General Enterprise Ventures, Inc. - Quarter Report: 2009 June (Form 10-Q)

gem_10q-063009.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2009

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the Transition period from __________ to ____________

Commission File No. 33-55254-38

General Environmental Management, Inc.

(Exact name of Small Business Issuer as specified in its charter)

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

3191 Temple Ave., Suite 250, Pomona CA		91768
(Address of principal executive offices)		Zip Code

Issuer’s telephone number, including area code (909) 444-9500

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

xYes oNo

Indicate by check mark whether the registrant has submitted electronically and posted on it corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T ($232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

o Yes x No

Indicate by check mark whether the registrant is a large accelerated filer, a non- accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company x

Indicate by check mark whether the registrant is a shell company ( as defined in Rule 12b-2 of the Exchange Act). o Yes x No

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practical date. As of August 19, 2009, there were 14,632,653 shares of the issuer’s $.001 par value common stock issued and outstanding.

GENERAL ENVIRONMENTAL MANAGEMENT, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE SIX MONTHS ENDED JUNE 30, 2009

TABLE OF CONTENTS

		Page
Part 1	Financial Information	3
Item 1	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets as of June 30, 2009 (Unaudited) and December 31, 2008	3
	Condensed Unaudited Consolidated Statements of Operations for the Three Months and Six Months ended June 30, 2009 and 2008	5
	Condensed Unaudited Consolidated Statement of Stockholders’ Deficiency for the Six Months Ended June 30, 2009	6
	Condensed Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2009 and 2008	7
	Notes to the Unaudited Condensed Consolidated Financial Statements	9
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operation	30
Item 3	Quantitative and Qualitative Disclosures About Market Risk	38
Item 4	Controls and Procedures	38

Part II	Other Information	39
Item 1	Legal Proceedings	39
Item 1A	Risk Factors	39
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	39
Item 3	Defaults Upon Senior Securities	39
Item 4	Submission of Matters to a Vote of Security Holders	39
Item 5	Other Information	39
Item 6	Exhibits and Reports on Form 8K	39

	Signatures	40
	CEO Certification	Attached
	CFO Certification	Attached

PART 1 - FINANCIAL INFORMATION

Item 1. Financial Statements.

GENERAL ENVIRONMENTAL MANAGEMENT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30,		December 31,
	2009		2008
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash	$	84,875	$	375,983
Accounts receivable, net of allowance for doubtful accounts of $172,896 and $174,834, respectively		4,569,540		6,729,743
Prepaid expenses and other current assets		628,564		537,289
Total Current Assets		5,282,979		7,643,015

Property and Equipment – net of accumulated depreciation $3,672,772 and $2,917,056, respectively		9,648,660		7,783,208
Restricted cash		1,000,036		1,199,784
Intangible assets, net		783,172		864,781
Deferred financing fees		417,148		513,412
Deposits		351,246		291,224
Goodwill		946,119		946,119
TOTAL ASSETS	$	18,429,360	$	19,241,543

(Continued)

GENERAL ENVIRONMENTAL MANAGEMENT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)

	June 30,			December 31,
	2009			2008
	(Unaudited)
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY
CURRENT LIABILITIES:
Accounts payable	$	5,336,055		$	3,499,178
Accrued expenses		2,182,020			2,620,224
Accrued disposal costs		538,444			743,474
Payable to related party		742,754			706,868
Deferred rent		47,627			41,202
Derivative liabilities		6,692,798			-
Current portion of financing agreement		1,736,255			10,366,544
Current portion of long term obligations		772,639			794,278
Current portion of capital lease obligations		1,033,087			623,007
Total Current Liabilities		19,081,679			19,394,775

LONG-TERM LIABILITIES :
Financing agreement, net of current portion		6,459,025			-
Long term obligations, net of current portion		535,689			535,689
Capital lease obligations, net of current portion		3,373,833			1,751,854
Convertible notes payable		467,864			489,605
Total Long-Term Liabilities		10,836,411			2,777,148

STOCKHOLDERS’ DEFICIENCY
Common stock, $.001 par value, 1,000,000,000 shares authorized, 13,822,503 and 12,691,409 shares issued and outstanding		13,824			12,692
Additional paid in capital		53,424,670			53,585,035
Accumulated deficit		(64,927,224	)		(56,528,107	)
Total Stockholders' Deficiency		(11,488,730	)		(2,930,380	)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIENCY	$	18,429,360		$	19,241,543

See accompanying notes to the condensed consolidated financial statements.

GENERAL ENVIRONMENTAL MANAGEMENT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three months ended						Six months ended
	June 30, 2009			June 30, 2008			June 30, 2009			June 30, 2008
REVENUES	$	6,803,372		$	9,406,585		$	15,005,242		$	16,358,238

COST OF REVENUES		6,668,193			7,822,370			13,864,908			13,467,714

GROSS PROFIT		135,179			1,584,215			1,140,334			2,890,524

OPERATING EXPENSES		2,595,953			1,956,313			4,699,551			3,805,927

OPERATING LOSS		(2,460,774	)		(372,098	)		(3,559,217	)		(915,403	)

OTHER INCOME (EXPENSE):
Interest income		142			2,795			609			9,812
Interest and financing costs		(1,000,198	)		(844,711	)		(1,994,386	)		(1,661,319	)
Gain on disposal of fixed assets		65,725			-			65,725			-
Loss on derivative financial instruments		(2,252,622	)		-			(1,700,110	)		-
Loss on extinguishment of debt		(2,187,351	)		-			(2,187,351	)		-
Other non-operating income		10,923			9,030			19,340			16,693
Net Loss	$	(7,824,155	)	$	(1,204,984	)	$	(9,355,390	)	$	(2,550,217	)

Net loss per common share, basic and diluted	$	(.60	)	$	(.10	)	$	(.73	)	$	(.20	)

Weighted average shares of common stock outstanding, basic and diluted		13,053,274			12,473,885			12,873,347			12,473,885

See accompanying notes to the condensed consolidated financial statements

GENERAL ENVIRONMENTAL MANAGEMENT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIENCY (UNAUDITED)

FOR THE SIX MONTHS ENDED JUNE 30, 2009

					Additional
	Common Stock				Paid-in			Accumulated
	Shares		Amount		Capital			Deficit			Total
Balance, December 31, 2008		12,691,409	$	12,692	$	53,585,035		$	(56,528,107	)	$	(2,930,380	)
Cumulative effect of change in accounting principle
January 1, 2009 reclassification of embedded feature
of equity linked financial instruments to derivative
liabilities						(1,674,036	)		956,273			(717,763	)
Fair value of warrants issued for services						293,035						293,035
Stock compensation cost for value of vested options						453,075						453,075
Issuance of shares on exercise of options		250				187						187
Issuance of shares on exercise of warrants		6,250		6		3,744						3,750
Issuance of shares to related party on conversion of debt		524,594		526		314,230						314,756
Issuance of shares to secured lender		600,000		600		449,400						450,000
Net loss for the six months ended June 30, 2009									(9,355,390	)		(9,355,390	)
Balance, June 30, 2009		13,822,503	$	13,824	$	53,424,670		$	(64,927,224	)	$	(11,488,730	)

See accompanying notes to the condensed consolidated financial statements

GENERAL ENVIRONMENTAL MANAGEMENT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Six Months Ended
	June 30,
	2009			2008
OPERATING ACTIVITIES
Net Loss	$	(9,355,390	)	$	(2,550,217	)
Adjustments to reconcile net loss to cash provided by (used in) operating activities
Depreciation and amortization		837,325			467,096
Amortization of discount on financing agreement		908,543			904,354
Fair value of vested options		453,075			427,135
Issuance of warrants for services		293,035			-
Amortization of discount on notes		128,037			-
Amortization of deferred financing fees		96,264			168,900
Loss on derivative instruments		1,700,110			-
Loss on extinguishment of debt		2,187,351			-
Changes in assets and liabilities:
Accounts Receivable		2,160,203			(401,571	)
Prepaid and other current assets		(91,276	)		(349,401	)
Deposits and restricted cash		139,726			(19,592	)
Accounts Payable		1,836,877			(1,021,093	)
Accrued interest on related party notes		23,430			16,001
Accrued interest on convertible notes		15,759			19,014
Accrued expenses and other liabilities		(636,809	)		1,449,585
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES		696,260			(889,789	)

INVESTING ACTIVITIES
Additions to property and equipment		(229,859	)		(201,959	)
NET CASH USED IN INVESTING ACTIVITIES		(229,859	)		(201,959	)

FINANCING ACTIVITIES
Net advances from notes payable- financing agreement		(542,232	)		(118,177	)
Advances from related parties		217,888			-
Proceeds from exercise of options and warrants		3,937			-
Issuance of notes payable to related party		-			516,500
Payment of notes payable		(21,639	)		(19,360	)
Repayment of convertible notes		(37,500	)		(30,000	)
Payment on capital leases		(377,963	)		(172,996	)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		(757,509	)		175,967

DECREASE IN CASH AND CASH EQUIVALENTS		(291,108	)		(915,781	)

Cash at beginning of period		375,983			954,581

CASH AT END OF PERIOD	$	84,875		$	38,800
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest Expense	$	768,486		$	558,112

See accompanying notes to the condensed consolidated financial statements

GENERAL ENVIRONMENTAL MANAGEMENT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(UNAUDITED)

	Six Months Ended
	June 30,
	2009		2008
SUPPLEMENTAL DISCLOSURE OF NON – CASH INVESTING AND FINANCING ACTIVITIES:

Acquisition of leased equipment and capital lease obligations	$	2,391,309	$	1,096,458
Issuance of common stock to related party for conversion of liabilities		314,756		-
Issuance of common stock to related party for extension of debt		-		220,000
Fair value of warrants and valuation discount after modification		5,165,720		-
Fair value of warrants issued to related party for extension of debt		-		222,500
Cumulative effect of adoption of accounting principle and establishment
of derivative liability on:
Notes payable		1,408,828		-
Stockholders’ deficiency		717,763		-

See accompanying notes to the condensed consolidated financial statements

GENERAL ENVIRONMENTAL MANAGEMENT, INC AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008 (UNAUDITED)

1. ORGANIZATION AND PRINCIPAL ACTIVITIES

ORGANIZATION AND DESCRIPTION OF BUSINESS

Ultronics Corporation ( “the Company”) was incorporated in the state of Nevada on March 14, 1990 to serve as a vehicle to effect a merger, exchange of capital stock, asset acquisition or other business combination with a domestic or foreign private business. On February 14, 2005 the Company acquired all of the outstanding shares of General Environmental Management, Inc (“GEM”), a Delaware Corporation. The acquisition was accounted for as a reverse merger (recapitalization) with GEM deemed to be the accounting acquirer, and Ultronics Corporation the legal acquirer. Subsequent to the acquisition, the Company changed its name to General Environmental Management, Inc.

GEM is a fully integrated environmental service firm structured to provide EHS compliance services, field services, transportation, off-site treatment, and on-site treatment services. Through its services GEM assists clients in meeting regulatory requirements for the disposal of hazardous and non-hazardous waste.

BASIS OF PRESENTATION

The condensed consolidated interim financial statements included herein have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission, in the opinion of management, include all adjustments which, except, as described elsewhere herein, are of a normal recurring nature, necessary for a fair presentation of the financial position, results of operations, and cash flows for the period presented. The financial statements presented herein should be read in conjunction with the financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 filed with the Securities and Exchange Commission.

The results for the interim periods are not necessarily indicative of results for the entire year.

GOING CONCERN

The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company incurred a net loss of $9,355,390 during the six months ended June 30, 2009, and as of June 30, 2009 the Company had current liabilities exceeding current assets by $13,798,700 and had a stockholders’ deficiency of $11,488,730. These matters raise substantial doubt about the Company’s ability to continue as a going concern.

Management is continuing to raise capital through the issuance of debt and equity. In addition, management believes that the Company will begin to operate profitably due to increased size, improved operational results and cost cutting practices. However, there can be no assurances that the Company will be successful in this regard or will be able to eliminate its working capital deficit or operating losses. The accompanying condensed consolidated financial statements do not contain any adjustments which may be required as a result of this uncertainty.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Principles of Consolidation

The consolidated financial statements include the accounts of General Environmental Management, Inc., a Nevada corporation, and its wholly owned subsidiaries, General Environmental Management, Inc., a Delaware corporation, GEM Mobile Treatment Services, Inc., a California corporation, Island Environmental Services, Inc., a California corporation and General Environmental Management of Rancho Cordova, LLC. Inter-company accounts and transactions have been eliminated.

(b) Use of estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company’s management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of the contingent assets and liabilities at the date of the financial statements. These estimates and assumptions will also affect the reported amounts of certain revenues and expenses during the reporting period. Actual results could differ materially based on any changes in the estimates and assumptions that the Company uses in the preparation of its financial statements that are reviewed no less than annually. Actual results could differ materially from these estimates and assumptions due to changes in environmental-related regulations or future operational plans, and the inherent imprecision associated with estimating such future matters.

The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and collection is reasonably assured.

The Company is a fully integrated environmental service firm structured to provide field services, technical services, transportation, off-site treatment, on-site treatment services, and environmental health and safety (“EHS”) compliance services. Through our services, we assist clients in meeting regulatory requirements from the designing stage to the waste disposition stage. The technicians who provide these services are billed at negotiated rates, or the service is bundled into a service package. These services are billed and revenue recognized when the service is performed and completed. When the service is billed, client costs are accumulated and accrued.

Our field services consist primarily of handling, packaging, and transporting a wide variety of liquid and solid wastes of varying amounts. We provide the fully trained labor and materials to properly package hazardous and non-hazardous waste according to requirements of the Environmental Protection Agency and the Department of Transportation. Small quantities of laboratory chemicals are segregated according to hazard class and packaged into appropriate containers or drums. Packaged waste is profiled for acceptance at a client’s selected treatment, storage and disposal facility (TSDF) and tracked electronically through our systems. Once approved by the TSDF, we provide for the transportation of the waste utilizing tractor-trailers or bobtail trucks. The time between picking up the waste and transfer to an approved TSDF is usually less than 10 days. The Company recognizes revenue for waste picked up and received waste at the time pick up or receipt occurs and recognizes the estimated cost of disposal in the same period. For the Company’s TSDF located in Rancho Cordova, CA, costs to dispose of waste materials located at the Company’s facilities are included in accrued disposal costs. Due to the limited size of the facility, waste is held for only a short time before transfer to a final treatment, disposal or recycling facility.

(d) Concentrations of Credit Risks

The Company’s financial instruments that are exposed to concentrations of credit risk consist principally of cash and trade receivables. The Company places its cash in what it believes to be credit-worthy financial institutions. However, cash balances have exceeded FDIC insured levels at various times. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant risk in cash.

The Company’s trade receivables result primarily from removal or transportation of waste, and the concentration of credit risk is limited to a broad customer base located throughout the Western United States.

During the six months ended June 30, 2009 and 2008, one customer accounted for 9% and 15% of revenues, respectively. During the three months ended June 30, 2009 and 2008, one customer accounted for 9% and 16% of revenue. As of June 30, 2009 and December 31, 2008 there was one customer that accounted for 6% and 5% of accounts receivable, respectively.

(e) Fair Value of Financial Instruments

Fair Value Measurements are determined by the Company's adoption of Statement of Financial Accounting Standards ("SFAS") No. 157, Fair Value Measurements ("SFAS 157") as of January 6, 2008, with the exception of the application of the statement to non-recurring, non-financial assets and liabilities as permitted. The adoption of SFAS 157 did not have a material impact on the Company's fair value measurements. SFAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. SFAS 157 establishes a fair value hierarchy, which prioritizes the inputs used in measuring fair value into three broad levels as follows:

Level 1- Quoted prices in active markets for identical assets or liabilities.

Level 2- Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly.

Level 3- Unobservable inputs based on the Company's assumptions.

SFAS 157 requires the use of observable market data if such data is available without undue cost and effort.

The following table presents certain investments and liabilities of the Company’s financial assets measured and recorded at fair value on the Company’s condensed consolidated balance sheets on a recurring basis and their level within the fair value hierarchy as of June 30, 2009 (unaudited):

		Level 1				Level 2				Level 3				Total
Fair value of warrants and embedded derivatives			-				-			$	6,692,798			$	6,692,798

See Notes 7 and 11 for more information on these financial instruments.

(f) Derivative Financial Instruments

The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks. The Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the condensed consolidated statements of operations. For stock-based derivative financial instruments, the Company uses the Black-Scholes option pricing model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

(g) Stock Compensation Costs

The Company periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs. The Company adopted Statement of Financial Accounting Standards (SFAS) No. 123R effective January 1, 2006, and is using the modified prospective method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS No. 123R for all share-based payments granted after the effective date and (b) based on the requirements of SFAS No. 123R for all awards granted to employees prior to the effective date of SFAS No. 123R that remained unvested on the effective date. The Company accounts for stock option and warrant grants issued and vesting to non-employees in accordance with EITF No. 96-18: "Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services” and EITF No. 00-18: “Accounting Recognition for Certain Transactions involving Equity Instruments Granted to Other Than Employees” whereas the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete.

(h) Net Loss per Share

Statement of Financial Accounting Standards No. 128, "Earnings per Share", requires presentation of basic earnings per share ("Basic EPS") and diluted earnings per share ("Diluted EPS"). Basic income (loss) per share is computed by dividing income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share gives effect to all dilutive potential common shares outstanding during the period.

These potentially dilutive securities were not included in the calculation of loss per share for the three months and six months ended June 30, 2009 and 2008 because the Company incurred a loss during such periods and thus their effect would have been anti-dilutive. Accordingly, basic and diluted loss per share is the same for the three and six months ended June 30, 2009 and 2008.

At June 30, 2009 and 2008, potentially dilutive securities consisted of convertible securities, outstanding common stock purchase warrants and stock options to acquire an aggregate of 22,467,687 shares and 11,853,566 shares, respectively.

(i) Recent Accounting Pronouncements

In December 2007, Financial Accounting Standards Board (FASB) Statement 141R, “Business Combinations (revised 2007)” (SFAS 141R”) was issued. SFAS 141R replaces SFAS 141 “Business Combinations”. SFAS 141R requires the acquirer of a business to recognize and measure the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree at fair value. SFAS 141R also requires transactions costs related to the business combination to be expensed as incurred. SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The effective date, as well as the adoption date for the Company was January 1, 2009. Although SFAS 141R may impact our reporting in future financial periods, we have determined that the standard did not have any impact on our historical consolidated financial statements at the time of adoption.

In April 2008 the FASB issued FASB Staff Position (“FSP”) No. 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP 142-3”), which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS 142. This pronouncement requires enhanced disclosures concerning a company’s treatment of costs incurred to renew or extend the term of a recognized intangible asset. FST 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008. The effective date, as well as the adoption date for the Company was January 1, 2009. Although FSP 142-3 may impact our reporting in future financial periods, we have determined that the standard did not have any impact on our historical consolidated financial statements at the time of adoption.

In April 2009, the FASB issued FSP No. FAS 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies.” FSP No. FAS 141(R)-1 amends and clarifies FASB Statement No. 141(R), to address application issues raised on initial recognition and measurement, subsequent measurement and accounting and disclosure of assets and liabilities arising from contingencies in a business combination. FSP No. FAS 141(R)-1 is effective for the first annual reporting period on or after December 31, 2008. The impact of FSP No. FAS 141(R)-1 on the Company’s consolidated financial statements will depend on the number and size of acquisition transactions, if any, engaged in by the company.

In April 2009, the FASB issued FSP FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (FSP FAS 157-4). FSP FAS 157-4 provides additional guidance for estimating fair value in accordance with SFAS No. 157, Fair Value Measurements, when the volume and level of activity for the asset or liability have significantly decreased. FSP FAS 157-4 also includes guidance on identifying circumstances that indicate a transaction is not orderly. FSP FAS 157-4 is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. FSP FAS 157-4 does not require disclosures for earlier periods presented for comparative purposes at initial adoption. In periods after initial adoption, FSP FAS 157-4 requires comparative disclosures only for periods ending after initial adoption. The Company does not expect the changes associated with adoption of FSP FAS 157-4 will have a material effect on the on its financial statements and disclosures.

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

3. ACQUISITION

On August 31, 2008, the Company entered into a stock purchase agreement with Island Environmental Services, Inc. of Pomona, California ("Island"), a privately held company, pursuant to which the Company acquired all of the issued and outstanding common stock of Island, a California-based provider of hazardous and non-hazardous waste removal and remediation services to a variety of private and public sector establishments. In consideration of the acquisition of the issued and outstanding common stock of Island, the Company paid $2.25 million in cash to the stockholders of Island and issued $1.25 million in three year promissory notes (“Notes”, see note 9). Other consideration is payable based on the performance of the acquired entity. The Notes bear interest at 8%, payable quarterly, and the entire principal is due 36 months after closing. As a result of the agreement, Island becomes a wholly-owned subsidiary of the Company.

The acquisition of Island has been accounted for as a purchase in accordance with SFAS No. 141, “Business Combinations,” and the operations of the company have been consolidated since September 1, 2008, the effective date of the acquisition. The $3.5 million purchase price was allocated as follows based upon the fair value of the acquired assets, as determined by management with the assistance of an independent valuation firm to determine the components of the acquired business.

Current assets and liabilities	$	809,339
Property and Equipment		2,759,220
Total	$	3,568,559

The Company allocated the excess of net assets acquired to property and equipment based upon a preliminary valuation. The Company has not yet finalized the purchase price allocation which may change upon the completion of a final analysis of assets and liabilities.

The terms of purchase agreement include an accelerated note payment and a contingent earn-out which could be payable to the sellers upon the recapture by Island of EBITDA in excess of $1,100,000 during the twelve month period following the acquisition. If the EBITDA in excess of $1,100,000 is achieved, additional payments could be made to the sellers. If the EBITDA is not achieved, the current note payable of $1,250,000 will have an accelerated payment due of $750,000 in September, 2009 and no contingent earn-out will be made. As the Company does not presently expect it will reach the first twelve months milestone, the $750,000 note has been reflected as current (see Note 9).

The following sets out the pro forma operating results for the three and six months ended June 30, 2008 for the Company had the acquisition occurred as of January 1, 2008:

	Three months ended June 30, 2008			Six months ended June 30, 2008
	(Unaudited)			(Unaudited)

REVENUES	$	10,805,192		$	19,158,153

COST OF REVENUES		8,712,821			15,227,453

GROSS PROFIT		2,092,371			3,930,700

OPERATING EXPENSES		2,629,884			5,166,631

OPERATING LOSS		(537,513	)		(1,235,931	)

OTHER INCOME (EXPENSE):
Interest income		6,777			24,498
Interest and financing costs		(845,523	)		(1,664,718	)
Other non-operating income		24,878			35,259
Net Loss	$	(1,351,381	)	$	(2,840,892	)

Net loss per common share, basic and diluted	$	(.11	)	$	(.23	)

Weighted average shares of common stock outstanding, basic and diluted		12,473,885			12,473,885

4. PROPERTY AND EQUIPMENT

Property and Equipment consists of the following at:

	June 30, 2009		December 31, 2008,
	(Unaudited)
Land	$	905,000	$	905,000
Building and improvements		1,140,655		1,140,656
Vehicles		2,617,524		2,687,128
Equipment and furniture		438,118		411,064
Warehouse equipment		7,852,816		5,277,892
Leasehold improvements		331,473		242,678
Asset retirement obligations		35,846		35,846
		13,321,432		10,700,264
Less accumulated depreciation and amortization		3,672,772		2,917,056
Property and equipment net of accumulated depreciation and amortization	$	9,648,660	$	7,783,208

Property and equipment includes assets under capital lease with a cost of $5,639,855 and $3,248,546 and accumulated amortization of $1,174,981 and $805,912 as of June 30, 2009 and December 31, 2008, respectively.

Depreciation and amortization expense was $837,325 and $467,096 for the six months ended June 30, 2009 and 2008 respectively.

5. GOODWILL AND INTANGIBLE ASSETS

The Company accounts for goodwill and intangible assets pursuant to SFAS No. 142, Goodwill and Other Intangible Assets. Under SFAS 142, intangibles with definite lives continue to be amortized on a straight-line basis over the lesser of their estimated useful lives or contractual terms. Goodwill and intangibles with indefinite lives are evaluated at least annually for impairment by comparing the asset’s estimated fair values with its carrying value, based on cash flow methodology.

Intangible assets consist of the following at:

	June 30, 2009			December 31, 2008
	(Unaudited)
Rancho Cordova acquisition – permit	$	475,614		$	475,614
Prime acquisition – customers		400,422			400,422
GMTS acquisition – customers		438,904			438,904
GMTS acquisition – permits		27,090			27,090
Accumulated amortization		(558,858	)		(477,249	)
	$	783,172		$	864,781

Permit costs have been capitalized and are being amortized over the life of the permit, including expected renewal periods. Customer Lists acquired are being amortized over their useful life.

6. RELATED PARTY TRANSACTIONS

The Company has entered into several transactions with General Pacific Partners (“GPP”), a company operated by a prior member of the Board of Directors of the Company’s wholly owned subsidiary, General Environmental Management, Inc. of Delaware. GPP owns 7% of the Company’s common stock at June 30, 2009. The following summarizes the transactions with GPP during the six months ended June 30, 2009 and December 31, 2008.

Advances from Related Party

	June 30, 2009		December 31, 2008
	(Unaudited)
Notes from GPP	$	472,500	$	472,500
Advances		112,500		-
Financing Fees		100,000		250,000
Accrued Interest and LC Fees		57,754		93,692
Valuation discount		-		(109,324	)
	$	742,754	$	706,868

During February and March 2008, General Pacific Partners made two unsecured advances to the Company totaling $472,500. The proceeds were used for working capital purposes. The rate of interest on the advances is 10% per annum. The funds were originally due six months from the date of issuance. On June 30, 2008, the maturity date was extended an additional six months to February 14, 2009 and March 19, 2009. In connection with the note extension the Company issued (i) 200,000 shares of its common stock valued at $220,000 and, (ii) a warrant to purchase up to 225,000 shares of its common stock at a price of $0.60 for a period of seven (7) years. The Company valued the warrants at $222,500 using a Black - Scholes option pricing model. For the Black - Scholes calculation, the Company assumed no dividend yield, a risk free interest rate of 4.78 %, expected volatility of 75.88 % and an expected term for the warrants of 7 years. The value of the common shares of $220,000 and value of the warrants of $222,500 has been reflected by the Company as a valuation discount at issuance and offset to the face amount of the Notes. The Valuation discount is being amortized to interest expense over the life of the loan based upon the effective interest method. Finance costs for the six months ended June 30, 2009 includes $109,324 for amortization of this discount. The valuation discount was fully amortized at June 30, 2009. On February 13, 2009 the maturity date was extended until March 31, 2010. As of June 30, 2009, $472,500 remained outstanding.

In 2008, GPP provided services related to the financing completed with CVC California, LLC. Pursuant to these services the Company agreed to pay GPP $250,000. The cash paid has been reflected as part of deferred financing fees on the accompanying balance sheet at June 30, 2009 and December 31, 2008.

During the six months ended June 30, 2009 GPP agreed to convert $150,000 of the cash owed to them into 250,000 shares of the Company’s common stock. The balance due to GPP as of June 30, 2009 is $100,000. During the six months ended June 30, 2009, the Company incurred $164,756 for other fees and costs, for which the Company issued 274,594 shares of its common stock in settlement for amounts due.

During the six months ended June 30, 2009 a related individual made an unsecured advance with no formal terms of repayment to the Company totaling $115,000. The proceeds were used for working capital purposes. During the quarter the Company made one payment on the advance of $2,500. At June 30, 2009 the balance due on the advance was $112,500.

Letter of Credit Services

On July 1, 2008 the Company entered into an agreement with GPP wherein GPP would provide letters of credit to support projects contracted to GEM. The fees under the agreement consisted of (i) a commitment fee of 2% of the value of the letter of credit, (ii) interest at a rate to be negotiated, and (iii) a seven year warrant to purchase shares of the Company’s common stock at $0.60 per share. Accrued fees amounted to $19,945 at June 30, 2009 and December 31, 2008 and are included accrued interest and LC fees in the accompanying table.

Software Support

In 2008, the Company entered into a three year agreement with Lapis Solutions, LLC, (Lapis) a company managed by a prior member of the Board of Directors of the Company’s wholly owned subsidiary, General Environmental Management, Inc. of Delaware, wherein Lapis would provide support and development services for the Company’s proprietary software GEMWARE. Services costs related to the agreement total $10,800 per month. As of June 30, 2009 and December 31, 2008, $230,940 and $92,555 respectively, of the fees had been prepaid to Lapis and included in the accompanying condensed balance sheets as part of prepaid expenses.

Related Party Lease Agreement

During the third quarter ended September 30, 2007, the Company entered into a lease for $180,846 of equipment with current investors of the Company. The lease transaction was organized by General Pacific Partners, a related party, with these investors. The lease has been classified as a capital lease and included in property and equipment (See note 10) and requires payments of $4,000 per month beginning August 1, 2007 through 2012. As an inducement to enter into the lease, the Company issued the leasing entity 100,000 two year warrants to purchase common stock at $1.20. These warrants were valued at $187,128 using the Black - Scholes valuation model and such cost is being amortized to expense over the life of the lease. For the Black - Scholes calculation, the Company assumed no dividend yield, a risk free interest rate of 4.78 %, expected volatility of 56.60 % and an expected term for the warrants of 2 years.

7. SECURED FINANCING AGREEMENTS

During the period 2008 through 2009, the Company entered into a series of financings with CVC California, LLC (“CVC”). The amounts due under these financings at June 30, 2009 and December 31, 2008 are as follows:

	June 30,			December 31,
	2009			2008
	(Unaudited)
Secured Notes from CVC California	$	13,169,677		$	13,547,909
Valuation Discount		(4,974,397	)		(3,181,365	)
		8,195,280			10,366,544
Less current portion		(1,736,255	)		(10,366,544	)
Financing agreement, net of current portion	$	6,459,025		$	-

Note Agreements with CVC California

On September 4, 2008 General Environmental Management, Inc. (the “Company”) entered into a series of agreements with CVC California, LLC, a Delaware limited liability company (“CVC”), each dated as of August 31, 2008, whereby the Company issued to CVC (i) a secured convertible term note ("Note") in the principal amount of $6.5 million and (ii) a secured non-convertible revolving credit note ("Revolving Note") of up to $7.0 million; (iii) 6 year warrants to purchase 1,350,000 shares of our common stock at a price of $0.60 per share; (iv) 6 year warrants to purchase 1,350,000 shares of our common stock at a price of $1.19 per share; and, (v) 6 year warrants to purchase 300,000 shares of our common stock at a price of $2.25 per share. The principal amount of the Note carries an interest rate of nine and one half percent, subject to adjustment, with interest payable monthly commencing October 1, 2008. The Note further provides that commencing on April 1, 2009, the Company will make monthly principal payments in the amount of $135,416 through August 31, 2011. Although the stated principal amount of the Term Loan was $6,500,000, the Lender was only required to fund $5,000,000, with the difference being treated as a discount to the note.

(i). The principal amount of the Note and accrued interest thereon is convertible into shares of our common stock at a price of $3.00 per share, subject to anti-dilution adjustments. Under the terms of the Note, the monthly principal payment amount of approximately $135,416 plus the monthly interest payment (together, the "Monthly Payment"), is payable in either cash or, if certain criteria are met, including the effectiveness of a current registration statement covering the shares of our common stock into which the Note is convertible, through the issuance of our common stock. The Company has agreed to register all of the shares that are issuable upon conversion of the Note and exercise of warrants. As of June 30, 2009 and December 31, 2008 the Company had an outstanding balance of $6,364,583 under the note.

(ii). The revolving note allows the Company to borrow a maximum amount of $7,000,000, based on a borrowing base of 90% of all eligible receivables, which are primarily accounts receivables under 90 days. The interest rate on this line of credit is in the amount of prime plus 2.0%, but in no event less than 7% per annum. The Revolving Note is secured by all assets of the Company and is subject to the same security agreement as discussed below. The note is due August 31, 2011. As of June 30, 2009 and December 31, 2008 the Company had an outstanding balance of $6,641,770 and $7,047,909 (including accrued interest) under the revolving note. We project that the Company will maintain a minimum balance of $6,000,000 under the revolving note.

The Notes are secured by all of our assets and the assets of our direct subsidiary, General Environmental Management, Inc. (Delaware) and its direct subsidiaries, General Environmental Management of Rancho Cordova LLC, a California Limited Liability Company (including the real property owned by General Environmental Management of Rancho Cordova LLC), GEM Mobile Treatment Services Inc., Island Environmental Services, Inc. as well as by a pledge of the equity interests of General Environmental Management, Inc. (Delaware), General Environmental Management of Rancho Cordova LLC, GEM Mobile Treatment Services Inc. and Island Environmental Services, Inc.

The Company is subject to various negative covenants with respect to the Revolving Credit and Term Loan Agreement (the "Agreement") with CVC California, LLC (the "Lender"). The Company is in compliance with all the covenants in the Agreement, except under Section 6.18 of the Agreement. Section 6.18 requires that EBITDA of the Company not be less than (a) $1,000,000 for the fiscal quarter ending September 30, 2008, (b) $2,000,000 for the two (2) consecutive fiscal quarters ending December 31, 2008, (c) $3,000,000 for the three (3) consecutive fiscal quarters ending March 31, 2009, or (d) $4,000,000 in any four (4) consecutive fiscal quarters ending on or after June 30, 2009; provided, however, that it shall not be an Event of Default if actual EBITDA in any measuring period is within 10% of the required minimum EBITDA for such measuring period as set forth in this Section 6.18, so long as actual EBITDA for the next succeeding measuring period hereunder is equal to or greater than the required EBITDA for such.

For the fiscal quarter ending June 30, 2009, the Company was not able to achieve the EBITDA required in the next succeeding measuring period.

The Agreement provides that upon the occurrence of any Event of Default, and at all times thereafter during the continuance thereof: (a) the Notes, and any and all other Obligations, shall, at the Lender’s option become immediately due and payable, both as to principal, interest and other charges, (b) all outstanding Obligations under the Notes, and all other outstanding Obligations, shall bear interest at the default rates of interest provided in certain promissory Notes (the "Notes"), (c) the Lender may file suit against the Company on the Notes and against the Company and the Subsidiaries under the other Loan Documents and/or seek specific performance or injunctive relief thereunder (whether or not a remedy exists at law or is adequate), (d) the Lender shall have the right, in accordance with the Security Documents, to exercise any and all remedies in respect of such or all of the Collateral as the Lender may determine in its discretion (without any requirement of marshalling of assets or other such requirement, all of which are hereby waived by the Company), and (e) the Revolving Credit Commitment shall, at the Lender’s option, be immediately terminated or reduced, and the Lender shall be under no further obligation to consider making any further Advances.

The Company had discussions with CVC to obtain a waiver of the Default and continued to operate in the normal course of business and receive advances under the Revolving Credit Commitment facility.

On June 1, 2009, the Company and CVC entered into an Amendment to the Agreement to modify the terms of the agreement and relieve the events of default.

The terms require the EBITDA will not be less than (a) $670,000 for the fiscal quarter ending September 30, 2009, (b) $660,000 for the fiscal quarter ending December 31, 2009, or (c) in any succeeding fiscal quarter, an amount which is more than $10,000 less than the required minimum EBITDA in the immediately preceding fiscal quarter (i.e., $650,000 for the fiscal quarter ending March 31, 2010, $640,000 for the fiscal quarter ending June 30, 2010, etc.). For purposes of assessing interest at the default rates provided in the Notes, any failure to comply with this Section 6.18 shall be deemed to be an Event of Default at the end of the subject fiscal quarter (and not deferred until such non-compliance is reported), but for all other purposes, such non-compliance shall not be deemed an Event of Default (i) unless (A)the Company fails, within thirty (30) days after the conclusion of the subject fiscal quarter, to reach written agreement with the Lender on a plan to cure such non-compliance, or (B) if such a curative plan is agreed upon, the Company fails to complete the cure within sixty (60) days after the conclusion of the subject fiscal quarter, or (ii) if (A) the Company shall have received, during or within sixty (60) days after the conclusion of the subject fiscal quarter, net cash proceeds from the issuance of Common Stock in a dollar amount at least equal to the amount by which the Company failed to achieve the required minimum EBITDA), which net cash proceeds amount (or requisite portion thereof) are, for purposes hereof, added to EBITDA to the extent necessary (on a dollar-for-dollar basis) to eliminate the EBITDA shortfall in such fiscal quarter, and/or (B) to the extent that such net cash proceeds are not applied to cure an EBITDA shortfall as aforesaid (“Excess Cash Proceeds”), and provided that the Company has made or simultaneously makes a prepayment of principal under the Term Note out of such net cash proceeds (which prepayment shall be applied to the principal installments thereunder in direct order of maturity, and shall be without requirement of any premium or penalty) in an amount equal to one-half of the Excess Cash Proceeds, an amount equal to one-half of the Excess Cash Proceeds are, for purposes hereof, added to EBITDA in the first fiscal quarter immediately following the fiscal quarter in which the Excess Cash Proceeds were received by the Company.

The Company will not permit the ratio of (a) EBITDA, plus any permitted additions to EBITDA, minus any and all dividends, distributions and/or redemption payments made by the Company to its shareholders or other holders of equity interests, to (b) Fixed Charges, to be less than 1.0 to 1.0 for any four (4) consecutive fiscal quarters ending on or after September 30, 2009.

The Company will not make any payments of any kind (whether in cash, in kind or otherwise) to or on behalf of GPP (General Pacific Partners, LLC) or any of its Affiliates, provided that the foregoing limitation shall not be applicable to scheduled payments which are made as and when due under the outstanding Equipment Lease Agreement between GEM-DE and P-1 Leasing (an affiliate of GPP).

The Convertible Term Note was amended as follows:

(a) The monthly principal payment that was due under the Term Note on May 1, 2009, and the monthly principal payment becoming due under the Term Note on June 1, 2009, shall instead be due and payable on August 31, 2011 (which payments shall be in addition to the payments otherwise scheduled to be due and payable on such date in accordance with the Term Note).

(b) The Conversion Price (as such term is defined in the Term Note) currently in effect under the Term Note is hereby reduced to $.75 per share of Common Stock, subject to further adjustment from time to time in accordance herewith and in accordance with the Term Note. In addition to any and all other adjustments, the Conversion Price shall be adjusted, effective December 1, 2009, to be an amount equal to the weighted average Trading Price (as such term is defined in the Term Note) of the Common Stock during the period from May 1, 2009 through November 30, 2009 (the “Measuring Period”), but in no event less than $.60 per share of Common Stock; provided, however, that if, at any time and from time to time during such Measuring Period, there shall occur any stock split, stock dividend, combination of shares, recapitalization or other such event relating to the Common Stock, then appropriate adjustment shall be made to the Trading Prices used in such calculation, and the minimum $.60 Conversion Price, to fairly reflect the effects of each such stock split, stock dividend, combination of shares, recapitalization or other such event. The Company shall, as promptly as practicable after November 30, 2009, provide to the Lender a detailed written calculation of the adjusted Conversion Price in accordance with this paragraph

(c) In the event that the Company shall hereafter receive, at any time and from time to time, any Excess Cash Proceeds (as such term is defined in the modified Section 6.18 of the Loan Agreement as set forth above), the Company shall be required to make a prepayment of principal under the Term Note (which prepayment shall be applied to the principal installments thereunder in direct order of maturity, and shall be without requirement of any premium or penalty) in an amount equal to one-half of such Excess Cash Proceeds. If such Excess Cash Proceeds are received during the sixty (60) day period following the close of a fiscal quarter in which there was an EBITDA shortfall under Section 6.18 of the Loan Agreement, such prepayment shall be due and payable within one (1) Business Day after the receipt of such Excess Cash Proceeds, and otherwise shall be due and payable on the first (1st) Business Day after the conclusion of the fiscal quarter in which such Excess Cash Proceeds are received.

The Warrants were amended or cancelled, as the case may be, as follows:

(a) Warrant to purchase 1,350,000 of the Company's common stock issued by the Company to the Lender pursuant to the Loan Agreement is hereby amended so as to change the current Exercise Price thereunder to $.70 per share of Common Stock, subject to further adjustment hereafter from time to time in accordance with such Warrant.

(b) Warrant to purchase 300,000 of the Company's common stock issued by the Company to the Lender pursuant to the Loan Agreement is hereby cancelled, and shall be destroyed by the Lender promptly following the effectiveness of this Amendment No. 1.

(c) In the event that, at any time from and after the date of this Amendment No. 1, there shall occur any Event of Default under Section 7.01(b) of the Loan Agreement, then the exercise price applicable under each of the remaining outstanding Warrants shall thereupon automatically (and without requirement of any further writing) be reduced to $.01 per share of Common Stock (provided that, if the Exercise Price under any such Warrant is then already less than $.01 per share, then there shall be no increase in such Exercise Price by reason of this paragraph 4(c)).

CVC waived the Events of Default consisting of the non-payment by the Company of the principal installments due under the Term Note on May 1, 2009 and June 1, 2009, and further waived the Events of Default consisting of the failure of the Company to comply with Section 6.18 of the Loan Agreement for the periods ended December 31, 2008 and March 31, 2009, and waived all rights to collect the increased interest chargeable under the Notes by reason of the foregoing Events of Default.

The Company paid a fee in consideration of the waivers and amendments which consisted of issuing to CVC (a) 600,000 shares of its Common Stock valued at $450,000, and (b) issuing to CVC a promissory note in the principal amount of $164,000, bearing interest at the rate of 7% per annum (which interest shall be payable monthly in arrears on the first day of each calendar month commencing June 1, 2009) and maturing in full on August 31, 2011.

Valuation Discount and Modification of Debt

In connection with the initial CVC financing during 2008, the Company paid closing fees of $405,000 and issued warrants to acquire an aggregate of 3,000,000 shares of our common stock as described above to CVC. The Company calculated that the fair value of the warrants issued was $1,674,036, based upon the relative value of the Black Scholes valuation of the warrants and the underlying debt amount. For the Black Scholes calculation, the Company assumed no dividend yield, a risk free interest rate of 4.78%, expected volatility of 78.57% and an expected term for the warrants of 7 years. The closing fees of $405,000 paid to CVC, the relative value of the warrants of $1,674,036 and the $1,500,000 discount on issuance was reflected by the Company as a valuation discount at issuance and offset to the face amount of the Notes. The Valuation discount is being amortized to interest expense over the life of the loan based upon the effective interest method. The Company amortized $397,671 of note discount during the period ended December 31, 2008, resulting in valuation discount of $3,181,365 at December 31, 2008.

Concurrent with the cumulative adjustment related to the adoption of EITF 07-05 as discussed in Note 11, the Company further recorded valuation discount of $1,408,828 at January 1, 2009. During the period January 1, 2009 through June 1, 2009, the Company amortized $717,220 of the note discount, leaving an unamortized note discount of 3,872,973 as of June 1, 2009.

As discussed above, on June 1, 2009, the Company and CVC entered into an Amendment to the Agreement to modify the terms of the agreement and relieve the events of default. The Company analyzed the current accounting guidance and determined that the modifications constituted a substantial modification of debt terms, and thus, has considered the old loan and derivative liabilities to be extinguished and a new loan and derivative liabilities were incurred consistent with the provisions of EITF No. 96-19. As such, the balance of the valuation discount of $3,872,973 and the fair value of derivative liabilities of $2,299,622 (gain) that existed on June 1, 2009 before modification, the value of the 600,000 shares valued at $450,000 and the issuance by the Company of a $164,000 promissory note were considered as debt modification expense, resulting in an aggregate charge of $2,187,351 at June 1, 2009 relating to the net loss on extinguishment of debt.

Concurrent with the accounting for the issuance of the new debt after the extinguishment on June 1, 2009, the Company reflected a new valuation discount of $5,165,720 based upon the fair value of the derivative liability and warrants (see Note 11). During the period June 1, 2009 through June 30, 2009, the Company amortized $191,323 of the new note discount, leaving an unamortized note discount of $4,974,397 as of June 30, 2009.

8. CONVERTIBLE NOTES PAYABLE

During the period March 4, 2004 through June 22, 2004, the Company entered into a Loan and Security Agreement with several investors to provide the funding necessary for the purchase of the Transfer Storage Disposal Facility (TSDF) located in Rancho Cordova, California. The notes are secured by the TSDF, carry an interest rate of eight percent (8%) per annum, and principal and interest are convertible at $30.00 per share into common stock. In addition, the note holders were issued warrants to purchase common stock. The notes were initially due June 30, 2009, but have been extended to September 30, 2011. As of December 31, 2008, notes payable of $422,500 plus accrued interest of $67,105 remain outstanding. As of June 30, 2009, notes payable of $385,000 plus accrued interest of $82,864 remain outstanding.

9. LONG TERM OBLIGATIONS

Long term debt consists of the following at June 30, 2009 and December 2008:

	June 30, 2009			December 31, 2008
	(Unaudited)
(a) Vehicle notes	$	8,078		$	12,865
(b) Equipment notes		50,250			67,102
(c) Notes Payable, Island Acquisition		1,250,000			1,250,000
		1,308,328			1,329,967
Less current portion		(772,639	)		(794,278	)
Notes payable, net of current portion	$	535,689		$	535,689

(a) Note payable in monthly installments of $815 including interest at 1.9% per annum, through April 2010. The note is secured by a vehicle.

(b) The equipment note is for equipment utilized by GEM Mobile Treatment Services. It requires monthly payments of $3,417 with an interest rate of 12.35% and matures in October 2010. The note is secured by the equipment.

(c) On August 31, 2008, the Company entered into a stock purchase agreement with Island Environmental. As part of the consideration for the purchase, the Company issued two three year promissory notes totaling $1.25 million.

The first note is payable to the former owners in the amount of $1,062,500. The second note is payable to NCF Charitable Trust in the amount of $187,500. The notes bear interest at eight percent (8%) with interest only payments payable quarterly and the entire balance of interest and principal payable August 31, 2011. The notes shall provide that there shall be a partial principal payment at the end of August 31, 2009 of up to $637,500 with respect to the note in favor of the sellers and $112,500 with respect to the note in favor of NCT.

The current note payable of $1,250,000 could have an accelerated payment due of $750,000 in September 2009. The accelerated note payment could be payable to the sellers if EBITDA in excess of $1,100,000 during the twelve month period following the acquisition is not achieved. Based on the Company’s current assessment, it is likely that the target EBITDA will not be achieved and the accelerated payment has been classified as current in the financial statements.

10. OBLIGATIONS UNDER CAPITAL LEASES

The Company has entered into various capital leases for equipment with monthly payments ranging from $598 to $41,741 per month, including interest, at interest rates ranging from 7% to 19.7% per annum. At June 30, 2009, monthly payments under these leases aggregated $140,255. The leases expire at various dates through 2014. The amounts outstanding under the capital lease obligations were $4,406,920 and $2,374,861 as of June 30, 2009 and December 31, 2008, respectively.

Minimum future payments under capital lease obligations are as follows:

Years Ending December 31,
2009		786,811
2010		1,374,340
2011		1,301,559
2012		1,138,968
2013		719,451
Thereafter		244,242
Total payments		5,565,371
Less: amount representing interest		(1,158,451	)
Present value of minimum lease payments		4,406,920
Less: current portion		(1,033,087	)
Non-current portion	$	3,373,833

11. DERIVATIVE LIABILITIES

In June 2008, the FASB finalized Emerging Issues Task Force (“EITF”) 07-05, “Determining Whether an Instrument (or Embedded Feature) is indexed to an Entity’s Own Stock.” Under EITF 07-05, instruments which do not have fixed settlement provisions are deemed to be derivative instruments. The conversion feature of the Company’s Secured Financing Agreements (described in Note 7), and the related warrants, do not have fixed settlement provisions because their conversion and exercise prices, respectively, may be lowered if the Company issues securities at lower prices in the future. The Company was required to include the reset provisions in order to protect the note holders from the potential dilution associated with future financings. In accordance with EITF 07-05, the conversion feature of the notes was separated from the host contract (i.e., the notes) and recognized as an embedded derivative instrument. Both the conversion feature of the notes and the warrants have been re-characterized as derivative liabilities. SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” (“FAS 133”) requires that the fair value of these liabilities be re-measured at the end of every reporting period with the change in value reported in the statement of operations.

The derivative liabilities were valued using a probability weighted Black-Scholes-Merton valuation technique with the following weighted average assumptions:

	June 30, 2009			June 1, 2009			December 31, 2008			August 31, 2008
Conversion feature:
Risk-free interest rate		1.14	%		1.14	%		1.66	%		1.66	%
Expected volatility		88.02	%		88.02	%		78.66	%		78.57	%
Expected life (in years)		2.17			2.25			2.67			3.00
Expected dividend yield		0.0	%		0.0	%		0.00	%		0.0	%

Warrants:
Risk-free interest rate		2.66	%		2.66	%		4.78	%		4.78	%
Expected volatility		88.02	%		88.02	%		78.66	%		78.57	%
Expected life (in years)		5.17			5.25			5.67			6.00
Expected dividend yield		0.00	%		0.00			0.00	%		0.00	%

Fair Value:
Conversion feature		$4,779,927			$3,637,437			$624,385			$1,145,544
Warrants		1,912,871			1,528,283			1,502,205			2,113,423
		$6,692,798			$5,165,720			$2,126,590			$3,258,967

The risk-free interest rate was based on rates established by the Federal Reserve. The expected volatility is based on the Company’s historical volatility for its common stock. The expected life of the conversion feature of the notes was based on the term of the notes and the expected life of the warrants was determined by the expiration date of the warrants. The expected dividend yield was based on the fact that the Company has not paid dividends to common shareholders in the past and does not expect to pay dividends to common shareholders in the future.

EITF 07-05 implemented in the first quarter of 2009 and is reported as a cumulative change in accounting principles. The cumulative effect on the accounting for the conversion feature of the note and the warrants on January 1, 2009 are as follows:

	Additional			Accumulated		Derivative		Convertible
Derivative Instrument:	Paid-in Capital			Deficit		Liability		Note
Conversion feature	$	-		$	393,875	$	624,385	$	(1,018,261	)
Warrants	$	(1,674,036	)	$	562,398	$	1,502,205	$	(390,567	)
	$	(1,674,036	)	$	956,273	$	2,126,590	$	(1,408,828	)

The warrants were originally recorded at their relative fair value as an increase in additional paid-in capital. The change in the accumulated deficit includes gains resulting from decreases in the fair value of the derivative liabilities through December 31, 2008. The derivative liability amounts reflect the fair value of each derivative instrument as of the January 1, 2009 date of implementation. The convertible note amount represents the discount recorded upon adoption of EITF 07-05. This discount will be recognized on a monthly basis through the maturity date of the notes.

As of June 30, 2009, the derivative liabilities amounted to $6,692,798. For the three and six months ended June 30, 2009, the Company recorded a change in fair value of the derivative liabilities of $(2,252,622) and $(1,700,110), respectively. At June 30, 2008, no derivative instruments were recorded.

As further discussed in Note 7, concurrent with the accounting for the issuance of the new debt after the extinguishment on June 1, 2009, the Company reflected a new valuation discount of $5,165,720 based upon the fair value of the derivative liability and warrants.

12. STOCK OPTIONS AND WARRANTS

Options

On March 28, 2007 the Board of Directors approved and implemented the 2007 Stock Option Plan (the “Plan”). The plan authorized option grants to employees and other persons closely associated with the Company for the purchase of up to 5,500,000 shares. The Board of Directors granted a total of 4,397,500 options to 102 employees and one consultant. The exercise price of the options was $1.19.

On January 2, 2009 the Stock Option Committee approved the issuance of 34,500 options to twenty eight employees. The exercise price for the options was $0.75 per share and was based on the closing market price on the date of issuance. For the Black - Scholes calculation, the Company assumed no dividend yield, a risk free interest rate of 4.78 %, expected volatility of 78.66 % and an expected term for the options of 8 years.

On January 7, 2009 the Stock Option Committee approved the issuance of 570,000 options to thirteen employees. The exercise price for the options was $0.75 per share and was based on the closing market price on the date of issuance. For the Black - Scholes calculation, the Company assumed no dividend yield, a risk free interest rate of 4.78 %, expected volatility of 78.66 % and an expected term for the options of 8 years.

A summary of the option activity during the period is as follows:

	Weighted Avg.			Weighted Avg.		Weighted Avg.
	Options			Exercise Price		Life in Years
Options outstanding, January 1, 2009		4,787,340			1.64		8.36
Options granted		604,500			0.75		9.58
Options exercised		(250	)		0.75		-
Options cancelled		(435,696	)		1.95		-
Options outstanding, June 30, 2009		4,955,894			1.51		8.06
Options exercisable, June 30, 2009		3,567,217			1.61		7.90

The aggregate intrinsic value of the 4,955,894 options outstanding and 3,567,217 options exercisable as of June 30, 2009 was $89,868 and $28,250, respectively. The aggregate intrinsic value for the options is calculated as the difference between the price of the underlying awards and quoted price of the Company's common shares for the options that were in-the-money as of June 30, 2009.

For the six months ended June 30, 2009 and 2008, the fair value of options vesting during the period was $453,075 and $427,135 respectively, and has been reflected as compensation cost. As of June 30, 2009, the Company has unvested options valued at $963,105 which will be reflected as compensation cost over the estimated remaining vesting period of 33 months.

Warrants

A summary of the warrant activity during the period is as follows:

			Range of exercise prices		Weighted Avg. in Years
Warrants outstanding, January 1, 2009	9,527,894		$	0.60-$37.50		4.86
Warrants granted	353,950		$	0.60-$0.75		4.93
Warrants exercised	(6,250	)	$	0.60		-
Warrants expired	(865,507	)	$	0.60-$37.50		-
Warrants outstanding, June 30, 2009	9,010,087		$	0.60-$37.50		4.69

The aggregate intrinsic value of the 9,010,087 warrants outstanding as of June 30, 2009 was $1,555,905. The aggregate intrinsic value for the warrants is calculated as the difference between the price of the underlying shares and quoted price of the Company's common shares for the warrants that were in-the-money as of June 30, 2009.

13. INCOME TAXES

The Company's net deferred tax assets consisted of the following at June 30, 2009 and December 31, 2008:

	June 30, 2009			December 31, 2008
	(Unaudited)

Deferred tax asset, net operating loss	$	16,519,489		$	14,184,661
Less valuation allowance		(16,519,489	)		(14,184,661	)
Net deferred tax asset	$	-		$	-

As of June 30, 2009, the Company had federal net operating loss carry forwards of approximately $48,586,732 expiring in various years through 2025, which can be used to offset future taxable income, if any. No deferred asset benefit for these operating losses has been recognized in the financial statements due to the uncertainty as to their realizability in future periods.

As a result of the Company's significant operating loss carryforward and the corresponding valuation allowance, no income tax expense (benefit) has been recorded at June 30, 2009 or December 31, 2008.

Reconciliation of the effective income tax rate to the United States statutory income tax rate for the six months ended June 30, 2009 and 2008 is as follows:

	Six months ended June 30,
	2009	2008
Tax expense at U.S. statutory income tax rate	(34.0)%	(34.0)%
Increase in the valuation allowance	34.0	34.0
Effective rate	-	-

Effective January 1, 2007, the Company adopted Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes (“FIN 48”) an interpretation of FASB Statement No. 109, Accounting for Income Taxes.” The Interpretation addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under FIN 48, we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. FIN 48 also provides guidance on derecognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. At the date of adoption, and as of June 30, 2009, the Company does not have a liability for unrecognized tax uncertainties.

The Company files income tax returns in the U.S. federal jurisdiction and various states. The Company is subject to U.S. federal or state income tax examinations by tax authorities for years after 2002. During the periods open to examination, the Company has net operating loss and tax credit carry forwards for U.S. federal and state tax purposes that have attributes from closed periods. Since these NOLs and tax credit carry forwards may be utilized in future periods, they remain subject to examination.

The Company’s policy is to record interest and penalties on uncertain tax provisions as income tax expense. As of June 30, 2009 the Company has no accrued interest or penalties related to uncertain tax positions.

14.	SUBSEQUENT EVENTS

On August 17, 2009, the Company divested the assets of GEM Mobile Treatment Services (GEM MTS). GEM MTS was sold to MTS Acquisition Company, Inc., a holding company, and will be owned and operated by two former senior executives of GEM. Consideration for the sale was in the form of promissory notes in the aggregate amount of $5.6 million, the assignment of approximately $1.0 million of accounts payable and possible future royalties. The consideration was immediately assigned to CVC California, LLC, ("CVC") GEM's senior secured lender. As the notes are paid to CVC, GEM's indebtedness to CVC will be reduced. Total reduction in indebtedness to CVC could amount to more than $7 million. The Company has not yet analyzed the accounting effect of the transaction, but the Company does not believe that it has met the criteria for recognition of a sale under the current accounting criteria, as the Company has not transferred all the risks and rewards to the buyer. As such, we do not expect there to be a gain on the transaction.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD LOOKING STATEMENTS

In addition to historical information, this Quarterly Report contains forward-looking statements, which are generally identifiable by use of the words “believes”, “expects”, “intends”, “anticipates”, “plans to”, “estimates”, “ projects”, or similar expressions. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in these forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Factors That May Affect Future Results”. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s opinions only as of the date hereof. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements. Readers should carefully review the risk factors described in other documents the company files from time to time with the Securities and Exchange Commission ( the “SEC”), including the Quarterly Reports on form 10-Q filed by us in the fiscal year 2009.

Statements made in this Form 10-Q (the “Quarterly Report”) that are not historical or current facts are “forward-looking statements” made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the “Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We intend that such forward-looking statements be subject to the safe harbors for such statements. We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Any forward-looking statements represent management’s best judgment as to what may occur in the future. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Quarterly Report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved. We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events.

The words “we,” “us,” “our,” and the “Company,” refer to General Environmental Management, Inc. The words or phrases “may,” “will,” “expect,” “believe,” “anticipate,” “estimate,” “approximate,” or “continue,” “would be,” “will allow,” “intends to,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” or similar expressions, or the negative thereof, are intended to identify “forward-looking statements.” Actual results could differ materially from those projected in the forward looking statements as a result of a number of risks and uncertainties, including but not limited to: (a) our failure to implement our business plan within the time period we originally planned to accomplish; and (b) other risks that are discussed in this Quarterly Report or included in our previous filings with the Securities and Exchange Commission (“SEC”).

OVERVIEW

Ultronics Corporation (Ultronics) was a non-operating company formed for the purpose of evaluating opportunities to acquire an operating company. On February 14, 2005 Ultronics acquired General Environmental Management, Inc. through a reverse merger between Ultronics Acquisition Corp., a wholly owned subsidiary of Ultronics and General Environmental Management, Inc., whereby General Environmental Management, Inc. (GEM) was the surviving entity.

The acquisition was accounted for as a reverse merger (recapitalization) with GEM deemed to be the accounting acquirer, and Ultronics Corporation the legal acquirer. Accordingly, the historical financial information presented in the financial statements is that of GEM as adjusted to give effect to any difference in the par value of the issuer’s and the accounting acquirer stock with an offset to capital in excess of par value. The basis of the assets, liabilities and retained earnings of GEM, the accounting acquirer, have been carried over in the recapitalization. Subsequent to the acquisition, the Company changed its name to General Environmental Management, Inc. GEM is a fully integrated environmental service firm structured to provide EHS compliance services, field services, transportation, off-site treatment, and on-site treatment services. Through its services GEM assists clients in meeting regulatory requirements for the disposal of hazardous and non-hazardous waste. GEM provides its clients with access to GEMWare, an internet based software program that allows clients to maintain oversight of their waste from the time it leaves their physical control until final disposition by recycling, destruction, or landfill. The GEM business model is to grow both organically and through acquisitions.

During 2003 and 2004 GEM acquired the assets of Envectra, Inc., Prime Environmental Services, Inc. (Prime) and 100% of the membership interest in Pollution Control Industries of California, LLC, now named General Environmental Management of Rancho Cordova, LLC. The assets of Envectra, Inc. included an internet based integrated environmental management software now marketed by the Company as GEMWare. The acquisition of the assets of Prime resulted in a significant increase in the revenue stream of the company and a presence in the Washington State and Alaska markets through Prime’s Seattle office. All Prime services are now offered under the GEM name. The primary asset of Pollution Control Industries of California, LLC was a fully permitted Part B Treatment Storage Disposal Facility (TSDF) in Rancho Cordova, California. The facility provides waste management services to field service companies and allows the Company to bulk and consolidate waste into larger more cost effective containers for outbound disposal.

During 2006, the Company entered into a stock purchase agreement with K2M Mobile Treatment Services, Inc. of Long Beach, California ("K2M"), a privately held company, pursuant to which the Company acquired all of the issued and outstanding common stock of K2M. K2M is a California-based provider of mobile wastewater treatment and vapor recovery services. Subsequent to the acquisition in March 2006, the Company opened a vapor recovery service division in Houston, Texas and will be looking to expand its operations in the Gulf coast area.

COMPARISON OF THREE MONTHS ENDED JUNE 30, 2009 AND 2008

Revenues

Total revenues were $6,803,372 for the three months ended June 30, 2009, representing a decrease of $2,603,213 or 28% compared to the three months ended June 30, 2008. The decrease in revenue can be primarily attributed to the decrease in the field service sector for GEM, Inc. The field service work consists of remediation projects. One project completed in June 2008 totaled $1.5 million. No projects of this magnitude were engaged in 2009. These decreases were partially offset by increases in GEM Mobile Treatment Services and the inclusion of Island Environmental Services in the three months ended June 30, 2009.

Cost of Revenues

Cost of revenues for the three months ended June 30, 2009 were $6,668,193 or 98% of revenue, as compared to $7,822,370 or 83.1% of revenue for the three months ended June 30, 2008. The cost of revenues includes disposal costs, transportation, fuel, outside labor and operating supplies. The change in the cost of revenue in comparison to the prior year is primarily due to negative margins at Island Environmental Services.

Operating Expenses

Operating expenses for the three months ended June 30, 2009 were $2,595,953 or 38.2% of revenue as compared to $1,956,313 or 20.8% of revenue for the same period in 2008. Operating expenses include sales and administrative salaries and benefits, insurance, rent, legal, accounting and other professional fees. The increase in operating expenses is primarily attributable to increase in rent and insurance and the inclusion of Island Environmental Services in the three months ended June 30, 2009.

Depreciation and Amortization

Depreciation and amortization expenses for the three months ended June 30, 2009 were $425,561 or 6.3% of revenue, as compared to $240,301 or 2.5% of revenue for the same period in 2008. The increase in expense is due to additions to property, plant and equipment and increase of assets acquired under capitalized leases.

Interest and financing costs

Interest and financing costs for the three months ended June 30, 2009 were $1,000,198 or 14.7% of revenue, as compared to $844,711 or 8.9% of revenue for the same period in 2008. Interest expense consists of interest on the line of credit, short and long term borrowings, and advances to related parties. It also includes amortization of deferred finance fees and amortization of valuation discounts generated from beneficial conversion features related to the fair value of warrants and conversion features of long term debt. The increase in interest expense is due to additional interest incurred on higher balances on the line of credit.

Other Non-Operating Income

The Company had other non-operating income for the three months ended June 30, 2009 of $10,923 or 0.2 % of revenue, and $9,030 or 0.1% of revenue for the same period in 2008. Non-Operating income for the three months ended June 30, 2009 and June 30, 2008 consisted of continuing rental income from the lease of warehouse space in Kent, Washington.

Loss on derivative financial instruments

In accordance with EITF 07-05 (See Note 11) which is effective at the end of 2008, the conversion feature of our convertible notes was recognized as an embedded derivative instrument. Both the conversion feature of the notes and the warrants have been re-characterized as derivative liabilities. SFAS No. 133 requires that the fair value of these liabilities be re-measured at the end of every reporting period with the change in value reported in the statement of operations. For the three months ended June 30, 2009, the Company recorded a loss on derivative financial instruments of $2,252,622.

Net Loss

The net loss for the three months ended June 30, 2009 was $7,824,155 or 115.0% of revenue as compared to a loss of $1,204,984, or 12.8% of revenue for the same period in 2008. The higher loss is attributable to reductions in operating margins over the three months ended June 30, 2009 and losses incurred at Island Environmental Services and losses on derivative financial instruments.

COMPARISON OF SIX MONTHS ENDED JUNE 30, 2009 AND 2008

Revenues

For the six months ended June 30, 2009, the Company reported consolidated revenue of $15,005,242 representing a decrease of $1,352,996, or 8.3% compared to the six months ended June 30, 2008. The decrease in revenue can be primarily attributed to the decrease in the field service sector for GEM, Inc. These decreases were partially offset by increases in GEM Mobile Treatment Services and the inclusion of Island Environmental Services for the six months ended June 30, 2009.

Cost of Revenues

Cost of revenues for the six months ended June 30, 2009 were $13,864,908 or 92.4% of revenue, as compared to $13,467,714 or 82.3% of revenue for the six months ended June 30, 2008. The cost of revenues includes disposal costs, transportation, fuel, outside labor and operating supplies. The change in the cost of revenue in comparison to the prior year is primarily due to negative margins at Island Environmental Services.

Operating Expenses

Operating expenses for the six months ended June 30, 2009 were $4,699,551 or 31.3% of revenue as compared to $3,805,927 or 23.3% of revenue for the same period in 2008. Operating expenses include sales and administrative salaries and benefits, insurance, rent, legal, accounting and other professional fees. The increase in operating expenses is primarily attributable to increase in rent and insurance and the inclusion of Island Environmental Services for the six months ended June 30, 2009.

Depreciation and Amortization

Depreciation and amortization expenses for the six months ended June 30, 2009 were $837,325 or 6% of revenue, as compared to $467,096 or 2.8% of revenue for the same period in 2008. The increase in expense is due to additions to property, plant and equipment and increase of assets acquired under capitalized leases.

Interest and financing costs

Interest and financing costs for the six months ended June 30, 2009 were $1,994,386 or 13.3% of revenue, as compared to $1,661,319 or 10.1% of revenue for the same period in 2008. Interest expense consists of interest on the line of credit, short and long term borrowings, and advances to related parties. It also includes amortization of deferred finance fees and amortization of valuation discounts generated from beneficial conversion features related to the fair value of warrants and conversion features of long term debt. The increase in interest expense is due to additional interest incurred on higher balances on the line of credit.

Other Non-Operating Income

The Company had other non-operating income for the six months ended June 30, 2009 of $19,340 or .10% of revenue, and $16,693 or .10% of revenue for the same period in 2008. Non-Operating income for the six months ended June 30, 2009 and June 30, 2008 consisted of continuing rental income from the lease of warehouse space in Kent, Washington.

Loss on derivative financial instruments

In accordance with EITF 07-05 (See Note 11) which is effective at the end of 2008, the conversion feature of our convertible notes was recognized as an embedded derivative instrument. Both the conversion feature of the notes and the warrants have been re-characterized as derivative liabilities. SFAS No. 133 requires that the fair value of these liabilities be re-measured at the end of every reporting period with the change in value reported in the statement of operations. For the six months ended June 30, 2009, the Company recorded a loss on derivative financial instruments of $1,700,110.

Net Loss

The net loss for the six months ended June 30, 2009 was $9,355,390 or 62.3% of revenue as compared to a loss of $2,550,217, or 15.6% of revenue for the same period in 2008. The higher loss is attributable to reductions in operating margins over the six months ended June 30, 2009 losses incurred at Island Environmental Services and losses on derivative financial instruments.

LIQUIDITY AND CAPITAL RESOURCES

Cash

Our primary sources of liquidity are cash provided by operating, investing, and financing activities. Net cash used in operations for the three months ended June 30, 2009 was $499,393 as compared to net cash used in operations of $382,971 for the same period in 2008. Net cash provided by operations for the six months ended June 30, 2009 was $696,260 as compared to net cash used in operations of $889,789 for the same period in 2008.

Liquidity

The accompanying consolidated financial statements have been prepared assuming that the company will continue as a going concern. The Company incurred a net loss of $9,355,390 and utilized cash in operating activities of $696,260 during the six months ended June 30, 2009. As of June 30, 2009 the Company had current liabilities exceeding current assets by $13,798,700, primarily because of the reclassification of long term debt to current resulting from covenant provisions under the ComVest notes and had a stockholders’ deficiency of $11,488,730. These matters raise substantial doubt about the Company’s ability to continue as a going concern.

Management is continuing to raise capital through the issuance of debt and equity and believes it will be able to raise sufficient capital over the next twelve months to finance operations. In addition, management believes that the company will begin to operate profitably due to improved operational results and cost reductions made in late 2008. However, there can be no assurances that the Company will be successful in this regard or will be able to maintain its working capital surplus or eliminate operating losses. The accompanying financial statements do not contain any adjustments which may be required as a result of this uncertainty. The Company’s capital requirements consist of general working capital needs, scheduled principal and interest payments on debt, obligations, and capital expenditures. The Company’s capital resources consist primarily of cash generated from operations and proceeds from issuances of debt and common stock. The Company’s capital resources are impacted by changes in accounts receivable as a result of revenue fluctuations, economic trends and collection activities.

Cash Flows for the Six Months Ended June 30, 2009

Operating activities for the six months ended June 30, 2009 produced $696,260 in cash. Accounts receivable, net of allowances for bad debts, were reduced by $2,160,203 as of June 30, 2009 and accounts payable were increased by $1,836,877. Depreciation and amortization for the six months ended June 30, 2009 totaled $837,325. The net loss of $9,355,390 included a number of non-cash items incurred by the Company including expenses of $453,075 representing the fair value of vested options, $908,543 representing amortization of discount on financing agreements, $293,035 representing warrants issued for services, $128,037 representing amortization of note discounts, $96,264 representing amortization of deferred financing fees, $2,187,351 representing a loss on extinguishment and a derivative loss of $1,700,110. Prepaid expenses increased by $96,729 and accrued expenses decreased by $636,809.

The Company used cash for investment in plant, property and equipment and deposits totaling approximately $229,859 for the six months ended June 30, 2009. Capital expenditures increased due to the acquisition of equipment at GEM Mobile Treatment Services. Financing activities used $757,509 for the six months ended June 30, 2009 to reduce notes payable and make payments on capital leases.

These activities resulted in a $291,108 reduction in cash balances from year end December 31, 2008 to the end of the quarter June 30, 2009.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of our consolidated financial statements requires us to make estimates that affect the reported amounts of assets, liabilities, revenues and expenses. The following are the areas that we believe require the greatest amount of estimates in the preparation of our financial statements: allowances for doubtful accounts, impairment testing and accruals for disposal costs for waste received at our TSDF.

(a) Allowance for doubtful accounts

We establish an allowance for doubtful accounts to provide for accounts receivable that may not be collectible. In establishing the allowance for doubtful accounts, we analyze specific past due accounts and analyze historical trends in bad debts. In addition, we take into account current economic conditions. Actual accounts receivable written off in subsequent periods can differ materially from the allowance for doubtful accounts provided.

(b) Impairment of Long-Lived Assets

Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, established guidelines regarding when impairment losses on long-lived assets, which include property and equipment, should be recognized and how impairment losses should be measured. This statement also provides a single accounting model for long-lived assets to be disposed of and significantly changes the criteria that would have to be met to classify an asset as held-for-sale. The Company periodically reviews, at least annually, such assets for possible impairment and expected losses. If any losses are determined to exist they are recorded in the period when such impairment is determined.

(d) Derivative Financial Instruments

Recent Accounting Pronouncements

The Company does not believe that the adoption of the above recent pronouncements will have a material effect on the Company’s consolidated results of operations, financial position, or cash flows.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

Not required

ITEM 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our disclosure controls and procedures were designed to provide reasonable assurance that the controls and procedures would meet their objectives.

As required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

PART II - OTHER INFORMATION

Item 1. Legal Proceeding

On July 5, 2007, a lawsuit was instituted by Romic Environmental Technologies Corp. (“RET”) against the Company and four of its senior executives, Namki Yi, the Vice President of Corporate Development, Betty McKee, the Director of Systems & Financial Analysis, Mindy Rath, the Director of Sales and Gary Bowling, the Regional General Manager for Southern CA, all of whom were formerly employed by RET. The lawsuit was brought in the Superior Court of the State of California, County of Los Angeles. In the lawsuit, RET alleges that the Company and the four executives are liable to RET for among other things, Violation of Non-Disclosure Agreements and Termination Protection Agreements, Intentional Interference with contracts, and Violation of Trade Secrets and Unfair Competition. RET alleges damages of Fifteen Million Dollars and requests certain injunctive relief. The Company believes that the lawsuit has no merit, and intends to vigorously defend the action. However, an adverse outcome of this lawsuit would have a material adverse affect on our business and financial condition.

Item 1A. Risk Factors

No material changes from risk factor as previously disclose.

Item 2. Unregistered Sales of Securities and Use of Proceeds – S-1/A Registration Statement

None

Item 3. Defaults upon Senior Securities - None

Item 4. Submission of Matters to a Vote of Security Holders - None

Item 5. Other Information - None

Item 6. Exhibits and Reports

(a)	Exhibits

	31.1- Section 302 Certification CEO
	31.2- Section 302 Certification CFO
	32.1- Section 906 Certification CEO
	32.1- Section 906 Certification CFO

(b)	Reports on Form 8-K

	1. Stock Purchase agreement Island Environmental Svcs.; filed with the Commission on 9/24/08

	2. Material definitive agreement and Sales of Equity; filed with the Commission on 9/24/08

	3. Amendment to Revolving Credit and Term Loan Agreement , filed with the Commission on June 4, 2009

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

GENERAL ENVIRONMENTAL MANAGEMENT, INC

Dated:	August 19, 2009	/s/ Timothy J. Koziol
		Timothy J. Koziol, CEO and Chairman of the Board of Directors

Dated:	August 19, 2009	/s/ Brett M. Clark
		Executive Vice President of Finance, Chief Financial Officer