(continued)

8587

GENERAL ENVIRONMENTAL MANAGEMENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

	Years Ended December 31,
	2008		2007
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		-
Value of warrants issued in connection with lease		-		187,128
Conversion of related party debt to common stock		-		3,933,861
Conversion of investor interest to common stock		-		196,772
Conversion of fees due to related party to common stock		-		220,000
Issuance of note payable on acquisition		1,250,000		-
Issuance of capital lease obligations		-		1,294,363
Value of warrants and beneficial conversion feature on notes		1,674,035		1,245,209
Closing fees due to related party included as deferred financing fees		250,000		-
Issuance of common stock for accrued expenses		-		451,602

See accompanying notes to the consolidated financial statements

8688

GENERAL ENVIRONMENTAL MANAGEMENT, INC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

1. ORGANIZATION AND PRINCIPAL ACTIVITIES

ORGANIZATION AND DESCRIPTION OF BUSINESS

Ultronics Corporation (a development stage company) ( “the Company”) was incorporated in the state of Nevada on March 14, 1990 to serve as a vehicle to effect a merger, exchange of capital stock, asset acquisition or other business combination with a domestic or foreign private business. The Company’s fiscal year end is December 31.

On February 14, 2005 the Company acquired all of the outstanding shares of General Environmental Management, Inc (“GEM”), a Delaware Corporation in exchange for 630,481 shares of its class A common stock and as a result GEM became a wholly owned subsidiary of Ultronics Corporation. The acquisition was accounted for as a reverse merger (recapitalization) with GEM deemed to be the accounting acquirer, and Ultronics Corporation the legal acquirer.

At a special meeting of stockholders held on January 29, 2007, the Board of Directors was given the authority to amend the Certificate of Incorporation to increase the number of authorized common shares, $.001 par value, from 200,000,000 to one billion, to combine shares of the Company’s common stock to effect a one for 30 reverse stock split of the common stock and to increase the number of authorized preferred stock, $.001 par value, from 50,000,000 to 100,000,000. 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 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.

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 $7,149,709 and utilized cash in operating activities of $1,586,386 during the year ended December 31, 2008, and as of December 31, 2008 the Company had current liabilities exceeding current assets by $11,751,760 and a stockholders’ deficiency of $2,930,380. These matters raise substantial doubt about the Company’s ability to continue as a going concern.

Management is continuing to raise capital through the issuance of debt and equity. In addition, management believes that the Company will begin to operate profitably due to improved operational results, cost cutting practices, and the completion of the integration of an acquisition made by the Company during 2008. However, there can be no assurances that the Company will be successful in this regard or will be able to eliminate its working capital deficit or operating losses. The accompanying consolidated financial statements do not contain any adjustments which may be required as a result of this uncertainty.

8789

GENERAL ENVIRONMENTAL MANAGEMENT, INC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

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 and General Environmental Management of Rancho Cordova, LLC. Inter-company accounts and transactions have been eliminated.

(b) Use of estimates

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

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

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

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

8890

GENERAL ENVIRONMENTAL MANAGEMENT, INC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

(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, 2008, two customers accounted for approximately 14% and 7% of revenues, respectively. During the year ended December 31, 2007, two customers accounted for approximately 17% and 10% of revenues. As of December 31, 2008, one customer accounted for 24% of accounts receivable. As of December 31,2007, two customers accounted for 25% and 11% of accounts receivable.

(e) Fair Value of Financial Instruments

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

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

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

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

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

(f) Cash

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

(g) 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. At December 31, 2008, trade receivables had a net balance in the amount of $6,729,743 net of an allowance of $174,834. At December 31, 2007, trade receivables had a net balance in the amount of $6,495,736 net of an allowance of $236,781.

8991

GENERAL ENVIRONMENTAL MANAGEMENT, INC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

(h) 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. The Company accounts for these costs based on SFAS No. 143, “Accounting for Asset Retirement Obligations”, which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the related asset retirement costs. The statement 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 2008 and $2,013 in 2007.

(i) Goodwill and Intangible Assets

The Company accounts for goodwill and intangible assets pursuant to SFAS No. 142, Goodwill and Other Intangible Assets. Goodwill represents the excess of the purchase price of an acquired company over the fair value of the identifiable assets acquired and liabilities assumed. Under SFAS 142, intangibles with definite lives continue to be amortized on a straight-line basis over the lesser of their estimated useful lives or contractual terms. Goodwill and intangibles with indefinite lives are evaluated at least annually for impairment by comparing the asset’s estimated fair values with its carrying value, based on cash flow methodology. If any losses are determined to exist they are recorded in the period when such impairment is determined.

The provisions of SFAS No. 142 state that goodwill of a reporting unit must be tested for impairment on an annual basis or at any other time during the year if events occur or circumstances change that would indicate that it is more likely than not that the fair value of the reporting unit has been reduced below its carrying amount. Circumstances that could trigger an impairment test include; a significant adverse change in the business climate or legal factors; an adverse action or assessment by a regulator; unanticipated competition; the loss of key personnel; the likelihood that a reporting unit or significant portion of a reporting unit will be sold or otherwise disposed of; the results of testing for recoverability of a significant asset group within a reporting unit, and the recognition of a goodwill impairment loss in the financial statements of a subsidiary that is a component of a reporting unit. Based upon management’s assessment, there are no indicators of impairment of its goodwill or intangibles at December 31, 2008 or 2007.

9092

GENERAL ENVIRONMENTAL MANAGEMENT, INC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

(j) 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. Based upon management’s assessment, there are no indicators of impairment of its long lived assets at December 31, 2008 or 2007.

(k) 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.

(l) 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.

(m) Stock Compensation Costs

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

9193

GENERAL ENVIRONMENTAL MANAGEMENT, INC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

The fair value of each option on the date of grant was estimated using the Black-Scholes option pricing model with the following weighted average assumptions:

	2008			2007
Risk free rate of return		4.78	%		4.78	%
Option lives in years		8.0			8.0
Annual volatility of stock price		33.17	%		83.5	%
Dividend yield		--	%		--	%

(n) Net Loss per Share

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

These potentially dilutive securities were not included in the calculation of loss per share for the years ended December 31, 2008 and 2007 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, 2008 and 2007.

At December 31, 2008 and 2007, potentially dilutive securities consisted of convertible preferred stock, outstanding common stock purchase warrants, convertible debt and stock options to acquire an aggregate of 16,497,553 shares and 11,779,969 shares, respectively.

(o) Recent Accounting Pronouncements

References to the “FASB”, “SFAS” and “SAB” herein refer to the “Financial Accounting Standards Board”, “Statement of Financial Accounting Standards”, and the “SEC Staff Accounting Bulletin”, respectively.

In December 2007, the FASB issued FASB Statement No. 141 (R), “Business Combinations” (FAS 141(R)), which establishes accounting principles and disclosure requirements for all transactions in which a company obtains control over another business. Statement 141 (R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Earlier adoption is prohibited.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133” (SFAS 161). This Statement requires enhanced disclosures about an entity’s derivative and hedging activities, including (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS 133), and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008.

9294

GENERAL ENVIRONMENTAL MANAGEMENT, INC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51”. SFAS No. 160 establishes accounting and reporting standards that require that the ownership interests in subsidiaries held by parties other than the parent be clearly identified, labeled, and presented in the consolidated statement of financial position within equity, but separate from the parent’s equity; the amount of consolidated net income attributable to the parent and to the noncontrolling interest be clearly identified and presented on the face of the consolidated statement of income; and changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary be accounted for consistently. SFAS No. 160 also requires that any retained noncontrolling equity investment in the former subsidiary be initially measured at fair value when a subsidiary is deconsolidated. SFAS No. 160 also sets forth the disclosure requirements to identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS No. 160 applies to all entities that prepare consolidated financial statements, except not-for-profit organizations, but will affect only those entities that have an outstanding noncontrolling interest in one or more subsidiaries or that deconsolidate a subsidiary. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. SFAS No. 160 must be applied prospectively as of the beginning of the fiscal year in which it is initially applied, except for the presentation and disclosure requirements. The presentation and disclosure requirements are applied retrospectively for all periods presented.

In December 2007, the Securities and Exchange Commission issued Staff Accounting Bulletin (“SAB") No. 110 to permit entities, under certain circumstances, to continue to use the “simplified” method, in developing estimates of expected term of “plain-vanilla” share options in accordance with SFAS No. 123 (R) Share-Based Payment. SAB No. 110 amended SAB No. 107 to permit the use of the “simplified” method beyond December 31, 2007. The Company continues to use the “simplified” method and will do so until more detailed relevant information about exercise behavior becomes readily available.

In April 2008, the FASB issued Staff Position No. FAS 142-3 which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142, “Goodwill and Other Intangible Assets.” The intent of this FSP is to improve the consistency between the useful life of a recognized intangible asset under Statement 142 and the period of expected cash flows used to measure the fair value of the asset under FASB Statement No. 141 (revised 2007), Business Combinations, and other U.S. generally accepted accounting principles (GAAP).

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles. This Statement identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States. The FASB believes that the GAAP hierarchy should be directed to entities because it is the entity (not its auditor) that is responsible for selecting accounting principles for financial statements that are presented in conformity with GAAP. The FASB does not believe this Statement will result in a change in current practice. SFAS 162 is effective November 15, 2008.

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

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.

9395

GENERAL ENVIRONMENTAL MANAGEMENT, INC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

3. ACQUISITION

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

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

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

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

There is also an accelerated note payment and a contingent earn-out which could be payable to the sellers upon the recapture by Island of EBITDA in excess of $1,100,000 during the twelve month period following the acquisition. A contingent earn-out of up to $3,750,000 could be made to the sellers if the EBITDA is greater than $1,100,000 and up to a maximum EBITDA of $2,500,000 is achieved. If the EBITDA is not achieved, the current note payable of $1,250,000 will have an accelerated payment due of $750,000 in September, 2009 and no contingent earn-out will be made.

9496

GENERAL ENVIRONMENTAL MANAGEMENT, INC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

The following sets out the pro forma operating results for the year ended December 31, 2008 and 2007 for the Company had the acquisition occurred as of January 1, 2007:

	Pro Forma (Unaudited) Years ended December 31,
	2008			2007
Net sales	$	42,162,233		$	38,154,055

Cost of sales		33,514,560			28,436,331

Gross profit		8,647,673			9,717,724

Operating expenses		12,457,460			16,429,236

Operating loss		(3,809,787	)		(6,711,512	)

Other income (expense):
Interest income		54,597			97,277
Interest expense and amortization of deferred financing costs		(4,701,849	)		(2,548,609	)
Cash to induce conversion of related party debt		-			(6,797,639	)
Other non-operating income		119,744			112,333

Net Loss	$	(8,337,295	)	$	(15,848,150	)

Loss per weighted average share, basic and diluted	$	(.66	)	$	(1.53	)

9597

GENERAL ENVIRONMENTAL MANAGEMENT, INC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

4. PROPERTY AND EQUIPMENT

Property and Equipment consists of the following as of December 31, 2008 and 2007:

		2008		2007
Land	$	905,000	$	905,000
Building and improvements		1,140,656		1,074,642
Vehicles		2,687,128		849,783
Equipment and furniture		411,064		369,218
Warehouse equipment		5,277,892		2,561,858
Leasehold improvements		242,678		8,047
Asset retirement obligations		35,846		35,846
		10,700,264		5,804,394
Less accumulated depreciation and amortization		2,917,056		1,854,141
Property and equipment net of accumulated depreciation and amortization	$	7,783,208	$	3,950,253

Property and equipment includes assets under capital lease with a cost of $3,248,546 and $1,590,480 and accumulated depreciation of $805,912 and $248,678 as of December 31, 2008 and 2007, respectively.

Depreciation expense was $1,062,960 and $606,054 for the years ended December 31, 2008 and 2007 respectively.

9698

GENERAL ENVIRONMENTAL MANAGEMENT, INC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

5. GOODWILL AND INTANGIBLE ASSETS

Intangible assets consist of the following at December 31, 2008 and 2007:

	2008			2007
Rancho Cordova – permits	$	475,614		$	475,659
Prime acquisition – customers		400,422			400,422
K2M Acquisition – customers		438,904			438,904
K2M Acquisition – permits		27,090			27,090
Total Cost		1,342,030			1,342,075
Accumulated amortization		(477,249	)		(314,031	)
	$	864,781		$	1,028,044

Amortization expense was $163,218 and $163,173 for the years ended December 31, 2008 and 2007 respectively

Permit costs arising from the Rancho Cordova acquisition have been capitalized and are being amortized over 35.5 years, the life of the permit, including expected renewal periods.

On August 1, 2004, the Company entered into a Purchase Agreement to acquire certain assets and liabilities of Firestone Environmental Services, Inc. dba Prime Environmental Services, Inc. and Firestone Associates Inc. dba Firestone Energy Company (Prime), a privately held company. Customer relationships resulting from the Prime acquisition have been capitalized and are being amortized over five years, its expected actual life.

In March 2006, the Company acquired all of the issued and outstanding common stock of K2M Mobile Treatment Services, Inc. of Long Beach, California ("K2M"), a privately held company. The Company allocated the excess of net assets acquired to customer relationships and permits and is amortizing these amounts over five years.

9799

GENERAL ENVIRONMENTAL MANAGEMENT, INC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

Future annual amortization under these intangible assets at December 31, 2008 is as follows:

Year Ended December 31,	Amount
2009	$	163,218
2010		163,218
2011		163,218
2012		13,398
2013		13,398
Thereafter		348,331
	$	864,781

Goodwill consists of the following at December 31, 2008 and 2007:

	2008		2007
Goodwill – Prime Acquisition	$	84,505	$	84,505
Goodwill – K2M Acquisition		861,614		861,614
	$	946,119	$	946,119

6. RELATED PARTY TRANSACTIONS

The Company 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 approximately 5% of the Company’s common stock at December 31, 2008. The following summarizes the transactions with GPP during the years ended December 31, 2008 and 2007.

Advances to Related Parties

Advances to related parties consists of the following at December 31, 2008 and 2007:

	2008			2007
Notes from GPP	$	472,500		$	-
Financing Fees		250,000			-
Accrued Interest		93,692			31,871
Valuation Discount		(109,324	)		-
	$	706,868		$	31,871

98100

GENERAL ENVIRONMENTAL MANAGEMENT, INC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

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. As of December 31, 2008, $472,500 remained outstanding. 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 ending December 31, 2008 includes $333,176 for amortization of this discount, and the unamortized valuation discount was $109,324 at December 31, 2008.

During the year ended December 31, 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 and issue to them a warrant to purchase up to 250,000 shares of the Company’s common stock at an exercise price of $.60 for a period of six years valued at $179,982 using 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 6 years. The value of the warrant and the cash paid has been reflected as part of deferred financing fees on the accompanying balance sheet at December 31, 2008.

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.

During the year ended December 31, 2008 the Company accrued $19,945 in fees and issued to GPP a warrant to purchase 64,500 shares of the Company’s common stock related to a letter of credit issued and released during the year. The Company valued the warrants at $57,405 using a Black - Scholes option pricing model and reflected such cost as a financing cost. For the Black - Scholes calculation, the Company assumed no dividend yield, a risk free interest rate of 4.78 %, expected volatility of 87.87 % and an expected term for the warrants of 7 years.

Software Support

During the year ended December 31, 2008, the Company entered into a three year agreement with Lapis Solutions, LLC, (Lapis) a company managed by a prior member of the Board of Directors of the Company’s wholly owned subsidiary, General Environmental Management, Inc. of Delaware, wherein Lapis would provide support and development services for the Company’s proprietary software GEMWARE. Services costs related to the agreement total $10,800 per month. As of December 31, 2008, $92,555 of the fees had been prepaid to Lapis. As additional consideration for the support and development services agreement, the Company issued Lapis a seven year warrant to purchase 35,000 shares of the Company’s common stock at $1.05 per share. These warrants were valued at $29,050 using the Black - Scholes valuation model and such cost was recognized as an expense. For the Black - Scholes calculation, the Company assumed no dividend yield, a risk free interest rate of 4.78 %, expected volatility of 87.87 % and an expected term for the warrants of 7 years.

Advisory fees

During the year ended December 31, 2007 the Company incurred $90,500 in fees for advisory services provided by General Pacific Partners (“GPP”). As of December 31, 2007 all amounts owed to General Pacific Partners for fees related to advisory services had been paid.

99101

GENERAL ENVIRONMENTAL MANAGEMENT, INC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

On February 1, 2007, the Company entered into a twelve month advisory agreement with GPP. The fees under the agreement consisted of an initial cash fee of $55,500, expenses of $35,000, the issuance of 426,500 shares of its common stock, valued at $507,535, and a seven year warrant to purchase 450,000 shares of the Company’s common stock at $0.60 per share. The Company valued the warrants at $357,750 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 33.17 % and an expected term for the warrants of 7 years. The Company also agreed to modify certain terms of two sets of warrants issued during 2006 including the modification of the exercise price (from $1.20 per share to $0.60 per share) and the life of the warrants (from 5.5 years to 6.5 years). The second set of warrants included the modification of the life of the warrants (from 1.75 years to 6.75 years). The Company valued the modification of these warrants as $136,082 which was based on the difference of the warrant before and after the modification. For the Black - Scholes calculation, the Company assumed no dividend yield, a risk free interest rate of 4.78 %, expected volatility of 33.17% and an expected term for the warrants of 6.5 and 6.75 years. The Company reflected an aggregate charge of $1,091,867 during the year ended December 31, 2007 relating to these transactions.

On March 31, 2007 General Pacific Partners agreed to convert $220,000 of accrued advisory fees and expenses into 184,874 shares of common stock based upon the existing fair value of the Company’s common stock. As an inducement to convert, the Company issued GPP a seven year warrant to purchase 55,462 shares of the Company’s common stock at $0.60 per share. These warrants were valued at $44,092 using the Black - Scholes valuation model and such cost was recognized as an expense. For the Black - Scholes calculation, the Company assumed no dividend yield, a risk free interest rate of 4.78 %, expected volatility of 33.17 % and an expected term for the warrants of 7 years.

Issuance and conversion of assignable notes

From December 2006 through October 2007 General Pacific Partners made several unsecured advances to the Company utilizing assignable notes totaling $3,897,984. With the approval of the Board of Directors, the Company offered holders of the assignable notes the ability to convert the notes to common stock at a value of $1.20 per share, and during the year ended December 31, 2007, $3,933,861 of these notes and accrued interest were converted into 3,278,250 shares of common stock. The fair value of the shares at the time of conversion was $8,679,689 resulting in a cost to induce conversion of debt of $4,745,828. As a further inducement to convert, the holders were issued 974,503 two year warrants to purchase a number of shares equal to 30% of the number of shares they will receive upon conversion of the principal note amount due to them at an exercise price of $0.60. The Company valued the warrants at $2,051,811 using a Black - Scholes option pricing model.

The aggregate value of common stock and warrants issued of $10,731,500 in excess of the notes payable and accrued interest exchanged of $3,933,861 was $6,797,639 and was reflected as costs to induce conversion of debt in the accompanying statement of operations for the year ended December 31, 2007.

As of December 31, 2007, all of these unsecured advances have been converted to common stock and no further amounts were due.

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 9) 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 will be 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.

~~100~~102

GENERAL ENVIRONMENTAL MANAGEMENT, INC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

7. SECURED FINANCING AGREEMENTS

During the period 2006 through 2008, the Company entered into a series of financings with Laurus Master Fund (“Laurus”) and CVC California, LLC (“CVC”). The amounts due under these financings at December 31, 2008 and December 31, 2007 are as follows:

	December 31,			December 31,
	2008			2007
(a) Secured notes from Laurus and affiliated entities	$	-		$	6,413,605
(b) Secured Notes from CVC California		13,547,909			-
Valuation Discount		(3,181,365	)		(2,042,192	)
		10,366,544			4,371,413
Less current portion		(10,366,544	)		(662,719	)
Financing agreement, net of current portion	$	0		$	3,708,694

(a) Secured notes from Laurus Master Fund and affiliated entities.

On March 3, 2006, General Environmental Management, Inc. entered into an agreement with Laurus Master Fund, Ltd. dated as of February 28, 2006, whereby the Company issued to Laurus a secured convertible term note ("Note") in the principal amount of $2.0 million and a Secured Non-Convertible Revolving Note (“Revolving Note”) of up to $5.0 million. On October 31, 2007, General Environmental Management, Inc entered into an agreement with Laurus Master Fund, Ltd. ("Laurus"), LV Administrative Services, Inc. (“LV Admin”), Valens U.S. SPV I, LLC (“Valens US”) and Valens Offshore SPV II, Corp. (“Valens”), whereby the Company issued to these companies secured convertible term notes ("Valens Notes") in the principal amount of $1.25 million.

(i). Under terms of the initial agreement, the principal amount of the Note carried an interest rate of prime plus three and one half percent, subject to adjustment, and such interest was payable monthly. The Company also was required to make monthly principal payments in the amount of $60,606, commencing June 1, 2006, until its maturity on February 28, 2009, as well as monthly interest payments in the amount of prime plus 3.5%, but in no event less than 8% per annum. On October 31, 2007, the Company entered into an Amendment of, and Joinder to, Existing Financing Documents with Laurus Master Fund Ltd., wherein the Company’s principal payment for the convertible term loan under Secured Convertible Term Loan agreement was changed as follows (i) Monthly principal payment was reduced from $60,606 to $30,303 (from February 2008 to February 2009), (ii) 4-months grace period for principal payment (monthly payment started in March 2008), (iii) Interest is to be paid monthly (based on prime +3.5%), and; (iv) Balloon payment in February 2009 for the remaining balance of the loan. As of December 31, 2007, the Company had outstanding borrowings of $973,623 against the note.

(ii). The revolving note allowed the Company to borrow a maximum amount of $5,000,000, based on a borrowing base of 90% of all eligible receivables, which were primarily accounts receivables under 90 days. The interest rate on this line of credit was in the amount of prime plus 3.5%, but in no event less than 8% per annum. As of December 31, 2007, the Company had outstanding borrowings of $4,194,771 against the Revolving Note.

~~101~~103

GENERAL ENVIRONMENTAL MANAGEMENT, INC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

(iii). The principal amount of the $1,250,000 Valens Notes and accrued interest thereon was convertible into shares of its common stock at a price of $2.78 per share, subject to anti-dilution adjustments. Under the terms of the Note, monthly principal payment amount of approximately $30,303, plus the monthly interest payment (together, the "Monthly Payment"), was payable in either cash or, if certain criteria were met, including the effectiveness of a current registration statement covering the shares of its common stock into which the Note is convertible, through the issuance of its common stock. Valens and Valens US had the option to convert the entire principal amount of the Note, together with interest thereon, into shares of its common stock, provided that such conversion did not result in Valens and Valens US beneficially owning at any one time more than 9.99% of its outstanding shares of common stock. The balance outstanding under these notes at December 31, 2007 was $1,245,210.

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

The aggregate amount due under these notes at December 31, 2007 was $6,413,605. On September 4, 2008 the entire amount due on these notes was paid in full with the proceeds of CVC notes described below.

In connection with the above financings, the Company paid to Laurus closing fees of $326,193, and issued to Laurus 1,099,994 warrants initially valued in the aggregate at $2,000,243, and determined the aggregate beneficial conversion feature of the convertible notes to be $1,368,397. The closing fees, the value of the warrants and the calculated beneficial conversion feature was reflected by the Company as a valuation discount and offset to the face amount of the Notes, and was being amortized to interest expense over the life of the loan based upon the effective interest method. Unamortized valuation discount was $2,042,192 as of December 31, 2007. The remaining balance of the valuation discount was fully amortized in 2008 as part of the new financing agreement with CVC California described below.

In conjunction with the above financings, the Company also incurred fees to various investment advisors that facilitated the transaction, including the issuance of shares of our common stock and issuance of warrants. The fees paid to the finders and the value of the warrants issued to the finders were reflected as deferred financing costs in the accompanying balance sheet and were amortized over the life of the loan. Unamortized deferred financing fees were $394,082 as of December 31, 2007. The remaining balance of deferred financing fees was fully amortized in 2008 as part of the new financing agreement with CVC California described below.

(b) Note Agreements with CVC California

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

~~102~~104

GENERAL ENVIRONMENTAL MANAGEMENT, INC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

(i). The principal amount of the Note and accrued interest thereon is convertible into shares of our common stock at a price of $3.00 per share, subject to anti-dilution adjustments. Under the terms of the Note, the monthly principal payment amount of approximately $135,416 plus the monthly interest payment (together, the "Monthly Payment"), is payable in either cash or, if certain criteria are met, including the effectiveness of a current registration statement covering the shares of our common stock into which the Note is convertible, through the issuance of our common stock. The Company has agreed to register all of the shares that are issuable upon conversion of the Note and exercise of warrants. As of December 31, 2008 the Company had an outstanding balance of $6,500,000 under the note.

(ii). The revolving note allows the Company to borrow a maximum amount of $7,000,000, based on a borrowing base of 90% of all eligible receivables, which are primarily accounts receivables under 90 days. The interest rate on this line of credit is in the amount of prime plus 2.0%, but in no event less than 7% per annum. The Revolving Note is secured by all assets of the Company and is subject to the same security agreement as discussed below. The note is due August 31, 2011. As of December 31, 2008 the Company had an outstanding balance of $7,047,909 (including accrued interest) under the revolving note. We project that the Company will maintain a minimum balance of $6,500,000 under the revolving note.

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

In connection with the CVC financing, 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 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. Financing costs for the year ended December 31, 2008 includes amortization of $397,671 relating to the discount, and unamortized valuation discount was $3,181,365 at December 31, 2008.

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

~~103~~105

GENERAL ENVIRONMENTAL MANAGEMENT, INC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

For the fiscal quarter ending September 30, 2008, the Company had EBITDA that was within 10% of the required minimum EBITDA for such measuring period but was not able to achieve the EBITDA required in the next succeeding measuring period.

The Agreement provides that upon the occurrence of any Event of Default, and at all times thereafter during the continuance thereof: (a) the Notes, and any and all other Obligations, shall, at the Lender’s option become immediately due and payable, both as to principal, interest and other charges, (b) all outstanding Obligations under the Notes, and all other outstanding Obligations, shall bear interest at the default rates of interest provided in certain promissory Notes (the "Notes"), (c) the Lender may file suit against the Company on the Notes and against the Company and the Subsidiaries under the other Loan Documents and/or seek specific performance or injunctive relief thereunder (whether or not a remedy exists at law or is adequate), (d) the Lender shall have the right, in accordance with the Security Documents, to exercise any and all remedies in respect of such or all of the Collateral as the Lender may determine in its discretion (without any requirement of marshalling of assets or other such requirement, all of which are hereby waived by the Borrower), 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.

As of April 13, 2009, the Lender has not taken any action with regard to the default under Section 6.18 of the Agreement. The Company is in discussions with the Lender to obtain a waiver of the Default and continues to operate in the normal course of business and receive advances under the Revolving Credit Commitment.

Based on the technical nature of the default, the Company has reclassified the outstanding debt to CVC California, LLC to current liabilities on the balance sheet.

Future annual maturities under these notes payable at December 31, 2008 are as follows:

Year Ended December 31,	Amount
2009	$	13,547,909
2010		-
2011		-
Total	$	13,547,909

~~104~~106

GENERAL ENVIRONMENTAL MANAGEMENT, INC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

8. CONVERTIBLE NOTES PAYABLE

During the period March 4, 2004 through June 22, 2004, the Company entered into a Loan and Security Agreement with several investors to provide the funding necessary for the purchase of the Transfer Storage Disposal Facility (TSDF) located in Rancho Cordova, California. The notes are secured by the TSDF, carry an interest rate of eight percent (8%) per annum, and principal and interest are convertible at $30.00 per share into common stock. In addition, the note holders were issued warrants to purchase common stock. The notes were initially due June 30, 2009, but have been extended to September 30, 2011. As of December 31, 2008, notes payable of $422,500 plus accrued interest of $67,105 remain outstanding. As of December 31, 2007, notes payable of $500,000 plus accrued interest of $20,208 were outstanding. During the year ended December 31, 2007 accrued interest of $148,750 was converted to 125,000 shares of common stock.

9. LONG TERM OBLIGATIONS

Long term debt consists of the following at December 31, 2008 and December 2007:

	December 31, 2008		December 31, 2007
(a) Vehicle note	$	12,865	$	22,303
(b) Notes Payable, Alliance		-		1,250,000
(c) Equipment notes		67,102		97,628
(d) Notes Payable, Island Acquisition		1,250,000		-
		1,329,967		1,369,931
Loan Discount		-		(15,625	)
		1,329,967		1,354,306
Less current portion		794,278		1,274,464
Notes payable, net of current portion	$	535,689	$	79,842

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

(b) On September 12, 2005, our wholly owned subsidiary, General Environmental Management of Rancho Cordova, LLC, (“GEM LLC”) entered into a $1.25 million secured, long-term financing arrangement with The Alliance Portfolio (the “2005 Loan”). The loan was secured by real estate.

The terms of the loan provided that GEM LLC will pay monthly payments of interest only from November 1, 2005 through October 1, 2008, with the principal balance due on October 1, 2008. The 2005 Loan may be prepaid without premium or penalty after the twelfth month. If the 2005 Loan was prepaid prior to the twelfth month, then the prepayment penalty was 6 months interest on any principal prepaid in excess of 20% of the principal. Subject to the terms and conditions of the loan documentation, interest was due on the unpaid principal balance of the 2005 Loan at a rate of 12.99% per annum until June 1, 2007, at which time the interest rate may rise based upon a formula set forth in the loan documentation. The interest rate reset to 14.07% on June 1, 2007. In no event will the interest rate be less than 12.99% per annum. In connection with obtaining the loan, the Company paid a $62,500 loan origination fee which was being amortized over the term of the loan. The balance of the loan was paid off in September 2008 as part of the new financing agreement with CVC California, LLC (see note 7).

~~105~~107

GENERAL ENVIRONMENTAL MANAGEMENT, INC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

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

(d) On August 31, 2008, the Company entered into a stock purchase agreement with Island Environmental as detailed in Note 3. As part of the consideration for the purchase the Company, issued two three year promissory notes totaling $1.25 million.

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

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

Future annual maturities under these notes payable at December 31, 2008 are as follows:

Year Ended December 31,	Amount
2009	$	794,278
2010		35,689
2011		500,000
	$	1,329,967

~~106~~108

GENERAL ENVIRONMENTAL MANAGEMENT, INC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

10. OBLIGATIONS UNDER CAPITAL LEASES

The Company has entered into various capital leases for equipment with monthly payments ranging from $598 to $26,560 per month, including interest, at interest rates ranging from 8.5% to 19.7% per annum. At December 31, 2008, monthly payments under these leases aggregated $51,573. The leases expire at various dates through 2013. The amounts outstanding under the capital lease obligations were $2,374,861 and $1,233,935 as of December 31, 2008 and 2007, respectively.

Minimum future payments under capital lease obligations are as follows:

Years Ending December 31,	Amount
2009	$	893,149
2010		723,857
2011		679,137
2012		571,962
2013		193,361
Thereafter		56,274
Total payments		3,117,740
Less: amount representing interest		(742,879	)
Present value of minimum lease payments		2,374,861
Less: current portion		(623,007	)
Non-current portion	$	1,751,854

~~107~~109

GENERAL ENVIRONMENTAL MANAGEMENT, INC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

11. 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.

During the year ended December 31, 2007, Ascendiant Securities LLC, an advisor to the Company, agreed to convert $312,768 in advisory fees and expenses into 260,641 shares of common stock based upon the fair value of the stock at the date of the agreement. In addition, a consultant to the Company agreed to convert $138,834 of accrued services performed in conjunction with acquisitions and advisory services performed during 2006 into 116,667 shares of common stock based upon the fair value of the stock at the date of the agreement.

During the year ended December 31, 2007, a consultant to the Company agreed to convert $22,690 in expenses into 8,251 shares of common stock based upon the fair value of the stock at the date of the agreement. On December 31, 2007, Patrick Lund, legal counsel for the Company, agreed to convert $76,250 in legal fees into 44,853 shares of the company’s common stock based upon the fair market value of the stock at the date of the agreement.

Issuance of Common Stock on Exercise of Stock Options

On July 27, 2007 one employee exercised 100 options granted under the Company’s 2007 Employee Stock Option Plan resulting in net proceeds to the Company of $119.

~~108~~110

GENERAL ENVIRONMENTAL MANAGEMENT, INC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

Issuance of Common Stock on Conversion of Interest

During the year ended December 31, 2007, holders of convertible notes issued during 2004 and 2006, agreed to convert $196,772 of accrued interest into 165,083 shares of common stock based upon the fair value of the stock at the date of the conversion.

Issuance of Warrants for Services

In March 2007, the Board of Directors awarded 2,085,000 fully vested warrants to purchase common stock of the Company to various individuals and consultants. These awards included 650,000 warrants to the Chairman of the Board, 500,000 warrants to the Chief Financial Officer, 35,000 warrants to the Chairman of the Audit committee, 400,000 warrants to Revete Capital Partners, LLC, a consultant to the Company and 500,000 shares to Extend Services Pty Ltd., also a consultant to the Company. The warrants are exercisable at $1.19 per share and have a 7 year life as noted per the Company’s board approval. The value of these warrants was calculated at $1,248,645 and included in the statement of operations for the year ending December 31, 2007. For the Black Scholes calculation, the Company assumed no dividend yield, a risk free interest rate of 4.78 % and expected volatility of 33.17 % based on valuation report dated March 1, 2007.

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 %.

Preferred Stock

Series B Preferred Stock

During the period September 1, 2006 to December 5, 2006, the Company raised $2,308,171 (net of offering costs of $147,330) through the issuance of 2,455,500 units of Series B convertible preferred stock. Each unit consists of one share of Series B Convertible Preferred Stock convertible into .67 shares of common stock.

On January 31, 2007 the Board of Directors authorized the conversion of the Series B Convertible Preferred Stock into 2,067,106 shares of the Company’s common stock.

~~109~~111

GENERAL ENVIRONMENTAL MANAGEMENT, INC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

12. 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.

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.

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, 2008 and 2007 was as follows:

				Weighted Avg.
	Options			Exercise Price
Options outstanding, January 1, 2007		67,067		$	28.20
Options granted		5,233,268			1.33
Options exercised		(100	)		1.19
Options cancelled		(300,042	)		2.10
Options, December 31, 2007		5,000,193			1.64
Options granted		173,000			1.35
Options exercised		-			-
Options cancelled		(385,853	)		1.44
Options outstanding, December 31, 2008		4,787,340		$	1.65
Options exercisable, December 31, 2008		3,183,704		$	1.75

The options had no intrinsic value at December 31, 2008.

~~110~~112

GENERAL ENVIRONMENTAL MANAGEMENT, INC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

Options outstanding at December 31, 2008 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
$	30.00		36,870		4.17	$	30.00		36,115	$	30.00
	48.00		134		4.25		48.00		120		48.00
	39.00		9,335		4.50		39.00		7,936		39.00
	35.10		451		4.75		35.10		361		35.10
	25.80		2,501		5.25		25.80		1,751		25.80
	6.60		5,838		5.58		6.60		3,797		6.60
	2.50		328,000		8.83		2.50		163,988		2.50
	1.99		14,000		9.33		1.99		5,250		1.99
	1.70		466,000		9.01		1.70		255,430		1.70
	1.19		3,819,275		8.25		1.19		2,679,463		1.19
	1.10		63,000		9.83		1.10		15,750		1.10
	1.05		41,936		9.58		1.05		13,743		1.05
$	1.05-$48.00		4,787,340		8.36	$	1.65		3,183,704	$	1.75

The total stock based compensation expense for the years ended December 31, 2008 and 2007 was $835,557 and $1,199,301, respectively. As of December 31, 2008, there were options valued at $1,136,996 that will be amortized as compensation expense over the next 66 months as the options vest.

~~111~~113

GENERAL ENVIRONMENTAL MANAGEMENT, INC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

Warrants

Prior to the acquisition by the Company, General Environmental Management, Inc. of Delaware had issued warrants through the sale of common stock, the issuance of convertible notes, and for services. Under the terms of the agreement and plan of merger these warrants became exercisable into the same number of shares in the Company’s stock on the same terms as issued. As of December 31, 2008 there were 9,527,894 warrants outstanding with exercise prices ranging from $0.60 to $37.50 per share of common stock, and expiration dates through September 30, 2015.

Previously issued warrants to acquire 242,137 shares of our 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, 2007		1,183,989		$	0.60-$120.00		-
Warrants granted		4,900,467		$	0.60-$2.75		-
Warrants exercised		-			-		-
Warrants expired		(102,821	)	$	0.30- $60.00		-
Warrants outstanding, December 31, 2007		5,981,635		$	0.60-$120.00	$	4,205,800
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

~~112~~114

GENERAL ENVIRONMENTAL MANAGEMENT, INC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

Warrants outstanding at December 31, 2008 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		12,584		0.39	$	37.50		12,584	$	37.50
	30.00		9,112		0.25		30.00		9,112		30.00
	26.10		125,072		4.17		26.10		125,072		26.10
	2.75		330,909		5.83		2.75		330,909		2.75
	2.25		300,000		5.67		2.25		300,000		2.25
	1.70		50,000		5.00		1.70		50,000		1.70
	1.38		661,818		5.83		1.38		661,818		1.38
	1.20		412,770		2.23		1.20		412,770		1.20
	1.19		3,072,500		5.42		1.19		3,072,500		1.19
	1.05		35,000		9.58		1.05		35,000		1.05
	0.60		4,518,129		4.45		0.60		4,518,129		0.60
$	0.60-$37.50		9,527,894		4.86	$	0.60-$37.50		9,527,894	$	0.60-37.50

The aggregate intrinsic value of the 9,527,894 warrants outstanding as of December 31, 2008 was $451,813. The aggregate intrinsic value for the warrants is calculated as the difference between the price of the underlying shares and quoted price of the Company's common shares for the warrants that were in-the-money as of December 31, 2008.

~~113~~115

GENERAL ENVIRONMENTAL MANAGEMENT, INC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

13. COMMITMENTS AND CONTINGENCIES

OPERATING LEASES

The Company leases its warehouse and office facility and certain equipment under separate non-cancelable operating lease agreements. Under terms of each of the leases, the Company pays the cost of repairs and maintenance.

Future minimum lease commitments under these leases at December 31, 2008 are as follows:

Year Ended December 31,	Amount
2009	$	1,452,296
2010		1,381,358
2011		1,202,955
2012		1,014,028
2013		800,416
Thereafter		3,213,560
	$	9,064,613

Rent expense for the years ending December 31, 2008 and 2007 was $1,239,875 and $855,764 respectively.

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.

~~114~~116

GENERAL ENVIRONMENTAL MANAGEMENT, INC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

ASSET RETIREMENT COSTS AND OBLIGATIONS

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

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

~~115~~117

GENERAL ENVIRONMENTAL MANAGEMENT, INC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

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 $899,784 to cover the ultimate cost of closure at its facility and is reflected as restricted cash in the accompanying balance sheet.

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

OTHER CONTINGENCIES

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

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

~~116~~118

GENERAL ENVIRONMENTAL MANAGEMENT, INC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

14. INCOME TAXES

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

	2008			2007
Deferred tax asset, net operating loss	$	14,184,661		$	11,677,897
Less valuation allowance		(14,184,661	)		(11,677,897	)
Net deferred tax asset	$	-		$	-

As of December 31, 2008 and December 31, 2007, the Company had federal net operating loss carry forwards of approximately $41,719,590 and $34,346,755, respectively, 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 consolidated financial statements due to the uncertainty as to their realizability in future periods.

SFAS No. 109 requires that a valuation allowance be established when it is more likely than not that all or a portion of deferred tax assets will not be realized. Due to restrictions imposed by Internal Revenue Code Section 382 regarding substantial changes in ownership of companies with loss carry-forwards, the utilization of the Company’s net operating loss carry-forwards will likely be limited as a result of cumulative changes in stock ownership. The company has not recognized a deferred tax asset and, as a result, the change in stock ownership has not resulted in any changes to valuation allowances.

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, 2008 and 2007.

Reconciliation of the effective income tax rate to the United States statutory income tax rate for the years ended December 31, 2008 and 2007 is as follows:

	2008			2007
Tax expense at U.S. statutory income tax rate		(34.0)	%		(34.0)	%
Increase in the valuation allowance		34.0			34.0
Effective rate		-			-

~~117~~119

GENERAL ENVIRONMENTAL MANAGEMENT, INC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

Effective January 1, 2007, the Company adopted Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes (“FIN 48”) —an interpretation of FASB Statement No. 109, Accounting for Income Taxes.” The Interpretation addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under FIN 48, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. FIN 48 also provides guidance on derecognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. At the date of adoption, and as of December 31, 2008, the Company does not have a liability for unrecognized tax benefits.

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 five years after 2002. During the periods open to examination, the Company has net operating loss and tax credit carry forwards for U.S. federal and state tax purposes that have attributes from closed periods. Since these NOLs and tax credit carry forwards may be utilized in future periods, they remain subject to examination.

The Company’s policy is to record interest and penalties on uncertain tax provisions as income tax expense. As of December 31, 2008, the Company has no accrued interest or penalties related to uncertain tax positions.

15. SUBSEQUENT EVENTS

On January 9, 2009, the Company converted notes, expenses and fees owed to GPP into common stock. Expenses were converted into 15,825 shares of common stock. Notes totaling $72,500 were converted into 97,000 shares of common stock. Fees totaling $150,000 were converted into 250,000 shares of common stock.

For his services as a non-employee director and Chairman of the Audit Committee, James Stapleton was awarded 70,000 warrants to purchase the Company’s common stock at $0.75 per share. These warrants vest immediately.

The Company also approved the issuance of 35,000 seven year warrants to Lapis Solutions, LLC at an exercise price of $1.05 for services provided related to the maintenance the Company’s software platform, GEMWARE.

On January 7, 2009 the Company granted to certain employees options to acquire 604,500 shares of the company stock at $.75 per share.

~~118~~120

o	Definitive Additional Materials.
o	Soliciting Material Pursuant to §240.14a-12.

GENERAL ENVIRONMENTAL MANAGEMENT, INC.
(Name of Company as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Company)
Payment of Filing Fee (Check the appropriate box):
o	No fee required.

	(1)	Title of each class of securities to which transaction applies:
	(2)	Aggregate number of securities to which transaction applies:
	(3)	Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): The filing fee is calculated based on $14,000,000 of aggregate consideration. The purchase price payable under the Agreement is $14,000,000, and may be reduced by a reasonable estimate of the Net Working Capital Deficiency Amount and an amount defined as the Holdback Fund, as more fully described in Sections 2.5 and 2.6 of the Agreement. Such obligations are estimated to be $1,000,000.
	(4)	Proposed maximum aggregate value of transaction: $14,000,000
	(5)	Total fee paid: $781.20

o	Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
	(1)	Amount Previously Paid:
	(2)	Form, Schedule or Registration Statement No.:
	(3)	Filing Party:
	(4)	Date Filed:

	Page
QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE SALE	5
SUMMARY OF THE SALE	10
Information about the Parties	10
Summary of the Sale	11
Recommendation of Our Board of Directors	12
Reasons for the Sale	12
Overview of the Agreement	12
Material U.S. Federal income Tax Consequences of the Sale	13
Required Approvals	14
Anticipated Accounting Treatment	14
Appraisal Rights	14
RISK FACTORS	15
Risks Related to the Sale	15
Risks Related to the Business after the Sale	16
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION	25
THE SPECIAL MEETING	26
Date, Time and Place	26
Purposes of the Special Meeting	26
Recommendation of the Company’s Board of Directors	26
Record Date and Voting Power	26
Voting and Revocation of Proxies	27
Quorum and Required Vote	28
Solicitation of Proxies	28
Delivery of Proxy Materials to Households Where Two or More Stockholders Reside	28
Other Matters	28
THE SALE	29
Background of the Sale	29
Reasons for the Sale; Recommendations of the Company’s Board of Directors	30
Buyer and Parent	32
Required Approvals	32
Material U.S. Federal Income Tax Consequences of the Sale	33
Anticipated Accounting Treatment	33
Appraisal Rights	33
THE AGREEMENT	34
Sale of Purchased Interests and Liabilities to be Assumed	34
Assets and Liabilities to be Retained by the Company	35
Purchase Price	35
No Solicitation of Conflicting Transaction	36
Conduct of Business Pending the Completion of the Sale	36
Conditions to the Completion of the Sale	37
Other Agreements	40
Termination of the Agreement	41
Effect of Termination of the Agreement	41
Representations and Warranties of the Company	42
Representations and Warranties of the Buyer	47
Indemnification	48
Indemnification by the Company	48
Indemnification by the Buyer	48
Special Indemnification Provision Regarding Environmental Matters	49
DESCRIPTION OF GENERAL ENVIRONMENTAL MANAGEMENT, INC.	50

	Page
DESCRIPTION OF LUNTZ ACQUISITION (DELAWARE), LLC AND PSC ENVIRONMENTAL SERVICES, LLC.	51
BUSINESS	52
Proposed Sale to the Buyer	52
Overview of Business	52
Company Background	52
Business Strategy Prior to the Sale	55
Governmental Regulation	55
State and Local Regulations	56
Industry	57
Products and Services	58
Business Operations	59
Marketing	61
Customers	61
Competition	62
Insurance and Financial Assurance	62
Employees	63
Business Strategy After the Sale	63
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	64
Business Overview	64
Recent Developments	65
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008	66
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008	67
UNAUDITED PRO FORMA CONSOLIDATES FINANCIAL INFORMATION	69
MATTERS BEING SUBMITTED TO A VOTE OF STOCKHOLDERS	7577
Proposal No. 1: Approval of the Sale	7577
Proposal No. 2: Approval of Possible Adjournment of the Special Meeting	7577
MARKET PRICE AND DIVIDEND INFORMATION	7678
PRINCIPAL STOCKHOLDERS OF THE COMPANY	7779
FUTURE STOCKHOLDERS PROPOSALS	7880
WHERE YOU CAN FIND MORE INFORMATION	7880
GENERAL ENVIRONMENTAL MANAGEMENT, INC. CONSOLIDATED FINANCIAL STATEMENTS	7981

Annex A: Stock Purchase Agreement	Attached
Annex B: Management Voting Agreement	Attached
Annex C: CVC Voting Agreement	Attached

Buyer:	Parent:
Luntz Acquisition (Delaware), LLC.	PSC, LLC.
5151 San Felipe, Suite 1600	5151 San Felipe, Suite 1600
Houston, TX 77056	Houston, TX 77056
(713) 625-7019	(713) 625-7019

	·	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.

	·	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.

	·	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.

		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.

§	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.

§	Transportation, Logistics Management, and Collection – specialized handling, packaging, transportation and disposal of industrial waste, laboratory quantities of hazardous chemicals, household hazardous wastes, and pesticides;
§	Incineration – the preferred method for treatment of organic hazardous waste because it effectively destroys the contaminants;

§	Landfill Disposal – used primarily for the disposal of inorganic wastes;
§	Physical Waste Treatment – used to reduce the volume or toxicity of waste to make it suitable for further treatment, reuse, or disposal;

§	Reuse/Recycle and Fuels Blending – removes impurities to restore suitability for an intended purpose and to reduce the volume of waste;
§	Wastewater Treatment – separates wastes including industrial liquid wastes containing heavy metals, organics and suspended solids through physical and chemical treatment so that the treated water can be discharged to local sewer systems under permits;
§	Remediation and Site Services – includes the maintenance of industrial facilities and equipment such as recurring cleaning in order to continue operations, maintain and improve operating efficiencies, and satisfy safety requirements; the planned cleanup of hazardous wastes sites and the cleanup of accidental spills and discharges, such as those resulting from transportation accidents; and the cleanup and restoration of buildings, equipment, and other sites and facilities that have been contaminated.

§	On-Site Services – the provision of professional and fully trained staff to manage clients’ environmental needs on location.
§	Lab Packing – the proper combination and packaging of hazardous waste in approved containers to eliminate the potential for reactions among chemical components.

§	Bulk Waste – the managing and transportation of waste in bulk quantities, either as liquids in vacuum tankers or as solids in dumpster type roll off containers.
§	LTL Program - the managing and transportation of containerized waste in Department of Transportation/United Nations approved drums and containers.

§	Transportation – the transportation of clients’ waste streams in fully permitted and environmentally outfitted vehicles
§	Emergency Response – the immediate response to hazardous materials or waste incidents for government and industry, including providing quick and appropriate response for potential homeland security incidents.

§	~~Provide application software to profile, track any waste streams, and routinely process all compliance reporting requirements with various regulatory agencies.~~
§	~~All services may be provided electronically through our software offering.~~

§	~~Assist clients with Environmental Health and Safety (“EHS”) compliance.~~
§	~~Provide necessary and mandated training on environmental issues.~~

§	~~Provide report generation for documentation to agencies overseeing environmental issues.~~
§	~~Provide digital and hard copy waste tracking of all waste activity.~~

§	~~Provide permit writing and management for the acquisition and tracking of necessary permits for clients.~~
§	~~Write manuals and plans required by all companies with hazardous materials and waste.~~

§	~~Provide legislative and regulatory analysis pertaining to current and proposed legislation as it pertains to the hazardous waste industry and how that affects our clients.~~
§	~~Provide electronic record keeping of all EHS documents and information.~~

§	~~Provide alternative solutions to clients where certain chemicals or waste streams can be recycled or reused in another capacity thereby eliminating the disposal expense and exposure for our clients.~~
§	~~Develop a program where clients look to us as the leader in providing fully integrated solutions to limit their liability on waste streams and chemicals.~~

§	~~Ground Water treatment on-site – treatment of ground water contaminated with toxic chemicals, particularly perchlorate.~~
§	~~On-site treatment option for clients – treatment of waste at large volume waste clients.~~

§	~~managing waste streams and chemicals;~~
§	~~supervising and managing the handling, paperwork, tracking, and transportation of waste streams and chemicals on a client’s location;~~

§	~~labeling, collecting, and transporting containerized wastes;~~
§	~~bulk waste pick ups and transportation;~~

§	~~emergency response to spill incidents;~~
§	~~industrial cleaning of equipment or processes, tank cleaning;~~

§	~~parts washer fluid removal and replenishment;~~
§	~~chemical process dismantling;~~

§	Provide application software to profile, track any waste streams, and routinely process all compliance reporting requirements with various regulatory agencies.
§	All services may be provided electronically through our software offering.

§	Assist clients with Environmental Health and Safety (“EHS”) compliance.
§	Provide necessary and mandated training on environmental issues.

§	Provide report generation for documentation to agencies overseeing environmental issues.
§	Provide digital and hard copy waste tracking of all waste activity.

§	Provide permit writing and management for the acquisition and tracking of necessary permits for clients.
§	Write manuals and plans required by all companies with hazardous materials and waste.

§	Provide legislative and regulatory analysis pertaining to current and proposed legislation as it pertains to the hazardous waste industry and how that affects our clients.
§	Provide electronic record keeping of all EHS documents and information.