SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549


______________





**Form
                10-K****(Mark
                One)****x**
            **ANNUAL
                REPORT PURSUANT TO SECTION 13 OR 15(**d**)****OF
                THE SECURITIES EXCHANGE ACT OF 1934**
              **For
                the fiscal year ended December 31, 2005****o**
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d)****OF
                THE SECURITIES EXCHANGE ACT OF 1934**





**For
      the transition period from _____ to _____**





**Commission
      File Number:**


**333-118278**





**Gundle/SLT
      Environmental, Inc.**


(Exact
      name of registrant as specified in its charter)




**Delaware**
            **22-2731074**(State
                or other Jurisdiction of
              Incorporation
                or Organization)
            ****(I.R.S.
                Employer Identification No.)**19103
                Gundle Road**
              **Houston,
                Texas**
            **77073**(Address
                of Principal Executive Offices)
            (Zip
                Code)**(281)
                443-8564**
              (Registrant’s
                telephone number, including area code)Securities
                Registered Pursuant to Section 12(b) of the Act:
              NoneSecurities
                Registered Pursuant to Section 12(g) of the Act:
              None




Indicate
      by
      check mark if the registrant is a well-known seasoned issuer, as defined in
      Rule
      405 of the Securities Act. Yes
o 
No
x





Indicate
      by
      check mark if the registrant is not required to file reports pursuant to Section
      13 or Section 15(d) of the Act. Yes
o 
No
x




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




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




Indicate
      by
      check mark whether the registrant is a large accelerated filer, accelerated
      filer, or non accelerated filer (as defined in Rule 12b-2 of the Exchange
      Act).    o Large Accelerated
      File o
      Accelerated
      Filer x
      Non-accelerated
      Filer




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





The
      aggregate
      market value of voting common stock held by non-affiliates of the registrant
      as
      of March 8, 2006 was zero.





As
      of March
      8, 2006, there were issued and outstanding 100 shares of the registrant’s common
      stock, $0.01 par value, all of which were held of record by GEO Holdings
      Corp.


**DOCUMENTS
                INCORPORATED BY REFERENCE: None**














**2005
      FORM 10-K ANNUAL REPORT**





**TABLE
      OF CONTENTS**





**Page****PART
                I**Item
                1.
            Business
            3Item
                1A
            Risk
                Factors
            11Item
                2.
            Properties
            17Item
                3.
            Legal
                Proceedings
            18Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            19**PART
                II**Item
                5.
            Market
                for Registrant’s Common Equity, Related Stockholder Matters and IssuerPurchases
                of Equity Securities
            19Item
                6.
            Selected
                Financial Data
            19Item
                7.
            Management’s
                Discussion and Analysis of Financial Condition and Results ofOperations
            20Item
                7A.
            Quantitative
                and Qualitative Disclosures about Market Risk
            30Item
                8.
            Financial
                Statements and Supplementary Data
            31Item
                9.
            Changes
                in and Disagreements with Accountants on Accounting and FinancialDisclosure
            31Item
                9A.
            Controls
                and Procedures
            31Item
                9B
            Other
                Information
            32**PART
                III**Item
                10.
            Directors
                and Executive Officers of the Registrant
            32Item
                11.
            Executive
                Compensation
            34Item
                12.
            Security
                Ownership of Certain Beneficial Owners and Management
            36Item
                13.
            Certain
                Relationships and Related Transactions
            37Item
                14.
            Principal
                Accountant Fees and Services
            39**PART
                IV**Item
                15.
            Exhibits,
                Financial Statement Schedules
            39


**SIGNATURES**
            43**INDEX
                TO FINANCIAL STATEMENTS**
            F-1





2








**2005
      ANNUAL REPORT**


**FORM
      10K**





**PART
      I**





**ITEM
      1. Business.**





**General**




We
      are a
      leading global manufacturer, marketer and installer of a broad array of
      geosynthetic lining products. Geosynthetic products are used in containment
      systems for environmental protection and for the confinement of solids, liquids
      and gases in the waste management, liquid containment and mining industries.
      We
      offer a full range of high quality products, including geomembranes, drainage
      products, geosynthetic clay liners, nonwoven geotextiles and other products.
      We
      also offer installation services, focused on large projects for key customers
      in
      the United States, the United Kingdom and Germany through an internal
      installation staff. We believe that our market share, broad product offering,
      installation capabilities, strong customer relationships, diverse end markets
      and global presence provide us with key competitive advantages in the
      geosynthetic products industry.





We
      believe we
      are the world’s largest manufacturer of polyethylene sheet geomembranes and that
      we were responsible for a significant portion of the world’s production in 2005.
      Our principal products, flexible geomembrane liners, are manufactured from
      polyethylene and polypropylene resins with chemical additives designed to resist
      weathering, ultraviolet degradation and chemical exposure for extended time
      in
      exposed applications. We manufacture our products at facilities located in
      the
      United States, Canada, the United Kingdom, Germany, Thailand, Chile and Egypt.
      These facilities are strategically located in close proximity to our customers
      and resin suppliers. Our products are marketed through a worldwide distribution
      organization made up of internal sales people, independent dealers, agents
      and
      distributors. We serve leading waste management and mining companies,
      independent dealers, general contractors, agents, distributors and government
      agencies. In 2005, we sold more than one billion square feet of products to
      customers in 64 countries.





**Corporate
      Developments**




We
      were
      founded in 1981 by Clifford Gundle in Texas with a single high density
      polyethylene production line. In 1986, Odyssey Partners acquired a majority
      ownership interest in us, and we completed an initial public offering. In 1995,
      we merged with SLT Environmental, Inc. and changed our name to Gundle/SLT
      Environmental, Inc. (the “Company” or “GSE”). This merger added flat cast
      manufacturing capabilities in Europe and the United States and an enhanced
      distribution network. Our chief executive officer, Samir Badawi, joined us
      from
      SLT. We generated consistent growth in the ensuing years, adding capacity in
      the
      United Kingdom, Germany, Thailand, Egypt and Kingstree, South Carolina. In
      February 2002, we purchased Serrot International, Inc., an international
      provider of geosynthetic lining products and services for environmental
      protection and other uses, from Waste Management Holdings, Inc.




On
      May 18,
      2004, GEO Sub Corp., a newly formed entity controlled by Code Hennessy &
Simmons IV (“CHS IV”), merged with and into GSE, with GSE surviving the merger
      (the “Merger”), in a transaction valued at approximately $242.1 million. As a
      result of the Merger, GSE became a wholly owned subsidiary of GEO Holdings
      Corp., which is controlled by CHS IV, an entity controlled by Code Hennessy
      & Simmons (“CHS”).




In
      connection
      with the Merger, we entered into a $65.0 million senior secured credit facility
      with UBS Loan Finance LLC and certain other lenders. The senior credit facility
      provides for a $25.0 million term loan facility and a revolving credit facility
      of up to $40.0 million. In addition, we issued $150.0 million of 11% senior
      notes due in 2012. As required by their terms, the senior notes were exchanged
      for publicly registered notes in the same amounts in a registered exchange
      offer
      completed in November 2004. The senior notes are guaranteed by all of GSE’s
      existing and future direct or indirect domestic subsidiaries other than Bentofix
      Technologies (USA), Inc., a dormant subsidiary of GSE’s 75.5%-owned Canadian
      subsidiary, Bentofix Technologies, Inc.




In
      December
      2005, the Company completed an acquisition of the operating assets of SL
      Limitada, (SL), a privately owned company located in Santiago and Antofagasta,
      Chile. The acquisition was completed pursuant to an Asset Purchase Agreement,
      entered into December 30, 2005 for a total purchase price of $15.45 million
      plus
      a separate agreement for the purchase of the raw material and finished goods
      inventory which GSE valued at $2.3 million. The transaction was financed with
      cash and a $4.5 million seller note payable over a five year
      period.







3




**Products**




We
      offer a
      broad selection of products and services required in geosynthetic lining
      systems. Our products perform essential functions in a number of applications
      including: (1) solid waste, liquid and gas containment; (2) drainage
      and conveyance of liquids; and (3) corrosion protection. Our products can
      be used on a stand-alone basis or can be combined with each other to serve
      a
      range of applications.





**Geomembrane
      Liners**





Our
      principal
      products, flexible geomembrane liners, are synthetic polymeric lining materials
      that are used as barriers in geotechnical engineering applications such as
      lining landfills. Geomembranes are manufactured from polyethylene and
      polypropylene resins with chemical additives designed to resist weathering,
      ultraviolet degradation and chemical exposure for extended time in exposed
      applications. Geomembranes have a number of end market applications that allow
      them to meet the containment needs of a variety of industrial operations. Some
      of our most popular geomembranes include:





**GSE
      HDPE.** High
      density polyethylene (HDPE) liners are the most widely used material for lining
      applications, such as landfills, tanks, and ponds. GSE HDPE liners provide
      chemical resistance, relative impermeability, resistance to ultraviolet light
      and durability under high levels of tension. Our HDPE liner products come in
      thickness ranges from 20 to 240 mil (one mil equals 1/1000th of an inch) and
      seamless widths up to 34.5 feet. Liner width dictates how many seams are
      required during installation, and seaming represents the major technical
      difficulty for liner installers. The fewer the number of seams, the less labor
      involved, and the less testing required.





**GSE
      LLDPE.** Linear
      low density polyethylene (LLDPE) liners offer greater flexibility than HDPE
      liners, allowing increased conformity to an uneven ground surface. High
      elongation properties allow these liners to conform to irregularities in the
      subgrade that may cause punctures and tears in other liners. Common applications
      for flexible liners include landfill caps, mining heap leach pads and floating
      covers.





**GSE
      Textured.** The
      texturing of liners creates increased friction resistance between layers of
      the
      liner system. This texturing allows the liner system to maintain its integrity
      on steep slopes and under harsh conditions.





**GSE
      White.** This
      patented, co-extruded, HDPE or LLDPE geomembrane liner reduces heat build-up
      through its ability to reflect light. By reflecting light and thereby reducing
      heat, the liner expands and contracts less during installation, reducing the
      likelihood of tears. In addition, the lower temperatures on the surface of
      the
      liner enable installers to work more effectively. The liner’s reflective nature
      protects subgrade soils from drying out and cracking. The white surface greatly
      improves detection of installation damage by revealing scoring and abrasions
      as
      black marks exposed against the white surface.





**GSE
      Conductive.** This
      patented, premium grade, HDPE geomembrane liner allows for easy and efficient
      spark testing of the installed material to detect post-installation damage
      and
      locate potential leaks. This product is used in applications that have a high
      risk of containment failure.





**Drainage
      Products**




Drainage
      products, such as geonets and geocomposites, typically are installed along
      with
      geomembranes in a liner system to keep liquids from accumulating on the liners.
      These drainage products provide the transmission avenues for liquid and gas
      collection and leak detection systems. Our drainage products consist primarily
      of:





**GSE
      HyperNet.** Our
      geonet product consists of two sets of HDPE strands intertwined to form a
      channel along which fluid is conveyed for drainage. This drainage capability
      has
      traditionally been provided by thick layers of aggregates, such as sand or
      gravel.





**GSE
      FabriNet.** Our
      geocomposite product is produced by heat bonding nonwoven geotextiles to one
      or
      both surfaces of the GSE HyperNet. The permeable textile serves as a separator
      and a filter, keeping soils out of the GSE HyperNet drainage layer, which allows
      for the product to perform its functions of transmitting liquids and
      gasses.






4




**Geosynthetic
      Clay Liners**




Geosynthetic
      clay liners, or GCLs, are synthetic clay liners that typically are installed
      as
      the bottom layer of a liner system. They are constructed with sodium bentonite
      clay as a critical component, which, when hydrated, is a highly impermeable
      substance and often replaces thick layers of compacted natural clay ordinarily
      required as a subgrade layer. We offer the following two GCLs:





**GSE
      GundSeal.** This GCL
      combines HDPE liners with highly expansive sodium bentonite clay. The sodium
      bentonite clay is adhered directly to the liner, and serves as a support layer
      to the liner, with an ability to seal small punctures in the overlaying liner.
      GundSeal is a patented product manufactured under license.





**Bentofix®
      Thermal Loc.** This GCL
      combines durable geotextile outer layers with an inner layer of low permeability
      sodium bentonite clay. The geotextile’s thermally bonded fibers reinforce and
      protect the bentonite layer, providing high internal strength.





**Nonwoven
      Geotextiles**




Nonwoven
      geotextiles are polypropylene, staple fiber, nonwoven needle-punched fabrics
      used in environmental, civil and industrial applications. We sell our nonwoven
      geotextile product to customers in various end markets and use it in the
      production of our drainage products.





**Specialty
      Products**




We
      offer
      other polysynthetic products not included in the above categories. Examples
      include:





**GSE
      CurtainWall and GSE GundWall.** These
      specialty products are vertical barrier systems that block the lateral migration
      of subsurface fluids.





**GSE
      StudLiner.** GSE
      StudLiner is a studded geomembrane that protects against corrosion and
      deterioration of concrete structures, including tanks, pipes, drainage channels
      and tunnels.





**Pre-Fabricated
      Products.** These
      products include pipe boots, corners, sumps, or other ancillary parts that
      are
      fit to the liner in order to reduce installation time and simplify
      installation.





**Installation
      Services**




We
      provide
      our customers a variety of installation services. Approximately fifty full
      installation crews are available throughout the United States, and additional
      installation offices are maintained in Germany and the
      United Kingdom. Our professionals work closely with the customer, engineer
      and
      contractor to determine efficient, cost-effective and safe methods by which
      to
      install the liner system. Through both infusion wedge welding and extrusion
      welding, we are able to effectively integrate geomembranes and other system
      parts to create a continuous, seamless liner system. Through our quality
      assurance program, our installation personnel test all installed products for
      leaks along the seams and for strength of the liner under tensile stress
      tests.




A
      network of
      distributors and independent installers around the world also install our
      product. Upon request from a customer using third-party installers, we may
      furnish a technical supervisor to monitor installation activities and provide
      quality assurance.





5




**End
      Markets and Applications**




The
      following
      table describes the principal applications of our products for the past three
      years based on the sales and operating revenues for each application (see Note
      18 to Consolidated Financial Statements for geographic
      information):





**Sales
                and Operating Revenue by Market Application**
              **Year
                Ended December 31**
              **(in
                thousands)********2005**
            
            ******2004**
            
            ******2003****Amount**
            
            **Percentage**
            
            **Amount**
            
            **Percentage**
            
            ******Amount**
            
            **Percentage**Solid
                WasteContainment
            
            $
            177,800
            
            
            56%
            
            $
            195,000
            
            
            68%
            
            $
            174,900
            
            
            64%Liquid
                Containment
            
            
            58,200
            
            
            18
            
            
            40,100
            
            
            14
            
            
            43,100
            
            
            16Mining
            
            
            44,300
            
            
            14
            
            
            30,000
            
            
            10
            
            
            17,400
            
            
            6Other
                Applications
            
            
            37,300
            
            
            12
            
            
            22,800
            
            
            8
            
            
            39,200
            
            
            14Total
                Sales & Operating Revenue
            
            $
            317,600
            
            
            100%
            
            $
            287,900
            
            
            100%
            
            $
            274,600
            
            
            100%





**Solid
      Waste Containment**




The
      waste
      management industry is our largest end market. It uses geomembranes to prevent
      landfill runoff from entering the surrounding environment and as caps to prevent
      the escape of greenhouse gases, to control odors and to limit rainwater
      infiltration. In the United States, growth of municipal solid waste generation
      has increased demand for landfill capacity. This trend has contributed to
      increased demand for our products, as regulations under the Resource
      Conservation and Recovery Act have required landfills to be equipped with a
      liner system. Similar legislation has been implemented in Europe, including
      the
      European Landfill Directive, which has introduced requirements for waste and
      landfills designed to protect the environment. Other regions, such as
      Asia/Pacific, represent significant growth opportunities as local governments
      in
      these regions continue to introduce regulations regarding landfill construction
      and performance requirements.





The
      primary
      purpose of a liner in a landfill is to protect the soil and groundwater from
      being contaminated. Beginning at the top of the liner system, drainage products,
      such as geonets or geocomposites, sit below the waste and on top of the liner
      in
      order to sweep waste water and leachate off of the liner and into a storage
      or
      treatment pond or tank. Below the drainage products, the primary geomembrane
      is
      installed as the first protection layer. While the geomembranes are relatively
      impermeable, secondary layers of drainage products and geomembranes are
      typically installed as safeguards against tears or punctures that may occur
      in
      the primary layer. The secondary layer of drainage products also serves as
      a
      leak detection system by sweeping out any fluids that penetrate the primary
      geomembrane. Beneath the secondary geomembrane, installers will sometimes
      include a layer of nonwoven geotextile that serves as a cushion to protect
      the
      liner from the ground. GCLs are  typically installed as the bottom layer of the system, providing impermeability
      equivalent to that of thick layers of compacted natural clay.




In
      the United
      States and Europe, upon closing of the landfill, a landfill cap is installed
      over the top of the waste to prevent gas from the degrading waste from escaping
      into the atmosphere. A typical cap consists of two layers. The geomembrane
      liner, which is relatively impermeable to gas, forms the top layer and prevents
      the escape of the methane gas. A drainage product, such as geonet or
      geocomposite, forms the second layer and controls the flow of the gas. The
      geonet or geocomposite enables the methane gas to escape up to the top layer,
      collects the gas just below the surface, and transmits it to a storage or
      treatment system through a methane gas collection system.





**Liquid
      Containment**




Geosynthetic
      products such as geomembranes are used in a wide variety of liquid containment
      and other applications in the United States and around the world. Water
      treatment facilities, canals, irrigation waterways, reservoirs, dams, tunnels
      and other civil engineering and non-building construction projects use
      geosynthetic products for their containment and confinement needs. Geosynthetic
      products are used in agricultural applications to line irrigation waterways
      and
      waste ponds and to provide protection against soil erosion and weed growth.
      In
      aquaculture construction or rehabilitation projects, geomembranes are used
      as
      liners. We believe growth across these end markets will continue to be driven
      by
      increased infrastructure spending resulting from the growth and urbanization
      of
      the world’s population as well as the environmental and safety legislation that
      we anticipate will continue to be implemented by governments and regulatory
      agencies around the world.





6




**Mining**




The
      mining
      industry uses our products for the containment of chemicals used in mining
      gold,
      copper and phosphate. Mining activity and the use of more innovative mining
      techniques have resulted in the increased use of geosynthetic lining materials.
      Mining processes that utilize chemical solutions use geomembrane materials
      to
      prevent soil contamination by the leachate chemicals. Geomembranes, drainage
      products and geosynthetic clay liners are used to line the soil, drain the
      leachate and recapture and recycle the solutions along with the extracted
      precious metals. The size of the geosynthetic market opportunity in the mining
      industry is directly related to the amount of mining activity, which is driven
      by the world prices of precious metals and minerals such as gold and
      copper.





**Manufacturing
      and Quality Control**




We
      manufacture our products through six different processes, resulting in a broad
      array of products for liner systems. We use (i) round die production lines
      for
      geomembranes, (ii) flat cast production lines for geomembranes, (iii) geonet
      and
      geocomposite lines for drainage products, (iv) a GundSeal GCL line for GCLs,
      (v)
      needle-punched blanket GCL lines for GCLs, and (vi) a needle-punched nonwoven
      line for nonwoven geotextiles. The following table summarizes the different
      processes we use.


**Summary
      of Manufacturing Processes**







**Manufacturing
                  Process**
              
              **Number
                  of Lines**
              
              **Products**
              
              **Description**Round
                  Die
              
              14
              
              Geomembranes
              
              Blended
                  polymer foundation is extruded vertically from a round die through
                  two
                  concentric die lips, cut, flattened, and rolled onto the take-up
                  core.Flat
                  Cast
              
              4
              
              Geomembranes
              
              Blended
                  polymer foundation is extruded horizontally between two flat lips
                  and
                  rolled onto the take-up core.DRS
              
              5
              
              Geomembranes
              
              Molten
                  polymer is sprayed onto a previously extruded sheet creating a
                  textured
                  surface.Geonet
                  and Geocomposite
              
              3
              
              Drainage
                  Products
              
              Blended
                  polymer formulation is extruded downward to form a net, which is
                  cut and
                  formed into rolls. The geocomposite is produced by attaching nonwoven
                  geotextile to the geonet.GundSeal
                  GCL
              
              1
              
              GCLs
              
              Geomembrane
                  is fed through rollers and applied with a bentonite clay and adhesive
                  mix.Needle-punched
                  Blanket GCL
              
              2
              
              GCLs
              
              Bentonite
                  clay is sealed between two layers of nonwoven geotextile through
                  a stitch
                  bonding process.Needle-punched
                  Nonwoven
              
              1
              
              Nonwoven
                  Geotextile
              
              Polypropylene
                    fibers of a carded web are interlocked by repeatedly passing
                    barbed
                    felting needles in and out of the
                    web.






Our
      capabilities in both round die and flat cast manufacturing allow us to offer
      a
      broad geomembrane product line. With round die manufacturing, we can produce
      liners with multiple layers, which is necessary in the production of certain
      specialized products, such as GSE White. Additionally, the round die process
      offers co-extrusion capabilities that allow for simultaneous texturing and
      production of the liner as well as thinner material. The flat cast manufacturing
      process allows us to precisely control the thickness of the geomembranes. In
      addition, we are able to produce smooth HDPE and LLDPE geomembranes at a low
      cost through flat cast manufacturing.





7
 
  Our
        global
        manufacturing quality assurance program establishes quality control standards
        for the manufacture of geosynthetic products. Quality assurance laboratories
        at
        each facility oversee all quality control
        initiatives. Raw materials, such as a polyethylene resin and master batch,
        are
        subject to tests that must comply with our specifications before entering
        the
        manufacturing process. A strip is taken from every finished product and a
        laboratory tests the strip to ensure that it complies with product
        specifications. The laboratories catalog every strip in case the integrity
        of a
        product in the field is ever questioned. In addition, thickness readings
        are
        taken continuously over the length and width of the roll to check for product
        consistency.





**Raw
      Materials and Supplier Relationships**




We
      have
      developed close relationships with a group of suppliers with whom we have a
      long
      history of doing business. Our purchases from our suppliers are based on
      purchase orders, rather than long-term contracts. High-grade polyethylene and
      polypropylene resins are the most significant raw materials we purchase, for
      which more than eight different suppliers are used. These resins are purchased
      from at least two primary suppliers at each manufacturing location. We purchased
      approximately 24% of our raw materials during 2005 from our largest
      supplier.




Given
      the
      size and weight of our products, managing freight costs is a significant
      contributor to our operating results. In the U.S. and Canada, we distribute
      our
      products from five facilities through a contractual relationship with Truckers
      Express. With manufacturing facilities on four continents and a global network
      of approved distributors, we seek to manage freight costs by reducing shipping
      distances and negotiating rates through local distributors.




We
      believe we
      have excellent relationships with our suppliers and, because we maintain
      numerous supplier relationships, are not dependent on any one supplier. In
      addition, we believe that alternative sources of supply for these materials
      are
      available at prices at or near those from our existing
      relationships.





**Sales
      and Marketing**




Our
      sales and
      marketing efforts are conducted on a worldwide basis and are generally
      coordinated by regional managers. These positions include one manager in the
      United States responsible for sales in North and Central America, one manager
      in
      South America, one manager in the United Kingdom responsible for Europe and
      Africa, one manager in Thailand responsible for Asia and one manager in Egypt
      responsible for the Middle East. Due to the technical nature of our sales,
      we
      support our sales force with an internal group of engineers that also serve
      as a
      direct resource for our customers’ engineers who require technical
      assistance.




Our
      sales
      efforts generally include: (1) installation sales, consisting of products
      and installation services sold primarily to national accounts and general
      contractors, and (2) direct sales, consisting of product only (no
      installation services) sold primarily to non-national accounts and independent
      dealers. We sell primarily to general contractors and facility owners who are
      responsible for product specifications and the design and awarding of
      contracts.




We
      sell our
      products in a very competitive marketplace. Substantial quantities of our
      products are sold through the competitive bidding process, whether in the United
      States or in foreign countries. We bid directly to the general contractor or
      owner or to one of our independent distributors or dealers. The customers’ bid
      proposals establish the design and performance criteria for the products. We
      negotiate the remainder of the contract terms where possible. In most cases,
      we
      agree to indemnify the site owner, general contractor and others for certain
      damages resulting from our negligence and that of our employees. When we install
      products, we are sometimes required to post bid and performance bonds or bank
      guarantees. In all cases, we provide our customers with limited material
      warranties on our products and limited installation warranties for our
      workmanship. Our limited installation warranties are typically one to five
      years
      but occasionally extend up to 20 years. These limited warranties are
      generally limited to repair or replacement of defective liners or workmanship,
      often on a prorated basis, up to the dollar amount of the original
      contract.




In
      some
      foreign contracts, we may be required to provide the customer with specified
      contractual limited warranties as to material quality. Our product warranty
      liability in many foreign countries is dictated by local laws in addition to
      the
      warranty specified in the contracts. Several of our foreign subsidiaries sell
      products and installation services under competitively bid construction
      contracts.





8
 
  We
        participate in trade shows, conduct industry seminars and make presentations
        to
        governmental administrators. We strive to inform engineers and regulators
        of the
        benefits of using our products. Advertisements of our products appear regularly
        in specialized trade publications and on our website
        (www.gseworld.com).





**Environmental
      Legislation**




The
      enactment
      of numerous environmental laws and corresponding regulations has enhanced the
      market for our products.




In
      the United
      States, the Resource Conservation and Recovery Act of 1976, as amended (RCRA)
      provides the legal framework for the storage, treatment and disposal of
      hazardous and non-hazardous wastes. Of particular importance to us has been
      the
      impact of Subtitle D of RCRA, which regulates the disposal of municipal solid
      waste (MSW) at roughly 2,300 U.S. landfills. State regulations adopted under
      this title impose stringent compliance standards with regard to groundwater
      protections, which is exactly what our products are designed to provide.
      Subtitle D regulations specify the use of a composite liner system consisting
      of
      highly impermeable clay and a geomembrane liner. The liner must be at least
      30
      millimeters (“mils”) thick. In addition, amendments to RCRA require all new
      hazardous waste landfills to use liner systems composed of two or more liners,
      with leachate collection and drainage systems above and between the liners.
      These same amendments require double liners for surface impoundments or ponds
      used in the containment of certain hazardous liquids.





Also
      of
      importance to our business, the Comprehensive Environmental Response,
      Compensation and Liability Act (Superfund), enacted in 1980, governs cleanup
      of
      abandoned or uncontrolled hazardous waste sites. Our products are used in
      cleanup work at these sites. For example, the United States Environmental
      Protection Agency (EPA) has published a presumptive remedy requiring the use
      of
      a “liner cap” in closed municipal solid waste landfills. This liner cap is
      designed to prevent groundwater contamination and assist in the containment
      of
      subterranean liquid waste plumes. Our products have been installed in both
      applications in landfills located throughout the United States.




On
      February
      12, 2003, the EPA issued a final rule controlling wastewater discharges from
      concentrated animal feeding operations (CAFOs) under the Clean Water Act. The
      final rule amends federal regulations concerning the management of manure from
      these operations, which can cause serious acute and chronic water quality
      problems. There are an estimated 15,500 CAFOs producing 300 million tons of
      waste annually. Our liners may be used by CAFOs to come into compliance with
      wastewater requirements under state and federal law.




In
      1993, the
      State of Florida published regulations requiring gypsum waste generated as
      a
      by-product of phosphate mining to be stored on composite liners with a synthetic
      component. Our liners meet the specifications set forth in the Florida
      regulations.




Environmental
      laws and regulations in the United States, and in other countries, particularly
      in the European Community, Japan and the other North American and South American
      countries have increased the demand for our products. In particular, activities
      that have an impact on groundwater quality have been the subject of increasing
      scrutiny by regulators, and may be the subject of future changes to existing
      laws and regulations. These activities include agricultural irrigation, animal
      feedlots and compounds, aquaculture facilities, industrial storm water runoff
      containment areas, canals, mining leach pads and tunnels.





**Employees**




We
      had a
      total of 1,033 employees as of December 31, 2005, with 664 employed in the
      United States. The size of our workforce increases during peak construction
      periods and decreases during the off-season construction periods. None of our
      regular year-round employees are unionized. From time to time, however, we
      have
      entered into site-specific collective bargaining agreements with unions that
      apply to specific projects. We believe our employee relations are
      satisfactory.





**Patents
      and Proprietary Information**




We
      have
      received patents from the U.S. Patent and Trademark Office (US PTO) for our
      GSE
      White, GSE Conductive and GSE CurtainWall products, as well as our FrictionFlex
      texturing process. Some of these patents are either registered or in the process
      of being registered in select foreign countries. We have registered our
      trademark and logo (“GSE”) with the US PTO and have registered this trademark in
      select foreign countries. We have other patents and pending applications. We
      manufacture GundSeal, Bentofix® and smooth-edged textured sheet
      pursuant to patent license agreements. Although in the aggregate our patents
      are
      important in the operation of our businesses, we do not believe the loss, by
      expiration or otherwise, of any one patent or group of patents would materially
      affect our business.





9




**Customers**




The
      primary
      customers for the Company’s products are domestic and international, municipal
      and private companies engaged in waste management, mining, water control and
      wastewater treatment, aquaculture and agriculture, and other industrial
      activities, including the engineering and civil works construction companies
      serving these customers. The Company is a full service organization that strives
      to provide its customers with a single source of geomembrane liners, related
      products and services for environmental protection and other uses.




During
      the
      years 2005, 2004, 2003, one customer, Waste Management, Inc., accounted for
      13.4%, 20%, and 20% of sales and operating revenue. In 2005 and 2004, Company
      net sales of 51% and 58% respectively, were to customers in the United States.
      The Company believes that the loss of Waste Management, Inc. as a customer
      would
      have a material adverse effect on the Company’s consolidated financial position
      or results of operations.




In
      connection
      with the acquisition of Serrot, we entered into a Supply Commitment Agreement
      with Waste Management on February 4, 2002 (the “Supply Agreement”). The
      agreement terminates on December 31, 2006 and may be extended for another
      five-year period at Waste Management’s sole option. Under the agreement, Waste
      Management agreed to purchase from us a minimum dollar amount of geosynthetic
      lining systems calculated as a percentage of its annual materials purchases
      and
      installation services purchases in North America. The percentage is reset
      annually depending on the level of customer service satisfaction we achieve
      with
      Waste Management’s operational personnel but shall not be lower than 60%. If
      Waste Management fails to purchase its minimum amount in a given year, the
      shortfall will be carried forward to the ensuing calendar year. If a shortfall
      occurs in the last year of the agreement, the term of the agreement will be
      extended by one year, in which the minimum purchase will be the carried-forward
      shortfall. The causes for termination of the agreement by Waste Management
      include our failure to supply enough properly skilled workers or proper quality
      or quantity of products or if Waste Management has a reasonable doubt with
      respect to our ability to complete the work in accordance with the time and
      price specified in the agreement. We have 15 days to cure any such problem
      before Waste Management may exercise its right to terminate the
      agreement.





**Backlog**




As
      of
      December 31, 2005, the Company’s backlog was $50.6 million compared to $63.3
      million at December 31, 2004. The Company anticipates that the majority of
      the
      value of construction contracts and customer purchase orders included in backlog
      at December 31, 2005 is expected to be completed or filled prior to the end
      of
      2006, subject to weather and other construction related delays. Contracts and
      commitments for products and services are occasionally varied, modified, or
      cancelled by mutual consent.





**Seasonality
      and Other Business Conditions**





The
      greatest
      volume of product deliveries and installations typically occur during the summer
      and fall, which results in seasonal fluctuations of revenue. Often, scheduled
      deliveries are subject to delays at the customers’ requests to correspond with
      customers’ annual budgetary and permitting cycles. The Company uses its
      manufacturing capacity at its various locations in an attempt to mitigate the
      impact of seasonal fluctuation on its manufacturing, delivery, and installation
      schedules.





**Competition**




The
      Company
      believes that there are approximately 30 companies engaged in the production
      of
      various synthetic geomembranes worldwide. These companies offer the same or
      similar wide range of products that the Company offers *.* The
      Company’s competition is not limited to those companies that manufacture
      polyethylene and polypropylene lining products, but encompasses companies
      offering polyvinyl chloride (PVC), scrim-reinforced chlorosulphonated
      polyethylene (Hypalon) products and ethylene propylene diene terpolymer (EPDM)
      geomembranes. The principal resin types used in the products sold by the Company
      are high-density polyethylene and linear low density polyethylene. At least
      three other companies manufacturing HDPE liners compete directly with the
      Company in North America.





10





The
      Company
      encounters competition in its other product lines in the United States with
      one
      company competing in the sale of geosynthetic clay liners. In the drainage
      net
      market, six companies offer products that directly compete with the Company’s
      geonet product line.




Competition
      is based on the performance of the lining systems, installation capabilities,
      quality and pricing. Pricing remains very competitive with excess capacity
      in
      the industry impacting margins. The Company believes it competes successfully
      because it manufactures, sells and installs a wide range of high quality, cost
      effective products and services, and because of its strategically located
      manufacturing facilities and strong financial position.





**Forward-Looking
      Information**




This
      Form
      10-K contains certain forward-looking statements as such is defined in the
      Private Securities Litigation Reform Act of 1995, and information relating
      to
      the Company and its subsidiaries that are based on beliefs of the Company’s
      management, as well as assumptions made by and information currently available
      to the Company’s management. When used in this report, the words, “anticipate”,
“believe”, “estimate”, “expect”, “intend” and words of similar import, as they
      relate to the Company or its subsidiaries or the Company’s management, are
      intended to identify forward-looking statements. Such statements reflect the
      current risks, uncertainties and assumptions related to certain factors
      including, without limitations, competitive market factors, world-wide
      manufacturing capacity in the industry, general economic conditions around
      the
      world, raw material pricing and supply, governmental regulation and supervision,
      seasonality, distribution networks, and other factors described herein, as
      well
      as those identified under the caption “Risk Factors” and elsewhere herein. Based
      upon changing conditions, should any one or more of these risks or uncertainties
      materialize, or should any underlying assumptions prove incorrect, actual
      results may vary materially from those described herein as anticipated,
      believed, estimated, expected or intended.





**Available
      Information**




The
      Company,
      through its website www.gseworld.com ,
      makes
      available free of charge its reports on Forms 10-K, 10-Q and 8-K (and amendments
      to these reports). These reports are available on the Company’s website as soon
      as reasonably practicable after they are filed with or furnished to the U.S.
      Securities and Exchange Commission.





**ITEM
      1A. Risk Factors.**





Holders
      and
      potential investors in our securities should carefully consider the following
      risk factors in addition to other information in this Form 10-K. We are
      identifying these risk factors as important factors that could cause our actual
      results to differ materially from those contained in any written or oral
      forward-looking statements made by or on behalf of us. We are relying upon
      the
      safe-harbor for forward-looking statements and any such statements made by
      or on
      behalf of us are qualified by reference to the following cautionary statements,
      as well as those set forth elsewhere in this Form 10-K.




**If
      we are
      unable to obtain our raw materials at favorable prices, it could adversely
      impact our financial condition.**




Pricing
      for
      our products and services is primarily driven by worldwide manufacturing
      capacity in the industry and by raw material costs. The price of raw materials
      is important to our operating results: in 2005, materials expense represented
      approximately 78% of our cost of sales. Our principal raw materials,
      polyethylene resins, are occasionally in short supply and subject to substantial
      price fluctuation in response to market demand and the price of feed stocks,
      including natural gas. We do not enter into purchase contracts for the future
      delivery of raw materials, and, accordingly, our suppliers may change their
      prices and other purchase terms at any time. If raw materials prices increase,
      we may not be able to pass on such increases to our customers under our
      contracts. Also, as discussed elsewhere in this "Risk Factors" section, we
      compete with companies that manufacture products using raw materials different
      from ours and if we experience an increase in the price of our raw materials
      or
      an interruption in the supply of our raw materials, our competitors would not
      necessarily suffer the same price increases or supply interruption. A
      significant increase in the industry's worldwide manufacturing capacity,
      material interruption in raw material supply or electricity supply, or raw
      material price increases could have a material adverse effect upon our financial
      position, results of operations or cash flows.




11




**We
      are
      dependent on sales to Waste Management, our largest
      customer.**




We
      are
      dependent on sales we make to Waste Management as our largest customer, which
      accounted for approximately 13.4% of our sales and operating revenue for 2005.
      Although Waste Management agreed to make certain purchases from us through
      2006
      (see "Customers"), Waste Management has the right to determine the timing of
      such purchases, Waste Management has certain rights to terminate the Supply
      Agreement and Waste Management has no obligation to make any purchases from
      us
      after 2006. We believe that the loss of Waste Management as a customer, or
      a
      significant reduction in its purchases from us, would have a material adverse
      effect on our financial position, results of operations or cash
      flows.




**We
      generally
      do not have long-term contracts with our customers, and our customers generally
      may terminate their relationship with us at any time.**




Except
      for
      the Supply Agreement with Waste Management, our contracts are entered into
      on a
      project-by-project basis, and our customers do not have ongoing contractual
      obligations to purchase anything from us. If a significant number of our
      customers choose to terminate their contracts or to not enter into new contracts
      with us, it would have a material adverse effect on our business, financial
      position, results of operations or cash flows. In addition, for similar reasons,
      our contract backlog is not necessarily indicative of future sales, and the
      estimated size of any contract is not necessarily indicative of the
      profitability of that contract.




**Our
      profitability is subject to inherent risks because of the fixed nature of almost
      all of our contracts.**




Substantially
      all of our customer contracts, particularly our installation contracts, are
      fixed-price contracts with commencement of performance dates spread throughout
      the year. Under a fixed-price contract, the customer agrees to pay a specified
      price for our performance of the entire contract. Fixed-price contracts carry
      inherent risks, including risks of losses from underestimating costs,
      operational difficulties and other changes that may occur over the contract
      period. Also, inclement or hazardous weather conditions can result in
      substantial delays in installation and additional expenses. Due to these
      factors, it is possible that we will not be able to perform our obligations
      under fixed price contracts without incurring additional expenses that we are
      unable to pass through to our customers. If we were to significantly
      underestimate the cost of one or more significant contracts (including as a
      result of subsequent increases in resin prices) or experience greater expenses
      than anticipated at the time of contracting, the resulting losses could have
      a
      material adverse effect on our financial position, results of operations or
      cash
      flows.




**We
      operate in
      a highly competitive industry.**




We
      sell our
      products in a very competitive marketplace. The principal resin types that
      we
      use in our products are high-density polyethylene (HDPE) and linear low density
      polyethylene. We compete both with companies that use the same raw materials
      that we do and with companies that use different raw materials. Additionally,
      companies that manufacture geosynthetic products who are not currently competing
      with us may decide to do so in the future. Competition is based on product
      performance, installation capability, quality and pricing. Pricing remains
      very
      competitive with excess capacity in the industry impacting margins. Moreover,
      our current and potential competitors may have substantially greater financial
      resources, name recognition, research and development, marketing and human
      resources than we have. In addition, our competitors may succeed in developing
      new or enhanced products that are better than our products. These companies
      may
      also prove to be more successful than we are in marketing and selling these
      products. We cannot assure you that we will be able to compete successfully
      with
      any of these companies. Increased competition as to any of our products could
      result in price reduction, reduced margins and loss of market share, which
      could
      negatively affect our business, prospects, results of operations and financial
      condition.




**We
      are
      subject to certain risks associated with our foreign operations that could
      harm
      our revenues and profitability.**




We
      have
      significant operations in Europe, Canada, Thailand, Chile and Egypt. Certain
      risks are inherent in international operations, including:





*–>* difficulty
      of enforcing agreements and collecting receivables through certain foreign
      legal
      systems;





*–>* foreign
      customers may have longer payment cycles than customers in the United
      States;





12




*–>* tax
      rates
      in certain foreign countries may exceed those in the United States and foreign
      earnings may be subject to withholding requirements or the imposition of
      tariffs, exchange controls or other restrictions;





*–>* general
      economic conditions, political unrest and terrorist’s attacks against American
      interests in countries where we operate may have an adverse effect on our
      operations in those countries;





*–>* exposure
      to possible expropriation or other governmental actions;





*–>* difficulties
      associated with managing a large organization spread throughout various
      countries;





*–>* import
      and export license requirements;





*–>* changes
      in tariffs and taxes;





*–>* restrictions
      on repatriating foreign profits back to the United States;





*–>* intellectual
      property protection difficulties; and





*–>* complications
      in complying with a variety of foreign laws and regulations, many of which
      conflict with U.S. laws.




In
      addition,
      foreign operations involve uncertainties arising from local business practices,
      cultural considerations and international political and trade tensions. As
      we
      continue to expand our business globally, our success will be dependent, in
      part, on our ability to anticipate and effectively manage these and other risks.
      We cannot assure you that we will be able to manage effectively these risks
      or
      that these and other factors will not have a material adverse effect on our
      international operations or our business, financial position, results of
      operations or cash flows.




**Currency
      exchange rate fluctuations could have an adverse effect on our revenues and
      financial results.**




We
      generate a
      significant portion of our revenues, and incur a significant portion of our
      expenses, in currencies other than U.S. dollars. To the extent that we are
      unable to match revenues received in foreign currencies with costs paid in
      the
      same currency, exchange rate fluctuations in any such currency could have an
      adverse effect on our results of operations and cash flows. During times of
      a
      strengthening U.S. dollar, our reported sales from our international operations
      will be reduced because the applicable local currency will be translated into
      fewer U.S. dollars.




**The
      costs and
      difficulties of acquiring and integrating complementary businesses and
      technologies could impede our future growth and adversely affect our
      competitiveness.**




As
      part of
      our growth strategy, we intend to consider acquiring complementary businesses.
      Currently we do not have any commitments or agreements relating to any material
      acquisitions. Future acquisitions could result in the incurrence of debt and
      contingent liabilities, which could have a material adverse effect upon our
      business, financial condition and results of operations. Risks we could face
      with respect to acquisitions include:





*–>* greater
      than expected costs and management time and effort involved in identifying,
      completing and integrating acquisitions;





*–>* risks
      associated with unanticipated events or liabilities;





*–>* potential
      disruption of our ongoing business and difficulty in maintaining our standards,
      controls, information systems and procedures;





*–>* entering
      into markets and acquiring technologies in areas in which we have little
      experience;





*–>* the
      inability to successfully integrate the services, products and personnel of
      any
      acquisition into our operations;





*–>* a
      need to
      incur debt, which may reduce our cash available for operations and other uses;
      and





*–>* realizing
      little, if any, return on our investment.




13




**If
      we are
      unable to retain key executives and other personnel, our growth may be
      hindered.**




Our
      success
      will largely depend on maintaining our staff of qualified professionals. The
      market for qualified professionals is competitive, and we may not continue
      to be
      successful in our efforts to attract and retain these professionals. In
      particular, our senior executives have considerable industry experience and
      would be difficult to replace. Our future operations therefore could be harmed
      if any of our senior executives or other key personnel ceased working for us.
      Our future operations could also be harmed if we are unable to attract, hire,
      train and retain qualified managerial, sales, installation and marketing
      personnel.




**Our
      product
      deliveries and installations may fluctuate due to seasonality and other factors
      that may adversely affect our cash flow.**




The
      greatest
      volume of product deliveries and installations typically occur during the summer
      and fall, which results in seasonal fluctuations of revenue. Often, scheduled
      deliveries are subject to delays at the customers' requests to correspond with
      customers' annual budgetary and permitting cycles. We may not be able to use
      our
      manufacturing capacity at our various locations to mitigate the impact of
      seasonal fluctuation on our manufacturing, delivery and installation schedules.
      Substantial fluctuations in our operations could significantly limit our cash
      flow and therefore our ability to service our debt, including the
      notes.




**Product
      liability and indemnification claims could have a material adverse effect on
      our
      operating results. Our ability to maintain insurance may be limited, and our
      coverage limits may not be sufficient for all claims.**




Our
      products
      are used in, among other things, containment systems for the prevention of
      groundwater contamination. Our products are also used in significant public
      works projects. Accordingly, we face an inherent business risk of exposure
      to
      product liability claims (including claims for strict liability and negligence)
      and claims for breach of contract in the event that the failure of our products
      or our installation services results, or is alleged to result, in property
      damage, damage to the environment and/or personal injury. We agree in most
      cases
      to indemnify the site owner, general contractor and others for certain damages
      resulting from our negligence and that of our employees. We cannot assure you
      that we will not incur significant costs to defend product liability and breach
      of contract claims or that we will not experience any material product liability
      losses or indemnification obligations in the future. Such costs, losses and
      obligations may have a material adverse impact on our financial position,
      results of operations or cash flows.




Although
      we
      maintain insurance within ranges of coverage consistent with industry practice,
      this insurance may not be available at economically feasible premiums and may
      not be sufficient to cover all such losses. Our insurance policies are subject
      to large deductibles. The outcome of legal actions and claims against us or
      that
      are otherwise incidental to our business may have a material adverse impact
      on
      our financial position, results of operations or cash flows.




**We
      may
      experience significant warranty claims.**




We
      provide
      our customers in all cases with limited material warranties on our products
      and
      limited installation warranties for our workmanship. Our limited installation
      warranties are typically 1 to 5 years but occasionally extend up to
      20 years. Our product warranties are typically 5 years but
      occasionally extend up to 20 years. These limited warranties are generally
      limited to repair or replacement of defective liners or workmanship, often
      on a
      prorated basis, up to the dollar amount of the original contract. In some
      foreign contracts, we may be required to provide the customer with specified
      contractual limited warranties as to material quality. Our product warranty
      liability in many foreign countries is dictated by local laws in addition to
      the
      warranty specified in the contracts. Several of our foreign subsidiaries sell
      products and installation services under competitively bid construction
      contracts. Significant warranty claims could have a material adverse effect
      on
      our financial position, results of operations or cash flows.





14
 
  **A
        downturn in
        either the economy generally or the development of landfills in particular
        would
        negatively impact our business.**




Our
      business
      depends on a growing economy to stimulate demand for the types of projects
      in
      which our products are installed. In particular, a substantial portion of our
      business depends on the continued development of landfills. Landfill development
      could slow due to a general economic downturn, a change in laws and regulations
      regarding the development of landfills or from other factors. A downturn in
      the
      economy or any other development that adversely impacts the development of
      landfills could adversely impact our financial position, and results of
      operations or cash flows.




**Regulatory
      and technological changes may adversely affect us.**




Changes
      in
      legislative, regulatory or industry requirements or competitive technologies
      may
      render certain of our products obsolete. Our ability to anticipate changes
      in
      regulatory and technology standards and to develop and introduce new and
      enhanced products in response to these changes may significantly impact our
      ability to grow and to remain competitive. For example, certain existing laws
      and regulations in the United States and foreign countries require developers
      of
      landfills and other handlers of certain waste to prevent groundwater
      contamination in a manner that our products are currently designed to provide.
      Changes in such laws and regulations could have a material adverse effect on
      our
      financial position, results of operations or cash flows if new requirements
      were
      not satisfied by our products. Also, a reduction in the enforcement of such
      laws
      and regulations could also materially adversely affect our financial position,
      results of operations or cash flows. We are also subject to the risks generally
      associated with new product introductions and applications, including lack
      of
      market acceptance, delays in product development and failure of products to
      operate properly. We cannot assure you that we will be able to achieve the
      technological advances that may be necessary for us to remain competitive or
      that certain of our products will not become obsolete.




**We
      may be
      adversely affected by environmental and safety regulations to which we are
      subject.**




We
      are
      required to comply with federal, state, local and foreign laws governing the
      protection of the environment, the exposure of persons and property to hazardous
      substances and occupational health and safety. These laws regulate, among other
      things, the generation, storage, handling, use and transportation of hazardous
      materials; the disposal of wastes and other substances into soil, air or water;
      and our obligations relating to the health and safety of our workers and the
      public. We are also required to obtain and comply with environmental permits
      for
      certain operations. We cannot assure you that we are at all times in complete
      compliance with all environmental laws and permits. If we violate or fail to
      comply with these requirements, we could be fined or otherwise sanctioned.
      In
      some instances, such a fine or sanction could be material and could include
      monetary penalties or the shut-down of a facility. Certain environmental
      requirements, and the interpretation of those requirements by regulators and
      courts, might also become more stringent over time. We therefore cannot assure
      you that we will not incur material environmental costs or liabilities in the
      future. We have made and will continue to make capital and other expenditures
      to
      comply with environmental requirements. Because of the nature of our business,
      changes in environmental laws could have a material detrimental effect on our
      business.




We
      are also
      subject to laws governing the cleanup of contaminated property. Under these
      laws, we could be held liable for costs and damages relating to contamination
      of
      our past or present facilities and at third party sites to which our facilities
      sent wastes or hazardous substances. The amount of such liability could be
      material. We cannot assure you that we will not have liability for such
      contamination, nor can we assure you that we will not experience an accident
      or
      become liable for any other contamination that may have occurred in the past
      (including such liability to buyers of properties or businesses that we have
      sold).




**Our
      substantial level of indebtedness could have a material adverse effect on our
      financial condition.**




We
      have a
      substantial amount of indebtedness. As of December 31, 2005, we had outstanding
      approximately $172.3 million of total indebtedness, including approximately
      $25.2 million of secured indebtedness. Our high level of indebtedness could
      have important consequences to you, including the following:





*–>* it
      may be
      more difficult for us to satisfy our obligations with respect to the senior
      notes;





*–>* our
      ability to obtain additional financing for working capital, capital
      expenditures, acquisitions or general corporate purposes may be
      impaired;





*–>* we
      must
      use a substantial portion of our cash flow from operations to pay interest
      and
      principal on the senior notes and other indebtedness, which will reduce the
      funds available to us for other purposes such as capital
      expenditures;





*–>* we
      may be
      limited in our ability to borrow additional funds;





*–>* we
      may be
      limited in our ability to obtain bonds needed to bid on or perform certain
      installation contracts;





*–>* we
      may
      have a higher level of indebtedness than some of our competitors, which may
      put
      us at a competitive disadvantage and reduce our flexibility in planning for,
      or
      responding to, changing conditions in our industry, including increased
      competition; and




*–>* we
        may be
        more vulnerable to economic downturns and adverse developments in our
        business.




15




We
      expect to
      utilize cash flow from our operations to pay our expenses and to pay the
      principal and interest on our debt. Our ability to meet our expenses thus
      depends on our future performance, which will be affected by financial,
      business, economic and other factors. We will not be able to control many of
      these factors, such as economic conditions in the markets where we operate
      and
      pressure from competitors. We cannot be certain that our cash flow will be
      sufficient to allow us to pay principal and interest on our indebtedness,
      including the senior notes, and meet our other obligations. If we do not have
      enough liquidity, we may be required to refinance all or part of our existing
      debt, including the senior notes, sell assets or borrow more money. We cannot
      guarantee that we will be able to do so on terms acceptable to us, if at all.
      In
      addition, the terms of our existing or future debt agreements, including our
      senior credit facility and the indenture governing the senior notes, may
      restrict us from pursuing any of these alternatives.




**The
      indenture
      governing the senior notes and the agreements governing our other indebtedness,
      including our senior credit facility, impose significant operating and financial
      restrictions, which may limit our ability to make payments on the senior notes
      or prevent us from capitalizing on business opportunities and taking certain
      corporate actions.**




The
      indenture
      governing the senior notes and the agreements governing our other indebtedness
      impose significant operating and financial restrictions on us. These
      restrictions limit our ability to take certain actions including our ability
      to:





*–>* incur
      additional indebtedness;





*–>* create
      liens or other encumbrances;





*–>* pay
      dividends or make certain other payments, investments, loans and guarantees;
      and





*–>* sell
      or
      otherwise dispose of assets and merge or consolidate with another
      entity.




In
      addition,
      our senior credit facility requires us to meet certain financial ratios and
      financial condition tests. For more information, see Item 7. -"Liquidity and
      Capital Resources - Borrowing Arrangements." Events beyond our control can
      affect our ability to meet these financial ratios and financial condition tests.
      Our failure to comply with these obligations could cause an event of default
      under our senior credit facility. If an event of default occurs, our lenders
      could elect to declare all amounts outstanding, including accrued and unpaid
      interest, under our senior credit facility to be immediately due, and the
      lenders could foreclose upon the assets securing our senior credit facility.
      In
      that event, we cannot assure you that we would have sufficient assets to repay
      all of our obligations, including the senior notes.


****


**We
      may not be
      able to satisfy our obligations to the holders of the senior notes upon a change
      of control.**




Upon
      the
      occurrence of a "change of control" (as defined in the indenture governing
      the
      senior notes) each holder of the senior notes will have the right to require
      us
      to repurchase the outstanding senior notes at a price equal to 101% of the
      principal amount, together with any accrued and unpaid interest and liquidated
      damages, if any, to the date of repurchase. Our failure to purchase, or give
      notice of purchase of, the senior notes would be a default under the indenture
      governing the senior notes, which would in turn be a default under our senior
      credit facility.




If
      a change
      of control occurs, it is possible that we may not have sufficient assets at
      the
      time of the change of control to make the required repurchase of senior notes
      or
      to satisfy all obligations under our senior credit facility and the indenture
      governing the senior notes. In order to satisfy our obligations, we could seek
      to refinance the indebtedness under our senior credit facility and the indenture
      governing the senior notes or obtain a waiver from the lenders or holders of
      the
      senior notes. We cannot assure you that we would be able to obtain a waiver
      or
      refinance our indebtedness on terms acceptable to us, if at all.




16
 
  **The
        principal
        stockholder of GEO Holdings controls us and could delay, deter or prevent
        a
        change of control or other business combination or otherwise cause us to
        take
        actions with which you as a holder of senior notes may disagree or which
        might
        not be in your best interests.**




The
      Company
      is a wholly-owned subsidiary of GEO Holdings. CHS IV owns substantially all
      of
      the issued and outstanding common stock of GEO Holdings, and members of our
      senior management hold options exercisable for approximately 10% of the common
      stock of GEO Holdings, determined on a fully-diluted basis. Pursuant to the
      Stockholders Agreement that GEO Holdings entered into with CHS IV, certain
      co-investors and certain members of our senior management, CHS IV has the right
      to appoint up to three of GEO Holdings' four directors. GEO Holdings has the
      ability to elect all of the members of our board of directors, appoint new
      management and approve any action requiring the approval of our stockholders.
      The directors have the authority to make decisions affecting our capital
      structure, including the issuance of additional indebtedness and the declaration
      of dividends. In addition, transactions may be pursued that could enhance the
      investment of the holders of GEO Holdings equity while involving risks to your
      interests. It is possible that the holders of GEO Holdings equity will exercise
      control over us in a manner that is adverse to the interests of the holders
      of
      the senior notes. See "Item 12. Security Ownership of Certain Beneficial Owners
      and Management" and "Item 13. Certain relationships and Related
      Transactions."





**ITEM
      2. Properties.**




The
      Company
      has manufacturing capabilities for its products at ten locations around the
      world. The Company’s locations are in close proximity to the Company’s customers
      and/or resin suppliers. At these locations are fourteen extrusion lines and
      four
      flat cast lines for producing liner products, three lines **** for
      the
      production of geocomposite drainage net products, one needle punched nonwoven
      textile manufacturing line, three lines for the production of geosynthetic
      clay
      lining products, and five texturing lines.





**United
      States**




GSE
      Lining
      Technology, Inc. conducts U.S. operations at the Company’s headquarters located
      on a 41.5-acre tract of Company-owned land in an industrial park in Houston,
      Texas. This location has 31,400 square feet of office space in two buildings,
      housing administrative, sales, and installation functions. Here the Company
      has
      two large manufacturing facilities servicing the U.S. and foreign markets at
      this location. One manufacturing facility is a 67,000 square foot building
      of
      metal skin over steel frame construction that contains seven blown film round
      die extrusion lines and one geocomposite drainage net line. Fabrication is
      housed in a 12,000 square foot facility.




The
      second
      manufacturing facility in Houston occupies 16.9 acres of Company-owned land
      with
      3,300 square feet of office space, and two buildings with a total of 83,000
      square feet for manufacturing operations. The manufacturing buildings house
      a
      flat cast sheet extrusion line, as well as a geocomposite drainage net line.
      This facility is temporarily idle and the Company plans on moving the
      geocomposite drainage net line to its German manufacturing facility in
      2006.





Another
      manufacturing facility is on a 55-acre tract of Company owned-land in an
      industrial park in Kingstree, South Carolina. This location has 5,400 square
      feet of office space and 178,500 **** square
      feet for manufacturing and warehousing operations. The building of metal skin
      over sheet frame construction contains one 16 million pound capacity needle
      punched nonwoven manufacturing line and one geocomposite drainage net
      line.




The
      Company’s
      patented GundSeal products are manufactured on one production line housed in
      a
      Company-owned 22,000 square foot building with 1,500 square feet of office
      space
      on a 15.3-acre owned tract located in Spearfish, South Dakota. The plant is
      located near the sources for clay (bentonite).





**Canada**




The
      Company
      owns a 75.5% interest in Bentofix Technologies, Inc., located in Barrie, Canada.
      BTI leases 2,000 square feet of office space and 60,000 square feet for
      manufacturing geosynthetic clay lining products on two production lines. As
      of
      January 18, 2006, the Company’s ownership percentage was increased to 75.5%,
      from our previous ownership of 51%, following our share purchase from one of
      the
      minority holders for approximately $2.1 million.




**Germany**




GSE
      Lining
      Technology GmbH, headquartered in Hamburg, Germany, manages the Company’s
      European operations. This location has 20,988 square feet for manufacturing
      located in Rechlin, Germany, on 8.2 acres owned by the Company. From this
      location, the Company supplies its customers with products manufactured on
      a
      flat cast extrusion line, two texturing lines, and a blown film round die
      extrusion line. Operating at the same facility is a fabrication department
      involved in fabricating Studliner sheeting products on two production lines.





17




**United
      Kingdom**




The
      Company’s
      operations in the United Kingdom are carried out by its subsidiary, GSE Lining
      Technology Ltd., operating at a 0.75 acre owned facility in Soham, England,
      just
      north of London. This location has 2,500 square feet of leased office space,
      11,652 square feet of leased warehouse space, and 10,652 of owned manufacturing
      facilities. Its products are manufactured on a blown film round die extrusion
      line located on this site and one texturing line. The Company’s administrative,
      sales, and installation service personnel are housed at this location. This
      facility manufacturers both polyethylene and polypropylene geomembrane
      products.





**Egypt**




The
      company
      owns three Egyptian companies, GSE Lining Technology Co - Egypt, HYMA/GSE
      Manufacturing Co., HYMA/GSE Lining Technology Co. The manufacturing facility,
      which is running under GSE Lining Technology Co - Egypt, is located at the
      4th
      industrial zone, in the 6th of October City which is the largest industrial
      city
      in Egypt. Its products are manufactured on one flat cast extrusion line and
      one
      blown film round die extrusion line. The company owns seven buildings with
      total
      area of 18,379 square feet and 1.5 acres of land.





**Thailand**




GSE
      Lining
      Technology Company Ltd. headquartered in Bangkok, Thailand, manages the
      Company’s Thailand operations. Its owned manufacturing facility is located in
      Rayong, Thailand, on 0.6 acres of property leased by the Company. Its products
      are manufactured on two blown film round die extrusion lines, one flat cast
      line
      and one texturing line. This company also manages the representative office
      in
      the People’s Republic of China.





**Australia**




The
      Company’s
      sales operation in Australia is carried out by GSE Australia Pty. Ltd. operating
      out of leased offices located in Moorebank, New South Wales. It offers the
      full
      range of Company geomembranes and related products.





**Chile**




GSE
      Lining
      Technology Chile, S.A. headquartered in Santiago manages the
      Company’s manufacturing facility in an industrial area near Antofagasta,
      Chile. The Company owns a 2.3 acre property which includes a
      14,764 square foot manufacturing building that has two blown film round die
      extrusion lines producing smooth and textured polyethylene geomembranes. In
      addition, GSE Chile has a texturing line.





**ITEM
      3. Legal Proceedings.**





The
      Company
      is a third-party defendant in a lawsuit that was filed in September 1997 in
      the
      Supreme Court of New York, County of Richmond (Mario Cicala v. Interstate
      Industrial Corporation, Stearns, Conrad and Schmidt Consulting Engineers, Inc.,
      Interstate Industrial Corporation v. Gundle Lining Construction Corp. and Gundle
      Lining Construction Corp. v. The City of New York; Case No. 13076/97). The
      plaintiff, Mario Cicala, was a Company employee who slipped and fell at a job
      site and brought a claim against the primary defendants for $20,000,000.
      Interstate Industrial Corporation (Interstate) has, in turn, sued the Company
      for contractual indemnity and contribution. The Texas Property and Casualty
      Insurance Guaranty Association (Texas Guaranty Association) is providing for
      the
      cost of the Company’s defense. The Company believes that the Texas Guaranty
      Association will provide up to $400,000 insurance recovery for this matter
      and
      that the application of the Texas Guaranty Act will limit Interstate’s recovery
      against the Company to the amount the Company receives from the Texas Guaranty
      Association. However, Interstate has argued that the Texas Guaranty Act does
      not
      apply to a New York lawsuit and, should the Supreme Court of New York agree
      with
      this position, the Company may be subject to a damage award that is not covered
      by insurance by up to $5,000,000. Mr. Cicala’s last settlement offer was made in
      November 2004 for $5,000,000. The Company cannot at this time reasonably assess
      its exposure to a contribution damage award to Interstate.





18




On
      January
      14, 2004, the Company received a letter from Shire Equipment Leasing Corporation
      (“Shire”) (Defendant, along with Robert Steinberg, as trustee for the bankruptcy
      estate of Pro Air, Inc.) relating to litigation instituted by Wembley Ltd.,
      the
      Company’s largest stockholder prior to the Merger. In the litigation, Wembley is
      seeking a declaratory judgment that neither Pro Air, Inc., nor Shire, Pro Air’s
      Assignee, ever acquired an ownership interest in 1,100,000 shares of the Company
      owned by Wembley. The dispute relates to Wembley’s delivery to Pro Air in 1997
      of a stock certificate representing the disputed shares along with an assignment
      of stock, or stock power, which provided that the assignment of the Company’s
      shares was valid only if done in compliance with certain specified conditions.
      The parties disagree as to whether those conditions were met. In April 1998,
      Pro
      Air asked the Company to reflect Pro Air on the Company’s books as the holder of
      record of the disputed shares, but the Company declined to do so, informing
      Pro
      Air that it had no record of Pro Air being a Company shareholder. Shire
      indicated in its January 2004 letter that it would pursue claims against the
      Company if testimony revealed that the Company acted in concert with Wembley
      to
      prevent the transfer of the disputed shares.








On
      December
      16, 2004, Wembley prevailed in its declaratory judgment action with the issuance
      of a judgment that neither Pro Air nor Shire, Pro Air’s assignee, ever acquired
      an ownership interest in the 1,100,000 shares. Shire has filed an appeal with
      the Ninth Circuit Court of Appeals and Wembley has filed a cross
      appeal.




On
      April 20,
      2005, the trial court granted Shire’s motion to stay execution of the judgment.
      The court ordered Shire to surrender the disputed share certificates to Mellon
      Investor Services LLC, to await the outcome of the appeals.




The
      Company
      believes that this dispute is between Wembley and Shire. Accordingly, if a
      claim
      is asserted against the Company, the Company intends to defend itself
      vigorously.




GSE
      is also a
      party to various other legal actions arising in the ordinary course of our
      business. These legal actions cover a broad variety of claims spanning our
      entire business. As of the date of this filing, we believe it is not reasonably
      possible that resolution of these legal actions will, individually or in the
      aggregate, have a material adverse effect on our financial condition or results
      of operations.








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




The
      Company
      did not submit any matters to a vote of its security holders during the fourth
      quarter of 2005.





**PART
      II**





**ITEM
      5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities.**




There
      is no
      established public offering market for the outstanding common equity of the
      Company. In connection with the Merger, we became a wholly owned subsidiary
      of
      GEO Holdings, which is controlled by CHS IV, an entity controlled by CHS, in
      a
      transaction valued at approximately $242.1 million. (See “Corporate
      Developments” in Item 1 of Part I.) As a result of the Merger, our
      common stock is no longer publicly traded.




The
      Company
      does not currently intend to declare or pay dividends on its Common Stock.
      Further, our ability to pay dividends is restricted by certain covenants
      contained in our senior credit facility, as well as certain restrictions
      contained in the indenture governing our senior notes. See Management’s
      Discussion and Analysis of Financial Condition and Results of Operations -
      Liquidity and Capital Resources.





**ITEM
      6. Selected Financial Data.**




The
      acquisition of GSE by CHS IV on May 18, 2004 was accounted for as a purchase
      in
      accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141,
“Business Combinations,” resulting in a new basis of accounting subsequent to
      the transaction. Therefore, for the presentation in the following table and
      in
      the remainder of this report, financial information relating to GSE prior to
      Merger is denoted as “Predecessor Company”, and financial information relating
      to us subsequent to the Merger is denoted as “Successor Company”. The
      information contained in the table should be read in conjunction with
“Management’s Discussion and Analysis of Financial Condition and Results of
      Operations” and the historical consolidated financial statements of GSE,
      including notes thereto, contained elsewhere in this report.




19




**Successor
                  Company**
              
              **Predecessor
                  Company****Period
                  from**
              
              **Period
                  from****Year
                  Ended**
              
              **May
                  18, 2004**
              
              **Jan.
                  1, 2004****December
                  31,**
              
              **to
                  Dec. 31,**
              
              **to**
              
              **Year
                  Ended December
                  31,****2005**
              
              **2004**
              
              **May
                  17, 2004**
              
              **2003**
              
              **2002**
              
              **2001****Selected
                  Statement of Income Data**Sales
                  and operating revenue
              
              $
              317,618
              
              $
              217,513
              
              $
              70,393
              
              $
              274,618
              
              $
              266,970
              
              $
              173,409Gross
                  profit
              
              
              56,351
              
              
              44,817
              
              
              10,286
              
              
              59,159
              
              
              56,644
              
              
              28,804Operating
                  income (loss)
              
              
              21,033
              
              
              23,451
              
              
              (8,007
              )
              
              30,208
              
              
              24,233
              
              
              2,379Interest
                  expense, net
              
              
              18,449
              
              
              12,418
              
              
              1,451
              
              
              2,064
              
              
              2,379
              
              
              1,248Income
                  before income taxes
              
              
              2,429
              
              
              10,978
              
              
              (9,286
              )
              
              31,519
              
              
              21,258
              
              
              2,600Net
                  income (loss) before extraordinary items
              
              
              694
              
              
              8,304
              
              
              (6,308
              )
              
              20,771
              
              
              12,890
              
              
              1,378Extraordinary
                  items
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              25,966
              
              
              —Net
                  income (loss)
              
              
              694
              
              
              8,304
              
              
              (6,308
              )
              
              20,771
              
              
              38,856
              
              
              1,378Basic
                  earnings (loss) per common shareBefore
                  extraordinary items
              
              
              *
              
              
              *
              
              
              (.54
              )
              
              1.81
              
              
              1.15
              
              
              .12Extraordinary
                  items
              
              
              *
              
              
              *
              
              
              —
              
              
              —
              
              
              2.32
              
              
              —Basic
                  earnings (loss) per common share
              
              
              *
              
              
              *
              
              
              (.54
              )
              
              1.81
              
              
              3.47
              
              
              .12Diluted
                  earnings (loss) per common shareBefore
                  extraordinary items
              
              
              *
              
              
              *
              
              
              (.51
              )
              
              1.72
              
              
              1.11
              
              
              .12Extraordinary
                  items
              
              
              *
              
              
              *
              
              
              —
              
              
              —
              
              
              2.23
              
              
              —Diluted
                  earnings (loss) per common share
              
              
              *
              
              
              *
              
              
              (.51
              )
              
              1.72
              
              
              3.34
              
              
              .12**Selected
                  Balance Sheet Data:**Working
                  capital**
              
              $
              68,328
              
              $
              73,592
              
              $
              70,679
              
              $
              92,452
              
              $
              92,265
              
              $
              48,021Total
                  assets
              
              
              316,401
              
              
              309,551
              
              
              198,262
              
              
              213,503
              
              
              202,310
              
              
              145,611Total
                  debt
              
              
              172,285
              
              
              168,604
              
              
              806
              
              
              16,722
              
              
              21,602
              
              
              25,801Stockholder’s
                  equity
              
              
              69,631
              
              
              74,014
              
              
              155,557
              
              
              157,157
              
              
              132,431
              
              
              90,434


**__________________**


*
      The
      Successor Company has no outstanding publicly held common shares and therefore
      will not report earnings per share data.


** Working
      Capital is current assets minus current liabilities.





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




The
      following
      discussion of historical financial condition and results of operations should
      be
      read in conjunction with the audited consolidated financial statements and
      the
      notes thereto which appear elsewhere in this report.





**Overview**




GSE
      is a
      leading manufacturer, marketer and installer of a broad array of geosynthetic
      lining products and a high volume producer of resin based products made
      primarily from polyethylene and polypropylene resins. The Company’s primary
      products consist of geosynthetic lining materials of membranes, drainage nets
      and composites, textiles, and clay liners. The Company sells installation of
      its
      products in the United States,


Germany
      and the United Kingdom. Approximately 25% of GSE’s products are installed by the
      Company with the balance installed by independent installers.




The
      demand for our
      products is driven by municipal and private solid waste landfill development
      where environmental regulations require our liner products. Solid waste
      containment represented 56% of the Company’s revenues in 2005 and 68% of
      revenues in 2004. Influences of this driver are population growth, migration
      trends, solid waste per capita, environmental concerns of developing countries,
      and disposing methods. The solid waste containment market (in the geographic
      areas of our business) continues to grow approximately 2% to 4% per year. Other
      demands for our products are heap leach mining of metals, water management,
      agriculture, aquaculture, and other industrial applications. Growth in these
      markets is more cyclical to their industry.




Raw
      material
      cost of our products makes up approximately 78% of our product cost. The cost
      of
      these raw materials change due to factors outside of the Company’s control,
      including worldwide capacity, market demand, and the price of feed stocks such
      as natural gas and oil. The Company’s profitability depends on its ability to
      change the prices of its products as raw material costs change, which the
      Company has historically been able to do. The Company’s profitability is also
      influenced by competitive pressures. While GSE supplies 40% to 50% of the
      world’s geosynthetic products, most of GSE’s competitors are regional, family
      owned businesses that bid for business along with the Company in their areas.




GSE
      faced
      many challenges in 2005, but in spite of those challenges, was successful in
      increasing its gross profit compared to 2004. The U.S. experienced lower
      shipments and decreased installation services for national solid waste
      customers. Continued competitive pressures due to worldwide over capacity were
      felt in the European markets. Raw material costs were very volatile throughout
      the year, with a significant run up in resin prices from August to November
      of
      2005. U.S. petrochemical processing plants were temporarily shutdown by the
      Gulf
      Coast hurricanes during the third and fourth quarter of 2005 and resin suppliers
      put their customers on a reduced allocation.




20





We
      were able
      to overcome these negative impacts to gross profit. Our strong relations with
      resin suppliers enabled the company to meet the demand for our products in
      the
      fourth quarter. In spite of market conditions and the run up in resin prices,
      we
      were able to increase product prices to maintain our margin spread over resin
      costs. Increased volumes resulting from major projects in international markets
      improved the utilization of our production facilities compared to the prior
      year. Gross margins also improved in international markets from mining projects
      in South America, from aquaculture projects in Asia and from improved margins
      on
      European installation services.





**The
      Merger**




Code
      Hennessy
& Simmons IV LP (“CHS IV”) formed GEO Holdings Corp. (“GEO Holdings”) to
      acquire all of the equity interests of the Company. On May 18, 2004, GEO Sub
      Corp., a wholly owned subsidiary of GEO Holdings, merged with and into the
      Company, with the Company surviving the merger (the “Merger”). Each share of the
      Company common stock converted into the right to receive $18.50, in cash, in
      a
      transaction valued at approximately $242.1 million. As a result of the Merger,
      all of the outstanding capital stock of the Company is owned by GEO Holdings.
      CHS IV is an entity controlled by Code Hennessy & Simmons LLC
      (“CHS”).




The
      acquisition of the Company in the Merger was accounted for under the purchase
      method of accounting. Under purchase accounting, the purchase price was
      allocated to the tangible and identifiable intangible assets acquired and
      liabilities assumed based on their respective fair values, with the remainder
      allocated to goodwill. The increase in basis of the assets will result in
      non-cash charges in future periods, principally related to the step-up in the
      value of property, plant and equipment and other intangible assets.





**Results
      of Operations**





***Year
      Ended December 31, 2005 Compared to Year Ended December 31,
      2004***





The
      results of operations for the year ended December 31, 2004 include the combined
      results of operations for the Predecessor Company for the period January 1,
      2004
      through May 17, 2004, and the Successor Company for the period May 18, 2004
      through December 31, 2004.





Selected
      financial data:




**Year
                2005**
            
            **Successor
                  and**
                **Predecessor**Year
                  2004 Combined
            
            **Successor**
                **May
                  18, 2004 to**
                **Dec.
                  31, 2004**
            
            **Predecessor**
                **Jan
                  1, 2004 to**
                **May
                  17, 2004****(in
                thousands)**Sales
                and operating revenue
            
            $
            317,618
            
            $
            287,906
            
            $
            217,513
            
            $
            70,393Gross
                profit
            
            
            56,351
            
            
            55,103
            
            
            44,817
            
            
            10,286Selling,
                general & administrative expenses
            
            
            29,573
            
            
            30,770
            
            
            18,382
            
            
            12,388Amortization
                of intangibles
            
            
            4,727
            
            
            3,026
            
            
            2,984
            
            
            42Merger/Acquisition
                related activities
            
            
            1,018
            
            
            —
            
            
            —
            
            
            —Expenses
                related to CHS transaction
            
            
            —
            
            
            5,863
            
            
            —
            
            
            5,863Operating
                income (loss)
            
            
            21,033
            
            
            15,444
            
            
            23,451
            
            
            (8,007
            )Interest
                expense
            
            
            19,386
            
            
            14,359
            
            
            12,720
            
            
            1,639Interest
                income
            
            
            (937
            )
            
            (490
            )
            
            (302
            )
            
            (188
            )Foreign
                exchange loss
            
            
            37
            
            
            168
            
            
            37
            
            
            131Minority
                interest
            
            
            497
            
            
            271
            
            
            302
            
            
            (31
            )Other
                income
            
            
            (379
            )
            
            (556
            )
            
            (284
            )
            
            (272
            )Profit(loss)
                before tax
            
            
            2,429
            
            
            1,692
            
            
            10,978
            
            
            (9,286
            )Income
                tax provision (benefit)
            
            
            1,735
            
            
            (304
            )
            
            2,674
            
            
            (2,978
            )Net
                income(loss)
            
            $
            694
            
            $
            1,996
            
            $
            8,304
            
            $
            (6,308
            )




The
      Company’s
      sales and operating revenue of $317,618,000 increased by $29,712,000, or 10.3%
      in 2005 from the $287,906,000 reported in 2004. Product prices were up 8.7%,
      in
      line with higher raw material costs. Units shipped were up 1.5% while units
      installed were down 16.8%. At December 31, 2005, backlog of $50.6 million was
      20.0% lower than at December 31, 2004. The Company does not believe this decline
      in backlog is a significant issue or a predictor of the Company’s future
      revenues, the decline is primarily due to the timing of bid activity.




21




U.S.
      sales
      and operating revenue of $161,355,000 in 2005 was 1.1% lower than the previous
      year. This decline was mainly due to lower units shipped and square feet
      installed, partially offset by the increase in sales prices. Average per unit
      sales price increased 6.1% in 2005 compared to 2004. U.S. units shipped were
      down 6.7%, while installed units were down approximately 22.6% in 2005. Both
      of
      these decreases were primarily caused by less business with national solid
      waste
      customers.




Foreign
      sales
      and operating revenue was $156,263,000 in 2005, a 25.2% increase from the
      previous year. Average unit sales price increased 14.7% in 2005 compared to
      the
      prior year. Foreign units shipped increased by 9.1% and installed units
      increased by 63.8% in 2005 over 2004. The increase in shipments was primarily
      from continued growth in Asia and Africa, principally in the aquaculture,
      agriculture and water containment markets. The growth in installed units in
      2005
      was from a concentrated effort to increase market share within the German and
      United Kingdom solid waste industry. A change in the U.S. dollar value of the
      Company’s foreign entity functional currencies increased 2005 foreign sales and
      operating revenue by approximately $279,000.




Gross
      profit
      in 2005 was $56,351,000, 2.3% higher than the $55,103,000 in 2004. Gross profit
      as a percent of sales and operating revenues declined to 17.7% from 19.1% last
      year, but was up 1% on a dollar per unit basis. Gross profits as a percentage
      of
      sales declined mainly due to the rise in resin prices. In addition, the decline
      in margins was impacted by a full years depreciation and amortization in 2005
      at
      the stepped up basis of manufacturing assets (as a result of the Merger) as
      opposed to only a partial year of stepped up depreciation and amortization
      in
      2004. The increase in dollar per unit gross profit resulted from an increase
      in
      profits in the foreign markets which offset the decrease in profits from U.
      S.
      markets.




International
      markets experienced an 18.2% increase in gross profit mainly due to the
      increased in sales volumes. Also contributing to gross profit was higher margins
      from the mining industry in Latin America, primarily serviced by U.S.
      operations, and improved gross profit from installation services in Germany.
      Change in U.S. dollar value of functional currencies decreased 2005 gross profit
      by approximately $174,000.




Gross
      profit
      in the domestic markets in 2005 decreased 10.4%, but was essentially flat on
      a
      dollar per unit basis with 2004. The decline was mainly due to the drop in
      sales
      volumes and a drop in installation services. The Company was able to offset
      the
      steep rise in resin prices with product price increases.




Selling,
      general and administrative (SG&A) expenses of $29,573,000 in 2005 were
      $1,197,000 lower than in 2004. The decrease in SG&A is primarily from
      approximately $1,690,000 of cost reductions implemented in the U.S.
      and
      Europe in 2004 and from approximately $600,000 of lower bad debt expense.
      Partially offsetting the decrease was $728,000 of higher management fees paid
      to
      CHS. SG&A, as a percent of sales, was 9.3% for year ended December 31, 2005,
      compared to 10.7% the previous year.




Amortization
      of intangibles increased by $1,701,000 in 2005 compared to the prior year
      period. The increase reflects a full year of amortization expense related to
      Successor Company intangible assets recorded in connection with the
      Merger.




During
      2005 the Company vigorously pursued two acquisition candidates in competition
      with other buyers, which proved unsuccessful. The Company performed extensive
      due diligence activities and was in negotiation with sellers over several
      months. Expenses totaling $1,018,000 were primarily from fees incurred for
      legal, accounting and professional services assisting with due diligence efforts
      and contract negotiations.




Expenses
      related to the Merger of $5,863,000 in 2004 were comprised of costs the Company
      incurred to execute the Merger, including $3,204,000 for investment banker
      fees
      and expenses, $1,169,000 for legal, accounting and professional expenses, and
      $1,490,000 non-cash expense created by the extension and acceleration of
      Predecessor Company stock option vesting dates as a result of the Merger and
      required by FAS 123.




Interest
      expense of $19,386,000 during 2005 was higher than the previous year’s
      $14,359,000 reflecting a full year of interest expense on the 11% senior notes
      and the term loan issued in connection with the Merger. The cost in 2004
      includes a prepayment fee of $691,000 relating to the early retirement of the
      debt of the Predecessor.




Other
      income
      of $379,000 in 2005 and other income of $556,000 in 2004 were primarily from
      gains on routine sales of assets.




22





The
      Company’s
      provision for income taxes for 2005 was $1,735,000 compared to a benefit of
      $304,000 the previous year. The tax provision was determined at the statutory
      rates adjusted for certain permanent differences on an entity-by-entity basis.
      The effective rate for 2005 was 71.4% compared to (18.0%) last year. Income
      tax
      expense for 2005 was increased by $1,360,000 to reinstate a deferred tax
      valuation allowance related to foreign tax credits generated prior to the May
      18, 2004 Merger transaction and recorded as an income tax benefit in the fourth
      quarter of 2004. The Company received $17,015,000 of dividends from foreign
      subsidiaries in 2005 under the American Jobs Creation Act and determined that
      U.S. income taxes will be offset by a corresponding foreign tax
      credit.





***Year
      Ended December 31, 2004 Compared to Year Ended December 31,
      2003***




The
      results
      of operations for the year ended December 31, 2004 include the combined results
      of operations for the Predecessor Company for the period January 1, 2004 through
      May 17, 2004, and the Successor Company for the period May 18, 2004 through
      December 31, 2004.





Selected
      financial data:




**Successor
                  and Predecessor**
                **Combined**
              
              **Successor**
              
              **Predecessor****Year
                  2004**
              
              **May
                  18, 2004 to**
                **Dec.
                  31, 2004**
              
              **Jan.
                  1, 2004 to**
                **May
                  17, 2004**
              
              **2003****(in
                  thousands)**Sales
                  and operating revenue
              
              $
              287,906
              
              $
              217,513
              
              $
              70,393
              
              $
              274,618Gross
                  profit
              
              
              55,103
              
              
              44,817
              
              
              10,286
              
              
              59,159Selling,
                  general & administrative expenses
              
              
              30,770
              
              
              18,382
              
              
              12,388
              
              
              27,298Amortization
                  of intangibles
              
              
              3,026
              
              
              2,984
              
              
              42
              
              
              106Expenses
                  related to CHS transaction
              
              
              5,863
              
              
              —
              
              
              5,863
              
              
              1,547Operating
                  income (loss)
              
              
              15,444
              
              
              23,451
              
              
              (8,007
              )
              
              30,208Interest
                  expense
              
              
              14,359
              
              
              12,720
              
              
              1,639
              
              
              2,573Interest
                  income
              
              
              (490
              )
              
              (302
              )
              
              (188
              )
              
              (509
              )Foreign
                  exchange loss/(gain)
              
              
              168
              
              
              37
              
              
              131
              
              
              (212
              )Minority
                  interest
              
              
              271
              
              
              302
              
              
              (31
              )
              
              133Other
                  income
              
              
              (556
              )
              
              (284
              )
              
              (272
              )
              
              (3,296
              )Profit(loss)
                  before tax
              
              
              1,692
              
              
              10,978
              
              
              (9,286
              )
              
              31,519Income
                  tax provision (benefit)
              
              
              (304
              )
              
              2,674
              
              
              (2,978
              )
              
              10,748Net
                  income(loss)
              
              $
              1,996
              
              $
              8,304
              
              $
              (6,308
              )
              $
              20,771
  The
        Company’s
        sales and operating revenue of $287,906,000 increased by $13,288,000, or
        4.84%,
        in 2004 from the $274,618,000 reported in 2003. A change in the U.S. dollar
        value of the Company’s foreign entity functional currencies increased 2004
        foreign sales and operating revenue by approximately $7,079,000. Units shipped
        were up 7.9% while units installed were down 17.6%. Product prices were up
        2.5%
        in 2004 from 2003. At December 31, 2004, backlog of $63,295,000 was 57% more
        than at December 31, 2003. U.S. sales and operating revenue of $163,093,000
        in
        2004 was 1.2% higher than the previous year. U.S. units shipped were up 5.6%,
        while installed units were down approximately 16.1% in 2004. The decrease
        in
        installed units was primarily caused by lower demand from industrial customers.
        Foreign sales and operating revenue was $124,813,000 in 2004, 10.0% higher
        than
        the previous year. Foreign units shipped were up by 10.2% and installed units
        were down 34.3% in 2004.
  Gross
        profit
        was $55,103,000 in 2004, compared to $59,159,000 in 2003. Gross profit was
        lower
        primarily due to lower profit margin on goods sold. Gross profit, as a
        percentage of sales and operating revenue, decreased to 19.1% in 2004 from
        21.5%
        the previous year. Lower gross profit outside of the United States was primarily
        from competitive pressures, where margins declined by 4.7% of sales and
        operating revenue. U.S. margins in 2004 were 0.8% below the prior year. Cost
        of
        sales includes inventory and depreciation fair value adjustments recorded
        in
        connection with the Merger that lowered gross profit $3,201,000, or 1% of
        revenues. Change in U.S. dollar value of functional currencies increased
        2004
        gross profit by approximately $1,410,000.
  Selling,
        general and administrative (SG&A) expenses of $30,770,000 in 2004 were
        $3,472,000 higher than in 2003. Increased costs resulted primarily from $864,000
        of change in U.S. dollar value of functional currencies, a $1,287,000 management
        fee paid to CHS, a $1,500,000 higher provision for bad debts, and other
        increases including legal fees in connection with the patent litigation.
        The
        increased bad debt provision, which is more consistent with historical results,
        resulted from the lower than usual 2003 provision. SG&A, as a percent of
        sales, was 10.7% for year ended December 31, 2004, compared to 10.0% the
        previous year.
  23
 
 Amortization
        of intangibles primarily relates to amortization of the fair values of customer
        lists recorded in connection with the Merger.
  Expenses
        related to the Merger of $5,863,000 are comprised of costs the Company incurred
        to execute the Merger, including $3,204,000 for investment banker fees and
        expenses, $1,169,000 for legal, accounting and professional expenses, and
        $1,490,000 non-cash expense created by the extension and acceleration of
        Predecessor Company stock option vesting dates as a result of the Merger
        and
        required by FAS 123.
  Interest
        expense of $14,359,000 during 2004 was significantly more than the previous
        year’s $2,573,000. The cost in 2004 includes higher interest rates on higher
        debt balances as a result of the Merger, a prepayment fee of $691,000 and
        increased amortization of deferred financing costs.
  Other
        income
        of $556,000 in 2004 was primarily from gains on routine sales of assets.
        Last
        year’s other income was $3,296,000, primarily from gains on the sale of real
        estate acquired in the 2002 Serrot acquisition.
  The
        Company’s
        benefit for income taxes for 2004 was $304,000 compared to a provision of
        $10,748,000 the previous year. The tax provision was determined at the statutory
        rates adjusted for certain permanent differences on an entity-by-entity basis.
        The effective rate for 2004 was lower at (18.0%) compared to 34.0% last year,
        primarily because the Successor Company has much lower U.S. taxable income
        as a
        result of higher CHS acquisition debt.





**Outlook**




On
      December
      30, 2005 GSE completed an acquisition of the operating assets of SL Limitada,
      a
      geosynthetic manufacturing company in Chile, with annual production capacity
      of
      approximately 40 million pounds. We expect the Chilean operations will enhance
      our market position in South America and increase our sales volumes by more
      than
      10% in 2006. In addition to the positive impact on gross profit of increased
      volumes, we also expect to realize savings in transportation costs and improved
      plant utilization. In connection with the Chilean acquisition, we reorganized
      our sales force for Central and South America eliminating certain sales expenses
      which will benefit 2006.




For
      the rest
      of our operations, we expect sales and operating revenue to be higher in 2006
      than in 2005, primarily from increased volumes and higher selling prices,
      following increased resin cost. We continue to see strong demand in our
      international markets, which we expect to meet primarily through our foreign
      operations. Based on preliminary plans presented to us by our major solid waste
      customers, we expect demand for our products and services to be higher in 2006
      compared to 2005.




Resin
      cost at
      the beginning of 2006 is approximately ten cents per pound higher than the
      average cost per pound in 2005, due to the significant increase in resin costs
      during late 2005 resulting from supply disruptions caused by the two significant
      hurricanes that hit the Gulf Coast. We expect that market prices for resins
      will
      remain volatile during 2006, but trend down from the current highs due to
      domestic resin production approaching normal levels and from imported resins
      continuing to enter the U. S. market.




We
      expect our
      gross profit to improve over 2005, primarily from higher volumes. However,
      the
      industry will continue to have capacity in excess of the market growth resulting
      in a continuance of competitive bid pricing pressures. Our intent is to maintain
      our 2005 margin spread over resin costs in 2006. However, maintaining that
      spread with higher selling prices is expected to result in gross profit margins
      declining as a percentage of sales.




We
      expect
      selling and administrative expenses in 2006 to remain flat with 2005. We also
      expect to maintain compliance with our restrictive debt covenant measurements
      in
      2006.




We
      continuously explore ways to optimally utilize our assets and deliver a positive
      return on assets. In this regard, we plan on moving two production lines in
      2006
      to locations that are expected to result in reduced operating and transportation
      cost and increased sales volumes. The majority of the benefits from these moves
      should occur in 2007.





24




**Liquidity
      and Capital Resources**




***Sources
      of
      Liquidity***




The
      Company’s
      primary sources of liquidity in 2005 was cash generated from operations and
      its
      revolving credit facility. At December 31, 2005, the Company had working capital
      of $67,895,000 of which $21,094,000 was cash and cash equivalents. The Company’s
      operating results and liquidity are normally reduced in the first quarter as
      both product deliveries and installations are at their lowest levels due to
      inclement weather experienced in the Northern Hemisphere. The Company believes
      that it has sufficient funding from cash on hand, cash expected to be generated
      from future operations and existing credit facilities to meet its anticipated
      liquidity needs including anticipated requirements for working capital, capital
      expenditures, and debt service in 2006.




Total
      capitalization as of December 31, 2005 was $241,916,000, consisting of
      $69,631,000 in Stockholder’s equity and $172,285,000 of total debt. The total
      debt is reduced by a $2,931,000 non-cash, fair value adjustment for the interest
      rate swap and premium on senior notes.




***Capital
      Expenditures***




Capital
      expenditures in 2005 amounted to $3,900,000. The Company currently anticipates
      capital expenditures in 2006 of $6,531,000, of which $2,537,000 is considered
      expansion capital. The Company expects to fund capital expenditures with cash
      on
      hand. There are currently no contractual obligations or commitments related
      to
      these planned capital expenditures.




***Borrowing
      Arrangements***




GSE
      entered
      into a five year installment obligation with the Seller of SL Limitada for
      $4.5
      million, secured by a share pledge agreement for 30% of the equity of GSE Lining
      Technology Chile, S. A., an indirect wholly owned subsidiary of GSE. The
      installment obligation bears interest at 5% for the first two years, converting
      to a variable rate based on the London Interbank Offer Rates (LIBOR) for the
      remaining term. Payments are in five annual principal and interest amounts
      beginning on January 1, 2007.




In
      connection
      with the Merger, GSE issued $150,000,000 of 11% senior notes due in 2012. As
      required by their terms, the senior notes were exchanged for publicly registered
      notes in the same amounts in a registered exchange offer completed in November
      2004. The senior notes are guaranteed by all of our existing and future direct
      or indirect domestic subsidiaries other than Bentofix Technologies
      (USA), Inc., a dormant subsidiary of our 75.5%-owned Canadian subsidiary,
      Bentofix Technologies, Inc.




The
      indenture
      governing the notes, among other things: (1) restricts our ability and the
      ability of our subsidiaries to incur additional indebtedness, issue shares
      of
      preferred stock, incur liens, pay dividends or make certain other restricted
      payments and enter into certain transactions with affiliates; (2) places
      certain restrictions on the ability of certain of our subsidiaries to pay
      dividends or make certain payments
      to us; and (3) places restrictions on our ability and the ability of our
      subsidiaries to merge or consolidate with any other person or sell, assign,
      transfer, lease, convey or otherwise dispose of our assets. The indenture
      related to these notes and the senior credit facility also contain various
      covenants that limit our discretion in the operation of our
      businesses.




In
      January
      2005, GSE entered into an interest rate swap agreement, which effectively
      converted $75,000,000 of our 11% fixed rate senior notes issuance into variable
      rates based on six-month LIBOR rates. Under the swap agreement, payments are
      made based on a variable rate; currently 11.1725% through May 15, 2006,
      adjusting based on LIBOR rates every six months thereafter, and received on
      a
      fixed rate of 11%. Differentials to be received or paid under the agreement
      are
      recognized as an offset to interest expense, respectively.




At
      the time
      of the Transaction, the term of the swap agreement was such that the swap was
      considered perfectly effective against changes in the fair value of the debt
      due
      to changes in the benchmark interest rates over swap terms. As a result, the
      shortcut method provided by SFAS No. 133, “Accounting for Derivative Instruments
      and Hedging Activities,” was applied and there was no need to periodically
      reassess the effectiveness of the swap during its term. Interest expense on
      the
      debt was adjusted to include payments made or received under the swap
      agreements. The fair value of the swap would be carried as an asset or a
      liability on the Consolidated Balance Sheet and the carrying value of the hedged
      debt would be adjusted accordingly. The fair values of the Company’s interest
      rate swap would be the estimated amounts the Company would receive or pay to
      terminate the agreement as of the reporting dates. However, due to a recently
      issued SFAS133 interpretation effective January 1, 2006, the Company is no
      longer able to apply the short cut method provided by SFAS133 in the accounting
      for its interest rate swap. The Company is currently assessing the accounting
      impact of this recent development. (See Footnote 20 Subsequent Event for more
      information.)




25





In
      connection
      with the Merger, we entered into a $65,000,000 senior secured credit facility
      with UBS Loan Finance LLC and certain other lenders. The senior credit facility
      provides a $25,000,000 term loan facility and a revolving credit facility of
      up
      to $40,000,000. The revolving credit facility includes a letter of credit
      subfacility of $10,000,000 and a swing line subfacility of $15,000,000. The
      term
      loan matures in May 2010 and the revolving credit facility matures in
      May 2009. The term loan facility amortizes on 24 consecutive equal
      quarterly installments. Borrowings bear interest, at our option, at either
      a
      base rate or LIBOR plus, in each case, an applicable interest margin. The
      applicable interest margin for the term loan is 2.00% per annum for base rate
      loans or 3.00% per annum for LIBOR loans. The applicable interest margin for
      revolving loans is 1.75% per annum for base rate loans or 2.75% per annum for
      LIBOR loans. The applicable interest margins for the revolving credit facility
      and the term loan is adjustable by the lenders based upon a grid. We are also
      required to pay customary agency fees and expenses. The Company paid commitment
      fees of approximately $188,000 in 2005 and $69,000 in 2004. The senior credit
      facility requires prepayment with the net proceeds of certain asset sales,
      the
      net proceeds of certain issuances of debt or preferred stock, a portion of
      net
      proceeds of certain issuances of common equity, the net proceeds from casualty
      and condemnation events in excess of amounts applied to repair or replace such
      assets, and an agreed-upon percentage of our excess cash flow (subject to
      certain baskets).




The
      senior
      credit facility is guaranteed by GEO Holdings and all of our existing and future
      direct or indirect domestic subsidiaries, but not our foreign subsidiaries
      or
      Bentofix Technologies (USA), Inc., a dormant subsidiary of our 75.5%-owned
      Canadian subsidiary, Bentofix Technologies, Inc., except to the extent
      guarantees by such subsidiaries would be prohibited by applicable tax law or
      could result in adverse tax consequences. The senior credit facility is secured
      by substantially all of our U.S. assets, and by our capital stock and the
      capital stock of substantially all of our domestic subsidiaries and 65% of
      the
      capital stock of substantially all of our first-tier foreign
      subsidiaries.




The
      senior
      credit facility requires us to meet certain financial tests, including but
      not
      limited to, a minimum interest coverage ratio, a maximum leverage ratio, a
      minimum fixed charge coverage ratio and maximum capital expenditures. In
      addition, the senior credit facility contains restrictive covenants which limit,
      among other things, dispositions of assets, certain business changes, certain
      ownership changes, mergers, acquisitions, dividends, stock repurchases and
      redemptions, incurrence of indebtedness, issuance of preferred stock,
      investments, liens, transactions with affiliates, sale and leaseback
      transactions, and other matters customarily restricted in such agreements.
      The
      senior credit facility provides for customary events of default. At December
      31,
      2005, the Company had an outstanding balance of $17,900,000 on its $25,000,000
      term loan. The Company had available $37,969,000 under its credit facility
      at
      December 31, 2005, net of $2,031,000 of issued letters of credit.




GSE
      has an
      EGP 5,000,000 (USD $872,000) term loan with an Egyptian bank, bearing interest
      at 14%, secured by equipment. The promissory note requires quarterly payments
      of
      EGP 417,000 (USD $73,000) plus interest on July 27, October 27,
      January 27, and April 27, maturing in April 2007.




At
      December
      31, 2005, GSE had five local foreign credit facilities. It had credit facilities
      with two German banks in the amount of EUR 5,100,000 (USD $6,038,000). These
      revolving credit facilities are secured by a corporate guarantee and bear
      interest at various market rates. These credit facilities are used primarily
      to
      guarantee the performance of European installation contracts and temporary
      working capital requirements. At December 31, 2005, GSE had EUR 593,000 (USD
      $702,000) available under these credit facilities with EUR 2,511,000 (USD
      $2,973,000) of bank guarantees outstanding and EUR 1,996,000 (USD $2,363,000)
      of
      line of credit borrowing. The EUR 1,996,000 (USD $2,363,000) line of credit
      borrowing was paid subsequent to December 31, 2005.




GSE
      has two
      credit facilities with Egyptian banks in the amount of EGP 7,500,000 (USD
      $1,307,000). These credit facilities bear interest at various market rates
      and
      are primarily for cash management purposes. At December 31, 2005, GSE had EGP
      4,586,000 (USD $799,000) available under these credit facilities.




GSE
      has a
      credit facility with a Canadian bank in the amount of Canadian Dollar 500,000
      (USD $430,000) that bears interest at market rate, secured by all assets. At
      December 31, 2005, GSE had the full amount available under this
      line.




The
      Company
      is currently in compliance with all of its debt covenants and expects to remain
      in compliance.




26


******


***Sources
      and
      Uses of Cash***




The
      sources
      and uses of cash for the year ending December 31, 2004 include the combined
      results of operations for the Predecessor Company through May 17, 2004, and
      the
      Successor Company for the period May 18, 2004 through December 31,
      2004.





**Year
                Ended****December
                31,**
              **2005**
            
            **December
                31,**
              **2004**Cash
                provided by operating activities
            
            $
            8,786,000
            
            $
            23,680,000Cash
                (used by) investing activities
            
            $
            (12,930,000
            )
            $
            (227,287,000
            )Cash
                provided by financing activities
            
            $
            2,072,000
            
            $
            193,193,000




Cash
      provided
      by operating activities during 2005 was $8,786,000 compared to $23,680,000
      in
      the prior year. The difference was primarily due to the release of $18,056,000
      of restricted cash in 2004 for securing the supersedeas appeal bond in the
      Poly-America case, offset by a $9,500,000 payment to settle the case. Accounts
      receivable, net increased $10,359,000 mainly due to increased revenues in the
      fourth quarter driven by higher resin prices.




Cash
      used by
      investing activities during 2005 was $12,930,000, compared to $227,287,000
      in
      the prior year. Cash used by investing activities during 2005 was primarily
      for
      the acquisition of the operating assets of a geomembrane manufacturer in Chile
      for $11,187,913. Cash used by investing activities in 2004 was due to cash
      expended on May 18, 2004 when the Company was purchased by CHS in the Merger
      at
      a net cash cost of $221,616,000, which included approximately $6,794,000 of
      allocated expense, offset by $14,266,000 of cash acquired, and excluded
      financing cost.




Cash
      provided
      by financing activities during 2005 was primarily a $2,363,000 draw on a credit
      line in Germany for short term working capital needs that was paid off in
      February 2006. Cash provided by financing activities during 2004 was the result
      of the proceeds from debt and equity used in connection with the consummation
      of
      the Merger, less cost of financing. See “Borrowing Arrangements”
above.




***Contractual
      Obligations and Commercial Commitments***




The
      following
      table represents information, as of December 31, 2005, concerning the Company’s
      unconditional obligations and commitments to make future payments under
      contracts with remaining terms in excess of one year, such as debt and lease
      agreements, and under contingent commitments (in thousands).





**Contractual
                Cash**
              **Obligations**
            
            **Total**
            
            **Less
                Than**
              **One
                Year**
            
            **1-3
                Years**
            
            **4-5
                Years**
            
            **After
                5 Years**Short-term
                Debt
            
            $
            2,363
            
            $
            2,363
            
            $
            —
            
            $
            —
            
            $
            —Long-term
                Debt and Interest(1)
            
            
            286,173
            
            
            22,122
            
            
            68,334
            
            
            37,467
            
            
            158,250Operating
                Leases
            
            
            606
            
            $
            402
            
            
            204
            
            
            —
            
            
            —Other
                Long-Term Liabilities
              Reflected
                in the Balance Sheet(2)
            
            
            961
            
            
            75
            
            
            225
            
            
            150
            
            
            511Total
            
            $
            290,103
            
            $
            24,962
            
            $
            68,763
            
            
            37,617
            
            $
            158,761





**Other
                Commercial**
              **Obligations**
            
            **Total**
            
            **Less
                Than**
              **One
                Year**
            
            **1-3
                Years**
            
            **4-5
                Years**
            
            **After
                5 Years**Letters
                of Credit
            
            $
            2,031
            
            $
            2,031
            
            $
            —
            
            $
            —
            
            $
            —Bond
                Guarantees
            
            
            4,509
            
            
            2,356
            
            
            2,153
            
            
            —
            
            
            —Bank
                Guarantees
            
            
            3,481
            
            
            1,553
            
            
            1,928
            
            
            —
            
            
            —Total
            
            $
            10,021
            
            $
            5,940
            
            $
            4,801
            
            $
            —
            
            $
            —





(1)
            Long-term
                debt listed here is cash obligation and excludes the $2,931 derivative
                adjustments.


(2)
            Represents
                estimated payments due for the German pension
                obligation.




**Critical
      Accounting Policies and Estimates**




Our
      discussion and analysis of financial condition and results of operations are
      based upon our consolidated financial statements, which have been prepared
      in
      accordance with accounting principles generally accepted in the United States.
      The preparation of these financial statements requires management to make
      estimates and judgments that affect the reported amounts of assets, liabilities,
      revenues and expenses and related disclosure of contingent assets and
      liabilities. On an on-going basis, management evaluates estimates, including
      those related to bad debts, inventory obsolescence, investments, intangible
      assets and goodwill, income taxes, financing operations, workers’ compensation
      insurance, pension benefits and contingent liabilities. Estimates are based
      on
      historical experience and on various other assumptions that are believed to
      be
      reasonable under the circumstances, the results of which form the basis for
      making judgments about the carrying values of assets and liabilities that are
      not readily apparent from other sources. Actual results may differ from the
      estimates used in preparing the consolidated financial statements contained
      herein.




27




We
      believe
      the following are our most critical accounting policies. GSE’s senior management
      has discussed the development and selection of these policies and related
      disclosure with the audit committee. These policies require significant
      judgmental estimates used in the preparation of our consolidated financial
      statements, based on historical experience and assumptions related to certain
      factors including competitive market factors, worldwide manufacturing capacity
      in the industry, general economic conditions around the world and governmental
      regulation and supervision. There have been no significant changes to our
      critical accounting estimates during any of the periods in the three years
      ended
      December 31, 2005.





**Allowance
      for Doubtful Accounts**




We
      establish
      reserves for doubtful accounts on a case-by-case basis when it is believed
      that
      the required payment of specific amounts owed to us is unlikely to occur. We
      derive a majority of our revenue from sales and services to domestic and
      international, municipal and private companies engaged in waste management,
      mining, water and wastewater treatment, aquaculture and other industrial
      activities. We have receivables from customers in various countries. We
      generally do not require collateral or other security to support customer
      receivables. If the customers’ financial condition was to deteriorate or their
      access to freely convertible currency was restricted, resulting in impairment
      of
      their ability to make the required payments, additional allowances may be
      required.





**Warranty
      Reserve**




Our
      products
      carry specified limited warranties as to quality and workmanship. We established
      a reserve for potential warranty claims based on history of claims experience.
      We have no assurance that historical trends will continue and if trends are
      different than the estimates used, it could have an effect on our results of
      operations and financial position.





**Revenue
      Recognition and Job Loss Accrual**




For
      products
      sold directly to customers, we recognize revenues when products are shipped,
      title and risk of loss passes to the buyer, we have no further obligation to
      the
      buyer, and collectibility is reasonably assured. For installation contracts,
      revenues are recognized on the percentage of completion method in accordance
      with the American Institute of Certified Public Accountants Statement of
      Position (SOP) 81-1 “Accounting for Performance of Construction-Type and Certain
      Production-Type Contracts.” We recognize revenue on signed contracts and
      approved change orders. We do not recognize revenues on claims until claims
      are
      approved in writing and collectibility of such claims are assured. Percentage
      of
      completion is measured on the  percentage of costs incurred to total estimated costs for each contract. Our
      installation projects are reviewed for profitability on a monthly basis. When
      it
      has been determined that a project will generate a loss for us, we estimate
      that
      loss and book a reserve for the total expected loss on the job.





**Goodwill
      Impairment**




The
      Company
      uses purchase method of accounting for business combinations which requires
      the
      Company to make use of estimates and judgments to allocate the purchase price
      paid for acquisitions to the fair value of the net tangible and identifiable
      intangible assets. The Company performs a goodwill impairment test annually
      as
      of October 1. Goodwill could be tested more frequently if changes in
      circumstances or the occurrence of events indicates that a potential impairment
      exists. The impairment test requires the Company to compare the fair value
      of
      business reporting units to carrying value including assigned goodwill. The
      Company uses the present value of future cash flows to determine fair value.
      Future cash flows are typically based upon a ten-year future period for the
      business and an estimated residual value. Management judgment is required in
      the
      estimation of future operating results and to determine the appropriate residual
      values. Future operating results and residual values could reasonably differ
      from the estimates and could require a provision for impairment in a future
      period.





**Property,
      Plant and Equipment**




Costs
      of
      additions and major improvements are capitalized, whereas maintenance and
      repairs which do not improve or extend the life of the asset are charged to
      expense as incurred. When items are retired or otherwise disposed of, other
      (income) expense is charged or credited for the difference between net book
      value and net proceeds realized thereon. Interest costs incurred in construction
      of assets are capitalized and depreciated over the useful life of the asset.
      Depreciation is computed using the straight-line method, based on the estimated
      useful lives of the assets. Total repairs and maintenance during 2005 was
      $3,558,000. Total repairs and maintenance during 2004 were $2,287,000 for the
      Successor Company and $1,758,000 for the Predecessor Company. Total repairs
      and
      maintenance expense during 2003 was $4,345,000.




28





The
      Company
      makes judgments and estimates in conjunction with property, plant and equipment,
      including amounts to be capitalized, depreciation methods and useful lives.
      Additionally, carrying values of property, plant and equipment are reviewed
      for
      impairment and whenever events or changes in circumstances indicate that
      carrying value may be impaired. The carrying values are compared to the
      undiscounted anticipated future cash flows related to those assets. If the
      carrying value of a long-lived asset exceeds the future undiscounted cash flow,
      an impairment charge is recorded in the period in which such review is performed
      and it is determined that the carrying value exceeds fair value. This requires
      the Company to make long-term forecasts of its future revenues and costs related
      to the assets subject to review. Forecasts require assumptions about demand
      for
      the Company’s products and future market conditions. Future events and
      unanticipated changes to assumptions could require a provision for impairment
      in
      a future period.





**Customer
      Lists and Other Intangible Assets**




The
      amounts
      assigned to customer lists (determined generally based upon appraised value)
      and
      other intangible assets are amortized to expense over their estimated useful
      lives and are reviewed for potential impairment whenever events or changes
      in
      circumstances indicate that carrying value may be impaired. The estimated useful
      lives are based on an evaluation of the circumstances surrounding each asset,
      including an evaluation of events that may have occurred that would cause the
      useful life to be decreased. In the event the useful life would be considered
      to
      be shortened, or if the asset’s future value were deemed to be impaired, an
      appropriate amount of the value would be amortized to expense. Future operating
      results and residual values could therefore reasonably differ from the estimates
      and could require a provision for impairment in a future period. To date there
      have been no impairments.








**Effect
      of Recently Issued Accounting Standards**




In
      November
      2004, FASB issued Statement No. 151, “Inventory Costs—an amendment of ARB No.
      43, Chapter 4”. This Statement amends the guidance in ARB No. 43, Chapter 4,
      "Inventory Pricing," to clarify the accounting for abnormal amounts of idle
      facility expense, freight, handling costs, and wasted material (spoilage).
      Paragraph 5 of ARB 43, Chapter 4, previously stated that ". . . under some
      circumstances, items such as idle facility expense, excessive spoilage, double
      freight, and rehandling costs may be so abnormal as to require treatment as
      current period charges. . . .". This Statement requires that those items be
      recognized as current-period charges regardless of whether they meet the
      criterion of "so abnormal". In addition, this Statement requires that allocation
      of fixed production overheads to the costs of conversion be based on the normal
      capacity of the production facilities. The provisions of this statement are
      effective for inventory costs incurred during fiscal years beginning after
      June
      15, 2005. The adoption is not expected to have a material effect on the
      Company’s results of operation, financial position or cash flow.




In
      December
      2004, FASB issued Statement No. 123(R, revised 2004), “Share-Based Payment”,
      which is a revision of FASB Statement No. 123, Accounting for Stock-Based
      Compensation. Statement 123(R) supersedes No. 25 “Accounting for Stock Issued to
      Employees”, and amends FASB Statement No. 95, “Statement of Cash
      Flows”. FAS
      123(R) requires
      all share-based payments to employees, including grants of employee stock
      options, to be recognized in the financial statements based on their fair
      values, and pro forma disclosure is no longer an alternative to financial
      statement recognition. The provisions of SFAS 123(R) provide for an effective
      date of July 1, 2005 for calendar-year public companies. However, in April
      2005,
      the Securities and Exchange Commission adopted a rule that amends the compliance
      dates for SFAS No. 123(R), making it effective at the beginning of the first
      fiscal year that begins after June 15, 2005. Based upon the guidelines
      established by the SEC’s rule, we plan to adopt SFAS No. 123(R) on January 1,
      2006. As the Company has no outstanding unvested equity awards, the adoption
      is
      not expected to have a material effect on the Company’s results of operations,
      financial position or cash flow.




In
      December
      2004, FASB issued Statement No. 153, “Exchanges of Nonmonetary Assets—an
      amendment of APB Opinion No. 29”. The guidance in APB Opinion No. 29, Accounting
      for Nonmonetary Transactions, is based on the principle that exchanges of
      nonmonetary assets should be measured based on the fair value of the assets
      exchanged. The guidance in that Opinion, however, included certain exceptions
      to
      that principle. This Statement amends Opinion 29 to eliminate the exception
      for
      nonmonetary exchanges of similar productive assets and replaces it with a
      general exception for exchanges of nonmonetary assets that do not have
      commercial substance. A nonmonetary exchange has commercial substance if the
      future cash flows of the entity are expected to change significantly as a result
      of the exchange. The provisions of this statement are effective for non monetary
      asset exchanges incurred during fiscal years beginning after June 15, 2005.
      The
      adoption is not expected to have a material effect on the Company’s results of
      operation, financial position or cash flow.





29




In
      May
      2005, FASB issued Statement No. 154, “ *Accounting
      Changes and Error Corrections—a replacement of APB Opinion No. 20 and FASB
      Statement No. 3”* ***.*** This
      Statement requires retrospective application to prior periods’ financial
      statements of changes in accounting principle, unless it is impracticable to
      determine either the period-specific effects or the cumulative effect of the
      change. When it is impracticable to determine the cumulative effect of applying
      a change in accounting principle to all prior periods, this Statement requires
      that the new accounting principle be applied as if it were adopted prospectively
      from the earliest date practicable. The provisions of this statement are
      effective for accounting changes and corrections of errors incurred during
      fiscal years beginning after June 15, 2005. The adoption is not expected to
      have
      a material effect on the Company’s results of operation, financial position or
      cash flow.





**ITEM
      7A. Quantitative and Qualitative Disclosures About Market
      Risk**





**Interest
      Rate Risk**




Our
      earnings
      may be affected by changes in interest rates due to the impact those changes
      have on our variable rate debt instruments. As of December 31, 2005, there
      was
      approximately $18,000,000 outstanding under our floating rate credit facilities.
      A change in interest rates would have no material impact on our earnings because
      we do not anticipate significant borrowings under these credit
      facilities.




In
      January
      2005, GSE entered into an interest rate swap agreement, which effectively
      converted $75,000,000 of our 11% fixed rate senior notes issuance into variable
      rates based on six-month LIBOR rates. Under the swap agreement, payments are
      made based on a variable rate; currently 11.1725% through May 15, 2006,
      adjusting based on LIBOR rates every six months thereafter, and received on
      a
      fixed rate of 11%. Differentials to be received or paid under the agreement
      are
      recognized as an offset to interest expense.




Our
      earnings
      are affected by changes in interest rates due to the impact those changes have
      on our variable-rate debt instruments. We have variable-rate debt instruments
      at
      December 31, 2005 representing approximately 53.7% of our total debt. Holding
      other variables constant, including levels of indebtedness a 50 basis points
      increase in interest rates would increase or decrease our interest expense
      by
      $457,000 annually before tax.




Market
      risk
      for fixed-rate long-term debt is estimated as the potential increase in fair
      value resulting from a hypothetical 25 basis points decrease in interest rates
      and amounts to approximately $1.8 million as of December 31, 2005, using
      discounted cash flow analysis.





**Foreign
      Currency Risk**




We
      operate
      outside of the United States through foreign subsidiaries in Germany, England,
      Australia, Chile and Egypt that use a foreign currency as their functional
      currency. Foreign subsidiaries may enter into sales, installation or purchase
      contracts that are denominated in currencies different than the subsidiaries’
functional currency. We recognize that our international operations are subject
      to the risk of foreign currency fluctuations not present in domestic operations.
      As a result, our financial results could be significantly affected by factors
      such as changes in foreign currency exchange rates or weak economic conditions
      in the foreign markets in which we distribute or install our products.
      However, currency
      losses from sales, installation or purchase obligations in non functional
      currencies have not been material to our operations as a whole. The impact
      on
      our financial position and results of operations resulting from a hypothetical
      change in exchange rates of the different countries we operate in cannot be
      reasonably estimated. No assurance can be given as to how future movements
      in
      these foreign currencies could affect our future earnings. At December 31,
      2005
      the revenues, operating income and total assets for our foreign subsidiaries
      who
      do not use the U.S. dollar as their functional currency were $93.5 million,
      $7.9
      million, and $83.3 million, respectively.




We
      do
      financing transactions with and between our foreign subsidiaries from time
      to
      time, and foreign operations pay dividends to their U.S. parent. These
      transactions are normally in the currency of the lending or dividend paying
      entity and involve foreign currency risk.




30





We
      have not
      entered into hedging transactions in 2005 to mitigate the effect of changes
      in
      currency exchange rates on our financial results.




We
      translate
      our non U.S. dollar functional currency subsidiaries into U.S. dollars each
      month based on the current exchange rates. Any change in the exchange rates
      has
      an impact on our consolidated financial statements. When the U.S. dollar
      strengthens versus the foreign currency being translated the consolidated
      results are negatively impacted, and when the U.S. dollar weakens versus the
      foreign currency our consolidated results are favorably impacted.





**Supply
      Risk**





We
      routinely
      enter into fixed price contracts with commencement of performance dates spread
      throughout the year. Due to the nature of the construction business into which
      our products are sold, we have limited contractual means of passing through
      resin price increases. We believe that we successfully manage this risk
      by:





(1)
              setting
                  expiration dates on bids;(2)
              negotiating
                  delays in announced resin price increases from our
                  suppliers;(3)
              carrying
                  inventory to meet expected demand; and(4)
              planning
                  and staying informed on economic factors influencing resin
                  prices.


We
      have
      not entered into purchase contracts for the future delivery of raw materials.
      Holding all other variables constant, a 1% increase in resin prices based on
      our
      2005 volumes sold would have increased cost of products and services by
      approximately $2,900,000.





**ITEM
      8. Financial Statements and Supplementary Data** .




The
      response
      to this item is included in a separate section of this report on page
      F-1.





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




None.





**ITEM
      9A. Controls and Procedures.**




As
      of the end
      of the period covered by this report, our management carried out an evaluation,
      with the participation of our principal executive officer (the “CEO”) and our
      principal financial officer (the “CFO”), of the effectiveness of our disclosure
      controls and procedures pursuant to Rule 13a-15 of the Securities Exchange
      Act
      of 1934. Based on those evaluations, the CEO and CFO believe:




(i)  That
      our
      disclosure controls and procedures are designed to ensure that information
      required to be disclosed by us in the reports that we file or submit under
      the
      Securities Exchange Act of 1934 is recorded, processed, summarized and reported
      within the time periods specified in the SEC’s rules and forms, and that such
      information is accumulated and communicated to our management, including the
      CEO
      and CFO, as appropriate to allow timely decisions regarding required disclosure;
      and




(ii)  that
      our
      disclosure controls and procedures are effective.




There
      were no
      changes in our internal controls over financial reporting during the quarter
      ended December 31, 2005, that have materially affected, or are reasonably likely
      to materially affect, our internal controls over financial
      reporting.




31




**ITEM
      9B. Other Information.**




None.





**PART
      III**





**ITEM
      10. Directors and Executive Officers of the Registrant.**





The
      names, ages and positions of the persons who serve as our directors and
      executive officers are set forth below:




**Name**
            **Age**
            
            **Position**Samir
                T. Badawi
            66
            
            President,
                Chief Executive Officer and DirectorKelvin
                R. Collard
            48
            
            Vice
                President, Chief Financial Officer, Treasurer and Assistant
                SecretaryErnest
                C. English, Jr.
            53
            
            Vice
                President and General Manager of North America
                OperationsGerald
                E. Hersh
            62
            
            Vice
                President and General Manager of U.S. Installation
                OperationsJames
                T. Steinke
            59
            
            Vice
                President and General Manager of Asia/Pacific
                OperationsPaul
                A. Firrell
            39
            
            Vice
                President and General Manager of Europe/Africa
                OperationsDaniel
                J. Hennessy(1),
                (2)
            48
            
            Non-executive
                Director, Chairman of the BoardMichael
                G. Evans(2)
            51
            
            Non-executive
                DirectorMarcus
                J. George(1)
                ,(2)
            36
            
            Non-executive
                DirectorRichard
                E. Goodrich(1)
            62
            
            Non-executive
                DirectorBrian
                P. Simmons
            45
            
            Non-executive
                Director


(1)Audit
      Committee Member


(2)Compensation
      Committee Member




**Samir
      T.
      Badawi** served
      as Chairman of our board of directors from 1995 to 2004. From 1998 to the
      present, he has served as our President and Chief Executive Officer. From 1993
      to 1995, Mr. Badawi served as chairman of the board of directors of SLT
      Environmental, Inc. and financial advisor to a group of private investors.
      For twenty-five years prior to 1993, Mr. Badawi served as a managing
      partner of Ernst & Young International in the State of Bahrain, and in
      other capacities with Ernst & Young in the United States, Europe and
      the Middle East.


****


**Kelvin
      R.
      Collard** has
      served as our Vice President and Chief Financial Officer since February 21,
      2005. Prior to joining us, Mr. Collard was Vice President and Chief Financial
      Officer of the ABS Group of Companies, from January 2003 to January 2005. In
      2002, he was Vice President and Chief Financial Officer of Hydrochem Industrial
      Services, Inc. From 1999 through 2001, Mr. Collard was Vice President and
      Controller of Lyondell Chemical and from 1997 to 2001 was also the Vice
      President and Controller of Equistar Chemicals, LP. From 1989 to 1997, Mr.
      Collard served in various capacities at ARCO.




**Ernest
      C.
      English, Jr.** has
      served as our Vice President and General Manager of North America Operations
      since 1999. From 1996 to 1999, he served as our Construction Controller and
      then
      Corporate Controller. From 1994 to 1996, Mr. English served as financial
      officer of Stewart & Stevenson Operations, Inc. during the merger
      of Creole International, Inc. into Stewart & Stevenson Operations.
      From 1987 to 1994, he served as Chief Financial Officer of Creole
      International.




**Gerald
      E.
      Hersh** has
      served as our Vice President and General Manager of U.S. Installation Operations
      since 2000. From 1996 to 2000, he served as our Vice President-U.S. Installation
      Services. From 1994 to 1996, Mr. Hersh served as Senior Vice
      President-Operations for Joy Environmental Technologies, Inc. From 1985 to
      1994, he served as Senior Vice President-Commercial Operations for Tampella
      Power Corporation.





J **ames
      T. Steinke** has
      served as our Vice President and General Manager of Asia/Pacific Operations
      since 1999. From 1995 to 1999, he served as our Vice President-International
      Sales for Central and South America. From 1993 to 1995, Mr. Steinke served
      as our Vice President-U.S. Installation Services. From 1985 to 1993, he served
      in different capacities within GSE. Prior to joining us, Mr. Steinke served
      21 years in the U.S. Nuclear Submarine Service.




**Paul
      A.
      Firrell** has
      served as our Vice President and General Manager of Europe/Africa Operations
      since 2000. From 1996 to 2000, he served as our Managing Director, UK
      Operations, involved in the sales, installation, and manufacturing operations
      in
      the UK. From 1992 to 1996, Mr. Firrell owned and managed a geomembrane
      installation company in England that was acquired by us in 1996.




**Daniel
      J.
      Hennessy** became a
      director and Chairman of the Board of GSE upon the completion of the Merger.
      Mr. Hennessy has been principally employed by CHS as a Partner since 1988
      and is a founding partner. Prior to forming CHS, Mr. Hennessy was a
      Managing Director with Citicorp Mezzanine Investments and Citicorp’s Leveraged
      Capital Group and, before that, was employed at Continental Illinois National
      Bank. Mr. Hennessy is a member of the board of directors of Jakel
      Incorporated and Waddington North America, Inc.




32




**Michael
      G.
      Evans** became
      a
      director of GSE on August 17, 2004. Mr. Evans is currently serving as President
      and CEO of Waddington North America, Inc. and has served in this position since
      1995. In July 2000, the U.K. parent company of John Waddington Ltd., a U.K.
      public company, divested its North American business operations, which included
      Waddington North America. From 1978 until the divestiture, Mr. Evans served
      in
      various capacities for John Waddington Ltd. in the United Kingdom and the United
      States, including as a director of John Waddington Ltd. from 1996 through
      2000.




**Marcus
      J.
      George** became a
      director of GSE upon the completion of the Merger. Mr. George has been
      employed principally by CHS as Managing Director since 2003, a Vice President
      from 2000 to 2003 and an Associate from 1997 to 2000. Prior to joining CHS,
      Mr. George was employed by Heller Financial in the Corporate Finance Group,
      and, before that, was employed by KPMG Peat Marwick. Mr. George is a member
      of the board of directors of American Asphalt & Grading Company, L.P., KB
      Alloys, Inc. and Waddington North America, Inc.




**Richard
      E.
      Goodrich** became
      a
      director of GSE on December 16, 2004. Mr. Goodrich is currently serving as
      Executive Vice President and Chief Financial Officer of Chicago Bridge &
Iron Company and has served in that position since July 2001. Mr. Goodrich
      has
      also served in various other positions at Chicago Bridge & Iron Company,
      including as Group Vice President — Western Hemisphere Operations from November
      2000 to July 2001, Vice President — Financial Operations from February 1999 to
      November 2000 and Vice President — Area Director of Finance, Western Hemisphere
      from June 1998 through February 1999. Prior to that time, Mr. Goodrich was
      the
      Director of Strategic Planning — Energy and Chemicals Group of Fluor Daniel,
      Inc.




**Brian
      P.
      Simmons** became a
      director of GSE upon the completion of the Merger. Mr. Simmons has been
      principally employed by CHS as a Partner since 1988 and is a founding partner.
      Prior to forming CHS, Mr. Simmons was a Vice President with Citicorp’s
      Leveraged Capital Group, and, before that, was employed by Mellon Bank.
      Mr. Simmons is a member of the board of directors of AMF Bowling
      Worldwide, Inc., Beacon Sales Acquisition Corporation, Connor Sports
      Flooring Corporation, MLS Holdings, Precise Technology, Inc. and Waddington
      North America, Inc.




All
      of GSE’s
      stock is owned by GEO Holdings. GEO Holdings, under the control of CHS, annually
      elects our directors. Each director holds office for the term of one year and
      until such person’s successor is chosen and qualified or until such person’s
      death, resignation or removal. All directors serve on both of the boards of
      GSE
      and GEO Holdings, except for Messrs. Evans and Goodrich who serve on the GSE
      board only. Except as described in this report, there are no arrangements or
      understandings between any member of the board of directors or executive officer
      and any other person pursuant to which that person was elected or appointed
      to
      his or her position. See “Certain Relationships and Related
      Transactions—Stockholders Agreement” in Item 13 of Part III. There are no family
      relationships between any of our executive officers or directors.




Our
      board of
      directors has the power to appoint officers. Each director and officer will
      hold
      office for the term of one year and until such person’s successor is chosen and
      qualified or until such person’s death, resignation or removal.





**Audit
      Committee Financial Expert**




The
      Company’s
      board of directors has determined that Richard E. Goodrich is an audit committee
      financial expert, as such term is defined in the Securities Exchange Act of
      1934, and independent, as such term is defined in the Securities Exchange Act
      of
      1934.





**Code
      Of Ethics**




The
      Company
      has adopted a code of ethics that applies to all its employees, including its
      principal executive officer, principal financial officer and principal
      accounting officer. The Company’s Code of Ethics is available on the Company’s
      website at www.gseworld.com .




33




**ITEM
      11. Executive Compensation.**




The
      following tables, charts, and narrative show all compensation awarded, paid
      to
      or earned by each individual who was either the chief executive officer at
      any
      time during the period, or at December 31, 2005 one of the other highly
      compensated executive officers.






**Annual
                Compensation**
            
            
            **All
                Other****Name
                and Principal Position**
            
            
            **Year**
            
            
            **Salary**
            
            
            **Bonus**
            
            
            **Compensation(1)**Samir
                T. Badawi
            
            
            2005
            
            $
            448,000
            
            $
            211,680
            
            $
            31,721President
                and Chief Executive Officer
            
            
            2004
            
            $
            432,000
            
            $
            261,680
            
            $
            37,8782003
            
            $
            412,000
            
            $
            331,660
            
            $
            32,505Kelvin
                R. Collard
            
            
            2005
            
            $
            192,692
            
            $
            20,000
            
            $
            3,473Vice
                President and Chief Financial OfficerErnest
                C. English
            
            
            2005
            
            $
            201,000
            
            $
            43,286
            
            $
            6,984Vice
                President and General Manager of
            
            
            2004
            
            $
            194,000
            
            $
            63,286
            
            $
            6,450North
                America Operations
            
            
            2003
            
            $
            184,000
            
            $
            71,977
            
            $
            6,060Paul
                A. Firrell
            
            
            2005
            
            $
            240,780(2)
            )
            $
            46,744(2)
            )
            $
            25,024(2)
            )Vice
                President and General Manager of
            
            
            2004
            
            $
            232,270(2)
            )
            $
            56,474(2)
            )
            $
            24,750(2)
            )Europe/Middle
                East/Africa Operations
            
            
            2003
            
            $
            206,460(2)
            )
            $
            53,266(2)
            )
            $
            20,333(2)
            )Gerald
                E. Hersh
            
            
            2005
            
            $
            196,000
            
            $
            60,362
            
            $
            12,988Vice
                President and General Manager of
            
            
            2004
            
            $
            189,000
            
            $
            80,362
            
            $
            13,476U.S.
                Installation Operations
            
            
            2003
            
            $
            179,000
            
            $
            65,563
            
            $
            13,061James
                T. Steinke
            
            
            2005
            
            $
            165,000(3)
            )
            $
            32,876
            
            $
            10,699Vice
                President and General Manager of
            
            
            2004
            
            $
            153,000(3)
            )
            $
            42,876
            
            $
            10,357Asia/Pacific
                Operations
            
            
            2003
            
            $
            146,000(3)
            )
            $
            75,008
            
            $
            10,270


____________


*(1)*  *GSE
      paid life and disability insurance premiums for 2005, 2004 and 2003 for
      Mr. Badawi in the amounts of $5,334, $5,334, and $2,772; for
      Mr. Collard in the amounts of $473, N/A and N/A; for Mr. English in
      the amounts of $661 ,$661 and $661 ; for Mr. Firrell in the amounts of
      $937, $1,698, and $1,518; for Mr. Hersh in the amounts of $2,709, $2,598,
      and $2,227; and for Mr. Steinke in the amounts of $4,434, $4,289, and
      $4,202.*





GSE
      made
      contributions to retirement plans for 2005, 2004 and 2003 for Mr. Badawi in
      the amounts of $26,387, $32,544, and $29,733; for Mr. Collard in the amounts
      of
      $3,000, N/A and N/A,; for Mr. English in the amounts of $6,323, $5,789 and
      $,5,399; for Mr. Firrell in the amounts of $24,087, $25,900, and $19,585;
      for Mr. Hersh in the amounts of $10,279, $10,878 and $10,834; and for
      Mr. Steinke in the amounts of $6,265, $6,068 and
      $5,570.




*(2)*  *Based
      on an exchange rate equal to 1.7205 as of December 31, 2005.*




*(3)*  *Excludes
      foreign services payments of $33,000, $30,600, and $29,200 in 2005, 2004, and
      2003, respectively.*




**EXECUTIVE
      EMPLOYMENT AGREEMENTS**





In
      connection with the Merger, the following executive officers entered into
      employment agreements with us: Samir T. Badawi, Ernest C. English, Jr., Gerald
      E. Hersh, James T. Steinke and Paul A. Firrell. Each executive’s initial (2004)
      base salary pursuant to the employment agreements was as set forth in the
      preceding table.





**Employment
      Agreement of Samir T. Badawi**




Mr. Badawi’s
      employment agreement is for an initial three-year term with automatic one-year
      renewals and entitles him to certain customary benefits. Mr. Badawi is also
      eligible to participate in the GEO Holdings Corp. 2004 Stock Option Plan and
      any
      incentive, savings, retirement and welfare benefit plans maintained or
      established by us or our affiliates. We also provide Mr. Badawi with an
      automobile for business and personal use, and pay reasonable use and maintenance
      costs related to such automobile.




If
      Mr. Badawi’s employment is terminated by us without cause or due to his
      disability, or by Mr. Badawi for good reason of his employment agreement
      (but before a change in control), Mr. Badawi will be entitled to, in
      addition to his base salary through the date of termination:




34


(1)
              a
                  pro rata bonus for the period through the date of
                  termination;(2)
              all
                  benefits under our benefit plans and programs in which he participates,
                  subject to the terms and conditions of such plans; provided, however,
                  that
                  group medical benefits for Mr. Badawi and his dependents on the
                  date of
                  termination will be continued for a period of 18 months, with premiums
                  to
                  be paid by Mr. Badawi at the same rate paid by employees who have
                  not been
                  terminated; and(3)
              an
                  amount, payable pro rata over a period of 18 months, equal to the sum
                  of (A) one and one-half times the base salary as in effect on the
                  date of
                  termination and (B) one and one-half times the bonus paid for the
                  immediately preceding full year.
  In
        the event
        that Mr. Badawi is deemed to have received an “excess parachute payment” as
        defined in Section 280G(b) of the Internal Revenue Code of 1986, as amended,
        we
        will make additional payments to Mr. Badawi to set off any applicable excise
        taxes.




Mr.
      Badawi’s
      agreement provides for a bonus for fiscal year 2004 of up to 140% of his base
      salary based on our (1) EBITDA target, (2) average working capital versus
      sales and (3) achievement of business goals, as set forth in the 2004
      budget. Unless modified by our board of directors in connection with a
      modification of the executive bonus program generally, the bonus measures and
      percentages used for the 2004 bonus will be used to determine Mr. Badawi’s
      bonuses in subsequent years.




During
      the
      term of the employment agreement and, with respect to a termination by us for
      cause, for a period of one year after his termination, and with respect to
      a
      termination for any other reason, during the period in which he receives
      severance payments from us (or in the case of a lump sum payment, the period
      corresponding to the amount of base salary received), Mr. Badawi is
      prohibited from (1) competing with us in a material part of our business, and
      (2) soliciting our employees, customers or suppliers.





**Employment
      Agreement of Kelvin R. Collard**




Mr.
      Collard
      became a Vice President and the Chief Financial Officer of the Company upon
      the
      resignation of Mr. Klatt, which occurred on March 3, 2005. The terms of Mr.
      Collard’s employment are described in a letter agreement dated January 20, 2005.
      The agreement provides for a one-time signing bonus of $20,000 and an initial
      base salary of $225,000. Mr. Collard is eligible to earn an annual incentive
      cash bonus. The target award of the bonus is 40% of his base salary, and has
      a
      maximum and minimum payout of 80% and 0% of his base salary, respectively.
      Mr.
      Collard is also eligible to participate in the GEO Holdings Corp. 2004 Stock
      Option Plan and the various retirement and welfare benefit plans offered to
      our
      employees. In addition, he has the opportunity to purchase up to $100,000 of
      GEO
      Holdings stock from CHS at a purchase price of $18.50 per share, which was
      the
      price paid by CHS for the stock in connection with the Merger.




The
      employment agreement with Mr. Collard is “at will” and, therefore, does not have
      a stated term. However, if we terminate Mr. Collard’s employment for a reason
      other than for cause, he will be entitled to continue to receive his base salary
      for one year following the date of separation.





**Employment
      Agreements of Other Executives**




The
      employment agreements for Messrs. English, Hersh, Steinke and Firrell have
      terms similar to Mr. Badawi’s employment agreement. Some of the material
      differences include: (1) the amount of base salary and the office held, (2)
      severance benefits that are due if employment is terminated by us without cause
      or due to the executive’s disability or by the executive for good reason would
      be paid over an 18-month period and include one and one-half times such
      executive’s base salary, one and one-half times the average of the bonuses paid
      to such executive for the immediately preceding three years and 18 months
      of medical benefits, (3) there is no provision regarding “excess parachute
      payments,” (4) the executives are entitled to bonuses based on our bonus
      program for executives generally and (5) Messrs. English and Hersh are
      not entitled to an automobile, while Mr. Steinke is entitled to use of an
      automobile and a chauffeur and Mr. Firrell is entitled to an automobile
      allowance.




Mr.
      Steinke’s
      employment agreement further differs from Mr. Badawi’s employment agreement
      as Mr. Steinke is entitled to the following benefits: (1) a foreign service
      allowance based on 20% of his base salary, (2) rent and utilities for a
      furnished housing unit, (3) reimbursement for reasonable costs of language
      training, (4) expansion of the existing accidental death and dismemberment
      insurance to the maximum coverage of $400,000, (5) travel accident policy
      coverage of up to $500,000 and (6) funds for four trips per year for interim
      work at our offices in Houston and for home leave.




35





Mr.
      Firrell’s
      employment agreement further differs from Mr. Badawi’s employment agreement as
      Mr. Firrell is entitled to the following benefits: (1) we will make annual
      contributions of up to ten percent (10%) of his base salary to a pension fund
      of
      his choosing until his employment terminates, (2) we will pay for the cost
      of
      private medical insurance on behalf of Mr. Firrell, and children under 21
      years of age, and (3) we will provide life insurance for the term of the
      employment agreement with a death benefit of at least GBP
      540,000 (USD $929,000).





**GEO
      Holdings Corp. 2004 Stock Option Plan**




The
      GEO
      Holdings Corp. 2004 Stock Option Plan (the “GEO Holdings Option Plan”) became
      effective upon the consummation of the Merger. Under the GEO Holdings Option
      Plan, the board of directors of GEO Holdings (or a committee thereof) may from
      time to time grant options to purchase common stock of GEO Holdings representing
      up to 8% (287,150 options) of GEO Holdings’ common stock on a fully-diluted
      basis immediately following the consummation of the Merger to executives or
      other key employees or directors of GEO Holdings and its subsidiaries. Both
      “nonqualified” stock options and “incentive” stock options may be granted under
      the GEO Holdings Option Plan with terms to be determined by the board of
      directors (or a committee thereof). The options to purchase GEO Holdings common
      stock received by certain executives in exchange for options to purchase GSE
      common stock on the closing date of the Merger pursuant to executive securities
      agreements (see “Certain Relationships and Related Transactions—Executive
      Securities Agreements” in Item 13 of Part III), which represented approximately
      10% (333,600 options) of GEO Holdings’ common stock on a fully-diluted basis
      immediately following the completion of the Merger, were issued under the GEO
      Holdings Option Plan in addition to the options that GEO Holdings may grant
      from
      time to time as described above in this paragraph.





**Director
      Compensation**





We
      pay
      our independent Board members, Mr. Goodrich and Mr. Evans, the following fees
      related to their service on the Board:


·
              $20,000
                  annual retainer
 ·
              $5,000
                  annual committee member retainer
 ·
              $5,000
                  annual Committee Chairman retainer
 ·
              $1,000
                  fee for each meeting attended




In
      addition, these board members are eligible to participate in the GEO Holdings
      Corp. 2004 Stock Option Plan but no awards have been made under such plan.
      They
      also have the opportunity to purchase up to $100,000 of GEO Holdings stock
      from
      CHS at a purchase price of $18.50 per share, which was the price paid by CHS
      for
      the stock in connection with the Merger.





We
      reimburse all our directors for reasonable expenses incurred in connection
      with
      attendance at Board and committee meetings.




**Compensation
      Committee Interlocks and Insider Participation**




Decisions
      on
      Executive compensation in fiscal year 2005 were made by the compensation
      committee upon the recommendation of the Company’s management. During fiscal
      year 2005, the Compensation Committee consisted of Michael G. Evans (Chairman
      of
      the Compensation Committee and an Independent Director), Daniel J. Hennessy,
      and
      Marcus J. George. No member of the compensation committee was an officer or
      employee of our Company or had any relationship with our Company that is
      required to be disclosed as a Compensation Committee Interlock as described
      in
      Item 402(j)(3) of Regulation S-K promulgated by the U.S. Securities Exchange
      Commission.




Mr.
      Hennessey
      is a partner and founder of CHS, Mr. George is a Director of CHS. CHS had a
      99.5% beneficial ownership interest in the Company and has the right to
      designate the majority of the members of our board of directors.





**ITEM
      12. Security Ownership of Certain Beneficial Owners and
      Management.**




GSE
      is a
      wholly owned subsidiary of GEO Holdings. GEO Holdings was capitalized upon
      the
      completion of the Merger with approximately $60,600,000 of equity capital in
      the
      form of common stock. The following table sets forth certain information with
      respect to the beneficial ownership of the common stock of GEO Holdings as
      of
      March 8, 2006 by (1) each person whom we know to own beneficially more than
      five
      percent of the outstanding shares of common stock of GEO Holdings, (2) each
      of
      the directors and named executive officers of GSE and (3) all of the directors
      and executive officers of GSE as a group. Unless otherwise stated, each of
      the
      persons in the table has sole voting and investment power with respect to the
      securities beneficially owned. We have calculated beneficial ownership in
      accordance with the applicable rules and regulations under the Securities
      Exchange Act of 1934. Percentage ownership is based on 2,985,359.757 shares
      of
      common stock outstanding as of March 8, 2006.




36





**Beneficially
                  Owned****Name
                  of Beneficial Owner**
              **Number
                  of**
                **Shares**
              **Percentage
                  of**
                **Class****Five
                  Percent or More Holders:**Code
                  Hennessy & Simmons LLC
              2,970,386.784
              99.5%**Directors
                  and Executive Officers:**Samir
                  T. Badawi
              184,000(2)
              5.8%Ernest
                  C. English, Jr.
              45,000(2)
              *Gerald
                  E. Hersh
              47,600(2)
              *Kelvin
                  R. Collard
              —
              —James
                  T. Steinke
              36,000(2)
              *Paul
                  Firrell
              19,800(2)
              *Daniel
                  J. Hennessy(3)
              —
              —Michael
                  G. Evans
              —
              —Marcus
                  J. George(3)
              —
              —Richard
                  E. Goodrich
              —
              —Brian
                  P. Simmons(3)
              —
              —All
                  directors and executive officers as a group (11 persons)(4)
              332,400
              10.0%




***  *Less
      than 1%.*





*(1)*
            *Represents
                2,965,517.404 shares held by Code Hennessy & Simmons IV LP and
                4,869.380 shares held by CHS Associates IV. Code Hennessy & Simmons
                LLC is the general partner of CHS Associates IV as well as the general
                partner of CHS Management IV LP, which is the general partner of
                Code
                Hennessy & Simmons IV LP. Code Hennessy & Simmons LLC may be
                deemed to share beneficial ownership of the shares owned by Code
                Hennessy
                & Simmons IV LP and CHS Associates IV. The address of Code Hennessy
                & Simmons LLC is 10 South Wacker Drive, Suite 3175, Chicago, Illinois
                60606.*





*(2)*
            *Represents
                an exercisable option to acquire shares of common stock of GEO
                Holdings.*





*(3)*
            *Messrs.
                Hennessy and Simmons are Partners, and Mr. George is a Managing Director,
                of Code Hennessy & Simmons LLC (CHS). CHS is the general partner of
                CHS Management IV LP, which is the general partner of Code Hennessy
&
                Simmons IV LP. CHS is also the general partner of CHS Associates
                IV.
                Messrs. Hennessy, Simmons and George may therefore be deemed to share
                beneficial ownership of the shares owned by Code Hennessy & Simmons IV
                LP and CHS Associates IV. Messrs. Hennessy, Simmons and George expressly
                disclaim beneficial ownership of the shares owned by Code Hennessy
&
                Simmons IV LP and CHS Associates IV. The address of Messrs. Hennessy,
                Simmons and George is c/o Code Hennessy & Simmons LLC, 10 South Wacker
                Drive, Suite 3175, Chicago, Illinois
                60606.*





*(4)*
            *Includes
                332,400 shares issuable upon exercise of currently exercisable
                options.*





**ITEM
      13. Certain Relationships and Related Transactions.**




**Executive
      Securities Agreements**




In
      connection
      with the Merger, each executive that exchanged GSE options for a GEO Holdings
      option entered into an executive securities agreement pursuant to which such
      executive exchanged 40% of his options to purchase GSE’s common stock (the “Old
      Options”) for an option to purchase the common stock of GEO Holdings (the “New
      Option”). Each executive’s Old Options were exchanged for a New Option such that
      the spread of the Old Options equals the spread of the New Option. Additional
      terms of the executive securities agreements include:


37





(1)  expiration
      of New Options on the first to occur of (1) ten years after the closing of
      the
      Merger, (2) the expiration of 10 calendar days after the executive ceases to
      be
      an employee of GSE or any of its subsidiaries, if such termination is pursuant
      to a termination for cause or (3) a transfer of New Options in violation of
      the
      executive securities agreement;




(2)  cashless
      exercise of New Options based on the value of the common stock of GEO Holdings
      underlying such New Option;




(3)  mandatory
      repurchase of New Options by GEO Holdings or CHS IV in the event that executive
      is terminated by GSE for cause for a repurchase price equal to original
      cost;




(4)  optional
      repurchase right of GEO Holdings or, in the event not exercised by GEO Holdings,
      CHS IV, for a repurchase price equal to the greater of original cost and fair
      market value; and




(5)  transfer
      restrictions, subject to customary exceptions.





**Stockholders
      Agreement**




In
      connection
      with the Merger, GEO Holdings, CHS IV, certain co-investors and the executives
      exchanging GSE options for a GEO Holdings option entered into a stockholders
      agreement with respect to their GEO Holdings’ securities. The terms of the
      stockholders agreement include:





(1)  initially,
      three GEO Holdings board members appointed by CHS IV and one board member who
      will be our chief executive officer, subject to CHS IV’s right at all times to
      appoint a majority of the GEO Holdings board;





(2)  transfer
      restrictions, subject to customary exceptions;





(3)  rights
      of
      first refusal in favor of GEO Holdings, and, to the extent not exercised by
      GEO
      Holdings, CHS IV;





(4)  “tag-along”
      rights in the event of a transfer by CHS IV, subject to certain exceptions
      including transfers by CHS IV to affiliates and transfers of up to 5% in the
      aggregate of any class of securities held by CHS IV as of the date of the
      consummation of the Merger to employees of, consultants to, and advisors to
      CHS
      IV, GEO Holdings or any of their affiliates;





(5)  preemptive
      rights with respect to an offering of new securities by GEO Holdings; and





(6)  “drag-along”
      rights in the event the board of GEO Holdings and a majority of the stockholders
      of GEO Holdings approve a sale of GEO Holdings, subject to certain customary
      exceptions.





**Equity
      Registration Rights Agreement**




GEO
      Holdings,
      CHS IV, certain co-investors and the executives exchanging GSE options for
      a GEO
      Holdings option entered into a registration rights agreement. Under the
      registration rights agreement, CHS IV has the ability, under certain
      circumstances, to cause GEO Holdings to register for resale certain equity
      securities held by CHS IV and to participate in registration by GEO Holdings
      of
      its equity securities. The registration rights agreement gives the executives
      party to the agreement the right to include certain securities among those
      covered in a registration.




38




**Management
      Agreement with CHS Management IV LP**




In
      connection
      with the Merger, the Company entered into a management agreement with GEO
      Holdings and CHS Management IV LP (a limited partnership (1) of which CHS is
      the
      general partner and (2) which is the general partner of CHS IV), or CHS
      Management. Pursuant to the management agreement, CHS Management provides
      certain financial and management consulting services to GEO Holdings and to
      us.
      In consideration of those services the Company pays fees to CHS Management
      in an
      aggregate annual amount of $2.0 million, payable in equal monthly installments.
      The Company also agreed to reimburse CHS Management for its reasonable travel
      and other out-of-pocket expenses. The Company also provides customary
      indemnification to CHS Management. In connection with the structuring and
      implementation of the Merger and related financing transactions, GEO Holdings
      paid CHS Management fees in the aggregate amount of $5.0 million at the
      completion of the Merger. Under the Management Agreement, GEO Holdings will
      pay
      CHS Management a fee equal to 5% of any additional proceeds of GEO Holdings’
capital stock purchased from time to time by CHS Management or its affiliates.
      The management fee is subordinated to the prior payment in full of principal,
      interest and premium due and owing under our senior credit facility and the
      indenture governing the senior notes, but we may pay the management fee at
      all
      times except during certain events of default under our senior credit facility
      or under the indenture governing the senior notes. In the event any portion
      of
      the management fee is not so paid, such amount will accrue and become due and
      payable in the next month when payment is permitted.





**ITEM
      14. Principal Accounting Fees and Services.**




**Audit
      Fees** .
      Fees
      were $382,900 for fiscal 2005 and $299,100 for fiscal 2004 for the services
      of
      Ernst & Young LLP, our independent auditors for the last two fiscal years,
      in connection with its independent audit of our annual financial statements,
      review of the financial statements contained in our quarterly reports on Form
      10-Q and assistance regarding other SEC filings. All of the audit services
      provided to us by Ernst & Young LLP during fiscal 2005 and fiscal 2004 were
      pre-approved by our audit committee.




**Audit-Related
      Fees** .
      Fees
      were $510,200 for fiscal 2005 and $274,200 for fiscal 2004 for other services
      of
      Ernst & Young LLP that were reasonably related to its audit and review of
      our financial statements, including reviews of internal control design and
      operation and assistance in evaluating the requirements of the Sarbanes-Oxley
      Act of 2002, limited scope audit of our U.S. benefit plans, and assistance
      with
      due diligence. All of the audit-related services provided to us by Ernst &
Young LLP during fiscal 2005 and fiscal 2004 were pre-approved by our audit
      committee.




**Tax
      Fees.** Fees
      were
      $4,100 during fiscal 2005 and $46,100 during fiscal 2004 for the professional
      services of Ernst & Young LLP related to federal and state tax compliance,
      tax advice and tax planning. All of these services are permitted non-audit
      services. All of the tax-related services provided to us by Ernst & Young
      LLP for fiscal 2005 and 2004 that required pre-approval were pre-approved by
      our
      audit committee.




**All
      Other
      Fees.** Except
      as described above, we did not pay Ernst & Young LLP any other fees during
      fiscal 2005 and fiscal 2004.




The
      Company’s
      audit committee has a policy to pre-approve all audit and legally permitted
      non-audit services, including tax services, provided by the Independent
      Registered Public Accounting Firm. The audit committee procedures implementing
      this policy require the audit firm to submit a written pre-approval request
      for
      each of its particular services. The audit committee chairman must give his
      written pre-approval of the particular service before the audit firm commences
      any related work. The audit committee chairman reports his decisions on the
      independent auditors’ request for pre-approval of services to the full audit
      committee at each audit committee meeting. The Company’s audit committee does
      not recognize any de minimus exceptions to its audit and non-audit services
      pre-approval requirements. All 2005 and 2004 services required to be
      pre-approved have been pre-approved as described above.





**PART
      IV**





**ITEM
      15. Exhibits, Financial Statement Schedules.**





(a)
      The
      following documents are filed as a part of this report:





(1)
      The
      financial statements listed in the “Index to Financial Statements.”





39





(2)
      The
      following financial statement schedules:




Schedule
      II — Valuation and
      Qualifying Accounts (in thousands)





**Allowance
      for doubtful accounts:**


******Description**
            
            **Balance
                at**
              **Beginning**
              **of
                Year**
            
            **Charged****to**
              **Expense**
            
            **Acquired**
            
            ******Write
                -**
              **O****ffs***
            
            **Balance**
              **at
                End**
              **of
                Year**December
                31, 2003 Allowance for doubtful accounts
            
            $
            7,744
            
            $
            60
            
            $
            1,141
            
            $
            4,489
            
            $
            4,456May
                17, 2004 Allowance for doubtful accounts
            
            $
            4,456
            
            $
            1,405
            
            $
            —
            
            $
            —
            
            $
            5,861December
                31, 2004 Allowance for doubtful accounts
            
            $
            5,861
            
            $
            154
            
            $
            —
            
            $
            150
            
            $
            5,865December
                31, 2005 Allowance for doubtful accounts
            
            $
            5,865
            
            $
            889
            
            $
            —
            
            $
            1,532
            
            $
            5,222


**_________________**


*
      Year
      2003 write-offs include $3,661 of fully reserved receivables acquired with
      the
      Serrot acquisition in 2002.





**Inventory
      obsolescence and slow moving allowance:**


******Description**
            
            **Balance
                at**
              **Beginning**
              **of
                Year**
            
            **Charged****to**
              **Expense**
            
            **Acquired**
            
            ******Write
                -**
              **Offs****
            
            **Balance**
              **at
                End**
              ******of
                Year**December
                31, 2003 Obsolescence and slow moving allowance
            
            $
            3,133
            
            $
            268
            
            $
            —
            
            $
            824
            
            $
            2,577May
                17, 2004 Obsolescence and slow moving allowance
            
            $
            2,577
            
            $
            37
            
            $
            —
            
            $
            188
            
            $
            2,426December
                31, 2004 Obsolescence and slow moving allowance
            
            $
            2,426
            
            $
            620
            
            $
            —
            
            $
            244
            
            $
            2,802December
                31, 2005 Obsolescence and slow moving allowance
            
            $
            2,802
            
            $
            246
            
            $
            —
            
            $
            38
            
            $
            3,010





**Write
      offs includes the impacts of foreign exchange fluctuations




Schedules
      not
      listed above are omitted since the information required to be submitted has
      been
      included in the financial statements or the notes thereto, or the schedules
      are
      not required.





(3)
      The
      exhibits listed in Item 15(b) below.





(b)
      Exhibits





**Exhibit
                  Number**
              **Description**2.1
              Plan
                  and Agreement of Merger, dated as of December 31, 2003, by and among
                  Gundle/SLT Environmental, Inc. (“Gundle/SLT”),
                  GEO Sub Corp. (“GEO Sub”) and GEO Holdings Corp.
                  (“GEO Holdings”). (Incorporated herein by reference to
                  Exhibit 2.1 to Gundle/SLT’s Current Report on Form 8-K dated
                  January 2, 2004.)2.2**
              GSE
                  Lining Technology Chile, S.A. Purchase Agreement dated
                December
                  28, 2005(2)3.1
              Amended
                  and Restated Certificate of Incorporation of
                  Gundle/SLT.(1)3.2
              Certificate
                  of Incorporation of GSE Lining Technology, Inc.
                  (“GSE Lining”).(1)3.3
              Certificate
                  of Incorporation of GSE International, Inc.
                  (“GSE International”).(1)3.4
              Agreement
                  of General Partnership of GSE Clay Lining Technology Co.
                  (“GSE Clay”), as amended.(1)3.5
              Amended
                  and Restated Bylaws of Gundle/SLT.(1)




40




**Exhibit
                Number**
            **Description**3.6
            Bylaws
                of GSE Lining.(1)3.7
            Bylaws
                of GSE International.(1)4.1
            Indenture,
                dated as of May 18, 2004, between GEO Sub and U.S. Bank
                National Association (“US Bank”).(1)4.2
            Supplemental
                Indenture, dated as of May 18, 2004, by and among Gundle/SLT,
                GSE Lining, GSE International, GSE Clay and
                U.S. Bank.(1)4.3
            Intentionally
                omitted.4.4
            Intentionally
                omitted.4.5
            Form
                of Rule 144A Global Note and Subsidiary Guarantee.(1)4.6
            Form
                of Regulation S Global Note and Subsidiary
                Guarantee.(1)10.1
            Credit
                Agreement, dated as of May 18, 2004, by and among Gundle/SLT,
                GEO Holdings and other guarantors, and the banks, financial
                institutions and other institutional lenders and the initial issuing
                bank
                listed on the signature pages thereto,  UBS Securities LLC, as
                arranger and bookmanager, Bank of America, N.A., as syndication
                agent, CIT Lending Services Corporation, GMAC Commercial Finance LLC
                and Allied Irish Banks, P.L.C., as co-documentation agents, UBS
                AG, Stamford Branch, as issuing bank, administrative agent and collateral
                agent, and UBS Loan Finance LLC, as swingline
                lender.(1)10.2
            Management
                Agreement, dated as of May 18, 2004, by and among
                CHS Management IV LP, GEO and
                Gundle/SLT.(1)10.3
            Employment
                Agreement, dated as of May 18, 2004, between Gundle/SLT and
                Samir T. Badawi.*(1)10.4
            Intentionally
                Omitted10.5
            Intentionally
                Omitted10.6
            Employment
                Agreement, dated as of May 18, 2004, between Gundle/SLT and
                James T. Steinke.*(1)10.7
            Employment
                Agreement, dated as of May 18, 2004, between Gundle/SLT and
                Gerald E. Hersh.*(1)10.8
            Employment
                Agreement, dated as of May 18, 2004, between Gundle/SLT and
                Ernest C. English.*(1)10.9
            Employment
                Agreement, dated as of May 18, 2004, between Gundle/SLT and
                Paul A. Firrell.*(1)10.10
            Letter
                Agreement Regarding Terms of Employment, dated January 20, 2005,
                between
                Gundle/SLT Environmental, Inc. and Kelvin R. Collard.*10.11**
            2006
                Director and Executive Compensation10.12**
            Executive
                Securities Agreement for Samir T. Badawi




41




**Exhibit
                Number**
            **Description**10.13**
            Executive
                Securities Agreement for James Steinke10.14**
            Executive
                Securities Agreement for Gerald Hersh10.15**
            Executive
                Securities Agreement for Ernest C. English10.16**
            Executive
                Securities Agreement for Paul Anthony Firrell10.17**
            Executive
                Securities Agreement for Dr. Mohamed Abd El Aziz Siad
                Ayoub10.18**
            Stockholders
                Agreement12.1**
            Computation
                of Ratio of Earnings to Fixed Charges21.1
            Subsidiaries
                of the Registrant.31.1
            Certification
                Pursuant to Rules 13a-14 and 15d-14 under the Securities Exchange
                Act of
                1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act
                of
                2002.31.2
            Certification
                Pursuant to Rules 13a-14 and 15d-14 under the Securities Exchange
                Act of
                1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act
                of
                2002.32.1
            Certification
                Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002.32.2
            Certification
                Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002.


__________________


*  Management
      contract or compensatory plan or arrangement.


**Filed
      herewith


(1)  Incorporated
      by reference to the same numbered exhibit to Gundle/SLT’s Registration Statement
      on Form S-4 (Registration No. 333-118278).





(2)  Schedules
      for this Exhibit have been omitted pursuant to Item 601(b)(2) of Regulation
      S-K.
      A supplementary copy of the omitted schedules will be furnished to the
      Securities and Exchange Commission upon request.





(c)
            Additional
                financial statements (see Item 15(a)
                above).




42




**SIGNATURES**




Pursuant
      to
      the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
      the Registrant has duly caused this Report to be signed on its behalf by the
      undersigned, thereunto duly authorized, on the 8 day of March,
      2006.






GUNDLE/SLT
              ENVIRONMENTAL, INC.By:  
              /s/  SAMIR T. BADAWISamir T. Badawi
              President and Chief Executive
                Office




Pursuant
      to
      the requirements of the Securities Exchange Act of 1934, this Report has been
      signed below by the following persons on behalf of the Registrant in the
      capacities indicated on the 8 day of March, 2006.





**Signature**
              
              **Title**/s/
                  SAMIR T. BADAWI
              
              President,
                  Chief Executive Officer and Director (Principal Executive
                  Officer)Samir
                T. Badawi/s/
                  KELVIN R. COLLARD
              
              Vice
                  President, Chief Financial Officer and Assistant Secretary (Principal
                  Financial Officer and Principal Accounting Officer)Kelvin R. Collard/s/
                  MICHAEL G. EVANS
              
              DirectorMichael G. Evans/s/
                  MARCUS J. GEORGE
              
              DirectorMarcus J. George/s/
                  RICHARD E. GOODRICH
              
              DirectorRichard E. Goodrich/s/
                  DANIEL J. HENNESSY
              
              DirectorDaniel J. Hennessy/s/
                  BRIAN P. SIMMONS
              
              DirectorBrian P. Simmons


43





**INDEX
      TO FINANCIAL STATEMENTS**




**Page****Consolidate
              Annual Financial Statements:**Report
                of Independent Registered Public Accounting Firm
            
            F-2Consolidated
                Balance Sheets as of December 31, 2005 and 2004
            
            F-3Consolidated
                Statements of Income (Loss) for the Year Ended December 31, 2005
                (Successor), May 18, 2004 to December 31, 2004 (Successor), January
                1,
                2004 to May 17, 2004 (Predecessor) and Year Ended December 31, 2003
                (Predecessor)
            
            F-4Consolidated
                Statements of Stockholder’s Equity for the Year Ended December 31, 2005
                (Successor), May 18, 2004 to December 31, 2004 (Successor), January
                1,
                2004 to May 17, 2004 (Predecessor) and Year Ended December 31, 2003
                (Predecessor)
            
            F-5Consolidated
                Statements of Cash Flows for the Year Ended December 31, 2005 (Successor),
                May 18, 2004 to December 31, 2004 (Successor), January 1, 2004 to
                May 17,
                2004 (Predecessor) and Year Ended December 31, 2003 (Predecessor)....
            
            F-6Notes
                to Consolidated Financial Statements for the Year Ended December
                31, 2005
                (Successor), May 18, 2004 to December 31, 2004 (Successor), January
                1,
                2004 to May 17, 2004 (Predecessor) and Year Ended December 31, 2003
                (Predecessor)
            
            F-7Supplementary
                Data
            
            F-31




F-1




**REPORT
      OF INDEPENDENT REGISTERED**


**PUBLIC
      ACCOUNTING FIRM**





Board
      of
      Directors and Stockholder


Gundle/SLT
      Environmental, Inc.




We
      have
      audited the accompanying consolidated balance sheets of Gundle/SLT
      Environmental, Inc. (the Company) as of December 31, 2005 and 2004 and the
      related consolidated statements of income (loss), changes in stockholder’s
      equity and cash flows for the year ended December 31, 2005 and for the period
      from May 18, 2004 to December 31, 2004 (Successor Company operations), and
      the
      period from January 1, 2004 through May 17, 2004, and the year ended December
      31, 2003 (Predecessor Company operations). Our audits also included the
      financial statement schedule listed in the Index at Item 15(a). These financial
      statements and schedule are the responsibility of the Company’s management. Our
      responsibility is to express an opinion on these financial statements and
      schedule based on our audits.




We
      conducted
      our audits in accordance with the standards of the Public Company Accounting
      Oversight Board (United States). Those standards require that we plan and
      perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. An audit includes consideration
      of
      internal control over financial reporting as a basis for designing audit
      procedures that are appropriate in the circumstances, but not for the purpose
      of
      expressing an opinion on the effectiveness of the Company’s internal control
      over financial reporting. Accordingly, we express no such opinion. An audit
      also
      includes examining, on a test basis, evidence supporting the amounts and
      disclosures in the financial statements, assessing the accounting principles
      used and significant estimates made by management, and evaluating the overall
      financial statement presentation. We believe that our audits provide a
      reasonable basis for our opinion.




In
      our
      opinion, the Successor company financial statements referred to above present
      fairly, in all material respects, the consolidated financial position of the
      Company as of December 31, 2005 and 2004 and the consolidated results of its
      operations and its cash flows for the year ended December 31, 2005 and for
      the
      period from May 18, 2004 to December 31, 2004, in conformity with U.S. generally
      accepted accounting principles. Further, in our opinion, the Predecessor Company
      financial statements referred to above present fairly, in all material respects,
      the consolidated results of its operations and its cash flows for the period
      from January 1, 2004 through May 17, 2004, and for the year ended December
      31,
      2003, in conformity with U.S. generally accepted accounting principles. Also
      in
      our opinion, the related financial statement schedule, when considered in
      relation to the basic financial statements taken as a whole, presents fairly
      in
      all material respects the information set forth therein.








/s/
      Ernst
& Young LLP





Houston,
      Texas





March
      3,
      2006




F-2




**GUNDLE/SLT
      ENVIRONMENTAL, INC.**




**CONSOLIDATED
      BALANCE SHEETS**


**(in
      thousands except share amounts)**





ASSETS





**December
                31,****2005**
            
            **2004**Current
                assets:Cash
                and cash equivalents
            
            $
            21,094
            
            $
            23,716Accounts
                receivable:Trade,
                net
            
            
            58,156
            
            
            47,797Other
            
            
            4,002
            
            
            2,026Contracts
                in progress
            
            
            2,244
            
            
            1,885Inventory,
                net
            
            
            36,603
            
            
            35,737Deferred
                income taxes
            
            
            3,305
            
            
            3,512Prepaid
                expenses and other
            
            
            1,607
            
            
            1,305Total
                current assets
            
            
            127,011
            
            
            115,978Property,
                plant and equipment, net
            
            
            91,283
            
            
            96,587Excess
                of purchase price over fair value of net assets acquired,
                net
            
            
            63,616
            
            
            57,103Customer
                lists and other intangible assets, net
            
            
            21,744
            
            
            22,930Deferred
                income taxes
            
            
            1,036
            
            
            3,632Other
                assets
            
            
            11,711
            
            
            13,321$
            316,401
            
            $
            309,551LIABILITIES
                AND STOCKHOLDER’S EQUITYCurrent
                liabilities:Accounts
                payable and accrued liabilities
            
            $
            48,102
            
            $
            39,908Income
                taxes payable
            
            
            1,867
            
            
            728Advance
                billings on contracts in progress
            
            
            1,431
            
            
            1,472Short-term
                debt
            
            
            2,363
            
            
            —Current
                portion of long-term debt
            
            
            4,272
            
            
            275Deferred
                income taxes
            
            
            648
            
            
            3Total
                current liabilities
            
            
            58,683
            
            
            42,386Other
                liabilities
            
            
            4,151
            
            
            1,262Deferred
                income taxes
            
            
            15,088
            
            
            20,858Long-term
                debt
            
            
            165,650
            
            
            168,329Minority
                interest
            
            
            3,198
            
            
            2,702Stockholder’s
                equity:Common
                stock, $.01 par value, 1,000 shares authorized, 100 shares
                issued
            
            
            —
            
            
            —Additional
                paid-in capital
            
            
            60,629
            
            
            60,629Retained
                earnings
            
            
            8,998
            
            
            8,304Accumulated
                other comprehensive income
            
            
            4
            
            
            5,081Total
                stockholder’s equity
            
            
            69,631
            
            
            74,014$
            316,401
            
            $
            309,551





The
      accompanying notes are an integral part of these consolidated financial
      statements.




F-3





**GUNDLE/SLT
      ENVIRONMENTAL, INC.**


**CONSOLIDATED
      STATEMENTS OF INCOME (LOSS)**


**(in
      thousands, except per share amounts)**





****
            **Successor**********
            ****
            **Predecessor**********
            ********
            ****
            ****
            ****
            ****
            ****
            ****
            ****
            ****
            ********
            ****
            **Year
                Ended**
              **December
                31,**
            ****
            **2004**************
            **Year
                Ended**
              **December
                31,**
            ********
            **2005**
            ****
            **May
                18 to Dec. 31**
            ****
            **Jan.
                1 to May 17**
            ****
            **2003**Sales
                and operating revenue
            
            $
            317,618
            
            $
            217,513
            
            $
            70,393
            
            $
            274,618Cost
                of products and services
            
            
            261,267
            
            
            172,696
            
            
            60,107
            
            
            215,459Gross
                profit
            
            
            56,351
            
            
            44,817
            
            
            10,286
            
            
            59,159Selling,
                general and administrative expenses
            
            
            29,573
            
            
            18,382
            
            
            12,388
            
            
            27,298Amortization
                of intangibles
            
            
            4,727
            
            
            2,984
            
            
            42
            
            
            106Expenses
                related to the CHS Merger
            
            
            —
            
            
            —
            
            
            5,863
            
            
            1,547Merger/Acquisition
                activity expenses
            
            
            1,018
            
            
            —
            
            
            —
            
            
            —Operating
                income (loss)
            
            
            21,033
            
            
            23,451
            
            
            (8,007
            )
            
            30,208Other
                expenses:Interest
                expense
            
            
            19,386
            
            
            12,720
            
            
            1,639
            
            
            2,573Interest
                income
            
            
            (937
            )
            
            (302
            )
            
            (188
            )
            
            (509
            )Foreign
                exchange (gain) loss
            
            
            37
            
            
            37
            
            
            131
            
            
            (212
            )Other
                (income) expense, net
            
            
            (379
            )
            
            (284
            )
            
            (272
            )
            
            (3,296
            )Minority
                interest
            
            
            497
            
            
            302
            
            
            (31
            )
            
            133Income
                (loss) before income taxes
            
            
            2,429
            
            
            10,978
            
            
            (9,286
            )
            
            31,519Provision
                (benefit) for income taxes
            
            
            1,735
            
            
            2,674
            
            
            (2,978
            )
            
            10,748Net
                income (loss)
            
            $
            694
            
            $
            8,304
            
            $
            (6,308
            )
            $
            20,771Basic
                earnings (loss) per common share
            
            
            *
            
            
            *
            
            $
            (.54
            )
            $
            1.81Diluted
                earnings (loss) per common share
            
            
            *
            
            
            *
            
            $
            (.54
            )
            $
            1.72


__________________


*
      The
      Successor Company has no outstanding publicly held common shares and therefore
      will not report earnings per share data.




The
      accompanying notes are an integral part of these consolidated financial
      statements.







F-4




**GUNDLE/SLT
      ENVIRONMENTAL, INC.**


**CONSOLIDATED
      STATEMENTS OF STOCKHOLDER’S EQUITY**


**(in
      thousands, except for share amounts)**









**Common
                Stock******
            
            **Additonal**
              **Paid
                in**
            
            **Retained**
            
            **Accumulated
                Other Comprehensive**
            
            **Treasury
                Stock********Shares**
            
            **Amount**
            
            **Capital**
            
            **Earnings**
            
            **Income**
            
            **Shares**
            
            **Amount**
            
            **Total****Predecessor
                Company****Balance
                at December 31, 2002**
            
            
            18,437,156
            
            $
            184
            
            $
            70,763
            
            $
            99,149
            
            $
            (487
            )
            
            7,066,261
            
            $
            (37,178
            )
            $
            132,431Net
                income
            
            
            —
            
            
            —
            
            
            —
            
            
            20,771
            
            
            —
            
            
            —
            
            
            —
            
            
            20,771Cumulative
                translation adjustment
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            2,357
            
            
            —
            
            
            —
            
            
            2,357*Comprehensive
                income*
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            23,128Exercise
                of stock options
            
            
            178,250
            
            
            2
            
            
            1,030
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            1,032Purchases
                under the EmployeeStock
                Purchase Plan
            
            
            4,262
            
            
            —
            
            
            23
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            23Income
                tax benefit fromexercise
                of stock options
            
            
            —
            
            
            —
            
            
            940
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            940Treasury
                stock purchases
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            23,000
            
            
            (397
            )
            
            (397
            )**Balance
                at December 31, 2003**
            
            
            18,619,668
            
            
            186
            
            
            72,756
            
            
            119,920
            
            
            1,870
            
            
            7,089,261
            
            
            (37,575
            )
            
            157,157Net
                loss
            
            
            
            
            
            
            
            
            
            
            
            (6,308
            )
            
            
            
            
            
            
            
            
            
            
            (6,308
            )Cumulative
                translationadjustment
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (1,189
            )
            
            —
            
            
            —
            
            
            (1,189
            )*Comprehensive
                income (loss)*
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (7,497
            )Exercise
                of stock options
            
            
            14,000
            
            
            1
            
            
            76
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            77Purchases
                under the EmployeeStock
                Purchase Plan
            
            
            2,031
            
            
            —
            
            
            24
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            24Income
                tax benefit fromexercise
                of stock options
            
            
            —
            
            
            —
            
            
            4,973
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            4,973Compensation
                from extensionof
                vesting of stock options
            
            
            —
            
            
            —
            
            
            1,490
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            1,490Cancellation
                of common stock
            
            
            (18,635,699
            )
            
            (187
            )
            
            (79,319
            )
            
            —
            
            
            —
            
            
            (7,089,261
            )
            
            37,575
            
            
            (41,931
            )Cancellation
                upon CHS Merger
            
            
            —
            
            
            —
            
            
            —
            
            
            (113,612
            )
            
            (681
            )
            
            —
            
            
            —
            
            
            (114,293
            )**Balance
                at May 17, 2004**
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —**Successor
                Company**Stock
                issued on May 18, 2004
            
            
            100
            
            
            —
            
            
            55,229
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            55,229Fair
                value of stock optionscontributed
                by management
            
            
            —
            
            
            —
            
            
            5,400
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            5,400Net
                income
            
            
            —
            
            
            —
            
            
            —
            
            
            8,304
            
            
            —
            
            
            —
            
            
            —
            
            
            8,304Cumulative
                translationadjustment
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            5,081
            
            
            —
            
            
            —
            
            
            5,081*Comprehensive
                income*
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            13,385**Balance
                at December 31, 2004**
            
            
            100
            
            
            —
            
            
            60,629
            
            
            8,304
            
            
            5,081
            
            
            —
            
            
            —
            
            
            74,014Net
                income
            
            
            —
            
            
            —
            
            
            —
            
            
            694
            
            
            —
            
            
            —
            
            
            —
            
            
            694Cumulative
                translationadjustment
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (5,077
            )
            
            —
            
            
            —
            
            
            (5,077
            )*Comprehensive
                income(loss)*
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (4,383
            )**Balance
                at December 31, 2005**
            
            
            100
            
            
            —
            
            $
            60,629
            
            $
            8,998
            
            $
            4
            
            
            —
            
            
            —
            
            $
            69,631





The
      accompanying notes are an integral part of these consolidated financial
      statements.




F-5




**GUNDLE/SLT
      ENVIRONMENTAL, INC.**





**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**(in
      thousands)**





**Successor******
            
            **Predecessor****Year
                Ended**
              **December
                31,**
            
            **2004**
            
            **Year
                Ended**
              **December
                31,****2005**
            
            **May
                18 to Dec. 31**
            
            **Jan.
                1 to May 17**
            
            **2003**Cash
              flows from operation activites:Net
                income (loss)
            
            
            
            
            $
            694
            
            $
            8,304
            
            $
            (6,308
            )
            $
            20,771Adjustments to
                reconcile net income (loss) to cash provided By operating
                activities:Depreciation
            
            
            
            
            
            10,598
            
            
            6,372
            
            
            2,998
            
            
            8,503Amortization
                of debt issuance costs
            
            
            
            
            
            1,987
            
            
            1,159
            
            
            736
            
            
            679Amortization
                of intangible assets
            
            
            
            
            
            4,727
            
            
            2,984
            
            
            42
            
            
            106Amortization
                of premium on senior notes
            
            
            
            
            
            (64
            )
            
            —
            
            
            —
            
            
            —Minority
                interest
            
            
            
            
            
            497
            
            
            302
            
            
            (31
            )
            
            133Deferred
                income taxes
            
            
            
            
            
            (2,603
            )
            
            839
            
            
            (2,978
            )
            
            1,958(Gain)
                on sale of assets
            
            
            
            
            
            (208
            )
            
            (243
            )
            
            (190
            )
            
            (3,431
            )Stock
                option compensation
            
            
            
            
            
            —
            
            
            —
            
            
            1,490
            
            
            —Equity
                in affiliates and other
            
            
            
            
            
            —
            
            
            —
            
            
            —
            
            
            (934
            )Increase
                (decrease) in cash due to changes in assets and liabilities, net
                of
                acquisition:Accounts
                receivable, net
            
            
            
            
            
            (14,696
            )
            
            (1,179
            )
            
            450
            
            
            14,148Costs
                and estimated earnings in excess of billings oncontracts
                in progress
            
            
            
            
            
            (575
            )
            
            2,442
            
            
            (3,480
            )
            
            1,476Inventory
            
            
            
            
            
            4,741
            
            
            5,861
            
            
            (7,020
            )
            
            (2,847
            )Prepaid
                expenses and other, net
            
            
            
            
            
            629
            
            
            (763
            )
            
            —
            
            
            1,140Accounts
                payable and accrued liabilities
            
            
            
            
            
            1,361
            
            
            (6,552
            )
            
            3,546
            
            
            (4,116
            )Advance
                billings on contracts in progress
            
            
            
            
            
            101
            
            
            (494
            )
            
            (935
            )
            
            (2,592
            )Income
                taxes payable
            
            
            
            
            
            1,597
            
            
            1,618
            
            
            (3,346
            )
            
            (93
            )Cash
                restricted for supersedeas bond
            
            
            
            
            
            —
            
            
            18,056
            
            
            —
            
            
            (18,056
            )Net
                cash provided by (used for) operating activities
            
            
            
            
            
            8,786
            
            
            38,706
            
            
            (15,026
            )
            
            16,845Cash
                flows from investing activities:Additions
                to property, plant and equipment
            
            
            
            
            
            (3,900
            )
            
            (3,486
            )
            
            (3,050
            )
            
            (6,824
            )Proceeds
                from the sale of assets
            
            
            
            
            
            2,158
            
            
            605
            
            
            260
            
            
            4,006Acquisition
                of business, net of cash acquired
            
            
            
            
            
            (11,188
            )
            
            (221,616
            )
            
            —
            
            
            (3,792
            )Net
                cash used for investing activities
            
            
            
            
            
            (12,930
            )
            
            (224,497
            )
            
            (2,790
            )
            
            (6,610
            )Cash
                flows from financing activites:Proceeds
                of lines of credit
            
            
            
            
            
            7,363
            
            
            —
            
            
            —
            
            
            —Repayments
                of lines of credit
            
            
            
            
            
            (5,000
            )Payment
                of financing fees
            
            
            
            
            
            —
            
            
            (14,071
            )
            
            —
            
            
            —Repayments
                of long-term debt
            
            
            
            
            
            (291
            )
            
            (7,148
            )
            
            (16,723
            )
            
            (4,941
            )Proceeds
                of long-term debt
            
            
            
            
            
            —
            
            
            175,000
            
            
            806
            
            
            —Proceeds
                from stock issuance
            
            
            
            
            
            —
            
            
            55,229
            
            
            —
            
            
            —Proceeds
                from the exercise of stock options and purchasesunder
                the employee stock purchase plan
            
            
            
            
            
            —
            
            
            —
            
            
            100
            
            
            645Repurchase
                of common stock
            
            
            
            
            
            —
            
            
            —
            
            
            —
            
            
            (397
            )Net
                cash provided by (used for) financing activities
            
            
            
            
            
            2,072
            
            
            209,010
            
            
            (15,817
            )
            
            (4,693
            )Effect
                of exchange rate changes on cash
            
            
            
            
            
            (550
            )
            
            497
            
            
            —
            
            
            93Net
                increase (decrease) in cash and cash equivalents
            
            
            
            
            
            (2,622
            )
            
            23,716
            
            
            (33,633
            )
            
            5,635Cash
                and cash equivalents at beginning of period
            
            
            
            
            
            23,716
            
            
            —
            
            
            47,899
            
            
            42,264Cash
                and cash equivalents at end of period
            
            
            
            
            $
            21,094
            
            $
            23,716
            
            $
            14,266
            
            $
            47,899Supplemental
                cash flow disclosure:Cash
                paid for interest
            
            
            
            
            $
            18,059
            
            $
            9,446
            
            $
            212
            
            $
            1,901Cash
                paid for income taxes
            
            
            
            
            $
            2,093
            
            $
            3,286
            
            $
            1,552
            
            $
            5,369Fair
                value of management stock options exchanged
            
            
            
            
            $
            —
            
            $
            5,400
            
            $
            —
            
            $
            —





The
      accompanying notes are an integral part of these consolidated financial
      statements.




F-6





**GUNDLE/SLT
      ENVIRONMENTAL, INC.**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**(1)
      Nature of business—**





*Organization
      —*




Gundle/SLT
      Environmental, Inc. (the “Company”), a Delaware corporation, was incorporated in
      August 1986, and through its wholly owned subsidiaries is primarily engaged
      in
      the manufacture, sale and installation of polyethylene lining systems. The
      Company is a wholly owned subsidiary of GEO Holdings Corp. (see Note
      10).




We
      are a
      leading global manufacturer, marketer and installer of a broad array of
      geosynthetic lining products. Geosynthetic products are used in containment
      systems for environmental protection and for the confinement of solids, liquids
      and gases in the waste management, liquid containment and mining industries.
      We
      offer a full range of high quality products, including geomembranes, drainage
      products, geosynthetic clay liners, nonwoven geotextiles and other products.
      We
      also offer installation services, focused on large projects for key customers
      in
      the United States, the United Kingdom and Germany through an internal
      installation staff. We believe that our market share, broad product offering,
      installation capabilities, strong customer relationships, diverse end markets
      and global presence provide us with key competitive advantages in the
      geosynthetic products industry. We manufacture our products at facilities
      located in the United States, Canada, the United Kingdom, Germany, Thailand,
      Chile and Egypt.




**(2)
      Summary of significant accounting policies —**





*Consolidation
      —*




The
      accompanying consolidated financial statements include the accounts of the
      Company and its majority-owned subsidiaries. Investments in partially owned
      entities in which ownership ranges from 20 to 50 percent are accounted for
      using
      the equity method. All material intercompany balances and transactions have
      been
      eliminated.





*Cash
      Equivalents —*




The
      Company
      considers all highly liquid short-term investments with an original maturity
      of
      three months or less to be cash equivalents.





*Inventory
      —*




Inventory
      is
      stated at the lower of cost or market. Cost, which includes material, labor
      and
      overhead, is determined by the weighted average cost method, which approximates
      the first-in, first-out cost method.





*Property,
      plant and equipment —*




Costs
      of
      additions and major improvements are capitalized, whereas maintenance and
      repairs which do not improve or extend the life of the asset are charged to
      expense as incurred. When items are retired or otherwise disposed of, income
      is
      charged or credited for the difference between net book value and net proceeds
      realized thereon. Interest costs incurred in construction of assets are
      capitalized and depreciated over the useful life of the asset. Depreciation
      is
      computed using the straight-line method, based on the estimated useful lives
      of
      the assets. Total repairs and maintenance during 2005 was $3,558,000. Total
      repairs and maintenance during 2004 were $2,287,000 for the Successor Company
      and $1,758,000 for the Predecessor Company. Total repairs and maintenance
      expense during 2003 was $4,345,000.




The
      Company
      makes judgments and estimates in conjunction with property, plant and equipment,
      including amounts to be capitalized, depreciation methods and useful lives.
      Additionally, carrying values of property, plant and equipment are reviewed
      for
      impairment and whenever events or changes in circumstances indicate that
      carrying value may be impaired. The carrying values are compared to the
      undiscounted anticipated future cash flows related to those assets. If the
      carrying value of a long-lived asset exceeds the future undiscounted cash flow,
      an impairment charge is recorded in the period in which such review is performed
      and it is determined that the carrying value exceeds fair value. This requires
      the Company to make long-term forecasts of its future revenues and costs related
      to the assets subject to review. Forecasts require assumptions about demand
      for
      the Company’s products and future market conditions. Future events and
      unanticipated changes to assumptions could require a provision for impairment
      in
      a future period.





F-7




*Excess
      of purchase price over fair value of net assets acquired —*





The
      Company
      uses the purchase method of accounting for business combinations which requires
      the Company to make use of estimates and judgments to allocate the purchase
      price paid for acquisitions to the fair value of the net tangible and
      identifiable intangible assets. The Company performs a goodwill impairment
      test
      annually as of October 1. Goodwill could be tested more frequently if changes
      in
      circumstances or the occurrence of events indicate that a potential impairment
      exists. The impairment test requires the Company to compare the fair value
      of
      business reporting units to carrying value including assigned goodwill. The
      Company uses the present value of future cash flows to determine fair value
      and
      validates the results against the cost and market approaches. Future cash flows
      are typically based upon a ten-year future period for the business and an
      estimated residual value. Management judgment is required in the estimation
      of
      future operating results and to determine the appropriate residual values.
      Future operating results and residual values could reasonably differ from the
      estimates and could require a provision for impairment in a future period.
      To
      date there have been no impairments.





*Customer
      lists and other intangible assets —*




The
      amounts
      assigned to customer lists (determined generally based upon appraised value)
      and
      other intangible assets are amortized to expense over their estimated useful
      lives and are reviewed for potential impairment whenever events or changes
      in
      circumstances indicate that carrying value may be impaired. The estimated useful
      lives are based on an evaluation of the circumstances surrounding each asset,
      including an evaluation of events that may have occurred that would cause the
      useful life to be decreased. In the event the useful life would be considered
      to
      be shortened, or if the asset’s future value were deemed to be impaired, an
      appropriate amount of the value would be amortized to expense. Future operating
      results and residual values could therefore reasonably differ from the estimates
      and could require a provision for impairment in a future period. To date there
      have been no impairments.




*Revenue
      and cost recognition —*




For
      products
      sold directly to customers, the Company recognizes revenues when products are
      shipped, title and risk of loss passes to the buyer, the Company has no further
      obligation to the buyer, and collectibility is reasonably assured. For
      installation contracts, revenues are recognized on the percentage of completion
      method in accordance with the American Institute of Certified Public Accountants
      Statement of Position (SOP) 81-1 “Accounting for Performance of
      Construction-Type and Certain Production-Type Contracts.” The Company recognizes
      revenue on signed contracts and approved change orders. The Company does not
      recognize revenues on claims until claims are approved in writing and
      collectibility of such claims are assured. Percentage of completion is measured
      on the percentage of costs incurred to total estimated costs for each
      contract.




Cost
      of sales
      includes all direct material and labor costs, and indirect costs such as
      indirect labor, depreciation, insurance, supplies, tools, repairs, and shipping
      and handling.




Provisions
      for the total estimated losses on uncompleted contracts are made in the period
      in which such losses are determined. Changes in job performance, job conditions,
      estimated profitability and final contract settlements may result in revisions
      to projected costs and income and are recognized in the period in which the
      revisions are determined.




The
      Company
      establishes reserves for doubtful accounts on a case-by-case basis when it
      is
      believed that the required payment of specific amounts owed to the Company
      is
      unlikely to occur. The Company derives a majority of its revenue from sales
      and
      services to domestic and international municipal and private companies engaged
      in waste management, mining, water and wastewater treatment, aquaculture and
      other industrial activities. The Company has receivables from customers in
      various countries. The Company generally does not require collateral or other
      security to support customer receivables. If the customers’ financial condition
      were to deteriorate or their access to freely convertible currency was
      restricted, resulting in impairment of their ability to make the required
      payments, additional allowances may be required.




F-8





Selling,
      general and administrative costs are charged to expense as
      incurred.





*Deferred
      costs —*




Debt
      issuance
      costs are capitalized and amortized to interest expense using the effective
      interest rate method over the period the related debt is anticipated to be
      outstanding.





*Warranty
      costs —*




The
      Company’s
      products are sold and installed with specified limited warranties as to material
      quality and workmanship and may extend up to 20 years. Provision for warranty
      costs are made based on the Company’s claims experience. The reserve for these
      costs, along with other risk based reserves, is included in the self-insurance
      reserve (see Note 8).





*Income
      taxes —*




Deferred
      income taxes are based on the difference between the financial reporting and
      tax
      basis of assets and liabilities. The deferred income tax provision represents
      the change during the reporting period in the deferred tax assets and deferred
      tax liabilities, net of the effect of acquisitions and dispositions. Deferred
      tax assets include tax loss and credit carryforwards and are reduced by a
      valuation allowance if, based on available evidence, it is more likely than
      not
      that some portion or all of the deferred tax assets will not be realized.
      Significant judgment is required in assessing the timing and amounts of
      deductible and taxable items. We establish reserves when, despite our belief
      that our tax return positions are fully supportable, we believe that certain
      positions may be challenged and potentially disallowed. When facts and
      circumstances change, we adjust these reserves through our provision for income
      taxes.





*Foreign
      currency translation —*




Results
      of
      operations for foreign subsidiaries with functional currencies other than the
      U.S. dollar are translated using average exchange rates during the year. Assets
      and liabilities of these foreign subsidiaries are translated using the exchange
      rates in effect at the balance sheet date and the resulting translation
      adjustments are recognized as a separate component of Stockholder’s equity.
      These translation adjustments are the only component of accumulated other
      comprehensive income. Gains and losses arising from foreign currency
      transactions are recognized in income as incurred.




In
      connection
      with contracts performed outside of the United States, the Company routinely
      bids fixed-price contracts denominated in currencies different than the
      functional currency of the applicable subsidiary performing the work. The
      Company recognizes that such bidding practices, in the context of international
      operations, are subject to the risk of foreign currency fluctuations not present
      in domestic operations. Losses related to these contracts are included in cost
      of sales and have not been significant.





*Use
      of estimates —*




The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States requires management to make estimates
      and assumptions that affect the amounts reported in the financial statements
      and
      accompanying notes. Actual results could differ from those
      estimates.





*Reclassifications
      —*




The
      accompanying consolidated financial statements for 2004 contain certain
      reclassifications to conform to the presentation used in 2005.





*Accounting
      Changes —*




In
      December
      2004, FASB issued Statement No. 123(R), revised 2004, “Share-Based Payment”,
      which is a revision of FASB Statement No. 123, Accounting for Stock-Based
      Compensation. Statement 123(R) supersedes, No. 25 “Accounting for Stock Issued
      to Employees”, and amends FASB Statement No. 95, “Statement of Cash Flows”. FAS
      123(R) requires all share-based payments to employees, including grants of
      employee stock options, to be recognized in the financial statements based
      on
      their fair values, and pro forma disclosure is no longer an alternative to
      financial statement recognition. The provisions of SFAS No. 123(R) provide
      for
      an effective date of July 1, 2005 for calendar-year public companies. However,
      in April 2005, the Securities and Exchange Commission adopted a rule that amends
      the compliance dates for SFAS No. 123(R), making it effective at the beginning
      of the first fiscal year that begins after June 15, 2005. Based upon the
      guidelines established by the SEC’s rule, we plan to adopt SFAS No. 123 (R) on
      January 1, 2006. As the Company has no outstanding unvested equity awards,
      the
      adoption is not expected to have a material effect on the Company’s results of
      operations, financial position or cash flow.


.


F-9




*Stock-Based
      Compensation —*




In
      accordance
      with the provisions of SFAS 123, *Accounting
      for Stock-based Compensation* (SFAS 123), the Company has elected to follow the Accounting Principles
      Board Opinion (“APB”) 25, *Accounting
      for Stock Issued to Employees,* and
      related interpretations in accounting for its employee stock-based compensation
      plans. Under APB 25, if the exercise price of employee stock options equals
      or
      exceeds the fair value of the underlying stock on the date of grant, no
      compensation expense is recognized.




Had
      compensation expense been determined consistent with SFAS 123, the Predecessor
      Company’s net income (loss) and income per share would have been decreased to
      the following pro forma amounts (in thousands except per share
      amounts):





**January
                1 to**
            
            **Year
                Ended**
              **December
                31,****May
                17, 2004**
            
            **2003**Net
                income(loss) applicable to common stockholders
              As
                reported
            
            $
            (6,308
            )
            $
            20,771Deduct
                stock-based employee compensation expense under fair value based
                method
                for all awards, net of tax
            
            
            (246
            )
            
            (759
            )Add
                stock-based employee compensation included in reported net income,
                net of
                tax
            
            
            924
            
            
            —Pro
                forma net income (loss) applicable to common stockholders
            
            $
            (5,630
            )
            $
            20,012Basic
              earnings (loss) per shareAs
                reported
            
            $
            (.54
            )
            $
            1.81Pro
                forma
            
            $
            (.49
            )
            $
            1.74Diluted
              earnings (loss) per shareAs
                reported
            
            $
            (.54
            )
            $
            1.72Pro
                forma
            
            $
            (.49
            )
            $
            1.66




The
      fair
      value of each option grant under the Company plans for the year ended December
      31, 2003, was estimated using the Black-Scholes options pricing model using
      the
      following weighted-average assumptions. Since January 1, 2004, with the
      exception of the GEO Holdings Corp options as discussed in Note 13, no options
      have been granted:





**Year
                Ended**
              **December
                31,**
              **2003**Dividend
                yield
            0.00%Expected
                price volatility
            40.00%Risk-free
                interest rate
            3.10%Expected
                life of options (in years)
            5Weighted-average
                fair value of options granted
            $5.73





**(3)
      Trade receivables** **—**




Trade
      receivables consisted of the following at December 31:




**2005**
            
            **2004****(in
                thousands)**Direct
                sales
            
            $
            46,058
            
            $
            32,528Contracts:Completed
            
            
            14,000
            
            
            17,580In
                progress
            
            
            2,801
            
            
            3,080Retainage
            
            
            519
            
            
            474$
            63,378
            
            $
            53,662Allowance
                for doubtful accounts
            
            
            (5,222
            )
            
            (5,865
            )$
            58,156
            
            $
            47,797




F-10




**(4)
      Accounting for installation contracts —**




The
      following
      summarizes installation contracts in progress at December 31:





**2005**
            
            **2004****(in
                thousands)**Costs
                incurred on contracts in progress
            
            $
            23,631
            
            $
            28,750Estimated
                earnings, net of losses
            
            
            6,372
            
            
            5,86230,003
            
            
            34,612Less
                — billings to date
            
            
            29,190
            
            
            34,199$
            813
            
            $
            413Included
                in the accompanying balance sheet under the following
                captions:Contracts
                in progress
            
            
            2,244
            
            $
            1,885Advance
                billings on contracts in progress
            
            
            (1,431
            )
            
            (1,472
            )$
            813
            
            $
            413





**(5)
      Inventory** **—**




Inventory
      consisted of the following at December 31:





**2005**
            
            **2004******
            
            **(in
                thousands)**Raw
                materials
            
            $
            17,644
            
            $
            9,462Finished
                goods
            
            
            18,622
            
            
            25,677Supplies
            
            
            3,347
            
            
            3,400Obsolescence
                and slow moving allowance
            
            
            (3,010
            )
            
            (2,802
            )$
            36,603
            
            $
            35,737





**(6)
      Property, plant and equipment —**




Property,
      plant and equipment consisted of the following at December 31:





**Useful**
              
              **2005**
              
              **2004******
              
              **lives
                  years**
              
              **(in
                  thousands)**Land
              
              
              
              $
              5,770
              
              $
              4,996Buildings
                  and improvements
              
              7-30
              
              
              23,480
              
              
              25,460Machinery
                  and equipment
              
              3-10
              
              
              87,546
              
              
              82,952Furniture
                  and fixtures
              
              3-5
              
              
              1,753
              
              
              1,386118,549
              
              
              114,794Less
                  — accumulated depreciation
              
              
              
              
              (27,266
              )
              
              (18,207
              )$
              91,283
              
              $
              96,587





**(7)
      Customer lists and other intangible assets —**




Customer
      lists and other intangible assets consisted of the following at
      December 31:




**Useful**
              
              **2005**
              
              **2004****lives
                  years**
              
              **(in
                  thousands)**Customer
                  lists
              
              5-10
              
              $
              25,232
              
              $
              23,577Software
              
              3
              
              
              1,500
              
              
              1,500Non-compete
                  agreements
              
              5-10
              
              
              2,469
              
              
              1,062Other
              
              1
              
              
              273
              
              
              —29,474
              
              
              26,139Accumulated
                  amortization
              
              
              
              
              (7,730
              )
              
              (3,209
              )$
              21,744
              
              $
              22,930
  Amortization
        expense over the next five years is expected to be as follows (in
        thousands):





Year
                Ended
              December
                31,
            
            Customer
              Lists
            
            Software
            
            Non-compete
              Agreements
            
            Other
            
            Total2006
            
            $
            4,369
            
            $
            500
            
            $
            387
            
            $
            273
            
            $
            5,4232007
            
            
            3,179
            
            
            208
            
            
            387
            
            
            —
            
            
            3,6682008
            
            
            2,774
            
            
            —
            
            
            387
            
            
            —
            
            
            3,0552009
            
            
            2,337
            
            
            —
            
            
            387
            
            
            —
            
            
            2,6182010
            
            
            1,989
            
            
            —
            
            
            387
            
            
            —
            
            
            2,270$
            14,648
            
            $
            708
            
            $
            1,935
            
            $
            273
            
            $
            17,034





No
      residual value is assumed to exist for any of the Company’s amortizing
      intangible assets.





F-11




**(8)
      Accounts payable and accrued liabilities** **—**




Accounts
      payable and accrued liabilities consisted of the following at December
      31:





**2005**
            
            **2004******
            
            **(in
                thousands)**Trade
                accounts payable
            
            $
            22,956
            
            $
            25,107Accrued
                inventory purchases
            
            
            6,696
            
            
            -Self-insurance
                reserves
            
            
            3,201
            
            
            4,120Deferred
                revenue
            
            
            2,032
            
            
            —Compensation
                and benefits
            
            
            5,232
            
            
            4,038Accrued
                interest
            
            
            2,112
            
            
            2,114Taxes,
                other than income
            
            
            1,045
            
            
            1,758Other
                accrued liabilities
            
            
            4,828
            
            
            2,771$
            48,102
            
            $
            39,908





**(9)
      Long-term debt —**




Long-term
      debt consisted of the following at December 31:





**2005**
            
            **2004******
            
            **(in
                thousands)**11%
                Senior Notes
            
            $
            150,000
            
            $
            150,000Term
                Loan with quarterly installments of approximately $995,000 beginning
                in
                March 2006,bearing
                interest at a floating Rate
            
            
            17,917
            
            
            17,917Term
                Loan - Egyptian bank secured by equipment, bears interest at 14%
                with
                quarterly installments of $67,000
            
            
            436
            
            
            687Term
                Loan - seller note with annual installments of $900,000 beginning
                in
                January 2007, bearing interestat
                5% for first two years and then a floating rate thereafter
            
            
            4,500
            
            
            —172,853
            
            
            168,604Less
                — current maturities
            
            
            (4,272
            )
            
            (275
            )Fair
                value of interest rate swap and premium on senior notes
            
            
            (2,931
            )
            
            —$
            165,650
            
            $
            168,329





Senior
      Notes —




In
      connection
      with the Merger, the Company issued $150,000,000 of 11% senior notes due in
      2012. These notes are registered under the Securities Act of 1933, as amended.
      The senior notes are guaranteed by all of the Company’s existing and future
      direct or indirect domestic subsidiaries other than Bentofix Technologies (USA),
      Inc., a dormant subsidiary of the Company’s 75.5%-owned Canadian subsidiary,
      Bentofix Technologies, Inc.




The
      indenture
      governing the notes, among other things: (1) restricts the Company’s ability and
      the ability of its subsidiaries to incur additional indebtedness, issue shares
      of preferred stock, incur liens, pay dividends or make certain other restricted
      payments and enter into certain transactions with affiliates; (2) prohibits
      certain restrictions on the ability of certain of the Company’s subsidiaries to
      pay dividends or make certain payments to it; and (3) places restrictions on
      the
      Company’s ability and the ability of its subsidiaries to merge or consolidate
      with any other person or sell, assign, transfer, lease, convey or otherwise
      dispose of assets. The indenture related to these notes and the senior credit
      facility also contains various covenants that limit the Company’s discretion in
      the operation of its businesses.





Senior
      Credit Facility —




In
      connection
      with the Merger, the Company entered into a $65,000,000 senior secured credit
      facility with UBS Loan Finance LLC and certain other lenders. The senior credit
      facility provides a $25,000,000 term loan facility and a revolving credit
      facility of up to $40,000,000. The revolving credit facility includes a letter
      of credit sub-facility of $10,000,000 and a swing line sub-facility of
      $15,000,000. The term loan matures in May 2010 and the revolving credit facility
      matures in May 2009. The term loan facility amortizes on 24 consecutive equal
      quarterly installments. Borrowings bear interest, at the Company’s option, at
      either a base rate or LIBOR plus, in each case, an applicable interest margin.
      The applicable interest margin for the term loan is 2.00% per annum for base
      rate loans or 3.00% per annum for LIBOR loans. The applicable interest margin
      for revolving loans is 1.75% per annum for base rate loans or 2.75% per annum
      for LIBOR loans. The applicable interest margins for the revolving credit
      facility and the term loan is adjustable by the lenders based upon a grid to
      be
      determined following the delivery of the Company’s financial statements for the
      fiscal quarter ending at least six months after the closing of the Merger.
      The
      Company is also required to pay customary agency fees and expenses. The Company
      paid commitment fees of approximately $188,000 in 2005 and $69,000 in
      2004.





F-12





The
      senior
      credit facility requires prepayment with the net proceeds of certain asset
      sales, the net proceeds of certain issuances of debt or preferred stock, a
      portion of net proceeds of certain issuances of common equity, the net proceeds
      from casualty and condemnation events in excess of amounts applied to repair
      or
      replace such assets, and an agreed-upon percentage of the Company’s excess cash
      flow (subject to certain baskets).




The
      senior
      credit facility is guaranteed by GEO Holdings and all of the Company’s existing
      and future direct or indirect domestic subsidiaries, but not the Company’s
      foreign subsidiaries or Bentofix Technologies (USA), Inc., a dormant subsidiary
      of its 75.5%-owned Canadian subsidiary, Bentofix Technologies, Inc., except
      to
      the extent guarantees by such subsidiaries would be prohibited by applicable
      tax
      law or could result in adverse tax consequences. The senior credit facility
      is
      secured by substantially all of the Company’s U.S. assets, and by its capital
      stock and the capital stock of substantially all of its domestic subsidiaries
      and 65% of the capital stock of substantially all of its first-tier foreign
      subsidiaries.




The
      senior
      credit facility requires the Company to meet certain financial tests, including
      but not limited to, a minimum interest coverage ratio, a maximum leverage ratio,
      a minimum fixed charge coverage ratio and maximum capital expenditures. In
      addition, the senior credit facility contains restrictive covenants which
      limits, among other things, dispositions of assets, certain business changes,
      certain ownership changes, mergers, acquisitions, dividends, stock repurchase
      and redemptions, incurrence of indebtedness, issuance of preferred stock,
      investments, liens, transactions with affiliates, sale and leaseback
      transactions, and other matters customarily restricted in such agreements.
      The
      senior credit facility provides for customary events of default. At December
      31,
      2004, the Company had prepaid $5,000,000 on its $25,000,000 term loan, leaving
      a
      balance of approximately $17,900,000 outstanding. The Company made no
      prepayments in 2005. The Company had available $37,969,000 under its credit
      facility at December 31, 2005, net of $2,031,000 of issued letters of
      credit.





Foreign
      Debt —




The
      Company
      has an EGP 5,000,000 (USD $872,000) term loan with an Egyptian bank, bearing
      interest at 14%, secured by equipment. The promissory note requires quarterly
      payments of EGP 417,000 (USD $73,000) plus interest on July 27, October 27,
      January 27, and April 27, maturing in April 2007, and has a balance outstanding
      at December 31, 2005 of EGP 2,500,000 (USD $436,000).




At
      December
      31, 2005, GSE had five local foreign credit facilities. It had credit facilities
      with two German banks in the amount of EUR 5,100,000 (USD $6,038,000). These
      revolving credit facilities are secured by a corporate guarantee and bear
      interest at various market rates. These credit facilities are used primarily
      to
      guarantee the performance of European installation contracts and temporary
      working capital requirements. At December 31, 2005, GSE had EUR 593,000 (USD
      $702,000) available under these credit facilities with EUR 2,511,000 (USD
      $2,973,000) of bank guarantees outstanding and EUR 1,996,000 (USD $2,363,000)
      of
      line of credit borrowing. The EUR 1,996,000 (USD $2,363,000) line of credit
      borrowing was paid subsequent to December 31, 2005.




The
      Company
      has two credit facilities with Egyptian banks in the amount of EGP 7,500,000
      (USD $1,307,000). These credit facilities bear interest at various market rates
      and are primarily for cash management purposes. The Company had Letters of
      Credit outstanding of EGP $2,914,000 ($508,000 USD). At December 31, 2005,
      the
      Company had EGP 4,586,000 (USD $799,000) available under these credit
      facilities.




The
      Company
      has a credit facility with a Canadian bank in the amount of Canadian Dollar
      500,000 (USD $430,000) that bears interest at market rate, secured by all
      assets. At December 31, 2005, the company had the full amount available under
      this line.




In
      conjunction with the acquisition of SL Limitada, GSE entered into a five year
      installment obligation with the Seller of SL Limitada for $4.5 million, secured
      by a share pledge agreement for 30% of the equity of GSE Lining Technology
      Chile, S. A., an indirect wholly owned subsidiary of GSE. The installment
      obligation bears interest at 5% for the first two years, converting to a
      variable rate based on the London Interbank Offer Rates (LIBOR) for the
      remaining term. Payments are in five annual principal and interest amounts
      beginning on January 1, 2007.




F-13




Predecessor
      Company Notes —




On
      February
      4, 2002, the Company entered into a note agreement with one lender in the amount
      of $25,000,000. This 3-year term facility was secured by the Company’s Houston,
      TX, and Kingstree, SC, real properties and all of the Company’s equipment at
      these locations. The promissory note required monthly payments of approximately
      $520,000 including interest at the rate of 9.22% and matures on February 5,
      2005, with a balloon payment equal to the unpaid principal balance plus accrued
      and unpaid interest. The terms of the note placed various restrictions on the
      Company’s ability to pay dividends or make certain other payments, incur
      additional debt, consolidate or merge into another corporation or sell assets
      and make capital expenditures. The note also required the Company to maintain
      certain financial ratios and specified levels of consolidated net worth. On
      January 20, 2004, the Company paid off this note with a payment of $17,498,000
      that included accrued interest of $85,400 and a prepayment fee of $690,600.
      Deferred financing costs of $735,000 were expensed as a result of the debt
      pay-off.




Summarized
      below are the maturities of long-term debt of the Company during the next five
      years and thereafter, excluding the fair value adjustment associated with the
      interest rate swap and the unamortized premium on the senior notes because
      they
      will not result in cash payments (in thousands).





**Year
                Ending**
              **December
                31,**2006
            
            $
            4,2722007
            
            $
            5,0262008
            
            $
            4,8812009
            
            $
            4,8812010
            
            $
            2,8932011
            
            $
            900Thereafter
            
            $
            150,000





Derivative
      Financial Instruments —




As
      of
      December 31, 2005, the Company has an interest rate swap outstanding with a
      notional amount of $75,000,000. The fair value of the outstanding swap was
      a
      liability of approximately $3,190,000 which is reflected in the Consolidated
      Balance Sheet in other liabilities, and the carrying amount of the related
      debt
      has been decreased by the same amount in accordance with the short-cut method
      provided by Statement of Financial Accounting Standard No. 133, “Accounting for
      Derivative Instruments and Hedging Activities”, as amended. Due to a recently
      issued SFAS133 interpretation effective January 1, 2006, the Company is no
      longer able to apply the short cut method provided by SFAS133 in the accounting
      for its interest rate swap. The Company is currently assessing the impact of
      this recent development. See Footnote 20 Subsequent Event for more
      information.




During
      the
      year ended December 31, 2005, the interest rate swap agreement reduced net
      interest expense by approximately $609,000.




In
      connection
      with the Merger, the Company issued $150,000,000 of 11% senior notes due in
      2012. Within the terms of the senior notes are two embedded derivatives that
      allow for optional early redemption of the senior notes. With expiration dates
      of May 15, 2007 and May 15, 2008, these embedded derivatives are not considered
      clearly and closely related to the debt agreement and therefore are required
      to
      be valued separately from the senior notes. The fair value of these options
      as
      of December 31, 2005 was $60,000 and is recorded in other assets. Changes in
      the
      fair value of these derivatives are recorded in other income/expense. For the
      year ended December 31, 2005, this expense was $264,000.




At
      the date
      of the issuance of the senior notes, the fair value of the embedded derivates
      was determined to be $324,000. This amount was recorded in other assets with
      a
      corresponding credit to the carrying value of the senior notes. This premium
      is
      amortized as a yield adjustment to interest expense over the life of the debt.
      During the year ended December 31, 2005, amortization of this premium reduced
      interest expense by approximately $64,000.





No
      interest was capitalized in the financial statements for any Predecessor or
      Successor period presented.




F-14




**(10)
      Business combinations and other acquisition activities** **—** ****





**Chile
      Acquisition 2005**




In
      December
      2005, the Company completed an acquisition of the operating assets of SL
      Limitada, (SL), a privately owned company located in Santiago and Antofagasta,
      Chile. The acquisition was completed pursuant to an Asset Purchase Agreement,
      entered into December 30, 2005 for a total purchase price due to seller of
      $15.45 million, plus a separate agreement for the purchase of the raw material
      and finished goods inventory which GSE paid $2.1 million and $250,000 of closing
      costs and fees. The transaction was financed with cash and a $4.5 million seller
      note payable over a five year period.




The
      following
      table summarizes the estimated fair values of the net assets and liabilities
      acquired (in thousands):


Current
                  Assets
              
              $
              5,771Property
                  and equipment
              
              
              6,472Customer
                  lists and other intangibles
              
              
              4,381Goodwill
              
              
              4,584Total
                  assets acquired
              
              
              21,208Current
                  liabilities
              
              
              3,412Net
                  assets acquired
              
              $
              17,796Cash
                  paid in 2005
              
              $
              11,188Cash
                  Paid in 2006
              
              
              2,108Seller
                  financed note payable
              
              
              4,500Total
                  Consideration
              
              $
              17,796


The
      initial
      purchase price allocation made by the Company is preliminary and subject to
      change for a period of one year following the acquisition, although management
      believes it is materially correct as of December 31, 2005.





**CHS
      Transaction 2004**




On
      May 18,
      2004, GEO Sub Corp., a newly formed entity controlled by Code Hennessy &
Simmons IV LP (CHS IV), merged with and into the Company, with the Company
      surviving the “merger”, and each share of Company common stock converted into
      the right to receive $18.50 in cash, in a transaction valued at approximately
      $242,100,000. As a result of the Merger, all of the outstanding capital stock
      of
      the Company is owned by GEO Holdings Corp., which is controlled by CHS IV,
      an
      entity controlled by Code Hennessy & Simmons LLC (CHS).




The
      acquisition of the Company in the Merger was accounted for under the purchase
      method of accounting. Under purchase accounting, the purchase price was
      allocated to the tangible and identifiable intangible assets acquired and
      liabilities assumed based on their respective fair values, with the remainder
      allocated to goodwill. The increase in basis of the assets will result in
      non-cash charges in future periods, principally related to the step-up in the
      value of property, plant and equipment and other intangible assets.




The
      aggregate
      purchase price of approximately $242,100,000 included $229,100,000 paid for
      all
      of the outstanding stock and stock options of the Company, $6,794,000 of closing
      costs and fees, $5,400,000 for the value of management stock options exchanged
      (see Note 13) and the assumption of $806,000 of debt. Company cash on hand
      of
      $5,087,000 was used to pay a portion of the closing costs. GEO Holdings had
      no
      operations prior to the acquisition of the Company.




The
      total
      purchase price was allocated among the fair value of acquired assets and
      liabilities, primarily property and equipment and inventory, including
      $24,200,000 before taxes allocated to finite life intangible assets, which
      are
      comprised primarily of the value of customer lists and contracts in the United
      States, Europe, and Thailand. The average amortization period for these
      intangible assets is slightly less than 10 years. The fair values of property,
      equipment and finite life intangible assets were determined utilizing a third
      party appraisal firm.


F-15




The
      following table summarizes the estimated fair values of the assets and
      liabilities as of May 18, 2004, net primarily of Company cash used at the
      closing (in thousands):




Current
                  Assets (including cash of $9,179)
              
              $
              110,115Property
                  and equipment
              
              
              97,740Deferred
                  taxes
              
              
              9,477Restricted
                  cash
              
              
              18,056Customer
                  lists and other intangibles
              
              
              24,200Other
                  assets
              
              
              2,609Goodwill
              
              
              59,032Total
                  assets acquired
              
              
              321,229Current
                  liabilities
              
              
              38,787Reserve
                  for patent litigation
              
              
              9,500Minority
                  interest
              
              
              2,399Other
                  liabilities
              
              
              1,134Deferred
                  taxes
              
              
              32,046Total
                  liabilities assumed
              
              
              83,866Net
                  assets acquired
              
              $
              237,363




Unaudited
      pro forma operating results of the Company assuming the Merger was completed
      on
      January 1, 2003 and 2004 is summarized as follows (in thousands):





Year
                  Ended
                December
                  31, 2004
              
              Year
                  Ended
                December
                  31, 2003Sales
                  and operating revenue
              $287,905
              
              $274,618Net
                  income (loss)
              (5,824)
              
              (1,845)


**Egyptian
      Acquisition 2003**


In
      January
      2003, the Company completed the acquisition of the stock of Hyma/GSE
      Manufacturing Co. S.A.E., and Hyma/GSE Lining Technology Co. S.A.E. held by
      its
      joint venture partners in Cairo, Egypt, for $4,000,000. In addition, the Company
      agreed to purchase a blown film round die extrusion manufacturing line currently
      leased to Hyma/GSE Manufacturing Co., S.A.E., at a price of $950,000, and to
      relocate the manufacturing equipment within 24 months of such purchase. The
      acquisition of the blown film round die line was completed in May
      2004.





**Other
      Acquisition Activity**


During
      2005
      the Company vigorously pursued two acquisition candidates in competition with
      other buyers, which proved unsuccessful. The Company performed extensive due
      diligence activities and was in negotiation with sellers over several months.
      Expenses totaling $1,018,000 were primarily from fees incurred for legal,
      accounting and professional services assisting with due diligence efforts and
      contract negotiations.





**(11)
      Fair value of financial instruments** **—** ****




In
      January
      2005, the Company entered into an interest rate swap agreement, which
      effectively converted $75,000,000 of its 11% fixed rate $150,000,000 senior
      notes issuance into variable rates based on six-month LIBOR rates. Under the
      swap agreement, payments are made based on a variable rate; currently 11.1725%
      through May 15, 2006, adjusting based on LIBOR rates every six months
      thereafter, and received on a fixed rate of 11%. Differentials to be received
      or
      paid under the agreement are recognized as an offset to interest expense,
      respectively.




The
      term of
      the swap agreement is such that the swap is considered perfectly effective
      against changes in the fair value of the debt due to changes in the benchmark
      interest rates over swap terms. As a result, the shortcut method provided by
      SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as
      amended is applied and there is no need to periodically reassess the
      effectiveness of the swap during its term. Interest expense on the debt is
      adjusted to include payments made or received under the swap agreements. The
      fair value of the swap will be carried as an asset or a liability on the
      Consolidated Balance Sheet and the carrying value of the hedged debt will be
      adjusted accordingly. The fair values of the Company’s interest rate swap will
      be the estimated amounts the Company would receive or pay to terminate the
      agreement as of the reporting dates. The fair value of the interest rate swap
      was ($3,190,000) at December 31, 2005, which is recorded in accounts payable
      and
      accrued liabilities. Due to a recently issued SFAS133 interpretation effective
      January 1, 2006, the Company is no longer able to apply the short cut method
      in
      the accounting for its interest rate swap. The Company is currently assessing
      the impact of this recent development. See Footnote 20 Subsequent Events for
      more information.




F-16





The
      Company’s
      other financial instruments consist primarily of cash and cash equivalents,
      trade receivables, trade payables and debt instruments. The book values of
      cash
      and cash equivalents, trade receivables and trade payables and floating-rate
      debt instruments are considered to be representative of their respective fair
      values due to the nature of these instruments. The Company had $150,000,000
      of
      fixed-rate debt instruments at December 31, 2005 and 2004 with fair values
      of
      approximately $144,000,000 and $150,075,000, respectively. The fair value of
      long-term debt was estimated based on quoted market prices for these or similar
      issues or on the current rates offered to the Company for debt of the same
      remaining maturities. The difference between the fair value and the carrying
      value represents the theoretical net discount or premium the Company would
      receive or have to pay to retire all debt at such date.





**(12)
      Per share information** **** **—**




The
      following table
      sets forth the weighted average shares for the computation of the Predecessor’s
      basic and diluted earnings per share (in thousands):




**Period
                Ended**
            
            **Year
                Ended****May
                17, 2004**
            
            **2003**Weighted
                average common shares outstanding
            
            11,542
            
            11,497Dilutive
                securities — stock options
            
            —
            
            601Weighted
                average common sharesoutstanding
                assuming full dilution
            
            11,542
            
            12,098




Stock
      options
      whose exercise price was greater than the average market price of the Company’s
      stock during the year are not included in the calculation of weighted average
      common shares outstanding assuming full dilution because the effect of including
      those shares would be anti-dilutive. The number of such options were not
      significant for any of the computations above.




**(13)
      Stockholder’s equity** **—**





**Predecessor**




On
      September
      18, 1998, the Company’s board of directors adopted a stock repurchase plan under
      which the Company was authorized to repurchase up to 1,000,000 shares of its
      outstanding common stock in open market transactions depending on market
      conditions. This amount was increased to 3,000,000 as of December 31, 2000.
      As
      of December 31, 2003, Stockholders’ equity included 1,404,357 shares repurchased
      under the plan at an aggregate cost of $4,751,000.




The
      Company’s
      board of directors adopted a qualified employee stock purchase plan on October
      16, 1991, effective January 1, 1992. The plan as subsequently amended and
      restated authorizes the issuance of up to 100,000 shares of common stock for
      purchase by participating employees, as defined in the plan, at a 15% discount
      from the market price through December 1, 2006. As of December 31, 2003, 67,193
      had been issued under this plan. During January 2004, the Company issued an
      additional 2,031 shares under this plan. After this issuance of shares, the
      employee stock purchase plan was terminated.




In
      1986, the
      Company’s board of directors adopted an employee stock option plan (the “1986
      Employee Plan”). This Plan, as amended, permitted up to 850,000 stock options to
      be granted. The plan permitted the grant of both “incentive” and “non-qualified”
stock options to employees of the Company. Each option is exercisable for a
      period of up to ten years after it is granted. Unless the terms of the option
      specify otherwise, options may be exercised in respect of 33-1/3%, 66-2/3%
      and
      100% of the shares covered, upon the third, fourth and fifth anniversaries
      of
      the date of grant. The option price cannot be less than the fair market value
      of
      the shares on the date the option is granted.




In
      1995, the
      Company’s board of directors adopted the 1995 Incentive Stock Plan (the “1995
      Employee Plan”). The 1995 Employee Plan, as subsequently amended and restated in
      2001, permits the grant of up to 2,400,000 stock awards. This authorized amount
      has been reduced by any options exercised or outstanding under the 1986 Employee
      Plan. The 1995 Employee Plan provides for the grant of (i) non-qualified stock
      options, (ii) incentive stock options, (iii) shares of restricted stock, (iv)
      shares of phantom stock, and (v) stock bonuses (collectively, “Incentive
      Awards”). In addition, the 1995 Employee Plan permits the grant of cash bonuses
      payable when a participant is required to recognize income for federal income
      tax purposes in connection with the vesting of shares of restricted stock or
      the
      grant of a stock bonus. Key employees, including officers (whether or not they
      are directors), of the Company and its subsidiaries are eligible to participate
      in the 1995 Employee Plan. Each non-qualified stock option issued under the
      1995
      Employee Plan is granted for a period up to seven years after it is granted
      and
      may be exercised in respect of 50% and 100% of the shares covered upon the
      first
      and second anniversaries of the date of grant. The option price cannot be less
      than the fair market value of the shares on the date the option is
      granted.




F-17





During
      1988,
      the Company’s board of directors adopted a director stock option plan (the “1988
      Director Plan”), which permits the grant of up to 75,000 “non-qualified” stock
      options to non-employee directors. The terms of this plan are substantially
      the
      same as those of the 1986 Employee Plan. This Plan was terminated in December
      1995 and subsequently replaced by the 1996 Non-Qualified Stock Option Plan
      for
      Non-Employee Directors.




During
      1996,
      the Company’s board of directors adopted the 1996 Non-Qualified Stock Option
      Plan for Non-Employee Directors (the “1996 Director Plan”). The 1996 Director
      Plan authorizes an aggregate of 100,000 shares, of non-qualified stock options
      to be issued to non-employee directors. The 1996 Director Plan provides for
      the
      automatic annual grant to each non-employee director of a five year option
      to
      purchase 2,000 shares of common stock at an exercise price equal to the market
      price on the date of grant. The options were granted immediately following
      each
      annual meeting of stockholders, with each option to vest and become exercisable
      in its entirety one year from the date of grant.




The
      stock
      option activity under each plan is set forth below:





**1986
                Employee Plan**
            
            **1988
                Director Plan**
            
            **1995
                Employee Plan**
            
            **1996
                Director Plan****Shares**
              **Under**
              **O****ption**
            
            **Weighted**
              **Average
                Option Price**
              **Per
                Share**
            
            **Shares**
              **Under**
              **Option**
            
            **Weighted**
              **Average**
              **Option
                Price**
              **Per
                Share**
            
            **Shares**
              **Under**
              **Option**
            
            **Weighted**
              **Average
                Option Price**
              **Per
                Share**
            
            **Shares**
              **U****nder**
              **Option**
            
            **Weighted**
              **Average
                Option Price**
              **Per
                Share****Outstanding
                at****December
                31, 2002**
            
            
            57,000
            
            $
            7.67
            
            
            15,000
            
            $
            6.75
            
            
            1,538,500
            
            $
            4.26
            
            
            52,000
            
            $
            4.79Granted
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            10,000
            
            $
            13.00Exercised
            
            
            (2,000
            )
            $
            7.62
            
            
            (5,000
            )
            $
            7.00
            
            
            (155,250
            )
            $
            3.15
            
            
            (16,000
            )
            $
            5.08Cancelled
            
            
            —
            
            
            
            
            
            —
            
            
            —
            
            
            (11,000
            )
            $
            3.20
            
            
            —
            
            
            —**Outstanding
                at****December
                31, 2003**
            
            
            55,000
            
            $
            7.67
            
            
            10,000
            
            $
            6.63
            
            
            1,372,250
            
            $
            4.39
            
            
            46,000
            
            $
            6.47Exercised
            
            
            (45,000
            )
            $
            6.90
            
            
            (10,000
            )
            $
            6.63
            
            
            (1,045,650
            )
            $
            4.67
            
            
            (46,000
            )
            $
            6.47Cancelled
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (3,000
            )
            $
            8.85
            
            
            —
            
            
            —Exchanged
            
            
            (10,000
            )
            $
            11.13
            
            
            —
            
            
            —
            
            
            (323,600
            )
            $
            3.45
            
            
            —
            
            
            —**Outstanding
                at****December
                31, 2004**
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —**Options
                exercisable**
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —**Options
                available****for
                future grants**
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —




All
      outstanding options were priced between $2.32 and $11.13 per share at December
      31, 2003. The weighted average of the remaining contractual life for the
      outstanding options at December 31, 2003, was 3.76 years. The weighted average
      price of options outstanding during 2003 was $4.59.




The
      Company
      applies APB Opinion 25 and related interpretations in accounting for its
      stock-based compensation plans. In 2004 compensation expense of $1,490,000
      was
      recognized under the 1995 Employee Plan for the extension of certain options’
expiration dates. In 2003, no compensation expense was recognized for its 1996
      Director Plan and unrestricted stock options from the 1995 Employee Plan.




The
      estimated
      fair value of stock options granted in 2003 was $57,261. No options were granted
      in 2004.




Paid-in
      capital of the Predecessor was increased $4,973,000 and $940,000 for tax
      benefits of exercised stock options in 2004 and 2003, respectively.




All
      option
      plans, common stock, and preferred stock of the Predecessor Company were
      terminated on May 18, 2004, in connection with the CHS Merger.





F-18




**GEO
      Holdings Corp. 2004 (Successor) Stock Option Plan**




The
      GEO
      Holdings Corp. (GEO Holdings) 2004 Stock Option Plan (the “GEO Holdings Option
      Plan”) became effective upon the consummation of the CHS Merger. Under the GEO
      Holdings Option Plan, the board of directors of GEO Holdings (or a committee
      thereof) may from time to time grant options to purchase common stock of GEO
      Holdings representing up to 628,750 (287,150 unissued as of December 31, 2005)
      shares of GEO Holdings’ common stock on a fully-diluted basis immediately
      following the consummation of the Merger to executives or other key employees
      or
      directors of GEO Holdings and its subsidiaries. Both “nonqualified” stock
      options and “incentive” stock options may be granted under the GEO Holdings
      Option Plan with terms to be determined by the board of directors (or a
      committee thereof). The 333,600 options to purchase GEO Holdings common stock
      received by certain of the Company’s executives in exchange for options to
      purchase GSE common stock on the closing date of the Merger pursuant to
      executive securities agreements, which represented approximately 10% of GEO
      Holdings’ common stock on a fully-diluted basis immediately following the
      completion of the Merger, were issued under the GEO Holdings Option Plan. The
      weighted average exercise price of the exchanged options is $3.67 per share.
      Other than the exchanged options, no grants have been made pursuant to this
      plan.




These
      exchanged options are exercisable at any time and expire ten years from the
      date
      of grant, unless the holder is terminated for cause, as defined in the GEO
      Holdings Option Plan. In connection with a termination for cause, the Company
      or
      CHS IV has (1) the obligation to repurchase such options for the
      original cost, which is $18.50 less the original predecessor option’s exercise
      price (which averages $3.67), and (2) the right, but not the obligation, to
      purchase any outstanding common stock held as a result of exercising such
      options for the lesser of fair market value or original cost. Should the holder
      separate from the Company for any reason other than cause, the Company or
      CHS IV would have the right but not the obligation to purchase any of the
      outstanding exchanged options or common stock held as a result of exercising
      such options for the greater of fair market value or original cost.




As
      required
      by FASB Interpretation No. 45, the fair value of the exchanged options of
      $5,400,000 has been included in the aggregate purchase price paid by GEO
      Holdings for the Successor Company (see Note 10). The fair value was
      determined utilizing the minimum value method prescribed in
      SFAS 123.





**(14)**  **Income
      taxes —**




Domestic
      and
      foreign income (loss) before income taxes were as follows ( in
      thousands):


**Successor******
              
              **Predecessor**********
              
              
              
              **2004****Year
                  Ended**
                **December
                  31,**
              
              
              
              
              
              **Year
                  Ended**
                **December
                  31,****2005**
              
              **May
                  18 to Dec. 31**
              
              **Jan.
                  1 to May 17**
              
              **2003**Domestic
              
              $
              $
                  (9,342
              )
              $
              2,997
              
              $
              (9,492
              )
              $
              16,698Foreign
              
              
              11,771
              
              
              7,981
              
              
              206
              
              
              14,821Total
              
              $
              $
                  2,429
              
              $
              10,978
              
              $
              (9,286
              )
              $
              31,519




The
      provision
      (benefit) for income taxes consisted of the following ( in
      thousands):





**Successor******
            
            **Predecessor****2004****Year
                Ended**
              **December
                31,**
            
            
            
            
            
            **Year
                Ended**
              **December
                31,**Current
                expense (benefit):
            
            **2005**
            
            **May
                18 to Dec. 31**
            
            **Jan.
                1 to May 17**
            
            **2003**U.S.Federal
            
            $
            85
            
            
            
            
            
            —
            
            $
            5,166State
            
            
            —
            
            $
            213
            
            
            —
            
            
            912Total
                U.S.
            
            
            85
            
            
            213
            
            
            —
            
            
            6,078Foreign
            
            
            4,253
            
            
            1,622
            
            
            —
            
            
            2,712Total
                current
            
            
            4,338
            
            
            1,835
            
            
            —
            
            
            8,790Deferred
                expense (benefit):U.S.Federal
            
            
            (1,921
            )
            
            (124
            )
            $
            (1,748
            )
            
            666State
            
            
            (434
            )
            
            (94
            )
            
            (157
            )
            
            371Total
                U.S.
            
            
            (2,355
            )
            
            (218
            )
            
            (1,905
            )
            
            1,037Foreign
            
            
            (248
            )
            
            1,057
            
            
            (1,073
            )
            
            921Total
                deferred
            
            
            (2,603
            )
            
            839
            
            
            (2,978
            )
            
            1,958Total
                provision for income taxes
            
            $
            1,735
            
            $
            2,674
            
            $
            (2,978
            )
            $
            10,748




F-19
 
  A
        reconciliation between the provision for income taxes and income taxes computed
        by applying the statutory rate is as follows ( in thousands):





**Successor**
            
            **Predecessor****2004****Year
                Ended**
              **December
                31,**
            
            
            
            
            
            **Year
                Ended**
              **December
                31,****2005**
            
            **May
                18 to Dec. 31**
            
            **Jan.
                1 to May 17**
            
            **2003**Tax
                provision at statutory rate
            
            $
            850
            
            $
            3,842
            
            $
            (3,250
            )
            $
            11,078Add
                (deduct)Non
                deductible CHS transaction costs
            
            
            —
            
            
            —
            
            
            1,479
            
            
            —Meals
                and entertainment disallowance
            
            
            46
            
            
            34
            
            
            27
            
            
            532Foreign
                exchange loss on U.S. dollar amounts in foreignOperations
            
            
            —
            
            
            —
            
            
            —
            
            
            (868
            )Valuation
                allowance - foreign tax credits
            
            
            1,360
            
            
            —
            
            
            —
            
            
            —Taxable
                differential for foreign subsidiaries
            
            
            (302
            )
            
            (1
            )
            
            (302
            )
            
            (680
            )State
                income taxes
            
            
            (282
            )
            
            60
            
            
            (102
            )
            
            835Foreign
                tax credit benefit
            
            
            —
            
            
            (1,241
            )
            
            —
            
            
            —Decrease
                in previously recorded taxes as a result ofGerman
                tax audit
            
            
            —
            
            
            —
            
            
            (668
            )
            
            —Other,
                net
            
            
            63
            
            
            (20
            )
            
            (162
            )
            
            (149
            )$
            1,735
            
            $
            2,674
            
            $
            (2,978
            )
            $
            10,748




The
      tax
      effects of temporary differences that gave rise to the deferred tax assets
      and
      liabilities were as follows at December 31:




**Year
                  Ended December 31,****Successor****2005**
              
              **2004****(in
                  thousands)**Deferred
                  tax assets:Accrued
                  expenses
              
              $
              3,358
              
              $
              3,665Foreign
                  tax credit
              
              
              2,730
              
              
              2,673Valuation
                  Allowance
              
              
              (2,638
              )
              
              —Net
                  operating loss carryforward
              
              
              10,486
              
              
              8,548AMT
                  carryforward
              
              
              891
              
              
              80614,827
              
              
              15,692Deferred
                  tax liabilities:Excess
                  book basis over tax basis PP&E and intangible assets
              
              
              (25,321
              )
              
              (29,153
              )Other
              
              
              (901
              )
              
              (256
              )(26,222
              )
              
              (29,409
              )Total
                  deferred tax liability
              
              $
              (11,395
              )
              $
              (13,717
              )
  At
        December
        31, 2005, the Company has net operating loss carryforwards for federal income
        tax purposes of $27,594,000 which will begin to expire, if unused, in 2023.
        The
        Company also has foreign tax credit carryforwards for federal income tax
        purposes of $2,730,000 which will begin to expire, if unused, in 2009. Included
        in the Company’s December 31, 2005 year to date income tax provision of
        $1,735,000 is $1,360,000 of expense to reinstate a deferred tax valuation
        allowance related to foreign tax credits generated prior to the May 18, 2004
        Merger transaction recorded as an income tax benefit in the fourth quarter
        of
        2004. Also the Company corrected purchase accounting for the May 18, 2004
        Merger
        transaction by increasing the deferred tax valuation allowance related to
        certain foreign tax credits available to the Company at the date of the Merger.
        At December 31, 2005, the valuation allowance on foreign tax credits was
        $2,638,000. If the Company is ultimately able to utilize these foreign tax
        credits, a substantial portion of this recorded valuation allowance would
        be
        allocated to reduce Goodwill. In addition, the Company has an alternative
        minimum tax credit carryforward of $891,000, which does not
        expire.




Undistributed
      retained earnings of the Company’s foreign subsidiaries amounted to
      approximately $11,771,000 at December 31, 2005. Provision for U.S. federal
      and
      state income taxes has not been provided for earnings considered to be
      indefinitely reinvested. Upon distribution of those earnings in the form of
      dividends or otherwise, the Company would be subject to both U.S. income taxes
      (subject to an adjustment for foreign tax credits) and withholding taxes payable
      to the various foreign countries. For earnings not considered to be indefinitely
      reinvested, the Company has determined that, on a consolidated basis, any U.S.
      income tax will be offset by a corresponding foreign tax credit, and therefore
      no provision has been provided on these amounts. Determination of the amount
      of
      the unrecognized deferred tax asset/liability, if any, for temporary differences
      related to investments in foreign subsidiaries that are essentially permanent
      in
      duration is not practicable.





F-20
 
  The
        Company
        has completed its evaluation of the repatriation provision included in The
        American Jobs Creation Act of 2004 (the “Act”). The Company has determined that
        any U.S. income tax on 2005 repatriations is offset by a corresponding foreign
        tax credit, and therefore no provision has been provided on amounts repatriated
        under the Act in 2005.





**(15)
      Employee benefit plans** **—**




The
      Company
      has a defined contribution employee benefit plan under which substantially
      all
      U.S. employees are eligible to participate. The Company matches a portion of
      the
      employees’ contributions. During 2005, the Successor Company contributed
      $614,000 to the Plan. During 2004, the Predecessor Company contributed $274,000,
      and the Successor Company contributed $391,000 to the plan. The Predecessor
      Company contributed $626,000 to the plan during the year ended December 31,
      2003. Under the terms of the plan, contributions to the plan may be discontinued
      at any time.





**(16)
      Concentration of credit and other risks** **—**




Accounts
      receivable, as financial instruments, could potentially subject the Company
      to
      concentrations of credit risk. The Company continuously evaluates the
      creditworthiness of its customers and may require customers to provide letters
      of credit to guarantee payments. During 2005, 2004, 2003, one customer accounted
      for 13%, 20%, and 20% of sales and operating revenue, respectively. At December
      31, 2005 and 2004, 12% and 24% of the Company’s consolidated accounts receivable
      were due from this one customer.




The
      Company
      currently purchases its raw material (polyethylene and polypropylene resins)
      from at least two suppliers at each location. Polyethylene resins are
      occasionally in short supply and are subject to substantial price fluctuation
      in
      response to market demand. The Company has not encountered any significant
      prolonged difficulty to date in obtaining raw materials in sufficient quantities
      to support its operations at current or expected near-term future levels.
      However, any disruption in raw material supply or abrupt increases in raw
      material prices could have an adverse effect upon the Company’s
      operations.





**(17)
      Commitments and contingencies** **—**




*Product
      warranties and insurance coverage —*




The
      Company’s
      products are sold and installed with specified limited warranties as to material
      quality and workmanship. These limited warranties may last for up to 20 years,
      but are generally limited to repair or replacement by the Company of the
      defective liner or the dollar amount of the contract involved, on a prorated
      basis. The Company may also indemnify the site owner or general contractor
      for
      other damages resulting from negligence of the Company’s employees. The company
      accrues a warranty reserve based on estimates for warranty claims.
      This estimate is based on historical claims history and current business
      activities and is accrued at a cost of sales in the period such business
      activity occurs. The table below reflects a summary of activity of the Company’s
      continuing operations for warranty obligations through December 31, 2005 (in
      thousands):




Balance
                at December 31, 2003
            
            $
            3,618Obligations
                adjusted
            
            
            (792
            )Obligations
                paid
            
            
            (87
            )Balance
                as of May 17, 2004 (Predecessor Company)
            
            
            2,739Obligations
                adjusted
            
            
            340Obligations
                paid
            
            
            (481
            )Balance
                at December 31, 2004 (Successor Company)
            
            $
            2,598Obligations
                adjusted
            
            $
            37Obligations
                paid
            
            $
            (465
            )Balance
                at December 31, 2005
            
            $
            2,170




Although
      the
      Company is not exposed to the type of potential liability that might arise
      from
      being in the business of handling, transporting or storing hazardous waste
      or
      materials, the Company could be susceptible to liability for environmental
      damage or personal injury resulting from defects in the Company’s products or
      negligence by Company employees in the installation of its lining systems.
      Such
      liability could be substantial because of the potential that hazardous or other
      waste materials might leak out of their containment system into the environment.
      The Company maintains liability insurance, which includes contractor’s pollution
      liability coverage in amounts which it believes to be prudent. However, there
      is
      no assurance that this coverage will remain available to the Company. While
      the
      Company’s claims experience to date may not be a meaningful measure of its
      potential exposure for product liability, the Company has experienced no
      material losses from defects in products and installations.




F-21





*Bonding
      -
      Bank Guarantees —*




The
      Company,
      in some direct sales and installation contracting situations, is required to
      post performance bonds or bank guarantees as part of the contractual guarantee
      for its performance. The performance bonds or bank guarantees can be in the
      full
      amount of the contracts. To date the Company has not received any claims against
      any of the posted securities, most of which terminate at the final completion
      date of the contracts. As of December 31, 2005, the Company had $4,509,000
      of
      bonds outstanding and $5,512,000 of guarantees issued under its bank
      lines.




*Litigation
      and claims —*




The
      Company
      is a third-party defendant in a lawsuit that was filed in September 1997 in
      the
      Supreme Court of New York, County of Richmond (Mario Cicala v. Interstate
      Industrial Corporation, Stearns, Conrad and Schmidt Consulting Engineers, Inc.,
      Interstate Industrial Corporation v. Gundle Lining Construction Corp. and Gundle
      Lining Construction Corp. v. The City of New York; Case No. 13076/97). The
      plaintiff, Mario Cicala, was a Company employee who slipped and fell at a job
      site and brought a claim against the primary defendants for $20,000,000.
      Interstate Industrial Corporation (Interstate) has, in turn, sued the Company
      for contractual indemnity and contribution. The Texas Property and Casualty
      Insurance Guaranty Association (Texas Guaranty Association) is providing for
      the
      cost of the Company’s defense. The Company believes that the Texas Guaranty
      Association will provide up to $400,000 insurance recovery for this matter
      and
      that the application of the Texas Guaranty Act will limit Interstate’s recovery
      against the Company to the amount the Company receives from the Texas Guaranty
      Association. However, Interstate has argued that the Texas Guaranty Act does
      not
      apply to a New York lawsuit and, should the Supreme Court of New York agree
      with
      this position, the Company may be subject to a damage award that is not covered
      by insurance by up to $5,000,000. Mr. Cicala’s last settlement offer was made in
      November 2004 for $5,000,000. The Company cannot at this time reasonably assess
      its exposure to a contribution damage award to Interstate.




On
      January
      14, 2004, the Company received a letter from Shire Equipment Leasing Corporation
      (“Shire”) (Defendant, along with Robert Steinberg, as trustee for the bankruptcy
      estate of Pro Air) relating to litigation instituted by Wembley Ltd., the
      Company’s largest stockholder prior to the Merger. In the litigation, Wembley is
      seeking a declaratory judgment that neither Pro Air, Inc., nor Shire, Pro Air’s
      Assignee, ever acquired an ownership interest in 1,100,000 shares of the Company
      owned by Wembley. The dispute relates to Wembley’s delivery to Pro Air in 1997
      of a stock certificate representing the disputed shares along with an assignment
      of stock, or stock power, which provided that the assignment of the Company’s
      shares was valid only if done in compliance with certain specified conditions.
      The parties disagree as to whether those conditions were met. In April 1998,
      Pro
      Air asked the Company to reflect Pro Air on the Company’s books as the holder of
      record of the disputed shares, but the Company declined to do so, informing
      Pro
      Air that it had no record of Pro Air being a Company shareholder. Shire
      indicated in its January 2004 letter that it would pursue claims against the
      Company if testimony revealed that the Company acted in concert with Wembley
      to
      prevent the transfer of the disputed shares.




On
      December
      16, 2004, Wembley prevailed in its declaratory judgment action with the issuance
      of a judgment that neither Pro Air nor Shire, Pro Air’s assignee, ever acquired
      an ownership interest in the 1,100,000 shares. Shire has filed an appeal with
      the Ninth Circuit Court of Appeals and Wembley has filed a cross
      appeal.




On
      April 20,
      2005, the trial court granted Shire’s motion to stay execution of the judgment.
      The court ordered Shire to surrender the disputed share certificates to Mellon
      Investor Services LLC, to await the outcome of the appeals.




The
      Company
      believes that this dispute is between Wembley and Shire. Accordingly, if a
      claim
      is asserted against the Company, the Company intends to defend itself
      vigorously.




F-22




The
      Company
      is also a party to various other legal actions arising in the ordinary course
      of
      its business. These legal actions cover a broad variety of claims spanning
      its
      entire business. As of the date of this filing, the Company believes that it
      is
      not reasonably possible that resolution of these legal actions will,
      individually or in the aggregate, have a material adverse effect on its
      financial condition or results of operations.




*Operating
      Leases —*




The
      Company
      leases certain equipment through operating lease arrangements of varying terms.
      Annual rental expense under the terms of non-cancelable operating leases is
      less
      than 1% of consolidated revenues.





**(18)
      Segment Information —**




The
      Company
      operates exclusively in the geosynthetic liner market. Substantially all sales
      and operating revenues result from the sale and installation of the Company’s
      manufactured products. These products are manufactured and sold in various
      locations throughout the world using similar raw materials (polyethylene resin),
      production processes (flat or round die extrusion) and distribution channels
      (product and installation sales made directly to customers or through
      representatives of the Company).




Statement
      of
      Financial Accounting Standards No. 131, Disclosures about Segments of an
      Enterprise and Related Information allows the aggregation of an enterprise’s
      segments if they are similar. The Company operates in different geographic
      areas; however, the Company has reviewed the aggregation criteria and determined
      that the Company operates as one segment based on the high degree of similarity
      of the following aspects of the Company’s operations:


·
              nature
                  of the products and services,
 ·
              raw
                  materials and production processes
                  used,
 ·
              customers
                  and markets served,
 ·
              methods
                  used to distribute products and
                  services,
 ·
              effects
                  of regulatory influences on the market, and the economic characteristics
                  of the products and services in different geographical
                  areas.







**Successor**
            
            **Predecessor****Year
                Ended**
              **December
                31,**
              **2005**
            
            **May
                18**
              **to
                Dec. 31,**
              **2004**
            
            **Jan.
                1**
              **to
                May 17, 2004**
            
            **Year
                Ended**
              **December
                31,**
              ******2003****(in
                thousands)**Sales
                to unaffiliated customers (based on the geographic location of the
                customer):United
                States
            
            $
            151,095
            
            $
            125,462
            
            $
            37,631
            
            $
            161,112Europe
            
            
            69,407
            
            
            47,391
            
            
            14,750
            
            
            61,181Latin
                & South America
            
            
            22,548
            
            
            15,884
            
            
            4,265
            
            
            15,430Far
                East/Pacific Rim
            
            
            28,309
            
            
            12,394
            
            
            7,081
            
            
            15,683Africa
                and Middle East
            
            
            33,308
            
            
            10,416
            
            
            4,932
            
            
            13,794Other
            
            
            12,951
            
            
            5,966
            
            
            1,734
            
            
            7,418$
            317,618
            
            $
            217,513
            
            $
            70,393
            
            $
            274,618




Only
                sales to one country, the United States, accounted for more than
                10% of
                total sales. Sales into other countries, accounting for less than
                10% of
                total sales, have been aggregated into geographic regions for this
                presentation.




**As
                of December 31,****2005**
            
            **2004****(in
                thousands)**Long
                lived assets (principally property, plant and equipment):United
                States
            
            $
            56,014
            
            $
            62,772Germany
            
            $
            10,997
            
            
            14,191Thailand
            
            $
            8,498
            
            
            10,229Other
            
            $
            15,774
            
            
            9,395$
            91,283
            
            $
            96,587




Only
                long-lived assets in the United States and Germany accounted for
                more than
                10% of total long-lived assets.





**(19)
      Related Party Transaction —**





**Management
      Agreement with CHS Management IV LP**


In
      connection
      with the Merger, the Company entered into a management agreement with GEO
      Holdings and CHS Management IV LP (CHS Management) a limited partnership (1)
      of
      which CHS is the general partner and (2) which is the general partner of CHS
      IV.
      Pursuant to the management agreement, CHS Management provides certain financial
      and management consulting services to GEO Holdings and to us. In consideration
      of those services the Company pays fees to CHS Management in an aggregate annual
      amount of $2,000,000, payable in equal monthly installments. The Company also
      agreed to reimburse CHS Management for its reasonable travel and other
      out-of-pocket expenses. The Company also provides customary indemnification
      to
      CHS Management. In connection with the structuring and implementation of the
      Merger and related financing transactions, GEO Holdings paid CHS Management
      fees
      in the aggregate amount of $5,000,000 at the completion of the Merger. Under
      the
      Management Agreement, GEO Holdings will pay CHS Management a fee equal to 5%
      of
      any additional proceeds of GEO Holdings’ capital stock purchased from time to
      time by CHS Management or its affiliates. The management fee is subordinated
      to
      the prior payment in full of principal, interest and premium due and owing
      under
      our senior credit facility and the indenture governing the exchange notes,
      but
      we may pay the management fee at all times except during certain events of
      default under our senior credit facility or under the indenture governing the
      exchange notes. In the event any portion of the management fee is not so paid,
      such amount will accrue and become due and payable in the next month when
      payment is permitted. During 2005, the Company paid CHS $2,016,000 under this
      agreement. At of December 31, 2005 and 2004 the Company had no outstanding
      payables to CHS under this agreement. At December 31, 2005 and 2004, there
      were
      no amounts payable to CHS under this agreement.





F-23




**(20)
      Subsequent Events —**





**Share
      Purchase Agreement**


On
      January
      18, 2006 GSE International (a wholly owned subsidiary of the Company) entered
      into a share purchase agreement with Naue GmbH & CO KG (“Naue”) to acquire
      all the issued and outstanding shares Naue held in the capital of Bentofix
      Technologies, Inc. for $2,400,000 CDN ($2,066,649 US). The purchase of these
      shares increased the Company’s ownership percentage in Bentofix Technologies
      from 51% to 75.5% and was recorded as a $1,600,000 reduction in the minority
      interest obligation and an increase of $466,649 to goodwill.





**FAS133
      Interpretation**


Due
      to a
      recently issued SFAS133 interpretation effective January 1, 2006, the Company
      is
      no longer able to apply the short cut method provided by SFAS133 in the
      accounting for its interest rate swap and the Company has decided it will no
      longer use hedge accounting. Beginning January 1, 2006 the Company will mark
      to
      market the change in value of the interest rate swap and reflect the change
      in
      value in other income/expense in the statement of income (loss). As of March
      2,
      2006, the value of the swap was $3,943,000 resulting in a 2006 statement of
      income (loss) charge of $753,000 through that date.





**(21)
      Condensed Consolidated Guarantor and Non-Guarantor Financial Information —**





The
      payment of obligations of the Company under the senior notes is guaranteed
      by
      all of the Company’s domestic subsidiaries other than Bentofix Technologies
      (USA), Inc. (“Subsidiary Guarantors”). Each of these Subsidiary Guarantors is
      included in the Company’s consolidated financial statements and has fully and
      unconditionally guaranteed the senior notes on a joint and several basis.
      Separate financial statements and other disclosures concerning the Subsidiary
      Guarantors have not been presented because management believes that such
      information is not material to investors. The following supplemental financial
      information sets forth, on a combined basis, balance sheet, statement of
      operations and cash flows information for the Subsidiary Guarantors, the
      Company’s non-guarantor subsidiaries and for the Company.




F-24




**GUNDLE/SLT
      ENVIRONMENTAL, INC.**


**CONDENSED
      CONSOLIDATING BALANCE SHEET**


**(in
      thousands)**





**December
                31, 2005****Non
                U.S.****U.S.**
            
            **Non-**
            
            **Consolidating****Gundle**
            
            **Guarantors**
            
            **Guarantor****s**
            
            **Entries**
            
            **Consolidated****ASSETS**Current
                Assets:Cash
                and Cash Equivalents
            
            $
            37
            
            $
            14,558
            
            $
            6,499
            
            $
            —
            
            $
            21,094Accounts
                Receivable, Net
            
            
            (63
            )
            
            37,240
            
            
            30,332
            
            
            (5,351
            )
            
            62,158Contracts
                in Progress
            
            
            —
            
            
            561
            
            
            1,683
            
            
            —
            
            
            2,244Inventory
            
            
            —
            
            
            16,290
            
            
            20,313
            
            
            —
            
            
            36,603Deferred
                Income Taxes
            
            
            —
            
            
            3,296
            
            
            9
            
            
            —
            
            
            3,305Other
                Current Assets
            
            
            —
            
            
            94
            
            
            1,513
            
            
            —
            
            
            1,607Total
                Current Assets
            
            
            (26
            )
            
            72,039
            
            
            60,349
            
            
            (5,351
            )
            
            127,011Property,
                Plant and Equipment, Net
            
            
            —
            
            
            56,014
            
            
            35,299
            
            
            (30
            )
            
            91,283Excess
                of Purchase Price Over Fair Value of Assets Acquired, Net
            
            
            59,032
            
            
            —
            
            
            4,584
            
            
            —
            
            
            63,616Intangible
                Assets
            
            
            —
            
            
            10,351
            
            
            11,393
            
            
            —
            
            
            21,744Deferred
                Income Taxes
            
            
            —
            
            
            982
            
            
            54
            
            
            —
            
            
            1,036Deferred
                Financing Costs and Other Assets, Net
            
            
            11,316
            
            
            11
            
            
            384
            
            
            —
            
            
            11,711$
            70,322
            
            $
            139,397
            
            $
            112,063
            
            $
            (5,381
            )
            $
            316,401**LIABILITIES
                AND STOCKHOLDER’S EQUITY**Current
                Liabilities:Accounts
                Payable and Accrued Liabilities
            
            $
            2,112
            
            $
            27,251
            
            $
            24,082
            
            $
            (5,343
            )
            $
            48,102Advance
                Billings on Contracts
            
            
            —
            
            
            546
            
            
            885
            
            
            —
            
            
            1,431Current
                Portion of Long-term Debt
            
            
            3,981
            
            
            —
            
            
            291
            
            
            —
            
            
            4,272Short-term
                Debt
            
            
            —
            
            
            —
            
            
            2,363
            
            
            —
            
            
            2,363Income
                Taxes Payable and Deferred Income Taxes
            
            
            —
            
            
            1,077
            
            
            1,438
            
            
            —
            
            
            2,515Total
                Current Liabilities
            
            
            6,093
            
            
            28,874
            
            
            29,059
            
            
            (5,343
            )
            
            58,683Long-term
                Debt
            
            
            161,005
            
            
            —
            
            
            4,645
            
            
            —
            
            
            165,650Other
                Liabilities
            
            
            3,191
            
            
            —
            
            
            960
            
            
            —
            
            
            4,151Deferred
                Income Taxes
            
            
            —
            
            
            7,972
            
            
            7,116
            
            
            —
            
            
            15,088Minority
                Interest
            
            
            —
            
            
            —
            
            
            3,198
            
            
            —
            
            
            3,198Investments
                in subsidiaries and Intercompany
            
            
            (129,838
            )
            
            59,249
            
            
            11,461
            
            
            59,128
            
            
            —Stockholder’s
                Equity
            
            
            29,871
            
            
            43,302
            
            
            55,624
            
            
            (59,166
            )
            
            69,631$
            70,322
            
            $
            139,397
            
            $
            112,063
            
            $
            (5,381
            )
            $
            316,401




F-25





**GUNDLE/SLT
      ENVIRONMENTAL, INC.**


**CONDENSED
      CONSOLIDATING BALANCE SHEET**


**(in
      thousands)**





**December
                31, 2004****Non
                U.S.****U.S.**
            
            **Non-**
            
            **Consolidating****Gundle**
            
            **Guarantors**
            
            **Guarantors**
            
            **Entries**
            
            ******Consolidated****ASSETS**Current
                Assets:Cash
                and Cash Equivalents
            
            $
            37
            
            $
            14,988
            
            $
            8,691
            
            $
            —
            
            $
            23,716Accounts
                Receivable, Net
            
            
            —
            
            
            26,409
            
            
            29,666
            
            
            (6,252
            )
            
            49,823Contracts
                in Progress
            
            
            —
            
            
            669
            
            
            1,216
            
            
            —
            
            
            1,885Inventory
            
            
            —
            
            
            16,912
            
            
            18,825
            
            
            —
            
            
            35,737Deferred
                Income Taxes
            
            
            —
            
            
            3,449
            
            
            63
            
            
            —
            
            
            3,512Other
                Current Assets
            
            
            —
            
            
            4
            
            
            1,301
            
            
            —
            
            
            1,305Total
                Current Assets
            
            
            37
            
            
            62,431
            
            
            59,762
            
            
            (6,252
            )
            
            115,978Property,
                Plant and Equipment, Net
            
            
            —
            
            
            62,772
            
            
            33,815
            
            
            
            
            
            96,587Excess
                of Purchase Price Over Fair Value Of Assets Acquired, Net
            
            
            57,103
            
            
            —
            
            
            —
            
            
            —
            
            
            57,103Intangible
                Assets
            
            
            —
            
            
            13,357
            
            
            9,573
            
            
            —
            
            
            22,930Deferred
                Income Taxes
            
            
            —
            
            
            3,479
            
            
            153
            
            
            —
            
            
            3,632Deferred
                Financing Costs and Other Assets, Net
            
            
            13,244
            
            
            77
            
            
            —
            
            
            —
            
            
            13,321$
            70,384
            
            $
            142,116
            
            $
            103,303
            
            $
            (6,252
            )
            $
            309,551**LIABILITIES
                AND STOCKHOLDER’S EQUITY**Current
                Liabilities:Accounts
                Payable and Accrued Liabilities
            
            $
            2,114
            
            $
            26,859
            
            $
            17,187
            
            $
            (6,252
            )
            $
            39,908Advance
                Billings on Contracts
            
            
            —
            
            
            296
            
            
            1,176
            
            
            —
            
            
            1,472Current
                Portion of Long-term Debt
            
            
            —
            
            
            —
            
            
            275
            
            
            —
            
            
            275Income
                Taxes Payable and Deferred Income Taxes
            
            
            —
            
            
            531
            
            
            200
            
            
            —
            
            
            731Total
                Current Liabilities
            
            
            2,114
            
            
            27,686
            
            
            18,838
            
            
            (6,252
            )
            
            42,386Long-term
                Debt
            
            
            167,917
            
            
            —
            
            
            412
            
            
            —
            
            
            168,329Other
                Liabilities
            
            
            —
            
            
            —
            
            
            1,262
            
            
            —
            
            
            1,262Deferred
                Income Taxes
            
            
            —
            
            
            11,699
            
            
            9,159
            
            
            —
            
            
            20,858Minority
                Interest
            
            
            —
            
            
            —
            
            
            2,702
            
            
            —
            
            
            2,702Investments
                in subsidiaries and Intercompany
            
            
            (151,255
            )
            
            90,664
            
            
            2,385
            
            
            58,206
            
            
            —Stockholder’s
                Equity
            
            
            51,608
            
            
            12,067
            
            
            68,545
            
            
            (58,206
            )
            
            74,014$
            70,384
            
            $
            142,116
            
            $
            103,303
            
            $
            (6,252
            )
            $
            309,551




F-26





**GUNDLE/SLT
      ENVIRONMENTAL, INC.**


**CONDENSED
      STATEMENTS OF OPERATIONS**


**(in
      thousands)**








**Successor
                For the Year Ended December 31, 2005****Gundle**
            
            **U.S.**
              **Guarantors**
            
            **Non
                U.S.**
              **Non-Guarantors**
            
            **Consolidating**
              **Entries**
            
            **Consolidated**Sales
                and operating revenue
            
            $
            —
            
            $
            191,287
            
            $
            142,989
            
            $
            (16,658
            )
            $
            317,618Cost
                of products and services
            
            
            —
            
            
            158,014
            
            
            119,910
            
            
            (16,657
            )
            
            261,267Gross
                profit
            
            
            —
            
            
            33,273
            
            
            23,079
            
            
            (1
            )
            
            56,351Selling,
                general and administrative expenses
            
            
            —
            
            
            20,494
            
            
            9,079
            
            
            —
            
            
            29,573Amortization
                of intangibles
            
            
            —
            
            
            3,006
            
            
            1,721
            
            
            —
            
            
            4,727Merger/Acquisition
                activity expenses
            
            
            —
            
            
            820
            
            
            198
            
            
            —
            
            
            1,018Operating
                income (loss)
            
            
            —
            
            
            8,953
            
            
            12,081
            
            
            (1
            )
            
            21,033Other
                expenses (income)Affiliate
                dividend income
            
            
            —
            
            
            (17,015
            )
            
            —
            
            
            17,015
            
            
            —Other
            
            
            35,058
            
            
            (16,802
            )
            
            310
            
            
            38
            
            
            18,60435,058
            
            
            (33,817
            )
            
            310
            
            
            17,053
            
            
            18,604Income
                (loss) before income taxes
            
            
            (35,058
            )
            
            42,770
            
            
            11,771
            
            
            (17,054
            )
            
            2,429Provision
                (benefit) for income taxes
            
            
            (13,322
            )
            
            11,536
            
            
            3,521
            
            
            —
            
            
            1,735Net
                income (loss)
            
            $
            (21,736
            )
            $
            31,234
            
            $
            8,250
            
            $
            (17,054
            )
            $
            694






**Successor
                for the Period of May 18 to December 31, 2004****Gundle**
            
            **U.S.**
              **Guarantors**
            
            **Non
                U.S.**
              **Non-Guarantors**
            
            **Consolidating**
              **Entries**
            
            ******Consolidated**Sales
                and operating revenue
            
            $
            —
            
            $
            145,788
            
            $
            84,211
            
            $
            (12,486
            )
            $
            217,513Cost
                of products and services
            
            
            —
            
            
            117,438
            
            
            67,742
            
            
            (12,484
            )
            
            172,696Gross
                profit
            
            
            —
            
            
            28,350
            
            
            16,469
            
            
            (2
            )
            
            44,817Selling,
                general and administrative and amortization expenses
            
            
            —
            
            
            13,842
            
            
            7,524
            
            
            —
            
            
            21,366Operating
                income (loss)
            
            
            —
            
            
            14,508
            
            
            8,945
            
            
            (2
            )
            
            23,451Other
                expenses (income)Other
            
            
            12,500
            
            
            (1,033
            )
            
            1,007
            
            
            (1
            )
            
            12,47312,500
            
            
            (1,033
            )
            
            1,007
            
            
            (1
            )
            
            12,473Income
                (loss) before income taxes
            
            
            (12,500
            )
            
            15,541
            
            
            7,938
            
            
            (1
            )
            
            10,978Provision
                (benefit) for income taxes
            
            
            (3,479
            )
            
            3,474
            
            
            2,679
            
            
            —
            
            
            2,674Net
                income (loss)
            
            $
            (9,021
            )
            $
            12,067
            
            $
            5,259
            
            $
            (1
            )
            $
            8,304




F-27




**GUNDLE/SLT
      ENVIRONMENTAL, INC.**


**CONDENSED
      STATEMENTS OF OPERATIONS**


**(in
      thousands)**





**Predecessor
                  for the Period of January 1 to May 17, 2004****Gundle**
              
              **U.S.**
                **Guarantors**
              
              **Non
                  U.S.**
                **Non-Guarantors**
              
              **Consolidating**
                **Entries**
              
              ******Consolidated**Sales
                  and operating revenue
              
              $
              —
              
              $
              41,242
              
              $
              34,988
              
              $
              (5,837
              )
              $
              70,393Cost
                  of products and services
              
              
              —
              
              
              35,518
              
              
              30,466
              
              
              (5,877
              )
              
              60,107Gross
                  profit
              
              
              —
              
              
              5,724
              
              
              4,522
              
              
              40
              
              
              10,286Selling,
                  general and administrative and amortization expenses
              
              
              —
              
              
              7,948
              
              
              4,482
              
              
              —
              
              
              12,430Expenses
                  related to CHS acquisition
              
              
              —
              
              
              5,863
              
              
              —
              
              
              —
              
              
              5,863Operating
                  income (loss)
              
              
              —
              
              
              (8,087
              )
              
              40
              
              
              40
              
              
              (8,007
              )Other
                  expenses (income)Affiliate
                  dividend income
              
              
              (95,000
              )
              
              —
              
              
              —
              
              
              95,000
              
              
              —Other
              
              
              1,525
              
              
              (77
              )
              
              (168
              )
              
              (1
              )
              
              1,279(93,475
              )
              
              (77
              )
              
              (168
              )
              
              94,999
              
              
              1,279Income
                  (loss) before income taxes
              
              
              93,475
              
              
              (8,010
              )
              
              208
              
              
              (94,959
              )
              
              (9,286
              )Provision
                  (benefit) for income taxes
              
              
              (869
              )
              
              (1,036
              )
              
              (1,073
              )
              
              —
              
              
              (2,978
              )Net
                  income (loss)
              
              $
              94,344
              
              $
              (6,974
              )
              $
              1,281
              
              $
              (94,959
              )
              $
              (6,308
              )






**Predecessor
                for the Year Ended December 31, 2003****Gundle**
            
            **U.S.**
              **Guarantors**
            
            **Non
                U.S.**
              **Non-Guarantors**
            
            **Consolidating**
              **Entries**
            
            **Consolidated**Sales
                and operating revenue
            
            $
            —
            
            $
            184,969
            
            $
            110,474
            
            $
            (20,825
            )
            $
            274,618Cost
                of products and services
            
            
            —
            
            
            147,715
            
            
            88,877
            
            
            (21,133
            )
            
            215,459Gross
                profit
            
            
            —
            
            
            37,254
            
            
            21,597
            
            
            308
            
            
            59,159Selling,
                general and administrative expenses
            
            
            —
            
            
            18,178
            
            
            9,226
            
            
            —
            
            
            27,404Expenses
                related to CHS acquisition
            
            
            —
            
            
            1,547
            
            
            —
            
            
            —
            
            
            1,547Operating
                income (loss)
            
            
            —
            
            
            17,529
            
            
            12,371
            
            
            308
            
            
            30,208Other
                expenses (income)
            
            
            2,487
            
            
            (18,188
            )
            
            (2,315
            )
            
            16,705
            
            
            (1,311
            )Income
                before income taxes
            
            
            (2,487
            )
            
            35,717
            
            
            14,686
            
            
            (16,397
            )
            
            31,519Provision
                for income taxes
            
            
            (870
            )
            
            7,984
            
            
            3,634
            
            
            —
            
            
            10,748Net
                income (loss)
            
            $
            (1,617
            )
            $
            27,733
            
            $
            11,052
            
            $
            (16,397
            )
            $
            20,771




F-28




**GUNDLE/SLT
      ENVIRONMENTAL, INC.**


**CONDENSED
      STATEMENTS OF CASH FLOWS**


**(in
      thousands)**




**Successor
                  for the Year Ended December 31, 2005****Gundle**
              
              **U.S.**
                **Guarantors**
              
              **Non
                  U.S.**
                **Non-Guarantors**
              
              **Consolidating**
                **Entries**
              
              **Consolidated**Net
                  cash flow provided by (used in) operating activities
              
              $
              (29,546
              )
              $
              39,865
              
              $
              15,493
              
              $
              (17,026
              )
              $
              8,786Net
                  cash flow provided by (used in ) investing activities:Additions
                  to property, plant & equipment
              
              
              —
              
              
              (1,929
              )
              
              (1,982
              )
              
              11
              
              
              (3,900
              )Proceeds
                  from sale of assets
              
              
              —
              
              
              1,757
              
              
              401
              
              
              —
              
              
              2,158Payments
                  for acquisition of a business
              
              
              —
              
              
              —
              
              
              (11,188
              )
              
              —
              
              
              (11,188
              )Other
              
              
              —
              
              
              (1,500
              )
              
              1,500
              
              
              —
              
              
              ——
              
              
              (1,672
              )
              
              (11,269
              )
              
              11
              
              
              (12,930
              )Net
                  cash flow provided by (used in) financing activities:Proceeds
                  from revolver
              
              
              5,000
              
              
              —
              
              
              2,363
              
              
              —
              
              
              7,363Payments
                  on revolver
              
              
              (5,000
              )
              
              —
              
              
              —
              
              
              —
              
              
              (5,000
              )Repayments
                  of long-term debt
              
              
              —
              
              
              —
              
              
              (291
              )
              
              —
              
              
              (291
              )Intercompany
                  financing
              
              
              29,546
              
              
              (38,623
              )
              
              (7,938
              )
              
              17,015
              
              
              —29,546
              
              
              (38,623
              )
              
              (5,866
              )
              
              17,015
              
              
              2,072Effect
                  of exchange rate changes on cash
              
              
              —
              
              
              —
              
              
              (550
              )
              
              —
              
              
              (550
              )Net
                  increase (decrease) in cash and cash equivalents
              
              
              —
              
              
              (430
              )
              
              (2,192
              )
              
              —
              
              
              (2,622
              )Cash
                  and cash equivalents at beginning of year
              
              
              37
              
              
              14,988
              
              
              8,691
              
              
              —
              
              
              23,716Cash
                  and cash equivalents at end of year
              
              $
              37
              
              $
              14,558
              
              $
              6,499
              
              $
              —
              
              $
              21,094





**Successor
                for the period of May 18 to December 31, 2004****Gundle**
            
            **U.S.**
              **Guarantors**
            
            **Non
                U.S.**
              **Non-Guarantors**
            
            **Consolidating**
              **Entries**
            
            **Consolidated**Net
                cash flow provided by (used in) operating activities
            
            $
            (1,782
            )
            $
            26,122
            
            $
            14,191
            
            $
            175
            
            $
            38,706Net
                cash flow provided by (used in) investing activities:Additions
                to property, plant & equipment
            
            
            —
            
            
            (1,587
            )
            
            (1,899
            )
            
            —
            
            
            (3,486
            )Proceeds
                for sale of assets
            
            
            —
            
            
            552
            
            
            53
            
            
            —
            
            
            605Payments
                for acquisition of a business
            
            
            (221,616
            )
            
            —
            
            
            —
            
            
            —
            
            
            (221,616
            )Other
            
            
            —
            
            
            —
            
            
            (4
            )
            
            4
            
            
            —(221,616
            )
            
            (1,035
            )
            
            (1,850
            )
            
            4
            
            
            (224,497
            )Net
                cash flow provided by (used in) financing activities:RevolverPayments
                for financing fees
            
            
            (14,071
            )
            
            —
            
            
            —
            
            
            —
            
            
            (14,071
            )Proceeds
                from long-term debt
            
            
            175,000
            
            
            —
            
            
            —
            
            
            —
            
            
            175,000Repayments
                of long-term debt
            
            
            (7,084
            )
            
            —
            
            
            (64
            )
            
            —
            
            
            (7,148
            )Issuance
                of common stock
            
            
            55,229
            
            
            —
            
            
            —
            
            
            —
            
            
            55,229Intercompany
                financing
            
            
            14,361
            
            
            (10,099
            )
            
            (4,083
            )
            
            (179
            )
            
            —223,435
            
            
            (10,099
            )
            
            (4,147
            )
            
            (179
            )
            
            209,010Effect
                of exchange rate changes on cash
            
            
            —
            
            
            —
            
            
            497
            
            
            —
            
            
            497Net
                increase (decrease) in cash and cash equivalents
            
            
            37
            
            
            14,988
            
            
            8,691
            
            
            —
            
            
            23,716Cash
                and cash equivalents at May 17, 2004
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Cash
                and cash equivalents at end of year
            
            $
            37
            
            $
            14,988
            
            $
            8,691
            
            $
            —
            
            $
            23,716




F-29




**GUNDLE/SLT
      ENVIRONMENTAL, INC.**


**CONDENSED
      STATEMENTS OF CASH FLOWS**


**(in
      thousands)**





**Predecessor
                  for the period of January 1 to May 17, 2004****Gundle**
              
              **U.S.**
                **Guarantors**
              
              **Non
                  U.S.**
                **Non-Guarantors**
              
              **Consolidating**
                **Entries**
              
              **Consolidated**Net
                  cash flow provided by (used in)operating
                  activities
              
              $
              6,541
              
              $
              (23,760
              )
              $
              2,373
              
              $
              (180
              )
              $
              (15,026
              )Net
                  cash flow provided by (used in) investing activities:Additions
                  to property, plant & equipment
              
              
              —
              
              
              (1,558
              )
              
              (1,492
              )
              
              —
              
              
              (3,050
              )Proceeds
                  for sale of assets
              
              
              —
              
              
              260
              
              
              —
              
              
              —
              
              
              260Other
              
              
              —
              
              
              (1,220
              )
              
              1,220
              
              
              —
              
              
              ——
              
              
              (2,518
              )
              
              (272
              )
              
              —
              
              
              (2,790
              )Net
                  cash flow provide by (used in) financing activities:Proceeds
                  from new debt
              
              
              —
              
              
              —
              
              
              806
              
              
              —
              
              
              806Repayments
                  of long-term debt
              
              
              (16,721
              )
              
              —
              
              
              (2
              )
              
              —
              
              
              (16,723
              )Proceeds
                  from the exercise of stock options
              
              
              100
              
              
              —
              
              
              —
              
              
              —
              
              
              100Intercompany
                  financing
              
              
              10,116
              
              
              (8,950
              )
              
              (1,346
              )
              
              180
              
              
              —(6,505
              )
              
              (8,950
              )
              
              (542
              )
              
              180
              
              
              (15,817
              )Effect
                  of exchange rate changes on cash
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Net
                  increase (decrease) in cash and cash equivalents
              
              
              36
              
              
              (35,228
              )
              
              1,559
              
              
              —
              
              
              (33,633
              )Cash
                  and cash equivalents at beginning of period
              
              
              68
              
              
              42,934
              
              
              4,897
              
              
              —
              
              
              47,899Cash
                  and cash equivalents at end of period
              
              $
              104
              
              $
              7,706
              
              $
              6,456
              
              $
              —
              
              $
              14,266








**Predecessor
                for the Year Ended December 31, 2003****Gundle**
            
            **U.S.**
              **Guarantors**
            
            **Non
                U.S.**
              **Non-Guarantors**
            
            **Consolidating**
              **Entries**
            
            **Consolidated**Net
                cash flow provided by (used in)operating
                activities
            
            $
            52
            
            $
            23,900
            
            $
            18,297
            
            $
            (25,404
            )
            $
            16,845Net
                cash flow provided by (used in) investing activities:Additions
                to property, plant & equipment
            
            
            —
            
            
            (3,530
            )
            
            (4,145
            )
            
            851
            
            
            (6,824
            )Proceeds
                for sale of assets
            
            
            —
            
            
            1,574
            
            
            3,283
            
            
            (851
            )
            
            4,006Other
            
            
            —
            
            
            (4,012
            )
            
            220
            
            
            —
            
            
            (3,792
            )—
            
            
            (5,968
            )
            
            (642
            )
            
            —
            
            
            (6,610
            )Net
                cash flow provide by (used in) financing activities:Proceeds
                from new debtRepayments
                of long-term debt
            
            
            (4,482
            )
            
            (368
            )
            
            (91
            )
            
            —
            
            
            (4,941
            )Proceeds
                from the exercise of stock options
            
            
            248
            
            
            —
            
            
            —
            
            
            —
            
            
            248Intercompany
                financing
            
            
            4,214
            
            
            (8,109
            )
            
            (21,509
            )
            
            25,404
            
            
            —(20
            )
            
            (8,477
            )
            
            (21,600
            )
            
            25,404
            
            
            (4,693
            )Effect
                of exchange rate changes on cash
            
            
            —
            
            
            —
            
            
            93
            
            
            —
            
            
            93Net
                increase (decrease) in cash and cash equivalents
            
            
            32
            
            
            9,455
            
            
            (3,852
            )
            
            —
            
            
            5,635Cash
                and cash equivalents at beginning of year
            
            
            36
            
            
            33,479
            
            
            8,749
            
            
            —
            
            
            42,264Cash
                and cash equivalents at end of period
            
            $
            68
            
            $
            42,934
            
            $
            4,897
            
            $
            —
            
            $
            47,899




F-30




**(22)
      Supplementary** **Data** **—**




**Consolidated
      quarterly financial data (Unaudited) —**





Unaudited
      quarterly information for fiscal 2005 and 2004 is as follows (in thousands,
      except per share amounts):




**2005
                Quarters**************
            
            **2004
                Quarters****Predecessor**
            
            **Successor****Apr.
                1 - May 17**
            
            **May
                18 - June 30****First**
            
            **Second**
            
            **Third**
            
            **Fourth**
            
            **First**
            
            **Second******
            
            **Third**
            
            **Fourth**Net
                Sales
            
            
            59,664
            
            
            86,965
            
            
            97,595
            
            
            73,394
            
            
            35,649
            
            
            34,744
            
            
            49,027
            
            
            101,034
            
            
            67,452Gross
                profit
            
            
            6,859
            
            
            14,360
            
            
            21,301
            
            
            13,831
            
            
            4,493
            
            
            5,793
            
            
            9,723
            
            
            22,390
            
            
            12,704Income
                (loss) beforeincome
                taxes
            
            
            (6,166
            )
            
            1,414
            
            
            7,574
            
            
            (393
            )
            
            (4,879
            )
            
            (4,407
            )
            
            2,995
            
            
            9,362
            
            
            (1,379
            )Net
                income (loss)
            
            
            (4,860
            )***
            
            1,034
            ***
            
            4,873
            
            
            (353
            )
              ****
            
            (2,357
            )**
            
            (3,950
            )
            
            1,899
            
            
            6,134
            
            
            271Basic
                earnings (loss) perCommon
                Share
            
            
            *
            
            
            *
            
            
            *
            
            
            *
            
            
            (.20
            )**
            
            (.34
            )
            
            *
            
            
            *
            
            
            *Diluted
                earnings (loss) perCommon
                Share
            
            
            *
            
            
            *
            
            
            *
            
            
            *
            
            
            (.20
            )**
            
            (.34
            )
            
            *
            
            
            *
            
            
            *


__________________


*
      The
      Successor Company has no outstanding publicly held common shares and therefore
      will not report earnings per share data.




**
      As a
      result of a German tax audit the 2004 net loss, loss per basic common share
      and
      loss per diluted common share have been revised from $(3,025), $(.26) and
      $(.24), to $(2,357), $(.20) and $(.20), respectively.




***As
      noted in Note 14, the first and second quarter of 2005 include tax charges
      of
      $1,241 and $119, respectively for the reinstatement of a valuation allowance
      previously recorded as an income tax benefit in the fourth quarter of
      2004.




****Included
      in the fourth quarter are amounts relating to previous periods that reduce
      the
      recorded loss before income taxes by $417,000 and increase the recorded tax
      benefit by $188,000. These amounts are not material to any individual period.
      In
      addition, the fourth quarter includes a charge of $1,238,000 for a change in
      estimate regarding the accrual of year end incentive bonuses. The change in
      estimate was due to the achievement of higher operating income in the quarter
      than was forecasted through the first nine months of 2005.




The
      above
      data should be read in conjunction with the consolidated financial statements
      and notes thereto.




F-31