GENERAL ENTERTAINMENT VENTURES, INC - FORM 10-K

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EX-31.2 - EXHIBIT 31.2 - GENERAL ENTERTAINMENT VENTURES, INC	ex31-2.htm
EX-31.1 - EXHIBIT 31.1 - GENERAL ENTERTAINMENT VENTURES, INC	ex31-1.htm
EX-32.1 - EXHIBIT 32.1 - GENERAL ENTERTAINMENT VENTURES, INC	ex32-1.htm
EX-32.2 - EXHIBIT 32.2 - GENERAL ENTERTAINMENT VENTURES, INC	ex32-2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the fiscal year ended December 31, 2009.

[ ] 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 No.)

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

(909) 444-9500

(Registrant's Telephone Number, Including Area Code)


Securities registered under Section 12(b) of the Act:	Securities registered under Section 12(g) of the Act:

None	Common Stock, Par Value $.001 (Title of Class)

Indicate by check mark if registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o Yes xNo

Indicate by check mark if registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o Yes xNo

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. xYes o No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated file, an 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). oYes xNo

The aggregate market value of the registrant's shares of common stock held by non-affiliates of the registrant on June 30, 2009, based on $ 0.90 per share, the last price at which the common equity was sold by the registrant as of that date, was $11,368,018.

As of December 31, 2009 there were 14,557,653 shares of the issuer's $.001 par value common stock issued and outstanding.

Documents incorporated by reference. There are no annual reports to security holders, proxy information statements, or any prospectus filed pursuant to Rule 424 of the Securities Act of 1933 incorporated herein by reference.

GENERAL ENVIRONMENTAL MANAGEMENT, INC.

2009 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

Part I		Page No.
Item 1	Business	3
Item 1A	Risk Factors	10
Item 1B	Unresolved Staff Comments	20
Item 2	Properties	20
Item 3	Legal Proceedings	21
Item 4	Submission of Matters to a Vote of the Security Holders	21

Part II
Item 5	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	21
Item 6	Selected Financial Data	22
Item 7	Management's Discussion and Analysis of Financial Condition and Results of Operations	22
Item 8	Financial Statements and Supplementary Data	30
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	31
Item 9A (T)	Controls and Procedures	31
Item 9B	Triggering Events That Accelerate or Increase a Direct Financial Obligation	32

Part III
Item 10	Directors and Executive Officers and Corporate Governance	32
Item 11	Executive Compensation	34
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	35
Item 13	Certain Relationships and Related Transactions and Director Independence	37
Item 14	Principal Accountant Fees and Services	39

Part IV
Item 15	Exhibits and Financial Statement Schedules	39
	Signatures	40

FORWARD-LOOKING STATEMENTS

In addition to historical information, this Annual 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." 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 General Environmental Management, Inc. files from time to time with the Securities and Exchange Commission (the "SEC").

PART I

ITEM 1. Description of Business

Company Background

General Environmental Management, Inc. formerly, Ultronics Corporation (the "Company") was incorporated under the laws of Nevada on March 14, 1990. The Company did not have operations from its inception until February 2005, as it was formed for the primary purpose of seeking an appropriate merger candidate.

On February 14, 2005, we acquired all the outstanding shares of General Environmental Management, Inc., a Delaware corporation (“GEM DE”) in exchange for 630,481 shares of our class A common stock and as a result, GEM DE became a wholly owned subsidiary of Ultronics. The acquisition has been treated as a reverse merger (recapitalization) with GEM DE deemed to be the accounting acquirer, and Ultronics the legal acquirer. We then changed our parent name to General Environmental Management, Inc. on March 16, 2005.

Prior to the merger, GEM DE acquired:

§	Hazpak Environmental Services, Inc. (HES),
§	the assets of EnVectra, Inc. (EnV),
§	the assets of Firestone Environmental Services Company (dba Prime Environmental Services Company), and Firestone Associates, Inc. (dba Firestone Energy Company), and
§	100% of the membership interest in Pollution Control Industries of California, LLC.

Hazpak (HES) was organized as a partnership in February of 1991 specializing in packaging hazardous waste for other hazardous waste management companies. In July of 1992, HES incorporated under the laws of California as Hazpak, Inc. On August 7, 2002 Hazpak, Inc. changed is name to Hazpak Environmental Services, Inc. In March 2003, GEM DE acquired HES.

On June 23, 2004, we acquired all of the membership interest in Pollution Control Industries of California, LLC. The primary asset of Pollution Control Industries of California, LLC was the real property on which a fully permitted, Part B treatment, storage, disposal facility (TSDF) in Rancho Cordova, California was located. The facility provides service for other environmental service companies and allows us to consolidate waste for more cost effective outbound treatment. Pollution Control Industries of California, LLC changed its name to General Environmental Management of Rancho Cordova, LLC on June 25, 2004.

On July 18, 2003, we acquired the assets of EnVectra, Inc., which included internet-based integrated environmental management software now marketed by us as GEMWare.

On August 1, 2004, we acquired the assets of Prime Environmental Services, Inc. of El Monte, California which resulted in a significant increase in our revenues and a presence in the states of Washington and Alaska through Prime’s Seattle office along with additional clients and revenue in California. All Prime services are now offered under the “General Environmental Management, Inc.” name.

Prior to the acquisition of GEM DE by the Company, GEM DE focused its efforts in the second half of 2004 on integration of the above noted purchases and on continued internal growth. During the first quarter of 2005, we adjusted our operations to achieve greater efficiencies at the TSDF and at our field service locations.

MTS Acquisition and Sale

On March 10, 2006, the Company entered into a Agreement with K2M Mobile Treatment Services, Inc. of Long Beach, California ("K2M"), a privately held company, pursuant to which the Company acquired all of the issued and outstanding common stock of K2M. K2M is a California-based provider of mobile wastewater treatment and vapor recovery services. In consideration of the acquisition of the issued and outstanding common stock of K2M Company paid $1.5 million in cash to the stockholders of K2M. As a result of the agreement, K2M became a wholly-owned subsidiary of the Company. For purposes of accounting for the acquisition of the business of K2M, the effective date of the agreement was March 1, 2006. On August 8, 2006 K2M changed its name to GEM Mobile Treatment Services, Inc.

On August 17, 2009, the Company entered into a Stock Purchase Agreement ("MTS Agreement") with MTS Acquisition Company ("MTS"), a privately held company, pursuant to which the Company sold all of the issued and outstanding common stock of GEM Mobile Treatment Services, Inc. (“GEM MTS”).

GEM MTS was purchased by MTS, a corporation owned by two former senior executives of the Company. Consideration for the sale was in the form of a promissory note in the aggregate amount of $5.6 million, the assumption by MTS of approximately $1.0 million of accounts payable and possible future royalties. The consideration was immediately assigned by Company to CVC California, LLC ("CVC"), the Company's senior secured lender. As the notes are paid to CVC, the Company's indebtedness to CVC will be reduced. Total reduction in indebtedness to CVC could amount to more than $7 million.

All or any portion of the unpaid principal balance of this Note, together with all accrued and unpaid interest on the principal amount being prepaid, may at the MTS’s option be prepaid in whole or in part, without premium or penalty.

The Company also entered into a revolving credit agreement with MTS which is collateralized by accounts receivable. The revolving credit note has a maximum value of $700,000 and bears interest at the greater of (a) the Prime Rate as in effect from time to time plus two (2%) percent, or (b) ten (10%) percent.

Concurrent with the closing of the sale of GEM MTS, the Company assigned with full recourse and full representation and warranty of title and ownership the promissory note, the revolving credit agreement and the revolving credit note to CVC California, LLC, the Company’s senior lender.

The Company also entered into a subordinated collateral agreement with GEM MTS in order to secure potential obligations related to indemnification payments it may hereafter become obligated to make to MTS in accordance with the MTS Agreement.

Island Acquisition

On August 31, 2008, GEM DE entered into an agreement with Island Environmental Services, Inc. of Pomona, California ("Island"), a privately held company, pursuant to which GEM DE 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 (“Island Notes”).

Island is a wholly owned subsidiary of GEM DE and is part of the assets of GEM DE being sold to the Buyer. However, the Company has assumed the obligation to pay the balance of the Island Notes.

Acquisition of California Living Waters Incorporated

CLW Business Description

History

On November 6, 2009, the Company entered into a Stock Purchase Agreement ("CLW Agreement") with United States Environmental Response, LLC, a California limited liability company pursuant to which the Company has purchased all of the issued and outstanding capital stock of California Living Waters, Incorporated ("CLW"), a privately held company. CLW owns all of the issued and outstanding capital stock of Santa Clara Waste Water Company (SCWW") a California corporation. CLW's only operating subsidiary is SCWW.

Management at the Company has been aware of SCWW for the past three years. The Company has used SCWW as a vendor for treatment and disposal of certain non-hazardous waste streams during the past three years. During that time frame management developed a professional relationship with SCWW’s ownership. It became apparent to both companies that there was the potential for a closer relationship where the Company would acquire SCWW. However there were never any serious discussions until the end of 2008 as the Company was not in the position to make the acquisition. In November 2008 the Company and SCWW agreed to pursue further discussions regarding a potential acquisition and executed a Letter of Intent (LOI) for the acquisition contingent on financing. Because of the market collapse in the fourth quarter of 2008 no financing commitments were received and the LOI was withdrawn. In March of 2009 further discussions continued with another LOI executed, again contingent on financing which was not forthcoming and in April 2009 the discussions were abandoned and the LOI withdrawn. Finally discussions resumed in July and August 2009 culminating in an executed LOI on September 19, 2009 with the transaction closed on November 13, 2009, primarily due to internal financing.

Background

The high demands on water resources and landfills resulting from increased industrialization and population growth are problems facing the Southern California marketplace which SCWW serves and the global community. Santa Clara Waste Water Company ("SCWW"), was formed in 1959 for the treatment of non-hazardous wastewater in southern California.

SCWW's primary processing facility (the "Facility"), is located on a 4.87 acre parcel in Santa Paula, Ventura County, California and sits 65 miles north of downtown Los Angeles and approximately 70 miles southwest of California's oil and gas rich Kern County. The facility has the annual capacity to process 80 million gallons of domestic, industrial and oil and gas-related wastes generated by customers located within a 250 mile radius of the Facility. New customers receive approval after an independent laboratory tests the wastewater for compatibility with the Facility's treatment protocols. Once approved and scheduled, every shipment received is tested again prior to unloading to ensure compliance. Since 2007, the Facility received the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) designation, from the Federal Environmental Protection Agency making it the sole California disposal site for "Superfund" non-hazardous wastewater.

SCWW also owns and operates a 12.7 mile, 10" pipeline (the "Pipeline") that transports domestic wastewater which has been processed at the Facility to the municipal wastewater treatment facility located in Oxnard, California.

The Non-Hazardous Wastewater Business

General Background

According to US Department of Commerce statistics the water and wastewater industry is generally estimated to be around $90 billion to $100 billion per year with the world market being about five times larger, or around $500 billion annually. American industry and households produce a growing and significant volume of non-hazardous wastewater annually, all of which, depending on the effluent source, is required to be remediated and disposed of in compliance with some combination of federal, state and local regulation. The Company believes that SCWW has the required permits, treatment capabilities and staff to manage the high demands on water resources resulting from increased industrialization and population growth in the Southern California market.

The following categorization of wastewaters provides a partial listing of the breadth of non-hazardous waste streams that exist:

Non-Hazardous Wastewater Accepted for Treatment by SCWW

• Bilge/Ballast Water

• Boiler Blowdowns Water

• Boiler Sludge Water

• Brine Water

• Car Wash Wastewater

• Chemical Toilet Wastewater

• Clarifier Wastewater

• Construction Wastewater

• Cooling Tower Water

• Cutting/Polishing Water

• Equipment Decon Water

• Facility Cleaning Water

• Filtrate Water

• Filtration Media Water

• Floor Cleaning Water

• Graphite Wastewater

• Grey Water

• Groundwater

• Heater Mineral Sediment Water

• Hydroblast Wastewater

• Hydrocarbon Water

• Hydrostatic Test Water

• Injection Molding Water

• Muddy Wastewater

• Oilfield Wastewater

• Oily Wastewater

• Pipeline Flush Wastewater

• Process Water

• Produce Wash Water

• Rainwater Runoff

• Scrubber Wastewater

• Septic Wastewater

• Site Decon Water

• Soapy Waters

• Swimming Pool Water

• Tank Bottom Water

• Tank Cleaning Water

• Truck Wash Water

• Water Softener Wastewater

Unacceptable and Hazardous Wastewater Not Accepted for Treatment by SCWW

•	Highly Odorous
•	High Oil/Solvent Content

•	High Viscosity
•	Sanitary Sources

•	Biomedical Sources
•	Plating Etching Sources

•	Surface preparation Sources
•	Alkaline or acid cleaning Sources

•	Metal Finishing Sources
•	Anodizing operations

•	Hazardous Wastewater

The Domestic Wastewater portion of SCWWs business is the treatment of human waste which SCWW provides for local area septic tank cleaners and port-a-potty companies which service Ventura County's largest business sector, the agricultural industry. SCWW also treats secondary sludge from municipalities and counties whose own facilities are unable to completely treat this waste stream.

In addition, SCWW is the only commercial treatment facility with the requisite permits to accept industrial wastewater on the central coast of California. Manufacturing businesses and power plants comprise the majority of the industrial waste accepted. Oil and gas companies, small business wastewater generators, and groundwater remediation services, are other businesses that SCWW provides water treatment services to.

SCWW Treatment Process

SCWW's treatment encompasses a seven-step process as follows:

Customer Registration and Waste Screening: Customers enter into service contracts with SCWW for the treatment of their wastewaters. Before accepting a customer, samples of its wastewater streams are evaluated to determine whether the Facility will be able to handle the subject non-hazardous wastewater.

Receiving: The Facility is close to California's major freeway system with easy access and egress to the Facility's dual-lane, truck unloading bays. Before waste is unloaded, it is field tested and the quantity being unloaded is measured for billing purposes.

Dewatering Treatment: The unloaded waste stream undergoes a primary separation process of mastication, degritting, open pond storage settlement and dewatering that serves to separate the larger particulate solids contained in the waste stream from the liquids.

Primary Treatment: The various liquid streams are stored in holding tanks and subjected to electro-coagulation and ozone treatments to engender further separation of the solids from the liquids and begin the water purification process.

Secondary Treatment: In the final separation and purification process, the liquid held in the holding tanks is piped through (i) a carbon filtration unit, (ii) a 0.5 micron filtration unit and (iii) subjected to ultra-violet treatment

Water Shipping: The resulting effluent meets the federal regulation specified in Federal Regulation §437 and local discharge limits (established by POTW) and is shipped via the Pipeline (a single pump, gravity-aided system of transport), to the City of Oxnard water treatment facility 12.7 miles away.

Solids Handling: Given the waste streams that SCWW currently processes, it generates primarily (i) drilling mud, (ii) industrial sludge, and (iii) human waste solids. These solids are trucked to area landfills for ultimate disposal.

Competition

SCWW's competes regionally as follows:

•	Domestic Wastewater: Local septic cleaning and chemical toilet operators have the choice of using the SCWW Facility or transporting their wastewaters to the nearest competing facility located 90-plus miles away at the Los Angeles County's facility. The Company estimates that it has 70-75% of the Ventura County septic and chemical toilet markets. Regionally, municipalities from as far as San Luis Obispo and as close as Santa Paula have been utilizing SCWW to treat their secondary digester sludge.
•	Industrial Wastewater: There are a number of competitors in the broad spectrum of industrial waste treatment business. However, these competing facilities are located in the Los Angeles Metropolitan area. The industrial business is very specialized and, within it, SCWW competes by accepting only non-hazardous wastewater, by providing quick off-loading, and providing its convenient and accessible location to industrial waste generators along the Central Coast of California.
•	Oil & Gas Wastewater: SCWW was initially developed to be a major service provider to this segment and continues to service the high oil content, low viscosity wastes from Los Angeles County north to Kern County. SCWW provides quicker acceptance and offloading of oil and gas wastewater then its single local competitor.

Employees

SCWW employs 13 persons that handle the operations of the Facility and the Pipeline and 8 administrative persons who work in the front office handling the sales, marketing, general and administrative functions. SCWW has no collective bargaining agreements.

Regulation

Regulation of companies that treat non-hazardous wastewater streams are subject to far less onerous regulation than companies involved in the treatment of hazardous wastes. The following is a brief summary of the regulatory environment in which SCWW operates:

Federal Regulation:

•	Private water treatment facilities that discharge to a public municipal water treatment plant are subject to Federal Regulation §437, which (i) sets national discharge limits for each chemical contained in the discharge and (ii) compliance standards for sampling and maintaining records.

State Regulation:

•

Under Title 14 and Title 17 of the California Code focuses solely on the solids recovered through the treatment process, how they may be disposed and on what basis they may and may not be recycled, with the recycling rules varying sharply depending on:

o	If the waste is being recycled for resale, there is no regulation; or

o	If the waste is being given away as compost, there is regulation.

•	The State Water Resources Board monitors the adequacy of rainwater drainage.

Ventura County:

•	The County Environmental Health Board is the agency charged with supervising all state regulations governing solid wastes and their disposal.

•	The County Planning Division monitors site land use and issues Conditional Use Permits.

•	The County Air Pollution District monitors nuisance orders under Rule 95.

SCWW is designated as a "critical and essential public service" by Ventura County. Having just completed several modernizations to the Facility, SCWW has filed the requisite notice updates to the County Planning Division, which has issued its Negative Declaration Document that certifies that the Company has a valid Conditional Use Permit for its Facility. The Company believes that SCWW is in compliance with all Federal, State and County regulations affecting SCWW's business.

Sale to Luntz Acquisition (Delaware) LLC

On November 25, 2009, the Company entered into an Agreement with Luntz Acquisition (Delaware), LLC. (“Buyer”) pursuant to which the Company has agreed to sell to Luntz all of the issued and outstanding stock of the Company's primary operating subsidiary, General Environmental Management, Inc. a Delaware corporation, ("GEM DE") for cash (the “Sale”). In connection with the Sale, the Company agreed : a) to form a Delaware corporation that shall be wholly-owned by the Company and named GEM NewCo, Inc. (“GEM NewCo”), b) to form a Delaware limited partnership, the sole limited partner of which shall be the Company, and the sole general partner of which shall be GEM NewCo, which limited partnership shall be named GEM Pomona LP (“GEM LP”), c) effect a merger between GEM LP and GEM DE, whereby GEM LP will be the surviving entity, d) sell to Luntz the limited partner interests of GEM LP and all of the outstanding shares of stock of GEM NewCo (the “Purchased Interests”). Luntz agreed to pay the Company $14 million for the purchased interests.

On February 26, 2010, after approval of the transaction by the Company’s shareholders at a special meeting held on February 19, 2010, the Company completed the sale of the entities created out of GEM DE. The net cash proceeds from the transaction were used by the Company to retire senior debt and other obligations of the Company. The Company used $250,000 to pay its obligations to USER in conjunction with the acquisition of CLW and SCWW.

ITEM 1A. Risk Factors

An investor in our securities should carefully consider the risks and uncertainties described below and the other information in this Annual Report on Form 10-K. If any of the following risks actually occur, our business, operating results and financial condition could be harmed and the value of our stock could go down.

Business Risk Factors

The company has a history of losses and may need additional financing to continue its operations, and such financing may not be available upon favorable terms, if at all.

The Company experienced net losses of $14,952,442 and $7,149,709 for the fiscal years ended December 31, 2009 and December 31, 2008, respectively. There can be no assurances that the Company will be able to operate profitably in the future. In the event that the Company is not successful in implementing its business plan, the Company will require additional financing in order to succeed. There can be no assurance that additional financing will be available now or in the future on terms that are acceptable to the Company. If adequate funds are not available or are not available on acceptable terms, the Company may be unable to develop or enhance its products and services, take advantage of future opportunities or respond to competitive pressures, all of which could have a material adverse effect on the Company’s business, financial condition or operating results.

We have a limited operating history on which to evaluate our potential for future success. This makes it difficult to evaluate our future prospects and the risk of success or failure of our business.

Our short operating history and results of operations may not give you an accurate indication of our future results of operations or prospects. You must consider our business and prospects in light of the risks and difficulties we will encounter as an early-stage company in a highly competitive market. We may not be able to successfully address these risks and difficulties, which could materially harm our business and operating results.

Investors may lose their entire investment if we fail to reach profitability.

The Company was incorporated in September 1991 but did not engage in meaningful business operations until February 2005 when we acquired GEM DE. Our prospects must be considered in light of the risks, uncertainties, expenses and difficulties frequently encountered by companies in their early stages of development. We cannot guarantee that we will be successful in accomplishing our objectives. To date, we have incurred only losses and may continue to incur losses in the foreseeable future. Our short operating history and results of operations may not give you an accurate indication of our future results of operations or prospects. Our business and prospects, in light of the risks and difficulties we will encounter as an early-stage company in a highly competitive market. We may not be able to successfully address these risks and difficulties, which could materially harm our business and operating results.

We are dependent upon a limited number of customers for a substantial percentage of our revenues. If we fail to retain these customer relationships, our revenues could decline.

We derive a significant portion of our revenues from a relatively small number of customers. Our largest customer during the year ended December 31, 2009 accounted for approximately 3% of total revenues; for the year ended December 31, 2008 one customer accounted for approximately 14% of total revenues. We anticipate that we will continue to rely on a limited number of customers for a substantial portion of our future revenues and we must obtain additional large orders from customers on an ongoing basis to increase our revenues and grow our business. In addition, the loss of any significant or well-known customer could harm our operating results or our reputation.

The assets of the Company are now pledged under the recent agreements with Secured Lenders and may prevent the Company from obtaining any additional asset based financing.

In conjunction with a secured convertible term note and a secured revolving note, all unsubordinated assets of the Company and its subsidiaries are secured under agreements with CVC California, LLC, a subsidiary of the Comvest Group (sometimes referred to as the “Secured Lenders”). Without any unsecured assets, the Company could be unable to obtain any future asset based financing.

The agreements with Secured Lenders contain terms that could place the Company in default related to the outstanding borrowings.

The agreements with the Secured Lenders include terms of default related to the funds borrowed. These include default due to non-payment, failure to pay taxes, failure to perform under the agreements, failure to disclose items of a material nature under certain representations and warranties, attachments to any secured assets or the indictment of the Company or its executive officers for any criminal acts. This default could result in the loss of the business.

The agreements with the Secured Lenders contain terms where the Secured Lenders can convert their notes to common shares and exercise warrants for common shares which could have an adverse affect upon the price of our common shares.

Secured Lenders' conversions of indebtedness to common shares and exercise of warrants at fixed conversion and exercise prices, would: i) dilute the current shareholders' equity in the Company; ii) limit the Company’s ability to raise additional equity capital; and iii) depress the price of our common shares in the market.

We depend heavily on our management team and the loss of any or all of the members of such management team could materially adversely affect our business, results of operations and our financial condition.

Our success depends, to a significant extent, upon the efforts, the abilities and the business experience of Timothy J. Koziol, our chief executive officer, as well as on these same attributes of our other officers and management team. Loss of the services of any or all of our management team could materially adversely affect our business, results of operations and financial condition, and could cause us to fail to successfully implement our business plan.

There is intense competition for qualified technical professionals and sales and marketing personnel, and our failure to attract and retain these people could affect our ability to respond to rapid technological changes and to increase our revenues.

Our future success depends upon our ability to attract and retain qualified technical professionals and sales and marketing personnel. Competition for talented personnel, particularly technical professionals, is intense. This competition could increase the costs of hiring and retaining personnel. We may not be able to attract, retain, and adequately motivate our personnel or to integrate new personnel into our operations successfully.

Our industrial waste management services subject us to potential environmental liability.

Our business of rendering services in connection with management of waste, including certain types of hazardous and non-hazardous waste, subjects us to risks of liability for damages. Such liability could involve, without limitation, claims for clean-up costs, personal injury or damage to the environment in cases in which we are held responsible for the release of hazardous materials, and claims of employees, customers, or third parties for personal injury or property damage occurring in the course of our operations. We could also be deemed a responsible party for the cost of cleaning any property which may be contaminated by hazardous substances generated by us and disposed at such property or transported by us to a site selected by us, including properties we own or lease.

If we cannot maintain our government permits or cannot obtain any required permits, we may not be able to continue or expand our operations.

Our business is subject to extensive, evolving, and increasingly stringent federal, state, and local environmental laws and regulations. Such federal, state, and local environmental laws and regulations govern our activities regarding the treatment, storage, recycling, disposal, and transportation of hazardous and non-hazardous waste. We must obtain and maintain permits, licenses and/or approvals to conduct these activities in compliance with such laws and regulations. Failure to obtain and maintain the required permits, licenses and/or approvals would have a material adverse effect on our operations and financial condition. If we are unable to maintain our currently held permits, licenses, and/or approvals or obtain any additional permits, licenses and/or approvals which may be required as we expand our operations, we may not be able to continue certain of our operations.

Changes in environmental regulations and enforcement policies could subject us to additional liability which could impair our ability to continue certain operations due to the regulated nature of our operations.

Because the environmental industry continues to develop rapidly, we cannot predict the extent to which our operations may be affected by future enforcement policies as applied to existing laws, by changes to current environmental laws and regulations, or by the enactment of new environmental laws and regulations. Any predictions regarding possible liability under such laws are complicated further by current environmental laws which provide that we could be liable, jointly and severally, for certain activities of third parties over whom we have limited or no control.

Environmental regulation significantly impacts our business.

While our business has benefited substantially from increased governmental regulation of hazardous and non-hazardous waste transportation, storage and disposal, the environmental services industry itself has become the subject of extensive and evolving regulation by federal, state, provincial and local authorities. We are required to obtain federal, state, provincial and local permits or approvals for each of our hazardous waste facilities. Such permits are difficult to obtain and, in many instances, extensive studies, tests, and public hearings are required before the approvals can be issued. We have acquired all operating permits and approvals now required for the current operation of our business, and have applied for, or are in the process of applying for, all permits and approvals needed in connection with continued operation and planned expansion or modifications of our operations.

The most significant federal environmental laws affecting us are the Resource Conservation and Recovery Act ("RCRA"), the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), also known as the Superfund Act, the Clean Air Act, the Clean Water Act and the Toxic Substances Control Act ("TSCA").

We make a continuing effort to anticipate regulatory, political and legal developments that might affect operations, but are not always able to do so. We cannot predict the extent to which any environmental legislation or regulation that may be enacted or enforced in the future may affect our operations.

If our operations expand, we may be subject to increased litigation which could have a negative impact on our future financial results.

Our operations are regulated by numerous laws regarding procedures for waste treatment, storage, recycling, transportation and disposal activities, all of which may provide the basis for litigation against us. In recent years, the waste treatment industry has experienced a significant increase in so-called "toxic-tort" litigation as those injured by contamination seek to recover for personal injuries or property damage. We believe that as our operations and activities expand, there will be a similar increase in the potential for litigation alleging that we are responsible for contamination or pollution caused by our normal operations, negligence or other misconduct, or for accidents which occur in the course of our business activities. Such litigation, if significant and not adequately insured against, could impair our ability to fund our operations. Protracted litigation would likely cause us to spend significant amounts of our time, effort and money. This could prevent our management from focusing on our operations and expansion.

If we cannot maintain adequate insurance coverage, we will be unable to continue certain operations.

Our business exposes us to various risks, including claims for causing damage to property and injuries to persons that may involve allegations of negligence or professional errors or omissions in the performance of our services. Such claims could be substantial. We believe that our insurance coverage is presently adequate and similar or higher than the coverage maintained by other companies in the industry of our size. However, if we are unable to obtain adequate or required insurance coverage in the future or, if our insurance is not available at affordable rates, we would violate our permit conditions and other requirements of the environmental laws, rules and regulations under which we operate. Such violations would render us unable to continue certain of our operations. These events would have a material adverse effect on our financial condition.

Our success is connected to our ability to maintain our proprietary technologies.

The steps taken by us to protect our proprietary technologies may not be adequate to prevent misappropriation of these technologies by third parties. Misappropriation of our proprietary technology could have an adverse effect on our operations and financial condition. Changes to current environmental laws and regulations also could limit the use of our proprietary technology.

We may have difficulty integrating future acquisitions into our existing operations.

Our intentions are to acquire existing businesses in our industry. To the extent that we make such acquisitions, of which there can be no assurance, the acquisitions will involve the integration of companies that have previously operated independently from us. We cannot assure that we will be able to fully integrate the operations of these companies without encountering difficulties or experiencing the loss of key employees or customers of such companies. In addition, we cannot assure that the benefits expected from such integration will be realized.

If environmental regulation or enforcement is relaxed, the demand for our services will decrease.

The demand for our services is substantially dependent upon the public's concern with, the continuation and proliferation of, the laws and regulations governing the treatment, storage, recycling, and disposal of hazardous and non-hazardous waste. A decrease in the level of public concern, the repeal or modification of these laws, or any significant relaxation of regulations relating to the treatment, storage, recycling, and disposal of hazardous waste would significantly reduce the demand for our services and could have a material adverse effect on our operations and financial condition. We are not aware of any current federal or state government or agency efforts in which a moratorium or limitation has been, or will be, placed upon the creation of new hazardous waste regulations that would have a material adverse effect on us.

Impairment of goodwill and other intangible assets would result in a decrease in earnings.

Current accounting rules require that goodwill and other intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually. These rules also require that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. To the extent such evaluation indicates that the useful lives of intangible assets are different than originally estimated, the amortization period is reduced or extended and, accordingly, the quarterly amortization expense is increased or decreased.

We have substantial goodwill and other intangible assets, and we may be required to record a significant charge to earnings in our financial statements during the period in which any impairment of our goodwill or amortizable intangible assets is determined. Any impairment charges or changes to the estimated amortization periods could have a material adverse effect on our financial results.

Continued economic downturn could affect our business in a negative manner, more so than other businesses generally causing our business prospects to suffer.

Although environmental compliance cannot be short circuited in any economic environment, waste, generally, is viewed as trash and considered low on the priority list when economic conditions bring cut backs in operational spending. Accordingly, our services may be in less demand during a time of economic downturn and our business may suffer.

We face substantial competition from better established companies that may have significantly greater resources which could lead to reduced sales of our products.

The market for our services is competitive and is likely to become even more competitive in the future. Increased competition could result in pricing pressures, reduced sales, reduced margins or the failure of our services to achieve or maintain market acceptance, any of which would have a material adverse effect on our business, results of operations and financial condition. Many of our current and potential competitors enjoy substantial competitive advantages, such as:

	·	greater name recognition and larger marketing budgets and resources;
	·	established marketing relationships and access to larger customer bases;
	·	substantially greater financial, technical and other resources; and
	·	larger technical and support staffs.

As a result, they may be able to garner more clients than we can. For the foregoing reason, we may not be able to compete successfully against our current and future competitors.

The conversion of our convertible debt, the exercise of our outstanding warrants and options and the Company's various anti-dilution and price-protection agreements could cause the market price of our common stock to fall, and may have dilutive and other effects on our existing stockholders.

The conversion of our outstanding convertible debentures and the exercise of our outstanding warrants and options could result in the issuance of up to an additional 15,916,481 shares of common stock, assuming all outstanding warrants and options are currently exercisable, and taken with the Company's various anti-dilution and price-protection agreements, are subject to adjustment pursuant to certain anti-dilution and price-protection provisions. Such issuances would reduce the percentage of ownership of our existing common stockholders and could, among other things, depress the price of our common stock. This result could detrimentally affect our ability to raise additional equity capital. In addition, the sale of these additional shares of common stock may cause the market price of our stock to decrease.

There are potential liabilities arising out of environmental laws and regulations.

Although the Company believes that it generally benefits from increased environmental regulations and from enforcement of those regulations, increased regulation and enforcement also create significant risks for the Company. The assessment, analysis, remediation, transportation, handling and management of hazardous substances necessarily involve significant risks, including the possibility of damages or personal injuries caused by the escape of hazardous materials into the environment, and the possibility of fines, penalties or other regulatory action. These risks include potentially large civil and criminal liabilities to customers and to third parties for damages arising from performing services for customers. See "Environmental Regulation."

All facets of the Company's business are conducted in the context of a rapidly developing and changing statutory and regulatory framework. The Company's operations and services are affected by and subject to regulation by a number of federal agencies including the Environmental Protection Agency (the "EPA") and the Occupational Safety and Health Administration, as well as applicable state and local regulatory agencies.

The Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (the "Superfund Act"), addresses the cleanup of sites at which there has been a release or threatened release of hazardous substances into the environment. Increasingly, there are efforts to expand the reach of the Superfund Act to make hazardous waste management companies responsible for cleanup costs of Superfund sites not owned or operated by such management companies by claiming that such management companies are "owners" or "operators" (as those terms are defined in the Superfund Act) of such sites or that such management companies arranged for "treatment, transportation or disposal" (as those terms are defined in the Superfund Act) of hazardous substances to or in such sites. Several recent court decisions have accepted such claims. Should the Company be held responsible under the Superfund Act for cleanup costs as a result of performing services or otherwise, it might be forced to bear significantly more than its proportional share of such cleanup costs if other responsible parties do not pay their share. See "Business--Legal Proceedings."

The Resource Conservation and Recovery Act of 1976, as amended in 1984 ("RCRA"), is the principal federal statute governing hazardous waste generation, treatment, transportation, storage and disposal. RCRA or EPA approved state programs at least as stringent govern waste handling activities involving wastes classified as "hazardous." See "Environmental Regulation-- Federal Regulation of Hazardous Wastes." Substantial fees and penalties may be imposed under RCRA and similar state statutes for any violation of such statutes and regulations thereunder.

There are potential liabilities involving customers and third parties.

In performing services for its customers, the Company potentially could be liable for breach of contract, personal injury, property damage (including environmental impairment), and negligence, including claims for lack of timely performance or for failure to deliver the service promised (including improper or negligent performance or design, failure to meet specifications, and breaches of express or implied warranties). The damages available to a client, should it prevail in its claims, are potentially large and could include consequential damages.

Industrial waste management companies, in connection with work performed for customers, also potentially face liabilities to third parties from various claims including claims for property damage or personal injury stemming from a release of hazardous substances or otherwise. Claims for damage to third parties could arise in a number of ways, including: through a sudden and accidental release or discharge of contaminants or pollutants during transportation of wastes or the performance of services; through the inability, despite reasonable care, of a remedial plan to contain or correct an ongoing seepage or release of pollutants; through the inadvertent exacerbation of an existing contamination problem; or through reliance on reports prepared by such waste management companies. Personal injury claims could arise contemporaneously with performance of the work or long after completion of projects as a result of alleged exposure to toxic or hazardous substances. In addition, increasing numbers of claimants assert that companies performing environmental remediation should be adjudged strictly liable for damages even though their services were performed using reasonable care, on the grounds that such services involved "abnormally dangerous activities."

Customers of industrial waste management companies frequently attempt to shift various of the liabilities arising out of disposal of their wastes or remediation of their environmental problems to contractors through contractual indemnities. Such provisions seek to require the contractors to assume liabilities for damage or personal injury to third parties and property and for environmental fines and penalties (including potential liabilities for cleanup costs arising under the Superfund Act). Moreover, the EPA has increasingly constricted the circumstances under which it will indemnify its contractors against liabilities incurred in connection with cleanup of Superfund sites. There are other proposals both in Congress and at the regulatory agencies to further restrict indemnification of contractors from third party claims.

Although the Company attempts to investigate thoroughly each other company that it acquires, there may be liabilities that the Company fails or is unable to discover, including liabilities arising from non-compliance with environmental laws by prior owners, and for which the Company, as a successor owner, might be responsible. The Company seeks to minimize the impact of these liabilities by obtaining indemnities and warranties from sellers of companies which may be supported by deferring payment of or by escrowing a portion of the purchase price. However, these indemnities and warranties, if obtained, may not fully cover the liabilities due to their limited scope, amounts, or duration, the financial limitations of the indemnitors or warrantors or other reasons.

A leak in the pipeline, connecting SCWW’s Santa Paula site to the City of Oxnard's disposal system, which is owned and operated by SCWW would require immediate clean-up resulting in possible fines and even withdrawal of operating permits.

SCWW owns and operates a 12.7 mile long 10” pipeline connecting the SCWW Santa Paula site with the City of Oxnard’s disposal system. If the pipeline leaks it could result in immediate clean-up costs and possible fines and even withdrawal of operating permits. The cost for potential clean-up and repair of the pipeline could be significant. The loss of the operating permit would mean a significant loss in the operating capabilities of SCWW.

To the degree that regulators determine certain sold wastes unsuitable for recycling, it could have an adverse impact on the Company's profitability.

SCWW actively seeks to recycle the sold waste material from its treatment process both for a higher recycle/reuse value of treatment and financial profitability. If there is a change in regulations that do not allow certain waste streams to be recycled the financial impact would negatively impact the Company.

Our ability to raise capital in the future may affect our ability to retire long term debt.

If our future earnings and other cash resources are not sufficient to meet our long term debt obligations, we may need to raise additional capital to meet those commitments. In conjunction with the acquisition of California Living Waters, the Company anticipates converting certain notes into a percentage of the common stock of the Company. This conversion will occur when the Capital Restructuring Goal is achieved. This means the concurrent fulfillment of each of the following events: (i) the CLW Seller’s Note shall have been fully paid on the terms thereof as to all theretofore outstanding principal, interest, costs and expenses; (ii) Company shall have available, as properly reflected in Company’s books one million dollars ($1,000,000) in uncommitted working capital (not including any working capital lines of credit); and (iii) Company shall have invested into SCWW capital of at least one million dollars $1,000,000. If the Company is not able to achieve the Capital Restructuring Goal, the debt will not be converted and interest expense will remain at the current levels.

General Risk Factors

Risks Relating To Our Common Stock

We do not anticipate paying dividends in the foreseeable future.

We anticipate that we will retain all future earnings and other cash resources for the future operation and development of our business and we do not intend to declare or pay any cash dividends in the foreseeable future. Future payment of cash dividends will be at the discretion of our board of directors after taking into account many factors, including our operating results, financial condition and capital requirements. Corporations that pay dividends may be viewed as a better investment than corporations that do not.

Rules, including those contained in and issued under the Sarbanes-Oxley Act of 2002, may make it difficult for us to retain or attract qualified officers and directors, which could adversely affect our business and our ability to maintain the listing of our common stock on the OTC Bulletin Board.

We may be unable to attract and retain qualified officers, directors and members of board committees required to provide for our effective management as a result of the recent and currently proposed changes in the rules and regulations which govern publicly-held companies, including, but not limited to, certifications from executive officers and requirements for financial experts on boards of directors. The perceived increased personal risk associated with these recent changes may deter qualified individuals from accepting these roles. The enactment of the Sarbanes-Oxley Act of 2002 has resulted in the issuance of a series of new rules and regulations and the strengthening of existing rules and regulations by the Securities and Exchange Commission, as well as the adoption of new and more stringent rules by the Nasdaq Stock Market.

Further, certain of these recent and proposed changes heighten the requirements for board or committee membership, particularly with respect to an individual’s independence from the corporation and level of experience in finance and accounting matters. We may have difficulty attracting and retaining directors with the requisite qualifications. If we are unable to attract and retain qualified officers and directors, our business and our ability to maintain the listing of our shares of Common stock on a national market could be adversely affected.

If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud, which could harm our brand and operating results.

Effective internal controls are necessary for us to provide reliable and accurate financial reports and effectively prevent fraud. We have devoted significant resources and time to comply with the new internal control over financial reporting requirements of the Sarbanes-Oxley Act of 2002. In addition, Section 404 under the Sarbanes-Oxley Act of 2002 requires that we assess and our auditors attest to the design and operating effectiveness of our controls over financial reporting. Our compliance with the annual internal control report requirement for our first fiscal year will depend on the effectiveness of our financial reporting and data systems and controls across our operating subsidiaries. We expect these systems and controls to become increasingly complex to the extent that we integrate acquisitions and our business grows. To effectively manage this growth, we will need to continue to improve our operational, financial and management controls and our reporting systems and procedures. We cannot be certain that these measures will ensure that we design, implement and maintain adequate controls over our financial processes and reporting in the future. Any failure to implement required new or improved controls, or difficulties encountered in their implementation or operation, could harm our operating results or cause us to fail to meet our financial reporting obligations. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock and our access to capital.

Our stock could be the subject of short selling and, if this occurs, the market price of our stock could be adversely affected and, in turn, adversely effect our ability raise additional capital through the sale of our common stock.

It is conceivable that our stock could be subject to the practice of short owned directly by the seller; rather, the stock is "loaned" for the sale by a broker-dealer to someone who "shorts" the stock. In most situations, this is a short-term strategy by a seller, and based upon volume, may at times drive stock values down. If such shorting occurs in our common stock, there could be a negative effect on the trading price of our stock. If the trading price of our common stock decreases, this may negatively impact our ability to raise additional capital through the sale of our common stock.

If we fail to remain current on our reporting requirements, we could be removed from the OTC bulletin board, which would limit the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.

Companies trading on the OTC Bulletin Board, such as us, must be reporting issuers under Section 12 of the Securities Exchange Act of 1934, as amended, and must be current in their reports under Section 13, in order to maintain price quotation privileges on the OTC Bulletin Board. If we fail to remain current on our reporting requirements, we could be removed from the OTC Bulletin Board. As a result, the market liquidity for our securities could be severely adversely affected by limiting the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.

Our common stock is subject to the "penny stock" rules of the SEC and the trading market in our securities is limited, which makes transactions in our stock cumbersome and may reduce the value of an investment in our stock.

The Securities and Exchange Commission has adopted Rule 15g-9 which establishes the definition of a "penny stock," for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require:

	·	that a broker or dealer approve a person's account for transactions in penny stocks; and
	·	the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

In order to approve a person's account for transactions in penny stocks, the broker or dealer must obtain financial information and investment experience objectives of the person; and make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of valuating the risks of transactions in penny stocks.

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the Commission relating to the penny stock market, which, in highlight form:

	·	sets forth the basis on which the broker or dealer made the suitability determination; and
	·	that the broker or dealer received a signed, written agreement from the investor prior to the transaction.

Generally, brokers may be less willing to execute transactions in securities subject to the "penny stock" rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

Anti-takeover actions and/or provision could prevent or delay a change in control.

Provisions of our certificate of incorporation and bylaws and Nevada law may make it more difficult for a third party to acquire us, even if so doing would be beneficial to our stockholders. These include the following:

	·	Our board of directors are authorized to issue of up to 100,000,000 shares of preferred stock and to fix the rights, preferences, privileges and restrictions of those shares without any further vote or action by the stockholders, which may be used by the board to create voting impediments or otherwise delay or prevent a change in control or to modify the rights of holders of our common stock; and
	·	Limitations on who may call annual and special meetings of stockholders.

We may issue shares of our capital stock or debt securities to complete a business combination, which would reduce the equity interest of our stockholders and could cause a change in control of our ownership.

Our Certificate of Incorporation authorizes the issuance of up to one billion (1,000,000,000) shares of common stock, par value $.001 per share, and one hundred million (100,000,000) shares of preferred stock, par value $.001 per share. There are approximately nine hundred eighty five million (985,000,000) authorized but unissued shares of our common stock available for issuance (after appropriate reservation for the issuance of the shares upon full exercise of our outstanding stock options). One hundred million (100,000,000) shares of preferred stock are available for issuance.

The issuance of additional shares of our common stock or our preferred stock:

•	may significantly reduce the equity interest of investors;

•	may subordinate the rights of holders of common stock if we issue preferred stock with rights senior to those afforded to our common stock;

•	will likely cause a change in control if a substantial number of our shares of common stock are issued, which may affect, among other things, our ability to use our net operating loss carry forwards; and

•		may adversely affect the market price for our common stock.

Similarly, if we issue debt securities, it could result in:

•	default and foreclosure on our assets if our operating revenues after a business combination are insufficient to repay our debt obligations;

•	acceleration of our obligations to repay the indebtedness (even if we make all principal and interest payments when due) if we breach certain covenants that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant;

•	our immediate payment of all principal and accrued interest, if any, if the debt security is payable on demand; and

•	our inability to obtain necessary additional financing if the debt security contains covenants restricting our ability to obtain such financing while the debt security is outstanding.

ITEM 1B. Unresolved Staff Comments

Not Applicable

ITEM 2. Description of Property

Facilities of GEM Delaware

We own an EPA permitted Part B TSDF in Rancho Cordova, California on 4.5 acres of land. The real estate is collateral for a secured convertible term note and a secured non-convertible revolving note with CVC California, LLC. (See Liquidity)

We also lease space for a waste transfer facility in Pomona, California comprising approximately 10,000 square feet of office space, warehouse space and additional yard space. This lease expires on August 31, 2018.

We lease space in Kent, Washington for a waste transfer facility, comprising approximately 12,500 square feet. This lease expires June 30, 2013. Of the 12,500 square feet leased, we sublease approximately 4,000 square feet on a six month lease which may be renewed for an additional six months.

In Northern California, we lease a waste transfer facility in Benicia. The lease for the 5,000 square feet of office and warehouse space expires in April, 2011. In January 2009 the company moved our facility to Hayward, California and executed a lease for approximately 13,500 square feet of industrial / warehouse space. The lease expires on December 31, 2012. We subleased the facility in Benecia for the remainder of the lease.

We lease office space in Santee, California of approximately 800 square feet on a month-to-month basis.

On November 25, 2009, the Company entered into an Agreement with Luntz Acquisition (Delaware), LLC pursuant to which the Company has agreed to sell to Luntz all of the issued and outstanding stock of the GEM Delaware including the facilities described above. The sale was completed on February 26, 2010.

GEM Corporate

We currently lease approximately 4,557 square feet of office space in one building located in Pomona, California. The lease terminates on December 31, 2010 and grants the Company the option to renew the lease for two additional one-year terms.

On November 13, 2009, the Company’s subsidiary GEM Environmental Management, Inc, a Nevada corporation, (“GEMEM”) entered into an agreement with United States Environmental Response, LLC, a California limited liability company (“USER”) pursuant to which the Company purchased all of the issued and outstanding capital stock of California Living Waters, Incorporated ("CLW"), a privately held company. CLW owns all of the issued and outstanding capital stock of Santa Clara Waste Water Company (“SCWW") a California corporation. CLW's only operating subsidiary is SCWW.

SCWW's primary processing facility is located on a 4.87 acre parcel in Santa Paula, Ventura County, California and sits 65 miles north of downtown Los Angeles and approximately 70 miles southwest of California's oil and gas rich Kern County.

ITEM 3. Legal Proceedings

On July 5, 2007, a lawsuit was instituted by Romic Environmental Technologies Corp. (“RET”) against the Company and four of its senior executives, 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. The lawsuit was settled by the Company in February 2010 with the majority of the settlement payment funded by insurance.

The Company is subject to legal proceedings and claims that arise in the ordinary course of its business. Although occasional adverse decisions or settlements may occur, the Company believes that the final disposition of such matters will not have material adverse effect on its financial position, results of operations or liquidity.

ITEM 4. Submission of Matters to a Vote of the Security Holders

None.

PART II

ITEM 5. Market for Common Equity and Restated Stockholder Matters

On February 14, 2007, the Company completed the reverse split of the outstanding common stock, par value $.001 per share, by a ratio of 1-for-30. All share and per share calculations and disclosures in this report have been retro-actively adjusted to reflect this reverse split as if it occurred at the beginning of the earliest period presented. GEM’s Common Stock, 0.001 par value, trades on the over the counter bulletin board maintained by the FINRA under the symbol “GEVI.OB" The following table sets forth, for the periods indicated, the range of high and low closing bid prices for GEM’s Common Stock as reported by the FINRA composite feed or other qualified inter-dealer quotation medium and obtained from the National Quotation Bureau, LLC. The reported bid quotations reflect inter-dealer prices without retail markup, markdown or commissions, and may not necessarily represent actual transactions.

Period 2009	High	Low
2009 First Quarter	0.75	0.55
2009 Second Quarter	0.99	0.35
2009 Third Quarter	0.90	0.30
2009 Fourth Quarter	0.60	0.21

Period 2008	High	Low
2008 First Quarter	1.99	1.31
2008 Second Quarter	1.99	1.02
2008 Third Quarter	1.15	0.88
2008 Fourth Quarter	1.05	0.32

NUMBER OF HOLDERS OF COMMON STOCK

As of December 31, 2009, we had approximately 722 holders of our common stock. The number of record holders was determined from the records of our transfer agent and does not include beneficial owners of common stock whose shares are held in the names of various security brokers, dealers, and registered clearing agencies. The transfer agent of our common stock is Colonial Stock Transfer Company, Inc., 66 Exchange Place, Salt Lake City, Utah 84111.

Dividends

We have never paid any dividends, and we have no present intention of paying dividends in the foreseeable future. Our policy for the time being is to retain earnings and utilize the funds for operations and growth. The Board of Directors based on our earnings, financial condition, capital requirements and other existing conditions will determine future dividend policies.

Equity Compensation Plan Information

For information with reference to equity compensation arrangements, reference is made to Note 11 of the Notes to Financial Statements contained elsewhere in this report.

ITEM 6. Selected Financial Data

None

ITEM 7. Management’s Discussion and Analysis or Plan of Operation

In addition to historical information, this Annual 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." 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 GEM files from time to time with the Securities and Exchange Commission (the "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., (“UAC”) a wholly owned subsidiary of Ultronics and General Environmental Management, Inc., a Delaware corporation (“GEM DE”), whereby GEM DE was the surviving entity.

The acquisition was accounted for as a reverse merger (recapitalization) with GEM DE 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 DE 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 DE, the accounting acquirer, have been carried over in the recapitalization. Subsequent to the acquisition, Ultronics changed its name to General Environmental Management, Inc. GEM DE 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 DE assists clients in meeting regulatory requirements for the disposal of hazardous and non-hazardous waste. GEM DE 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 DE business model is to grow both organically and through acquisitions.

During 2003 and 2004 GEM DE 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. 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, GEM DE entered into an agreement with K2M Mobile Treatment Services, Inc. of Long Beach, California ("K2M"), a privately held company, pursuant to which GEM DE 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, K2M opened a vapor recovery service division in Houston, Texas. On August 8, 2006 K2M changed its name to GEM Mobile Treatment Services, Inc. (“GEM MTS”).

On August 31, 2008, GEM DE entered into an agreement with Island Environmental Services, Inc. ("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.

On August 17, 2009, GEM DE divested the assets of GEM Mobile Treatment Services, Inc. (“GEM MTS”). GEM MTS was sold to MTS Acquisition Company, Inc., a holding company, and will be owned and operated by a former senior executive of GEM DE and a former senior executive of GEM MTS. Consideration of 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”) the Company’s senior secured lender. As the notes are paid to CVC, the Company’s indebtedness to CVC will be reduced.

On November 13, 2009, the Company’s subsidiary GEM Environmental Management, Inc, a Nevada corporation, (“GEMEM”) entered into an agreement (the "USER Agreement") with United States Environmental Response, LLC, a California limited liability company (“USER”) pursuant to which the Company has purchased all of the issued and outstanding capital stock of California Living Waters, Incorporated ("CLW"), a privately held company. CLW owns all of the issued and outstanding capital stock of Santa Clara Waste Water Company (“SCWW") a California corporation. CLW's only operating subsidiary is SCWW.

SCWW, located in Ventura County, California, is a waste water management company that operates a 12.7 mile pipeline from its facility to the City of Oxnard water reclamation center. In consideration for the sale, the Company issued six promissory notes (individually a "Note" and collectively, the "Notes") in the aggregate principal amount of $9,003,000, and warrants to purchase 425,000 shares of the Company's common stock. The Notes bear interest at 6.5 per cent per annum. Two of the Notes, totaling $3,778,000 are convertible into a total of 15% of the Company's common stock on a fully diluted basis.

Plan of Operation

The Company will continue to operate in the environmental services sector after the Sale. However our primary focus and point for development will center on the SCWW treatment facility and the treatment of non-hazardous waste water. SCWW has been treating non-hazardous waste water for the oil and gas industry, industrial clients, and domestic waste generators for 50 years. Current clients that generate non-hazardous waste for SCWW also have a wider range of waste streams that SCWW currently services, including solids, tank bottoms and drilling muds, and hazardous waste streams. We will continue to provide the full range of services to SCWW’s clientele that SCWW currently offers.

The Company will also research technological opportunities in the waste-to-energy (W-T-E) marketplace as a further resource for our non-hazardous waste water treatment facilities. A W-T-E solution for managing the treating waste provides a significant advantage for generators of the waste, the environment, and the Company.

The Company will continue to develop SCWW as the foundation of our core business in the non-hazardous waste water treatment sector. We intend to do this through internal growth by offering SCWW’s integrated solution for generators of non-hazardous waste water and by making strategic acquisitions of non-hazardous waste water treatment companies.

Year Ended December 31, 2009 as Compared to the Year Ended December 31, 2008

Discontinued Operations

On February 26, 2010, the Company completed the sale of GEM DE and its operating subsidiaries. On August 17, 2009, GEM DE divested the assets of GEM Mobile Treatment Services, Inc. Based on the completion of this divestiture subsequent to year end, the revenues and expenses of all of the GEM DE entities have been classified as discontinued operations and the assets and liabilities of GEM DE also have been classified as discontinued. The revenues and expenses in the accompanying financial statements reflect only the operations of CLW (and its operating subsidiary SCWW) for the two months ended December 31, 2009 and the operations of GEM Nevada, the corporate parent, for the twelve months ended December 31, 2009.

Revenues

Total revenues are presented in the income statement for only the continuing business (i.e., CLW and its only operating subsidiary SCWW) for the two months in 2009 subsequent to acquisition. Total revenues for 2009 were $880,758. Revenues for the two months were slightly below the 2008 levels for the same period.

Cost of Revenues

Cost of revenues are presented in the income statement for only the continuing business (i.e., CLW and its only operating subsidiary SCWW) for the two months in 2009 subsequent to acquisition. Cost of revenues for 2009 were $894,455 or 101.5% of revenue for the two months. It is anticipated that in a normal year that cost of sales will be approximately 65% of revenue (which represents the historical average for the latest 24 month period for SCWW).

Operating Expenses

Operating expenses for only the continuing business (i.e., CLW and its only operating subsidiary SCWW) for the two months subsequent to acquisition were $576,881 or 65% of revenue. It is anticipated that in a normal year operating expenses will be approximately 25% of revenue (which represents the historical average for the latest 24 month period for SCWW). Operating expenses for GEM Nevada were $583,686 for the twelve months ended December 31, 2009. Total operating expense for 2009 were $1,160,557 or 131.8% of revenue.

Depreciation and amortization expenses are included in operating expenses, and represent only the expenses of CLW (and its only operating subsidiary SCWW) for the two months subsequent to acquisition. Depreciation and amortization for 2009 was $153,448 or 17% of revenue.

Interest and Financing Costs

Interest and financing costs for the year ended December 31, 2009 were $5,316,250, or 604% of revenue. Interest costs are primarily attributable to GEM Nevada and consist of:

a) interest on the line of credit and short and long term borrowings of $1,324,052; b) interest on advances from related parties of $154,673; and c) 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 of $3,816,035.

Other Non-operating Income

The Company had other non-operating income for the year ended December 31, 2009 of $29,032 or 0.3% of revenue.

Net Loss

The net loss for the twelve months ended December 31, 2009 was $14,952,442 or 1,698% of revenue. The net loss from continuing operations of $7,561,689 was primarily attributable to the operating and interest expenses detailed above as well as a loss on extinguishment of debt of $4,039,358 which was offset by a gain on derivative financial instruments of $2,998,369. The balance of the net loss of $7,390,753 was from discontinued operations.

Liquidity and Capital Resources

Cash

Our primary source of liquidity is cash provided by operating, investing, and financing activities. Net cash used in operations for the year ended December 31, 2009 was $967,637 as compared to $1,586,386 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 $14,952,442 and used cash in operations and discontinued operations of $967,637 during the year ended December 31, 2009. Continuing operations used cash of $6,534,584 and discontinued operations provided cash of $5,566,947. As of December 31, 2009 the Company had current liabilities exceeding current assets by $21,080,137 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 $15,787,835. These matters raise substantial doubt about the Company’s ability to continue as a going concern.

Management completed a plan in February 2010 to divest certain parts of the business in order to satisfy obligations of its senior lender. In conjunction with that strategy, the assets of GEM MobileTreatment Services (GEM MTS) were sold on August 17, 2009. 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. In conjunction with this transaction, all sources of cash from this entity have been classified in discontinued operations.

On November 25, 2009, the Company entered into an Agreement with Luntz Acquisition (Delaware), LLC. (“Buyer”) pursuant to which the Company has agreed to sell to Luntz all of the issued and outstanding stock of the Company's primary operating subsidiary, General Environmental Management, Inc. a Delaware corporation, ("GEM DE") for cash (the “Sale”). . Luntz agreed to pay the Company $14 million for the purchased interests. On February 26, 2010, after approval of the transaction by the Company’s shareholders at a special meeting held on February 19, 2010, the Company completed the sale of the entities created out of GEM DE. The net cash proceeds from the transaction were used by the Company to retire senior debt and other obligations of the Company (See Notes 4 and 16).

The Company’s current source of cash is earnings from the CLW operation and proceeds from the sale of its previous operating entities. The Company will continue to explore other sources of capital to expand and fund its current operations.

Cash Flows for the Year Ended December 31, 2009

Operating activities for the year ended December 31, 2009 used $967,637 in cash. The net assets of the discontinued operations produced $5,566,947 in cash from operations. The net loss of $14,952,442 included a number of non-cash items incurred by the Company including expenses of $767,042 representing the fair value of vested options, $2,755,580 representing amortization of discount on financing agreements, $458,476 representing shares and warrants issued for services, $109,324 representing amortization of note discounts, $8,464,724 representing a loss on extinguishment, a change in the fair value of derivative liabilities of $2,998,369 and extinguishment of derivative liabilities of $5,033,366.

The Company used cash for investment in plant, property and equipment totaling approximately $385,222 for the year ended December 31, 2009. Capital expenditures increased due to the acquisition of equipment at Santa Clara Waste Water. Financing activities produced $1,049,306 for the year ended December 31, 2009 resulting primarily from borrowings from the senior lender.

These activities resulted in a $466,891 increase in cash balances for year ended December 31, 2009.

Stockholder Matters

The Company held its annual meeting of shareholders on June 19, 2009 to elect the directors and approve Weinberg & Co. P.A. as the independent certified public accountants of the Company.

The Company held a special meeting of shareholders on February 19, 2010 and approved the purchase agreement dated as of November 25, 2009, by and between the Company and Luntz Acquisition (Delaware) LLC.

Critical Accounting Policies

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, accruals for disposal costs for waste received at our TSDF, and the assumptions used in our option pricing models. Prior to the filing of this Annual Report on Form 10-K, the Audit Committee of our Board of Directors reviewed these critical accounting policies and estimates and discussed them with our management.

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.

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

Revenue Recognition

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

The Company is a fully integrated environmental service firm structured to provide field services, technical services, transportation, off-site treatment, on-site treatment services, and environmental health and safety (“EHS”) compliance services. Through our services, we assist clients in meeting regulatory requirements from the designing stage to the waste disposition stage. The technicians who provide these services are billed at negotiated rates. Transportation is provided to a regulated disposal site or the Company’s regulated consolidation site. The Company provides comprehensive services including documentation and logistics. 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.

Recent Accounting Pronouncements

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

In June 2009, the FASB made an updated the principle for the consolidation of variable interest entities. Among other things, the update replaces the calculation for determining which entities, if any, have a controlling financial interest in a variable interest entity (VIE) from a quantitative based risks and rewards calculation, to a qualitative approach that focuses on identifying which entities have the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses of the VIE or the right to receive benefits from the VIE. The update also requires ongoing assessments as to whether an entity is the primary beneficiary of a VIE (previously, reconsideration was only required upon the occurrence of specific events), modifies the presentation of consolidated VIE assets and liabilities, and requires additional disclosures about a company’s involvement in VIE’s. This update will be effective for fiscal years beginning after November 15, 2009. The Company does not currently believe that the adoption of this update will have any effect on its consolidated financial position and results of operations.

In October 2009, the FASB issued authoritative guidance on revenue recognition that will become effective for us beginning July 1, 2010, with earlier adoption permitted. Under the new guidance on arrangements that include software elements, tangible products that have software components that are essential to the functionality of the tangible product will no longer be within the scope of the software revenue recognition guidance, and software-enabled products will now be subject to other relevant revenue recognition guidance. Additionally, the FASB issued authoritative guidance on revenue arrangements with multiple deliverables that are outside the scope of the software revenue recognition guidance. Under the new guidance, when vendor specific objective evidence or third party evidence for deliverables in an arrangement cannot be determined, a best estimate of the selling price is required to separate deliverables and allocate arrangement consideration using the relative selling price method. The new guidance includes new disclosure requirements on how the application of the relative selling price method affects the timing and amount of revenue recognition. We believe the adoption of this new guidance will not have a material impact on our financial statements.

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.

ITEM 8. Financial Statements

Report of Independent Registered Public Accounting Firm	F-1

Consolidated Balance Sheets as of December 31, 2009 and 2008	F-2

Consolidated Statements of Operations for the Years Ended December 31, 2009 and 2008	F-3

Consolidated Statements of Changes in Stockholders’ Deficiency for the Years Ended December 31, 2009 and 2008	F-4

Consolidated Statements of Cash Flows for the Years Ended December 31, 2009 and 2008	F-6

Notes to the Consolidated Financial Statements	F-7

REPORT OF INDEPENDENT REGISTERED PUBLIC ACOUNTING FIRM

The Board of Directors

General Environmental Management Inc.

We have audited the accompanying consolidated balance sheets of General Environmental Management Inc. and Subsidiaries (the “Company”) as of December 31, 2009 and 2008, and the related consolidated statements of operations, stockholders' deficiency and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of General Environmental Management Inc. and Subsidiaries as of December 31, 2009 and 2008, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has incurred recurring losses from operations since its inception and has a stockholders’ deficiency at December 31, 2009. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

As discussed in Note 2 to the consolidated financial statements, the Company changed the method in which it accounts for determining if certain instruments (or embedded features) are indexed to its own stock effective January 1, 2009.

Weinberg & Company, P.A.

Los Angeles, California

April 9, 2010

F-1

GENERAL ENVIRONMENTAL MANAGEMENT, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2009 AND 2008

	2009		2008
ASSETS
CURRENT ASSETS:
Cash	$	466,891	$	-
Accounts receivable, net of allowance for doubtful accounts of $ 10,000		974,340
Prepaid expenses and other current assets		56,196		-
Total Current Assets		1,497,427		-

Property and equipment – net of accumulated depreciation of $ 153,448		12,662,494		-
Restricted cash		900,122		899,784
Permits and franchises		1,455,534		-
Deferred financing fees		158,898		-
Deposits		184,920		-
Assets of GEM Delaware held for sale		2,922,639		6,559,888
Assets of MTS held for sale		-		3,019,039
Due from buyer - MTS		1,089,341		-
TOTAL ASSETS	$	20,871,375	$	10,478,711

LIABILITIES AND STOCKHOLDERS’ DEFICIENCY
CURRENT LIABILITIES:
Accounts payable	$	2,176,801	$	564,637
Accrued expenses		1,277,662		31,438
Payable to related entities		765,628		706,868
Current portion of financing agreement		12,461,780		10,366,544
Current portion of long term obligations		4,822,719		1,239,604
Current portion of acquisition notes payable		1,072,974		-
TotaCurrent Liabilities		22,577,564		12,909,091

LONG-TERM LIABILITIES :
Long term obligations, net of current portion		3,238,420		500,000
Acquisition Notes Payable, net of current portion		7,921,674		-
Derivative liabilities		2,921,552		-
Total Long-Term Liabilities		14,081,646		500,000

STOCKHOLDERS’ DEFICIENCY
Common stock, $.001 par value, 1,000,000,000 shares authorized, 14,557,653 and 12,691,409 shares issued and outstanding, respectively		14,570		12,692
Additional paid in capital		54,721,872		53,585,035
Accumulated deficit		(70,524,277)		(56,528,107)
Total Stockholders' Deficiency		(15,787,835)		(2,930,380)

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIENCY	$	20,871,375	$	10,478,711

See accompanying notes to consolidated financial statements.

F-2

GENERAL ENVIRONMENTAL MANAGEMENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	For the years ended December 31,
	2009		2008
REVENUES	$	880,758	$	-
COST OF REVENUES		894,455		-
GROSS LOSS		(13,697)		-
OPERATING EXPENSES		1,160,557		1,705,806
OPERATING LOSS		(1,174,254)		(1,705,806)

OTHER INCOME (EXPENSE):
Interest income		1,776		-
Interest and financing costs		(5,316,250)		(3,988,274)
Gain on derivative financial instruments		2,998,369		-
Loss on extinguishment of debt		(4,039,358)		-
Loss on disposal of fixed assets		(2,940)		-
Other non-operating income (expense)		(29,032)		-
LOSS FROM CONTINUING OPERATIONS		(7,561,689)		(5,694,080)
LOSS FROM DISCONTINUED OPERATIONS		(7,390,753)		(1,455,629)
NET LOSS	$	(14,952,442)	$	(7,149,709)


Net loss per common share, basic and diluted:
Continuing operations	$	(.55)	$	(.45)
Discontinued operations		(.54)		(.12)
Net loss	$	(1.09)	$	(.57)

Weighted average shares of common stock outstanding, basic and diluted		13,653,295		12,578,104

See accompanying notes to the consolidated financial statements

F-3

GENERAL ENVIRONMENTAL MANAGEMENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS DEFICIENCY

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

					Preferred Stock				Additional
	Common Stock				Series B				Paid-in			Accumulated
	Shares		Amount		Shares		Amount		Capital			Deficit		Total
Balance, January 1, 2008		12,473,885	$	12,474		-	$	-	$	50,151,615	$	(49,378,398	)	$	785,691

Issuance of stock to related party for extension of debt		200,000		200		-		-		219,800		-			220,000

Issuance of warrants to related party for extension of debt, financial and advisory services		-		-		-		-		459,887		-			459,887

Fair value of warrants issued for financing		-		-		-		-		1,674,036		-			1,674,036

Fair value of warrants issued for services		-		-		-		-		99,675		-			99,675

Issuance of stock on exercise of warrants		5,000		5		-		-		2,995		-			3,000

Issuance of common stock for services		12,524		13		-		-		13,137		-			13,150

Fair value of extension of warrants		-		-		-		-		128,333		-			128,333

Stock compensation cost for value of vested options		-		-		-		-		835,557		-			835,557

Net loss for year 2008		-		-		-		-		-		(7,149,709	)		(7,149,709	)

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)		956,271			(717,765)

Stock compensation cost for value of vested options							767,042					767,042

Fair value of warrants issued for services							458,476					458,476

Issuance of shares on exercise of warrants and options	6,500		6				3,931					3,937

Issuance of shares on conversion of debt	1,009,744		1,022				639,456					640,478

Fair value of shares issued to secured lender	600,000		600				449,400					450,000

Fair value of warrants issued on conversion of interest							231,140					231,140

Fair value of shares issued for services	250,000		250				114,750					115,000

Fair value of warrants issued in connection with acquisition							146,678					146,678

Net Loss									(14,952,442)			(14,952,442)

Balance, December 31, 2009	14,557,653	$	14,570	-	$	-	54,721,872	$	(70,524,277	)	$	(15,787,835)

See accompanying notes to the consolidated financial statements

F-4

GENERAL ENVIRONMENTAL MANAGEMENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Years Ended December 31,
	2009		2008
OPERATING ACTIVITIES
Net loss	$	(14,952,442)	$	(7,149,709	)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation and amortization		184,417		1,226,178
Amortization of discount on notes		2,755,580		388,285
Amortization of valuation discount to related party		109,324		-
Fair value of warrants issued to related party for
financing services				57,405
Fair value of extension of warrants				128,333
Fair value of vested options		767,042		835,557
Fair value of shares and warrants issued for services		458,476		112,826
Fair value of common stock issued for services		115,000		-
Costs to induce conversion of notes payable		157,196		-
Costs to induce conversion of accrued interest to common stock		231,140		-
Change in fair value of derivative liabilities		(2,998,369)		-
Extinguishment of derivative liabilities		4,039,358		-
Accrued interest on notes payable		237,604		36,897
Amortization of discount on convertible debt				2,439,863
Amortization of deferred financing fees		3,956		458,259
Changes in assets and liabilities:
Accounts Receivable		356,883		-
Prepaid and other current assets		29,165		-
Decrease in deposits and restricted cash		(5,550)		-
Increase (Decrease) in accounts payable		780,113		-
Fair value of warrants issued to modify debt		-		-
Accrued interest on notes payable		156,692		-
Accrued expenses and other liabilities		1,039,831		-
NET CASH USED IN CONTINUING OPERATIONS		(6,534,584)		(1,466,106)
NET CASH PROVIDED BY CHANGE IN NET ASSETS AND LIABILITIES OF DISCONTINUED OPERATIONS		5,566,947		(120,280)
NET CASH USED IN OPERATING ACTIVITIES		(967,637)		(1.586.386)

INVESTING ACTIVITIES:
Acquisitions including (net of) cash received		492,193		(2,218,559)
Additions to property and equipment		(106,971)		(478,583)
NET CASH USED IN INVESTING ACTIVITIES		385,222		(2,697,142)


FINANCING ACTIVITIES
Net advances from (repayment of) Laurus notes		-		(6,413,605)
Net advances from notes payable – financing agreement		946,455		11,642,908
Advances on letters of credit		90,000		-
Payments on deferred fees				(147,607)
Payments on notes payable		(61,086)		(1,289,964)
Issuance of notes payable to related parties				472,500
Payments on capital leases				(554,567)
Payments on investor notes payable		(37,500)		(67,500)
Proceeds from issuance of common stock				-
Proceeds from exercise of warrants		3,937		3,000
Advances from related parties		107,500		59,765
NET CASH PROVIDED BY FINANCING ACTIVITIES		1,049,306		3,704,930

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		466,891		(578,598)

Cash and cash equivalents at beginning of year		-		954,581

CASH AND CASH EQUIVALENTS AT END OF YEAR	$	466,891	$	375,983

(continued)

F-5

GENERAL ENVIRONMENTAL MANAGEMENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

	Years Ended December 31,
	2009		2008

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest expense	$	1,166,551	$	1,159,526

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES :
Fair value of warrants issued to related party for extension of debt	$		$	222,500
Fair value of shares issued to related party for extension of debt				220,000
Acquisition of leased equipment and capital lease obligations				1,658,066
Valuation of warrants allocated to deferred fees				179,982
Conversion of related party debt to common stock		314,756		-
Conversion of notes payable and accrued interest to common stock		108,526		-
Conversion of fees due to related party to common stock		-		-
Issuance of note payable on acquisition				1,250,000
Value of warrants and beneficial conversion feature on notes				1,674,035
Closing fees due to related party included as deferred financing fees				250,000
Fair value of warrants and valuation discount after modification		8,826,697		-
Reclassification of net assets of GEM MTS held for sale to amount due from MTS		1,089,341
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 consolidated financial statements

F-6

GENERAL ENVIRONMENTAL MANAGEMENT, INC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

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.

GOING CONCERN

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company incurred a net loss of $14,952,442 and utilized cash in operating activities of $967,637 during the year ended December 31, 2009, and as of December 31, 2009 the Company had current liabilities exceeding current assets by $21,080,137 and a stockholders’ deficiency of $15,787,835. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The Company is also in default of certain of its note payable obligations.

Management is executing a plan to divest certain parts of the business in order to satisfy obligations of its senior lender. In conjunction with that strategy, the assets of GEM Mobile Treatment Services (GEM MTS) on August 17, 2009 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 (See Note 4).

On November 25, 2009, the Company entered into an Agreement with Luntz Acquisition (Delaware), LLC. (“Buyer”) pursuant to which the Company has agreed to sell to Luntz all of the issued and outstanding stock of the Company's primary operating subsidiary, General Environmental Management, Inc. a Delaware corporation, ("GEM DE") for cash (the “Sale”). Luntz agreed to pay the Company $14 million for the purchased interests. On February 26, 2010, after approval of the transaction by the Company’s shareholders at a special meeting held on February 19, 2010, the Company completed the sale of the entities created out of GEM DE. The net cash proceeds from the transaction were used by the Company to retire senior debt and other obligations of the Company (See Notes 4 and 16).

F-7

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 it’s 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, General Environmental Management of Rancho Cordova, LLC and California Living Waters Inc. 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 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.

F-8

The Company's business activities also include providing wastewater treatment for companies and haulers in Ventura County, California, and in adjacent counties. The Company recognizes revenue at the time its customers unload untreated wastewater at the Company's facility. Concurrent with the recognition of revenue, the Company records the estimated costs to treat and dispose of the wastewater on hand.

(d) Concentration of Credit Risk

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

The Company’s trade receivables result primarily from 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 year ended December 31, 2009 and 2008, one customer accounted for 3% and 14% of revenues, respectively. As of December 31, 2009 and 2008, one customer accounted for 11% and 24% of accounts receivable, respectively.

(e) Fair Value of Financial Instruments

Fair Value Measurements are adopted by the Company based on the authoritative guidance provided by the Financial Accounting Standards Board , with the exception of the application of the statement to non-recurring, non-financial assets and liabilities as permitted. The adoption based on the authoritative guidance provided by the Financial Accounting Standards Board did not have a material impact on the Company's fair value measurements. Based on the authoritative guidance provided by the Financial Accounting Standards Board 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. FASB authoritative guidance 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.

FASB issued authoritative guidance that requires the use of observable market data if such data is available without undue cost and effort.

F-9

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 for the year ended December 31, 2009 (unaudited):

		Level 1				Level 2				Level 3				Total
Fair value of warrants and embedded derivatives			-				-			$	2,921,552			$	2,921,522

See Notes 8 and 11 for more information on these financial instruments.

(f) Derivative Financial Instruments

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) Cash

Cash in bank and short term investments with maturities fewer than thirty days are recorded as cash balances.

(h) Trade Receivables

Trade receivables are recorded at net realizable value consisting of the carrying amount less an allowance for uncollectible accounts, as needed.

The Company uses the allowance method to account for uncollectible trade receivable balances. Under the allowance method, if needed, an estimate of uncollectible customer balances is made based upon specific account balances that are considered uncollectible. Factors used to establish an allowance include the credit quality of the customer and whether the balance is significant.

(i) Property and Equipment

Property and equipment is stated at cost. Depreciation is computed using the straight line method based on the estimated useful lives of the assets, generally as follows:

Transportation	5 Years
Equipment	5 – 7 Years
Furniture and fixtures	5 – 7 Years
Building and Improvements	20 - 40 Years

Leasehold improvements are amortized over the shorter of the useful lives of the related assets, or the lease term. In accordance with the Company’s operating permit for the fully permitted Treatment, Storage, and Disposal Facility in Rancho Cordova, California , the Company is liable for certain costs involving the ultimate closure of the facility. These expenses include costs of decommissioning, remediation, and incremental direct administration costs to close the facility. Current accounting guidance requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred and capitalized as part of the carrying amount of the long-lived asset. When a liability is initially recorded, the Company capitalizes the cost by increasing the carrying value of the related facility (long-lived asset). Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the facility. Upon settlement of the liability, a gain or loss will be recorded. The Company recorded asset retirement liabilities of $2,013 in 2009 and $2,013 in 2008.

F-10

(j) Permits and Franchises

The Company accounts for intangible assets including permits and franchises pursuant to the guidance of Financial Accounting Standards Board. In accordance with this guidance, intangibles with definite lives continue to be amortized on a straight-line basis over the lesser of their estimated useful lives or contractual terms. Intangibles with indefinite lives are evaluated at least annually for impairment by comparing the asset’s estimated fair values with its carrying value, based on cash flow methodology. If any losses are determined to exist they are recorded in the period when such impairment is determined. Based upon management’s assessment, there are no indicators of impairment of its permits and franchises at December 31, 2009 and December 31, 2008.

(k) Impairment of Long-Lived Assets

The Company periodically reviews, at least annually, such assets for possible impairment and expected losses. If any losses are determined to exist they are recorded in the period when such impairment is determined. Based upon management’s assessment, there are no indicators of impairment of its long lived assets at December 31, 2009 or 2008.

(l) Deferred Rent

Certain of the Company’s operating leases contain predetermined fixed increases in the minimum rental rate during the initial lease term and/or rent holiday periods. For these leases, the Company recognizes the related rental expense on a straight-line basis beginning on the date the property is delivered. The difference between the amount charged to expense and the rent paid is recorded as deferred rent, and included in current liabilities.

(m) Income Taxes

The Company accounts for income taxes using the asset and liability method whereby deferred income tax assets and liabilities are recognized for the tax consequences of temporary differences by applying statutory tax rates applicable to future years to the difference between the financial statement carrying amounts and the tax bases of certain assets and liabilities. Changes in deferred tax assets and liabilities include the impact of any tax rate changes enacted during the year.

(n) Stock Compensation Costs

The Company periodically issues stock options and warrants to employees and non-employees in capital raising transactions, for services and for financing costs. Stock-based compensation is measured at the grant date, based on the fair value of the award, and is recognized as expense over the requisite service period. Options vest and expire according to terms established at the grant date.

(o) 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.

F-11

These potentially dilutive securities were not included in the calculation of loss per share for the years ended December 31, 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 years ended December 31, 2009 and 2008.

At December 31, 2009 and 2008, potentially dilutive securities consisted of convertible preferred stock, outstanding common stock purchase warrants, convertible debt and stock options to acquire an aggregate of 15,256,481 shares and 16,497,553 shares, respectively.

(p) Change in accounting principle

On January 1, 2009, the Company adopted authoritative guidance issued by the FASB which affects the accounting for warrants and many convertible instruments. The Company determined the warrants and convertible debt issued in 2008 and 2009 contained re-set provisions that preclude them from being indexed to the Company’s own stock. As a result, the warrants and conversion feature previously classified in equity were reclassified to derivative liabilities (see Note 10).

(q) Recent Accounting Pronouncements

In June 2009, the FASB updated the accounting principle for the consolidation of variable interest entities. Among other things, the update replaces the calculation for determining which entities, if any, have a controlling financial interest in a variable interest entity (VIE) from a quantitative based risks and rewards calculation, to a qualitative approach that focuses on identifying which entities have the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses of the VIE or the right to receive benefits from the VIE. The update also requires ongoing assessments as to whether an entity is the primary beneficiary of a VIE (previously, reconsideration was only required upon the occurrence of specific events), modifies the presentation of consolidated VIE assets and liabilities, and requires additional disclosures about a company’s involvement in VIE’s. This update will be effective for fiscal years beginning after November 15, 2009. The Company does not currently believe that the adoption of this update will have any effect on its consolidated financial position and results of operations.

F-12

3. ACQUISITION

On November 13, 2009, the Company entered into a Stock Purchase Agreement with United States Environmental Response, LLC, a California limited liability company pursuant to which we purchased all of the issued and outstanding capital stock of California Living Waters, Incorporated ("CLW"), a privately held company. CLW owns all of the issued and outstanding capital stock of Santa Clara Waste Water Company (SCWW") a California corporation. SCWW, located in Ventura County, California, is a waste water management company that operates a 12.7 mile pipeline from its facility to the City of Oxnard' water reclamation center The Agreement is subject to a rescission if the Company does not pay certain indebtedness to its senior lender by close of business on March 12, 2010. On February 26, 2010 the Company paid its indebtedness to the senior lender and satisfied its obligations related to this rescission (see Note 16).

In consideration for the sale, GEM issued six promissory notes in the aggregate principal amount of $9,003,000, and warrants to purchase 425,000 shares of GEM's common stock valued at $146,678 based upon a black scholes valuation model. The Notes bear interest at 6.5 per cent per annum. Two of the Notes, totaling $3,778,000 are convertible into a total of 15% of GEM's common stock on a fully diluted basis upon the occurrence of certain future events (see Note 10). The acquisition was accounted for as a purchase. As such, the results of SCWW operations have been included in the consolidated financial statements since November 13, 2009. The components of the purchase price and the allocation of the purchase price are as follows:

Purchase Price
Issuance of Notes Payable	$	9,003,000
Fair Value of Warrants Issued		146,678
Total Purchase Price		9,149,678

Purchase price allocation
Fair value of net assets acquired	$	7,218,360
Excess purchase price – allocated to acquired pipeline		1,931,318
Total purchase price allocation		9,149,678

The Company allocated the excess of net assets acquired to acquired pipeline and permits 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.

F-13

The following sets out the pro forma operating results for the year ended December 31, 2009 and 2008 for the Company had the acquisition occurred as of January 1, 2008:

	Pro Forma (Unaudited) Years ended December 31,
	2009			2008
Net sales	$	6,172,625		$	7,615,880

Cost of sales		4,544,928			4,593,040

Gross profit		1,627,697			3,022,840

Operating expenses		2,148,816			3,697,990

Operating loss		(521,119)			(675,150)

Other income (expense):
Interest income		2,189			-
Interest expense and financing costs		(5,695,736)			(4,510,156)
Gain on derivative financial instruments		2,998,369			-
Loss on extinguishment of debt		(4,039,358)			-
Loss on disposal of fixed assets		(308,069)			-
Other non-operating income (expense)		(28,971)			5,256
Loss from operations		(7,592,695)			(5,180,050)
Loss from discontinued operations		(7,390,753)			(1,455,629)
Provision on income taxes		-			(205,612)
Net Loss	$	(14,983,448)		$	(6,841,291)
Loss per weighted average share, basic and diluted:
Continuing operations	$	(.55	)	$	(.43	)
Discontinued operations	$	(.54	)	$	(.11	)
		(1.09	)		(.54	)

4. DISCONTINUED OPERATIONS

Sale of GEM Mobile Treatment

On August 17, 2009, the Company entered into a Stock Purchase Agreement ("Agreement") with MTS Acquisition Company ("MTS"), a privately held company, pursuant to which the Company sold all of the issued and outstanding common stock of GEM Mobile Treatment Services, Inc. (“GEM MTS”). GEM MTS is a provider of mobile wastewater treatment and vapor recovery services with locations in California and Texas.

GEM MTS was purchased by MTS, a corporation owned by two former senior executives of the Company. Consideration for the sale was in the form of a promissory note in the aggregate amount of $5.6 million, the assumption by MTS of approximately $1.0 million of accounts payable and possible future royalties. The consideration was immediately assigned by Company 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. At the time of the sale, the net assets of MTS were $1,089,341.

F-14

The promissory note for $5,600,000 bears interest at 8%. On the first day of each calendar month commencing September 1, 2009 through and including August 1, 2010, accrued interest on the outstanding principal is due and payable. Thereafter, principal and interest under this Note is payable in thirty-six (36) consecutive equal monthly installments of principal and interest of $174,321.50 each, with the first installment due and payable on September 1, 2010, and with subsequent installments due and payable on the first day of each calendar month thereafter through and including August 1, 2013. All or any portion of the unpaid principal balance of this note, together with all accrued and unpaid interest on the principal amount being prepaid, may at the MTS’s option be prepaid in whole or in part, without premium or penalty. The Note is secured by liens on substantially all of assets and properties of MTS.

Concurrent with the closing of the sale of GEM MTS, the Company assigned with full recourse and full representation and warranty of title and ownership the promissory note to the Company’s senior lender (See Note 7). The Company also entered into a subordinated collateral agreement with GEM MTS in order to secure potential obligations related to indemnification payments it may hereafter become obligated to make to MTS in accordance with the Agreement.

The transaction resulted in the Company receiving $4,510,659 excess of consideration ($5.6 million note) over the $1,089,341 of net assets to be disposed. The Company analyzed the current accounting guidance and determined that the gain included in this transaction should not be recognized in the current period. In making this decision the Company determined that the buyers initial investment did not qualify for recognition of profit by the full accrual method as the company did not receive sufficient cash proceeds upon the consummation of the transaction, and collection of the amounts due are uncertain. Under this method the note receivable has not been recorded, and no profit will be recognized until cash payments by the buyer exceed the sellers cost of the assets. The transaction will be reassessed in the future to determine if it has met the criteria for the full accrual method, and at that time any unrecognized income will be recognized in the income statement. The Company has reflected the $1,089,341 of net assets of MTS sold at the date of the transaction as due from buyer as of December 31,2009 as no payment on the note have been received.

The Company has reclassified its December 31, 2008 balance sheet to segregate the net assets of Gem Mobile Treatment Services, Inc. Components of the net assets as of that date are as follows:

	December 31, 2008
Current assets	$	1,822,860
Property and Equipment – net of accumulated depreciation		1,952,410
Goodwill and Intangibles		1,121,794
Other assets		46,443
TOTAL ASSETS		4,943,507

Current liabilities		1,019,278
Long-term liabilities		905,190
TOTAL LIABILITIES		1,924,468
ASSETS OF MTS HELD FOR SALE	$	3,019,039

Sale of General Environmental Management Inc.

On November 25, 2009, the Company entered into an Agreement with Luntz Acquisition (Delaware), LLC. (“Buyer”) pursuant to which the Company has agreed to sell to Luntz all of the issued and outstanding stock of the Company's primary operating subsidiary, General Environmental Management, Inc.) Luntz agreed to pay the Company $14 million for the purchased interests. On February 26, 2010, after approval of the transaction by the Company’s shareholders at a special meeting held on February 19, 2010, the Company completed the sale. The Company has classified the assets and liabilities of General Environmental Management Inc. as “Net Assets held for Sale” as of December 31, 2009, and reclassified the prior year financial statements to conform to the current year presentation.

F-15

A summary of the assets and liabilities of General Environmental Management Inc. as of December 31, 2009 and 2008 are as follows:

	Year ended December 31,
	2009		2008

Current assets	$	2,453,085		5,820,155
Property and Equipment – net of accumulated depreciation		4,901,641		5,830,799
Goodwill and Intangibles		612,615		689,106
Other assets		561,433		1,058,193
TOTAL ASSETS		8,528,774		13,398,253

Current liabilities		4,928,153		5,956,012
Long-term liabilities		677,982		882,353
TOTAL LIABILITIES		5,606,135		6,838,365
ASSETS OF GEM DELAWARE HELD FOR SALE	$	2,922,639	$	6,559,888

The operating results of these discontinued operations for the years ended December 31, 2009 and 2008 were as follows:

	Year ended December 31,
	2009		2008

Net sales	$	23,244,336		34,864,714

Cost of sales		21,944,809		28,981,325

Gross profit (Loss)		1,299,527		5,883,389

Operating expenses		8,538,039		6,691,549

Operating loss		(7,238,512)		(808,160)

Other income (expense):
Interest income		134,003		17,569
Interest expense and financing costs		(387,457)		(706,768)
Gain on disposal of fixed assets		66,050		-
Other non-operating income		35,163		41,730
Loss from discontinued operations	$	(7,390,753)	$	(1,455,629)

F-16

5. PROPERTY AND EQUIPMENT

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

		2009		2008
Land	$	3,225,000	$	-
Vehicles		90,776		-
Machinery and equipment		818,606		-
Land improvements		310,131		-
Plant and pipeline		8,308,929		-
Construction in progress		62,500		-
		12,815,942		-
Less accumulated depreciation and amortization		153,448		-
Property and equipment net of accumulated depreciation and amortization	$	12,662,494	$	-

All property and equipment existing at December 31, 2008 has been reclassified to net assets net for sale. During 2009, property and equipment with a cost of $4,630,642 and accumulated depreciation of, $1,223,946 was sold as part of the sales to MTS (see Note 4). Subsequent to December 31, 2009, property and equipment with cost $7,897,399 and accumulated depreciation of all $2,995,757 was sold as part of the sale to Luntz and has been reflected on the accompanying balance sheet as the Net Assets held for sale (see Note 4).

The Company recorded depreciation expense of $153,448 for the year ended December 31, 2009. The Company recorded depreciation expense on the property and equipment related to its discontinued operations of $1,366,777 and $1,062,960 which is in included in net loss from discontinued operations for the years ending December 31, 2009 and 2008, respectively.

6. PERMITS AND FRANCHISES

The Company acquired certain permit rights for construction of a pipeline as part of its acquisition of SCWW. The permits allow the pipeline to connect to the City of Oxnard water works system and have a five year life, although they are renewable indefinitely, in five year increments, at minimal costs. The franchises are related to the use of the pipeline and have a 20 year life. The total value of the permits and franchises are being amortized over a remaining contractual life of the franchise agreements of 12 years commencing at the date of acquisition.

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

Years ending December 31,
2010	$	160,904
2011		160,904
2012		160,904
2013		160,904
2014		160,904
Thereafter		651,014
	$	1,455,534

F-17

7. 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 5% of the Company’s common stock at December 31, 2009.

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 year ended December 31, 2009 includes $109,324 for amortization of this discount. The valuation discount was fully amortized at September 30, 2009. On February 13, 2009 the maturity date was extended until March 31, 2010. As of December 31, 2009, $534,129 remained outstanding (including accrued interest of $61,719).

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 December 31 2009 and December 31, 2008. During the year ended December 31, 2009, GPP agreed to convert $150,000 of the cash owed to them and $164,756 incurred for other fees and costs into 524,594 shares of the Company’s common stock in settlement for amounts due. The balance due to GPP as of December 31, 2009 is $100,000.

During the year ended December 31, 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 year ended December 31, 2009 the Company made payments on the advance totaling $7,500. At December 31, 2009 the balance due on the advance was $107,500.

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.

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. Service costs related to the agreement total $10,800 per month. As of December 31, 2008, $92,555 of such fees had been prepaid to Lapis and included in the accompanying balance sheet as part of prepaid expenses. During 2009, the Company made further advances of $224,454 to Lapis. At December 31, 2009, the Company determined that the total paid to Lapis no longer had continuing value to the Company given the divestiture of its recycling management business and recorded a charge of $317,009.

F-18

Related Party Lease Agreement

During the third quarter ended September 30, 2007, the Company entered into a lease for $180,846 of equipment with current investors of the Company. The lease transaction was organized by General Pacific Partners, a related party, with these investors. The lease has been classified as a capital lease and included in property and equipment (See note 5) 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. As of December 31, 2009, there was $20,000 of accrued payments due under these leases.

8. 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 December 31, 2009 and December 31, 2008 are as follows:

	December 31,			December 31,
	2009			2008
Secured Notes from CVC California	$	14,658,365		$	13,547,909
Valuation Discount		(2,196,585	)		(3,181,365	)
	$	12,461,780		$	10,366,544

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 carried an interest rate of nine and one half percent, subject to adjustment, with interest initially payable monthly commencing October 1, 2008. The Note further provided that commencing on April 1, 2009, the Company was to 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.

F-19

(i). The principal amount of the Note and accrued interest thereon was initially 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"), was 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 December 31, 2008 the Company had an outstanding balance of $6,500,000 under the note.

(ii). The revolving note allowed 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 was 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 December 31, 2008 the Company had an outstanding balance of $7,047,909 (including accrued interest) under the revolving note. This note was subsequently exchanged and modified during 2009 as discussed below.

The Company was subject to various negative covenants with respect to the Revolving Credit and Term Loan Agreement (the "Agreement") with CVC California, LLC (the "Lender").

However, during the year the Company was not in compliance with certain covenants. The Agreement provided 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. 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 is currently in default, as such the entire note has been shown as current in the accompanying balance sheet as of December 31, 2009.

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.

On September 4, 2009, the Company entered into a series of agreements with CVC that amended these agreements, including an Amended and Restated Revolving Credit and Term Loan Agreement, an Amended and Restated Revolving Credit Note, an Amended and Restated Convertible Term Note, a new Term Note, and Amended and Restated Warrants to purchase shares of the Company's common stock. Pursuant to the Amended and Restated Revolving Credit and Term Loan Agreement, (the "Amended Agreement") dated as of September 4, 2009 the Company issued to CVC:

F-20

(i) an Amended and Restated secured convertible term note (“ Convertible Note”) in the principal amount of $6,314,700. The principal amount of the Convertible Note bears an interest rate of fourteen percent, subject to adjustment, with interest payable monthly commencing November 1, 2009. The principal of the convertible Note is payable on demand or, in the absence of demand, (i) in seven (7) equal monthly installments of $138,000 each, due and payable on the first day of each calendar month commencing December 1, 2009 and continuing through and including June 1, 2010, and (ii) a final installment due and payable on June 30, 2010 in an amount equal to the entire remaining principal balance of this note. In the event of a prepayment of the Convertible Note, the Company must pay a prepayment premium in an amount equal to (a) two (2%) percent of the principal amount being prepaid if the prepayment is made on or prior to February 28, 2010, and (b) one (1%) percent of the principal amount being prepaid if such prepayment is made subsequent to February 28, 2010 and prior to August 1, 2011, unless the prepayment is made with the proceeds received from the sale of any business unit or units of the Company. The balance of the note outstanding at December 31, 2009 was $6,314,700.

The principal amount of the Convertible Note and accrued interest thereon is convertible into shares of the Company's common stock at a price of $0.60 per share, subject to anti-dilution adjustments. The Company has agreed to register all of the shares that are issuable upon conversion of the Convertible Note.

(ii) an Amended and Restated Secured Non-convertible Revolving Credit Note in the principal amount of up to $1.7 million (the " Revolving Note"). The principal amount of the Revolving Note bears interest at the rate of 10% per annum and is payable on demand (or, in the absence of demand, on August 31, 2011, or sooner by reason of an Event of Default or other mandatory prepayment event. The balance of the note outstanding at December 31, 2009 was $1,700,000.

The Amended and restated Secured Non-convertible Revolving Credit Note was amended on November 25, 2009 with an Overadvance Note in the amount of $1,190,357.The principal amount of the Overadvance Note bears interest at the rate of 15% per annum and is payable on demand or, in the absence of demand, on August 31, 2011, or sooner by reason of an Event of Default or other mandatory prepayment event. The balance of the Overadvance Note outstanding at December 31, 2009 was $1,043,665.

Subsequent to December 31, 2009, the balance of the Convertible Note and the Amended and Restated Secured Non-convertible Revolving Credit Note was paid off. See Note 16.

(iii) a Term Note (“Term Note ”) in the principal amount of $5.6 million. The principal amount of the Term Note bears interest at the rate of 8% per annum and is payable as follows: on the first day of each calendar month commencing October 1, 2009 through and including August 1, 2010, accrued Interest on the outstanding principal shall be due and payable. Thereafter, principal and interest is payable in thirty-six (36) consecutive equal monthly installments of principal and interest of $174,321.50 each, with the first installment due and payable on September 1, 2010, and with subsequent installments due and payable on the first day of each calendar month thereafter through and including August 1, 2013. There is no pre-payment penalty in the event of a pre-payment. The balance of the Term Note outstanding at December 31, 2009 was $5,600,000. The Company is currently in default, as such in the entire note has been shown as current.

On August 17, 2009, the Company had entered into a Stock Purchase Agreement with MTS Acquisition Company ("MTS"), pursuant to which the Company sold all of the issued and outstanding common stock of GEM Mobile Treatment Services, Inc. (“GEM MTS”). Consideration for the sale of GEM MTS was in the form of a promissory note (“the MTS Note") in the aggregate amount of $5.6 million, (payable on the same dates and terms as the Term Note), the assignment of approximately $1.0 million of accounts payable and possible future royalties. The consideration was immediately assigned to CVC. As the MTS Note is paid to CVC by MTS, the Company's indebtedness to CVC will be reduced .

F-21

(iv) an Amended and Restated Warrant to purchase Two Million Seven Hundred Thousand (2,700,000) fully paid and non-assessable shares (the “Warrant Shares”) of the Company’s common stock, for cash at a price of $0.01 per share at any time and from time to time from and after the date hereof and until 5:00 p.m. (Pacific time) on August 31, 2014.

CVC shall also have the right and option, exercisable effective at any time upon or after the consummation of a Sale of the Company’s revenue-generating business units, or upon and after the occurrence and during the continuance of an Event of Default or any other event or circumstance which causes, effects or requires any payment in full under the Loan Agreement and until the Expiration Date, to require the Company to redeem and purchase any or all Warrant Shares or rights to purchase Warrant Shares hereunder, for a cash purchase price of $0.75 per Warrant Share or per right to purchase a Warrant Share hereunder, such option purchase price to be subject to adjustment from time to time in respect of certain events. The total value of the put if all shares are redeemed would be $2,025,000.

The Convertible Note and the Revolving Note, 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), 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, and Island Environmental Services, Inc.

The Amended Agreement also provided that in the event that and at such time as the Company or any of its subsidiaries or stockholders enters into a binding agreement with respect to any sale of all or any material portion of the Company’s assets or the sale of a majority of the outstanding capital stock or (if sooner) on that date which is thirty (30) days prior to any payment or required payment in full of the outstanding obligations to CVC, CVC shall have the right and option, exercisable effective at any time upon or after the consummation of such sale or payment, or upon and after the occurrence and during the continuance of an event of default, as defined in the Amended Agreement and the ancillary documents, to require the Company to redeem and purchase any or all warrant shares or rights to purchase warrant shares hereunder, for a cash purchase price of $0.75 per warrant share.

The Company incurred expenses of approximately $75,000 to various professional firms as reimbursement for CVC's due diligence and legal fees and expenses incurred in connection with the transaction.

The Company has also agreed to continue to pursue the Company’s plan to restructure its operations by offering for sale the Company’s revenue-generating business units at prices and on terms and conditions reasonably acceptable to the Company and CVC.

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.

F-22

Concurrent with the cumulative adjustment 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. 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 $2,181,351 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.

The Company further amortized $382,646 of this discount during the period July 1, 2009 to September 4, 2009.

As discussed above, on September 4, 2009, the Company and CVC entered into a further 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 to be incurred. As such, the balance of the valuation discount of $4,591,751 and the fair value of derivative liabilities of $2,733,744 (gain) that existed on September 4, 2009 before modification were considered as debt modification expense, resulting in an aggregate charge of $1,858,007 at September 4, 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 September 4, 2009, the Company reflected a new valuation discount of $3,660,977 based upon the fair value of the derivative liability and warrants (see Note 10). During the period September 4, 2009 through December 31, 2009, the Company amortized $1,464,392 of the new note discount, leaving an unamortized note discount of $2,196,585 as of December 31, 2009.

9. ACQUISITION NOTES PAYABLE

On November 6, 2009, Company entered into a Stock Purchase Agreement ("CLW Agreement") with United States Environmental Response, LLC, a California limited liability company pursuant to which the Company has purchased all of the issued and outstanding capital stock of California Living Waters, Incorporated ("CLW"), a privately held company. . In consideration for the sale, the Company issued six promissory notes (individually a "CLW Note" and collectively, the "CLW Notes") in the aggregate principal amount of $9,003,000 as follows:

$2,000,000 CLW the Seller's Note-- Payment of the outstanding principal of the CLW the Seller’s Note is due and payable in four (4) installments as follows: (A) Two Hundred Fifty Thousand Dollars ($250,000) in November, 2009, (B) Five Hundred Thousand Dollars ($500,000) and accrued interest on June 30 2010; (C) One Million Dollars ($1,000,000) and accrued interest on January 1, 2011 (D) the balance of all residual principal and accrued interest on March 31, 2011. The balance of the Note at December 31, 2009 was $2,000,000.

F-23

$1,700,000 CLW Note One-- Payment of the outstanding principal of CLW Note One is due and payable in 120 installments commencing on December 1, 2009 and continuing on the first day of each calendar month through November 1, 2019. Installments are payable in the following amounts (subject to the other terms of this Note): (A) the amount of principal and accrued interest payable in the first one hundred nineteen (119) Installments shall be equal Installments of principal and interest, calculated on the basis of a 30-year amortization of this Note and (B) the one hundred twentieth (120th) Installment shall be a final, “balloon” payment. The balance of the Note at December 31, 2009 was $1,696,917.

$1,100,000 CLW Note Two-- Payment of the outstanding principal of this CLW Note Two is due and payable in sixty (60) installments commencing on December 1, 2009 and continuing on the first day of each calendar month through November 1, 2014. Installments are payable in the following amounts (subject to the other terms of this Note): (A) the amount of principal and accrued interest payable in the first fifty-nine (59) Installments shall be equal Installments of principal and interest, calculated on the basis of a 30-year amortization of this Note; and (B) the final, “balloon” payment on November 1, 2014. The balance of the Note at December 31, 2009 was 1,095,501.

$425,000 CLW Note Three-- Payment of the outstanding principal of the CLW Note is due and payable in 120 installments commencing on December 1, 2009 and continuing on the first day of each calendar month through November 1, 2019. Installments are payable in the following amounts (subject to the other terms of this Note): (A) the amount of principal and accrued interest payable in the first one hundred nineteen (119) Installments shall be equal Installments of principal and interest, calculated on the basis of a 30-year amortization of this Note and (B) the one hundred twentieth (120th) Installment shall be a final, “balloon”. CLW Note Three is convertible at any time in full or in part (but if in part, then only in principal increments of $100,000 or an integral multiple thereof) into shares of common stock of Company at the conversion rate of Four Dollars ($4.00) per share, subject to adjustment. The balance of the Note at December 31, 2009 was $424,230.

$1,600,000 CLW Note Four-- Payment of the outstanding principal of the CLW Note Four is due and payable in 41 installments commencing on July 1, 2010 and continuing on the first day of each calendar month through November 1, 2013. Installments are payable in the following amounts (subject to the other terms of this Note): (A) the amount of principal and accrued interest payable in the first forty Installments shall be equal Installments of principal and interest, calculated on the basis of a 30-year amortization of this Note, provided that the first Installment shall also include all interest accrued during the first seven months from the date of this Note; Four and (B) the final, “balloon”, Installment shall be in the amount of all then-outstanding principal, interest and other amounts then outstanding. Note Four is convertible into 5% of the common stock of Company on a fully diluted basis until Company achieves a Capital Restructuring Goal. Capital Restructuring Goal means the concurrent fulfillment of each of the following events: (i) the CLW Seller’s Note shall have been fully paid on the terms thereof as to all theretofore outstanding principal, interest, costs and expenses; (ii) Company shall have available, as properly reflected in Company’s books one million dollars ($1,000,000) in uncommitted working capital (not including any working capital lines of credit); and (iii) Company shall have invested into SCWW capital of at least one million dollars $1,000,000. The balance of the Note at December 31, 2009 was $1,600,000.

$2,178,000 CLW Note Five-- Payment of the outstanding principal of the CLW Note Five is due and payable in 41 installments commencing on July 1, 2010 and continuing on the first day of each calendar month through November 1, 2013. Installments are payable in the following amounts (subject to the other terms of this Note): (A) the amount of principal and accrued interest payable in the first forty Installments shall be equal Installments of principal and interest, calculated on the basis of a 30-year amortization of this Note, provided that the first Installment shall also include all interest accrued during the first seven months from the date of this Note; Four and (B) the final, “balloon”, Installment shall be in the amount of all then-outstanding principal, interest and other amounts then outstanding. Note Four is convertible into 10% of the common stock of Company on a fully diluted basis until Company achieves the Capital Restructuring Goal.The balance at December 31, 2009 was $2,178,000.

F-24

Future annual maturities under these notes payable are as follows at December 31, 2009:

Year Ended December 31,

2010	$	1,072,975
2011		1,101,131
2012		107,904
2013		115,130
2014		124,461
Thereafter		6,473,047
	$	8,994,648

10. LONG TERM OBLIGATIONS

Long term obligations consist of the following at December 31, 2009 and 2008:

	December 31,		December 31,
	2009		2008


(a) Notes Payable, National Bank of California	$	4,175,187	$	-
(b) Notes Payable, Island Acquisition		1,250,000		1,250,000
(c) Notes Payable, Investors		521,251		489,605
(d) Note payable, Wiker Trust		279,306		-
(e) Note payable, Agua de Oro 2		47,969		-
(f) Equipment Note payable, OMNI Bank		19,442		-
(g) Note payable, Individual		27,900		-
(h) Subordinated notes payable		1,800,000		-
Total Notes Payable		8,121,055		1,739,605
Less Note discount		59,916		-
Less current portion		4,822,719		1,239,605
Notes payable, net of current portion	$	3,238,420	$	500,000

F-25

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

(i) Note payable, National Bank of California 1	$	1,779,060
(ii) Note payable, National Bank of California 2		1,701,137
(iii) Note payable, National Bank of California 3		58,741
(iv) Note payable, National Bank of California 4		145,982
(v) Note payable , National Bank of California 5		490,267
Total	$	4,175,187

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

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

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

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

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

The above loans are subject to certain covenants with the senior lender, National Bank of California. The affirmative covenants apply to the financial results of the Company’s subsidiary, SCWW, and include certain ratio requirements such as current ratio, Debt / Worth ratio and debt service. At December 31, 2009, SCWW was not in compliance with certain of these covenants, and as such, the notes are in default. The company is currently in discussions to resolve the default, and has classified the notes as current in the accompanying December 31, 2009 balance sheet.

(b) 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 the entire balance of interest and principal payable August 31, 2011. In conjunction with the revision to the agreements with CVC described in Note 7 an amendment to these notes was executed that all interest payments and principal payments due pursuant to the notes were deferred until August 31, 2011.

(c) 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 were secured by the TSDF, carried 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 were extended to September 30, 2011. As of December 31, 2008, notes payable of $422,500 plus accrued interest of $67,105 remained outstanding.

F-26

On July 1, 2009 three note holders entered into new promissory note agreements that replaced in full the principal of the Loan and Security Agreement dated June 1, 2004. The notes are unsecured and carry an interest rate of ten percent (10%) per annum. The principal of the notes is due December 31, 2010.

On August 1, 2009 accrued interest of $168,528 was converted into 485,150 shares of common stock. As an incentive to convert the accrued interest into shares of the Company's common stock, the Board of Directors awarded 663,814 fully vested warrants to purchase common stock of the Company to the three convertible note holders. The warrants are exercisable at $0.52 per share and have a forty (40) month term. The value of these warrants was calculated at $231,140 and included in the statement of operations for the year ending December 31, 2009 as a cost to induce conversion. For the Black Scholes calculation, the Company assumed no dividend yield, a risk free interest rate of 1.72 % and expected volatility of 104.54 %. As of December 31, 2009, notes payable of $500,000 and accrued interest of $21,252 remained outstanding.

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

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

(f) Note payable relating to the purchase of equipment. The note bears interest at 10.88% per annum, payable in 36 monthly installments of principal and interest at $2,456. This obligation is subordinated at the National Bank of California notes.

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

(h) The Company has two notes payable that are subordinated to the notes payable to National Bank of California. The subordinated Notes Payable consists of the following at December 31, 2009:

(i) Note payable, Wiker Trust	$	800,000
(ii) Note payable, US Environmental Response		1,000,000
Total	$	1,800,000

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

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

F-27

Future annual maturities under these notes payable are as follows at December 31, 2009:

Year Ended December 31,

2010	$	4,822,719
2011		1,873,130
2012		66,000
2013		66,000
2014		43,206
Thereafter		1,190,085
	$	8,061,140

11. DERIVATIVE LIABILITIES

In June 2008, the FASB finalized its guidance on “Determining Whether an Instrument (or Embedded Feature) is indexed to an Entity’s Own Stock.” This guidance 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 current guidance, 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. Current guidance 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:

	December 31, 2009			September 4, 2009			June 1, 2009			December 31, 2008
Conversion feature:
Risk-free interest rate		.40	%		.42	%		1.14	%		1.66	%
Expected volatility		137.57	%		115.22	%		88.02	%		78.66	%
Expected life (in years)		0.75			0.83			2.25			2.67
Expected dividend yield		0.0	%		0.0	%		0.0	%		0.00	%

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

Fair Value:
Conversion feature	$	896,542		$	1,635,977		$	3,637,437		$	624,385
Warrants		2,025,000			2,025,000			1,528,283			1,502,205
	$	2,921,542		$	3,660,977		$	5,165,720		$	2,126,590

F-28

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.

The value of the 2.7 million warrants at September 4, 2009 and December 31, 2009 was based on the put option price of $0.75 per warrant share (see Note 7).

The change was 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, 2009. 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 the accounting. This discount will be recognized on a monthly basis through the maturity date of the notes.

As of December 31, 2009, the derivative liabilities amounted to $2,921,552.

12. STOCKHOLDERS’ EQUITY

Common Stock for Services

On October 9, 2008, a consultant to the Company agreed to convert $13,150 in fees into 12,524 shares of common stock based upon the fair value of the stock at the date of the agreement.

F-29

During the year ended December 31, 2009, the Company issued 250,000 shares of its common stock valued at $115,000 based upon the trading price at that date of the agreement for consulting services.

Issuance of Common Stock on Exercise of Stock Options and Warrants

On March 27, 2009 one employee exercised 250 options granted under the Company’s 2007 Employee Stock Option Plan resulting in net proceeds to the Company of $187. On May 15, 2009 one stockholder exercised 6,250 warrants granted by the Company resulting in net proceeds to the Company of $3,750.

Issuance of Common Stock on Conversion of Debt

During the year ended December 31, 2009, GPP (a related entity – see Note 7) agreed to convert $150,000 of amounts owed to them and $164,756 incurred for other fees and costs into 524,594 shares of the Company’s common stock in settlement for amounts due. On August 1, 2009 accrued interest due under certain investor notes of $168,528 was converted into 485,150 shares of common stock (See Note 10).

As the trading price of the common shares issued on the date of settlement exceeded the amount of liabilities settled, the Company recognized additional interest expense of $157,193 which has been reflected as an expense in the accompanying statement of operations.

13. STOCK OPTIONS AND WARRANTS

Stock Options

Prior to acquisition by the Company, General Environmental Management, Inc. of Delaware’s Board of Directors approved and implemented the 2005 Stock Option Plan (the “2005 Plan”). The plan authorized option grants to employees and other persons closely associated with the Company for the purchase of up to 88,117 shares.

The Company issues stock options to employees, directors and consultants under the 2007 Stock Option Plan. Employee and Non-employee options vest according to the terms of the specific grant and expire 8 years from date of grant. Stock option activity for the years ended December 31, 2009 and 2008 was as follows:

				Weighted Avg.
	Options			Exercise Price
Options outstanding, January 1, 2008		5,000,193		$	1.64
Options granted		173,000			1.35
Options exercised		-			-
Options cancelled		(385,853	)		1.44
Options, December 31, 2008		4,787,340			1.65
Options granted		604,500			0.75
Options exercised		(250	)		0.75
Options cancelled		(1,991,435	)		1.57
Options outstanding, December 31, 2009		3,400,155		$	1.54
Options exercisable, December 31, 2009		2,850,776		$	1.60

F-30

During the years ended December 31, 2009 and 2008, the Company reflected $767,042 and $835,557, respectively, as the fair value of the vested stock compensation. As of December 31, 2009, the value of the remaining compensation to be recognized of $402,509 will be amortized as compensation expense over the next 27 months as the options vest. The options had no intrinsic value at December 31, 2009.

Options outstanding at December 31, 2009 and the related weighted average exercise price and remaining life information is as follows:

	Range of exercise prices	Total options outstanding		Weighted average remaining life in years		Total weighted average exercise price		Options exercisable		Exercisable weighted average exercise price
$	48.00		134		3.17	$	48.00		134	$	48.00
	39.00		9,335		3.33		39.00		9,335		39.00
	35.10		117		3.58		35.10		117		35.10
	30.00		19,229		3.83		30.00		19,229		30.00
	25.80		-		-		25.80		-		25.80
	6.60		1,535		4.58		6.60		1,305		6.60
	2.50		262,000		7.83		2.50		196,484		2.50
	1.99		6,000		8.33		1.99		3,750		1.99
	1.70		214,000		8.00		1.70		159,617		1.70
	1.19		2,373,375		8.08		1.19		2,227,880		1.19
	1.10		56,498		7.25		1.10		28,494		1.10
	1.05		23,810		8.83		1.05		14,615		1.05
	0.75		434,122		8.58		0.75		189,816		0.75
$	0.75 - $48.00		3,400,155		7.58	$	1.25		2,850,776	$	1.25

Warrants

During 2009, the Company issued warrants to acquire 1,234,200 shares of its common stock to related entities valued in the aggregate at $458,476 as follows:

On January 7, 2009 the Board of Directors awarded 70,000 fully vested warrants to a non-employee director serving on the Board of Directors. The warrants are exercisable at $0.75 per share and have a 7 year life as noted per the Company’s board approval. The value of these warrants was calculated at $37,743 and included in the statement of operations for the year ending December 31, 2009. For the Black Scholes calculation, the Company assumed no dividend yield, a risk free interest rate of 1.66% and expected volatility of 78.66 %.

On September 2, 2009 the Board of Directors awarded 880,250 fully vested warrants to purchase common stock of the Company to three former Vice Presidents. A portion of the warrants are exercisable at $1.19 per share, a portion exercisable at $0.75 per share with the balance exercisable at $1.70 per share. All warrants have a five (5) year term. The value of these warrants was calculated at $235,543 and included in the statement of operations for the year ending December 31, 2009. For the Black Scholes calculation, the Company assumed no dividend yield, a risk free interest rate of 2.33 % and expected volatility of 115.22%.

F-31

On June 30, 2009, the Company’s board of directors approved the grant of warrants to GPP, a related party, for its continued advisory services. The board approved issuance of warrants to purchase up to 185,000 of the Company’s shares at an exercise price of $0.60, with a term of 4 years (48 months). The value of these warrants was calculated at $117,541 and included in the statement of operations for the year ending December 31, 2009. For the Black Scholes calculation, the Company assumed no dividend yield, a risk free interest rate of 2.33 % and expected volatility of 115.22%.

The Company’s board of directors also approved the issuance of warrants to a consultant to purchase up to 50,000 of the Company’s shares at $0.60, with a term of 4 years (48 months). The warrants were granted for research services provided to the Company. The value of these warrants was calculated at $31,768 and included in the statement of operations for the year ending December 31, 2009. For the Black Scholes calculation, the Company assumed no dividend yield, a risk free interest rate of 2.33 % and expected volatility of 115.22%.

On January 1, 2009, the Company’s board of directors approved the grant of warrants to GPP, a related party, for agreeing to open a letter of credit facility on behalf of the Company. The board approved the issuance of warrants to purchase up to 48,950 of the Company’s shares at an exercise price of $0.60, with a term of 7 years (84 months). The value of these warrants was calculated at $35,881 and included in the statement of operations for the year ending December 31, 2009. For the Black Scholes calculation, the Company assumed no dividend yield, a risk free interest rate of 2.33 % and expected volatility of 115.22%.

On December 31, 2008 the Board of Directors awarded 187,500 fully vested warrants to purchase common stock of the Company to a former Vice President. A portion of the warrants are exercisable at $1.19 per share with the balance exercisable at $1.70 per share. All warrants have a five (5) year term. The value of these warrants was calculated at $70,625 and included in the statement of operations for the year ending December 31, 2008. For the Black Scholes calculation, the Company assumed no dividend yield, a risk free interest rate of 4.78 % and expected volatility of 78.66 %.

Previously issued warrants to acquire 242,137 shares of common stock at $.060 per share were set to expire on December 31, 2008. On December 31, 2008, the company extended the life of these warrants an additional 6.75 years. These warrants were valued at $128,333 using the Black - Scholes valuation model, and such cost was recognized as an additional finance cost during the year ended December 31, 2008. 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 warrants of 6.75 years.

	Warrants			Range of Exercise Prices		Intrinsic Value
Warrants outstanding, January 1, 2008		5,981,635		$	0.60-$120.00		-
Warrants granted		3,762,000		$	0.60-$2.25		-
Warrants exercised		(5,000	)	$	0.60		-
Warrants expired		(210,741	)	$	1.20-$120.00		-
Warrants outstanding, December 31, 2008		9,527,894		$	0.60-$37.50	$	451,813
Warrants granted		2,274,064		$	0.52-$4.00		-
Warrants exercised		(6,250	)		0.60		-
Warrants expired		(1,384,282	)	$	0.60-$37.50		-
Warrants outstanding, December 31, 2009		10,411,426		$	0.52-$37.50	$	-

F-32

Warrants outstanding at December 31, 2009 and the related weighted average exercise price and remaining life information is as follows:

Range of exercise prices		Total warrants outstanding		Weighted average remaining life in years		Total weighted average exercise price		Warrants exercisable		Exercisable weighted average exercise price
$	37.50		667		0.33	$	37.50		667	$	37.50
	26.10		125,072		3.17		26.10		125,072		26.10
	4.00		425,000		9.83		4.00		425,000		4.00
	2.75		330,909		4.83		2.75		330,909		2.75
	1.70		170,250		4.53		1.70		170,250		1.70
	1.38		661,818		4.83		1.38		661,818		1.38
	1.20		312,770		1.75		1.20		312,770		1.20
	1.19		2,422,500		4.38		1.19		2,422,500		1.19
	1.05		35,000		8.58		1.05		35,000		1.05
	0.75		130,000		5.47		0.75		130,000		0.75
	0.70		1,350,000		4.67		0.70		1,350,000		0.70
	0.60		3,783,626		4.56		0.60		3,783,626		0.60
	0.52		663,814		2.92		0.52		663,814		0.52
$	0.52 - 37.50		10,411,426		4.19		1.35		10,411,426		1.35

The warrants had no intrinsic value at December 31, 2009.

14. COMMITMENTS AND CONTINGENCIES

ENVIRONMENTAL

The Company is regulated as a hazardous waste transporter and TSDF operator and is subject to various stringent federal, state, and local environmental laws and regulations relating to pollution, protection of public health and the environment, and occupational safety and health. The Company is subject to periodic inspection by the Department of Toxic Substance Control, DOT, and EPA. The Company has not been subject to any contingencies pursuant to any environmental law or regulation. Although compliance with these laws and regulations may affect the costs of the Company’s operations, compliance costs to date have not been material.

ASSET RETIREMENT COSTS AND OBLIGATIONS

In accordance with its Part B operating permit, the Company is liable for certain costs involving the ultimate closure of its facilities. These expenses include costs of decommissioning, remediation, and incremental direct administration costs of closing the facilities.

F-33

Upon acquisition of General Environmental Management of Rancho Cordova, LLC in June 2004, the Company continued that subsidiary’s implementation of SFAS No. 143, “Accounting for Asset Retirement Obligations,” which addresses financial accounting and reporting obligations associated with the retirement of tangible long-lived assets and the related asset retirement costs. The statement which became effective January 1, 2003, requires that a fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred and capitalized as part of the carrying amount of the long lived asset. When a liability is initially recorded, the entity capitalizes the cost by increasing the carrying value of the related long lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. On an annual basis the liability to fulfill the retirement obligation is required to be reviewed and adjusted if necessary. Management’s review of the liability in 2007 determined no adjustment was necessary.

The Company determined the estimated obligation, based on current requirements and proposed regulatory changes and is intended to approximate fair value. The estimate of fair value is based on the best available information, including the results of present value techniques. Once the retirement costs were determined, the Company inflated those costs to the expected time of payments and discounts the expected future costs back to present value. The costs have been inflated in current dollars until the expected time of payment using an inflation rate of 2.5 percent and have discounted these costs to present value using a credit-adjusted risk-free interest rate of 5.5 percent. The accretion of the liability, based on the effective interest method, and amortization of the property and equipment, recognized over the estimated life of the location, will be included in the operating costs and expenses. The discount rate, which is based on the rates for the United States Treasury bonds, and the inflation rate is reviewed by the Company on an annual basis.

Upon acquisition of the Part B permit and facility, the Company’s share of obligation, was a present value liability of $35,846 and a net increase to plant and equipment of $35,846.

In the State of California, the environmental regulatory agencies overseeing the Company’s operations require the Company to provide assurance that funds will be available for these costs. The Company has a cash deposit of $900,122 to cover the ultimate cost of closure at its facility and is reflected as restricted cash in the accompanying balance sheet.

LEGAL PROCEEDINGS

OTHER CONTINGENCIES

The Company is subject to various regulatory requirements, including the procurement of requisite licenses and permits at its facilities and for its vehicles and drivers. These licenses and permits, without which the Company’s operations would be adversely affected, are subject to periodic renewal. The Company anticipates that, once a license or permit is issued with respect to a facility, the license or permit will be renewed at the end of its term if the facility’s operations are in compliance with the applicable regulatory requirements.

F-34

Under the Company’s insurance programs, coverage is obtained for catastrophic exposures, as well as those risks required to be insured by law or contract. The Company retains a certain amount of risk through per occurrence deductibles on its insurance policies.

15. INCOME TAXES

The Company's net deferred tax assets (using a federal corporate income rate of 34%) consisted of the following at December 31;

	2009			2008
Deferred tax asset, net operating loss	$	19,411,281		$	14,184,661
Less valuation allowance		(19,411,281	)		(14,184,661	)
Net deferred tax asset	$	-		$	-

As of December 31, 2009, the Company had federal net operating loss carry forwards of approximately $58,132,991 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 December 31, 2009 and December 31, 2008.

Reconciliation of the effective income tax rate to the United States statutory income tax rate for the years ended December 31, 2009 and 2008 is as follows:

	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 a new accounting requirement to Account for Uncertainty in 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 the new accounting requirements, 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. The new requirements 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 December 31, 2009, the Company did 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.

F-35

The Company’s policy is to record interest and penalties on uncertain tax provisions as income tax expense. As of December 31, 2009 the Company has no accrued interest or penalties related to uncertain tax positions.

16. SUBSEQUENT EVENTS

On November 25, 2009, General Environmental Management, Inc., a Nevada corporation (“Company”) entered into a Stock Purchase Agreement ("Purchase Agreement") with Luntz Acquisition (Delaware), LLC, ("Luntz") a subsidiary of PSC Environmental Services, LLC (“PSC”), pursuant to which the Company agreed to sell General Environmental Management, Inc. (DE) and its subsidiaries (“GEM DE”), which include five service centers, the TSDF of GEM Rancho Cordova LLC, and the Island Environmental Services business. Consideration for the sale would be cash in the aggregate amount of $14 million and the assumption by Luntz of approximately $1.1 million of long term lease obligations. The final purchase price would be subject to an adjustment based on the computation of net working capital at closing. PSC is a leading provider of industrial cleaning, environmental, remediation, and transportation services. GEM DE, a subsidiary of the Company, is a full-service hazardous waste management and environmental services firm with locations in the western United States. On February 19, 2010, at a Special Meeting, stockholders approved the Purchase Agreement dated as of November 25, 2009, by and between the Company and Luntz. On February 26, 2010, the Company completed the sale of GEM DE and its subsidiaries.

Luntz retained $1.089 million for the one year period following the closing, to assure payment of certain of the Company’s indemnification obligations, if any, arising under the Purchase Agreement and the related ancillary agreements. The purchase price was further reduced by $1.8 million based on the computation of net working capital at closing.

Also in conjunction with the closing and the Amended and Restated Warrant to Purchase Shares of Common Stock, CVC of California, The Company's senior lender, exercised its put option related to its warrant for 2,700,000 shares for a cash purchase price of $0.75 per Warrant Share or $2,000,000. At closing, CVC was paid $500,000 and issued 3,750,000 shares of the Company’s common stock to satisfy the put option. Also in conjunction with the CVC agreement, General Pacific Partners agreed to convert $575,000 of its related party indebtedness into 1,437,500 shares of the Company’s common stock.

The following unaudited pro forma consolidated balance sheet was prepared from the Company’s consolidated financial statements and gives effect to the sale of the Company’s stock in its wholly owned subsidiary, GEM DE to Luntz as if the sale had been completed at December 31, 2009. The first adjustment column (A) represents the sale of GEM DE and related expenses. The second adjustment column (B) represents the application of net proceeds from the sale including payments to the senior lender.

F-36

General Environmental Management, Inc.

Unaudited Pro Forma Consolidated Balance Sheet

As of December 31, 2009

	December 31, 2009		Adjustment for Sale of GEM DE			Adjustment for Application of Proceeds			Adjusted December 31, 2009

ASSETS
Current assets:
Cash	$	466,891	$	11,110,285		$	(10,283,332	)	$	1,293,844	(a)
Accounts receivable, net of allowance for doubtful accounts		974,340		-			-			974,340
Prepaid expenses and current other assets		56,196		-			-			56,196
Total current assets		1,497,427		11,110,285			(10,283,332	)		2,324,380

Property and equipment, net of accumulated depreciation		12,662,494		-			-			12,662,494

OTHER ASSETS
Restricted cash		900,122		-			-			900,122
Intangibles, net		1,455,534		-			-			1,455,534
Deposits		184,920		-			-			184,920
Deferred financing fees		158,898		-			-			158,898
Assets of GM Delaware held for sale		2,922,639		(2,922,639	)		-			-
Due from buyer - MTS		1,089,341		-			-			1,089,341
TOTAL ASSETS	$	20,871,375	$	8,187,646		$	10,283,332		$	18,775,689

Liabilities and Stockholders’ Deficiency
Current liabilities:
Accounts Payable	$	2,176,801		600,000			-			2,776,801	(b)
Payable to related entities		765,628		-			(572,500	)		193,128	(c)
Accrued expenses		1,277,662		-			-			1,277,662
Current portion of financing agreement		12,461,780					(6,861,780	)		5,600,000
Current portion of long-term obligations		4,822,719		-			-			4,822,719
Current portion of Acquisitions Notes Payable		1,072,974		-			-			1,072,974
Total current liabilities		22,577,564		600,000			(7,434,280	)		15,743,284

F-37


LONG – TERM LIABILITIES
Long term obligations, net of current portion		3,238,420			-		-			3,238,420
Acquisition Notes Payable, net of current portion		7,921,674			-		-			7,921,674
Derivative liabilities		2,921,552			-		(2,921,552	)		-		(d)
Total long-term liabilities		14,081,646			-		(2,921,552	)		11,160,094
Stockholders’ equity (deficiency)
Common stock, $.001 par value, 200,000,00 shares authorized 14,557,653 shares issued and outstanding		14,570			-		-			14,570
Additional paid-in capital		54,721,872			-		-			54,721,872
Accumulated deficit		(70,524,277	)		7,587,646		72,500			(62,864,131	)	(e)
Total stockholders’ equity (deficiency)		(15,787,835	)		7,587,646		72,500			(8,127,689	)
Total liabilities and stockholders’ deficiency	$	20,871,375		$	8,187,646	$	(10,283,332	)	$	18,775,689

Descriptions of Pro Forma adjustments:

(a) Cash proceeds from the sale ($11.14 million) are $14.0 million less $1.80 million which is the estimated amount needed to fund the working capital deficit related to the companies being sold, $0.6 million for transaction costs and $1.09 million being held by Buyer for estimated income tax liabilities resulting from the sale ($0.425 million), a lease payment holdback ($0.089 million) and potential contingencies post sale ($0.575 million).

(b) Transaction costs related to the sale

(c ) Conversion of related party debt to equity required by the senior lender as a condition to closing

(d) To remove the derivative liability related to the conversion feature of the retired convertible note

(e) The net change to equity consists of $2.07 million of lender obligations and related party debt converted to equity offset by a $2.0 million

expense generated by a put exercised by the senior lender related to the sale.

F-38

ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None

ITEM 9A (T). 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.

Management’s Annual Report on Internal Control over Financial Reporting

Internal control over financial reporting refers to the process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that:

(1) Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

(2) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorization of our management and directors; and

(3) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use or disposition of our assets that could have a material effect on the financial statements.

Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk. Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company.

Management has used the framework set forth in the report entitled Internal Control-Integrated Framework published by the Committee of Sponsoring Organizations of the Treadway Commission, known as COSO, to evaluate the effectiveness of our internal control over financial reporting. Based on this assessment, management has concluded that our internal control over financial reporting was effective as of December 31, 2008.

This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Our internal control over financial reporting was not subject to attestation by our independent registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this Annual Report.

There has been no change in our internal controls over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

ITEM 9B. Triggering Events That Accelerate or Increase a Direct Financial Obligation

None

PART III

ITEM 10. Directors, Executive Officers, and Corporate Governance

Our directors serve until the next annual meeting and until their successors are elected and qualified. Our officers are appointed to serve for one year until the meeting of the board of directors following the annual meeting of stockholders and until their successors have been elected and qualified. There are no family relationships between any of our directors or officers.

Name	Age	Position
Timothy J. Koziol	56	Chief Executive Officer, Chairman
Brett M. Clark	58	Chief Financial Officer, Executive Vice President of Finance and Director
James P. Stapleton	50	Director
William J. Mitzel	52	President, Chief Operating Officer
Douglas B. Edwards	53	Executive Vice President and Director

Timothy J. Koziol. Mr. Koziol joined GEM in January 2002 and now serves as the Chief Executive Officer of the Company. Mr. Koziol implemented accounting controls and systems to monitor the day-to-day financial position of GEM, changed operational policies to improve efficiencies, and implemented new sales and marketing programs to increase revenue. Prior to joining GEM, Mr. Koziol was a principal of Fortress Funding, Inc., an asset based lending company, where he was responsible for business development and underwriting. Mr. Koziol was also a principal in Global Vantage, Ltd., an investment banking firm located in Newport Beach, CA. Prior to his work in the financial services industry, Mr. Koziol managed a marketing consulting firm for national and regional clients. He has a Bachelor of Arts from Wheaton College in Speech Communications and a Masters of Arts (Magma Cum Laude) from the Wheaton Graduate School in Mass Communications.

James P. Stapleton is currently a consultant and advisor to small public companies. From May 2004 through July 2007 Mr. Stapleton was the Chief Financial Officer of Bionovo (NASDAQ BNVI). Mr. Stapleton served as GEM.DE's Chief Financial Officer from November 2003 through April 2004, and is no longer employed by GEM.DE or the Company. He serves on GEM's Board of Directors. From 1996 through 2002 Mr. Stapleton was employed in a variety of positions for Auxilio, Inc. (OTC BB AUXO) and Prosoft Training (NASDAQ POSO), including Corporate Secretary, Vice President Investor relations, Chief Financial Officer, and other positions. Mr. Stapleton was Chief Financial Officer of BioTek Solutions, Inc. from 1995 through February 1996.

Brett M. Clark. Mr. Clark joined GEM in June 2005 as the Chief Financial Officer. From January 2005 to June 2005, he provided consulting services to the Company related to financial and accounting matters. From June 2005 to December 2006, Mr. Clark served the Company as Vice President Finance and Chief Financial Officer. In December 2006 and continuing to the present, he was promoted to Executive Vice President of Finance and Chief Financial Officer. From January 2003 through November of 2004 Mr. Clark was the Vice President, Treasurer and Chief Financial Officer for Day Runner, Inc., a privately held consumer products distribution company where he was responsible for the restructuring of the finance, information technology, and accounting functions in the company’s turnaround. Mr. Clark has been the Chief Financial Officer for Tru Circle Corporation (2000 – 2002), Adams Rite Aerospace, Inc. (1997 – 2000) and Chapman University. Prior to these companies, Mr. Clark was Group Controller for Fleetwood Enterprises, a publicly traded Fortune 500 manufacturing company and Corporate Controller and Assistant Secretary for Air Cal, Inc., a publicly traded airline. Prior to work in publicly traded firms and private enterprises, Mr. Clark worked for Deloitte & Touche, a “Big 4” CPA firm. He has a Bachelor of Science in Accounting from the University of Southern California and became a CPA in the State of California in 1975.

William J. Mitzel. Mr. Mitzel was formerly Vice President of Sales and operations at Teris, a Texas-based environmental services company, which was acquired by Clean Harbors, Inc. While at Teris, Mr. Mitzel was responsible for the oversight of Teris’ Western Region operations and managed the sales and service for this 13 state region. From 2000 through 2005 he worked at Romic Environmental Technologies Corporation, serving as President until October 2005 at which point he was elected as Chairman of the Board. Mr. Mitzel founded Safari Environmental Management Company in 1997 which he sold to U.S. Liquids. He worked as Regional Vice President for Rollins Environmental Inc from 1992 – 1997 and grew revenue from $38M to $98M in that period. While as Regional Vice President at Chemical Waste Management, Inc. from 1986 – 1992 he built the revenue from $20M to $40M. He has a BA in Biology from Occidental College.

Douglas B. Edwards. Mr. Edwards has been the Chief Executive Officer of SCWW since 2004. Prior to becoming the President and CEO of SCWW, Mr. Edwards was the Rector (President and Senior Priest) of St. Ambrose Episcopal Parish in Claremont, California from 1990 through 2005. He has over twenty years experience in financial and business management. He attended Claremont McKenna College and St. Clare's Hall, Oxford. He obtained a Masters of Divinity from The General Theological Seminary in New York and a Doctorate of Ministry at the Graduate Theological Foundation in Indiana in 1997.

CODE OF ETHICS

We have adopted a Code of Ethics that applies to all of our directors, officers and employees, including our principal executive officer and principal financial officer. We intend to satisfy the disclosure requirement under Item 10 of Form 8-K regarding an amendment to, or waiver from, a provision of our Code of Ethics by filing a Current Report on Form 8-K with the SEC, disclosing such information.

AUDIT COMMITTEE

The Audit Committee, which held 3 meetings during fiscal year 2009, recommends the selection of independent public accountants, reviews the scope of approach to audit work, meets with and reviews the activities of the Company's internal accountants and the independent public accountants, makes recommendations to management or to the Board of Directors as to any changes to such practices and procedures deemed necessary from time to time to comply with applicable auditing rules, regulations and practices, and reviews all Form 10-K Annual and 10-Q interim reports.

The Audit Committee consists of James Stapleton and is an "Audit Committee" for the purposes of Section 3(a)(58) of the Securities Exchange Act of 1934. The Audit Committee has one "audit committee financial expert" as defined by Item 401(e) of Regulation S-B under the Securities Exchange Act of 1934, James Stapleton, is "independent" as that term is defined in the rules of the NASDAQ stock market.

ITEM 11. Executive Compensation

The following table summarizes the compensation earned by or paid to our principal executive officer, principal financial officer, a highly compensated executive officer, other highly compensated individuals who are not executive officers and a Director; all who served during the fiscal year ended December 31, 2009.

The total compensation for the three fiscal years ended December 31, 2009 of Timothy J. Koziol, our Chief Executive Officer, Brett M. Clark, our Chief Financial Officer, William J. Mitzel, our President and James Stapleton, our Director is set forth below in the following Summary Compensation Table.

		Annual Compensation						Long-Term Awards				Compensation Payouts
Name & Principal Position	Year	Salary ($)(1)		Bonus ($)		Other Annual Compensation ($)		Restricted Stock Award(s)		Securities Underlying Options/ SARs		LTIP Payouts		All Other Compensation ($)

Timothy J. Koziol	2009		253,577		-0-		-0-		-0-		100,000(2)		-0-		-0-
Chief Executive Officer	2008		303,308		25,000		-0-		-0-		-0-		-0-		-0-
	2007		249,279		17,500		-0-		-0-		1,425,000(3)		-0-		82,810-

Brett M. Clark	2009		201,750		-0-		-0-		-0-		100,000(4)		-0-		-0-
Chief Financial Officer	2008		213,000		-0-		-0-		-0-		-0-		-0-		-0-
	2007		210,000		-0-		-0-		-0-		1,175,000(5)		-0-		85,085

William J. Mitzel	2009		147,346		-0-		-0-		-0-		100,000(6)		-0-		-0-
President	2008		156,000		-0-		-0-		-0-		-0-		-0-		-0-
	2007		156,000		-0-		-0-		-0-		450,000(7)		-0-		-0-

James P. Stapleton	2009		-0-		-0-		-0-		-0-		70,000(8)		-0-		-0-
Director	2008		-0-		-0-		-0-		-0-		-0-		-0-		-0-
	2007		-0-		-0-		-0-		-0-		35,000 (9)		-0-		-0-

(1)	The compensation described in this table does not include medical, group life insurance or other benefits received by the named executive officers that are available generally to all of our salaried employees, and may not include certain perquisites and other personal benefits received by the named executive officers that do not exceed the lesser of $50,000 or ten percent (10%) of any such officer's salary and bonus disclosed in the table.
(2)	Includes 100,000 incentive stock options exercisable at $0.75 per share.
(3)	Includes 750,000 incentive options exercisable at $1.19 per share, 25,000 incentive stock options exercisable at $1.70 and 650,000 warrants, exercisable at $1.19 per share.
(4)	Includes 100,000 incentive stock options exercisable at $0.75 per share.
(5)	Includes 600,000 incentive stock options, exercisable at $1.19 per share, 75,000 incentive stock options exercisable at $1.70 per share and 500,000 warrants, exercisable at $1.19 per share.
(6)	Includes 100,000 incentive stock options, exercisable at $0.75 per share.
(7)	Includes 100,000 incentive stock options, exercisable at $1.70 per share and 350,000 incentive stock options exercisable at $1.19 per share.
(8)	Includes 70,000 warrants exercisable at $0.75 per share.
(9)	Includes 35,000 warrants exercisable at $1.19 per share.

There were no option exercises by our executive officers during fiscal 2009.

ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

SECURITY OWNERSHIP

The following table sets forth those stockholders who beneficially own 5% or more of the common stock of the Company, the common stock ownership of the directors and executive officers, and the stock ownership of the directors and executive officers as a group:

	No. of			% of Stock
	Shares			Outstanding
Name and Address	Owned			(1)
Kevin P. O’Connell(2)
660 Newport Center Drive, Suite 720
Newport Beach, CA 92660		1,342,483	(3)		9.22.	%

Timothy J. Koziol
3191 Temple Ave., Suite 250
Pomona CA 91768		1,435,623	(4)		9.86	%

Douglas B. Edwards
3191 Temple Ave., Suite 250
Pomona CA 91768		284,750	(5)		2.51	%

James Stapleton
3191 Temple Ave., Suite 250
Pomona CA 91768		114,392	(6)		0.79	%

Brett M. Clark
3191 Temple Ave., Suite 250
Pomona CA 91768		1,169,163	(7)		8.03	%

William J. Mitzel
3191 Temple Ave., Suite 250
Pomona CA 91768		446,875	(8)		3.07	%

Laurus Capital Management, LLC
825 Third Avenue, 14th Floor		1,099,994	(9)		7.56	%
New York, NY 10022

CVC California LLC		4,804,900	(10)		33.01	%
1 N Clemente # 300 West Palm Beach, FL 33401

Directors and Officers as a Group (5 persons)		3,450,803			23.70	%

(1)	Based upon 14,557,653 shares outstanding.

(2)	Kevin P. O’Connell is the Managing Member of Billington Brown Acceptance, LLC, Revete MAK, LLC, Revete Capital Partners LLC, Lapis Solutions, LLC and General Pacific Partners, LLC.

(3)	Includes 1,140,525 warrants to purchase common stock at $0.60, 168,250 warrants to purchase common stock at $1.19 and 26,250 warrants to purchase common stock at $1.05.

(4)

Includes 703,125 options to purchase common stock at $1.19 per share, 18,746 options to purchase common stock at $1.70 per share, 43,750 options to purchase common stock at $0.75 per share and 6,667 options to purchase common stock at $30.00 per share. Includes 650,000 warrants to purchase common stock at $1.19.

(5)	Includes 284,750 warrants to purchase common stock at $4 per share.

(6)	Includes 35,000 warrants to purchase common stock at $1.19 per share and 70,000 warrants to purchase common stock at $0.75 per share.

(7)

Includes 562,500 options to purchase common stock at $1.19 per share, 56,246 options to purchase common stock at $1.70 per share, 43,750 options to purchase common stock at $0.75 per share and 6,667 options to purchase common stock at $39.00 per share. Includes 500,000 warrants to purchase common stock at $1.19.

(8)	Includes 328,125 options to purchase common stock at $1.19 per share, 75,000 options to purchase common stock at $1.70 per share, and 43,750 options to purchase common stock at $0.75 per share.

(9)

Laurus Capital Management, LLC, a Delaware limited liability company (“Laurus Capital”), serves as the investment manager of Laurus Master Fund, LTD., Valens U.S. SPV I, LLC and Valens Offshore SPV I, LTD (together, the “Laurus Funds”) and possesses the sole power to vote and the sole power to direct the disposition of all securities of the Company held by the Laurus Funds, which, as of the date hereof, constitute an aggregate of 1,099,994 shares upon exercise of warrants. Mr. Eugene Grin and Mr. David Grin, through other entities, are the controlling principals of Laurus Capital. Laurus Capital, Mr. Eugene Grin and Mr. David Grin each disclaim beneficial ownership of such shares, except to the extent of its of his pecuniary interest therein, if any.

(10)

Includes 1,350,000 warrants to purchase common stock at $0.60 per share and 1,350,000 warrants to purchase common stock at $0.70 and 2,104,900 shares of common stock issuable on conversion of debt. Mr. Gary Jaggard is the controlling principal of CVC California, LLC. Mr. Gary Jaggard disclaims beneficial ownership of such shares, except to the extent of his pecuniary interest therein, if any.

EQUITY COMPENSATION PLAN INFORMATION

The following table provides information with respect to the equity securities that are authorized for issuance under our compensation plans as of December 31, 2009:

Plan Category	Number of Securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders	3,400,155	$1.54	2,187,962

On February 14, 2007, the Company completed the reverse split of the outstanding common stock, par value $0.001 per share, by a ratio of 1-for-30. All share and per share calculations and option shares have been retro-actively adjusted to reflect this reverse split as if it occurred at the beginning of the earliest period presented.

Prior to acquisition by the Company, General Environmental Management, Inc. of Delaware’s Board of Directors approved and implemented the 2005 Stock Option Plan (“The 2005 Plan”). The Plan authorized option grants to employees and other persons closely associated with the Company for the purchase of up to 88,117 shares.

During 2006, the Board of Directors of General Environmental Management, Inc. granted to employees a total of 12,587 options and cancelled 1,537 options. The exercise price for the options was the market value of the stock at the date of the grant.

During 2009, 2008 and 2007, the Board of Directors cancelled 1,852, 10,854 and 24,779 options respectively.

On March 28, 2007 the Board of Directors approved and implemented the 2007 Stock Option Plan (the “2007 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. During 2007 the Stock Option Committee granted a total of 5,233,268 options, had exercises of 100 options, and cancelled 289,188. The exercise price of the options was the market value of the stock at the date of the grant.

During the year ended December 31, 2008 the Stock Option Committee granted a total of 173,000 options and cancelled 384,001 options.

During the year ended December 31, 2009 the Stock Option Committee granted a total of 604,500 options, had an exercise of 250 options and cancelled 1,966,656 options.

The weighted average exercise price of the options at December 31, 2009 was $1.54 per share.

ITEM 13. Certain Relationships and Related Transactions and Director Independence

Letter of Credit Services

Software Support

Related Party Lease Agreement

ITEM 14. Principal Accountant Fees and Services

Independent Auditor Fees

Fees for professional services provided by GEM’s independent auditors, Weinberg & Company, for the years ended December 31, 2009 and 2008 are as follows:

Fees	2009		2008
Audit fees		193,210		152,490
Audit related fees		57,571		40,042
Tax fees		-0-		-0-
All other fees		-0-		-0-
Total fees		250,781		192,532

Audit fees consist of fees related to GEM’s year end financial statements and review of GEM’s quarterly reports on Form 10-Q. Audit related fees principally include audits in connection with the acquisition completed during 2009.

It is the policy of GEM’s audit committee to approve all engagements of GEM’s independent auditors to render audit or non-audit services prior to the initiation of such services.

PART IV

ITEM 15. Exhibits, Financial Statements Schedules

The following are exhibits filed as part of GEM's Form 10-K for the year ended December 31, 2009:

EXHIBIT NUMBER		DESCRIPTION
2.1		Articles of Incorporation of the Registrant *
3.1		Articles of Amendment of Articles of Incorporation of the Registrant *
3.2		Bylaws of the Registrant *
31.1		CEO Certification **
31.2		CFO Certification **
32.1		CEO Certification **
32.2		CFO Certification **

* Previously Filed

** Filed Herewith

Reports on Form 8-K

(1) As filed with the commission on Form 8K dated September 24,2008

(2) As filed with the commission on Form 8K dated June 4, 2009

(3) As filed with the commission on Form 8K dated September 8, 2009

(4) As filed with the commission on Form 8K dated September 11, 2009

(5) As filed with the commission on Form 8K dated November 18, 2009

(6) As filed with the commission on Form 8K dated December 3, 2009

(7) As filed with the commission on Form 8K dated December 23, 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: April 15, 2010	By:	/s/ Timothy J. Koziol
		Timothy J. Koziol President, CEO and Chairman of the Board of Directors

Dated: April 15, 2010	By:	/s/ Brett M. Clark
		Brett M. Clark Executive Vice President Finance, Chief Financial Officer

GENERAL ENTERTAINMENT VENTURES, INC - FORM 10-K - April 15, 2010

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