payable to Southern California Management Services, Inc., a
company owned by the CEO of SCWW, in the amount of $230,000 at December 31,
2008. This note was used to facilitate a real estate purchase and was paid back
in early 2009.

    

    The
Company has a note payable to Omni in the amount of $24,354. During 2007 the
Company assumed this debt owed by the CEO to Omni in exchange for
equipment.

    

    In
October 2009, the Company sold real estate located next to the SCWW facility
that was purchased in December 2008.  The property was sold to Petro
Flow, LLC, a company controlled by the CEO of SCWW.  The only
consideration received by the Company was the assumption of two notes secured by
the property to Saticoy and Avalon Real Estate (see Note 4 to the Financial
Statements).  As a result, the Company recorded a loss on sale of
fixed assets of $305,129.

    

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

       

    

    Total
interest payments relating to the notes payable to Agua de Oro, Omni, and
Southern California Management Services, Inc. during the year ended December 31,
2008 and the ten months ended October 31, 2009 amounted to $76,637 and $76,444,
respectively. During the year ended December 31, 2008 and the ten months
ended October 31, 2009 the Company paid $314,106 and $329,332, respectively, for
compensation, management and other services to companies and individuals related
through common ownership.

    

    On
October 31, 2009 in conjunction with the sale of the Company (See Note 11), a
distribution of $154,641 was made to Southern California Management Services,
Inc. in its capacity as agent for USER, the sole shareholder of the Company
prior to the sale.  The CEO of SCWW is the President of
USER.

    

    NOTE 9  
COMMITMENTS AND
CONTINGENCIES

     

    ENVIRONMENTAL

     

    To
perform wastewater treatment at its site, SCWW is required to possess a permit
to treat regulated waste and air quality permits to monitor air emissions from
equipment and certain processing activities.  To treat Non-RCRA or
“California-Only” hazardous wastewaters in the State of California the Company
is required to possess a Transportable Treatment Unit (TTU) permit as issued by
the Department of Toxic Substances Control. A TTU permit is generally not
required in other States because the wastewater being treated is considered
non-hazardous.  Air permits are generally required to notify Air
Quality Management Districts of most States of specific sources and pollutants
from processing equipment and activities causing air emissions.

    

    Although
compliance with State and Federal laws and regulations may affect the costs of
the Company’s operations, compliance costs to date have not been
material.

    

    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.

    

    PERMITS

    

    Under the
terms of an agreement with the City of Oxnard, the City may terminate the
Company's right to discharge waste water into its sewerage system with 90 days
written notice. The Company has maintained active permits with the City of
Oxnard since its inception in 1959.

    

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    NOTE 10  
INCOME
TAXES

    

    Applying
domestic federal statutory rates to pre-tax income is mainly related to state
income taxes. At October 31, 2009 and December 31, 2008, the deferred income tax
liabilities were mainly attributable to differences in the bases of property and
equipment and intangible assets of $9,080,823 and $8,992,166 respectively,
offset by the benefit of future use net operating loss carry forwards. As of
October 31, 2009 and December 31, 2008, the Company had federal loss carry
forwards of approximately $3,485,732 and $3,397,075 which are limited under
Section 382 of the Internal Revenue code, and expire between 2010 and
2020.

     

    NOTE 11  
SUBSEQUENT
EVENT

     

    The
Company has evaluated subsequent events through January 22, 2010.

     

    On
October 31, 2009, the Company entered into a stock purchase agreement with
General Environmental Management, Inc. (GEM), a publicly held company, pursuant
to which GEM acquired all of the issued and outstanding common stock of the
Company.  In consideration of the acquisition of the issued and
outstanding common stock of the Company GEM issued $9.0 million of notes and
assumed approximately $5.9 million of long term obligations. As a result of the
agreement, the Company becomes a wholly-owned subsidiary of GEM.

    

     

    16

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